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1995
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Mark one
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended OCTOBER 29, 1995
/ / 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 0-6920
APPLIED MATERIALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1655526
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3050 BOWERS AVENUE, SANTA CLARA, CALIFORNIA 95054
Address of principal executive offices (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 727-5555
SECURITIES REGISTERED PURSUANT TO
SECTION 12(b) OF THE ACT:
Title of class Name of each exchange on which registered
-------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value NASDAQ
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of December 15, 1995: $ 7,533,374,394
Number of shares outstanding of the issuer's Common Stock, $.01 par value, as of
December 15, 1995: 179,366,057
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Applied Materials 1995 Annual Report for the year ended October 29,
1995 are incorporated by reference into Parts I, II and IV of this Form 10-K.
Portions of the definitive Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on March 14, 1996 are incorporated by reference into
Part III of this Form 10-K.
Index to Exhibits appears on pages 17 through 19.
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PART I
ITEM 1: BUSINESS
Organized in 1967, Applied Materials, Inc. ("Applied Materials" or the
"Company") develops, manufactures, markets and services semiconductor wafer
fabrication equipment and related spare parts. The Company's worldwide customers
include both companies which manufacture semiconductor devices for use in their
own products and companies which manufacture semiconductor devices for sale to
others. Applied Materials operates exclusively in the semiconductor wafer
fabrication equipment industry. The Company is also a fifty percent stockholder
in Applied Komatsu Technology, Inc., which produces thin film transistor
manufacturing systems for active-matrix liquid crystal displays.
PRODUCTS
Applied Materials' products are sophisticated systems utilizing
state-of-the-art technology in wafer processing chemistry and physics,
particulate management, process control, software and automation. Many of these
technologies are complementary and can be applied across all of the Company's
products. The Company's products, which provide enabling technology,
productivity and yield enhancements to semiconductor manufacturers, are used to
fabricate semiconductor devices on a substrate of semiconductor material
(primarily silicon). A finished device consists of thin film layers which can
form anywhere from one to millions of tiny electronic components that combine to
perform desired electrical functions. The fabrication process must control film
and feature quality to ensure proper device performance while meeting yield and
throughput goals. The Company currently manufactures equipment that addresses
three major steps in wafer fabrication: deposition, etch and ion implantation.
Recently, the Company introduced a rapid thermal processing (RTP) system, which
provides versatility and broad application to many areas of semiconductor
manufacturing.
Single-wafer, multi-chamber architecture.
Recognizing the trend toward more stringent process requirements and
larger wafer sizes, Applied Materials developed a single-wafer, multi-chamber
system called the Precision 5000. The Company introduced the Precision 5000 with
dielectric chemical vapor deposition (CVD) processes in 1987, etch processes in
1988 and CVD tungsten processes (WCVD) in 1989. The Precision 5000's
single-wafer, multi-chamber architecture features several processing chambers,
each of which is attached to a central handling system, and is designed for both
serial and integrated processing. The Precision 5000's integrated processing
capability makes it possible to perform multiple process steps on a wafer
without it leaving a controlled environment, thus reducing the risk of
particulate contamination. The Company leveraged its expertise in single-wafer,
multi-chamber architecture to develop an evolutionary platform called the Endura
5500 PVD (Physical Vapor Deposition) in 1990 featuring a staged, ultra-high
vacuum (UHV) architecture for the rapid sputtering of aluminum and other metal
films used to form the circuit interconnections on advanced devices. In October
1991, the Company announced its second-generation Precision 5000 system, the
Precision 5000 Mark II, with numerous enhancements to the platform, process
chambers and remote support equipment. The Precision 5000 Mark II is used to
manufacture advanced devices, such as 16 megabit DRAMs (Dynamic Random Access
Memories), on 200mm (8-inch) wafers. In September 1992, the Company announced
its latest generation single-wafer, multi-chamber platform, the Centura, to
target the high temperature thin films market as well as future process
applications with 0.5-micron and below specifications. The Company has shipped
more than 3,000 multi-chamber platforms and 9,000 process chambers. For the
fiscal year ended October 29, 1995, sales of the Company's single-wafer,
multi-chamber systems represented approximately 92% of systems revenue.
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Deposition.
A fundamental step in semiconductor fabrication, deposition is a process
in which a layer of either electrically insulating (dielectric) or electrically
conductive material is deposited on a wafer. Deposition can be divided into
several different categories of which Applied Materials currently participates
in three: chemical vapor deposition (CVD), physical vapor deposition (PVD), and
epitaxial and polysilicon deposition.
CVD. Chemical vapor deposition is a process used in semiconductor
fabrication in which thin films (insulators, conductors and
semiconductors) are deposited from gaseous sources. In 1987, the Company
introduced the Precision 5000 CVD which, with its automated multi-chamber
architecture, provides the flexibility to perform a broad range of
deposition processes utilizing up to four individual chambers on a single
system. The Company introduced its newest generation of sub-atmospheric
process technologies on the Precision 5000 Mark II CVD platform in April
1994, addressing applications to 0.35-microns. In 1995, the Company
announced the MxP+, which provides a significant enhancement to its
Precision 5000 CVD system by improving system throughput and reducing
ownership costs. In addition, the Company announced in April 1995 its
entry into the pre-metal CVD market, using the Company's sub-atmospheric
CVD technology to deposit borophosphosilicate glass films. In July 1995,
the Company introduced the Dielectric CVD product line on the Centura
platform and launched CVD's latest chamber technology called "DxZ" on the
Centura platform. The chamber features a new, simplified design and a
resistive wafer heater.
In September 1989, the Company entered the market for WCVD with the
introduction of a system for blanket tungsten deposition, the Precision
5000 WCVD. The Company has continued to add capabilities to this system,
including integrated tungsten plug fabrication capability which combines
blanket tungsten CVD deposition and etchback capabilities in the same
system. The Company has also added tungsten silicide and titanium nitride
capabilities to further extend the Precision 5000 platform offerings.
Other product developments in WCVD include the introduction of a new
multi-platform chamber for blanket tungsten deposition on wafers up to
200mm (8-inch) in diameter and the introduction of a new CVD process for
tungsten silicide using dichlorosilane as the silicon source gas.
PVD. Physical vapor deposition sputters metals on wafers during
semiconductor fabrication to form the circuit interconnects. Unlike CVD,
the sources of the deposited materials are solid sources called targets.
Applied Materials entered the PVD market in April 1990 with the Endura
5500 PVD system. The system utilizes a modular, single-wafer,
multi-chamber platform which accommodates UHV processes like PVD, and
conventional high vacuum processes like CVD and etch. In July 1993, the
Company introduced the Endura HP (High Productivity) PVD system, an
enhanced version of the Endura PVD system. In November 1993, the Centura
HP PVD was introduced in order to offer customers a choice of platforms
using the Company's PVD technology. In November 1994, the Endura VHP (Very
High Productivity) PVD system was launched, further enhancing the wafer
transfer system to raise throughput.
Epitaxial and polysilicon deposition. Epitaxial (Epi) and
polysilicon deposition involve depositing layers of high-quality,
silicon-based compounds on the surface of a silicon wafer to change its
electrical properties and, in the case of epi, to form the base on which
the integrated circuit is built. In 1989, the Company introduced the
Precision 7700 Epi system for advanced silicon deposition. The 7700 system
extends the capabilities of radiantly-heated "barrel" technology and
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incorporates fully automated wafer handling as well as many features for
particulate control. In September 1992, the Company announced the Centura
Poly, a single-wafer, multi-chamber platform targeted at the high
temperature thin film deposition of polysilicon on wafers up to 200mm (8
inches) in diameter. The Centura Epi system, which features deposition of
epitaxial silicon, was announced in March 1993. In December 1993, the
Company launched the Centura Polycide which combines chambers for
polysilicon and tungsten silicide deposition on the Centura platform.
Etch.
Prior to etch processing, a wafer is patterned with photoresist during
photolithography. Etching then selectively removes material from areas which are
not covered by the photoresist pattern. Applied Materials entered the etch
market in 1981 with the introduction of the AME 8100 Etch system, which utilized
a batch process technology for dry plasma etching. In 1985, the Company
introduced the Precision Etch 8300, which featured improved levels of automation
and particulate control. The Company continues to sell the Precision Etch 8300
product and has shipped nearly 900 systems. Applied Materials' first
single-wafer, multi-chamber system for the dry etch market was the Precision
5000 Etch, introduced in 1988. In 1990, the Company introduced a metal etch
system based on the Precision 5000 architecture which provides single-wafer,
aluminum etch capabilities. In 1993, the Company introduced its next generation
etch platform, the Centura HDP Dielectric Etcher, designed for critical oxide
etch applications requiring sub-0.5-micron design rules and the Precision 5000
Mark II Etch MxP, a new model of the Precision 5000-series etch system with
several enhancements including process capability for 0.35-micron applications.
In July 1994, Applied Materials introduced the Metal Etch MxP Centura, which
combines sub-0.5-micron process technology with improved throughput. The Company
launched a new dielectric etch system in April 1995 combining its latest Centura
platform with an enhanced etch chamber, called MxP+. The Remote Plasma Source
(RPS) Centura, introduced in June 1995, extends the Company's range of
dielectric dry etch process technologies to several isotropic etch steps.
Ion Implantation.
During ion implantation, silicon wafers are bombarded by a high-velocity
beam of electrically charged ions. These ions are embedded within a wafer at
selected sites and change the electrical properties of the implanted area.
Applied Materials entered the high-current portion of the implant market in 1985
with the Precision Implant 9000 and introduced the Precision Implant 9200 in
1988. In 1989, the Company added enhancements to the 9200 series including a new
option for automated selection of implant angles, and new hardware/software
options that enable customers to perform remote monitoring and diagnostics. In
1991, the Company announced an enhanced version of its high-current ion
implanter and designated it the Precision Implant 9200XJ. In November 1992, the
Company introduced a new high-current ion implantation system, the Precision
Implant 9500, to address the production of high-density semiconductor devices,
such as 16 megabit and 64 megabit memory devices and advanced microprocessors.
In November 1994, the 9500xR model was introduced, further extending the range
of the 9500 system into the traditional medium-current area with enhanced
low-dose, low-energy implant performance. In October 1995, Applied Materials
introduced its latest implant system, the Precision Implant xR80. This system
features low-energy and small square footage requirements while maintaining high
throughput.
RTP.
In June 1995, Applied Materials introduced a new system, the Rapid Thermal
Processing (RTP) Centura, into the emerging RTP market. RTP uses very rapid
heating cycles to perform high-temperature processes traditionally done by
slower-heating batch furnace technologies. The new system is designed to solve
the limiting technical issues - temperature measurement and control, uniformity
and process repeatability - that have historically kept RTP from becoming a
production technology. The RTP Centura's
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metal implant annealing processes offer chipmakers improved device performance,
with demonstrated potential for significant yield improvements and faster
factory cycle time.
CUSTOMER SERVICE AND SUPPORT
The demand for improved production yields of integrated circuits requires
that semiconductor wafer processing equipment operate reliably, with maximum
uptime and within very precise tolerances. Applied Materials installs its
equipment and provides warranty service worldwide through offices located in the
North America, Japan, Europe (including Israel), Korea and the Asia-Pacific
(Taiwan, China and Singapore) regions. Applied Materials maintains 62
sales/service offices worldwide, with 21 offices in North America, 21 offices in
Japan, 10 offices in Europe, 6 offices in Korea, and 4 offices in the
Asia-Pacific region. The Company offers a variety of service contracts to
customers for maintenance of installed equipment and provides a comprehensive
training program for all customers.
BACKLOG
At October 29, 1995, the Company's backlog totaled $1.5 billion, compared
to $715.2 million at October 30, 1994. The Company expects to fill the present
backlog of orders during fiscal 1996.
MANUFACTURING, RAW MATERIALS AND SUPPLIES
The Company's manufacturing activities consist primarily of assembling
various commercial and proprietary components into finished systems, principally
in the United States, with additional operations in England and Japan.
Production requires some raw materials and a wide variety of mechanical and
electrical components, which are manufactured to the Company's specifications.
Multiple commercial sources are available for most components. The Company has
consolidated the number of sources for several key purchased items for purposes
of improving its position with suppliers, resulting in improved on-time
delivery, lower inventory levels and better pricing to the Company. There have
been no significant delays in receiving components from sole source suppliers;
however, the unavailability of any of these components could disrupt scheduled
deliveries to customers.
MARKETING AND SALES
Because of the highly technical nature of its products, the Company
markets its products worldwide through a direct sales force, with sales, service
and spare parts offices in the North America, Japan, Europe, Korea and
Asia-Pacific regions. For the fiscal year ended October 29, 1995, sales to
customers in North America, Japan, Korea, Europe, and Asia-Pacific were
approximately 32%, 26%, 17%, 15%, and 10%, respectively, of the Company's net
sales. For the fiscal year ended October 30, 1994, sales to customers in North
America, Japan, Korea, Europe, and Asia-Pacific were approximately 37%, 27%,
12%, 18%, and 6%, respectively, of the Company's net sales. The Company's
business is not seasonal in nature, but it is subject to the capital equipment
expenditure patterns of major semiconductor manufacturers which are based on
many factors including anticipated market demand for integrated circuits, the
development of new technologies and global economic conditions.
RESEARCH AND DEVELOPMENT
The market served by the Company is characterized by rapid technological
change. The Company's research and development efforts are global in nature.
Engineering organizations are located in the United States, England, Israel and
Japan, with process support and customer demonstration laboratories in the
United States, England and Japan. In 1991, the Company announced the opening of
an expanded technology center in Narita, Japan. The Company is currently
building, and intends to operate in fiscal 1996, technology centers in South
Korea and Taiwan. The Company also operates a technology center in Israel to
develop controller configuration and software tools for its semiconductor
processing systems.
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Applied Materials' research and development activities are primarily directed
toward the development of new wafer processing systems and new process
applications for existing products. The Company is currently investing in the
development of new products in conjunction with the semiconductor industry's
move to the next-generation 300 mm wafer size. Applied Materials works closely
with its global customers to design systems that meet its customers' planned
technical and production requirements.
COMPETITION
The global semiconductor equipment industry is highly competitive and is
characterized by rapid technological advancements and demanding worldwide
service requirements. Each of the Company's products competes in markets defined
by the particular wafer fabrication process it performs. There are several
companies that compete with Applied Materials in each of these markets.
Competition is based on many factors, primarily technological advancements,
productivity and cost-effectiveness, customer support, contamination control,
and overall product quality. Management believes that the Company's competitive
advantage in each of its served markets is based on the ability of its products
and services to address customer requirements as they relate to these
competitive factors.
Applied Materials is a principal supplier in each of its served markets.
