<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1998
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-7882
------------------
ADVANCED MICRO DEVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1692300
- -------------------------------- ------------------------------------------
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
One AMD Place
P. O. Box 3453
Sunnyvale, California 94088-3453
- ---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 732-2400
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
The number of shares of $0.01 par value common stock outstanding as of April 10,
1998: 143,365,262.
<PAGE>
ADVANCED MICRO DEVICES, INC.
- ----------------------------
INDEX
- -----
<TABLE>
<CAPTION>
Part I.
Financial Information Page No.
- --------------------- --------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations--
Quarters Ended March 29, 1998 and March 30, 1997 3
Condensed Consolidated Balance Sheets--
March 29, 1998 and December 28, 1997 4
Condensed Consolidated Statements of Cash Flows--
Three Months Ended March 29, 1998
and March 30, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 32
Item 6. Exhibits and Report on Form 8-K 32
Signature 33
---------
</TABLE>
2
<PAGE>
I. FINANCIAL INFORMATION
---------------------
ITEM 1.
-------
FINANCIAL STATEMENTS
--------------------
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
March 29, March 30,
1998 1997
--------- ----------
<S> <C> <C>
Net sales $ 540,856 $ 551,999
Expenses:
Cost of sales 423,591 349,076
Research and development 128,120 104,908
Marketing, general and administrative 88,214 94,519
--------- ---------
639,925 548,503
--------- ---------
Operating income (loss) (99,069) 3,496
Litigation settlement (11,500) --
Interest income and other, net 5,581 13,322
Interest expense (12,472) (9,410)
--------- ---------
Income (loss) before income taxes and equity in joint
venture (117,460) 7,408
Provision (benefit) for income taxes (46,997) 2,148
--------- ---------
Income (loss) before equity in joint venture (70,463) 5,260
Equity in net income of joint venture 7,736 7,691
--------- ---------
Net income (loss) $ (62,727) $ 12,951
========= =========
Net income (loss) per common share:
Basic $ (0.44) $ 0.09
========= =========
Diluted $ (0.44) $ 0.09
========= =========
Shares used in per share calculation:
Basic 142,503 138,616
========= =========
Diluted 142,503 146,758
========= =========
</TABLE>
See accompanying notes
- ----------------------
3
<PAGE>
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS*
-------------------------------------
(Thousands)
<TABLE>
<CAPTION>
March 29, December 28,
1998 1997
-------------- --------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 192,481 $ 240,658
Short-term investments 114,323 226,374
----------- -----------
Total cash, cash equivalents and short-term investments 306,804 467,032
Accounts receivable, net 254,346 329,111
Inventories:
Raw materials 32,028 33,375
Work-in-process 92,712 96,712
Finished goods 33,119 38,430
----------- -----------
Total inventories 157,859 168,517
Deferred income taxes 160,583 160,583
Prepaid expenses and other current assets 36,214 50,024
----------- -----------
Total current assets 915,806 1,175,267
Property, plant and equipment, at cost 3,951,830 3,799,051
Accumulated depreciation and amortization (1,897,535) (1,808,362)
----------- -----------
Property, plant and equipment, net 2,054,295 1,990,689
Investment in joint venture 208,616 204,031
Other assets 153,589 145,284
----------- -----------
$ 3,332,306 $ 3,515,271
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable to banks $ 5,372 $ 6,601
Accounts payable 279,176 359,536
Accrued compensation and benefits 74,047 63,429
Accrued liabilities 113,186 134,656
Income tax payable 13,500 12,676
Deferred income on shipments to distributors 78,427 83,508
Current portion of long-term debt and capital lease obligations 95,048 66,364
----------- -----------
Total current liabilities 658,756 726,770
Deferred income taxes 41,568 96,269
Long-term debt and capital lease obligations, less current portion 666,271 662,689
Stockholders' equity:
Capital stock:
Common stock, par value 1,435 1,428
Capital in excess of par value 1,026,313 1,018,884
Retained earnings 1,003,404 1,066,131
Accumulated other comprehensive income (65,441) (56,900)
----------- -----------
Total stockholders' equity 1,965,711 2,029,543
----------- -----------
$ 3,332,306 $ 3,515,271
=========== ===========
* Amounts as of March 29, 1998 are unaudited. Amounts as of December 28, 1997
were derived from the December 28, 1997 audited financial statements.
