<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+COMPLETION OR AMENDMENT. NEITHER THIS PRELIMINARY PROSPECTUS SUPPLEMENT NOR +
+THE ACCOMPANYING PROSPECTUS SHALL CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 27, 1998
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-47243
PROSPECTUS SUPPLEMENT
, 1998
(To Prospectus Dated April 20, 1998) [AMD LOGO APPEARS HERE]
$400,000,000
ADVANCED MICRO DEVICES, INC.
% CONVERTIBLE SUBORDINATED NOTES DUE 2005
The % Convertible Subordinated Notes due 2005 (the "Notes") will be
convertible at the option of the holder into shares of common stock, par value
$.01 per share (the "Common Stock"), of Advanced Micro Devices, Inc. (the
"Company") at any time at or prior to maturity, unless previously redeemed or
repurchased, at a conversion price of $ per share (equivalent to a
conversion rate of shares per $1,000 principal amount of Notes),
subject to adjustment in certain events. See "Description of Notes--Conversion
Rights." Interest on the Notes is payable semi-annually on and
of each year, commencing , 1998. On April 24, 1998, the
closing sale price of the Common Stock on the New York Stock Exchange (where it
is traded under the symbol "AMD") was $29.13 per share. See "Price Range of
Common Stock and Dividend Policy."
The Notes are redeemable, in whole or in part, at the option of the Company,
at any time on or after , 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption, if any;
provided that the Notes will not be redeemable prior to , 2002, unless the
last reported sale price for the Common Stock is at least 130% of the then
effective conversion price for at least 20 trading days within a period of 30
consecutive trading days ending within five trading days of the date of the
redemption notice. The Company will be required to offer to repurchase the
Notes upon a Change of Control (as defined), at 100% of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase.
The Notes are general, unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company. In addition, the Notes are structurally subordinated to
all Indebtedness (as defined herein) and other liabilities (including trade
payables) of the Company's subsidiaries. The Indenture (as defined herein)
contains no limitation on the incurrence of Senior Indebtedness or other
Indebtedness by the Company or its subsidiaries. At March 29, 1998, the Company
had approximately $1,430 million of Indebtedness outstanding that would have
constituted Senior Indebtedness, and the Company's subsidiaries had
approximately $716 million of outstanding Indebtedness and other liabilities.
See "Description of Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE S-7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- ------------------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.......................... % % %
Total(4).......................... $ $ $
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $350,000.
(4) The Company has granted the Underwriters an option exercisable within 30
days after the date of this Prospectus Supplement to purchase up to an
additional $60,000,000 aggregate principal amount of Notes on the same
terms as set forth above, at the Price to the Public, less the Underwriting
Discounts and Commissions, solely to cover over-allotments, if any. If the
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
The Notes are offered by the several Underwriters, when, as and if delivered
to and accepted by them, subject to certain conditions, including their rights
to withdraw, cancel or reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York on or about
, 1998, in book-entry form through the facilities of The Depository
Trust Company against payment therefor in immediately available funds.
DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
SECURITIES CORPORATION
<PAGE>
AMD, THE AMD LOGO, AND COMBINATIONS THEREOF, VANTIS, NEXGEN, K86, AMD-K5,
AMD-K6, AMD-K7, NX586 AND NX686 ARE EITHER TRADEMARKS OR REGISTERED TRADEMARKS
OF ADVANCED MICRO DEVICES, INC. MICROSOFT, WINDOWS, WINDOWS 95 AND WINDOWS NT
ARE REGISTERED TRADEMARKS OF MICROSOFT CORPORATION. PENTIUM IS A REGISTERED
TRADEMARK OF INTEL CORPORATION. THIS PROSPECTUS SUPPLEMENT ALSO CONTAINS
TRADEMARKS AND TRADENAMES OF OTHER COMPANIES.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES AND THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE THE NOTES OR THE COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following Prospectus Supplement Summary should be read in conjunction
with the other information and consolidated financial statements of the
Company, the notes thereto and the other financial data contained elsewhere or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus. Prospective investors should carefully consider the factors set
forth herein under the caption "Risk Factors" and are urged to read this
Prospectus Supplement and the accompanying Prospectus in their entirety. This
Prospectus Supplement contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such statements in this Prospectus Supplement including
statements incorporated by reference herein 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 relate to operating results; anticipated cash flows;
realization of net deferred tax assets; capital expenditures; adequacy of
resources to fund operations and capital investments; the Company's ability to
access external sources of capital; the Company's ability to transition to new
process technologies; anticipated market growth; Year 2000 expenses; the effect
of foreign currency hedging transactions; the effect of adverse economic
conditions in Asia; and the manufacturing facility in Dresden, Germany and
Fujitsu AMD Semiconductor Limited manufacturing facilities. For a discussion of
the factors that could cause actual results to differ materially, see "Risk
Factors" and such other risks and uncertainties as are detailed in the
Company's Securities and Exchange Commission reports and filings. Except as
otherwise specified, all information in this Prospectus Supplement assumes that
the Underwriters do not exercise the over-allotment option described under the
caption "Underwriting." All references to the "Company" or "AMD" shall mean
Advanced Micro Devices, Inc. and its consolidated subsidiaries, unless the
context indicates otherwise.
THE COMPANY
AMD is a global supplier of integrated circuits ("ICs") for the personal and
networked computer and communications markets, with manufacturing facilities in
the United States and Asia and sales offices throughout the world. The
Company's products include a wide variety of industry-standard ICs which are
used in many diverse product applications such as personal computers ("PCs"),
workstations, telecommunications equipment, data and network communications
equipment and consumer electronics. AMD customers include leading electronics
manufacturers such as 3Com, Acer, AT&T, Compaq, Fujitsu, Hewlett-Packard, IBM,
Motorola, NEC and Siemens, each of which was among AMD's top ten customers in
1997.
The IC market has grown dramatically over the past ten years, driven
primarily by the demand for electronic business and consumer products. Today,
ICs are used in virtually all products involving electronics, including PCs and
related peripherals, voice and data communications and networking products,
facsimile and photocopy machines, home entertainment equipment, industrial
control equipment and automobiles.
The market for ICs can be divided into separate markets for digital and
analog devices. AMD participates primarily in the market for digital ICs. The
three principal types of digital ICs used in most electronic systems are: (i)
microprocessors, (ii) memory circuits and (iii) logic circuits. Microprocessors
are used for control and computing tasks, memory circuits are used to store
data and programming instructions, and logic circuits are employed to manage
the interchange and manipulation of digital signals within a system. AMD
designs, manufactures and sells each of the three principal types of digital
ICs through, collectively, its Computation Products Group ("CPG"), its
Communications Group, its Memory Group and its programmable logic device
subsidiary, Vantis Corporation ("Vantis").
CPG products ($682 million, or 29 percent, of the Company's 1997 net sales)
include microprocessors and core logic products, with the majority of CPG's net
sales being derived from Microsoft Windows compatible
S-3
<PAGE>
microprocessors which are used primarily in PCs. In the second quarter of 1997,
AMD introduced the AMD-K6(R) microprocessor, a sixth-generation microprocessor
product and a member of the K86(TM) microprocessor family, and has shipped over
three million units to date. Eight of 1996's top 20 PC vendors worldwide,
including Compaq and IBM, currently offer AMD-K6 based systems. The Company
plans to introduce new versions of the AMD-K6 with features such as enhanced 3D
graphics capabilities and is also devoting substantial resources to the
development of its seventh-generation Microsoft Windows compatible
microprocessor.
Communications Group products ($707 million, or 30 percent, of the Company's
1997 net sales) include telecommunication, networking and embedded processor
products. The Company's telecommunications products are used in equipment such
as central office switches, digital loop carriers, wireless local loop systems,
private branch exchange ("PBX") equipment and voice/data terminals. The
Company's networking products primarily support data communications and
internetworking and are used in hubs, switches, routers and network interface
cards used to connect workstations and PCs to local area networks.
Memory Group products ($724 million, or 31 percent, of the Company's 1997 net
sales) consist primarily of Flash memory devices. The Company's Flash memory
devices are used in cellular telephones, networking equipment and other
applications which require memory to be non-volatile and to be rewritten.
Communications companies use Flash memory devices in cellular telephones and
related equipment to enable users to add and modify frequently called numbers
and to allow manufacturers to preprogram firmware and other information. In
networking applications, Flash memory devices are used in hubs, switches and
routers to enable systems to store firmware and reprogram Internet addresses
and other routing information. Almost all of the Company's Flash memory devices
are produced in Aizu-Wakamatsu, Japan through the Company's joint venture with
Fujitsu Limited, Fujitsu AMD Semiconductor Limited ("FASL"). AMD believes FASL
is one of the leading manufacturers of Flash memory products.
Vantis, a wholly-owned subsidiary of the Company ($243 million, or 10
percent, of the Company's 1997 net sales), has developed a broad product line
of low-density and high-density programmable logic device ("PLD") products,
including simple programmable logic devices and complex programmable logic
devices. Vantis recently introduced its new line of field programmable gate
arrays. PLDs are used in complex electronic systems, including
telecommunications and networking systems, high-performance computers and
peripherals, video graphics and imaging systems, and instrumentation and test
systems. PLDs are also used in a variety of consumer electronic devices, and in
medical instrumentation and industrial control applications.
AMD's executive offices and corporate headquarters are located at One AMD
Place, Sunnyvale, California 94086, and its telephone number is (408) 732-2400.
S-4
<PAGE>
THE OFFERING
A complete description of the terms of the Notes is set forth under
"Description of Notes" herein and "Description of Debt Securities" in the
accompanying Prospectus.
Securities Offered.......... $400,000,000 principal amount of % Convertible
Subordinated Notes due 2005 (the "Notes").
Maturity.................... , 2005, unless earlier redeemed, repurchased or
converted.
Interest Payment Dates...... and , commencing , 1998.
Conversion Rights........... The Notes are convertible at the option of the
holder at any time prior to the close of business
on the maturity date, unless previously redeemed
or repurchased, into shares of Common Stock at a
conversion price of $ per share, subject to
adjustment in certain circumstances as described
herein. Accordingly, each $1,000 principal amount
of Notes is convertible initially into shares
of Common Stock, subject to adjustment, for an
aggregate of shares. See "Capitalization"
and "Description of Notes-- Conversion Rights."
Optional Redemption......... The Notes are redeemable, in whole or in part, at
the option of the Company, at any time on and
after , 2001, at the redemption prices set
forth herein, plus accrued and unpaid interest,
if any, to the date of redemption; provided that
the Notes will not be redeemable prior to
, 2002, unless the last reported sale
price of the Common Stock is at least 130% of the
then effective conversion price for at least 20
trading days within a period of 30 consecutive
trading days ending within five trading days of
the date of the redemption notice. See
"Description of Notes-- Redemption at the
Company's Option."
Change of Control........... Upon a Change of Control (as defined), the
Company will be required to offer to repurchase
the Notes at 100% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of the repurchase. See
"Description of Notes--Repurchase of Notes at the
Option of the Holder upon a Change of Control."
Subordination............... The Notes will be general, unsecured obligations
of the Company and will be subordinated to all
Senior Indebtedness (as defined) of the Company
and structurally subordinated to all Indebtedness
(as defined) and other liabilities (including
trade payables) of the Company's subsidiaries. As
of March 29, 1998, Senior Indebtedness totaled
approximately $1,430 million. As of the same
date, the Company's subsidiaries had
approximately $716 million of outstanding
Indebtedness and other liabilities. The Indenture
(as defined) contains no limitations on the
incurrence of Senior Indebtedness or other
Indebtedness by the Company or its subsidiaries.
See "Description of Notes--Subordination."
S-5
<PAGE>
Use of Proceeds............. The Company intends to use the net proceeds of
this offering for capital expenditures, working
capital and other general corporate purposes. See
"Use of Proceeds."
Market for the Notes........ The Notes will not be listed on any securities
exchange or quoted on The Nasdaq Stock Market.
The Underwriters have advised the Company that
they currently intend to make a market in the
Notes. The Underwriters are not obligated,
however, to make a market in the Notes, and any
such market making may be discontinued at any
time at the sole discretion of the Underwriters
without notice.
Common Stock Traded......... The Common Stock is listed on the New York Stock
Exchange under the symbol "AMD."
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Exchange Act are incorporated by reference
in this Prospectus Supplement:
(1) the Company's Annual Report on Form 10-K for the year ended December
28, 1997, filed with the Commission on March 3, 1998;
(2) the Company's Annual Report on Form 10-K/A for the year ended
December 28, 1997, filed with the Commission on April 17, 1998;
(3) the Company's Current Report on Form 8-K filed with the Commission on
January 13, 1998;
(4) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1998, filed with the Commission on April 23, 1998; and
(5) all other documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus Supplement and before the termination of the offering,
which shall be deemed to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus Supplement.
The Company will provide without charge to each person (including any
beneficial owner) to whom this Prospectus Supplement is delivered, upon
request, copies of any documents incorporated into this Prospectus Supplement
by reference (other than exhibits incorporated by reference into such
document). Requests for documents should be submitted to the Corporate
Secretary, Advanced Micro Devices, Inc., One AMD Place, Sunnyvale, California
94086 (telephone (408) 732-2400). The information relating to the Company
contained in this Prospectus Supplement does not purport to be comprehensive
and should be read together with the information contained in the documents
incorporated or deemed to be incorporated by reference herein.
S-6
<PAGE>
RISK FACTORS
Purchasers of the Notes offered hereby should consider the risk factors
below as well as the other information set forth in this Prospectus Supplement
and the accompanying Prospectus or incorporated by reference herein or
therein. The Company's business, results of operations and financial condition
are subject to a number of risk factors, including the following:
THE NOTES
Leverage. As of March 29, 1998, and for the twelve months ended March 29,
1998, on a pro forma basis after giving effect to the issuance of the Notes,
the Company would have had total consolidated indebtedness, including capital
lease obligations, of approximately $1,167 million and a ratio of consolidated
indebtedness to stockholders' equity of approximately 0.59 to 1.0. See
"Capitalization."
In 1996, the Company entered into a syndicated bank loan agreement (the
"Credit Agreement"), which provided for a $150 million three-year secured
revolving line of credit (which is currently unused) and a $250 million four-
year secured term loan. All of the secured term loan is outstanding at March
29, 1998. The secured term loan is repayable in eight equal quarterly
installments of approximately $31 million commencing in October 1998.
In March 1997, the Company's indirect wholly owned subsidiary, AMD Saxony
Manufacturing GmbH ("AMD Saxony"), entered into a Loan Agreement (the "Dresden
Loan Agreement") with a consortium of banks led by Dresdner Bank AG. Under the
terms of the February 1998 amendments to the Dresden Loan Agreement, the
Company is required to make subordinated loans to, or equity investments in,
AMD Saxony, totaling $100 million in 1998 and $170 million in 1999. AMD is
required to fund $70 million of the 1999 amount on an accelerated basis as
follows: (i) if the Company undertakes a sale or other placement of its stock
in the capital markets in 1998, the $70 million will be funded upon receipt of
the offering proceeds; (ii) if the Company generates $140 million of net
income (as defined in the Indenture (the "Senior Indenture") for the Company's
Senior Secured Notes (the "Senior Secured Notes")) in 1998, the $70 million
will be funded prior to January 31, 1999; (iii) if the Company does not fund
through (i) or (ii) above, the Company will fund the maximum amount allowed
under the Senior Indenture by January 31, 1999 and will fund the remaining
amount through the sale of at least $200 million of the Company's stock by
June 30, 1999.
The Company's ability to make interest payments on the Notes and to repay
the Notes at maturity will be dependent on the Company's future operating
performance, which is itself dependent on a number of factors, many of which
are not within the Company's control.
Subordination and Absence of Financial Covenants. The Notes will be
unsecured and subordinated in right of payment in full to all existing and
future Senior Indebtedness of the Company. As a result of such subordination,
in the event of any insolvency, bankruptcy, reorganization, dissolution or
winding up of the business of the Company or similar proceeding or upon a
default in payment with respect to any indebtedness of the Company or an event
of default with respect to such indebtedness resulting in the acceleration
thereof, the assets of the Company will be available to satisfy obligations on
the Notes only after all Senior Indebtedness has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. The Indenture does not prohibit or limit the
incurrence of Senior Indebtedness or the incurrence of other indebtedness and
other liabilities by the Company, and the incurrence of additional
indebtedness and other liabilities by the Company could adversely affect the
Company's ability to satisfy its obligations on the Notes. As of March 29,
1998, the Company had approximately $1,430 million of outstanding indebtedness
that would have constituted Senior Indebtedness. The Company anticipates that
from time to time it will incur additional indebtedness, including Senior
Indebtedness. See "Description of Notes--Subordination."
S-7
<PAGE>
Certain operations of the Company are conducted through subsidiaries. The
cash flow and consequent ability of the Company to service debt, including the
Notes, may become dependent in part upon the earnings from the business
conducted by the Company through subsidiaries and the distribution of those
earnings, or upon loans or other payments of funds by those subsidiaries, to
the Company. The ability of its subsidiaries to pay distributions or make
loans or advances to the Company is subject to statutory and contractual
restrictions, is dependent upon the earnings of those subsidiaries, and is
subject to various business considerations. Except to the extent the Company
may itself be a creditor with recognized claims against its subsidiaries, the
claims of creditors of the subsidiaries will have priority with respect to the
assets and earnings of the subsidiaries over the claims of creditors of the
Company, including holders of the Notes, even though subsidiary obligations do
not constitute Senior Indebtedness of the Company. As of March 29, 1998, the
indebtedness and other liabilities (including trade payables) of the Company's
subsidiaries was $716 million. See "Description of Notes-- Subordination."
The Indenture does not contain any financial performance covenants.
Consequently, the Company is not required under the Indenture to meet any
financial tests such as those that measure the Company's working capital,
interest coverage, fixed charge coverage or net worth in order to maintain
compliance with the terms of the Indenture.
Limitations on Repurchase Upon a Change of Control. If a Change of Control
were to occur, there can be no assurance that the Company would have
sufficient financial resources, or would be able to arrange financing, to pay
the repurchase price for all Notes tendered by holders thereof. The right to
require the Company to repurchase Notes as a result of the occurrence of a
Change of Control could create an event of default under Senior Indebtedness,
as a result of which any repurchase of the Notes could be blocked by the
subordination provisions of the Notes. Any future credit agreements or other
agreements relating to other indebtedness (including other Senior
Indebtedness) to which the Company becomes a party may contain similar
restrictions and provisions. If the Company does not obtain any necessary
consents to any repurchase of the Notes upon a Change of Control, the Company
would remain prohibited from repurchasing the Notes. Any failure by the
Company to repurchase the Notes when required following a Change of Control
would result in an Event of Default under the Indenture whether or not such
repurchase is permitted by the subordination provisions of the Indenture.
Moreover, the occurrence of a Change of Control may cause an event of default
under Senior Indebtedness of the Company. As a result, in each case, any
repurchase of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Indebtedness is
paid in full. See "Description of Notes--Repurchase of Notes at the Option of
the Holder upon a Change of Control" and "--Subordination."
Absence of Existing Market of the Notes. The Notes will be a new issue of
securities with no established trading market. The Notes will not be listed on
any securities exchange or quoted on The Nasdaq Stock Market. The Underwriters
have advised the Company that they currently intend to make a market in the
Notes. The Underwriters are not obligated, however, to make a market in the
Notes, and any such market making may be discontinued at any time at the sole
discretion of the Underwriters without notice. There can be no assurance that
an active market for the Notes will develop and continue upon completion of
the offering or that the market price of the Notes will not decline. Various
factors such as changes in prevailing interest rates or changes in perceptions
of the Company's creditworthiness could cause the market price of the Notes to
fluctuate significantly. The trading price of the Notes will also be
significantly affected by the market price of the Common Stock, which could be
subject to wide fluctuations in response to a variety of factors, including
those described below.
FINANCING REQUIREMENTS
The Company plans to continue to make significant capital investments, at a
significantly higher rate than in previous years. These investments include
those relating to the conversion of Fab 25 to 0.25 micron process technology
and the construction and facilitization of Dresden Fab 30.
S-8
<PAGE>
Equipment installation is in progress at FASL II, a second Flash memory
device wafer fabrication facility, and the facility is expected to cost
approximately $1.1 billion when fully equipped, which is anticipated in the
second quarter of 2000. Capital expenditures for FASL II construction to date
have been funded by cash generated from FASL operations and borrowings by
FASL. To the extent that FASL is unable to secure the necessary funds for FASL
II, the Company may be required to contribute cash or guarantee third-party
loans in proportion to its 49.992 percent interest in FASL.