The Company faces strong competition throughout the world from other
semiconductor equipment manufacturers as well as semiconductor manufacturers who
design and produce fabrication equipment for their own internal uses and, in
some cases, for resale. Management believes that the Company is a strong
competitor with respect to its products, services and resources. However, new
products, pricing pressures, and other competitive actions from both new and
existing competitors could adversely affect the Company's market position.
JOINT VENTURE
In September 1991, the Company announced its plans to develop thin film
transistor (TFT) manufacturing systems for Active-Matrix Liquid Crystal Displays
(AMLCDs). The AMLCD market currently includes screens for laptop, notebook and
palmtop computers and instrument displays, and the Company believes that this
market in the future may include flat panel monitors for desktop computers,
high-resolution workstations and television. In September 1993, a joint venture
company was formed with Applied Materials, Inc. and Komatsu Ltd. of Japan
sharing a 50-50 ownership of the joint venture. The joint venture, Applied
Komatsu Technology, Inc. (AKT), is accounted for using the equity method. The
Company's management believes that systems developed by AKT have the potential
to lower the manufacturing costs of AMLCDs as well as provide new process
technologies to enhance flat panel capabilities. The Company has granted to AKT
an exclusive license to use the Company's intellectual property to develop,
manufacture, and sell products for the manufacture of flat panel displays, in
exchange for royalties in respect thereof. AKT has been, and will continue
through 1996, accelerating its investment in product technologies for CVD, PVD
and Etch in addition to expanding the substrate size capacity of its products.
PATENTS AND LICENSES
Management believes that the Company's competitive position is primarily
dependent upon skills in engineering, production, and marketing rather than its
patent position. However, protection of the Company's technology assets by
obtaining and enforcing patents is increasingly important. Consequently, the
Company has an active program to file applications in the United States and
other countries on inventions which the Company considers significant. The
Company has a number of patents in the United States and other countries and
additional applications are pending for new developments in its equipment and
processes. In addition to patents, the Company also possesses other proprietary
intellectual property, including trademarks, know-how, trade secrets and
copyrights.
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The Company enters into patent and technology licensing agreements with
others when management determines that it is in the Company's best interest to
do so. The Company pays royalties under existing patent license agreements for
the use, in several of its products, of certain patents which are licensed to
the Company for the life of the patents.
The Company has made its technology, including patents, available to AKT
through a license arrangement which permits AKT to use the Company's technology
to develop, manufacture and sell equipment for the flat panel display industry.
In the normal course of business, the Company from time to time receives
and makes inquiries with regard to possible patent infringement. In dealing with
such inquiries, it may become necessary or useful for the Company to obtain and
grant licenses or other rights. However, there can be no assurance that such
license rights will be available to the Company on commercially reasonable
terms. While there can be no assurance about the outcome of such inquiries, the
Company believes that it is unlikely that their resolution will have a material
adverse effect on its financial position or results of operations.
ENVIRONMENTAL MATTERS
Although one of the Company's locations has been designated as a Superfund
site by the U.S. Environmental Protection Agency, neither compliance with
Federal, State and local provisions regulating discharge of materials into the
environment, nor remedial agreements or other actions relating to the
environment, has had or is expected to have a material effect on the Company's
capital expenditures, results of operations or competitive position.
EMPLOYEES
At October 29, 1995, the Company employed 10,537 regular full-time
employees. In the high technology industry, competition for highly skilled
employees is intense. The Company believes that a great part of its future
success depends on its continued ability to attract and retain qualified
employees. None of the Company's employees are represented by a trade union.
Management considers its relations with its employees to be good.
The following portions of the Company's 1995 Annual Report are
incorporated herein by reference: "Management's Discussion and Analysis of
Financial Condition and Results of Operations," pages 27 through 30, and the
Consolidated Financial Statements and accompanying notes thereto, pages 31
through 46.
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ITEM 2: PROPERTIES
Certain information concerning the Company's principal properties at October 29,
1995 is set forth below:
Square
Location Type Principal use Footage Ownership
-------- ---- ------------- ------- ---------
Santa Clara, CA Office, plant Headquarters, Marketing, 497,500 owned
& warehouse Manufacturing, Research 1,351,600 leased
and Engineering
Austin, TX Office, plant Manufacturing 352,000 owned
& warehouse 184,600 leased
Horsham, England Office, plant Manufacturing, Research
& warehouse and Engineering 74,000 leased
Narita, Japan Office, plant Manufacturing, Research
& warehouse and Engineering 218,500 owned*
Tel Aviv, Israel Office Research and Engineering 15,000 leased
The Company also leases office space for 62 sales and service offices
throughout the world: 21 offices are located in the United States, 21 offices
are in Japan, 10 offices are in Europe, 6 offices in Korea, and 4 offices are
located in the Asia-Pacific region.
The Company is currently constructing manufacturing and other operating
facilities in California, Texas, Korea and Taiwan. Upon completion of these
facilities, an additional 833,000 square feet of production and operating
capacity will be available.
The Company also owns 108 acres in Austin, Texas, and 30 acres in Santa
Clara, California, of buildable land. The Austin and Santa Clara land can
accommodate approximately 2,400,000 and 800,000 square feet, respectively, of
additional building space to help satisfy the Company's current and future
needs.
Management considers the above facilities suitable and adequate to meet
the Company's requirements.
* Subject to loans totaling $60 million secured by property and equipment having
an approximate net book value of $81 million at October 29, 1995.
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ITEM 3: LEGAL PROCEEDINGS
In the first of two lawsuits filed by the Company, captioned Applied
Materials Inc. v. Advanced Semiconductor Materials America, Inc., Epsilon
Technology, Inc. (doing business as ASM Epitaxy) and Advanced Semiconductor
Materials International N.V. (collectively "ASM") (case no. C-91-20061-RMW),
Judge William Ingram of the United States District Court for the Northern
District of California on April 26,1994, ruled that ASM's Epsilon I epitaxial
reactor infringes certain of the Company's United States patents and issued an
injunction against ASM's use and sale of the ASM Epsilon I in the United States.
ASM has appealed the decision and the injunction has been stayed pending the
appeal only as to ASM products offered for sale as of April 1994. The stay
order requires that ASM pay a fee, as security for the Company's interest, for
each Epsilon I system sold by ASM in the United States after the date of the
injunction. Judge Ronald M. Whyte of the same Court ruled that proceedings to
resolve the issues of damages, willful infringement and ASM's counterclaims,
which had been bifurcated for separate trial, will also be stayed pending the
appeal of Judge Ingram's decision. Oral arguments regarding this appeal were
completed on June 5, 1995, before the Court of Appeals for the Federal Circuit.
The trial of the Company's second patent infringement lawsuit against ASM,
captioned Applied Materials Inc. v. ASM (case no. C-92-20643-RMW), was concluded
before Judge Whyte in May 1995. On November 1, 1995, the Court issued its
judgment holding that the Company's patents were valid and infringed by ASM's
reduced pressure epitaxial reactors and stated that a permanent injunction will
be entered. A hearing is scheduled for February, 1996 to determine the scope of
the injunction and whether the injunction will be stayed pending ASM's appeal.
A separate lawsuit filed by ASM against the Company involving one patent
relating to the Company's single wafer epitaxial product line, captioned ASM
America Inc. v. Applied Materials Inc. (case no. C-93-20853-RMW), has been
delayed by the Court sua sponte. The case is proceeding through final discovery
and pretrial preparation, and is the subject of three motions by the Company for
summary judgment set for hearing in February 1996. A separate action severed
from ASM's case, captioned ASM America Inc. v. Applied Materials Inc. (case no.
C-95-20169-RWM), involves one patent which relates to the Company's Precision
5000 product line. No trial date has been set. Discovery and pretrial
investigation is proceeding. In these cases, ASM seeks injunctive relief,
damages and such other relief as the Court may find appropriate.
Further, the Company has filed a Declaratory Judgment action against ASM,
captioned Applied Materials, Inc. v. ASM (case no. C-95-20003-RMW), requesting
that an ASM patent be held invalid and not infringed by the Company's single
wafer epitaxial product line. Discovery and pretrial investigation is
proceeding. No trial date has been set. On July 7, 1995, ASM filed a lawsuit,
captioned ASM America Inc. v. Applied Materials Inc. (case no. C95-20586-RMW),
concerning susceptors in chemical vapor deposition chambers. Investigation has
just commenced. No discovery has occurred as yet, and no trial date has been
set.
In September 1994, General Signal Corporation filed a lawsuit against the
Company (case no. 94-461-JJF) in the United States District Court, District of
Delaware. General Signal alleges that the Company infringes five of General
Signal's United States patents by making, using, selling or offering for sale
multi-chamber wafer fabrication equipment, including for example, the Precision
5000 series machines. General Signal seeks an injunction, multiple damages and
costs, including reasonable attorneys' fees and interest, and such other relief
as the court may deem appropriate. This lawsuit is currently in discovery and no
trial date has been set.
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In January 1995, the Company filed a lawsuit against Novellus Systems,
Inc. in the United States District Court, Northern District of California (case
no. C-95-0243-MMC). This lawsuit alleges that Novellus' Concept One, Concept
Two, and Maxxus FTEOS systems infringe the Company's U.S. patent relating to the
TEOS-based, plasma enhanced CVD process for silicon oxide deposition. The
lawsuit seeks an injunction, multiple damages and costs, including reasonable
attorneys' fees and interest, and such other relief as the court may deem just
and proper. Damages and counterclaims have been bifurcated for separate trial. A
jury trial has been scheduled for August 1996, before the Honorable Maxine M.
Chesney. On September 15, 1995, the Company filed another lawsuit against
Novellus alleging Novellus' newly announced blanket tungsten interconnect
process infringes the Company's U.S. patent relating to a tungsten CVD process.
The Company also sought a declaration that a Novellus U.S. patent for a gas
purge mechanism is not infringed by the Company and/or is invalid. Novellus
answered by denying the allegations and counterclaimed by alleging that the
Company's plasma enhanced TEOS CVD systems infringe a Novellus U.S. patent
concerning a gas debubbler mechanism. Novellus also filed a new lawsuit as a
plaintiff before the same court which contains the same claims and patents as
those stated in the Company's September 15 lawsuit. Discovery and investigation
is beginning. No trial date has been set.
In the normal course of business, the Company from time to time receives
and makes inquiries with regard to possible patent infringement. Management
believes that it is unlikely that the outcome of these lawsuits or of the patent
infringement inquiries will have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS IN FOURTH QUARTER
OF FISCAL 1995
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and notes thereto identify and set forth information
about the Company's seven executive officers:
Name of Individual Capacities in which Served
- ------------------ --------------------------
James C. Morgan (1) Chairman of the Board of Directors and Chief Executive
Officer
James W. Bagley (2) Vice Chairman of the Board of Directors
Dan Maydan (3) President of the Company and Co-Chairman of Applied Komatsu
Technology, Inc.
Gerald F. Taylor (4) Senior Vice President and Chief Financial Officer
Sasson Somekh (5) Senior Vice President
David N.K. Wang (6) Senior Vice President
Keisuke Yawata (7) Senior Vice President of the Company and President and
Chief Executive Officer of Applied Materials Japan, Inc.
(1) Mr. Morgan, age 57, has been Chief Executive Officer since 1977 and Chairman
of the Board of Directors since 1987. Mr. Morgan also served as President of
the Company from 1976 to 1987.
(2) Mr. Bagley, age 56, was appointed Vice Chairman of the Board of Directors in
December 1993. Mr. Bagley was Chief Operating Officer of the Company from
1987 through October 1995, and served as President of the Company from
December 1987 to December 1993. Prior to that, Mr. Bagley served as Senior
Vice President of the Company since 1981. Mr. Bagley is a director of
Kulicke and Soffa Industries, Inc. and Tencor Instruments.
(3) Dr. Maydan, age 60, was appointed President of the Company in December 1993.
Dr. Maydan served as Executive Vice President from 1990 to December 1993.
Prior to that, Dr. Maydan had been Group Vice President since February 1989.
Dr. Maydan joined Applied Materials in 1980 as a Director of Technology. Dr.
Maydan is a director of Opal, Inc.
(4) Mr. Taylor, age 55, has been Chief Financial Officer of the Company since
1984. Mr. Taylor has also been a Senior Vice President of the Company since
1991 and was previously Vice President of Finance from 1984 to 1991.
(5) Dr. Somekh, age 49, was appointed Senior Vice President of the Company in
December 1993. Dr. Somekh served as Group Vice President from 1990 to 1993.
Prior to that, Dr. Somekh had been a divisional Vice President. Dr. Somekh
joined Applied Materials in 1980 as a Project Manager.
(6) Dr. Wang, age 49, was appointed Senior Vice President of the Company in
December 1993. Dr. Wang served as Group Vice President from 1990 to 1993.
Prior to that, Dr. Wang had been a divisional Vice President. Dr. Wang
joined Applied Materials in 1980 as a Manager, Process Engineering and
Applications.
(7) Mr. Yawata, age 61, was appointed President and Chief Executive Officer of
Applied Materials Japan, effective January 1, 1995. From 1985 through 1994,
Mr. Yawata was a Vice President, and from 1993 through 1994, he was
Executive Advisor to the Chairman, of LSI Logic Corp. From 1985 through
1992, Mr. Yawata was President, and from 1992 through 1993, he was Chairman,
of LSI Logic K.K.
11
12
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
"Stock Price History" on page 48 of the Applied Materials' 1995 Annual Report
is incorporated herein by reference.
The Company's common stock is traded on the NASDAQ over-the-counter market.
As of December 15, 1995 there were approximately 2,068 holders of record of the
common stock.
To date, the Company has paid no cash dividends to its stockholders. The
Company has no plans to pay cash dividends in the near future.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
"Selected Consolidated Financial Data" on page 26 of the Applied Materials
1995 Annual Report is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" on pages 27 through 30 of the Applied
Materials 1995 Annual Report is incorporated herein by reference.
12
13
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
Price Waterhouse LLP, Independent Accountants, dated November 22, 1995 appearing
on pages 31 through 48 of Applied Materials 1995 Annual Report are incorporated
by reference in this Form 10-K Annual Report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
14
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the Commission
in connection with the 1995 Annual Meeting of Stockholders ("the Proxy
Statement").
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information concerning directors of the Company appears in the Company's
Proxy Statement, under Item 1 - "Election of Directors." This portion of
the Proxy Statement is incorporated herein by reference.
(b) For information with respect to Executive Officers, see Part I of this
Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
Information concerning executive compensation appears in the Company's
Proxy Statement, under the caption "Executive Compensation," and is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the security ownership of certain beneficial
owners and management appears in the Company's Proxy Statement, under Item 1 -
"Election of Directors," and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
appears in the Company's Proxy Statement, under Item 1 - "Election of
Directors," and is incorporated herein by reference.