See accompanying notes
-----------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ADVANCED MICRO DEVICES, INC.
----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(Thousands)
Quarter Ended
----------------------------------------
March 29, March 30,
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (62,727) $ 12,951
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 112,160 88,821
Net loss on disposal of property, plant and equipment 528 3,110
Net gain realized on sale of available-for-sale securities - (4,978)
Compensation recognized under employee stock plans 1,961 7,733
Undistributed income of joint venture (7,736) (7,691)
Changes in operating assets and liabilities:
Net decrease (increase) in receivables, inventories,
prepaid expenses and other assets 83,843 (5,286)
Net (increase) decrease in deferred income taxes (54,701) 4,440
Decrease (increase) in income tax payable 824 (5,777)
Net (decrease) increase in payables and accrued liabilities (95,730) 21,475
--------- ----------
Net cash (used in) provided by operating activities (21,578) 114,798
--------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (181,230) (150,594)
Proceeds from sale of property, plant and equipment 5,707 130
Purchase of available-for-sale securities (248,361) (308,326)
Proceeds from sale of available-for-sale securities 359,184 138,892
Investment in joint venture - (128)
--------- ----------
Net cash used in investing activities (64,700) (320,026)
--------- ----------
Cash flows from financing activities:
Proceeds from borrowings 49,083 261,584
Payments on debt and capital lease obligations (16,457) (21,993)
Proceeds from issuance of stock 5,475 24,828
--------- ----------
Net cash provided by financing activities 38,101 264,419
--------- ----------
Net (decrease) increase in cash and cash equivalents (48,177) 59,191
Cash and cash equivalents at beginning of period 240,658 166,194
--------- ----------
Cash and cash equivalents at end of period $ 192,481 $ 225,385
========= ==========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the first three months for:
Income taxes $ (1,498) $ (101,435)
========= ==========
</TABLE>
See accompanying notes
- ----------------------
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
The Company uses a 52- to 53-week fiscal year ending on the last Sunday in
December. The quarters ended March 29, 1998 and March 30, 1997 each included
13 weeks.
Certain prior year amounts on the Condensed Consolidated Financial Statements
have been reclassified to conform to the 1998 presentation.
2. The following is a summary of available-for-sale securities as of March 29,
1998 (in thousands):
<TABLE>
<S> <C>
Cash equivalents:
Commercial paper $ 4,954
Certificates of deposit 20,001
Federal agency notes 28,032
Other debt securities 26
--------
Total cash equivalents $ 53,013
========
Short-term investments:
Money market auction rate preferred stocks $ 61,500
Certificates of deposit 14,993
Treasury notes 10,009
Corporate notes 17,950
Commercial paper 9,871
--------
Total short-term investments $114,323
========
Long-term investments:
Equity investments $ 12,438
Treasury notes 1,996
--------
Total long-term investments $ 14,434
========
</TABLE>
3. Basic earnings per share is based upon weighted-average common shares
outstanding. Diluted earnings per share is computed using the weighted-
average common shares outstanding plus any potential dilutive securities.
Dilutive securities include stock options, warrants, restricted stock,
convertible debt and convertible preferred stock. The following table sets
forth the computation of basic and diluted net income (loss) per common
share:
6
<PAGE>
<TABLE>
<CAPTION>
(Thousands except per share data) Quarter Ended
-----------------------------------------
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Numerator:
Net income (loss) $(62,727) $ 12,951
-------- --------
Numerator for basic and diluted net income
(loss) per common share $(62,727) $ 12,951
-------- --------
Denominator:
Denominator for basic net income (loss)
per common share - weighted-average
shares 142,503 138,616
Effect of dilutive securities:
Employee stock options - 7,873
Warrants - 269
-------- --------
Dilutive potential common shares - 8,142
Denominator for diluted net income
(loss) per common share - adjusted
weighted-average shares 142,503 146,758
-------- --------
Basic net income (loss) per common share $ (0.44) $ 0.09
======== ========
Diluted net income (loss) per common share $ (0.44) $ 0.09
======== ========
</TABLE>
Options, warrants and restricted stock were outstanding during the quarter
ended March 29, 1998, but were not included in the computation of diluted net
loss per common share because the effect in periods with a net loss would be
antidilutive. Options to purchase 335,980 shares of common stock at a
weighted-average price of $35.51 per share were outstanding during the
quarter ended March 30, 1997, but were not included in the computation of
diluted net income per common share because the options' exercise price was
greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.