In 1996, the Company entered into the Credit Agreement, which provides for a
$150 million three-year secured revolving line of credit (which is currently
unused) and a $250 million four-year secured term loan. All of the secured
term loan was outstanding at March 29, 1998. The secured term loan is
repayable in eight equal quarterly installments of approximately $31 million
commencing in October 1998.
In February 1998, certain of the covenants under the Credit Agreement were
amended. The Company will be required to raise funds through external
financing in the second quarter of 1998 in order to meet certain of these
amended covenants and to continue to make the substantial capital investments
required to convert Fab 25 to 0.25 micron process technology, as well as for
other ongoing capital investments. Successful completion of this offering
would satisfy each of these objectives.
In March 1997, the Company's indirect wholly owned subsidiary, AMD Saxony,
entered into the Dresden Loan Agreement with a consortium of banks led by
Dresdner Bank AG. Under the terms of the February 1998 amendments to the
Dresden Loan Agreement, the Company is required to make subordinated loans to,
or equity investments in, AMD Saxony, totaling $100 million in 1998 and $170
million in 1999. AMD is required to fund $70 million of the 1999 amount on an
accelerated basis as follows: (i) if the Company undertakes a sale or other
placement of its stock in the capital markets in 1998, the $70 million will be
funded upon receipt of the offering proceeds; (ii) if the Company generates
$140 million of net income (as defined in the Senior Indenture) in 1998, the
$70 million will be funded prior to January 31, 1999; (iii) if the Company
does not fund through (i) or (ii) above, the Company will fund the maximum
amount allowed under the Senior Indenture by January 31, 1999 and will fund
the remaining amount through the sale of at least $200 million of the
Company's stock by June 30, 1999.
In the event the Company is unable to obtain the external financing (such as
the financing contemplated hereby) necessary to meet its covenants under the
Credit Agreement, it will also be unable to fund its capital investments
planned for 1998. In addition, in the event the Company is unable to meet its
obligation to make loans to, or equity investments in, AMD Saxony as required
under the Dresden Loan Agreement, AMD Saxony will be unable to complete
Dresden Fab 30 and the Company will be in default under the Dresden Loan
Agreement, the Credit Agreement and the Senior Indenture, which would permit
acceleration of indebtedness, which would have a material adverse effect on
the Company. There can be no assurance that the Company will be able to obtain
the funds necessary to fulfill these obligations and any such failure would
have a material adverse effect on the Company.
MICROPROCESSOR PRODUCTS
Investment in and Dependence on K86(TM) AMD Microprocessor Products;
Transition to 0.25 Micron Process Technology. The Company's microprocessor
business has in the past, and will in 1998, continue to significantly impact
the Company's revenues, margins and operating results. The Company plans to
continue to make significant capital expenditures to support the
microprocessor business in 1998, which will be a substantial drain on the
Company's cash flow and cash balances.
The Company's ability to increase microprocessor product revenues, and
benefit fully from the substantial financial investments and commitments it
has made and continues to make related to microprocessors, depends upon the
success of the AMD-K6 microprocessor in 1998 and future generations of K86
microprocessors in 1999 and beyond. The microprocessor market is characterized
by very short product life cycles and migration to ever higher performance
microprocessors. To compete successfully against Intel Corporation ("Intel")
in this market,
S-9
<PAGE>
the Company must transition to new process technologies at a faster pace than
before and offer higher performance microprocessors in significantly greater
volumes. The Company has recently experienced significant difficulty in
achieving its microprocessor yield and volume plans on 0.35 micron process
technology, which in turn has adversely affected the Company's results of
operations and liquidity. Independent of these yield problems, the Company has
determined that it must convert from 0.35 micron to 0.25 micron process
technology in Fab 25 as soon as possible in order to meet customer
microprocessor needs for performance and volume, and to compete successfully
against Intel. The Company's process technology transition schedule is
aggressive and entails a high degree of risk. The Company's 0.25 micron
process technology has not been qualified in Fab 25. There can be no assurance
that the Company will execute a successful transition to 0.25 micron process
technology in Fab 25, or that the Company will achieve the production ramp
necessary to meet customer needs for higher performance AMD-K6 microprocessors
in the volumes customers require, or that the Company will increase revenues
sufficient to achieve profitability in the microprocessor business. The
failure to convert Fab 25 to 0.25 micron process technology on a timely basis
could adversely affect unit production yields and volumes, result in the
failure to meet customer demands, cause customers to cease purchasing AMD-K6
microprocessors, and could impact the viability of the Company's
microprocessor business, any of which would have a material adverse effect on
the Company.
The Company's production and sales plans for the AMD-K6 microprocessors are
subject to other risks and uncertainties, including: whether the Company can
successfully fabricate higher performance AMD-K6 microprocessors in planned
volume mixes; whether it can maintain and continue to improve production
yields on wafers still being processed on 0.35 micron process technology; the
effects of Intel new product introductions, marketing strategies and pricing;
the continued development of worldwide market acceptance for the AMD-K6
microprocessor and systems based on it; whether the Company will have the
financial and other resources necessary to continue to invest in the
microprocessor business, including leading-edge wafer fabrication equipment
and advanced process technologies; the possibility that products newly
introduced by the Company may be found to be defective; possible adverse
market conditions in the PC market and consequent diminished demand for the
Company's microprocessors; and unexpected interruptions in the Company's
manufacturing operations.
The Company's ability to sell the volume of AMD-K6 microprocessors it
currently plans to make in 1998 depends on increasing sales to existing
customers and developing new customers. The loss of any current top tier
original equipment manufacturer ("OEM") customer, or the Company's failure to
attract additional customers through direct sales and through the Company's
distributors, would affect the Company's ability to sell the volume of units
planned, which could have a material adverse effect on the Company.
In view of Intel's industry dominance and brand strength, AMD prices the
AMD-K6 microprocessor at least 25 percent below the published price of Intel
processors offering comparable performance. Thus, Intel's decisions on
microprocessor prices can impact and have impacted the average selling prices
of the AMD-K6 microprocessors, and consequently can impact and have impacted
the Company's margins. A failure to significantly improve production yields
and volumes, to achieve the production ramp and product performance
improvements necessary to meet customer needs, to continue to achieve market
acceptance of the Company's AMD-K6 microprocessors and increase market share,
or to increase AMD-K6 revenues substantially would have a material adverse
effect on the Company.
AMD is also devoting substantial resources to the development of its
seventh-generation Microsoft Windows compatible microprocessor. The success of
the AMD-K7(TM) and future generation microprocessors depends greatly on the
Company achieving success and increasing market share with the AMD-K6
microprocessor. See also discussions below regarding Intel Dominance and
Process Technology.
Intel Dominance. Intel has long held a dominant position in the market for
microprocessors used in personal computers. Intel's dominant market position
enables it to set and control x86 microprocessor standards and thus dictate
the type of product the market requires of Intel's competitors. In addition,
Intel's financial strength and dominant position enable it to vary prices on
its microprocessors at will and thereby affect the margins and profitability
of its competitors. Intel's strength also enables it to exert substantial
influence and
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control over PC manufacturers through the Intel Inside advertising rebate
program and to invest hundreds of millions of dollars in, and as a result
exert influence over, many other technology companies. The Company expects
Intel to continue to invest heavily in research and development, new
manufacturing facilities, other technology companies and to maintain its
dominant position through the Intel Inside program, through other contractual
constraints on customers, industry suppliers and other third parties, and by
controlling industry standards. As an extension of its dominant microprocessor
market share, Intel also now dominates the PC platform, which has made it
difficult for PC manufacturers to innovate and differentiate their product
offerings. The Company does not have the financial resources to compete with
Intel on such a large scale. As long as Intel remains in this dominant
position, its product introduction schedule, product pricing strategy,
customer brand loyalty and control over industry standards, PC manufacturers
and other PC industry participants, may have a material adverse effect on the
Company.
As Intel has expanded its dominance over the entirety of the PC system
platform, many PC manufacturers have reduced their system development
expenditures and have begun to purchase microprocessors in conjunction with
chipsets or in assembled motherboards. The trend has been for PC OEMs to be
increasingly dependent on Intel, less innovative on their own, and more of a
distribution channel for Intel technology. In marketing its microprocessors to
these OEMs and dealers, AMD depends upon companies other than Intel for the
design and manufacture of core-logic chipsets, motherboards, basic
input/output system ("BIOS") software and other components. In recent years,
these third-party designers and manufacturers have lost significant market
share to Intel. In addition, these companies are able to produce chipsets,
motherboards, BIOS software and other components to support each new
generation of Intel's microprocessors only if Intel makes information about
its products available to them in time to address market opportunities. Delay
in the availability of such information makes and will continue to make it
increasingly difficult for them to retain or regain market share. To compete
with Intel in this market in the future, the Company intends to continue to
form closer relationships with third-party designers and manufacturers of
core-logic chipsets, motherboards, BIOS software and other components. The
Company similarly intends to expand its chipset and system design
capabilities, and to offer OEMs licensed system designs incorporating the
Company's microprocessors and companion products. 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,
chipsets and motherboards, the design of chipsets, memory and other
semiconductor devices, 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
microprocessor-based PC systems.
Intel's Pentium(R) II is sold only in the form of a "Slot 1" daughtercard
that is not physically or interface protocol compatible with "Socket 7"
motherboards currently used with Intel Pentium and AMD-K6 microprocessors.
Thus, Intel is decreasing its support of the Socket 7 infrastructure as it
transitions away from its Pentium microprocessors. Because the AMD-K6
microprocessor is designed to be Socket 7 compatible, and will not work with
motherboards designed for Slot 1 Pentium II microprocessors, the Company
intends to continue to work with third-party designers and manufacturers of
motherboards, chipsets and other products to assure the continued availability
of Socket 7 infrastructure support for the AMD-K6 microprocessor, including
support for enhancements and features the Company plans to add to the
microprocessor. There can be no assurance that Socket 7 infrastructure support
for the AMD-K6 microprocessor will endure over time as Intel moves the market
to its Slot 1 designs. AMD has no plans to develop microprocessors that are
bus interface protocol compatible with the Pentium II microprocessors, because
the Company's patent cross-license agreement with Intel does not extend to AMD
microprocessors that are bus interface protocol compatible with Intel's
Pentium Pro, Pentium II and subsequent generation microprocessors. Similarly,
the Company's ability to compete with Intel in the market for seventh-
generation and future generation microprocessors will depend not only upon its
success in designing and developing the microprocessors, but also in ensuring
either that the microprocessors can be used in PC platforms designed to
support Intel microprocessors as well as AMD microprocessors or that
alternative platforms are available which are competitive with those used with
Intel microprocessors. A failure for any reason of the designers and producers
of motherboards, chipsets and other system components to support the Company's
x86 microprocessor offerings could have a material adverse effect on the
Company.
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Dependence on Microsoft and Compatibility Certifications. The Company's
ability to innovate beyond the x86 instruction set controlled by Intel depends
on support from Microsoft(R) Corporation ("Microsoft") in its operating
systems. There can be no assurance that Microsoft will provide support in its
operating systems for x86 instructions innovated by the Company and designed
into its microprocessors but not used by Intel in its microprocessors. This
uncertainty may cause independent software providers to forego designing their
software applications to take advantage of AMD innovations, which would
adversely affect the Company's ability to market its microprocessors. In
addition, AMD has obtained Windows, Windows 95(R) and Windows NT(R)
certifications from Microsoft and other appropriate certifications from
recognized testing organizations for its K86 microprocessors. A failure to
maintain certifications 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.
Future Dependence on Planned AMD-K7 Microprocessor. The Company's ability to
increase microprocessor product revenues in 1999 and beyond, and to benefit
fully from the substantial financial investments and commitments it has made
and continues to make related to microprocessors, including the substantial
investment the Company is making in Fab 30 in Dresden, Germany, depends upon
its success in developing and marketing in a timely manner in 1999 its
seventh-generation microprocessor, the AMD-K7. The Company currently plans to
begin volume production of the AMD-K7 in the first half of 1999. No assurance
can be made that such production will begin on the current planned schedule.
The Company's production and sales plans for the AMD-K7 are subject to
numerous risks and uncertainties, including: the successful development and
installation of 0.18 micron process technology and copper interconnect
technology; the pace at which the Company is able to ramp production in
Dresden Fab 30 on 0.18 micron process technology; the use and market
acceptance of a non-Intel microprocessor bus (adapted by the Company from
Digital Equipment Corporation's EV6 pin bus) in the design of the AMD-K7, and
the availability of chipset vendors who will develop, manufacture and sell
chipsets with the EV6 interface in volumes required by the Company; the
availability to the Company's customers of cost and performance competitive
Static Random Access Memories ("SRAMs") (including TAG chips) if Intel corners
the market for SRAM production capacity through its relationship with SRAM
manufacturers; the Company's ability to design and manufacture modules
internally or through subcontractors and the acceptance of motherboards used
in the AMD-K7 as Intel moves the market to its Slot 1 design. A failure of the
AMD-K7 microprocessor to be timely introduced or achieve market acceptance,
would have a material adverse effect on the Company.
Fluctuations in PC Market. Since most of the Company's microprocessor
products are used in PCs and related peripherals, the Company'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. For example, economic conditions in Asia could lead
to reduced worldwide demand for PCs and the Company's microprocessors.
Possible Rights of Others. Prior to its acquisition by AMD, NexGen, Inc.
("NexGen") granted limited manufacturing rights regarding certain of its
current and future microprocessors, including the Nx586(TM) and Nx686(TM), to
other companies. The Company does not intend to produce any NexGen products.
The Company believes that its AMD-K6 microprocessors are AMD products and not
NexGen products because, among other things, the technology acquired in the
NexGen merger was significantly modified using the Company's design,
verification and manufacturing technologies. No NexGen licensee or other party
has asserted any rights with respect to the AMD-K6 microprocessor; however,
there can be no assurance that another company will not seek to establish
rights with respect to the microprocessors. If another company were deemed to
have rights to produce the Company's AMD-K6 microprocessors for its own use or
for sale to third parties, such production could reduce the potential market
for microprocessor products produced by AMD, the profit margin achievable with
respect to such products, or both.
FLASH MEMORY PRODUCTS
Importance of Flash Memory Device Business; Increasing Competition. The
market for Flash memory devices continues to experience increased competition
as additional manufacturers introduce competitive
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products and industry-wide production capacity increases. The Company expects
that the marketplace for Flash memory devices will continue to be increasingly
competitive. A substantial portion of the Company's revenues is derived from
sales of Flash memory devices, and the Company expects that this will continue
to be the case for the foreseeable future. During 1996, 1997 and the first
quarter of 1998, the Company experienced declines in the selling prices of
Flash memory devices. 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 more competitors emerge. A
decline in the Company's Flash memory device business or declines in the gross
margin percentage in this business could have a material adverse effect on the
Company.
DOMESTIC AND INTERNATIONAL ECONOMIC CONDITIONS
The Company'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 on the
Company. For example, there is currently an economic crisis in Asia, which has
led to weak demand for the Company's products in certain Asian economies--
notably Korea and Japan. The Company anticipates that the Asian economic
crisis may continue to affect adversely the Company's results of operations,
and the further decline of the economic condition in Asia could in the future
affect demand for microprocessors and other integrated circuits ("ICs"), which
could have a material adverse effect on the Company's sales and operating
results.
MANUFACTURING
Capacity. The Company's manufacturing facilities have been underutilized
from time to time as a result of reduced demand for certain of the Company's
products. The Company's operations related to microprocessors have been
particularly affected by this situation. Any future underutilization of the
Company's manufacturing facilities could have a material adverse effect on the
Company. The Company is increasing its manufacturing capacity by making
significant capital investments in Fab 25 and in Dresden Fab 30. In addition,
the building construction of FASL II, a second Flash memory device
manufacturing facility, is complete and equipment installation is in progress.
The Company is also building a new test and assembly facility in Suzhou,
China. There can be no assurance that the industry projections for future
growth 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, underutilization of the Company's manufacturing
facilities will likely occur and could have a material adverse effect on the
Company.
In contrast to the above, there also 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. Any inability of AMD to
generate sufficient manufacturing capacities 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.
Process Technology. 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 to
fabricate its microprocessor products and its Flash memory devices. Portions
of these investments might not be recoverable if the Company fails to
successfully ramp production in Fab 25 to 0.25 micron process technology, if
the Company's microprocessors fail to continue 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. For example,
the Company's ability to generate sufficient revenue to achieve profitability
in the microprocessor business in the near future and the Company's success in
competing with Intel, and producing higher performance AMD-K6 microprocessors
in volumes sufficient to increase market share depends on the timely
development and qualification of 0.25 micron process technology in Fab 25.
There can be no assurance that the Company will be able to commit Fab 25
production to a qualified 0.25 micron process technology in order to fabricate
product in sufficient volume to generate revenue necessary to offset
investments in Fab 25 and meet the anticipated needs and demands of its
customers. Likewise, the Company is making a substantial investment in Dresden
Fab 30. The business plan for Dresden Fab 30 calls for the successful
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development and installation of 0.18 micron process technology and copper
interconnect technology in order to manufacture the AMD-K7 microprocessor
beginning in 1999. There can be no assurance that the Company will be able to
develop or obtain the leading edge process technologies that will be required
in Dresden Fab 30 to fabricate the AMD-K7 microprocessor successfully.
Manufacturing Interruptions and Yields. Any substantial interruption with
respect to any of the Company'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. For example, the Company's recent results have
been negatively affected by disappointing AMD-K6 microprocessor yields. The
Company may in the future be materially adversely affected by fluctuations in
manufacturing yields. The manufacture of ICs is a complex process. Normal
manufacturing risks include errors and interruptions in the fabrication
process and defects in raw materials, as well as other risks, all of which can
affect yields. Additional manufacturing risks incurred in ramping up new
fabrication areas and/or new manufacturing processes include errors and
interruptions in the fabrication process, equipment performance, process
controls as well as other risks, all of which can affect yields.
Product Incompatibility. There can be no assurance that the Company's
products will be compatible with all industry-standard software and hardware.
Any inability of the Company's customers to achieve such compatibility or
compatibility with other software or hardware after the Company's products are
shipped in volume could have a material adverse effect on the Company. There
can be no assurance that 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.
Product Defects. One or more of the Company'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.
Essential Manufacturing Materials. Certain raw materials used by the Company
in the manufacture of its products are available from a limited number of
suppliers. For example, several types of the IC packages purchased by AMD, as
well as by the majority of other companies in the semiconductor industry, are
principally supplied by a few foreign 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, it
would be required to reduce its manufacturing operations which could have a
material adverse effect on the Company.
International Manufacturing and Foundries. Nearly all product assembly and
final testing of the Company's products are performed at the Company's
manufacturing facilities in Penang, Malaysia; Bangkok, Thailand; and
Singapore; or by subcontractors in Asia. AMD has a 50-year land lease in
Suzhou, China, to be used for the construction and operation of an additional
assembly and test facility. The Company also depends on foreign foundry
suppliers and joint ventures for the manufacture of a portion of its finished
silicon wafers. Foreign manufacturing and construction of foreign facilities
entail 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 the Company's overseas
facilities were disrupted, there could be a material adverse effect on the
Company.
OTHER RISK FACTORS
Debt Restrictions. The Credit Agreement and the Senior Indenture contain
significant covenants that limit the Company's and its subsidiaries' ability
to engage in various transactions and 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
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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 indebtedness. The limitations
imposed by the Credit Agreement and the Senior Indenture are substantial, and
failure to comply with such limitations could have a material adverse effect
on the Company.
In addition, the agreements entered into by AMD Saxony in connection with
the Dresden Fab 30 loan substantially prohibit the transfer of assets from AMD
Saxony to the Company, which will prevent the Company from using current or
future assets of AMD Saxony other than to satisfy obligations of AMD Saxony.
Programmable Logic Software Risks. Historically, the Company's programmable
logic subsidiary, Vantis Corporation ("Vantis"), has depended on third parties
to develop and maintain software "fitters" that allow electrical circuit
designs to be implemented using Vantis' complex programmable logic devices.
Currently, Vantis has contracted with MINC, Inc. ("MINC"), a vendor of complex
programmable logic device software development tools, to develop and maintain
software fitters for Vantis' products. If MINC were to stop developing and
maintaining software fitters for Vantis' products, or if the software
developed by MINC was subject to delays, errors or "bugs," and Vantis was not
able to internally develop and maintain such software fitters, then Vantis
would need to find another vendor for such services. No assurance can be given
that Vantis would be able to locate additional software development tool
vendors with the available capacity and technology necessary for the
development and maintenance of software fitter tools, or, if an additional
vendor or vendors were identified, that Vantis would be able to enter into
contracts with such vendors on terms acceptable to Vantis. Any interruption in
the MINC services, or Vantis' inability to find an acceptable alternative
vendor for software services in a timely manner, could have a material adverse
effect on Vantis.