14
15
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index to
financial statements and financial statement schedules are
filed or incorporated by reference as part of this annual
report on Form 10-K.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying
index to financial statements and financial statement
schedules is filed as part of this annual report on Form 10-K.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are
filed or incorporated by reference as part of this annual
report on Form 10-K.
(b) Report on Form 8-K was filed on August 24, 1995. The Report
contains the Company's press release, dated August 15, 1995,
with respect to its financial results for the period ended
July 30, 1995.
15
16
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14 (a))
Annual Report
(1) Financial Statements Page Number
-----------
Consolidated Statements of Operations for the
Fiscal Years ended October 29, 1995,
October 30, 1994 and October 31, 1993 31
Consolidated Balance Sheets at October 29, 1995
and October 30, 1994 32
Consolidated Statements of Cash Flows for the
Fiscal Years ended October 29, 1995,
October 30, 1994 and October 31, 1993 33
Notes to Consolidated Financial Statements 34 - 46
Report of Independent Accountants 48
Form 10-K
(2) Financial Statement Schedule Page Number
-----------
Report of Independent Accountants on Financial
Statement Schedule 21
Schedule II - Valuation and Qualifying Accounts 22
Schedules not listed above have been omitted because they are not required or
the information required to be set forth therein is included in the Consolidated
Financial Statements or Notes to Consolidated Financial Statements.
The consolidated financial statements listed in the above index which are
included in the Company's Annual Report to Stockholders are hereby incorporated
by reference. With the exception of the pages listed in the above index and the
portion of such report referred to in items 1, 5, 6, 7 and 8 of this Form 10-K,
the 1995 Annual Report to Stockholders is not to be deemed filed as part of this
report.
16
17
INDEX TO EXHIBITS
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K:
Page
----
3.1 Certificate of Incorporation of Applied Materials, Inc., a
Delaware corporation, as amended to March 14, 1989, March 24,
1993, and March 22, 1994, previously filed with the Company's
Form 10-K for fiscal year 1994, and incorporated herein by
reference.
3.2 Bylaws of Applied Materials, Inc., as amended to December 7,
1994, previously filed with the Company's Form 10-K for
fiscal year 1994, and incorporated herein by reference.
4.1 Rights Agreement, dated as of June 14, 1989, between Applied
Materials, Inc. and Bank of America NT&SA, as Rights Agent,
including Form of Right Certificate and the Form of Summary
of Rights to Purchase Common Stock, previously filed with the
Company's report on Form 8-K dated June 14, 1989, and
incorporated herein by reference.
4.2 Form of Indenture (including form of debt security) dated as
of August 24, 1994 between Applied Materials, Inc. and Harris
Trust Company of California, as Trustee, previously filed
with the Company's Form 8-K on August 17, 1994, and
incorporated herein by reference.
10.1 The 1976 Management Stock Option Plan, as amended to October
5, 1993, previously filed with the Company's Form 10-K for
fiscal year 1993, and incorporated herein by reference.
10.2 Applied Materials, Inc., Supplemental Income Plan, as
amended, including Participation Agreements with James C.
Morgan, Walter Benzing, and Robert Graham, previously filed
with the Company's Form 10-K for fiscal year 1981, and
incorporated herein by reference.
10.3 Amendment to Supplemental Income Plan, dated July 20, 1984,
previously filed with the Company's Form 10-K for fiscal year
1984, and incorporated herein by reference.
10.4 The Applied Materials Employee Financial Assistance Plan,
previously filed with the Company's definitive Proxy
Statement in connection with the Annual Meeting of
Shareholders held on March 5, 1981, and incorporated herein
by reference.
10.5 The 1985 Stock Option Plan for Non-Employee Directors,
previously filed with the Company's Form 10-K for fiscal year
1985, and incorporated herein by reference.
17
18
Page
----
10.6 Amendment 1 to the 1985 Stock Option Plan for Non-Employee
Directors dated June 14, 1989, previously filed with the
Company's Form 10-K for fiscal year 1989, and incorporated
herein by reference.
10.7 Applied Materials, Inc. Supplemental Income Plan as amended
to December 15, 1988, including participation agreement with
James C. Morgan, previously filed with the Company's Form
10-K for fiscal year 1988, and incorporated herein by
reference.
10.8 License agreement dated January 1, 1992 between the Company
and Varian Associates, Inc., previously filed with the
Company's Form 10-K for fiscal year 1992, and incorporated
herein by reference.
10.9 Amendment dated December 9, 1992 to Applied Materials, Inc.
Supplemental Income Plan dated June 4, 1981 (as amended to
December 15, 1988), previously filed with the Company's Form
10-K for fiscal year 1993, and incorporated herein by
reference.
10.10 The Applied Materials, Inc. Executive Deferred Compensation
Plan dated July 1, 1993 and as amended on September 2, 1993,
previously filed with the Company's Form 10-Q for the quarter
ended August 1, 1993, and incorporated herein by reference.
10.11 Joint Venture Agreement between Applied Materials, Inc. and
Komatsu Ltd. dated September 14, 1993 and exhibits thereto,
previously filed with the Company's Form 10-K for fiscal year
1993, and incorporated herein by reference. (Confidential
treatment has been requested for certain portions of the
agreement.)
10.12 $125,000,000 Credit agreement dated as of September 8, 1994
between Applied Materials and a group of seven banks,
previously filed with the Company's Form 10-K for fiscal year
1994, and incorporated herein by reference.
10.13 Amendment No. 2 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated September 10, 1992,
previously filed with the Company's Form 10-K for fiscal year
1993, and incorporated herein by reference.
10.14 Amendment No. 3 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated October 5, 1993,
previously filed with the Company's Form 10-K for fiscal year
1993, and incorporated herein by reference.
18
19
Page
----
10.15 Amendment No. 2 to the Applied Materials, Inc. Executive
Deferred Compensation Plan, dated May 9, 1994, previously
filed with the Company's Form 10-Q for the quarter ended May
1, 1994, and incorporated herein by reference.
10.16 Amendment No. 4 to Applied Materials, Inc. 1985 Stock Option
Plan for Non-Employee Directors, dated December 8, 1993,
previously filed with the Company's Form 10-Q for the quarter
ended May 1, 1994, and incorporated herein by reference.
10.17 Applied Komatsu Technology, Inc. 1994 Executive Incentive
Stock Purchase Plan, together with forms of Promissory Note,
1994 Executive Incentive Stock Purchase Agreement, Loan and
Security Agreement, previously filed with the Company's Form
10-Q for the quarter ended July 31, 1994, and incorporated
herein by reference.
10.18 The Applied Materials, Inc. 1995 Equity Incentive Plan, dated
April 5, 1995, previously filed with the Company's Form 10-Q
for the quarter ended April 30, 1995, and incorporated herein
by reference.
10.19 The Applied Materials, Inc. Senior Executive Bonus Plan,
dated September 23, 1994, previously filed with the Company's
Form 10-Q for the quarter ended April 30, 1995, and
incorporated herein by reference.
10.20 The Applied Materials, Inc. Executive Deferred Compensation
Plan, as amended and restated on April 1, 1995, previously
filed with the Company's Form 10-Q for the quarter ended
April 30, 1995, and incorporated herein by reference.
10.21 Employment Agreement with James Bagley, dated August 15,
1995, previously filed with the Company's Form 10-Q for the
quarter ended July 30, 1995, and incorporated herein by
reference.
10.22 Applied Materials, Inc. Medium-Term Notes, Series A
Distribution Agreement, dated August 24, 1995. 23
12.1 Ratio of Earnings to Fixed Charges. 76
13. Applied Materials 1995 Annual Report for the fiscal year
ended October 29, 1995 (to the extent expressly incorporated
by reference). 77
21. Subsidiaries of Applied Materials, Inc. 102
23. Consent of Independent Accountants. 103
24. Power of Attorney. 104
27. Financial Data Schedule: filed electronically.
19
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
APPLIED MATERIALS, INC.
By /s/James C. Morgan
------------------
James C. Morgan
Chairman of the Board and
Chief Executive Officer
Dated: January 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Title Date
----- ----
/s/James C. Morgan Chairman of the Board and January 12, 1996
- ----------------------------- Chief Executive Officer
James C. Morgan
/s/Gerald F. Taylor Senior Vice President and January 12, 1996
- ----------------------------- Chief Financial Officer
Gerald F. Taylor (Principal Financial Officer)
/s/Michael K. O'Farrell Corporate Controller January 12, 1996
- ----------------------------- (Principal Accounting Officer)
Michael K. O'Farrell
Directors:
James C. Morgan Director January 12, 1996
James W. Bagley* Director
Dan Maydan* Director
Michael H. Armacost* Director
Herbert M. Dwight, Jr.* Director
George B. Farnsworth* Director
Philip V. Gerdine* Director
Tsuyoshi Kawanishi* Director
Paul R. Low* Director
Alfred J. Stein* Director
*By /s/James C. Morgan January 12, 1996
------------------
James C. Morgan
Attorney-in-fact
A majority of the members of the Board of Directors.
20
21
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of Applied Materials, Inc.
Our audits of the consolidated financial statements referred to in our report
dated November 22, 1995 appearing on page 48 of the 1995 Annual Report of
Applied Materials, Inc., (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Jose, California
November 22, 1995
21
22
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands)
----------------------------------------------------------------------
Balance at Additions- Balance
beginning Charged Deductions- at end
of year to income Recoveries of year
----------------------------------------------------------------------
As of:
October 29, 1995 $ 1,089 $ 2,138 $ (210) $ 3,017
October 30, 1994 $ 487 $ 875 $ (273) $ 1,089
October 31, 1993 $ 1,171 $ 663 $(1,347) $ 487
22
1
APPLIED MATERIALS, INC.
$266,931,250
MEDIUM-TERM NOTES, SERIES A
DUE MORE THAN 9 MONTHS TO 30 YEARS FROM DATE OF ISSUE
DISTRIBUTION AGREEMENT
August 24, 1995
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Dear Sirs:
Applied Materials, Inc., a Delaware corporation (the "Company"),
confirms its agreement with each of you with respect to the issue and sale from
time to time by the Company of up to $266,931,250 aggregate initial public
offering price of its Medium-Term Notes, Series A, due more than 9 months to 30
years from date of issue (the "Notes"). The Notes will be issued under an
Indenture dated as of August 24, 1994 (the "Indenture") between the Company and
Harris Trust Company of California, as Trustee (the "Trustee"), and will have
the maturities, interest rates, redemption provisions, if any, and other terms
as set forth in supplements to the Basic Prospectus referred to below.
The Company hereby appoints Morgan Stanley & Co. Incorporated
("Morgan Stanley"), Lehman Brothers, Lehman Brothers Inc. (including its
affiliate Lehman Government Securities Inc.), and J.P. Morgan Securities Inc.
(individually, an "Agent" and collectively, the "Agents") as its agents for the
purpose of soliciting and receiving offers to purchase Notes from the Company by
others and, on the basis of the representations and warranties herein contained,
but subject to the terms and conditions herein set forth, each Agent agrees to
use reasonable efforts to solicit and receive offers to purchase Notes upon
terms acceptable to the Company at such times and in such amounts as the Company
shall from
2
time to time specify. In addition, any Agent may also purchase Notes as
principal pursuant to the terms of a terms agreement relating to such sale (a
"Terms Agreement") in accordance with the provisions of Section 2(b) hereof. The
Company reserves the right to appoint additional agents for the purpose of
soliciting and receiving offers to purchase Notes, provided that they are
appointed pursuant to Section 11 hereof or pursuant to agreements with
substantially the same terms and conditions as set forth in this Agreement. The
Company's appointment of additional agents hereunder shall be deemed to include
the right to sell Notes to any such agent as principal pursuant to the
provisions of Section 2(b) hereof. The Company also reserves the right to accept
offers to purchase Notes through an agent other than an Agent, provided that (i)
the Company did not on an unsolicited basis request such agent to solicit offers
to purchase Notes on behalf of the Company, (ii) any agreement with respect to
such purchase will have terms and conditions (including, without limitation,
commission rates) with respect to such purchase substantially the same as the
terms and conditions that would apply to such purchase under this Agreement if
such agent were an Agent (which may be accomplished by incorporating by
reference in such agreement the terms and conditions of this Agreement), (iii)
such agreement shall not provide for further offers or purchases, and (iv) the
Company shall provide the Agents with a copy of such agreement promptly
following such purchase. The Company's right to accept offers to purchase Notes
through an agent other than an Agent shall be deemed to include the right to
accept offers to purchase Notes from any such agent as principal pursuant to the
provisions of Section 2(b) hereof.
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, including a prospectus, relating to
the Notes. Such registration statement, including the exhibits thereto, as
amended at the Commencement Date (as hereinafter defined), is hereinafter
referred to as the "Registration Statement." The Company proposes to file with
the Commission from time to time, pursuant to Rule 424 under the Securities Act
of 1933, as amended (the "Securities Act"), supplements to the prospectus
included in the Registration Statement that will describe certain terms of the
Notes. The prospectus in the form in which it appears in the Registration
Statement is hereinafter referred to as the "Basic Prospectus." The term
"Prospectus" means the Basic Prospectus together with the prospectus supplement
or supplements (each a "Prospectus Supplement") specifically relating to Notes,
as filed with, or transmitted for filing to, the Commission pursuant to Rule
424. As used herein, the terms "Basic Prospectus" and "Prospectus" shall include
in each case the documents, if any, incorporated by reference therein. The terms
"supplement," "amendment" and "amend" as used herein shall include all documents
deemed to be incorporated by reference in the Prospectus that are filed
-2-
3
subsequent to the date of the Basic Prospectus by the Company with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
1. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with each Agent as of the Commencement Date, as of each
date on which an Agent solicits offers to purchase Notes, as of each date on
which the Company accepts an offer to purchase Notes (including any purchase by
an Agent pursuant to a Terms Agreement), as of each date the Company issues and
delivers Notes and as of each date the Registration Statement or the Basic
Prospectus is amended or supplemented, as follows (it being understood that such
representations, warranties and agreements shall be deemed to relate to the
Registration Statement, the Basic Prospectus and the Prospectus, each as amended
or supplemented to each such date):
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or will
comply when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder, (ii) each part of
the Registration Statement, when such part became effective, did not contain and
each such part, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(iii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that (1) the representations and warranties set forth in this Section
1(b) do not apply (A) to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to an Agent furnished to the
Company in writing by such Agent expressly for use therein or (B) to that part
of the Registration Statement that constitutes the Statement of Eligibility
(Form T-1) under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), of the Trustee and (2) the representations and warranties set
forth in clauses (iii) and (iv) above, when made as of the Commencement Date or
as of any date on which an Agent solicits offers to purchase Notes or on which
the
-3-
4
Company accepts an offer to purchase Notes, shall be deemed not to cover
information concerning an offering of particular Notes to the extent such
information will be set forth in a supplement to the Basic Prospectus.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and as
then currently being conducted and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(e) Each of this Agreement and any applicable Written Terms
Agreement (as hereinafter defined) has been duly authorized, executed and
delivered by the Company.