4. In 1996, the Company entered into a syndicated bank loan agreement (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 loan is repayable in eight equal quarterly
installments of approximately $31 million commencing in October 1998. The
Credit Agreement contains provisions regarding limits on the Company's and
its subsidiaries' ability to engage in various transactions and requires
satisfaction of specified financial performance criteria. At March 29, 1998,
the Company was in compliance with all restrictive covenants of the Credit
Agreement and all retained earnings were restricted as to payments of cash
dividends on common stock.
5. In 1993, AMD and Fujitsu Limited formed a joint venture, Fujitsu AMD
Semiconductor Limited (FASL), for the development and manufacture of non-
volatile
7
<PAGE>
memory devices. FASL operates advanced integrated circuit manufacturing
facilities in Aizu-Wakamatsu, Japan, to produce Flash memory devices. The
Company's share of FASL is 49.992 percent and the investment is being
accounted for under the equity method. At March 29, 1998, the cumulative
adjustment related to the translation of the FASL financial statements into
U.S. dollars resulted in a decrease of approximately $49 million to the
investment in FASL. In the first quarter of 1998 and of 1997, the Company
purchased $60 million and $50 million, respectively, of Flash memory devices
from FASL. At March 29, 1998 and March 30, 1997, the Company had outstanding
payables of $39 million and $24 million, respectively, to FASL for Flash
memory device purchases. At March 29, 1998 and March 30, 1997, the Company
had outstanding royalty receivables of $6 million and $8 million,
respectively, as a result of FASL sales. In the first quarter of 1998 and of
1997, the Company earned royalty income of $6 million and $4 million,
respectively, as a result of FASL sales.
The following is condensed unaudited financial data of FASL:
<TABLE>
<CAPTION>
(Thousands) Quarter Ended
-------------------------------------------
(Unaudited) March 29, 1998 March 30, 1997
-------------- ---------------
<S> <C> <C>
Net sales $119,001 $78,837
Gross profit 16,714 12,349
Operating income 13,929 12,324
Net income 10,550 6,047
</TABLE>
The Company's share of the above FASL net income differs from the equity in
net income of joint venture reported on the Condensed Consolidated
Statements of Operations due to adjustments resulting from the related
party relationship between FASL and the Company which are reflected on the
Company's Condensed Consolidated Statements of Operations.
6. As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income."
SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net loss or stockholders' equity.
SFAS 130 requires unrealized gains or losses on the Company's available-
for-sale securities and foreign currency translation adjustments, which
prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income.
Total comprehensive loss amounted to approximately $71 million and $11
million, respectively. The following are the components of comprehensive
loss:
8
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------
(Thousands) March 29, 1998 March 30, 1997
--------------- ---------------
<S> <C> <C>
Net income (loss) $(62,727) $ 12,951
Foreign currency translation adjustments (7,313) (22,568)
Unrealized losses on securities, net of tax:
Unrealized holding losses arising during the period (1,228) 2,473
Less: Reclassification adjustment for gains
included in earnings - (3,534)
-------- --------
Other comprehensive loss (8,541) (23,629)
-------- --------
Comprehensive loss $(71,268) $(10,678)
======== ========
</TABLE>
The components of accumulated other comprehensive income, net of related tax are
as follows:
<TABLE>
<CAPTION>
March 29, December 28,
(Thousands) 1998 1997
---------- ------------
<S> <C> <C>
Unrealized gain on investments 779 2,007
Cumulative translation adjustments (66,220) (58,907)
------- -------
(65,441) (56,900)
======= =======
</TABLE>
7. On April 23, 1998, the Company announced it had reached an agreement in
principle to settle the class action securities lawsuit against the Company and
certain of its current and former officers and directors. The agreement in
principle to settle is subject to the 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. The Company has recorded a liability
of $11,500,000 for the cost of settlement to the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
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 Financial
Condition and Risk Factors below, as well as such other risks and uncertainties
as are detailed in the Company's Securities and Exchange Commission reports and
filings for a discussion of the factors that could cause actual results to
differ materially from the forward-looking statements.