Vantis recently initiated efforts to manage and control the development and
maintenance of software fitters for Vantis' products internally. Undertaking
significant software development projects is a new effort for Vantis and is
subject to many risks, including risks of delays, errors and "bugs," and
customer resistance to change. If Vantis' internally-developed software is not
available as scheduled or fails to gain market acceptance, Vantis would need
to contract on acceptable terms with vendors having the available capacity and
technology to develop and maintain such software. No assurance can be given
that Vantis' efforts to internally develop and maintain the software needed to
sell and support its products will be successful. Any inability of Vantis to
successfully develop and maintain software internally in a cost-effective
manner could have a material adverse effect on Vantis.
Vantis' Dependence on Effective Deployment and Management of Newly-Created
FAE Staff. Vantis' major competitors each have a well established network of
field application engineers ("FAEs"). In comparison, Vantis has only recently
created its own network of FAEs in order to support its products more
effectively and to enhance customer satisfaction with those products. FAEs
service larger customer accounts by consulting with customers on specific
product issues and providing feedback to Vantis as to customer needs. The
future success of Vantis may be affected by its ability to deploy and manage
such FAEs and to continue to attract and retain qualified technical personnel
to fill these positions. Currently, availability of such qualified technical
personnel is limited, and competition among companies for experienced FAEs is
intense. During strong business cycles, Vantis expects to experience
difficulty in filling its needs for FAEs. No assurance can be given that
Vantis will be able to effectively deploy or manage its new network of FAEs,
and the failure to do so could delay or limit customer acceptance of Vantis
products and otherwise have a material adverse effect on Vantis.
Recent Introduction of Vantis' FPGA Products. In January 1998, Vantis
introduced its first field programmable gate array ("FPGA") products, which it
intends to sell under the VF1 name beginning in the second half of 1998. The
market for FPGAs is highly competitive. The design, marketing and sale of FPGA
products is subject to many risks, including risks of delays, errors, and
customer resistance to change. Vantis does not anticipate significant sales of
the VF1 family of products until 1999 at the earliest, and no assurance can be
given that its VF1 FPGA products will be available as scheduled or will gain
market acceptance. Inadequate forecasts of customer demand, delays in
responding to technological advances or to limitations of the VF1 FPGA
products, and delays in commencing volume shipments of the VF1 FPGA products
each could have
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a material adverse effect on Vantis. Failure to compete successfully in this
highly competitive FPGA market would restrict Vantis' ability to offer high
performance products across all major segments of the programmable logic
device ("PLD") market and could have a material adverse effect on Vantis.
Technological Change and Industry Standards. The market for the Company's
products is generally characterized by rapid technological developments,
evolving industry standards, changes in customer requirements, frequent new
product introductions and enhancements, short product life cycles and severe
price competition. Currently accepted industry standards may change. The
Company'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 of 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.
Competition. The IC industry is intensely competitive and, historically, has
experienced rapid technological advances in product and system technologies.
After a product is introduced, prices normally decrease over time as
production efficiency and competition increase, and as a successive generation
of products is developed and introduced for sale. Technological advances in
the industry result in frequent product introductions, regular price
reductions, short product life cycles and increased product capabilities that
may result in significant performance improvements. Competition in the sale of
ICs is based on 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.
Fluctuations in Operating Results. The Company's operating results are
subject to substantial quarterly and annual 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 the Company's products, production capacity levels and
fluctuations in manufacturing yields, availability and cost of products from
the Company's suppliers, the gain or loss of significant customers, new
product introductions by AMD or its competitors, changes in the mix of
products produced and sold and in the mix of sales by distribution channels,
market acceptance of new or enhanced versions of the Company's products,
seasonal customer demand due to vacation and holiday schedules (for example,
decreased demand in Europe during the summer), 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 causing a downturn in the market for semiconductor devices, or
otherwise affecting the timing of customer orders or causing order
cancellations or rescheduling. The Company's customers may change delivery
schedules or cancel orders without significant penalty. Many of the factors
listed above are outside of the Company's control. These factors are difficult
to forecast, and these or other factors could materially adversely affect the
Company's quarterly or annual operating results.
Order Revision and Cancellation Policies. AMD manufactures and markets
standard lines 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. Furthermore, the failure to
successfully ramp production to 0.25 micron process technology in Fab 25 and
to increase production levels could cause existing demand to abate from
current levels, which would have a material adverse effect on the Company.
Distributors typically maintain an inventory of the Company's products.
Pursuant to the Company's agreements with distributors, in most instances AMD
protects its distributors' inventory of the Company'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
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notice, generally contain a provision for the return of the Company's products
in the event the agreement with the distributor is terminated. The market for
the Company's products is generally characterized by, among other things,
severe price competition. The price protection and return rights AMD offers to
its distributors could materially adversely affect the Company if there is an
unexpected significant decline in the price of the Company's products.
Key Personnel. The Company'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 the
Company's product development programs or otherwise have a material adverse
effect on the Company.
Intellectual Property Rights; Potential Litigation. There can be no
assurance that the Company will be able to protect its technology or other
intellectual property adequately through patents, copyrights, trade secrets,
trademarks and other measures or that competitors will not be able to develop
similar technology independently. There can be no assurance that any patent
applications that the Company may file will be issued or that foreign
intellectual property laws will protect the Company's intellectual property
rights. There can be no assurance that any patent licensed by or issued to the
Company will not be challenged, invalidated or circumvented or that the rights
granted thereunder will provide competitive advantages to the Company.
Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate the Company's products or design around
the Company's patents and other rights.
From time to time, AMD has been notified that it may be infringing
intellectual property rights of others. If any such claims are asserted
against the Company, the Company may seek to obtain a license under the third
party's intellectual property rights. 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. 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 the Company,
suspension of production, alteration of the Company's manufacturing processes
or cessation of operations. Such regulations could require the Company to
acquire expensive remediation equipment or to incur other expenses to comply
with environmental regulations. Any failure by the Company to control the use,
disposal or storage of, or adequately restrict the discharge of, hazardous
substances could subject the Company to future liabilities and could have a
material adverse effect on the Company.
International Sales. AMD derives a substantial portion of its revenues from
its sales subsidiaries located in Europe and Asia Pacific. The Company's
international sales operations entail political and economic risks, including
expropriation, currency controls, exchange rate fluctuations, changes in
freight rates and changes in rates for taxes and tariffs.
Volatility of Stock Price; Ability to Access Capital. Based on the trading
history of its stock, AMD believes factors such as quarterly fluctuations in
the Company's financial results, announcements of new products and/or pricing
by AMD or its competitors, the pace of new product manufacturing ramps,
production yields of key products and general conditions in the semiconductor
industry have caused and are likely to continue to cause the market price of
the Common Stock to fluctuate substantially. 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
the Common Stock in any given period. 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 the Common Stock and
consequently limit the Company's ability to raise capital or to make
acquisitions. The Company's
S-17
<PAGE>
current business plan envisions substantial cash outlays requiring external
capital financing. There can be no assurances that capital and/or long-term
financing will be available on terms favorable to the Company or in sufficient
amounts to enable the Company to implement its current plan.
Earthquake Danger. The Company'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.
Impact of Year 2000. The "Year 2000 Issue" is the result of computer
programs being written using two digits rather than four to define the
applicable year. If the Company's computer programs with date-sensitive
functions are not Year 2000 compliant, they may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company will be required to modify or replace significant portions of
its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. If required modifications to
existing software and conversions to new software are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company. The Company will use both internal and external
resources to reprogram or replace and test the software for Year 2000
modifications.
The Company has a plan to formally communicate with all of its significant
suppliers and/or subcontractors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. The Company does not currently have any
information concerning the Year 2000 compliance status of its customers. In
the event that any of the Company's significant customers and suppliers do not
successfully and timely achieve Year 2000 compliance, the Company's business
or operations could be adversely affected. There can be no assurance that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems. The
Company is currently assessing its exposure to contingencies related to the
Year 2000 Issue for the products it has sold; however, it does not expect
these to have a material impact on the operations of the Company.
The Company anticipates completing the Year 2000 project by the first
quarter of 1999, which is prior to any anticipated impact on its operating
systems. This date is contingent upon the timeliness and accuracy of software
upgrades from vendors, adequacy and quality of resources available to work on
completion of the project and any other factors. The total expense of the Year
2000 project is estimated at $10 million, which is not material to the
Company's business operations or financial condition. The expenses of the Year
2000 project are being funded through operating cash flows.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification
plans and other factors. There can be no assurance that these estimates will
be achieved and actual results could differ materially from those anticipated.
S-18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are estimated to be $390 million after deducting underwriting discounts and
commissions and estimated offering expenses ($448 million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the
net proceeds for capital expenditures, working capital and other general
corporate purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Pending
the application of the net proceeds, the Company expects to invest such
proceeds in short-term, interest-bearing instruments or other investment-grade
securities.
S-19
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol "AMD." The following table shows, for the periods
indicated, the high and low closing prices on the New York Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 29, 1996
First quarter................................................... $21.25 $16.13
Second quarter.................................................. 9.88 12.88
Third quarter................................................... 16.25 10.25
Fourth quarter.................................................. 28.38 14.13
FISCAL YEAR ENDED DECEMBER 28, 1997
First quarter................................................... $47.38 $25.75
Second quarter.................................................. 45.00 35.50
Third quarter................................................... 42.50 31.25
Fourth quarter.................................................. 32.75 17.56
FISCAL YEAR ENDED DECEMBER 27, 1998
First quarter................................................... $25.13 $17.13
Second quarter (through April 24, 1998)......................... 30.50 24.69
</TABLE>
On April 24, 1998 the last sale price of the Common Stock as reported on the
New York Stock Exchange was $29.13 per share.
The Company has never paid any cash dividends on its Common Stock and has no
present plans to do so. In addition, the Company is prohibited by certain of
its borrowing arrangements from paying cash dividends without the prior
written consent of the lender.
S-20
<PAGE>
CAPITALIZATION
The following table set forth the consolidated capitalization of the Company
as of March 29, 1998, and as adjusted to give effect to (i) the sale of the
Notes offered by the Company and (ii) the receipt by the Company of the
estimated net proceeds therefrom. This table should be read in conjunction
with the consolidated financial statements of the Company and the notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included or incorporated by reference into this
Prospectus Supplement.
<TABLE>
<CAPTION>
MARCH 29, 1998
----------------------
AS
ACTUAL ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash(1)................................................. $ 306,804 $ 696,454
========== ==========
Short-term debt(2)...................................... $ 100,420 $ 100,420
========== ==========
Long-term debt(3):
11% Senior Secured Notes............................... $ 400,000 $ 400,000
Credit Agreement....................................... 187,500 187,500
% Convertible Subordinated Notes..................... -- 400,000
Other.................................................. 78,771 78,771
---------- ----------
Total long-term debt.................................. 666,271 1,066,271
Stockholders' equity:
Common stock, $0.01 par value (4)...................... 1,435 1,435
Capital in excess of par value......................... 1,026,313 1,026,313
Retained earnings...................................... 1,003,404 1,003,404
Accumulated other comprehensive income................. (65,441) (65,441)
---------- ----------
Total stockholders' equity............................ 1,965,711 1,965,711
---------- ----------
Total capitalization.................................... $2,631,982 $3,031,982
========== ==========
</TABLE>
- --------
(1) Cash includes cash, cash equivalents and short-term investments.
(2) Short-term debt includes borrowings and current portions of both long-term
debt and capital lease obligations.
(3) Long-term debt includes capital lease obligations and excludes current
portions of both long-term debt and capital lease obligations.
(4) Does not include 17,547,203 shares of Common Stock reserved for issuance
under outstanding options and warrants.
S-21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth selected statement of operations data, other
financial data and balance sheet data for the Company. The selected statement
of operations data for the fiscal years ended 1994, 1995, 1996 and 1997 and
selected balance sheet data at fiscal years ended 1995, 1996 and 1997 are
derived from consolidated financial statements of the Company which have been
audited by Ernst & Young LLP, the Company's independent auditors. The selected
statement of operations data for the fiscal year ended 1993 and selected
balance sheet data at fiscal years ended 1993 and 1994 are derived from
audited supplemental consolidated financial statements of the Company. The
selected statement of operations data and balance sheet data for the three
months ended March 30, 1997 and March 29, 1998 are derived from unaudited
condensed consolidated financial statements of the Company. Other financial
data for all fiscal years and three month periods are derived from the audited
financial statements, the unaudited financial statements or the books and
records of the Company. The unaudited condensed consolidated financial
statements of the Company include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of its financial position at the end of, and the results of its
operations for, these periods. Operating results for the three months ended
March 29, 1998 are not necessarily indicative of the results that may be
expected for the full year ended December 27, 1998. The data should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto, incorporated by reference in this Prospectus Supplement. On January
17, 1996, the Company acquired NexGen in a transaction accounted for as a
pooling of interests. All financial data of the Company for the periods
presented has been supplementally prepared to give retroactive effect to the
merger with NexGen.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
FISCAL YEAR ENDED
---------------------------------------------------------- MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $1,648,280 $2,155,453 $2,468,379 $1,953,019 $2,356,375 $551,999 $540,856
Expenses:
Cost of sales.......... 789,564 1,013,589 1,417,007 1,440,828 1,578,438 349,076 423,591
Research and
development........... 279,412 295,326 416,521 400,703 467,877 104,908 128,120
Marketing, general and
administrative........ 296,912 377,503 412,651 364,798 400,713 94,519 88,214
---------- ---------- ---------- ---------- ---------- -------- --------
1,365,888 1,686,418 2,246,179 2,206,329 2,447,028 548,503 639,925
---------- ---------- ---------- ---------- ---------- -------- --------
Operating income
(loss)................ 282,392 469,035 222,200 (253,310) (90,653) 3,496 (99,069)
Litigation settlement.. -- (58,000) -- -- -- -- (11,500)
Interest income and
other, net............ 16,931 17,134 32,465 59,391 35,097 13,322 5,581
Interest expense....... (4,398) (4,410) (3,059) (14,837) (45,276) (9,410) (12,472)
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) before
income taxes and
equity in joint
venture............... 294,925 423,759 251,606 (208,756) (100,832) 7,408 (117,460)
Provision (benefit) for
income taxes.......... 85,935 142,232 70,206 (85,008) (55,155) 2,148 (46,997)
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) before
equity in joint
venture............... 208,990 281,527 181,400 (123,748) (45,677) 5,260 (70,463)
Equity in net income
(loss) of joint
venture............... (634) (10,585) 34,926 54,798 24,587 7,691 7,736
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss)...... $ 208,356 $ 270,942 $ 216,326 $ (68,950) $ (21,090) $ 12,951 $(62,727)
========== ========== ========== ========== ========== ======== ========
OTHER FINANCIAL DATA:
CPG net sales.......... $ 446,200 $ 821,340 $ 778,120 $ 340,509 $ 682,554 $127,854 $169,202
Communications Group
net sales............. 637,958 731,274 733,723 666,108 707,564 171,473 148,388
Memory Group net
sales................. 401,006 416,328 700,606 698,308 723,631 183,641 167,042
Vantis net sales....... 163,116 186,511 255,930 248,094 242,626 69,031 56,224
---------- ---------- ---------- ---------- ---------- -------- --------
Total net sales........ $1,648,280 $2,155,453 $2,468,379 $1,953,019 $2,356,375 $551,999 $540,856
========== ========== ========== ========== ========== ======== ========
EBITDA(1).............. $ 464,668 $ 693,456 $ 494,727 $ 93,464 $ 303,812 $ 92,317 $ 13,091
Depreciation and
amortization.......... 182,276 224,421 272,527 346,774 394,465 88,821 112,160
Capital additions(2)... 390,493 586,473 650,322 493,723 729,870 150,594 181,230
Net interest expense
(income)(3)........... (4,949) (10,627) (8,416) 12,943 45,741 9,141 12,756
Ratio of earnings to
fixed charges(4)...... 15.8x 22.7x 9.4x -- -- 1.0x --
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(4).......... 9.1x 12.6x 9.4x -- -- 1.0x --
</TABLE>
<TABLE>
<CAPTION>
AT FISCAL YEAR ENDED
------------------------------------------------------ AT MARCH 29,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash(5)................ $ 496,620 $ 430,921 $ 509,665 $ 386,198 $ 467,032 $ 306,804
Working capital........ 514,532 441,649 461,509 445,604 448,497 257,050
Total assets........... 1,944,953 2,525,721 3,078,467 3,145,283 3,515,271 3,332,306
Long-term debt (6)..... 90,066 75,752 214,965 444,830 662,689 666,271
Stockholders' equity... 1,351,806 1,797,354 2,102,462 2,021,878 2,029,543 1,965,711
</TABLE>
S-22
<PAGE>
- --------
(1) EBITDA is defined as operating income (loss) of the Company and its
consolidated subsidiaries plus depreciation and amortization of the
Company and its consolidated subsidiaries. EBITDA is presented because it
is a widely accepted financial indicator of a company's ability to service
and incur debt. EBITDA should not be considered by an investor as an
alternative to net income (loss) as an indicator of the Company's
operating performance or as an alternative to the Company's cash flows
from operating activities as a measure of liquidity.
(2) Capital additions include capital leases incurred in the amounts of $64.5
million, $34.2 million, $24.4 million, $8.7 million, $44.8 million, $0 and
$0 for the fiscal years ended 1993, 1994, 1995, 1996 and 1997 and the
three months ended March 30, 1997 and March 29, 1998, respectively.
(3) Net interest (income) expense is defined as total interest incurred
(including all capitalized interest) less all interest income.
(4) For purposes of computing the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and preferred stock dividends,
fixed charges consist of interest expense on long-term debt and capital
leases, amortization of deferred financing costs and that portion of
rental expense deemed to be representative of interest. Earnings consist
of income (loss) before income taxes and equity in joint venture, plus
fixed charges. For the fiscal years ended 1996 and 1997, earnings were
insufficient to cover fixed charges by $219,417 and $120,972,
respectively. For the three months ended March 29, 1998, earnings were
insufficient to cover fixed charges by $120,297.
(5) Cash includes cash, cash equivalents and short-term investments.
(6) Long-term debt includes capital lease obligations but excludes current
portions of both long-term debt and capital lease obligations.
S-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 relate to operating results; anticipated cash flows; realization of
net deferred tax assets; capital expenditures; adequacy of resources to fund
operations and capital investments; the Company's ability to access external
sources of capital; the Company's ability to transition to new process
technologies; anticipated market growth; Year 2000 expenses; the effect of
foreign currency hedging transactions; the effect of adverse economic
conditions in Asia; and the Dresden Fab 30 and FASL manufacturing facilities.
See "Risk Factors," 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 actual results to
differ materially from the forward-looking statements.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto at December 28, 1997 and
December 29, 1996 and for each of the three years in the period ended December
28, 1997.
RESULTS OF OPERATIONS
AMD participates in all three technology areas within the digital IC
market--memory circuits, logic circuits and microprocessors--through,
collectively, its Computation Products Group ("CPG"), its Memory Group, its
Communications Group, and its programmable logic subsidiary, Vantis. CPG
products include microprocessors and core logic products. Memory Group
products include Flash memory devices and Erasable Programmable Read-Only
Memory ("EPROM") devices. Communications Group products include
telecommunication products, networking and input/output ("I/O") products, and
embedded processors. Vantis products are complex and simple, high-performance
CMOS (complementary metal oxide semiconductor) PLDs.
The following is a summary of the net sales of the CPG, Memory Group,
Communications Group and Vantis for the periods presented below:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------
MARCH 30, DECEMBER 28, MARCH 29,
1997 1997 1998
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
CPG........................................ $128 $203 $169
Memory Group............................... 184 181 167
Communications Group....................... 171 174 149
Vantis..................................... 69 55 56
---- ---- ----
Total...................................... $552 $613 $541
==== ==== ====
</TABLE>
REVENUE COMPARISON OF QUARTERS ENDED MARCH 29, 1998 AND MARCH 30, 1997
Net sales of $541 million in the first quarter of 1998 decreased
approximately 2 percent as compared to the first quarter of 1997 as CPG sales
increases were offset by lower sales in the other groups.
CPG net sales increased during the first quarter of 1998 as compared to the
first quarter of 1997 largely due to sales of AMD-K6 microprocessors. AMD-K6
microprocessors sold at substantially higher average selling prices than AMD-
K5(R) microprocessors that made up the majority of CPG net sales during the
first quarter of 1997. CPG sales growth during the remainder of 1998 is
dependent on a successful transition to the 0.25 micron process technology in
Fab 25 in order to meet customer microprocessor needs for performance and
volume.
S-24
<PAGE>
Memory Group net sales of both EPROM and Flash memory devices decreased.