(f) The Indenture has been duly qualified under the Trust Indenture
Act and has been duly authorized, executed and delivered by the Company and is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws relating to or affecting creditors' rights generally
or the effect of general principles of equity, including the possible
unavailability of specific performance or injunctive relief, whether considered
in a proceeding in equity or at law.
(g) The Notes have been duly authorized by the Board of Directors of
the Company and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the purchasers
thereof, will be entitled to the benefits of the Indenture and will be valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws relating to or affecting creditors'
rights generally or the effect of general principles of
-4-
5
equity, including the possible unavailability of specific performance or
injunctive relief, whether considered in a proceeding in equity or at law.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, the Notes,
the Indenture and any applicable Written Terms Agreement will not contravene, or
give rise to any additional rights or remedies under, any provision of
applicable law or the Certificate of Incorporation or by-laws of the Company or
any agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under this Agreement, the Notes, the Indenture and any applicable Terms
Agreement, except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Notes.
(j) There has not occurred any material adverse change, or any
development which could be reasonably expected to result in a prospective
material adverse change, in the condition, financial or otherwise, or in the
business or operations, of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described in all material respects (other than
proceedings that would not have material adverse effect on the Company and its
subsidiaries taken as a whole, or on the power or ability of the Company to
perform its obligations under this Agreement, the Notes, the Indenture or any
applicable Terms Agreement or to consummate the transactions contemplated by the
Prospectus) or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed or incorporated by reference as exhibits to the Registration Statement
that are not described, filed or incorporated as required.
-5-
6
(l) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(m) To the best knowledge of the Company after due inquiry, the
Company and its subsidiaries (i) are in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws which are necessary to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses or
approvals would not reasonably be expected to, singly or in the aggregate, have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(n) The Company has a process of conducting periodic internal
reviews relating to compliance by the Company and its subsidiaries with
Environmental Laws. On the basis of such reviews, except as set forth in the
Prospectus, nothing has come to the attention of the Company which would lead it
to believe that costs associated with compliance with Environmental Laws or
liabilities arising due to noncompliance with Environmental Laws (including,
without limitation, any capital or operating expenses required for cleanup,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and any
potential liabilities to third parties) would have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(o) Each of the Company and its subsidiaries owns or possesses
adequate and sufficient licenses or other rights to use all patents, copyrights,
trademarks, service marks, tradenames, technology and knowhow necessary (in any
material respect) to conduct its business in the manner described in the
Prospectus, except such as are not material to the business of the Company and
its subsidiaries taken as a whole and except as disclosed in the Prospectus.
Except as disclosed in the Prospectus, neither the Company nor any of its
subsidiaries has received any notice of infringement or conflict with (and knows
of no infringement or conflict with) asserted rights of others with respect to
any patents, copyrights, trademarks, service marks, trade names or knowhow which
would reasonably be expected to result in any material adverse effect upon the
Company and its subsidiaries taken as a whole.
-6-
7
(p) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
Notwithstanding the foregoing, (i) the representations and
warranties set forth in Section 1(b)(iii) and (iv), (g) (except as to due
authorization of the Notes) and (i), when made as of the Commencement Date, or
as of any date on which an Agent solicits offers to purchase Notes, with respect
to any Notes the payments of principal or interest on which will be determined
by reference to one or more currency exchange rates, commodity prices, equity
indices or other factors, shall be deemed not to address the application of the
Commodity Exchange Act, as amended, or the rules, regulations or interpretations
of the Commodity Futures Trading Commission and (ii) the representations and
warranties contained in this Section 1 shall not be deemed to have been made by
the Company as of any date on which an Agent solicits an offer to purchase Notes
if (x) such offer is not accepted by the Company or (y) a fact, condition or
event resulting in a breach of a representation and warranty contained in this
Section 1 is included or incorporated by reference in the Prospectus at or prior
to the acceptance by the Company of such offer to purchase Notes.
2. SOLICITATIONS AS AGENT; PURCHASES AS PRINCIPAL.
(a) Solicitations as Agent. In connection with an Agent's actions as
agent hereunder, such Agent agrees to use reasonable efforts to solicit offers
to purchase Notes upon the terms and conditions set forth in the Prospectus as
then amended or supplemented.
The Company reserves the right, in its sole discretion, to instruct
the Agents to suspend at any time, for any period of time or permanently, the
solicitation of offers to purchase Notes. Upon receipt of notice from the
Company, the Agents will forthwith suspend solicitations of offers to purchase
Notes from the Company until such time as the Company has advised the Agents
that such solicitation may be resumed. While such solicitation is suspended, the
Company shall not be required to deliver any certificates, opinions or letters
in accordance with Sections 5(a), 5(b) and 5(c); provided, however, that if the
Registration Statement or Prospectus is amended or supplemented during the
period of suspension (other than by an amendment or supplement setting forth
solely the terms or a description of particular Notes or providing for a change
the Agents deem to be immaterial), no Agent shall be required to resume
soliciting offers to purchase Notes until the Company has delivered such
certificates, opinions and letters pursuant to Sections 5(a), 5(b) and 5(c) as
such Agent may request.
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The Company agrees to pay to each Agent, as consideration for the
sale of each Note resulting from an offer to purchase presented by such Agent to
the Company, a commission in the form of a discount from the purchase price of
such Note equal to the percentage set forth below of the purchase price of such
Note:
Term Commission Rate
---- ---------------
From more than 9 months to
less than 1 year .125%
From 1 year to less than 18 months .150%
From 18 months to less than 2 years .200%
From 2 years to less than 3 years .250%
From 3 years to less than 4 years .350%
From 4 years to less than 5 years .450%
From 5 years to less than 6 years .500%
From 6 years to less than 7 years .550%
From 7 years to less than 10 years .600%
From 10 years to less than 15 years .625%
From 15 years to less than 20 years .700%
From 20 years to 30 years .750%
Each Agent shall communicate to the Company, orally or in writing,
each offer to purchase Notes received by such Agent as agent that in its
reasonable judgment should be considered by the Company; provided that, if
requested by the Company, each Agent shall, for a period of 10 business days,
communicate to the Company each offer to purchase Notes received by such Agent
subsequent to the date of such request. The Company shall have the sole right to
accept offers to purchase Notes and may reject any offer in whole or in part.
Each Agent shall have the right to reject any offer to purchase Notes that it
reasonably considers to be unacceptable, and any such rejection shall not be
deemed a breach of its agreements contained herein. The procedural details
relating to the issue and delivery of Notes sold by the Agents as agents and the
payment therefor shall be as set forth in the Administrative Procedures (as
hereinafter defined).
(b) Purchases as Principal. Each sale of Notes to an Agent as
principal shall be made in accordance with the terms of this Agreement. In
connection with each such sale, the Company will enter into a Terms Agreement
that will provide for the sale of such Notes to and the purchase thereof by such
Agent. Each Terms Agreement will take the form of either (i) a written agreement
between such Agent and the Company, which may be substantially in the form of
Exhibit A hereto (a "Written Terms Agreement"), or (ii) an oral agreement
between such Agent and the Company confirmed in writing by such Agent to the
Company which the Company indicates in writing is acceptable.
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An Agent's commitment to purchase Notes pursuant to a Terms
Agreement shall be deemed to have been made on the basis of the representations
and warranties of the Company herein contained and shall be subject to the terms
and conditions herein set forth. Each Terms Agreement shall specify the
principal amount of Notes to be purchased by such Agent pursuant thereto, the
maturity date of such Notes, the price to be paid to the Company for such Notes,
the interest rate and interest rate formula, if any, applicable to such Notes
and any other terms of such Notes. Each such Terms Agreement may also specify
any requirements for officers' certificates, opinions of counsel and letters
from the independent public accountants of the Company pursuant to Section 4
hereof. A Terms Agreement may also specify certain provisions relating to the
reoffering of such Notes by such Agent.
Each Terms Agreement shall specify the time and place of delivery of
and payment for such Notes. Unless otherwise specified in a Terms Agreement, the
procedural details relating to the issue and delivery of Notes purchased by an
Agent as principal and the payment therefor shall be as set forth in the
Administrative Procedures. Each date of delivery of and payment for Notes to be
purchased by an Agent pursuant to a Terms Agreement is referred to herein as a
"Settlement Date."
Unless otherwise specified in a Terms Agreement, if you are
purchasing Notes as principal you may resell such Notes to other dealers. Any
such sales may be at a discount, which shall not exceed the amount set forth in
the Prospectus Supplement relating to such Notes.
(c) Administrative Procedures. The Agents and the Company agree to
perform the respective duties and obligations specifically provided to be
performed in the Medium-Term Notes, Series A, Administrative Procedures
(attached hereto as Exhibit B) (the "Administrative Procedures"), as amended
from time to time. The Administrative Procedures may be amended only by written
agreement of the Company and the Agents.
(d) Delivery. The documents required to be delivered by Section 4 of
this Agreement as a condition precedent to each Agent's obligation to begin
soliciting offers to purchase Notes as an agent of the Company shall be
delivered at the office of Wilson, Sonsini, Goodrich & Rosati, P.C., counsel for
the Agents, not later than 10:00 a.m., San Francisco time, on the date hereof,
or at such other time and/or place as the Agents and the Company may agree upon
in writing, but in no event later than the day prior to the earlier of (i) the
date on which the Agents begin soliciting offers to purchase Notes and (ii) the
first date on which the Company accepts any offer by an Agent to purchase Notes
pursuant to a Terms Agreement. The date of delivery of such documents is
referred to herein as the "Commencement Date."
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(e) Obligations Several. The Company acknowledges that
the obligations of the Agents under this Agreement are several and not joint.
3. AGREEMENTS. The Company agrees with each Agent that:
(a) Prior to the termination of the offering of the Notes pursuant
to this Agreement or any Terms Agreement, the Company will not file any
Prospectus Supplement relating to the Notes or any amendment to the Registration
Statement unless the Company has previously furnished to the Agents copies
thereof for their review and will not file any such proposed supplement or
amendment to which the Agents reasonably object; provided, however, that (i) the
foregoing requirement shall not apply to any of the Company's periodic filings
with the Commission required to be filed pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, copies of which filings the Company will cause to be
delivered to the Agents promptly after being transmitted for filing with the
Commission and (ii) any Prospectus Supplement that merely sets forth the terms
or a description of particular Notes shall only be reviewed and approved by the
Agent or Agents offering such Notes. Subject to the foregoing sentence, the
Company will promptly cause each Prospectus Supplement to be filed with or
transmitted for filing to the Commission in accordance with Rule 424(b) under
the Securities Act. The Company will promptly advise the Agents (i) of the
filing of any amendment or supplement to the Basic Prospectus (except that
notice of the filing of an amendment or supplement to the Basic Prospectus that
merely sets forth the terms or a description of particular Notes shall only be
given to the Agent or Agents offering such Notes), (ii) of the filing and
effectiveness of any amendment to the Registration Statement, (iii) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Basic Prospectus or for any additional
information, (iv) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Notes for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order or notice of suspension of
qualification and, if issued, to obtain as soon as possible the withdrawal
thereof. If the Basic Prospectus is amended or supplemented as a result of the
filing under the Exchange Act of any document incorporated by reference in the
Prospectus, no Agent shall be obligated to solicit offers to purchase Notes so
long as it is not reasonably satisfied with such document.
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(b) If, at any time when a prospectus relating to the Notes is
required to be delivered under the Securities Act, any event occurs or condition
exists as a result of which the Prospectus, as then amended or supplemented,
would include an untrue statement of a material fact, or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances when the Prospectus, as then amended or supplemented, is delivered
to a purchaser, not misleading, or if, in the opinion of counsel for the Agents
or in the opinion of the Company, it is necessary at any time to amend or
supplement the Prospectus, as then amended or supplemented, to comply with
applicable law, the Company will immediately notify the Agents by telephone
(with confirmation in writing) to suspend solicitation of offers to purchase
Notes and, if so notified by the Company, the Agents shall forthwith suspend
such solicitation and cease using the Prospectus, as then amended or
supplemented. If, at any time when a prospectus relating to the Notes is
required to be delivered under the Securities Act, the Company shall decide to
amend or supplement the Registration Statement or Prospectus, as then amended or
supplemented, it shall so advise the Agents promptly by telephone (with
confirmation in writing) and, at its expense, shall prepare and cause to be
filed promptly with the Commission an amendment or supplement to the
Registration Statement or Prospectus, as then amended or supplemented,
reasonably satisfactory to the Agents, that will correct such statement or
omission or effect such compliance and will supply such amended or supplemented
Prospectus to the Agents in such quantities as they may reasonably request. If
any documents, certificates, opinions and letters furnished to the Agents
pursuant to paragraph (f) below and Sections 5(a), 5(b) and 5(c) in connection
with the preparation and filing of such amendment or supplement are satisfactory
in all respects to the Agents, upon the filing with the Commission of such
amendment or supplement to the Prospectus or upon the effectiveness of an
amendment to the Registration Statement, the Agents will resume the solicitation
of offers to purchase Notes hereunder. Notwithstanding any other provision of
this Section 3(b), until the distribution of any Notes an Agent has purchased as
principal from the Company has been completed, if any event described above in
this paragraph (b) occurs, the Company will, at its own expense, forthwith
prepare and cause to be filed promptly with the Commission an amendment or
supplement to the Registration Statement or Prospectus, as then amended or
supplemented, reasonably satisfactory to such Agent, will supply such amended or
supplemented Prospectus to such Agent in such quantities as it may reasonably
request and shall, for a period of 60 days following the date on which such
Agent purchased the Notes, be required to furnish to such Agent pursuant to
paragraph (f) below and Sections 5(a), 5(b) and 5(c) such documents,
certificates, opinions and letters as it may request in connection with the
preparation and filing of such amendment or supplement; provided, however, that
the Company shall not be required to furnish any such documents,
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certificates, opinions or letters pursuant to this Section 3(b) to such Agent if
such documents, certificates, opinions or letters were delivered to such Agent
on the Settlement Date relating to such Notes.
(c) The Company will make generally available to its security
holders and to the Agents as soon as practicable earning statements that satisfy
the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder covering twelve month periods
beginning, in each case, not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement with respect to each sale of
Notes. If such fiscal quarter is the last fiscal quarter of the Company's fiscal
year, such earning statement shall be made available not later than 90 days
after the close of the period covered thereby and in all other cases shall be
made available not later than 45 days after the close of the period covered
thereby.