The following discussion should be read in conjunction with the included
Condensed Consolidated Financial Statements and Notes thereto, and 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.
AMD, the AMD logo, and combinations thereof, Advanced Micro Devices, 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. Other terms used to
identify companies and products may be trademarks of their respective owners.
10
<PAGE>
RESULTS OF OPERATIONS
AMD participates in all three technology areas within the digital integrated
circuit (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
Corporation (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) programmable logic
devices (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 29, December 28, March 30,
(Millions) 1998 1997 1997
------------ ----------- ----------
<S> <C> <C> <C>
CPG $169 $203 $128
Memory Group 167 181 184
Communications Group 149 174 171
Vantis 56 55 69
---- ---- ----
Total $541 $613 $552
==== ==== ====
</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(TM) microprocessors. AMD-K6
microprocessors sold at substantially higher average selling prices than AMD-
K5(TM) 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.
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.
11
<PAGE>
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
12
<PAGE>
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.
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 29, December 28, March 30,
(Millions) 1998 1997 1997
------------ ----------- ----------
<S> <C> <C> <C>
(Millions except for gross
margin percentage)
Cost of sales $424 $429 $349
Gross margin percentage 22% 30% 37%
Research and development $128 $127 $105
Marketing, general and
administrative 88 102 95
Litigation settlement 12 -- --
Interest income and other, net 6 7 13
Interest expense 12 12 9
</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.
13
<PAGE>
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 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
14
<PAGE>
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, as defined below. 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.
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 a Loan Agreement (the
Dresden Loan Agreement), denominated in deutsche marks, with a consortium of
banks led by Dresdner Bank AG under
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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 Indenture for 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 Indenture for the Senior Secured Notes 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 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 Indenture.
Generally, any such default which either (i) results from the Company's non-
compliance with the Dresden Loan Agreement and is
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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 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 a syndicated bank loan agreement (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
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 is 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. The
Company has filed a shelf registration statement for the offering of debt or
equity securities under the Securities Act of 1933, as amended.
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
Indenture, which would permit acceleration of indebtedness, which would have a
material adverse effect on the Company. There can be no
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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.
RISK FACTORS
The Company's business, results of operations and financial condition are
subject to a number of risk factors, including the following:
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.
Equipment installation is in progress at FASL II 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 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
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.
In March 1997, the Company's indirect wholly owned subsidiary, 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
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of the offering proceeds; (ii) if the Company generates $140 million of net
income (as defined in the Indenture for 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 Indenture for the Senior Secured Notes 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 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 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 in this market, 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
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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 personal computer 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 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 Corporation'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 Corporation's
decisions on processor 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, achieve the production ramp and product performance
improvements necessary to meet customer needs, 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 Corporation'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 Corporation's
competitors. In addition, Intel Corporation'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 Corporation's
strength also enables it to exert substantial influence and 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
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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
Corporation'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
processor-based PC systems.
Intel Corporation's Pentium 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 processors.
Thus, Intel is decreasing its support of the Socket 7 infrastructure as it
transitions away from its Pentium processors. Because the AMD-K6 microprocessor
is designed to be Socket 7 compatible, and will not work with motherboards
designed for Slot 1 Pentium II processors, 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
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processors, because the Company's patent cross-license agreement with Intel does
not extend to AMD microprocessors that are bus interface protocol compatible
with Intel Corporation's Pentium Pro, Pentium II and subsequent generation
processors. 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 processors. 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.