EPROM prices declined significantly, and unit sales were lower as customer
demand continued to shift to Flash memory from EPROM. Flash memory device net
sales declined slightly as significant unit volume increases were more than
offset by significant price declines due to continuing increased competition.
The Company expects continued price pressure from intense competition in Flash
memory devices.
Communications Group net sales decreased primarily due to substantial
decreases in unit shipments of the Company's network products, as other
Communications Group product sales were flat. The Company's offerings of
network products have not kept pace with the market shift towards higher
performance products and sales are likely to continue to decline until the
Company introduces new competitive products in volume, which the Company
anticipates will occur no earlier than the fourth quarter of 1998. The Company
expects the other Communications Group product divisions to have flat to lower
sales in the second quarter of 1998 primarily due to the economic crisis in
Asia. Results could be affected beyond the second quarter of 1998 if there is
no improvement in the economic condition in Asia.
Vantis net sales decreased due to declines in the average selling price and
unit shipments of both simple PLDs ("SPLDs") and complex PLDs ("CPLDs"). Lower
SPLD sales reflect the market transition to CPLDs, as well as increased
competition in the SPLD market.
REVENUE COMPARISON OF QUARTERS ENDED MARCH 29, 1998 AND DECEMBER 28, 1997
Net sales in the first quarter of 1998 decreased approximately 12 percent as
compared to the fourth quarter of 1997, due to lower sales in all groups
except Vantis.
The decline in CPG sales from the fourth quarter of 1997 to the first
quarter of 1998 was due to lower average selling prices for the AMD-K6
microprocessor, as unit volume remained relatively flat. During the first
quarter of 1998, the microprocessor market migrated to higher performance
products, which the Company only manufactured in limited quantities. This
migration, together with increased price competition, resulted in a reduction
of the average selling price on AMD microprocessor products. In addition, due
to inadequate manufacturing yields on AMD-K6 microprocessors, the Company was
unable to increase microprocessor unit volume. CPG sales growth during the
remainder of 1998 is dependent on a successful transition to the 0.25 micron
process technology in Fab 25 in order to meet customer microprocessor needs
for performance and volume.
Memory Group net sales decreased. EPROM prices declined significantly, and
unit sales were lower as customer demand continued to shift to Flash memory
from EPROM. Flash memory device sales declined as relatively flat unit volume
was offset by average selling price declines from continuing increased
competition. The Company expects continued price pressure from intense
competition in Flash memory devices.
Communications Group net sales decreased as unit volume for networking and
other Communications Group products declined during the first quarter of 1998.
The Company's offerings of network products have not kept pace with the market
shift towards higher performance products and sales are likely to continue to
decline until the Company introduces new competitive products in volume, which
the Company anticipates will occur no earlier than the fourth quarter of 1998.
Net sales were also affected by declines in unit volume and average selling
price for other communication products. The Company expects the other
Communications Group product divisions to have flat to lower sales in the
second quarter of 1998 primarily due to the economic crisis in Asia. Results
could be affected beyond the second quarter of 1998 if there is no improvement
in the economic condition in Asia.
Vantis net sales increased slightly as both unit shipments and average
selling prices of both SPLDs and CPLDs were flat.
S-25
<PAGE>
COMPARISON OF EXPENSES, GROSS MARGIN PERCENTAGE AND INTEREST INCOME AND OTHER,
NET
The following is a summary of expenses, gross margin percentage and interest
income and other, net for the periods presented below:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------
MARCH 30, DECEMBER 28, MARCH 29,
1997 1997 1998
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cost of Sales.............................. $349 $429 $424
Gross margin percentage.................... 37% 30% 22%
Research and development................... $105 $127 $128
Marketing, general and administrative...... 95 102 88
Litigation settlement...................... -- -- 12
Interest income and other, net............. 13 7 6
Interest expense........................... 9 12 12
</TABLE>
Gross margin percentage decreased in the first quarter of 1998, as compared
to the first quarter of 1997 and the fourth quarter of 1997. The Company has
throughout this period continued to invest in the facilitization of Fab 25
and, during the first quarter of 1998, in the transition from 0.35 micron to
0.25 micron process technology in Fab 25. These investments have led to
significant increases in the Company's fixed costs associated with its
microprocessor products. The decline in gross margin percentage between the
first quarter of 1997 and the first quarter of 1998 was caused in part by
increases in fixed costs in Fab 25, increased back-end assembly costs in
support of AMD-K6 microprocessor production and a decline in non-
microprocessor product revenues. The decline in gross margin percentage
between the fourth quarter of 1997 and the first quarter of 1998 was primarily
attributable to significantly lower revenues in the first quarter of 1998 and
the increased fixed costs associated with the transition to 0.25 micron
process technology in Fab 25. The Company intends to continue to invest in
0.25 micron process technology capacity which will increase its fixed costs.
Accordingly, absent significant increases in revenues, the Company will
continue to experience pressure on its gross margin percentages.
Research and development expenses increased as compared to the first quarter
of 1997 primarily due to a higher proportion of research and development
activities in the Submicron Development Center in Sunnyvale, California,
primarily to support CPG and the Memory Group. Research and development
expenses in the first quarter of 1998 as compared to the fourth quarter of
1997 were flat.
Marketing, general and administrative expenses decreased in the first
quarter of 1998 from both the first quarter of 1997 and the fourth quarter of
1997. In each case the decrease was primarily due to reduced spending on
advertising and marketing expenses associated with the AMD-K6 microprocessor.
The Company expects advertising and promotional expenses associated with the
AMD-K6 microprocessor to increase during the remainder of 1998.
The litigation settlement of $11,500,000 in the first quarter of 1998
represents the estimated costs associated with an agreement in principle to
settle the class action securities lawsuit against the Company and certain of
its current and former officers and directors, announced by the Company on
April 23, 1998. The agreement in principle to settle is subject to approval of
the Company's Board of Directors and confirmation by the United States
District Court in San Jose, California. The suit was filed in November 1995
and related to the Company's AMD-K5 microprocessor development project.
Interest income and other, net decreased in the first quarter of 1998 as
compared to the first quarter of 1997 primarily due to a pre-tax gain of $5
million resulting from the sale of equity securities in the first quarter of
1997. Interest income and other, net decreased in the first quarter of 1998 as
compared to the fourth quarter of 1997 due to lower average cash balances.
Interest expense increased as compared to the first quarter of 1997 primarily
due to higher average debt balances and lower capitalized interest related to
the second phase of
S-26
<PAGE>
construction of Fab 25 and construction of Dresden Fab 30. Interest expense
was flat as compared to the fourth quarter of 1997.
INCOME TAX
The Company recorded a tax benefit of $47 million and a tax provision of $2
million in the first quarter of 1998 and 1997, respectively, for an effective
tax benefit rate of 40 percent and a positive tax rate of 29 percent for the
respective periods. The difference in the effective tax rates primarily
reflects the impact of foreign tax benefits on different levels of income.
Realization of the Company's net deferred tax assets ($119 million at March
29, 1998) is dependent on future taxable income. While the Company believes
that it is more likely than not that such assets will be realized, other
factors, including those mentioned in the discussion of Risk Factors, may
impact the ultimate realization of such assets.
OTHER ITEMS
International sales were 55 percent of total sales in the first quarter of
1998 as compared to 56 percent for the same period in 1997 and the immediate
prior quarter. In the first quarter of 1998, approximately 10 percent of the
Company's net sales were denominated in foreign currencies. The Company does
not have sales denominated in local currencies in those countries which have
highly inflationary economies. (A highly inflationary economy is defined in
accordance with the Statement of Financial Accounting Standards No. 52 as one
in which the cumulative inflation over a three-year consecutive period
approximates 100 percent or more.) The Company has recently experienced
slightly lower than expected demand in Asia, primarily in its
telecommunication products. 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 anticipates that the Asian economic crisis will
continue to adversely affect the Company's results of operations at least
through the second quarter of 1998, and further decline of the economic crisis
in Asia could have a material adverse effect on the Company's results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was approximately $22 million for the
first quarter of 1998. This compares to cash flow provided by operating
activities of approximately $115 million for the first quarter of 1997. Net
operating cash flows decreased as compared to the same period in 1997 due to a
net decrease in earnings of $76 million, combined with an increase in
depreciation and amortization of $23 million and a decrease in the net change
in operating assets and liabilities of $81 million.
Investing activities consumed $65 million in cash during the first quarter
of 1998 and $320 million during the first quarter of 1997. Capital
expenditures totaled $181 million in the first quarter of 1998, up from $151
million in the same period in 1997, as the Company continued to invest in
property, plant and equipment primarily for Fab 25 and Dresden Fab 30. Capital
expenditures in the first quarter of 1998 were offset by net proceeds from the
sale of short-term investments of approximately $111 million. In the first
quarter of 1997 the increase in available-for-sale securities was
approximately $169 million.
The Company's financing activities provided cash of $38 million during the
first quarter of 1998, compared to $264 million during the same period in
1997. Financing sources of cash for the first quarter of 1998 included
borrowings from Dresdner Bank AG in the amount of DM90 million ($49 million),
as part of the Dresden Loan Agreement. The loan amount was offset by debt
repayments of $16 million. Financing sources of cash for the first quarter of
1997 included borrowings from a $250 million four-year secured term loan,
offset by debt repayments of $22 million. Financing activities for both
periods include issuance of common stock under employee stock plans.
The Company plans to continue to make significant capital investments, at a
significantly higher rate than in previous years. These investments include
those relating to the conversion of Fab 25 to 0.25 micron process technology
and the construction and facilitization of Dresden Fab 30.
S-27
<PAGE>
The conversion of Fab 25 from 0.35 to 0.25 micron process technology is
anticipated to be completed in 1998 at a cost in 1998 of approximately $351
million, although there can be no assurance that the actual amount will not
vary materially.
Dresden Fab 30 is being constructed by AMD Saxony, an indirect wholly owned
German subsidiary of the Company. This 900,000-square-foot submicron
integrated circuit manufacturing and design facility is to be completed over
the next four years. The project is being supported by the Company together
with the Federal Republic of Germany, the State of Saxony and a consortium of
banks. The plan for Dresden Fab 30 was revised in February 1998 to reflect
planned upgrades in wafer production technology as well as the decline in the
deutsche mark relative to the U.S. dollar, which has increased the proportion
of the project to be funded by the Company rather than the Federal Republic of
Germany, the State of Saxony and the consortium of banks. The Company entered
into foreign currency hedging transactions for Dresden Fab 30 during the first
quarter of 1997 and the first quarter of 1998 and anticipates entering into
additional such foreign currency hedging transactions in the future.
The present estimated construction cost of Dresden Fab 30 is approximately
$1.9 billion. In March 1997, AMD Saxony entered into the Dresden Loan
Agreement, denominated in deutsche marks, with a consortium of banks led by
Dresdner Bank AG under which loan facilities totaling $932 million will be
made available for the Dresden Fab 30 project. In connection with the Dresden
Loan Agreement, as amended, the Company has agreed to invest in AMD Saxony
over the next two years equity and subordinated loans in an amount totaling
approximately $270 million ($100 million in 1998 and $170 million in 1999),
and to guarantee a portion of AMD Saxony's obligations under the Dresden Loan
Agreement up to a maximum of approximately $123 million until Dresden Fab 30
has been completed. AMD is required to fund $70 million of the $170 million
due in 1999 on an accelerated basis as follows: (i) if the Company undertakes
a sale or other placement of its stock in the capital markets in 1998, the $70
million will be funded upon receipt of the offering proceeds; (ii) if the
Company generates $140 million of net income (as defined in the Senior
Indenture) in 1998, the $70 million will be funded prior to January 31, 1999;
(iii) if the Company does not fund through (i) or (ii) above, the Company will
fund the maximum amount allowed under the Senior Indenture by January 31, 1999
and will fund the remaining amount through the sale of at least $200 million
of the Company's stock by June 30, 1999. Because the Company's obligations
under the Dresden Loan Agreement are denominated in deutsche marks, the dollar
amounts set forth herein are subject to change based on applicable conversion
rates.
In addition, after completion of Dresden Fab 30, the Company has agreed to
make funds available to AMD Saxony up to approximately $82 million if the
subsidiary does not meet its fixed charge coverage ratio covenant. The Company
has also agreed to fund certain contingent obligations, including various
obligations to fund project cost overruns, if any, and to fund shortfalls in
government subsidies resulting from a default under the subsidy agreements
caused by AMD Saxony or its affiliates, if any.
The Federal Republic of Germany and the State of Saxony have agreed to
support the Dresden Fab 30 project in the form of (i) guarantees of 65 percent
of bank debt to be incurred by AMD Saxony up to a maximum of $932 million,
(ii) investment grants and subsidies totaling $283 million and (iii) interest
subsidies from the State of Saxony totaling $169 million, all of which are
denominated in deutsche marks in the applicable agreements. In the event the
grants or subsidies are delayed, the Company is obligated, as requested by AMD
Saxony, to provide interim funding, such interim funding will be repaid to the
Company as the grants and subsidies are received by AMD Saxony. As of March
29, 1998, the Company has invested $170 million in AMD Saxony. The remaining
$161 million required to complete Dresden Fab 30 is to be provided from cash
generated by AMD Saxony from 1999 to 2001, which will be derived from sales of
wafers to the Company.
Defaults under the Dresden Loan Agreement include the failure of the
Company, AMD Saxony or AMD Holding to comply with obligations under the
Dresden Loan Agreement, the government subsidy and grant agreements and
related documents, including material variances from the approved schedule and
budget, the Company's failure to fund equity contributions or shareholder
loans or otherwise comply with its obligations relating to the Dresden Loan
Agreement, the sale of shares in AMD Saxony or AMD Holding, the failure to pay
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material obligations, the occurrence of a material adverse change or filings
or proceedings in bankruptcy or insolvency with respect to the Company, AMD
Saxony or AMD Holding and the occurrence of a default under the Credit
Agreement or the Senior Indenture. Generally, any such default which either
(i) results from the Company's non-compliance with the Dresden Loan Agreement
and is not cured by the Company or (ii) results in recourse to the Company of
more than $10 million and is not cured by the Company, would result in a
cross-default under the Credit Agreement and the Senior Indenture.
The FASL joint venture completed construction of the building for a second
Flash memory device wafer fabrication facility, FASL II, in the third quarter
of 1997 at a site contiguous to the existing FASL facility in Aizu-Wakamatsu,
Japan. Equipment installation is in progress and the facility is expected to
cost approximately $1.1 billion when fully equipped, which is anticipated in
the second quarter of 2000. Approximately $260 million of such cost has been
funded as of March 29, 1998. Capital expenditures for FASL II construction to
date have been funded by cash generated from FASL operations and borrowings by
FASL and during the remainder of 1998, the Company presently anticipates that
such capital expenditures will continue to be funded by cash generated from
FASL operations and borrowings by FASL. However, to the extent that FASL is
unable to secure the necessary funds for FASL II, the Company may be required
to contribute cash or guarantee third-party loans in proportion to its 49.992
percent interest in FASL. At March 29, 1998, AMD had loan guarantees of $48
million outstanding with respect to such loans. The planned FASL II costs are
denominated in yen and are therefore subject to change due to foreign exchange
rate fluctuations.
In 1996, the Company entered into the Credit Agreement which provides for a
$150 million three-year secured revolving line of credit (which is currently
unused) and a $250 million four-year secured term loan. All of the secured
term loan is outstanding at March 29, 1998. The secured term loan is repayable
in eight equal quarterly installments of approximately $31 million commencing
in October 1998. As of March 29, 1998, the Company also had available
unsecured uncommitted bank lines of credit in the amount of $67 million, of
which $5 million was outstanding.
In February 1998, certain of the covenants under the Credit Agreement,
including those related to the modified quick ratio, minimum tangible net
worth and fixed charge coverage ratio, were amended at the request of the
Company. The Company sought to amend the covenants because otherwise it risked
violating certain of the covenants unless it scaled back on its business and
capital investment plan. As of March 29, 1998, the Company was in compliance
with all covenants under the Credit Agreement. However, the Company will be
required to raise $300-400 million of funds through external financing in the
second quarter of 1998 in order to meet certain of these amended covenants and
to continue to make the substantial capital investments required to convert
Fab 25 to 0.25 micron process technology, as well as for other ongoing capital
investments. Successful completion of this offering would satisfy each of
these objectives.
In the event the Company is unable to meet its obligation to make loans to,
or equity investments in, AMD Saxony as required under the Dresden Loan
Agreement, AMD Saxony will be unable to complete Dresden Fab 30 and the
Company will be in default under the Dresden Loan Agreement, the Credit
Agreement and the Senior Indenture, which would permit acceleration of
indebtedness, which would have a material adverse effect on the Company. There
can be no assurance that the Company will be able to obtain the funds
necessary to fulfill these obligations and any such failure would have a
material adverse effect on the Company.
The Company has historically been able to raise external financing to fund
its capital expenditures and believes that cash flows from operations and
current cash balances, together with external financing activities during
1998, will be sufficient to fund operations and capital investments currently
planned through 1998.
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DESCRIPTION OF NOTES
The Notes will be issued under an Indenture (the "Indenture") between the
Company and the Bank of New York, as Trustee (the "Trustee"), and will
constitute a single series of Debt Securities described in the accompanying
Prospectus. The following discussion includes a summary description of certain
terms of the Indenture and the Notes (which represent a series of, and are
referred to in the accompanying Prospectus as, "Debt Securities"). The
following description of the terms of the Notes offered hereby supplements and
to the extent inconsistent therewith replaces the statements under
"Description of Debt Securities" in the accompanying Prospectus, to which
description reference is hereby made. The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all of the provisions of the
Indenture. Capitalized terms not defined herein have the meanings given to
them in the accompanying Prospectus or the Indenture. References in this
section to the "Company" are solely to Advanced Micro Devices, Inc., a
Delaware corporation, and not to its subsidiaries.
GENERAL
The Notes will be general, unsecured obligations of the Company, subordinate
in right of payment to certain other obligations of the Company as described
under "Subordination" and convertible into Common Stock as described under
"Conversion Rights." The Notes will be limited to $400,000,000 aggregate
principal amount ($460,000,000 if the Underwriters' overallotment option is
exercised in full), will be issued only in denominations of $1,000 or any
multiple thereof and will mature on , 2005, unless earlier redeemed at
the option of the Company or at the option of the holder upon a Change of
Control (as defined below).
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness or other
Indebtedness or the issuance or repurchase of securities of the Company. The
Indenture contains no covenants or other provisions to afford protection to
holders of the Notes in the event of a highly leveraged transaction or a
change in control of the Company except to the extent described under
"Repurchase of Notes at the Option of the Holder upon a Change of Control."
The Notes will bear interest at the annual rate set forth on the cover page
hereof from , 1998, payable semi-annually on and
, commencing on , 1998, to holders of record at the
close of business on the preceding and ,
respectively (subject to certain exceptions in the case of conversion of the
Notes or redemption of the Notes at the option of the Company or at the option
of the holder upon a Change of Control prior to the applicable interest
payment date). So long as the Notes are represented by a Global Security, the
interest payable on the Notes will be paid to Cede & Co., the nominee of The
Depository Trust Company (the "Depositary"), or its registered assigns as the
registered owner of such Global Security by wire transfer of immediately
available funds on each of the applicable interest payment dates. If any of
the Notes are no longer represented by a Global Security, interest may, at the
Company's option, be paid by check mailed to the address of the person
entitled thereto. Interest will be computed on the basis of a 360-day year
composed of twelve 30-day months.
Principal and interest will be payable, and the Notes may be presented for
conversion, or registration of transfer and exchange, without service charge,
at the office of the Company maintained for such purpose in New York, New
York, which shall initially be an office or agency of the Trustee.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will initially be issued in the form of a Global Security held in
book-entry form. Accordingly, the Depositary or its nominee will be the sole
registered holder of the Notes for all purposes under the Indenture. Owners of
beneficial interests in the Notes represented by the Global Security will hold
such interests pursuant to the procedures and practices of the Depositary and
must exercise any rights in respect of their interests (including any right to
convert or require repurchase of their interests) in accordance with those
procedures and practices. Such beneficial owners will not be holders, and will
not be entitled to any rights under the Global
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Security or the Indenture, with respect to the Global Security, and the
Company and the Trustee, and any of their respective agents, may treat the
Depositary as the sole holder and owner of the Global Security. A further
description of the Depositary's procedures with respect to the Notes is set
forth in the accompanying Prospectus under the heading "Description of Debt
Securities--Global Debt Securities."
The Company has been advised that the Depositary is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary holds securities
that its participants ("Participants") deposit with it. The Depositary also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). The
Depositary is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to The Depository Trust Company
system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly. The
rules applicable to the Depositary and its Participants are on file with the
Commission.