(d) The Company will furnish to Morgan Stanley, without charge, a
signed copy of the Registration Statement, including exhibits and all amendments
thereto, and to each other Agent, without charge, a conformed copy of the
Registration Statement, including exhibits and all amendments thereto, and as
many copies of the Prospectus, any documents incorporated by reference therein
and any supplements and amendments thereto as such Agent may reasonably request.
(e) The Company will endeavor to qualify the Notes for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the Agents
shall reasonably request and to maintain such qualifications for as long as the
Agents shall reasonably request.
(f) The Company shall furnish to the Agents such relevant documents
and certificates of officers of the Company relating to the business, operations
and affairs of the Company, the Registration Statement, the Basic Prospectus,
any amendments or supplements thereto, the Indenture, the Notes, this Agreement,
the Administrative Procedures, any Terms Agreement and the performance by the
Company of its obligations hereunder or thereunder as the Agents may from time
to time reasonably request.
(g) The Company shall notify the Agents promptly in writing of any
downgrading, or of its receipt of any notice of any intended or potential
downgrading, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act; provided, however,
that, if the Company has instructed the Agents to suspend the solicitation of
offers to purchase Notes pursuant to Section 2(a), the Company
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shall not be required, during the time that solicitation is suspended, to notify
the Agents of any such downgrading or of the receipt of any such intended or
potential downgrading; provided further that before any Agent shall be required
to resume soliciting offers to purchase Notes, the Company shall confirm in
writing to such Agent if any downgrading has occurred and if any notice of any
intended or potential downgrading has been received during the time that such
solicitation was suspended.
(h) The Company will, whether or not any sale of Notes is
consummated, pay all expenses incident to the performance of its obligations
under this Agreement and any Terms Agreement, including: (i) the preparation and
filing of the Registration Statement and the Prospectus and all amendments and
supplements thereto, (ii) the preparation, issuance and delivery of the Notes,
(iii) the fees and disbursements of the Company's counsel and accountants and of
the Trustee and its counsel, (iv) the qualification of the Notes under
securities or Blue Sky laws in accordance with the provisions of Section 3(e),
including filing fees and the fees and disbursements of counsel for the Agents
in connection therewith and in connection with the preparation of any Blue Sky
or Legal Investment Memoranda, (v) the printing and delivery to the Agents in
quantities as hereinabove stated of copies of the Registration Statement and all
amendments thereto and of the Prospectus and any amendments or supplements
thereto, (vi) the printing and delivery to the Agents of copies of any Blue Sky
or Legal Investment Memoranda, (vii) any fees charged by rating agencies for the
rating of the Notes, (viii) any expenses incurred by the Company in connection
with a "road show" presentation to potential investors and (ix) the reasonable
fees and disbursements of counsel for the Agents in connection with the offering
and sale of the Notes, including any opinions to be rendered by such counsel
hereunder, and (x) any out-of-pocket expenses incurred by the Agents; provided
that any such out-of-pocket expenses incurred by the Agents shall have been
approved in advance by the Company.
(i) If provided for in the applicable Terms Agreement, during the
period beginning the date of any Terms Agreement and continuing to and including
the Settlement Date with respect to such Terms Agreement, the Company will not,
without such Agent's prior written consent, offer, sell, contract to sell or
otherwise dispose of any debt securities of the Company or warrants to purchase
debt securities of the Company having terms substantially similar to the Notes
to which such Terms Agreement relates (other than (i) the Notes that are to be
sold pursuant to such Terms Agreement, (ii) Notes previously agreed to be sold
by the Company and (iii) commercial paper issued in the ordinary course of
business), except as may otherwise be provided in such Terms Agreement.
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4. CONDITIONS OF THE OBLIGATIONS OF THE AGENTS. Each Agent's
obligation to solicit offers to purchase Notes as agent of the Company, each
Agent's obligation to purchase Notes pursuant to any Terms Agreement and the
obligation of any other purchaser to purchase Notes will be subject to the
accuracy of the representations and warranties on the part of the Company
herein, to the accuracy of the statements of the Company's officers made in each
certificate furnished pursuant to the provisions hereof and to the performance
and observance by the Company of all covenants and agreements herein contained
on its part to be performed and observed (in the case of an Agent's obligation
to solicit offers to purchase Notes, at the time of such solicitation, and, in
the case of an Agent's or any other purchaser's obligation to purchase Notes, at
the time the Company accepts the offer to purchase such Notes and at the time of
issuance and delivery) and (in each case) to the following additional conditions
precedent when and as specified:
(a) Prior to such solicitation or purchase, as the case
may be:
(i) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the business or operations, of the Company and its subsidiaries,
taken as a whole, from that set forth in the Prospectus, as amended or
supplemented at the time of such solicitation or at the time such offer to
purchase was made, that, in the judgment of the relevant Agent, is
material and adverse and that makes it, in the judgment of such Agent,
impracticable to market the Notes on the terms and in the manner
contemplated by the Prospectus, as so amended or supplemented;
(ii) there shall not have occurred any (A) suspension or material
limitation of trading generally on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., or any other over-the-counter
market, (B) suspension of trading of any securities of the Company on any
exchange or in any over-the-counter market, (C) declaration of a general
moratorium on commercial banking activities in New York by either Federal
or New York State authorities or (D) any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis
that, in the judgment of the relevant Agent, is material and adverse and,
in the case of any of the events described in clauses (ii)(A) through (D),
such event, singly or together with any other such event, makes it, in the
judgment of such Agent, impracticable to market the Notes on the terms and
in the manner contemplated by the Prospectus, as amended or
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supplemented at the time of such solicitation or at the time
such offer to purchase was made; and
(iii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading, in the
rating accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act;
(A) except, in each case described in paragraph (i), (ii) or (iii)
above, as disclosed to the relevant Agent in writing by the Company prior to
such solicitation or, in the case of a purchase of Notes, as disclosed to the
relevant Agent before the offer to purchase such Notes was made or (B) unless in
each case described in (ii) above, the relevant event shall have occurred and
been known to the relevant Agent before such solicitation or, in the case of a
purchase of Notes, before the offer to purchase such Notes was made.
(b) On the Commencement Date and, if called for by any Terms
Agreement, on the corresponding Settlement Date, the relevant Agents shall have
received:
(i) The opinion, dated as of such date, of Orrick, Herrington &
Sutcliffe, outside counsel for the Company, to the effect that:
(A) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has the full corporate power and corporate authority to
own, lease and operate its properties and conduct its business as
described in the Prospectus, as then amended or supplemented;
(B) each of this Agreement and any applicable Written Terms
Agreement has been duly authorized by all necessary corporate action
on the part of the Company and has been duly executed and delivered
by the Company;
(C) the Indenture has been duly authorized by all necessary
corporate action on the part of the Company and has been executed
and delivered by the Company; the Indenture is a valid and binding
agreement of the Company enforceable against the Company in
accordance with its terms except as (a) the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and (b) the enforceability
thereof may be limited by general principles of equity and the
unavailability of specific
-15-
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performance or injunctive relief; the Indenture is qualified under
the Trust Indenture Act;
(D) the Notes have been duly authorized by the Board of
Directors of the Company and by the Public Offering Committee
thereof and, when authorized by an Authorized Officer (as defined in
the resolutions of the Public Offering Committee) or by an employee
duly authorized by an Authorized Officer, the Notes will have been
duly authorized by all necessary corporate action on the part of the
Company and, when the Notes have been duly completed to insert the
terms thereof, if executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
purchasers thereof on the date of such opinion, would be (1)
entitled to the benefits of the Indenture and (2) valid and binding
agreements of the Company enforceable against the Company in
accordance with their respective terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and (b) the
enforceability thereof may be limited by general principles of
equity and the unavailability of specific performance or injunctive
relief;
(E) the execution, delivery and performance by the Company of
this Agreement, the Notes, the Indenture and any applicable Written
Terms Agreement on the date of such opinion (1) do not conflict with
or violate the Company's Certificate of Incorporation or by-laws,
(2) to such counsel's knowledge, do not conflict with or violate or
constitute a breach of, or constitute a default under, the Bank
Agreement or any agreement set forth as an exhibit to any of the
documents incorporated by reference in the Prospectus, as then
amended or supplemented, (3) to such counsel's knowledge, do not
result in the creation or imposition of any lien, charge, claim or
encumbrance upon any property or asset of the Company in any manner
that would have a material adverse effect on the condition
(financial or other), results of operations, business or business
prospects of the Company and its subsidiaries, taken as a whole, and
(4) do not violate applicable law;
(F) no permit, authorization, consent, approval of or
qualification with any U.S. federal or state governmental authority
is required for the execution, delivery or performance by the
Company of its obligations under this Agreement, the Notes, the
Indenture and any applicable Terms Agreement, except such as have
been obtained under the Securities Act and such as may be
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required under state or other Blue Sky laws (on which such counsel
need not express any opinion) in connection with the offer and sale
of the Notes;
(G) to such counsel's knowledge, except as set forth in the
Prospectus, as then amended or supplemented, there is no action,
suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency now pending or overtly
threatened in writing against or affecting the Company which would
require disclosure in the Registration Statement or the Prospectus,
as then amended or supplemented;
(H) the terms and provisions of the Notes conform in all
material respects to the description thereof contained in the
Prospectus, as then amended or supplemented; the statements (1) in
the Prospectus, as then amended or supplemented, under the captions
"Description of Debt Securities" and "Description of Capital Stock"
(in the Basic Prospectus), "Description of Notes" (in the Prospectus
Supplement) and "Plan of Distribution" (in the Basic Prospectus and
in the Prospectus Supplement) and (2) in the Registration Statement
under Item 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize
the matters referred to therein;
(I) the Registration Statement is effective under the
Securities Act and, to the best of such counsel's knowledge, no
proceedings for a stop order have been instituted or are pending or
threatened under the Securities Act and any required filings
pursuant to Rule 424(b) have been made in accordance therewith;
(J) the Registration Statement, the Prospectus and each
amendment thereof or supplement thereto (except the financial
statements, schedules and other financial and statistical
information contained or incorporated by reference therein and that
part of the Registration Statement that constitutes the Form T-1 as
to which such counsel need not express any opinion), as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Securities Act and
the rules and regulations of the Commission thereunder; provided
that in the case of an opinion delivered on the Commencement Date or
pursuant to Section 5(b), the opinion and belief set forth in this
subparagraph (J) shall be deemed not to cover information
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concerning an offering of particular Notes to the extent
such information will be set forth in a supplement to the
Basic Prospectus;
(K) each document filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus, as then amended or
supplemented (except the financial statements, schedules and other
financial and statistical information contained or incorporated by
reference therein as to which such counsel need not express any
opinion), complied when it was filed as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder;
(L) nothing has come to such counsel's attention to cause it
to believe that (1) (except for financial statements, schedules and
other financial and statistical information contained or
incorporated by reference therein and that part of the Registration
Statement that constitutes the Form T-1 as to which such counsel
need not express any belief) the Registration Statement, at the time
it became effective contained, and as of the date such opinion is
delivered contains, any untrue statement of a material fact or
omitted or omits, respectively, to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (2) (except for financial statements, schedules and
other financial and statistical information contained therein as to
which such counsel need not express any belief) the Prospectus as of
its issue date and, as then amended or supplemented, if applicable,
as of the date such opinion is delivered contained or contains,
respectively, any untrue statement of a material fact or omitted or
omits, respectively, to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided that in the case of
an opinion delivered on the Commencement Date or pursuant to Section
5(b), the opinion and belief set forth in clause (2) above shall be
deemed not to cover information concerning an offering of particular
Notes to the extent such information will be set forth in a
supplement to the Basic Prospectus;
(M) such counsel is of the opinion ascribed to it in the
Prospectus, as then amended or supplemented, under the caption
"Taxation," and
(N) the Company is not an "investment company" or
an entity "controlled" by an "investment company," as
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such terms are defined in the Investment Company Act of
1940, as amended.
(ii) The opinion, dated as of such date, of the Vice President,
Legal Affairs and Intellectual Property, of the Company, to the effect that:
(A) each of the Company's Significant Subsidiaries (as such
term is defined in Rule 405 under the Securities Act) (each, a
"Subsidiary" and collectively, the "Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
with full power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus,
as then amended or supplemented, and as then currently being
conducted, and the Company and each Subsidiary is duly qualified to
do business and is in good standing in each jurisdiction in which
the character of the business conducted by it or the location of the
properties owned or leased by it makes such qualification necessary,
except where the failure to be so qualified would not have a
material adverse effect on the condition (financial or other),
results of operations, business or business prospects of the Company
and its subsidiaries, taken as a whole;
(B) to such counsel's knowledge, except as described in the
Prospectus, as then amended or supplemented, there are no rights to
subscribe for or to purchase any securities of the Company pursuant
to any agreement to which the Company or any of the Subsidiaries is
a party or by which it or any of its properties is bound; to such
counsel's knowledge, no holders of shares of Common Stock of the
Company have registration rights with respect to such securities;
(C) the execution and delivery by the Company of this
Agreement, the Notes, the Indenture and any applicable Written Terms
Agreement and the consummation by the Company of the transactions
contemplated thereby (i) do not conflict with or violate the charter
documents of any Subsidiary, (ii) to such counsel's knowledge, do
not result in the material breach or violation of any of the terms
or provisions of, or constitute a material default under, any
agreement to which the Company or any of the Subsidiaries is a party
or by which it is or any of its properties is bound, and (iii) do
not violate any applicable law or any judgment, order or decree of
any court or any governmental agency or body having jurisdiction
over the Company or any of the Subsidiaries,
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in each case in any manner that would have a material adverse
effect on the condition (financial or other), results of
operations, business or business prospects of the Company and
its subsidiaries, taken as a whole, or that would affect the
power or ability of the Company in any manner to perform its
obligations under this Agreement, the Notes, the Indenture or
any applicable Written Terms Agreement or to consummate the
transactions contemplated by the Prospectus, as then amended or
supplemented;
(D) there is no action, suit or proceeding at law or
in equity or by or before any governmental instrumentality or
other agency now pending or, to such counsel's knowledge,
threatened against or affecting the Company or any Subsidiary
or any of their respective properties, other than (i)
proceedings fairly summarized in all material respects in the
Prospectus, as then amended or supplemented, and (ii)
proceedings which are not likely to have a material adverse
effect on the Company and its subsidiaries, taken as a whole,
or on the power or ability of the Company to perform its
obligations under this Agreement, the Notes, the Indenture or
any applicable Written Terms Agreement or to consummate the
transactions contemplated thereby;
(E) the statements in Item 3 -- Legal Proceedings, of
the Company's most recent Annual Report on Form 10-K
incorporated by reference in the Prospectus and in Part II,
Item 1 -- Legal Proceedings, of the Company's Quarterly Reports
on Form 10-Q, if any, filed since such Annual Report, insofar
as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents or proceedings and fairly summarize in all material
respects the matters referred to therein;
(F) to such counsel's knowledge, the Company and its
Subsidiaries are in compliance with all applicable
Environmental Laws, have received all permits, licenses or
other approvals required of them under all applicable
Environmental Laws to conduct their respective businesses and
are in compliance with all terms and conditions of such
permits, licenses or approvals, in each case (i) except as
described in or contemplated by the Prospectus and (ii) except
where such noncompliance with such Environmental Laws, failure
to receive such required permits, licenses or approvals or
failure to comply with the terms and conditions of such
permits, licenses or approvals would not reasonably be expected
to, singly or
-20-
21
in the aggregate, have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
(G) to such counsel's knowledge and except as
described in or contemplated by the Prospectus, as then amended
or supplemented, (i) each of the Company and its Subsidiaries
owns or possesses adequate and sufficient licenses or other
rights to use, all patents, copyrights, trademarks, service
marks, trade names, technology and knowhow necessary in any
material respect to conduct its business as described in the
Prospectus, as then amended or supplemented, and (ii) neither
the Company nor any of its Subsidiaries has received any notice
of infringement or conflict with (and knows of no infringement
or conflict with) asserted rights of others with respect to any
patents, copyrights trademarks, service marks, trade names or
knowhow which would reasonably be expected to result in any
material adverse effect upon the Company and its subsidiaries,
taken as a whole; and
(H) such counsel does not know of any statutes,
regulations, contracts, indentures, mortgages, loan agreements,
leases or other documents of a character required to be
described in the Registration Statement or the Prospectus, as
then amended or supplemented, or to be filed or incorporated by
reference as exhibits to the Registration Statement that are
not described, filed or incorporated by reference as required
by the Securities Act and the rules and regulations of the
Commission thereunder.