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 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 processors but not
used by Intel in its processors. 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 processors. In addition, AMD has obtained Windows, Windows 95 and Windows NT
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 processor 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
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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 personal computers 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 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 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
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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, 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 of 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 development and
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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 integrated circuits 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 integrated circuit 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
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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 Indenture for the Senior
Secured Notes 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 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 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, 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
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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 of 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 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 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
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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 notice,
generally contain a provision for the return of the Company's products in the
event the
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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.
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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 AMD 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 AMD 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 Company's common stock and consequently limit the Company's ability to
raise capital or to make acquisitions. The Company's current business plan
envisions substantial cash outlays requiring external capital financing. There
can be no assurance 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.
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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.
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II. Other Information
Item 1. Legal Proceedings
McDaid v. Sanders, et al. (Case No. C-95-20750-JW, N.D. Cal.): Kozlowski, et al.
V. Sanders, et al. (Case No. C-95-20829-JW, N.D. Cal.). On April 23, 1998, the
Company announced that it had reached an agreement in principle to settle this
class action for $11,500,000 to be funded by the Company. The agreement is
subject to the approval of the Company's Board of Directors and confirmation by
the United States District Court in San Jose, California. The Company's
financial results are not materially adversely affected.
Item 6. Exhibits and Report on Form 8-K
(a). Exhibits
*3.2 By-Laws, as amended
27 Financial Data Schedule
(b). Report on Form 8-K
The following report on Form 8-K was filed during the quarter
for which this report is filed:
1. Current Report on Form 8-K dated January 27, 1998 reporting
under Item 5 - Other Events - fourth quarter earnings.
________
* This report includes a correct copy of the By-Laws in effect as of the date
of this report in replacement of the copy of the By-Laws previously filed.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly earned this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED MICRO DEVICES, INC.
Date: April 23 , 1998 By: /s/ James P. Ashby
--------------- -------------------
James P. Ashby
Vice President and
Corporate Controller
Signing on behalf of the
registrant and as the principal
accounting officer
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EXHIBIT INDEX
-------------
Exhibits
- --------
* 3.2 By-Laws, as amended
27 Financial Data Schedule
_______
* This report includes a correct copy of the By-Laws in effect as of the date
of this report in replacement of the copy of the By-Laws previously filed.
<PAGE>
EXHIBIT 3.2
ADVANCED MICRO DEVICES, INC.
BYLAWS
------
(AS AMENDED)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. Subject to the rights of holders of any class or series of
stock of the Corporation having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified circumstances,
nominations for the election of directors may be made by or at the direction of
the Board of Directors generally. Subject to the foregoing, only a stockholder
of record entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting of stockholders and
only if written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation and has been received
by the Secretary not later than the following dates: (i) with respect to an
election to be held at an annual meeting of stockholders, 90 days in advance of
such meeting; and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the tenth day following the date on which notice of such meeting if first given
to stockholders.
Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice;
<PAGE>
(c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; and
(d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors.
To be effective, each notice of intent to make a nomination given hereunder
shall be accompanied by the written consent of each nominee to serve as a
director of the Corporation if elected.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not properly brought before the
meeting in accordance with the provisions hereof and, if he should so determine,
he shall declare to the meeting that such nomination was not properly brought
before the meeting and shall not be considered.
Section 2. Annual meetings of the stockholders shall be held on the
third Wednesday in May if not a legal holiday, and if such a legal holiday, then
at the next secular day following, at 4:00 p.m., or at such other date and time
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, at which they shall elect by plurality vote, a Board
of Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten or more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
2
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Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the chairman and shall be called by the chairman
or secretary at the request in writing of a majority of the Board of Directors.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given less than ten nor more than sixty days before the date
of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. At any special meeting of stockholders only such business
shall be conducted as shall have been set forth in the notice of special
meeting. At an annual meeting of stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of the meeting (or any supplemental thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (iii) otherwise (a) properly
requested to be brought before the meeting by a stockholder of record entitled
to vote in the election of directors generally, and (b) constitute a proper
subject to be brought before such meeting.