Payments with respect to the principal of and interest on, any Note
represented by a Global Security registered in the name of the Depositary or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of the Depositary or its nominee in its capacity as the
registered holder of the Global Security representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Security, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes (including principal
or interest), or to immediately credit the accounts of the relevant
Participants with such payment in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the Global Security as
shown on the records of the Depositary. Payments by the Participants and the
indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the sole
responsibility of the Participants or the indirect Participants.
If (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in definitive form under the Indenture, then, upon surrender by the
Depositary of the Global Security, definitive Notes will be issued to each
person that the Depositary identifies as the beneficial owner of the Notes
represented by a Global Security. In addition, subject to certain conditions,
any person having a beneficial interest in a Global Security may, upon request
to the Trustee, exchange such beneficial interest for Notes in the form of
definitive Notes. Upon any such issuance, the Trustee is required to register
such definitive Notes in the name of such person or persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or indirect Participant in identifying the
beneficial owners of the Notes, and the Company and the Trustee may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration
and delivery, and the respective principal amounts, of the Notes to be
issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company will have no responsibility for
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the performance by the Depositary or its Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
Payments in respect of the Notes represented by a Global Security (including
principal and interest) will be made by wire transfer of immediately available
funds to the accounts specified by the Depositary. With respect to definitive
Notes, all payments (including principal and interest) will be made at the
office or agency of the Company maintained for such purpose, which office or
agency shall be maintained in the Borough of Manhattan, The City of New York,
except that, at the option of the Company, any payments of interest may be
made by mailing a check on or before the due date to the address of the person
entitled thereto. The Notes will trade in the Depositary's Same-Day Funds
Settlement System until maturity, or until the Notes are issued in
certificated form, and secondary market trading activity in the Notes will
therefore be required by the Depositary to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
CONVERSION RIGHTS
Each holder of Notes will have the right at any time prior to the close of
business on the Stated Maturity of the Notes, unless previously redeemed or
repurchased, at the holder's option, to convert any portion of the principal
amount thereof that is $1,000 or an integral multiple thereof into shares of
Common Stock at the conversion price set forth on the cover page of this
Prospectus Supplement (subject to adjustment as described below). The right to
convert a Note called for redemption or delivered for repurchase and not
withdrawn will terminate at the close of business on the business day
immediately prior to the redemption date or repurchase date for such Note,
unless the Company subsequently fails to pay the applicable redemption price
or repurchase price, as the case may be.
In the case of any Note that has been converted into Common Stock after any
record date, but on or before the next interest payment date, interest, the
stated due date of which is on such interest payment date, shall be payable on
such interest payment date notwithstanding such conversion, and such interest
shall be paid to the holder of such Note who is a holder on such record date.
Any Note converted after any record date but before the next interest payment
date (other than Notes called for redemption on a redemption date between a
record date and the corresponding interest payment date or subject to a
Repurchase Offer during the period from the record date to and including the
first business day after the next succeeding interest payment date) must be
accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of Notes being surrendered for
conversion. No fractional shares of Common Stock will be issued upon
conversion but, in lieu thereof, an appropriate amount will be paid in cash by
the Company based on the market price of Common Stock (determined in
accordance with the Indenture) at the close of business on the day of
conversion. As a result of the foregoing provisions, holders that surrender
Notes for conversion on a date that is not an interest payment date will not
receive any interest for the period from the interest payment date next
preceding the date of conversion to the date of conversion or for any later
period, except as provided above.
The initial conversion price of $ per share of Common Stock will be
subject to adjustment in certain events, including (a) any payment of a
dividend (or other distribution) payable in Common Stock on any class of
capital stock of the Company, (b) any issuance to all or substantially all
holders of Common Stock of rights, options or warrants entitling them to
subscribe for or purchase Common Stock at less than the then current market
price of Common Stock (determined in accordance with the Indenture); provided,
however, that if such rights, options or warrants are only exercisable upon
the occurrence of certain triggering events, then the conversion price will
not be adjusted until such triggering events occur, (c) certain subdivisions,
combinations or reclassifications of Common Stock, (d) any distribution to all
or substantially all holders of Common Stock of evidences of indebtedness,
shares of capital stock other than Common Stock, cash or other assets
(including securities, but excluding those dividends, rights, options,
warrants and distributions referred to above and excluding dividends and
distributions paid exclusively in cash and in mergers and consolidations to
which the second succeeding paragraph applies), (e) any distribution
consisting exclusively of cash (excluding any cash portion of distributions
referred to in (d) above, or cash distributed upon a merger or consolidation
to which the
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second succeeding paragraph applies) to all or substantially all holders of
Common Stock in an aggregate amount that, combined together with (i) all other
such all-cash distributions made within the then preceding 12 months in
respect of which no adjustments have been made and (ii) any cash and the fair
market value of other consideration paid or payable in respect of any tender
or exchange offer by the Company or any of its subsidiaries for Common Stock
concluded within the preceding 12 months in respect of which no adjustment has
been made, exceeds 15% of the Company's market capitalization (defined as
being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date of
such distribution, and (f) the completion of a tender or exchange offer made
by the Company or any of its subsidiaries for Common Stock to the extent that
the aggregate consideration, together with (i) any cash and other
consideration payable in a tender or exchange offer by the Company or any of
its subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender or exchange offer in respect of which no adjustment
has been made and (ii) the aggregate amount of any such all-cash distributions
referred to in (e) above to all holders of Common Stock within the 12 months
preceding the expiration of such tender or exchange offer in respect of which
no adjustments have been made, exceeds 15% of the Company's market
capitalization on the expiration of such tender or exchange offer. No
adjustment of the conversion price will be required to be made until the
cumulative adjustments amount to 1.0% or more of the conversion price as last
adjusted.
The Company, from time to time and to the extent permitted by law, may
reduce the conversion price by any amount for any period of at least 20
business days, in which case the Company shall give at least 15 days notice of
such reduction, if the Company's Board of Directors has made a determination
that such reduction would be in the best interests of the Company, which
determination shall be conclusive. The Company may, at its option, make such
reductions in the conversion price, in addition to those set forth above, as
the Board of Directors deems advisable to avoid or diminish any income tax to
holders of Common Stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for United
States federal income tax purposes. See "Certain Federal Income Tax
Considerations."
In case of any reclassification or change of outstanding shares of Common
Stock issuable upon conversion of the Notes (other than certain changes in par
value) or consolidation or merger of the Company with or into another person
or any merger of another person with or into the Company (with certain
exceptions), or in case of any sale, transfer or conveyance of all or
substantially all of the assets of the Company, each Note then outstanding
will, without the consent of any holder of Notes, become convertible only into
the kind and amount of securities, cash and other property receivable upon
such reclassification, change, consolidation, merger, sale, transfer or
conveyance by a holder of the number of shares of Common Stock into which such
Note was convertible immediately prior thereto, after giving effect to any
adjustment event; provided, that if the kind or amount of securities, cash and
other property is not the same for each share of Common Stock held immediately
prior to such reclassification, change, consolidation, merger, sale, transfer
or conveyance, any holder who fails to exercise any right of election shall
receive per share the kind and amount of securities, cash or other property
received per share by a plurality of non-electing shares.
SUBORDINATION
The Notes will be subordinate in right of payment to all existing and future
Senior Indebtedness. The Indenture does not restrict the amount of Senior
Indebtedness or other Indebtedness of the Company or any subsidiary of the
Company. In addition, the Notes will be structurally subordinated to all
Indebtedness and other liabilities of the Company's subsidiaries. As of March
29, 1998, the Company had approximately $1,430 million of Indebtedness
outstanding that would have constituted Senior Indebtedness. As of the same
date, the Company's subsidiaries had approximately $716 million of outstanding
Indebtedness and other liabilities (including trade payables).
The Indenture will provide that no payment may be made by the Company,
directly or through any subsidiary, on account of the principal of or interest
on the Notes, or to acquire any of the Notes (including repurchases of Notes
at the option of the holder) for cash or property (other than Junior
Securities), or on account of the redemption provisions of the Notes, (i) upon
the maturity of any Senior Indebtedness, by lapse of time, acceleration
(unless waived) or otherwise, unless and until all principal of and interest
on and other amounts
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payable in respect of Senior Indebtedness are first paid in full (or such
payment is duly provided for), or (ii) in the event of default in the payment
of any principal of, premium, if any, or interest on any Senior Indebtedness
when it becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise (collectively, a "Payment Default"),
unless and until such Payment Default has been cured or waived or otherwise
has ceased to exist. The payment of cash, property or securities (other than
Junior Securities) upon conversion of a Note will constitute payment on a Note
and therefore will be subject to the subordination provisions in the
Indenture.
Upon (i) the happening of an event of default (other than a Payment Default)
that permits, or would permit with (a) the passage of time, (b) the giving of
notice, (c) the making of any payment of the Notes then required to be made or
(d) any combination thereof (collectively, a "Non-Payment Default"), the
holders of Senior Indebtedness under the Credit Agreement or the holders of
other Senior Indebtedness having a principal amount then outstanding in excess
of $10 million (or with respect to which other Senior Indebtedness the holders
are obligated to lend in excess of $10 million principal amount) or their
respective representatives immediately to accelerate the maturity of such
Senior Indebtedness and (ii) written notice of such Non-Payment Default being
given to the Company and the Trustee by the holders of Senior Indebtedness
under the Credit Agreement or by the holders of such other Senior Indebtedness
or their respective representatives (a "Payment Notice"), then, unless and
until such Non-Payment Default has been cured or waived or otherwise has
ceased to exist, no payment (by setoff or otherwise) may be made by or on
behalf of the Company, directly or through any subsidiary, on account of the
principal of or interest on the Notes, or to acquire or repurchase any of the
Notes for cash or property, or on account of the redemption provisions of the
Notes, in any such case other than payments made with Junior Securities.
Notwithstanding the foregoing, unless (i) the Senior Indebtedness in respect
of which such Non-Payment Default exists has been declared due and payable in
its entirety within 179 days after the Payment Notice is delivered as set
forth above (the "Payment Blockage Period"), and (ii) such declaration has not
been rescinded or waived, at the end of the Payment Blockage Period, the
Company shall be required to pay to the holders of the Notes all regularly
scheduled payments on the Notes that were not paid during the Payment Blockage
Period due to the foregoing prohibitions (and upon the making of such payments
any acceleration of the Notes made during the Payment Blockage Period shall be
of no further force or effect) and to resume all other payments as and when
due on the Notes. Not more than one Payment Notice may be given in any
consecutive 365-day period, irrespective of the number of defaults with
respect to Senior Indebtedness during such period. In no event, however, may
the total number of days during which any Payment Blockage Period is or
Payment Blockage Periods are in effect exceed 179 days in the aggregate during
any consecutive 365-day period.
Upon any distribution of assets of the Company upon any dissolution, winding
up, total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors or any marshaling
of assets or liabilities (i) the holders of all Senior Indebtedness will first
be entitled to receive payment in full (or have such payment duly provided
for) before the holders of the Notes are entitled to receive any payment on
account of the principal of or interest on the Notes (other than Junior
Securities) and (ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other than
Junior Securities) to which the holders of the Notes or the Trustee on behalf
of the holders would be entitled (by setoff or otherwise), except for the
subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of Senior Indebtedness or their
representative to the extent necessary to make payment in full of all such
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to the holders of such Senior
Indebtedness.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company or any subsidiary (other than Junior
Securities) shall be received by the holders of the Notes or the Trustee on
behalf of the holders or any paying agent at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of Senior
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Indebtedness, and shall be paid or delivered by such holders or the Trustee or
such paying agent, as the case may be, to the holders of the Senior
Indebtedness remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate amounts remaining unpaid on account
of the Senior Indebtedness held or represented by each, for application to the
payment of all Senior Indebtedness remaining unpaid, to the extent necessary
to pay or to provide for the payment of all such Senior Indebtedness in full
after giving effect to any concurrent payment or distribution, or provision
therefor, to the holders of such Senior Indebtedness.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of and interest on the Notes. The subordination provisions of
the Indenture and the Notes will not prevent the occurrence of any Default or
Event of Default under the Indenture or limit the rights of the Trustee or any
holder of any Notes, subject to the preceding paragraphs, to pursue any other
rights or remedies with respect to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its subsidiaries or a marshaling of assets or liabilities of the
Company and its subsidiaries, holders of Notes may receive ratably less than
other creditors.
REDEMPTION AT THE COMPANY'S OPTION
The Notes will not be subject to redemption prior to , 2001 and
will be redeemable on and after such date at the option of the Company, in
whole or in part, upon not less than 15 nor more than 60 days' notice to each
holder, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period commencing
of the years indicated below, in each case (subject to the right of holders of
record on a record date to receive interest due on an interest payment date
that is on or prior to such redemption date) together with accrued and unpaid
interest if, any, to, but excluding, the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001........................................................... %
2002...........................................................
2003...........................................................
2004...........................................................
</TABLE>
provided, however, that the Notes will not be redeemable prior to , 2002,
unless the last reported sale price of the Common Stock is at least 130% of
the then effective conversion price for at least 20 trading days within a
period of 30 consecutive trading days ending within five trading days of the
date of the redemption notice.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first-class mail, at least 15 days
and not more than 60 days prior to the redemption date, to the holder of each
Note to be redeemed to such holder's last address as then shown upon the
registry books of the registrar. The notice of redemption must state the
redemption date, the redemption price and the amount of accrued interest, if
any, to be paid. Any notice that relates to a Note to be redeemed in part only
must state the portion of the principal amount to be redeemed and must state
that on and after the redemption date, upon surrender of such Note, a new Note
or Notes in principal amount equal to the unredeemed
S-35
<PAGE>
portion thereof will be issued. On and after the redemption date, interest
will cease to accrue on the Notes or portions thereof called for redemption,
unless the Company defaults in its obligations with respect thereto.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture will provide that in the event that a Change of Control has
occurred, the Company is required to make an irrevocable and unconditional
(except as described below) offer (the "Repurchase Offer") to purchase all
Notes on the date (the "Repurchase Date") that is no later than 45 business
days (except as described below) after the occurrence of such Change of
Control at a cash price (the "Repurchase Price") equal to 100% of the
principal amount thereof, together with accrued and unpaid interest, if any,
to (but excluding) the Repurchase Date. A holder of Notes may accept the
Repurchase Offer with respect to all or a portion of its Notes (provided that
the principal amount of such Notes must be $1,000 or an integral multiple
thereof). The Repurchase Offer shall be made within 25 business days following
a Change of Control and shall remain open for 20 business days following its
commencement except to the extent that a longer period is required by
applicable law (the "Repurchase Offer Period"). Upon expiration of the
Repurchase Offer Period, the Company shall purchase all Notes tendered in
response to the Repurchase Offer. If required by applicable law, the
Repurchase Date and the Repurchase Offer Period may be extended as so
required; however, if so extended, it shall nevertheless constitute an Event
of Default if the Repurchase Date does not occur within 60 business days of
the Change of Control.
"Change of Control" means (i) an event or series of events as a result of
which any "person" or "group" (as such terms are used in Sections 13(d)(3) and
14(d) of the Exchange Act) (excluding the Company or any wholly owned
subsidiary thereof) is or becomes, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, whether or
not applicable) or more than 50% of the combined voting power of the then
outstanding securities entitled to vote generally in elections of directors,
managers or trustees, as applicable, of the Company or any successor entity
("Voting Stock"), (ii) the completion of any consolidation or merger of the
Company with or into any other person, or sale, conveyance, transfer or lease
by the Company of all or substantially all of its assets to any person, or any
merger of any other person into the Company in a single transaction or series
of related transactions, and, in the case of any such transaction or series of
related transactions, the outstanding Common Stock is changed or exchanged as
a result, unless the stockholders of the Company immediately before such
transaction own, directly or indirectly, immediately following such
transaction, at least a majority of the combined voting power of the
outstanding voting securities of the person resulting from such transaction in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, or (iii) such time as the Continuing
Directors do not constitute a majority of the Board of Directors (or, if
applicable, a successor corporation to the Company).
"Continuing Director" means at any date a member of the Board of Directors
(i) who was a member of such board on the date of initial issuance of the
Notes or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Board of Directors was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election.
On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the paying agent cash sufficient to pay the Repurchase Price
(together with accrued and unpaid interest, if any) of all Notes so tendered
and (iii) deliver to the Trustee the Notes so accepted, together with an
officers' certificate listing the Notes or portions thereof being purchased by
the Company. The paying agent will promptly mail to the holders of Notes so
accepted payment in an amount equal to the Repurchase Price (together with
accrued and unpaid interest, if any), and the Trustee will promptly
authenticate and mail or deliver to such holders a new Note or Notes equal in
principal amount to any unpurchased portion of the Notes surrendered. Any
Notes not so accepted will be promptly mailed or delivered by the Company to
the holder thereof. The Company will publicly announce the results of the
Repurchase Offer on or as soon as practicable after the Repurchase Date.
S-36
<PAGE>
The phrase "all or substantially all" of the assets of the Company, as
included in the definition of Change of Control, is likely to be interpreted
by reference to applicable state law at the relevant time, and will be
dependent on the facts and circumstances existing at such time. As a result,
there may be a degree of uncertainty in ascertaining whether a sale or
transfer of "all or substantially all" of the assets of the Company has
occurred.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Underwriters.
The provisions of the Indenture relating to a Change of Control may not
afford the holders of the Notes protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger, spinoff or similar
transaction that may adversely affect holders, if such transaction does not
constitute a Change of Control. Moreover, certain events with respect to the
Company which may involve an actual change of control of the Company may not
constitute a Change of Control for purposes of the Indenture.
The Company may not have sufficient financial resources available to fulfill
its obligation to repurchase the Notes upon a Change of Control or to
repurchase other debt securities of the Company or its subsidiaries providing
similar rights to the holders thereof. Further, the right to require the
Company to repurchase Notes as a result of the occurrence of a Change of
Control could create an event of default under Senior Indebtedness as a result
of which any repurchase could be blocked by the subordination provisions of
the Notes. Failure of the Company to repurchase the Notes when required would
result in an Event of Default with respect to the Notes whether or not such
repurchase is permitted by the subordination provisions. Any such default
would, in turn, cause a default under the Credit Agreement. As a result, any
repurchase of the Notes could be blocked by the subordination provisions of
the Notes. See "--Subordination" above.
Except as described herein, no modification of the Indenture regarding the
provisions on repurchase at the option of any holder of a Note upon a Change
of Control that adversely affects a holder is permissible without the consent
of the holder of the Note so affected. In the event of a Change of Control, if
holders of in excess of two-thirds of the outstanding aggregate principal
amount of the Notes so determine at any time following the occurrence of such
Change of Control and before the close of business on the business day
immediately preceding the Repurchase Date, such event shall not be treated as
a Change of Control for purposes of the Indenture. In such event, (i) the
Company shall not be required to make the Repurchase Offer, (ii) to the extent
the Repurchase Offer has already been made, such Repurchase Offer shall be
deemed revoked and (iii) to the extent any Notes have been tendered in
response to any such revoked Repurchase Offer, such tender shall be rescinded
and the Notes so tendered shall be promptly returned to the holders thereof.
For purposes of any such determination by the holders of the outstanding
Notes, Notes held by the Company or an affiliate of the Company (including any
person that would become an affiliate of the Company (or its successor) as a
consequence of the event or series of events that otherwise would be treated
as a Change of Control for purposes of the Indenture) shall be disregarded.
To the extent applicable, the Company will comply with the provisions of
Rule 13e-4 or any other tender offer rules under the Securities Act, and will
file a Schedule 13E-4 or any other schedule required under such rules, in
connection with any offer by the Company to repurchase Notes at the option of
the holders upon a Change of Control.
EVENTS OF DEFAULT
In addition to the events of default specified in the accompanying
Prospectus under "Description of Debt Securities--Events of Default," (i)
failure of the Company to repurchase tendered Notes upon a Change of Control,
in the manner contemplated by "--Repurchase of Notes at the Option of the
Holder upon a Change of Control," (ii) failure of the Company or any
Significant Subsidiary to make any payment at maturity, including any
applicable grace period, in respect of Indebtedness (other than non-recourse
obligations) in an amount in excess of $50 million and continuance of such
failure for 30 days after written notice is given to the Company
S-37
<PAGE>
by the Trustee or to the Company and the Trustee by the holders of at least
25% in aggregate principal amount of Notes outstanding, (iii) default by the
Company or any Significant Subsidiary with respect to any Indebtedness (other
than non-recourse obligations), which default results in the acceleration of
Indebtedness in an amount in excess of $50 million without such Indebtedness
having been discharged or such acceleration having been rescinded or annulled
for 30 days after written notice is given to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of Notes outstanding and (iv) final unsatisfied judgments not
covered by insurance aggregating in excess of $50 million, at any one time
rendered against the Company or any of its Significant Subsidiaries and not
stayed, bonded or discharged within 60 days, shall constitute an Event of
Default with respect to the Notes.