(iii) The opinion, dated as of such date, of Wilson,
Sonsini, Goodrich & Rosati, P.C., counsel for the Agents, covering the
matters in subparagraphs (B), (C), (D), (H) (but only as to the
statements in the Prospectus, as then amended or supplemented, under
the captions "Description of Debt Securities" (in the Basic
Prospectus), "Description of Notes" (in the Prospectus Supplement) and
"Plan of Distribution" (in the Basic Prospectus and in the Prospectus
Supplement)), (J) and (L) in paragraph (b)(i) above.
Notwithstanding the foregoing, the opinions described
in subparagraphs (D) (except as to due authorization of the Notes),
(E), (H)(1), (J) and (L)(2) of paragraph (b)(i) above and subparagraph
(C) of paragraph (b)(ii) above, when contained in an opinion delivered
on the Commencement Date or pursuant to Section 5(b), shall be deemed
not to address the application of the Commodity Exchange Act, as
amended, or the rules, regulations or interpretations of the Commodity
Futures Trading Commission to Notes the payments of principal or
interest on which will be determined by reference to one or
-21-
22
more currency exchange rates, commodity prices, equity indices
or other factors.
With respect to subparagraphs (J) and (L) of paragraph
(b)(i) above, Orrick, Herrington & Sutcliffe may state that their
opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and documents incorporated therein by
reference and review and discussion of the contents thereof, but are
without independent check or verification, except as specified. With
respect to subparagraphs (J) and (L) of paragraph (b)(i) above, Wilson,
Sonsini, Goodrich & Rosati, P.C., may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto (but not including documents incorporated therein by reference)
and review and discussion of the contents thereof (including documents
incorporated therein by reference), but are without independent check
or verification, except as specified.
The opinion of Orrick, Herrington & Sutcliffe
described in paragraph (b)(i) above shall be rendered to the Agents at
the request of the Company and shall so state therein.
(c) On the Commencement Date and, if called for by any
Terms Agreement, on the corresponding Settlement Date, the relevant Agents shall
have received a certificate, dated the Commencement Date or such Settlement
Date, as the case may be, and signed by an executive officer of the Company, to
the effect set forth in subparagraph (a)(iii) above and to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct as of such date and that the Company has complied with all of
the agreements and satisfied all of the conditions on its part to be performed
or satisfied on or before such date.
The officer signing and delivering such certificate may rely
upon the best of his knowledge as to proceedings threatened.
(d) On the Commencement Date and, if called for by any
Terms Agreement, on the corresponding Settlement Date, Price Waterhouse LLP,
independent public accountants, shall have furnished to the relevant Agents a
letter or letters, dated the Commencement Date or such Settlement Date, as the
case may be, in form and substance satisfactory to such Agents containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in
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or incorporated by reference into the Prospectus, as then amended or
supplemented.
(e) On the Commencement Date and on each Settlement Date, the
Company shall have furnished to the relevant Agents such appropriate further
information, certificates and documents as they may reasonably request.
5. ADDITIONAL AGREEMENTS OF THE COMPANY. (a) Except as
set forth in Section 2(a), each time the Registration Statement or Prospectus is
amended or supplemented (other than by an amendment or supplement setting forth
solely the terms or a description of particular Notes or providing for a change
the Agents deem to be immaterial), if requested by an Agent, the Company will
deliver or cause to be delivered forthwith to each Agent a certificate signed by
an executive officer of the Company, dated the date of such amendment or
supplement, as the case may be, in form reasonably satisfactory to the Agents,
of the same tenor as the certificate referred to in Section 4(c) relating to the
Registration Statement or the Prospectus as amended or supplemented to the time
of delivery of such certificate.
(b) Each time the Company furnishes a certificate pursuant to
Section 5(a), the Company will furnish or cause to be furnished forthwith to
each Agent written opinions of independent counsel for the Company and of the
Vice President, Legal Affairs and Intellectual Property, of the Company. Any
such opinions shall be dated the date of such amendment or supplement, as the
case may be, shall be in a form satisfactory to the Agents and shall be of the
same tenor as the opinions referred to in Sections 4(b)(i) and (ii), but
modified to relate to the Registration Statement and the Prospectus as amended
and supplemented to the time of delivery of such opinion. In lieu of any such
opinion, counsel last furnishing such an opinion to an Agent may furnish to each
Agent a letter to the effect that such Agent may rely on such last opinion to
the same extent as though it were dated the date of such letter (except that
statements in such last opinion will be deemed to relate to the Registration
Statement and the Prospectus as amended or supplemented to the time of delivery
of such letter.)
(c) Except as set forth in Section 2(a), each time the
Registration Statement or the Prospectus is amended or supplemented to set forth
amended or supplemental financial information or such amended or supplemental
information is incorporated by reference in the Prospectus, if requested by an
Agent, the Company shall cause its independent public accountants forthwith to
furnish each Agent with a letter, dated the date of such amendment or
supplement, as the case may be, in form satisfactory to the Agents, of the same
tenor as the letter referred to in Section 4(d), with regard to the amended or
supplemental financial information included or
-23-
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incorporated by reference in the Registration Statement or the Prospectus as
amended or supplemented to the date of such letter.
6. INDEMNITY AND CONTRIBUTION. (a) The Company agrees
to indemnify and hold harmless each Agent and each person, if any, who controls
any Agent within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by any Agent or any such controlling person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to such
Agent furnished to the Company in writing by such Agent expressly for use
therein; provided, however, that the indemnity agreement
contained in this paragraph (a) with respect to any preliminary prospectus shall
not inure to the benefit of any Agent (or any person controlling such Agent)
from whom the person asserting any such losses, claims, damages or liabilities
purchased Notes, if a copy of the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Agent to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Notes to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability.
(b) Each Agent agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Agent, but only with reference to information relating to such Agent
furnished to the Company in writing by such Agent expressly for use in the
Registration Statement or the Prospectus or any amendments or supplements
thereto. The information set forth on the cover page of, and under the caption
"Plan of Distribution" in the Prospectus, insofar as it relates to the
distribution by the Agents of the Notes, constitutes the only written
information furnished by the Agents to the Company for use in the Registration
Statement or Prospectus.
-24-
25
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or (b) above, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley or, if Morgan Stanley is not an
indemnified party and is not reasonably likely to become an indemnified party,
by the Agents that are indemnified parties, in the case of parties indemnified
pursuant to paragraph (a) above, and by the Company, in the case of parties
indemnified pursuant to paragraph (b) above. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could
-25-
26
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph
(a) or (b) of this Section 6 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein in connection with any offering of Notes, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and each Agent on the other hand from the offering of
such Notes or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and each Agent on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and each Agent on the other hand in connection with the offering of such Notes
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of such Notes (before deducting expenses) received by
the Company bear to the total discounts and commissions received by each Agent
in respect thereof. The relative fault of the Company on the one hand and each
Agent on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Agent and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Each Agent's obligation to contribute pursuant to this
Section 6 shall be several in the proportion that the principal amount of the
Notes the sale of which by or through such Agent gave rise to such losses,
claims, damages or liabilities bears to the aggregate principal amount of the
Notes the sale of which by or through any Agent gave rise to such losses,
claims, damages or liabilities, and not joint.
(e) The Company and the Agents agree that it would not be just
or equitable if contribution pursuant to this Section 6 were determined by
pro rata allocation (even if the Agents were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) of this
Section 6. The amount paid or payable by an indemnified party as a result of the
-26-
27
losses, claims, damages and liabilities referred to in paragraph (d) of this
Section 6 shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6, no Agent shall be required to
contribute any amount in excess of the amount by which the total price at which
the Notes referred to in paragraph (d) of this Section 6 that were offered and
sold to the public through such Agent exceeds the amount of any damages that
such Agent has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 6 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 6, representations, warranties and other statements of the Company, its
officers and the Agents set forth in or made pursuant to this Agreement or any
Terms Agreement will remain in full force and effect regardless of (i) any
termination of this Agreement or any such Terms Agreement, (ii) any
investigation made by or on behalf of any Agent or any person controlling any
Agent or by or on behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Notes.
7. POSITION OF THE AGENTS. In acting under this
Agreement and in connection with the sale of any Notes by the Company (other
than Notes sold to an Agent pursuant to a Terms Agreement), each Agent is acting
solely as agent of the Company and does not assume any obligation towards or
relationship of agency or trust with any purchaser of Notes. An Agent shall make
reasonable efforts to assist the Company in obtaining performance by each
purchaser whose offer to purchase Notes has been solicited by such Agent and
accepted by the Company, but such Agent shall not have any liability to the
Company in the event any such purchase is not consummated for any reason. If the
Company shall default in its obligations to deliver Notes to a purchaser whose
offer it has accepted (other than as a result of the purchaser exercising its
right to refuse to purchase the Notes because of the failure of any condition of
such purchaser's obligation to purchase Notes pursuant to Section 4 hereof), the
Company shall hold the relevant Agent harmless against any loss, claim, damage
or liability arising from or as a result of such default and shall, in
particular, pay to such Agent the commission it would have received had such
sale been consummated.
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8. TERMINATION. This Agreement may be terminated at any
time by the Company or, as to any Agent, by the Company or such Agent upon the
giving of written notice of such termination to the other parties hereto, but
without prejudice to any rights, obligations or liabilities of any party hereto
accrued or incurred prior to such termination. The termination of this Agreement
shall not require termination of any Terms Agreement, and the termination of any
such Terms Agreement shall not require termination of this Agreement. If this
Agreement is terminated, the provisions of the third paragraph of Section 2(a),
Section 2(e), the last sentence of Section 3(b) and Sections 3(c), 3(h), 6, 7,
9, 10 and 13 shall survive; provided that if at the time of termination
an offer to purchase Notes has been accepted by the Company but the time of
delivery to the purchaser or its agent of such Notes has not occurred, the
provisions of Sections 2(b), 2(c), 3(a), 3(e), 3(f), 3(g), 3(i), 4 and 5 shall
also survive until such delivery has been made.
9. NOTICES. All communications hereunder will be in writing
and effective only on receipt, and, if sent to Morgan Stanley, will be mailed,
delivered or telefaxed and confirmed to Morgan Stanley at 1251 Avenue of the
Americas, New York, New York 10020, Attention: Manager, Credit Department
(telefax number: 212-703-4575), with a copy to 1221 Avenue of the Americas, New
York, New York 10020, Attention: Managing Director, Debt Syndicate (telefax
number: 212-764-7490); if sent to Lehman Brothers Inc., will be mailed,
delivered or telefaxed and confirmed to Lehman Brothers Inc. at 3 World
Financial Center, 12th Floor, New York, New York 10285-1200, Attention: MTN
Product Management (telefax number: 212-528-1718); if sent to J.P. Morgan
Securities Inc., will be mailed, delivered or telefaxed and confirmed to J.P.
Morgan Securities Inc. at 60 Wall Street, New York, New York 10260, Attention:
Medium-Term Note Desk, 3rd Floor (telefax number: 212-648-5907); or, if sent to
the Company, will be mailed, delivered or telefaxed and confirmed to the Company
at 3050 Bowers Avenue, Santa Clara, California 95054, Attention: Treasurer
(telefax number: 408-986-7825).
10. SUCCESSORS. This Agreement and any Terms Agreement
will inure to the benefit of and be binding upon the parties hereto and their
respective successors and the officers, directors and controlling persons
referred to in Section 6 and the purchasers of Notes (to the extent expressly
provided in Section 4), and no other person will have any right or obligation
hereunder.
11. AMENDMENTS. This Agreement may be amended or
supplemented if, but only if, such amendment or supplement is in writing and is
signed by the Company and each Agent; provided that the Company may from
time to time, without the consent of any Agent or the necessity of any Agent
signing an amendment or supplement to this Agreement, amend this Agreement to
add as a party hereto one
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29
or more additional firms registered under the Exchange Act, whereupon each such
firm shall become an Agent hereunder on the same terms and conditions as the
other Agents that are parties hereto. The Company shall give each Agent prompt
notice of the addition of any party hereto as an Agent hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
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If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Company and you.
Very truly yours,
APPLIED MATERIALS, INC.
By /s/ Nancy H. Handel
--------------------------------
Title: Vice President, Corporate
Finance
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
MORGAN STANLEY & CO. INCORPORATED
By /s/ Laurie Campbell
--------------------------------
Title: Vice President
LEHMAN BROTHERS INC.
By /s/ John F. Coghlan
--------------------------------
Title: Managing Director
J.P. MORGAN SECURITIES INC.
By /s/ Thomas Hagerstrom
--------------------------------
Title: Vice President
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31
EXHIBIT A
APPLIED MATERIALS, INC.
MEDIUM-TERM NOTES, SERIES A
TERMS AGREEMENT
____________ __, 19__
Applied Materials, Inc.
3050 Bowers Avenue
Santa Clara, California 95054
Attention:
Re: Distribution Agreement dated August 24, 1995
(the "Distribution Agreement")
We agree to purchase your Medium-Term Notes, Series A, having
the following terms:
[We agree to purchase, severally and not jointly, the principal
amount of Notes set forth below opposite our names:
Principal Amount
Name of Notes
---- ----------------
[Insert syndicate list](1)
Total . . . . . . $
===========]
- ---------------
(1) Delete if the transaction will not be syndicated.