For business (other than the election of directors) to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be given, either by personal delivery or
by United States mail, postage prepaid, to the Secretary of the Corporation and
must have been received by the Secretary no later than 90 days in advance of
such meeting. A stockholder's notice to the Secretary shall set forth as to
each matter (other than the election of directors) the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder intending to propose such business (c)
the class and number of shares of capital stock of the Corporation which are
beneficially owned by the stockholder, (d) a representative that the stockholder
is a holder of record of capital stock of the Corporation entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
present such business, and (e) any material interest of the stockholder in such
business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at any annual meeting except in accordance with the
procedures set forth in this Section 7. The chairman of the annual meeting
shall, if the facts warrant, determine and declare to the meeting that (i) the
business proposed to be brought before the meeting was not a proper subject
therefor and/or (ii) such business was not properly brought before the meeting
and in accordance with the provisions of this Section 7, and, if he should so
determine, he shall so declare to the meeting and any
3
<PAGE>
such business not properly brought before the meeting or not a proper subject
therefore shall not be transacted. Notwithstanding compliance with the
requirements of this Section 7, the chairman presiding at any meeting of the
stockholders may, in his sole discretion, refuse to allow a stockholder or
stockholder's representative to present any proposal which the Corporation would
not be required to include in a proxy statement under any rule promulgated by
the Securities and Exchange Commission.
For purposes of this Section 7, and Section 1 of Article II of these
Bylaws, reference to a requirement to deliver notice to the Corporation a set
number of days in advance of an annual meeting shall mean that such notice must
be delivered such number of days in advance of the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
-------- -------
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from the first anniversary of the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which notice of such meeting is first given to
stockholders. For purposes of these Bylaws, notice of such meeting shall be
deemed to be first given to stockholders when disclosure of such date is first
made in a press release reported by the Dow Jones News Service, Associated Press
or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 and 15 (d) of the Securities Exchange Act of 1934.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of applicable law,
rule or regulation or of the Certificate of Incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
4
<PAGE>
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period.
Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, the meeting and vote of stockholders may be dispensed with if the
written consent of the stockholders having not less than such percentage of the
number of votes as may be required by the Certificate of Incorporation,
applicable law, rule or regulation is delivered to the Corporation at its
registered office in the State of Delaware or at its principal place of business
or to an officer or agent of the Corporation having custody of the books in
which the proceedings of the stockholders are recorded; provided that in no case
shall the written consent be by the holders of stock having less than the
minimum percentage of the vote required by statute for the proposed corporate
action, and provided that prompt notice must be given to all stockholders of the
taking of corporate action without a meeting and by less than unanimous written
consent.
Section 12. The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting by the person presiding over the meeting. The Board
of Directors of the Corporation may to the extent not prohibited by law adopt by
resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Directors, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgement of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board of
Directors or prescribed by the chairman of the meeting, may to the extent not
prohibited by law include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine
(iv) restrictions on entry to the meeting after the time fixed for commencement
thereof; and (v) limitations on the time allotted to questions or comments by
participants. Unless, and to the extent, determined by the Board of Directors
or the chairman of the meeting, meetings or stockholders shall not be required
to be held in accordance with the rules of parliamentary procedure.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be not less than three (3) not more than eleven (11). The first board
shall consist
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of three (3) directors. Thereafter, within the limits above specified, the
number of directors shall be determined by resolution of the Board of Directors
or by the stockholders at the annual meeting. The directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 2 of this
Article, and each director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the Corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
Section 4. The provisions of Sections 1 and 2 of this Article are subject
to the rights, if any, of the holders of shares of any series of the Preferred
Stock of the Corporation with respect to the election of directors in the event
the Corporation defaults in the payment of dividends, the term of office of any
director so elected and the filing of a vacancy in the office of any director so
elected.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. Board of Directors of the Corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
Section 6. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at
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such time and place as shall be specified in a notice given hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board.
Section 8. Special meetings of the board may be called by the Chairman
upon notice thereof given to each director either by mail not less than 48 hours
before the date of the meeting, by telephone or telegram on 24 hours' notice, or
on such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances. Special meetings shall be called
by the Chairman, the president or the secretary in like manner or on like notice
on the written request of two directors.