CERTAIN DEFINITIONS
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
indebtedness), warrants, options, participations or other equivalents of or
interest (however designated) in stock issued by that corporation.
"Disqualified Capital Stock" means, with respect to the Company, Capital
Stock of the Company that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased (including at the option of the holder thereof) by the Company,
in whole or in part, on or prior to the Stated Maturity of the Notes, provided
that only the portion of such Capital Stock which is so convertible,
exercisable, exchangeable or redeemable or subject to repurchase prior to such
Stated Maturity shall be deemed to be Disqualified Capital Stock.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i)(a) for borrowed money (including, but
not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of such person which is (1) given to secure all or
part of the purchase price of property subject thereto, whether given to the
vendor of such property or to another, or (2) existing on property at the time
of acquisition thereof), (b) evidenced by a note, debenture, bond or other
written instrument, (c) under a lease required to be capitalized on the
balance sheet of the lessee under GAAP or under any lease or related document
(including a purchase agreement) which provides that such person is
contractually obligated to purchase or to cause a third party to purchase such
leased property, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances, (e) with respect to Indebtedness secured by a mortgage,
pledge, lien, encumbrance, charge or adverse claim affecting title or
resulting in an encumbrance to which the property or assets of such person are
subject, whether or not the obligation secured thereby shall have been assumed
or guaranteed by or shall otherwise be such person's legal liability, (f) in
respect of the balance of deferred and unpaid purchase price of any property
or assets, (g) under interest rate or currency swap agreements, cap, floor and
collar agreements, spot and forward contracts and similar agreements and
arrangements; (ii) with respect to any obligation of others of the type
described in the preceding clause (i) or under clause (iii) below assumed by
or guaranteed in any manner by such person or in effect guaranteed by such
person through an agreement to purchase (including, without limitation, "take
or pay" and similar arrangements), contingent or otherwise (and the
obligations of such person under any such assumptions, guarantees or other
such arrangements); and (iii) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements
to, any of the foregoing.
"Junior Securities" means any Qualified Capital Stock and any Indebtedness
of the Company that is fully subordinated in right of payment to the Notes and
has no scheduled installment of principal due, by redemption, sinking fund
payment or otherwise, on or prior to the Stated Maturity of the Notes.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Senior Indebtedness" means the principal of, interest on, fees, costs and
expenses in connection with, and other amounts due on Indebtedness of the
Company, whether outstanding on the date of the Indenture or
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<PAGE>
thereafter created, incurred, assumed or guaranteed by the Company, unless, in
the instrument creating or evidencing or pursuant to which Indebtedness is
outstanding, it is expressly provided that such Indebtedness is not senior in
right of payment to the Notes or is pari passu with, or subordinated to, the
Notes. Senior Indebtedness includes, with respect to the obligations described
above, interest accruing, pursuant to the terms of such Senior Indebtedness,
on or after the filing of any petition in bankruptcy or for reorganization
relating to the Company, whether or not post-filing interest is allowed in
such proceeding, at the rate specified in the instrument governing the
relevant obligation. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include: (a) Indebtedness of or
amounts owed by the Company for compensation to employees, or for goods,
services or materials purchased in the ordinary course of business; (b)
Indebtedness of the Company to a subsidiary of the Company; or (c) any
liability for federal, state, local or other taxes owed or owing by the
Company or any subsidiary of the Company.
"Significant Subsidiary" means any subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-
X promulgated by the Commission as in effect as of the date of the Indenture.
"Stated Maturity" when used with respect to any Note, means , 2005.
S-39
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations. This discussion does not purport to deal
with all aspects of federal income taxation that may be relevant to a
particular investor's decision to purchase the Notes, and it is not intended
to be wholly applicable to all categories of investors, some of which, such as
dealers in securities, banks, insurance companies, tax-exempt organizations
and non-United States persons, may be subject to special rules. In addition,
this discussion is limited to persons that purchase the Notes in the offering
of the Notes and hold the Notes as a "capital asset" within the meaning of
Section 1221 of the Code and not as part of a "hedge," "straddle," "conversion
transaction," "synthetic security" or other integrated investment.
PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of Common Stock. However, cash paid in
lieu of a fractional share of Common Stock will result in taxable gain (or
loss), which will be capital gain (or loss) to the extent that the amount of
such cash exceeds (or is exceeded by) the portion of the adjusted basis of the
Note allocable to such fractional share. The adjusted basis of shares of
Common Stock received on conversion will equal the adjusted basis of the Note
converted, reduced by the portion of adjusted basis allocated to any
fractional share of Common Stock exchanged for cash. The holding period of an
investor in the Common Stock received on conversion will include the period
during which the converted Notes were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion Rights." Section 305 of
the Code and the Treasury Regulations issued thereunder may treat the holders
of the Notes as having received a constructive distribution, if and to the
extent that certain adjustments in the conversion price that may occur in
limited circumstances (particularly an adjustment to reflect a taxable
dividend to holders of Common Stock) increase the proportionate interest of a
holder of Notes in the fully diluted Common Stock, whether or not such holder
ever exercises its conversion privilege. Moreover, if there is not a full
adjustment to the conversion price of the Notes to reflect a stock dividend or
other event increasing the proportionate interest of the holders of
outstanding Common Stock in the assets or earnings and profits of the Company,
then such increase in the proportionate interest of the holders of the Common
Stock generally will be treated as a distribution to such holders. The amount
of any such distribution, whether to holders of Notes or Common Stock, will be
taxable as ordinary income to the extent it does not exceed the Company's
current or accumulated earnings and profits.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus Supplement should note
that the resale of those Notes may be adversely affected by the market
discount provisions of sections 1276 through 1278 of the Code. Under the
market discount rules, if a holder of a Note purchases it at market discount
(i.e., at a price below its stated redemption price at maturity) in excess of
a statutorily-defined de minimis amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized
or the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount
on a Note may be taxable to an investor to the extent of appreciation at the
time of certain otherwise non-taxable transactions (e.g., gifts). Any accrued
market discount not previously taken into income prior to a conversion of a
Note, however, should
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<PAGE>
(under Treasury Regulations not yet issued) carry over to the Common Stock
received on conversion and be treated as ordinary income upon a subsequent
disposition of such Common Stock to the extent of any gain recognized on such
disposition. In addition, absent an election to include market discount in
income as it accrues, a holder of a market discount debt instrument may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry
such debt instrument until the holder disposes of the debt instrument in a
taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Except as described under "--Conversion of Notes into Common Stock," each
holder of Notes generally will recognize gain or loss upon the sale, exchange,
redemption, repurchase, retirement, or other disposition of those Notes
measured by the difference (if any) between (i) the amount of cash and the
fair market value of any property received (except to the extent if such cash
or other property is attributable to the payment of accrued interest not
previously included in income, which amount will be taxable as ordinary
income) and (ii) the holder's adjusted tax basis in those Notes (including any
market discount previously included income by the holder). Each holder of
Common Stock into which the Notes are converted, in general, will recognize
gain or loss upon the sale, exchange, or other disposition of the Common Stock
measured under rules similar to those described in the preceding sentence for
the Notes. Any such gain or loss recognized on the sale, exchange, repurchase,
retirement, or other disposition of a Note or share of Common Stock should be
capital gain or loss (except as discussed under "--Market Discount" above).
Pursuant to the Taxpayer Relief Act of 1997, long-term capital gains tax rates
will apply to dispositions by individuals of capital assets (such as the Notes
or Common Stock) held for more than 18 months. The maximum long-term capital
gains tax rate applicable to individuals is currently 20% (10% for individuals
in the 15% tax bracket). Mid-term capital gains tax rates will apply to
dispositions by individuals of capital assets held for more than one year but
not more than 18 months. The maximum mid-term capital gains tax rate
applicable to individuals is currently 28% (15% for individuals in the 15% tax
bracket). Corporate taxpayers continue to be subject to a maximum regular tax
rate of 35% on all capital gains and ordinary income. An investor's initial
basis in a Note will be the cash price paid therefor.
BACKUP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding" at
a rate of 31% with respect to certain "reportable payments," including
interest payments, dividend payments and, under certain circumstances,
principal payments on the Notes. These back-up withholding rules apply if the
holder, among other things, (i) fails to furnish a social security number or
other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to back-up withholding. A holder who does not
provide the Company with its correct TIN also may be subject to penalties
imposed by the IRS. Any amount withheld from a payment to a holder under the
back-up withholding rules is creditable against the holder's federal income
tax liability, provided the required information is furnished to the IRS.
Back-up withholding will not apply, however, with respect to payments made to
certain holders, including corporations, tax-exempt organizations and certain
foreign persons, provided their exemption from back-up withholding is properly
established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
S-41
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated , 1998 (the "Underwriting Agreement"), the Underwriters named below
have severally agreed to purchase from the Company the respective principal
amount of Notes set forth opposite their names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............
Smith Barney Inc. .............................................
------------
Total........................................................ $400,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the Notes offered hereby are
subject to approval by their counsel of certain legal matters and to certain
other conditions. The Underwriters are obligated to purchase and accept
delivery of all the Notes offered hereby if any are purchased.
The Underwriters initially propose to offer the Notes in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of % of the
principal amount of the Notes. The Underwriters may allow, and such dealers
may re-allow, to certain other dealers a concession not in excess of % of
the principal amount of the Notes. After the initial offering of the Notes,
the public offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus Supplement, to purchase, from time to
time, in whole or in part, up to an aggregate of $60,000,000 additional
principal amount of Notes at the initial public offering price less
underwriting discounts and commissions. The Underwriters may exercise such
option solely to cover over-allotments, if any, made in connection with the
offering. To the extent that the Underwriters exercise such option, each
Underwriter will become obligated, subject to certain conditions, to purchase
its pro rata portion of such additional Notes based on such Underwriter's
percentage underwriting commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company and its executive officers and directors have agreed, subject to
certain exceptions, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 60 days after the date of this Prospectus
Supplement without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
The Notes are a new issue of securities with no established trading market.
The Company does not intend to apply for listing of the Notes on any
securities exchange or The Nasdaq Stock Market. The Company has been advised
by the Underwriters that the Underwriters intend to make a market in the
Notes; however, they are not obligated to do so, and they may discontinue any
such market making at any time without notice. Therefore, no assurance can be
given as to the liquidity of the trading market for the Notes or that an
active public market will develop.
S-42
<PAGE>
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Notes.
Specifically, the Underwriters may overallot the offering, creating a
syndicate short position. The Underwriters may bid for and purchase the Notes
in the open market to cover syndicate short positions. In addition, the
Underwriters may bid for and purchase the Notes or the Common Stock in the
open market to stabilize the price of the Notes or the Common Stock. These
activities may stabilize or maintain the market price for the Notes or the
Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may discontinue these activities
at any time.
Donaldson, Lufkin & Jenrette Securities Corporation has in the past provided
various investment banking services for the Company, for which it has received
usual and customary fees.
LEGAL MATTERS
Certain legal matters relating to the issuance and sale of the Notes will be
passed upon for the Company by Latham & Watkins, San Francisco, California.
Pillsbury Madison & Sutro LLP, Palo Alto and San Francisco, California, is
acting as counsel for the Underwriters in connection with certain legal
matters relating to the Notes offered hereby. A member of Pillsbury Madison &
Sutro LLP participating in the consideration of legal matters relating to the
Notes holds options to purchase 10,000 shares of Common Stock of the Company.
S-43
<PAGE>
PROSPECTUS
ADVANCED MICRO DEVICES, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
EQUITY WARRANTS
DEBT WARRANTS
Advanced Micro Devices, Inc. (the "Company"), directly or through
agents, dealers or underwriters designated from time to time, may offer, issue
and sell, in one or more series or issuances, up to $1,000,000,000 in the
aggregate of (a) secured or unsecured debt securities (the "Debt Securities") of
the Company, in one or more series, which may be either senior debt securities
(the "Senior Debt Securities"), senior subordinated debt securities (the "Senior
Subordinated Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities"), (b) shares of preferred stock of the Company,
par value $.10 per share (the "Preferred Stock"), in one or more series, (c)
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"), (d) warrants to purchase Common Stock or Preferred Stock (the "Equity
Warrants") or (e) warrants to purchase Debt Securities (the "Debt Warrants" and
together with the Equity Warrants, the "Warrants"), or any combination of the
foregoing, either individually or as units consisting of one or more of the
foregoing, each on terms to be determined at the time of sale. The Debt
Securities may be issued as exchangeable and/or convertible Debt Securities
exchangeable for or convertible into shares of Common Stock or Preferred Stock.
The Preferred Stock may also be exchangeable for and/or convertible into shares
of Common Stock or another series of Preferred Stock. The Debt Securities, the
Preferred Stock, the Common Stock and the Warrants are collectively referred to
herein as the "Securities." When a particular series of Securities is offered,
a supplement to this Prospectus (each a "Prospectus Supplement") will be
delivered with this Prospectus. The Prospectus Supplement will set forth the
terms of the offering and sale of the offered Securities.
SEE "RISK FACTORS" COMMENCING ON PAGE 3 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF SECURITIES.
Except as described more fully herein or as set forth in the
Prospectus Supplement relating to any offered Debt Securities, the Indenture
will not provide holders of Debt Securities protection in the event of a highly-
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company which could adversely affect holders of Debt
Securities. See "Description of Debt Securities -- Consolidation, Merger and
Sale of Assets."
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol AMD. Any Common Stock sold pursuant to a Prospectus Supplement
will be listed on the New York Stock Exchange. On April 6, 1998, the last
reported sale price of the Common Stock on the New York Stock Exchange was
$30.4375 per share. The Company has not yet determined whether any of the Debt
Securities, Preferred Stock or Warrants offered hereby will be listed on any
exchange or over-the-counter market. If the Company decides to seek listing of
any such Securities, the Prospectus Supplement relating thereto will disclose
such exchange or market.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Securities will be sold directly by the Company, through agents,
dealers or underwriters as designated from time to time, or through a
combination of such methods. The Company reserves the sole right to accept, and
together with its agents, from time to time, to reject in whole or in part any
proposed purchase of Securities to be made directly or through agents. If
agents of the Company or any dealers or underwriters are involved in the sale of
the Securities, the names of such agents, dealers or underwriters and any
applicable commissions or discounts will be set forth in the applicable
Prospectus Supplement. See "Plan of Distribution" for possible indemnification
arrangements with agents, dealers and underwriters.
This Prospectus may not be used to consummate sales of Securities
unless accompanied by the applicable Prospectus Supplement.
The date of this Prospectus is April 20, 1998.
<PAGE>
Certain persons participating in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Securities. Specifically, the underwriters may overallot in connection with the
offering and may bid for and purchase securities in the open market. For a
description of these activities, see "Plan of Distribution."
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including any documents that are incorporated by
-----------------------------------------------------------------
reference as set forth in "Information Incorporated by Reference," contains
- ---------------------------------------------------------------------------
forward-looking statements within the meaning of Section 27A of the Securities
- ------------------------------------------------------------------------------
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
- ----------------------------------------------------------------------
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
- -----------------------------------------------------------------------
statements are indicated by words or phrases such as "anticipate," "estimate,"
- ------------------------------------------------------------------------------
"project," "believe," and similar words or phrases. Such statements are subject
- --------------------------------------------------------------------------------
to certain risks, uncertainties or assumptions. Should one or more of these
- ----------------------------------------------------------------------------
risks or uncertainties materialize, or should underlying assumptions prove
- --------------------------------------------------------------------------
incorrect, actual results may vary materially from those anticipated, estimated
- -------------------------------------------------------------------------------
or projected.
- ------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act
with respect to the Securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement, part of which
has been omitted in accordance with the rules and regulations of the Commission.
For further information about the Company and the Securities offered hereby,
reference is made to the Registration Statement, including the exhibits filed as
a part thereof and otherwise incorporated therein. Statements made in this
Prospectus as to the contents of any agreement or other document referred to
herein are qualified by reference to the copy of such agreement or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files periodic reports, proxy
statements and other information with the Commission. The Registration
Statement, including the exhibits thereto, as well as such reports and other
information filed by the Company with the Commission, can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C., 20549; 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a site on the World Wide
Web at http://www.sec.gov. that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission,
and certain of the Company's filings are available at such web site. Copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Reports and other information concerning the Company can also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission pursuant to the
Exchange Act are incorporated by reference in this Prospectus:
(1) the Company's Annual Report on Form 10-K for the year ended
December 28, 1997, filed with the Commission on March 3, 1998, as amended;
(2) the Company's Annual Report on Form 10-K/A for the year ended
December 28, 1997, filed with the Commission on April 17, 1998;
(3) the Company's Current Report on Form 8-K filed with the Commission
on January 13, 1998; and
2
<PAGE>
(4) all other documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and before the termination of the offering, which shall be deemed to
be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus may not be used to consummate sales of offered
securities unless accompanied by a Prospectus Supplement. The delivery of this
Prospectus together with a Prospectus Supplement relating to particular offered
Securities in any jurisdiction shall not constitute an offer in the jurisdiction
of any other Securities covered by this Prospectus.
The Company will provide without charge to each person (including any
beneficial owner) to whom this Prospectus is delivered, upon request, copies of
any documents incorporated into this Prospectus by reference (other than
exhibits incorporated by reference into such document). Requests for documents
should be submitted to the Corporate Secretary, Advanced Micro Devices, Inc.,
One AMD Place, Sunnyvale, California 94086 (telephone 408/732-2400). The
information relating to the Company contained in this Prospectus does not
purport to be comprehensive and should be read together with the information
contained in the documents incorporated or deemed to be incorporated by
reference herein.
THE COMPANY
Advanced Micro Devices, Inc., a Delaware corporation (the "Company"),
was founded in 1969, became a publicly held company in 1972 and since 1979 has
been listed on the New York Stock Exchange ("NYSE") under the trading symbol
AMD. The Company designs, engineers, manufactures, markets and sells integrated
circuits for the personal computer, networked computer and communications
markets.
The Company has sales offices worldwide and has manufacturing or
testing facilities in Sunnyvale, California; Austin, Texas; Aizu-Wakamatsu,
Japan; Bangkok, Thailand; Penang, Malaysia; and Singapore. Its mailing address
and executive offices are located at One AMD Place, Sunnyvale, California 94086,
and its telephone number is (408) 732-2400.
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers of the Securities offered hereby should carefully consider the risk
factors set forth under the heading "Risk Factors" in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
Company's most recently incorporated Annual Report on Form 10-K. See
"Information Incorporated by Reference."
USE OF PROCEEDS
Except as otherwise provided in the Prospectus Supplement, the net
proceeds from the sale of Securities offered hereby will be used for general
corporate purposes, which may include the reduction of outstanding indebtedness,
working capital increases, acquisitions and capital expenditures. Pending the
application of the net proceeds, the Company expects to invest such proceeds in
short-term, interest-bearing instruments or other investment-grade securities.
3
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges
for the Company for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1993 1994 1995 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
15.8x 22.7x 9.4x (1) (1)
</TABLE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratios of earnings to combined
fixed charges and preferred stock dividends for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
- -----------------------------------------------------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1993 1994 1995 1996 1997
- ---------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
9.1x 12.6x 9.4x (1) (1)
</TABLE>
(1) Earnings were insufficient to cover fixed charges by $219,417 and
$120,972 in fiscal years 1996 and 1997, respectively.
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. The ratio of earnings to fixed charges and preferred
stock dividends has been computed by dividing earnings by the sum of fixed
charges and preferred stock dividend requirements. Earnings consist of income
before income taxes, amortization of capitalized interest plus fixed charges
other than capitalized interest. Fixed charges consist of interest on all
indebtedness, amortization of debt issuance costs and the portion of rental
expense representative of interest.
4
<PAGE>
GENERAL DESCRIPTION OF SECURITIES
The Company directly or through agents, dealers or underwriters
designated from time to time, may offer, issue and sell, together or separately,
up to $1,000,000,000 in the aggregate of (a) secured or unsecured debt
securities (the "Debt Securities") of the Company, in one or more series, which
may be either senior debt securities (the "Senior Debt Securities"), senior
subordinated debt securities (the "Senior Subordinated Debt Securities") or
subordinated debt securities (the "Subordinated Debt Securities"), (b) shares of
preferred stock of the Company, par value $.10 per share (the "Preferred
Stock"), in one or more series, (c) shares of common stock of the Company, par
value $.01 per share (the "Common Stock"), (d) warrants to purchase Common Stock
or Preferred Stock (the "Equity Warrants") or (e) warrants to purchase Debt
Securities (the "Debt Warrants" and together with the Equity Warrants, the
"Warrants"), or any combination of the foregoing, either individually or as
units consisting of one or more of the foregoing, each on terms to be determined
at the time of sale. The Debt Securities may be issued as exchangeable and/or
convertible Debt Securities exchangeable for or convertible into shares of
Common Stock or Preferred Stock. The Preferred Stock may also be exchangeable
for and/or convertible into shares of Common Stock or another series of
Preferred Stock. The Debt Securities, the Preferred Stock, the Common Stock and
the Warrants are collectively referred to herein as the "Securities." When a
particular series of Securities is offered, a supplement to this Prospectus
(each, a "Prospectus Supplement") will be delivered with this Prospectus. The
Prospectus Supplement will set forth the terms of the offering and sale of the
offered Securities.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and
provisions of the Debt Securities to which any Prospectus Supplement may relate.