A-1
32
The Notes shall have the following terms:
All Notes: Fixed Rate Notes: Floating Rate
- --------- ---------------- Notes:
-------------
Principal amount: Interest Rate: Base rate:
Purchase price: Applicability Index maturity:
of modified
Price to public: payment upon Spread (plus or
acceleration: minus):
Settlement date
and time: If yes, state Spread
issue price: multiplier:
Place of
delivery: Amortization Alternate rate
schedule: event spread:
Maturity date: Initial interest
Original issue date: rate:
Interest accrual Initial interest
date: reset date:
Initial accrual Interest reset
period OID: dates:
Total amount Interest reset
of OID: period:
Original yield Maximum interest
to maturity: rate:
Optional repayment Minimum interest
date(s): rate:
Optional redemption Interest payment
date(s): period:
Initial redemption Interest payment
date: date(s):
Initial redemption Calculation
percentage: agent:
Annual redemption Reporting
percentage Service:
reduction:
Index Currency:
Other provisions:
The provisions of Sections 1, 2(b) and 2(c) and 3 through 6, 9,
10 and 13 of the Distribution Agreement and the related definitions are
incorporated by reference herein and shall be
A-2
33
deemed to have the same force and effect as if set forth in full herein.
[During the period beginning the date hereof and continuing to
and including the Settlement Date, the Company will not, without the prior
written consent of [NAME OF RELEVANT AGENT(S)], offer, sell, contract to sell or
otherwise dispose of any debt securities of the Company or warrants to purchase
debt securities of the Company having terms substantially similar to the Notes
to which this Terms Agreement relates (other than (i) the Notes that are to be
sold pursuant hereto, (ii) Notes previously agreed to be sold by the Company and
(iii) commercial paper issued in the ordinary course of business).]
[If on the Settlement Date any one or more of the Agents shall
fail or refuse to purchase Notes that it has or they have agreed to purchase on
such date, and the aggregate amount of Notes which such defaulting Agent or
Agents agreed but failed or refused to purchase is not more than one-tenth of
the aggregate amount of the Notes to be purchased on such date, the other Agents
shall be obligated severally in the proportions that the amount of Notes set
forth opposite their respective names above bears to the aggregate amount of
Notes set forth opposite the names of all such non-defaulting Agents, or in such
other proportions as _____________ may specify, to purchase the Notes which such
defaulting Agent or Agents agreed but failed or refused to purchase on such
date; provided that in no event shall the amount of Notes that any Agent
has agreed to purchase pursuant to this Agreement be increased pursuant to this
paragraph by an amount in excess of one-ninth of such amount of Notes without
the written consent of such Agent. If on the Settlement Date any Agent or Agents
shall fail or refuse to purchase Notes and the aggregate amount of Notes with
respect to which such default occurs is more than one-tenth of the aggregate
amount of Notes to be purchased on such date, and arrangements satisfactory to
___________ and the Company for the purchase of such Notes are not made within
36 hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Agent or the Company. In any such case either
___________ or the Company shall have the right to postpone the Settlement Date
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Agent from liability in respect of any default
of such Agent under this Agreement.] (2)
This Agreement is subject to termination on the terms
incorporated by reference herein. If this Agreement is so terminated, the
provisions of Sections 3(h), 6, 9, 11 and 13 of the Distribution Agreement shall
survive for the purposes of this Agreement.
- ---------------
(2) Delete if the transaction will not be syndicated.
A-3
34
The following information, opinions, certificates, letters and
documents referred to in Section 4 of the Distribution Agreement will be
required: ________________.
[NAME OF RELEVANT AGENT(S)]
By _______________________
Title:
Accepted:
APPLIED MATERIALS, INC.
By ________________________
Title:
A-4
35
EXHIBIT B
APPLIED MATERIALS, INC.
MEDIUM-TERM NOTES, SERIES A
ADMINISTRATIVE PROCEDURES
---------------------------------
Explained below are the administrative procedures and specific
terms of the offering of Medium-Term Notes, Series A (the "Notes"), on a
continuing basis by Applied Materials, Inc. (the "Company") pursuant to the
Distribution Agreement, dated as of August 24, 1995 (the "Distribution
Agreement"), among the Company and Morgan Stanley & Co. Incorporated, Lehman
Brothers Inc. (including Lehman Government Securities Inc.) and J.P. Morgan
Securities Inc. (the "Agents"). The Notes will be issued under an Indenture
dated as of August 24, 1994 (the "Indenture") between the Company and Harris
Trust Company of California, as trustee (together with Harris Trust and Savings
Bank, acting as agent of the trustee, the "Trustee"). In the Distribution
Agreement, the Agents have agreed to use reasonable efforts to solicit purchases
of the Notes, and the administrative procedures explained below will govern the
issuance and settlement of any Notes sold through an Agent, as agent of the
Company. An Agent, as principal, may also purchase Notes for its own account,
and if requested by such Agent, the Company and such Agent will enter into a
terms agreement (a "Terms Agreement"), as contemplated by the Distribution
Agreement. The administrative procedures explained below will govern the
issuance and settlement of any Notes purchased by an Agent, as principal, unless
otherwise specified in the applicable Terms Agreement.
Harris Trust and Savings Bank, acting as agent of Harris Trust
Company of California, will be the Registrar, Authenticating Agent and Paying
Agent for the Notes and will perform the duties specified herein. Each Note will
be represented by either a Global Security (as defined below) delivered to the
Trustee, as agent for The Depository Trust Company ("DTC"), and recorded in the
book-entry system maintained by DTC (a "Book-Entry Note") or a certificate
delivered to the holder thereof or a person designated by such holder (a
"Certificated Note"). Except as set forth in the Indenture, an owner of a
Book-Entry Note will not be entitled to receive a Certificated Note.
36
Book-Entry Notes, which may be payable only in U.S. dollars,
will be issued in accordance with the administrative procedures set forth in
Part I hereof as they may subsequently be amended as the result of changes in
DTC'S operating procedures. Certificated Notes will be issued in accordance with
the administrative procedures set forth in Part II hereof. Unless otherwise
defined herein, terms defined in the Indenture, the Notes or any prospectus
supplement relating to the Notes shall be used herein as therein defined.
The Company will advise the Agents in writing of the employees
of the Company with whom the Agents are to communicate regarding offers to
purchase Notes and the related settlement details.
PART I: ADMINISTRATIVE PROCEDURES FOR BOOK-ENTRY NOTES
In connection with the qualification of the Book-Entry Notes
for eligibility in the book-entry system maintained by DTC, the Trustee will
perform the custodial, document control and administrative functions described
below in accordance with its respective obligations under a Letter of
Representation from the Company and the Trustee to DTC, dated as of August 21,
1995, and a Medium-Term Note Certificate Agreement between the Trustee and DTC,
dated as of July 2, 1990 (the "MTN Certificate Agreement"), and its obligations
as a participant in DTC, including DTC's Same-Day Funds Settlement System
("SDFS").
Issuance: On any date of settlement (as defined
under "Settlement" below) for one or
more Book-Entry Notes, the Company
will issue a single global security
in fully registered form without
coupons (a "Global Security")
representing up to U.S. $200,000,000
principal amount of all such Notes
that have the same Original Issue
Date, Maturity Date and other terms.
Each Global Security will be dated
and issued as of the date of its
authentication by the Trustee. Each
Global Security will bear an
"Interest Accrual Date," which will
be (i) with respect to an original
Global Security (or any portion
thereof), its original issuance date
and (ii) with respect to any Global
B-2
37
Security (or any portion thereof)
issued subsequently upon exchange of
a Global Security, or in lieu of a
destroyed, lost or stolen Global
Security, the most recent Interest
Payment Date to which interest has
been paid or duly provided for on the
predecessor Global Security (or if no
such payment or provision has been
made, the original issuance date of
the predecessor Global Security),
regardless of the date of
authentication of such subsequently
issued Global Security. No Global
Security will represent any
Certificated Note.
Denominations: Book-Entry Notes will be issued in
principal amounts of U.S. $100,000 or
any amount in excess thereof that is
an integral multiple of U.S. $1,000.
Global Securities will be denominated
in principal amounts not in excess of
U.S. $200,000,000. If one or more
Book-Entry Notes having an aggregate
principal amount in excess of
$200,000,000 would, but for the
preceding sentence, be represented by
a single Global Security, then one
Global Security will be issued to
represent each U.S. $200,000,000
principal amount of such Book-Entry
Note or Notes and an additional
Global Security will be issued to
represent any remaining principal
amount of such Book-Entry Note or
Notes. In such a case, each of the
Global Securities representing such
Book-Entry Note or Notes shall be
assigned the same CUSIP number.
Preparation If any offer to purchase a Book-
of Pricing Entry Note is accepted by or on
Supplement: behalf of the Company, the Company
will prepare a pricing supplement (a
"Pricing Supplement") reflecting the
terms of such Note. The Company (i)
will arrange to file such Pricing
Supplement with the Commission in
B-3
38
accordance with the applicable
paragraph of Rule 424(b) under the
Act and (ii) will, not later than the
Business Day following the date on
which the offer to purchase the
Book-Entry Note is accepted, deliver
such Pricing Supplement by facsimile
to the relevant Agent.
In each instance that a Pricing
Supplement is prepared, the relevant
Agent will affix the Pricing
Supplement to Prospectuses prior to
their use. Outdated Pricing
Supplements, and the Prospectuses to
which they are attached (other than
those retained for files), will be
destroyed.
Settlement: The receipt by the Company of
immediately available funds in
payment for a Book-Entry Note and the
authentication and issuance of the
Global Security representing such
Note shall constitute "settlement"
with respect to such Note. All offers
accepted by the Company will be
settled on the third Business Day
next succeeding the date of
acceptance pursuant to the timetable
for settlement set forth below,
unless the Company and the purchaser
agree to settlement on another day,
which shall be no earlier than the
next Business Day.
Settlement Settlement Procedures with regard
Procedures: to each Book-Entry Note sold by the
Company to or through an Agent
(unless otherwise specified pursuant
to a Terms Agreement) shall be as
follows:
A. The relevant Agent will advise
the Company by telephone that
such Note is a Book-Entry Note
and of the following settlement
information:
B-4
39
1. Principal amount.
2. Maturity Date.
3. In the case of a Fixed
Book-Entry Note, the Interest
Rate, the Interest Payment
Dates and whether such Note is
an Amortizing Note, and, if
so, the amortization schedule,
or, in the case of a Floating
Rate Book-Entry Note, the
Initial Interest Rate (if
known at such time), Interest
Payment Date(s), Interest
Payment Period, Calculation
Agent, Base Rate, Index
Maturity, Interest Reset
Period, Initial Interest Reset
Date, Interest Reset Dates,
Spread or Spread Multiplier
(if any), Minimum Interest
Rate (if any), Maximum
Interest Rate (if any) and the
Alternate Rate Event Spread
(if any).
4. Redemption or repayment
provisions (if any).
5. Settlement date and time
(Original Issue Date).
6. Interest Accrual Date.
7. Purchase Price.
8. Agent's commission (if any)
determined as provided in the
Distribution Agreement.
9. Any original issue discount
information for tax purposes.
B-5
40
10. Trade Date.
11. Depositary Participant
Account Number of such Agent.
12. [Whether or not such Agent
is purchasing such Note as
principal, and, if such Note
is sold through such Agent,
that neither such Agent nor
its affiliate is the purchaser
of such Note.]
13. Any other applicable
terms.
B. The Company will advise the
Trustee by telephone or
electronic transmission
(confirmed in writing at any time
on the same date) of the
information set forth in
Settlement Procedure "A" above.
The Company will then assign a
CUSIP number to the Global
Security representing such Note
and will notify the Trustee and
the relevant Agent of such CUSIP
number by telephone as soon as
practicable.
C. The Trustee will enter a
pending deposit message through
DTC's Participant Terminal
System, providing the following
settlement information to DTC,
the relevant Agent and Standard &
Poor's Corporation:
1. The information set forth
in Settlement Procedure "A".
2. The Initial Interest
Payment Date for such Note,
the number of days by which
such date succeeds the
B-6
41
related DTC Record Date (which
in the case of Floating Rate
Notes which reset daily or
weekly, shall be the date five
calendar days immediately
preceding the applicable
Interest Payment Date and, in
the case of all other Notes,
shall be the Record Date as
defined in the Note) and, if
known, the amount of interest
payable on such Initial
Interest Payment Date.
3. The CUSIP number of the
Global Security representing
such Note.
4. Whether such Global
Security will represent any
other Book-Entry Note (to the
extent known at such time).
5. Whether such Note is an
Amortizing Note (by an
appropriate notation in the
comments field of DTC's
Participant Terminal System).
6. The number of participant
accounts to be maintained by
DTC on behalf of the relevant
Agent and the Trustee.
D. The Trustee will complete and
authenticate the Global Security
representing such Note.
E. DTC will credit such Note to
the Trustee's participant account
at DTC.
F. The Trustee will enter an SDFS
deliver order through DTC's
B-7
42
Participant Terminal System
instructing DTC to (i) debit such
Note to the Trustee's participant
account and credit such Note to
the relevant Agent's participant
account and (ii) debit such
Agent's settlement account and
credit the Trustee's settlement
account for an amount equal to
the price of such Note less such
Agent's commission (if any). The
entry of such a deliver order
shall constitute a representation
and warranty by the Trustee to
DTC that (a) the Global Security
representing such Book-Entry Note
has been issued and authenticated
and (b) the Trustee is holding
such Global Security pursuant to
the MTN Certificate Agreement.
G. Unless the relevant Agent is
the end purchaser of such Note,
such Agent will enter an SDFS
deliver order through DTC's
Participant Terminal System
instructing DTC (i) to debit such
Note to such Agent's participant
account and credit such Note to
the participant accounts of the
Participants with respect to such
Note and (ii) to debit the
settlement accounts of such
Participants and credit the
settlement account of such Agent
for an amount equal to the price
of such Note.
H. Transfers of funds in
accordance with SDFS deliver
orders described in Settlement
Procedures "F" and "G" will be
settled in accordance with SDFS
operating procedures in effect on
the settlement date.
B-8
43
I. The Trustee will credit to the
account of the Company maintained
at Bank of America, Concord,
California, or to such other
account as the Company shall have
specified to the Trustee, in
immediately available funds the
amount transferred to the Trustee
in accordance with Settlement
Procedure "F".
J. Unless the relevant Agent is
the end purchaser of such Note,
such Agent will confirm the
purchase of such Note to the
purchaser either by transmitting
to the Participants with respect
to such Note a confirmation order
or orders through DTC's
institutional delivery system or
by mailing a written confirmation
to such purchaser.