Section 9. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. Pursuant to Section 141 (i) of the Delaware Corporation Law,
meetings of the Board of Directors may be held by use of conference telephone
communications equipment by means of which all persons participating in the
meeting can hear each other.
Section 11. Unless otherwise restricted by the Certificate of
Incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing or writings are filed with the minutes of proceedings
of the board or committee.
COMMITTEES OF DIRECTORS
Section 12. The Board of Directors may, in the manner provided by law,
designate one or more committees of the board. Any such committee, to the
extent provided in the enabling resolution and permitted by applicable law,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it;
provided that in the absence or disqualification of any member of such committee
or committees, the member or members thereof present at
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any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Such committee or committees shall have such name or names as they may
be determined from time to time by resolution adopted by the Board of Directors.
Section 13. Meetings of a committee may be called by any member of the
committee upon notice thereof given to each member either by mail not less than
48 hours before the date of the meeting, by telephone or telegram on 24 hours'
notice, or on such shorter notice as the person or persons calling such meeting
may deem necessary or appropriate in the circumstances. Except as may be
otherwise specifically provided by the Board, at all committee meetings a
majority of the members of the committee shall constitute a quorum for the
transaction of business and the act of a majority of the members voting at any
meeting at which there is a quorum shall be the act of the committee; if a
quorum shall not be present at any committee meeting the members present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
COMPENSATION OF DIRECTORS
Section 14. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and any may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation thereof. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a chairman of the board, a president, a vice president, a
secretary and a treasurer. The Board of Directors may also choose additional
vice presidents, and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a chairman of the board, a president, one
or more vice presidents, a secretary and a treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors, or by the officers under authority
granted by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the board shall be the chief executive officer
of the Corporation; he shall preside at all meetings of the stockholders and
directors, shall have general and active management of the business of the
Corporation, shall see that all orders and resolutions of the board are carried
into effect and shall perform such other duties as the Board of Directors shall
prescribe. The chairman of the board shall be a full time employee and subject
to such compensation as the Board of Directors shall determine.
THE PRESIDENT
Section 7. The president of the Corporation shall be the principal
operating and administrative officer of the Corporation. If there is no
chairman of the board or during the absence or disability of the chairman of the
board, he shall exercise all of the powers and discharge all of the duties of
the chairman of the board. He shall possess
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power to sign all certificates, contracts and other instruments of the
Corporation. He shall, in the absence of the chairman of the board, preside at
all meetings of the stockholders and of the Board of Directors. He shall perform
all such other duties as are incident to his office or are properly required of
him by the Board of Directors.
THE VICE PRESIDENTS
Section 8. Unless otherwise provided by the Board of Directors, each
senior vice president may, in the absence of the president and the chairman of
the Board of Directors, perform the duties and exercise the powers of the
president. Each vice president shall at all times possess power to sign all
certificates, contracts and other instruments of the Corporation, except as
otherwise limited in writing by the chairman of the board or the president of
the Corporation, and shall have such other authority and perform such other
duties as these bylaws or the Board of Directors, executive committee, chairman
of the board or present shall prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation to
such depositories as may be designated by the Board of Directors.
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Section 12. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
Section 13. If required by the Board of Directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such powers as the Board of Directors may
from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by, or in the name of the Corporation by, the
chairman or vice chairman of the Board of Directors or the president or a vice
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the Corporation, certifying the number of shares owned by
him in the Corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in
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its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5 (a). In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date of the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board of Directors within ten (10) days
of the date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of
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stockholders' meeting are recorded, to the attention of the Secretary of the
Corporation. Delivery shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts the resolution taking such
prior action.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
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CHECKS
Section 4. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the Corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Subject to Section 3 of this Article VIII, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) (a "third party proceeding") by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (an "indemnitee"),
against all expenses, liability and loss (including attorneys' fees, judgements,
fines, ERISA excise taxes or penalties and amounts paid in settlement) actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgement, order, settlement, conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Subject to Section 3 of this Article VIII, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgement in its favor (together with third
party proceedings, "proceedings") by reason of the fact that he is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another
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corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans (an "indemnitee"), against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
AUTHORIZATION OF INDEMNIFICATION
Section 3. Any indemnification under this Article VIII (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, or officer is
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by a majority vote of the
directors who were not parties to such actions, suit or proceeding, even though
less than a quorum, or (ii) if there are no such directors or if such directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding, described above, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case.