The particular terms of the Debt Securities offered by any Prospectus
Supplement, and the extent, if any, to which such general provisions do not
apply to the Debt Securities so offered, will be described in the Prospectus
Supplement relating to such Debt Securities.
Debt Securities may be issued from time to time in series under an
indenture, and one or more indentures supplemental thereto (collectively, the
"Indenture"), between the Company and a trustee to be identified in the
applicable Prospectus Supplement (the "Trustee"). The terms of the Debt
Securities will include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "TIA") as in
effect on the date of the Indenture. The Debt Securities will be subject to all
such terms, and potential purchasers of the Debt Securities are referred to the
Indenture and the TIA for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy of the proposed form of Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. As used under this caption, unless the context otherwise requires,
"Offered Debt Securities" shall mean the Debt Securities offered by this
Prospectus and the accompanying Prospectus Supplement.
GENERAL
The Indenture will provide for the issuance of Debt Securities in
series and will not limit the principal amount of Debt Securities which may be
issued thereunder. In addition, except as may be provided in the Prospectus
Supplement relating to such Debt Securities, the Indenture will not limit the
amount of additional indebtedness the Company may incur.
The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of the series of Offered Debt Securities in respect
of which this Prospectus is being delivered: (1) the title of the Offered Debt
Securities; (2) whether the Offered Debt Securities are Senior Debt Securities,
Senior Subordinated Debt Securities or Subordinated Debt Securities or any
combination thereof; (3) any limit upon the aggregate principal amount of the
Offered Debt Securities; (4) the date or dates on which the principal of the
Offered Debt Securities is payable; (5) the rate or rates (which may be fixed or
variable) at which the Offered Debt Securities will bear interest, if any, or
the manner in which such rate or rates are determined; (6) the date or dates
from which any such interest will accrue, the interest payment dates on which
any such interest on the Offered Debt Securities will be payable and the record
dates for the determination of holders to whom such interest is payable; (7) the
place or places where the principal of, and any interest on, the Offered Debt
Securities will be payable; (8) the obligation of the Company, if any, to
redeem, repurchase or repay the Offered Debt Securities in whole or in part
pursuant to any sinking fund or analogous provisions or at the option of the
holders and the price or prices at which and the period or periods within which
and the terms and conditions upon which the Offered Debt Securities shall be
redeemed,
5
<PAGE>
repurchased or repaid pursuant to such obligation; (9) the denominations in
which any Offered Debt Securities will be issuable, if other than denominations
of U.S. $1,000 and any integral multiple thereof; (10) if other than the
principal amount thereof, the portion of the principal amount of the Offered
Debt Securities of the series which will be payable upon declaration of the
acceleration of the maturity thereof; (11) any addition to or change in the
covenants which apply to the Offered Debt Securities; (12) any Events of Default
with respect to the Offered Debt Securities, if not otherwise set forth under
"Events of Default"; (13) whether the Offered Debt Securities will be issued in
whole or in part in global form, the terms and conditions, if any, upon which
such global Offered Debt Securities may be exchanged in whole or in part for
other individual securities, and the depositary for the Offered Debt Securities;
(14) the terms and conditions, if any, upon which the Offered Debt Securities
shall be exchanged for or converted into Common Stock or Preferred Stock; (15)
the nature and terms of the security for any secured Offered Debt Securities;
and (16) any other terms of the Offered Debt Securities which terms shall not be
inconsistent with the provisions of the Indenture.
Debt Securities may be issued at a discount from their principal
amount ("Original Issue Discount Securities"). Federal income tax
considerations and other special considerations applicable to any such Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Debt Securities may be issued in bearer form, with or without coupons.
Federal income tax considerations and other special considerations applicable to
bearer securities will be described in the applicable Prospectus Supplement.
STATUS OF DEBT SECURITIES
The Senior Debt Securities will rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company.
The obligations of the Company pursuant to Senior Subordinated Debt
Securities will be subordinate in right of payment, to the extent and in the
manner set forth in the Indenture, to all Senior Indebtedness of the Company.
With respect to any series of Senior Subordinated Debt Securities, "Senior
Indebtedness" of the Company will be defined to mean the principal of, and
premium, if any, and any interest (including interest accruing subsequent to the
commencement of any proceeding for the bankruptcy or reorganization of the
Company under any applicable bankruptcy, insolvency or similar law now or
hereafter in effect) and all other monetary obligations of every kind or nature
due on or in connection with (a) all indebtedness of the Company whether
heretofore or hereafter incurred (i) for borrowed money or (ii) in connection
with the acquisition by the Company or a subsidiary of the Company of assets
other than in the ordinary course of business, for the payment of which the
Company is liable directly or indirectly by guarantee, letter of credit,
obligation to purchase or acquire or otherwise, or the payment of which is
secured by a lien, charge or encumbrance on assets acquired by the Company, (b)
amendments, modifications, renewals, extensions and deferrals of any such
indebtedness, and (c) any indebtedness issued in exchange for any such
indebtedness (clauses (a) through (c) hereof being collectively referred to
herein as "Debt"); provided, however, that the following will not constitute
Senior Indebtedness with respect to Senior Subordinated Debt Securities: (1)
any Debt as to which, in the instrument evidencing such Debt or pursuant to
which such Debt was issued, it is expressly provided that such Debt is
subordinate in right of payment to all Debt of the Company not expressly
subordinated to such Debt; (2) any Debt which by its terms refers explicitly to
the Senior Subordinated Debt Securities and states that such Debt shall not be
senior in right of payment; and (3) any Debt of the Company in respect of the
Senior Subordinated Debt Securities or any Subordinated Debt Securities.
The obligations of the Company pursuant to Subordinated Debt
Securities will be subordinate in right of payment to all Senior Indebtedness of
the Company and to any Senior Subordinated Debt Securities; provided, however,
that the following will not constitute Senior Indebtedness with respect to
Subordinated Debt Securities: (1) any Debt as to which, in the instrument
evidencing such Debt or pursuant to which such Debt was issued, it is expressly
provided that such Debt is subordinate in right of payment to all Debt of the
Company not expressly subordinated to such Debt; and (2) any Debt of the Company
in respect of Subordinated Debt Securities and any Debt which by its terms
refers explicitly to the Subordinated Debt Securities and states that such Debt
shall not be senior in right of payment.
No payment pursuant to the Senior Subordinated Debt Securities or the
Subordinated Debt Securities, as the case may be, may be made unless all amounts
of principal, premium, if any, and interest then due on all applicable Senior
Indebtedness of the Company shall have been paid in full or if there shall have
occurred and be continuing beyond any applicable grace period a default in any
payment with respect to any such Senior Indebtedness, or if there shall have
occurred
6
<PAGE>
any event of default (an "Event of Default") with respect to any such Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof,
or if any judicial proceeding shall be pending with respect to any such default.
However, the Company may make payments pursuant to the Senior Subordinated Debt
Securities or the Subordinated Debt Securities, as the case may be, if a default
in payment or an Event of Default with respect to the Senior Indebtedness
permitting the holder thereof to accelerate the maturity thereof has occurred
and is continuing and judicial proceedings with respect thereto have not been
commenced within a certain number of days of such default in payment or Event of
Default. Upon any distribution of the assets of the Company upon dissolution,
winding-up, liquidation or reorganization, the holders of Senior Indebtedness of
the Company will be entitled to receive payment in full of principal, premium,
if any, and interest (including interest accruing subsequent to the commencement
of any proceeding for the bankruptcy or reorganization of the Company under any
applicable bankruptcy, insolvency or similar law now or hereafter in effect)
before any payment is made on the Senior Subordinated Debt Securities or
Subordinated Debt Securities, as applicable. By reason of such subordination, in
the event of insolvency of the Company, holders of Senior Indebtedness of the
Company may receive more, ratably, and holders of the Senior Subordinated Debt
Securities or Subordinated Debt Securities, as applicable, having a claim
pursuant to the Senior Subordinated Debt Securities or Subordinated Debt
Securities, as applicable, may receive less, ratably, than the other creditors
of the Company. Such subordination will not prevent the occurrence of any Event
of Default in respect of the Senior Subordinated Debt Securities or the
Subordinated Debt Securities.
If the Company offers Debt Securities, the applicable Prospectus
Supplement will set forth the aggregate amount of outstanding indebtedness, if
any, as of the most recent practicable date that by the terms of such Debt
Securities would be senior to such Debt Securities. The applicable Prospectus
Supplement will also set forth any limitation on the issuance by the Company of
any additional senior indebtedness.
EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement,
payment of principal, premium, if any, and any interest on the Debt Securities
will be payable, and the exchange of and the transfer of Debt Securities will be
registrable, at the office of the Trustee or at any other office or agency
maintained by the Company for such purpose, subject to the limitations of the
Indenture. Unless otherwise indicated in the applicable Prospectus Supplement,
the Debt Securities will be issued in denominations of U.S. $1,000 or integral
multiples thereof. The Debt Securities shall be signed by two officers of the
Company and authenticated by the manual signature of the Trustee. No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or
more Global Securities (the "Global Securities") that will be deposited with a
Depositary or its nominee identified in the applicable Prospectus Supplement.
In such a case, one or more Global Securities will be issued in a denomination
or aggregate denominations equal to the portion of the aggregate principal
amount of outstanding Debt Securities of the series to be represented by such
Global Security or Securities. Each Global Security will be deposited with such
Depositary or nominee or a custodian therefor and will bear a legend regarding
the restrictions on exchanges and registration of transfer thereof referred to
below and any such other matters as may be provided for pursuant to the
applicable Indenture.
Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Security may be transferred to, or registered or
exchanged for Debt Securities registered in the name of, any person or entity
other than the Depositary for such Global Security or any nominee of such
Depositary, and no such transfer may be registered, unless (i) the Depositary
has notified the Company that it is unwilling or unable to continue as
Depositary for such Global Security or has ceased to be qualified to act as such
as required by the applicable Indenture, (ii) the Company executes and delivers
to the Trustee an order that such Global Security shall be so transferable,
registrable and exchangeable, and such transfers shall be registrable, or (iii)
there shall exist such circumstances, if any, as may be described in the
applicable Prospectus Supplement. All Debt Securities issued in exchange for a
Global Security or any portion thereof will be registered in such names as the
Depositary may direct.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements.
7
<PAGE>
Unless otherwise specified in the applicable Prospectus Supplement,
Debt Securities which are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such Depositary or its nominee. Upon the issuance of
such Global Security, and the deposit of such Global Security with or on behalf
of the Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in such Global Security will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such Global Security. Ownership
of beneficial interests in such Global Security by persons that hold through
participants will be shown on, and the transfer of that ownership interest
within such participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Global Securities.
So long as the Depositary for a Global Security, or its nominee, is
the registered owner of such Global Security, such Depositary or such nominee,
as the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certified form and will not be
considered the holders thereof for any purposes under the Indenture.
Accordingly, each person owning a beneficial interest in such Global Security
must rely on the procedures of the Depositary and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder under the Indenture. If the
Company requests any action of holders or if an owner of a beneficial interest
in such Global Security desires to give any notice or take any action a holder
is entitled to give or take under the Indenture, the Depositary will authorize
the participants to give such notice or take such action, and participants would
authorize beneficial owners owning through such participants to give such notice
or take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Notwithstanding any other provisions to the contrary in the Indenture,
the rights of the beneficial owners of the Debt Securities to receive payment of
the principal and premium, if any, of and interest on such Debt Securities, on
or after the respective due dates expressed in such Debt Securities, or to
institute suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
beneficial owners.
Principal of and any interest on a Global Security will be payable in
the manner described in the applicable Prospectus Supplement.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets to any person unless (a) the Company is the
surviving corporation or the entity or the person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia; (b) the entity or person
formed by or surviving any such consolidation or merger (if other than the
Company) or the entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Debt Securities and the Indenture; and (c)
immediately prior to and after the transaction no Default (as defined in the
Indenture) or Event of Default shall have occurred and be continuing.
Except as may be described in a Prospectus Supplement applicable to a
particular series of Debt Securities, there are no covenants or other provisions
in the Indenture providing for a put or increased interest or otherwise that
would afford holders of Debt Securities additional protection in the event of a
recapitalization transaction, a change of control of the Company or a highly
leveraged transaction.
8
<PAGE>
CERTAIN OTHER COVENANTS
Unless otherwise indicated in this Prospectus or a Prospectus
Supplement, the Debt Securities will not have the benefit of any covenants that
limit or restrict the Company's business or operations, the pledging of the
Company's assets or the incurrence of indebtedness by the Company.
With respect to any series of Senior Subordinated Debt Securities, the
Company will agree not to issue Debt which is, expressly by its terms,
subordinated in right of payment to any other Debt of the Company and which is
not expressly made pari passu with, or subordinate and junior in right of
payment to, the Senior Subordinated Debt Securities.
The applicable Prospectus Supplement will describe any material
covenants in respect of a series of Debt Securities. Other than the covenants
of the Company included in the Indenture as described above or as described in
the applicable Prospectus Supplement, the Indenture will not provide holders of
Debt Securities protection in the event of a highly-leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company which could adversely affect holders of Debt Securities.
EVENTS OF DEFAULT
Unless otherwise specified in the applicable Prospectus Supplement,
the following will constitute Events of Default under the Indenture with respect
to Debt Securities of any series: (a) failure to pay principal of any Debt
Security of that series when due and payable at maturity, upon redemption or
otherwise; (b) failure to pay any interest on any Debt Security of that series
when due, and the Default continues for 30 days; (c) an Event of Default, as
defined in the Debt Securities of that series, occurs and is continuing, or the
Company fails to comply with any of its other agreements in the Debt Securities
of that series or in the Indenture with respect to that series and the Default
continues for the period and after the notice provided therein (and described
below); and (d) certain events of bankruptcy, insolvency or reorganization. A
Default under clause (c) above is not an Event of Default with respect to a
particular series of Debt Securities until the Trustee or the holders of at
least 50% in principal amount of the then outstanding Debt Securities of that
series notify the Company of the Default and the Company does not cure the
Default within 30 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
If an Event of Default with respect to outstanding Debt Securities of
any series (other than an Event or Default relating to certain events of
bankruptcy, insolvency or reorganization) shall occur and be continuing, either
the Trustee or the holders of at least 50% in principal amount of the
outstanding Debt Securities of that series by notice, as provided in the
Indenture, may declare the unpaid principal amount (or, if the Debt Securities
of that series are Original Issue Discount Securities, such lesser amount as may
be specified in the terms of that series) of, and any accrued and unpaid
interest on, all Debt Securities of that series to be due and payable
immediately. However, at any time after a declaration of acceleration with
respect to Debt Securities of any series has been made, but before a judgment or
decree based on such acceleration has been obtained, the holders of a majority
in principal amount of the outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration. For information as
to waiver of defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall provide notice to
holders of Debt Securities of an Event of Default with respect to such Debt
Securities that is continuing and known to the Trustee. Except in the case of an
Event of Default in payment, the Trustee may withhold the notice if and so long
as a committee of its trust officers in good faith determines that withholding
the notice is in the interest of the holders of the Debt Securities. The
Indenture will provide that, subject to the duty of the Trustee during an Event
of Default to act with the required standard of care, the Trustee will be under
no obligation to exercise any of its rights or powers under the applicable
Indenture at the request or direction of any of the holders, unless such holders
shall have offered to the Trustee reasonable security or indemnity. A holder of
Debt Securities of any series may not pursue a remedy with respect to the
Indenture or the Debt Securities unless: (1) the holder gives to the Trustee
written notice of a continuing Event of Default with respect to that series; (2)
the holders of at least 50% in principal amount of the then outstanding Debt
Securities of that series make a written request to the Trustee to pursue the
remedy; (3) such holder or holders offer to the Trustee indemnity satisfactory
to the Trustee against any loss, liability or expense; (4) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer and, if requested, the provision of indemnity; and (5) during such 60-day
period the holders of a majority in principal amount of the then outstanding
Debt Securities of that series do not give the Trustee a direction inconsistent
with the request. Subject to such provisions, including those requiring security
or indemnification of the Trustee, the holders of a majority in principal amount
of the outstanding Debt Securities of any series will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Debt Securities of that series.
The Company will be required to furnish to the Trustee under the
Indenture annually a statement as to the performance by the Company of its
obligations under that Indenture and as to any default in such performance.
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MODIFICATION AND WAIVER
Subject to certain exceptions, the Company and the Trustee may amend
the Indenture or the Debt Securities with the written consent of the holders of
a majority in principal amount of the then outstanding Debt Securities of each
series affected by the amendment with each series voting as a separate class.
The holders of a majority in principal amount of the then outstanding Debt
Securities of any series may also waive compliance in a particular instance by
the Company with any provision of the Indenture with respect to the Debt
Securities of that series; provided, however, that without the consent of each
holder of Debt Securities affected, an amendment or waiver may not (i) reduce
the percentage of the principal amount of Debt Securities whose holders must
consent to an amendment or waiver; (ii) reduce the rate or change the time for
payment of interest on any Debt Security (including default interest); (iii)
reduce the principal of or premium, if any, or change the fixed maturity of any
Debt Security, or reduce the amount of, or postpone the date fixed for,
redemption or the payment of any sinking fund or analogous obligation with
respect thereto; (iv) make any Debt Security payable in currency other than that
stated in the Debt Security; (v) make any change in the provisions concerning
waivers of Default or Events of Default by holders or the rights of holders to
recover the principal of, premium, if any, or interest on, any Debt Security;
(vi) waive a default in the payment of the principal of, or interest on, any
Debt Security, except as otherwise provided in the Indenture; or (vii) reduce
the principal amount of Original Issue Discount Securities payable upon
acceleration of the maturity thereof. The Company and the Trustee may amend the
Indenture or the Debt Securities without notice to or the consent of any holder
of a Debt Security: (i) to cure any ambiguity, defect or inconsistency; (ii) to
comply with the Indenture's provisions with respect to successor corporations;
(iii) to comply with any requirements of the Commission in connection with the
qualification of the Indenture under the TIA; (iv) to provide for Debt
Securities in addition to or in place of certificated Debt Securities; (v) to
add to, change or eliminate any of the provisions of the Indenture in respect of
one of more series of Debt Securities, provided, however, that any such
addition, change or elimination (A) shall neither (1) apply to any Debt Security
of any series created prior to the execution of such amendment and entitled to
the benefit of such provision nor (2) modify the rights of a holder of any such
Debt Security with respect to such provision, or (B) shall become effective only
when there is no outstanding Debt Security of any series created prior to such
amendment and entitled to the benefit of such provision; (vi) to make any change
that does not adversely affect in any material respect the interest of any
holder; or (vii) to establish additional series of Debt Securities as permitted
by the Indenture.
The holders of a majority in principal amount of the then outstanding
Debt Securities of any series, by notice to the Trustee, may waive an existing
Default or Event of Default and its consequences except a Default or Event of
Default in the payment of the principal of, or any interest on, any Debt
Security with respect to the Debt Securities of that series; provided, however,
that the holders of a majority in principal amount of the outstanding Debt
Securities of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
LEGAL DEFEASANCE. Unless otherwise specified in the applicable
----------------
Prospectus Supplement, the Indenture will provide that the Company may be
discharged from any and all obligations in respect of the Debt Securities of any
series (except for certain obligations to register the transfer or exchange of
Debt Securities of such series, to replace stolen, lost or mutilated Debt
Securities of such series, and to maintain paying agencies and certain
provisions relating to the treatment of funds held by paying agents) upon the
deposit with the Trustee, in trust, of money and/or U.S. government obligations,
that, through the payment of interest and principal in respect thereof in
accordance with their terms, will provide money in an amount sufficient in the
opinion of a nationally recognized firm of independent public accountants to pay
and discharge each installment of principal (and premium, if any) and interest,
if any, on and any mandatory sinking fund payments in respect of the Debt
Securities of such series on the stated maturity of such payments in accordance
with the terms of the Indenture and such Debt Securities. Such discharge may
occur only if, among other things, the Company has received from, or there has
been published by, the United States Internal Revenue Service a ruling, or,
since the date of execution of the Indenture, there has been a change in the
applicable United States federal income tax law, in either case to the effect
that holders of the Debt Securities of such series will not recognize income,
gain or loss for United States federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to United States federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit, defeasance and discharge had not
occurred.
DEFEASANCE OF CERTAIN COVENANTS. Unless otherwise specified in the
-------------------------------
applicable Prospectus Supplement, the Indenture will provide that unless
otherwise provided by the terms of the applicable series of Debt Securities,
upon compliance with certain conditions, the Company may omit to comply with the
restrictive covenants contained in the Indenture, as well as
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any additional covenants contained in a supplement to the Indenture, a Board
Resolution or an Officers' Certificate delivered pursuant thereto. The
conditions include: the deposit with the Trustee of money and/or U.S. government
obligations that, through the payment of interest and principal in respect
thereof in accordance with their terms, will provide money in an amount
sufficient in the opinion of a nationally recognized firm of independent public
accountants to pay principal, premium, if any, and interest, if any, on and any
mandatory sinking fund payments in respect of the Debt Securities of such series
on the stated maturity of such payments in accordance with the terms of the
Indenture and such Debt Securities; and the delivery to the Trustee of an
opinion of counsel to the effect that the holders of the Debt Securities of such
series will not recognize income, gain or loss for United States federal income
tax purposes as a result of such deposit and related covenant defeasance and
will be subject to United States federal income tax in the same amount and in
the same manner and at the same times as would have been the case if such
deposit and related covenant defeasance had not occurred.
DEFEASANCE AND EVENTS OF DEFAULT. In the event the Company exercises
--------------------------------
its option to omit compliance with certain covenants of the Indenture with
respect to any series of Debt Securities and the Debt Securities of such series
are declared due and payable because of the occurrence of any Event of Default,
the amount of money and/or U.S. government obligations on deposit with the
Trustee will be sufficient to pay amounts due on the Debt Securities of such
series at the time of their stated maturity but may not be sufficient to pay
amounts due on the Debt Securities of such series at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
REGARDING THE TRUSTEES
The Trustee with respect to any series of Debt Securities will be
identified in the Prospectus Supplement relating to such Debt Securities. The
Indenture and provisions of the TIA incorporated by reference therein contain
certain limitations on the rights of the Trustee, should it become a creditor of
the Company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim, as security or
otherwise. The Trustee and its affiliates may engage in, and will be permitted
to continue to engage in, other transactions with the Company and its
affiliates; provided, however, that if it acquires any conflicting interest (as
defined in the TIA), it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding
Debt Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee. The TIA and the Indenture provide that in case an Event of Default
shall occur (and be continuing), the Trustee will be required, in the exercise
of its rights and powers, to use the degree of care and skill of a prudent man
in the conduct of his own affairs. Subject to such provision, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of the Debt Securities issued
thereunder, unless they have offered to the Trustee indemnity satisfactory to
it.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets
forth certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Certificate of Incorporation (the "Certificate of Incorporation") and
the certificate of designations (a "Certificate of Designations") relating to
each series of the Preferred Stock which will be filed with the Commission and
incorporated by reference in the Registration Statement of which this Prospectus
is a part at or prior to the time of the issuance of such series of the
Preferred Stock.
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GENERAL
The authorized capital stock of the Company consists of 250,000,000
shares of Common Stock, $0.01 par value per share, and 1,000,000 shares of
preferred stock, $0.10 par value per share ("preferred stock of the Company,"
which term, as used herein, includes the Preferred Stock offered hereby). As
of February 25, 1998, the Company had 143,105,395 shares of Common Stock
outstanding, of which 458,438 shares were owned by the Company as treasury
stock. See "Description of Common Stock." As of February 25, 1998, the Company
had no shares of preferred stock outstanding.
Under the Certificate of Incorporation, the Board of Directors of the
Company is authorized without further stockholder action to provide for the
issuance of up to 1,000,000 shares of preferred stock of the Company, in one or
more series, with such voting powers, full or limited, and with such
designations, preferences and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated in the resolution or resolutions providing for the issue of a series of
such stock adopted, at any time or from time to time, by the Board of Directors
of the Company (as used herein the term "Board of Directors of the Company"
includes any duly authorized committee thereof).
The Preferred Stock shall have the dividend, liquidation, redemption
and voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number of
shares offered; (ii) the amount of liquidation preference per share; (iii) the
initial public offering price at which such Preferred Stock will be issued; (iv)
the dividend rate (or method of calculation), the dates on which dividends shall
be payable and the dates from which dividends shall commence to cumulate, if
any; (v) any redemption or sinking fund provisions; (vi) any conversion or
exchange rights; and (vii) any additional voting, dividend, liquidation,
redemption, sinking fund and other rights, preferences, privileges, limitations
and restrictions.
The Preferred Stock will, when issued, be fully paid and nonassessable
and will have no preemptive rights. The rights of the holders of each series of
the Preferred Stock will be subordinate to those of the Company's general
creditors.
DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds of the Company legally available therefor, cash dividends on such dates
and at such rates as set forth in, or as are determined by the method described
in, the Prospectus Supplement relating to such series of the Preferred Stock.
Such rate may be fixed or variable or both. Each such dividend will be payable
to the holders of record as they appear on the stock books of the Company on
such record dates, fixed by the Board of Directors of the Company, as specified
in the Prospectus Supplement relating to such series of Preferred Stock.
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement relating to such series of Preferred Stock. If the Board
of Directors of the Company fails to declare a dividend payable on a dividend
payment date on any series of Preferred Stock for which dividends are
noncumulative, then the right to receive a dividend in respect of the dividend
period ending on such dividend payment date will be lost, and the Company will
have no obligation to pay any dividend for such period, whether or not dividends
on such series are declared payable on any future dividend payment dates.
Dividends on the shares of each series of Preferred Stock for which dividends
are cumulative will accrue from the date on which the Company initially issues
shares of such series.
The Company's indenture relating to its 11% senior secured notes due
2003 restricts the Company's ability to declare or pay dividends on its capital
stock.
Unless otherwise specified in the applicable Prospectus Supplement, so
long as the shares of any series of the Preferred Stock are outstanding, unless
(i) full dividends (including if such Preferred Stock is cumulative, dividends
for prior dividend periods) have been paid or declared and set apart for payment
on all outstanding shares of the Preferred Stock of such series and all other
classes and series of preferred stock of the Company (other than Junior Stock,
as defined below) and (ii) the Company is not in default or in arrears with
respect to the mandatory or optional redemption or mandatory repurchase or other
mandatory retirement of, or with respect to any sinking or other analogous funds
for, any shares of Preferred Stock of such series or any shares of any other
preferred stock of the Company of any class or series (other than Junior Stock,
as defined
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below), the Company may not declare any dividends on any shares of Common Stock
of the Company or any other stock of the Company ranking as to dividends or
distributions of assets junior to such series of Preferred Stock (the Common
Stock and any such other stock being herein referred to as "Junior Stock"), or
make any payment on account of, or set apart money for, the purchase, redemption
or other retirement of, or for a sinking or other analogous fund for, any shares
of Junior Stock or make any distribution in respect thereof, whether in cash or
property or in obligations of stock of the Company, other than in Junior Stock
which is neither convertible into, nor exchangeable or exercisable for, any
securities of the Company other than Junior Stock.
LIQUIDATION PREFERENCES
Unless otherwise specified in the applicable Prospectus Supplement, in
the event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of each series of the Preferred Stock will
be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution of assets is made to the
holders of Common Stock or any other shares of stock of the Company ranking
junior as to such distribution to such series of the Preferred Stock, the amount
set forth in the Prospectus Supplement relating to such series of the Preferred
Stock. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the amounts payable with respect to the Preferred
Stock of any series and any other shares of preferred stock of the Company
(including any other series of the Preferred Stock) ranking as to any such
distribution on a parity with such series of the Preferred Stock are not paid in
full, the holders of the Preferred Stock of such series and of such other shares
of preferred stock of the Company will share ratably in any such distribution of
assets of the Company in proportion to the full respective preferential amounts
to which they are entitled. After payment to the holders of the Preferred Stock
of each series of the full preferential amounts of the liquidating distribution
to which they are entitled, unless otherwise provided in the applicable
Prospectus Supplement, the holders of each such series of the Preferred Stock
will be entitled to no further participation in any distribution of assets by
the Company.
REDEMPTION
A series of the Preferred Stock may be redeemable, in whole or from
time to time in part, at the option of the Company, and may be subject to
mandatory redemption pursuant to a sinking fund or otherwise, in each case upon
terms, at the times and at the redemption prices set forth in the Prospectus
Supplement relating to such series. Shares of the Preferred Stock redeemed by
the Company will be restored to the status of authorized but unissued shares of
preferred stock of the Company.
In the event that fewer than all of the outstanding shares of a series
of the Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or pro
rata (subject to rounding to avoid fractional shares) as may be determined by
the Company or by any other method as may be determined by the Company in its
sole discretion to be equitable. From and after the redemption date (unless
default is made by the Company in providing for the payment of the redemption
price plus accumulated and unpaid dividends, if any) dividends will cease to
accumulate on the shares of the Preferred Stock called for redemption and all
rights of the holders thereof (except the right to receive the redemption price
plus accumulated and unpaid dividends, if any) will cease.
Unless otherwise specified in the applicable Prospectus Supplement, so
long as any dividends on shares of any series of the Preferred Stock or any
other series of preferred stock of the Company ranking on a parity as to
dividends and distribution of assets with such series of the Preferred Stock are
in arrears, no shares of any such series of the Preferred Stock or such other
series of preferred stock of the Company will be redeemed (whether by mandatory
or optional redemption) unless all such shares are simultaneously redeemed, and
the Company will not purchase or otherwise acquire any such shares; provided,
however, that the foregoing will not prevent the purchase or acquisition of such
shares pursuant to a purchase or exchange offer made on the same terms to
holders of all such shares outstanding.
CONVERSION AND EXCHANGE RIGHTS
The terms, if any, on which shares of Preferred Stock of any series
may be exchanged for or converted into shares of Common Stock, another series of
Preferred Stock or any other Security will be set forth in the Prospectus
Supplement relating thereto. Such terms may include provisions for conversion,
either mandatory, at the option of the holder or at the option of the Company,
in which case the number of shares of Common Stock, the shares of another series
of
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Preferred Stock or the amount of any other securities to be received by the
holders of Preferred Stock would be calculated as of a time and in the manner
stated in the Prospectus Supplement.
VOTING RIGHTS
Except as indicated in a Prospectus Supplement relating to a
particular series of the Preferred Stock, or except as required by applicable
law, the holders of the Preferred Stock will not be entitled to vote for any
purpose.
DESCRIPTION OF COMMON STOCK
The Company has authority to issue 250,000,000 shares of Common Stock,
par value $0.01 per share, and 1,000,000 shares of preferred stock, $0.10 par
value per share. As of February 25, 1998, the Company had 143,105,395 shares of
Common Stock outstanding, of which 458,438 shares were owned by the Company as
treasury stock. As of February 25, 1998, the Company had no shares of
preferred stock outstanding. The holders of Common Stock are entitled to one
vote per share on all matters to be voted on by stockholders, including the
election of directors. Stockholders are not entitled to cumulative voting
rights, and, accordingly, the holders of a majority of the shares voting for
the election of directors can elect the entire Board if they choose to do so
and, in that event, the holders of the remaining shares will not be able to
elect any person to the Board of Directors.
The holders of Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Board of Directors, in its
discretion, from funds legally available therefor and subject to prior dividend
rights of holders of any shares of preferred stock which may be outstanding.
However, the terms of the Company's current credit arrangements restrict the
Company's ability to declare or pay dividends on its Common Stock. Upon
liquidation or dissolution of the Company subject to prior liquidation rights of
the holders of preferred stock, the holders of Common Stock are entitled to
receive on a pro rata basis the remaining assets of the Company available for
distribution. Holders of Common Stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All outstanding shares of Common Stock
are, and all shares being offered by this Prospectus will be, fully paid and not
liable to further calls or assessment by the Company.
DESCRIPTION OF WARRANTS
The Company may issue Warrants to purchase Debt Securities ("Debt
Warrants"), as well as Warrants to purchase Preferred Stock or Common Stock
("Equity Warrants") (together, the "Warrants"). Warrants may be issued
independently or together with any Securities and may be attached to or separate
from such Securities. The Warrants are to be issued under warrant agreements
(each, a "Warrant Agreement") to be entered into between the Company and a bank
or trust company, as warrant agent (the "Warrant Agent"), all as shall be set
forth in the Prospectus Supplement relating to Warrants being offered pursuant
thereto.
DEBT WARRANTS
The applicable Prospectus Supplement will describe the terms of Debt
Warrants offered thereby, the Warrant Agreement relating to such Debt Warrants
and the debt warrant certificates representing such Debt Warrants ("Debt Warrant
Certificates"), including the following: (1) the title of such Debt Warrants;
(2) the aggregate number of such Debt Warrants; (3) the price or prices at which
such Debt Warrants will be issued; (4) the designation, aggregate principal
amount and terms of the Debt Securities purchasable upon exercise of such Debt
Warrants, and the procedures and conditions relating to the exercise of such
Debt Warrants; (5) the designation and terms of any related Debt Securities with
which such Debt Warrants are issued, and the number of such Debt Warrants issued
with each such Debt Security; (6) the date, if any, on and after which such Debt
Warrants and the related Debt Securities will be separately transferable; (7)
the principal amount of Debt Securities purchasable upon exercise of each Debt
Warrant; (8) the date on which the right to exercise such Debt Warrants will
commence, and the date on which such right will expire; (9) the maximum or
minimum number of such Debt Warrants which may be exercised at any time; (10) a
discussion of any material federal income tax considerations; and (11) any other
terms of such Debt Warrants and terms, procedures and limitations relating to
the exercise of such Debt Warrants.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations, and Debt Warrants may be exercised at
the corporate trust office of the Warrant Agent or any other office
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indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of holders of
the Debt Securities purchasable upon such exercise and will not be entitled to
payment of principal of or any premium, if any, or interest on the Debt
Securities purchasable upon such exercise.
EQUITY WARRANTS
The applicable Prospectus Supplement will describe the following terms
of Equity Warrants offered thereby: (1) the title of such Equity Warrants; (2)
the Securities (i.e., Preferred Stock or Common Stock) for which such Equity
Warrants are exercisable; (3) the price or prices at which such Equity Warrants
will be issued; (4) if applicable, the designation and terms of the Preferred
Stock or Common Stock with which such Equity Warrants are issued, and the number
of such Equity Warrants issued with each such share of Preferred Stock or Common
Stock; (5) if applicable, the date on and after which such Equity Warrants and
the related Preferred Stock or Common Stock will be separately transferable; (6)
if applicable, a discussion of any material federal income tax considerations;
and (7) any other terms of such Equity Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Equity Warrants.
Holders of Equity Warrants will not be entitled, by virtue of being
such holders, to vote, consent, receive dividends, receive notice as
stockholders with respect to any meeting of stockholders for the election of
directors of the Company or any other matter, or to exercise any rights
whatsoever as stockholders of the Company.
The exercise price payable and the number of shares of Common Stock or
Preferred Stock purchasable upon the exercise of each Equity Warrant will be
subject to adjustment in certain events, including the issuance of a stock
dividend to holders of Common Stock or Preferred Stock or a stock split, reverse
stock split, combination, subdivision or reclassification of Common Stock or
Preferred Stock. In lieu of adjusting the number of shares of Common Stock or
Preferred Stock purchasable upon exercise of each Equity Warrant, the Company
may elect to adjust the number of Equity Warrants. No adjustments in the number
of shares purchasable upon exercise of the Equity Warrants will be required
until cumulative adjustments require an adjustment of at least 1% thereof. The
Company may, at its option, reduce the exercise price at any time. No
fractional shares will be issued upon exercise of Equity Warrants, but the
Company will pay the cash value of any fractional shares otherwise issuable.
Notwithstanding the foregoing, in case of any consolidation, merger, or sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety, the holder of each outstanding Equity Warrant shall have the right to
the kind and amount of shares of stock and other securities and property
(including cash) receivable by a holder of the number of shares of Common Stock
of Preferred Stock into which such Equity Warrant was exercisable immediately
prior thereto.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder to purchase for cash such
principal amount of Securities at such exercise price as shall in each case be
set forth in, or be determinable as set forth in, the Prospectus Supplement
relating to the Warrants offered thereby. Warrants may be exercised at any time
up to the close of business on the expiration date set forth in the Prospectus
Supplement relating to the Warrants offered thereby. After the close of
business on the expiration date, unexercised Warrants will become void.
Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Warrants offered thereby. Upon receipt of payment and the
warrant certificate properly completed and duly executed at the corporate trust
office of the Warrant Agent or any other office indicated in the Prospectus
Supplement, the Company will, as soon as practicable, forward the Securities
purchasable upon such exercise. If less than all of the Warrants represented by
such warrant certificate are exercised, a new warrant certificate will be issued
for the remaining Warrants.
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PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for
public offering and sale by them and may also sell the Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of Securities will be named in the applicable Prospectus Supplement.
The Company has reserved the right to sell or exchange Securities directly to
investors on its own behalf in those jurisdictions where and in such manner as
it is authorized to do so.
The distribution of the Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. Sales of Common Stock
offered hereby may be effected from time to time in one or more transactions on
the New York Stock Exchange or in negotiated transactions or a combination of
such methods. The Company may also, from time to time, authorize dealers,
acting as the Company's agents, to offer and sell Securities upon the terms and
conditions as are set forth in the applicable Prospectus Supplement. In
connection with the sale of Securities, underwriters may receive compensation
from the Company in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Securities for whom they may act
as agent. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent. Any such underwriter, dealer or agent will be
identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement. Unless otherwise indicated in a
Prospectus Supplement, an agent will be acting on a best efforts basis and a
dealer will purchase Securities as a principal, and may then resell such
Securities at varying prices to be determined by the dealer.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Dealers and agents
participating in the distribution of Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities may be deemed to be underwriting
discounts and commissions. Underwriters, dealers and agents may be entitled,
under agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act, and to reimbursement by the Company for certain expenses.
To facilitate an offering of a series of Securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the Securities. This may include
over-allotments or short sales of the Securities, which involves the sale by
persons participating in the offering of more Securities than have been sold to
them by the Company. In such circumstances, such persons would cover such over-
allotments or short positions by purchasing in the open market or by exercising
the over-allotment option granted to such persons. In addition, such persons
may stabilize or maintain the price of the Securities by bidding for or
purchasing Securities in the open market or by imposing penalty bids, whereby
selling concessions allowed to dealers participating in any such offering may be
reclaimed if Securities sold by them are repurchased in connection with
stabilization transactions. The effect of these transactions may be to
stabilize or maintain the market price of the Securities at a level above that
which might otherwise prevail in the open market. Such transactions, if
commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby
will be passed upon for the Company by Latham & Watkins, Menlo Park, California.
Certain legal matters will be passed upon for any agents or underwriters by
counsel for such agents or underwriters identified in the applicable Prospectus
Supplement.
EXPERTS
The consolidated financial statements of the Company appearing in
the Company's Annual Report (Form 10-K) for the year ended December 28, 1997
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
16
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY, ANY OF THE NOTES OR COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Prospectus Supplement Summary............................................ S-3
Risk Factors............................................................. S-7
Use of Proceeds.......................................................... S-19
Price Range of Common Stock and Dividend Policy.......................... S-20
Capitalization........................................................... S-21
Selected Consolidated Financial Data and Ratio of Earnings to Fixed
Charges................................................................. S-22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-24
Description of Notes..................................................... S-30
Certain Federal Income Tax Considerations................................ S-40
Underwriting............................................................. S-42
Legal Matters............................................................ S-43
PROSPECTUS
Available Information.................................................... 2
Incorporation Incorporated by Reference.................................. 2
The Company.............................................................. 3
Risk Factors............................................................. 3
Use of Proceeds.......................................................... 3
Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges
and Preferred Stock Dividends........................................... 4
General Description of Securities........................................ 5
Description of Debt Securities........................................... 5
Description of Preferred Stock........................................... 11
Description of Common Stock.............................................. 14
Description of Warrants.................................................. 14
Plan of Distribution..................................................... 16
Legal Matters............................................................ 16
Experts.................................................................. 16
</TABLE>
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[LOGO OF AMD APPEARS HERE]
ADVANCED MICRO DEVICES, INC.
$400,000,000
% CONVERTIBLE
SUBORDINATED NOTES
DUE 2005
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PROSPECTUS
SUPPLEMENT
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DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY
DATED , 1998
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