GOOD FAITH DEFINED
Section 4. For the purposes of any determination under Section 3 of this
Article VIII, a person shall be deemed to have acted or refrained from acting in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his action or forbearance
from acting was unlawful, if his action, or forbearance as the case may be, is
based on the records or books of account of the Corporation or other enterprise,
or on information supplied to him by the officers of the Corporation or other
enterprise in the course of their duties, or on the advice of legal counsel for
the Corporation or other enterprise or on information or records given or
reports made to the Corporation or other enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Corporation or other enterprise. The term "other enterprise" as
used in this Section 4 shall mean any other Corporation or any partnership,
joint
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venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Corporation as a director, officer or
employee. The provisions of this Section 4 shall not be deemed to be exclusive
or to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be.
PROCEDURES FOR INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
Section 5 (a). Any indemnification under Sections 1 or 2 or advancement of
expenses under Section 6 accompanied by the requisite undertaking of this
Article VIII shall be made promptly, and in any event within ninety days, upon
the written request of the person seeking indemnification or advancement of
expense, unless, in the case of indemnification a determination is reasonably
and promptly made by the Board of Directors by a majority vote of the directors
who are not parties to the action, suit or proceeding in question, even though
less than a quorum, that such person acted in a manner set forth in such
Sections 1 or 2, as the case may be, as to justify the Corporation's not
indemnifying such person. In the event there are no such directors or if such
directors so direct, the Board of Directors shall promptly direct that
independent legal counsel shall give its opinion in writing whether such person
acted in the manner set forth in such Sections 1 or 2, as the case may be, as to
justify the Corporation's not indemnifying such person.
(b) The right to indemnification or advancement of expenses
granted by this Article shall be enforced by such person in the Court of
Chancery of the State of Delaware, if the Board of Directors or independent
legal counsel denies the claim, in whole or in part, or if no disposition of
such claim is made within ninety days. The costs and expenses incurred by such
person in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
EXPENSES PAYABLE IN ADVANCE
Section 6. Except as limited by Section 5 of this Article, expenses
incurred in defending a threatened or pending action, suit or proceeding shall
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article VIII.
NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION
Section 7. The indemnification and advancement of expenses provided by or
granted pursuant to the other Sections of this Article VIII shall not be deemed
exclusive
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of any other rights to which any person seeking indemnification or advancement
of expenses may be entitled under any bylaw, agreement, contract, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by Delaware law. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Sections 1 or 2 of this Article VIII but whom the Corporation has
the power or obligation to indemnify under the provisions of Delaware law or
otherwise. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall, unless otherwise provided or
ratified, continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of the heirs, executors and
administrators of such person.
INSURANCE
Section 8. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director or employee of the Corporation, or is or
was serving at the request of the Corporation as a director, officer or employee
of another Corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the Corporation would have the power or the obligation to indemnify him against
such liability under the provisions of this Article VIII, or otherwise under
Delaware law.
MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE VIII
Section 9. For purposes of this Article VIII, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers or employees,
so that any person who is or was a director, officer or employee, of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under the provisions of this Article VIII with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
Section 10. Subject to Subject 5 (b) hereof, the Corporation shall be
required to indemnify an indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if the initiation of such proceeding
(or part thereof) by the indemnitee was authorized in writing by the Board of
Directors.
17
<PAGE>
ARTICLE IX
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors, by the Certificate of Incorporation,
at any regular meeting of the stockholders or of the Board of Directors or at
any special meeting of the stockholders or of the Board of Directors if notice
of such alteration, amendment, repeal or adoption of new bylaws be contained in
the notice of such meeting.
18
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