K. Monthly, the Trustee will send
to the Company a statement
setting forth the principal
amount of Notes outstanding as of
that date under the Indenture and
setting forth a brief description
of any sales of which the Company
has advised the Trustee that have
not yet been settled.
Settlement For sales by the Company of Book-
Procedures Entry Notes to or through an Agent
Timetable: (unless otherwise specified pursuant
to a Terms Agreement) for settlement
on the first Business Day after the
sale date, Settlement Procedures "A"
through "J" set forth above shall be
completed as soon as possible but not
later than the respective times in
New York City set forth below:
Settlement
Procedure Time
---------- ----
B-9
44
A 11:00 A.M. on sale date
B 12:00 Noon on sale date
C 2:00 P.M. on sale date
D 9:00 A.M. on settlement date
E 10:00 A.M. on settlement date
F-G 2:00 P.M. on settlement date
H 4:45 P.M. on settlement date
I-J 5:00 P.M. on settlement date
If a sale is to be settled more than
one Business Day after the sale date,
Settlement Procedures "A", "B" and
"C" shall be completed as soon as
practicable but no later than 11:00
A.M., 12:00 Noon and 2:00 P.M.,
respectively, on the first Business
Day after the sale date. If the
Initial Interest Rate for a Floating
Rate Book-Entry Note has not been
determined at the time that
Settlement Procedure "A" is
completed, Settlement Procedures "B"
and "C" shall be completed as soon as
such rate has been determined but no
later than 12:00 Noon and 2:00 P.M.,
respectively, on the first Business
Day before the settlement date.
Settlement Procedure "H" is subject
to extension in accordance with any
extension of Fedwire closing
deadlines and in the other events
specified in the SDFS operating
procedures in effect on the
settlement date.
If settlement of a Book-Entry Note is
rescheduled or cancelled, the
Trustee, after receiving notice from
the Company or the relevant Agent,
will deliver to DTC, through DTC's
Participant Terminal System, a
cancellation message to such effect
by no later than 2:00 P.M. on the
Business Day immediately preceding
the scheduled settlement date.
Failure If the Trustee fails to enter an
to Settle: SDFS deliver order with respect to a
Book-Entry Note pursuant to
B-10
45
Settlement Procedure "F", the Trustee
may deliver to DTC, through DTC's
Participant Terminal System, as soon
as practicable a withdrawal message
instructing DTC to debit such Note to
the Trustee's participant account,
provided that the Trustee's
participant account contains a
principal amount of the Global
Security representing such Note that
is at least equal to the principal
amount to be debited. If a withdrawal
message is processed with respect to
all the Book-Entry Notes represented
by a Global Security, the Trustee
will mark such Global Security
"cancelled," make appropriate entries
in the Trustee's records and send
such cancelled Global Security to the
Company. The CUSIP number assigned to
such Global Security shall, in
accordance with the procedures of the
CUSIP Service Bureau of Standard &
Poor's Corporation, be cancelled and
not immediately reassigned. If a
withdrawal message is processed with
respect to one or more, but not all,
of the Book-Entry Notes represented
by a Global Security, the Trustee
will exchange such Global Security
for two Global Securities, one of
which shall represent such Book-Entry
Note or Notes and shall be cancelled
immediately after issuance and the
other of which shall represent the
remaining Book-Entry Notes previously
represented by the surrendered Global
Security and shall bear the CUSIP
number of the surrendered Global
Security.
If the purchase price for any
Book-Entry Note is not timely paid to
the Participants with respect to such
Note by the beneficial purchaser
thereof (or a person, including an
indirect participant in DTC, acting
on behalf of such purchaser), such
B-11
46
Participants and, in turn, the
relevant Agent may enter SDFS deliver
orders through DTC's Participant
Terminal System reversing the orders
entered pursuant to Settlement
Procedures "F" and "G", respectively.
Thereafter, the Trustee will deliver
the withdrawal message and take the
related actions described in the
preceding paragraph.
Notwithstanding the foregoing, upon
any failure to settle with respect to
a Book-Entry Note, DTC may take any
actions in accordance with its SDFS
operating procedures then in effect.
In the event of a failure to settle
with respect to one or more, but not
all, of the Book-Entry Notes to have
been represented by a Global
Security, the Trustee will provide,
in accordance with Settlement
Procedures "D" and "F", for the
authentication and issuance of a
Global Security representing the
Book-Entry Notes to be represented by
such Global Security and will make
appropriate entries in its records.
B-12
47
PART II: ADMINISTRATIVE PROCEDURES FOR CERTIFICATED NOTES
The Trustee will serve as Registrar in connection with
the Certificated Notes.
Issuance: Each Certificated Note will be dated
and issued as of the date of its
authentication by the Trustee. Each
Certificated Note will bear an
Original Issue Date, which will be
(i) with respect to an original
Certificated Note (or any portion
thereof), its original issuance date
(which will be the settlement date)
and (ii) with respect to any
Certificated Note (or portion
thereof) issued subsequently upon
transfer or exchange of a
Certificated Note or in lieu of a
destroyed, lost or stolen
Certificated Note, the original
issuance date of the predecessor
Certificated Note, regardless of the
date of authentication of such
subsequently issued Certificated
Note.
Preparation If any offer to purchase a Certi-
of Pricing ficated Note is accepted by or on
Supplement: behalf of the Company, the Company
will prepare a Pricing Supplement
reflecting the terms of such Note.
The Company (i) will arrange to file
such Pricing Supplement with the
Commission in accordance with the
applicable paragraph of Rule 424(b)
under the Act and (ii) will, not
later than the Business Day following
the date on which the offer to
purchase the Certificated Note is
accepted, deliver such Pricing
Supplement by facsimile to the
relevant Agent.
In each instance that a Pricing
Supplement is prepared, the relevant
Agent will affix the Pricing
Supplement to Prospectuses prior to
their use. Outdated Pricing
B-13
48
Supplements, and the Prospectuses to
which they are attached (other than
those retained for files), will be
destroyed.
Settlement: The receipt by the Company of
immediately available funds in
exchange for an authenticated
Certificated Note delivered to the
relevant Agent and such Agent's
delivery of such Note against receipt
of immediately available funds shall
constitute "settlement" with respect
to such Note. All offers accepted by
the Company will be settled on the
third Business Day next succeeding
the date of acceptance pursuant to
the timetable for settlement set
forth below, unless the Company and
the purchaser agree to settlement on
another date, which date shall be no
earlier than the next Business Day.
Settlement Settlement Procedures with regard to
Procedures: each Certificated Note sold by the
Company to or through an Agent
(unless otherwise specified pursuant
to a Terms Agreement) shall be as
follows:
A. The relevant Agent will advise the
Company by telephone that such Note
is a Certificated Note and of the
following settlement information:
1. Name in which such Note is to
be registered ("Registered
Owner").
2. Address of the Registered Owner
and address for payment of
principal and interest.
3. Taxpayer identification number
of the Registered Owner (if
available).
4. Principal amount.
B-14
49
5. Maturity Date.
6. In the case of a Fixed Rate
Certificated Note, the Interest
Rate, the Interest Payment Dates
and whether such Note is an
Amortizing Note and, if so, the
amortization schedule, or, in the
case of a Floating Rate
Certificated Note, the Initial
Interest Rate (if known at such
time), Interest Payment Date(s),
Interest Payment Period,
Calculation Agent, Base Rate,
Index Maturity, Interest Reset
Period, Initial Interest Reset
Date, Interest Reset Dates, Spread
or Spread Multiplier (if any),
Minimum Interest Rate (if any),
Maximum Interest Rate (if any) and
the Alternate Rate Event Spread
(if any).
7. Redemption or repayment
provisions (if any).
8. Settlement date and time
(Original Issue Date).
9. Interest Accrual Date.
10. Purchase Price.
11. Agent's commission (if any)
determined as provided in the
Distribution Agreement.
12. Denominations.
13. Any original issue discount
information for tax purposes.
14. Trade Date.
15. Depositary Participant Account
Number of such Agent.
B-15
50
16. [Whether or not such Agent is
purchasing such Note as principal,
and, if such Note is sold through
such Agent, that neither such
Agent nor its affiliate is the
purchaser of such Note.]
17. Any other applicable terms.
B. The Company will advise the
Trustee by telephone or electronic
transmission (confirmed in writing at
any time on the same date) of the
information set forth in Settlement
Procedure "A" above.
C. The Company will have delivered to
the Trustee a pre-printed four-ply
packet for such Note, which packet
will contain the following documents
in forms that have been approved by
the Company, the relevant Agent and
the Trustee:
1. Note with customer confirmation.
2. Stub One - For the Trustee.
3. Stub Two - For the relevant Agent.
4. Stub Three - For the Company.
D. The Trustee will complete such
Note and authenticate such Note and
deliver it (with the confirmation)
and Stubs One and Two to the relevant
Agent, and such Agent will
acknowledge receipt of the Note by
stamping or otherwise marking Stub
One and returning it to the Trustee.
Such delivery will be made only
against such acknowledgment of
receipt and evidence that
instructions have been given by such
Agent for payment to the account of
the Company at Bank of America,
B-16
51
Concord, California, or to such other
account as the Company shall have
specified to such Agent and the
Trustee, in immediately available
funds, of an amount equal to the
price of such Note less such Agent's
commission (if any). In the event
that the instructions given by such
Agent for payment to the account of
the Company are revoked, the Company
will as promptly as possible wire
transfer to the account of such Agent
an amount of immediately available
funds equal to the amount of such
payment made.
E. Unless the relevant Agent is the
end purchaser of such Note, such
Agent will deliver such Note (with
confirmation) to the customer against
payment in immediately available
funds. Such Agent will obtain the
acknowledgment of receipt of such
Note by retaining Stub Two.
F. The Trustee will send Stub Three
to the Company by first-class mail.
Monthly, the Trustee will also send
to the Company a statement setting
forth the principal amount of the
Notes outstanding as of that date
under the Indenture and setting forth
a brief description of any sales of
which the Company has advised the
Trustee that have not yet been
settled.
Settlement For sales by the Company of Certifi-
Procedures cated Notes to or through an Agent
Timetable: (unless otherwise specified pursuant
to a Terms Agreement), Settlement
Procedures "A" through "F" set forth
above shall be completed on or before
the respective times in New York City
set forth below:
B-17
52
Settlement
Procedure Time
--------- ----
A 2:00 P.M. on day before
settlement date
B 3:00 P.M. on day before
settlement date
C-D 2:15 P.M. on settlement date
E 3:00 P.M. on settlement date
F 5:00 P.M. on settlement date
Failure
to Settle: If a purchaser fails to accept
delivery of and make payment for any
Certificated Note, the relevant Agent
will notify the Company and the
Trustee by telephone and return such
Note to the Trustee. Upon receipt of
such notice, the Company will
immediately wire transfer to the
account of such Agent an amount equal
to the price of such Note less such
Agent's commission in respect of such
Note (if any). Such wire transfer
will be made on the settlement date,
if possible, and in any event not
later than the Business Day following
the settlement date. If the failure
shall have occurred for any reason
other than a default by such Agent in
the performance of its obligations
hereunder and under the Distribution
Agreement, then the Company will
reimburse such Agent or the Trustee,
as appropriate, on an equitable basis
for its loss of the use of the funds
during the period when they were
credited to the account of the
Company. Immediately upon receipt of
the Certificated Note in respect of
which such failure occurred, the
B-18
53
Trustee will mark such Note
"cancelled," make appropriate entries
in the Trustee's records and send
such Note to the Company.
B-19
1
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
Fiscal Year
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Income from consolidated companies
before provision for income taxes
and cumulative effect of accounting
change $698,543 $334,497 $153,558 $58,925 $40,355
Fixed charges:
Interest expense 21,401 15,962 14,206 15,207 13,969
Interest component of rent expense (1) 13,103 11,070 9,021 7,197 5,968
-------- -------- -------- ------- -------
Total fixed charges 34,504 27,032 23,227 22,404 19,937
-------- -------- -------- ------- -------
Earnings from consolidated companies
before income taxes, cumulative effect
of accounting change and fixed charges $733,047 $361,529 $176,785 $81,329 $60,292
======== ======== ======== ======= =======
Ratio of earnings to fixed charges 21.25x 13.37x 7.61x 3.63x 3.02x
======== ======== ======== ======= =======
(1) For leases where the interest factor can be specifically identified, the
actual interest factor was used. For all other leases, the interest factor
is estimated at one-third of total rent expense for the applicable period,
which management believes represents a reasonable approximation of the
interest factor.
76
1
selected consolidated FINANCIAL DATA
Fiscal year ended* 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
(In thousands, except per share
and headcount data)
Net sales $3,061,881 $1,659,807 $1,080,047 $ 751,383 $ 638,606
Gross margin $1,409,848 $ 768,295 $ 475,684 $ 308,204 $ 268,581
(% of net sales) 46.0 46.3 44.0 41.0 42.1
Research, development
and engineering $ 329,676 $ 189,126 $ 140,161 $ 109,196 $ 102,665
(% of net sales) 10.8 11.4 13.0 14.5 16.1
Marketing, selling and
administrative $ 386,240 $ 239,932 $ 174,529 $ 130,632 $ 116,544
(% of net sales) 12.6 14.4 16.2 17.4 18.2
Income from consolidated
companies before taxes
and cumulative effect of
accounting change $ 698,543 $ 334,497 $ 153,558 $ 58,925 $ 40,355
(% of net sales) 22.8 20.2 14.2 7.8 6.3
Tax rate (%) 35.0 35.0 33.0 33.0 35.0
Net income $ 454,053 $ 220,696 $ 99,695 $ 39,480 $ 26,231
Earnings per share** $ 2.56 $ 1.30 $ .61 $ .27 $ .19
Average common shares
and equivalents** 177,348 170,042 164,588 145,360 137,800
- -----------------------------------------------------------------------------------------------
Order backlog $1,508,800 $ 715,200 $ 365,800 $ 253,900 $ 213,400
Working capital $1,449,882 $ 734,104 $ 395,388 $ 333,590 $ 234,211
Working capital ratio 2.7 2.5 2.0 2.3 2.2
Long-term debt $ 279,807 $ 209,114 $ 121,076 $ 118,445 $ 123,967
Stockholders' equity $1,783,503 $ 966,264 $ 598,762 $ 474,111 $ 325,454
Book value per share** $ 9.95 $ 5.74 $ 3.73 $ 3.03 $ 2.41
Total assets $2,965,379 $1,702,665 $1,120,152 $ 853,822 $ 660,756
Capital expenditures $ 265,557 $ 180,440 $ 95,351 $ 60,943 $ 62,670
Regular full-time employees 10,537 6,497 4,739 3,909 3,543
- -----------------------------------------------------------------------------------------------
* The fiscal year ends on the last Sunday in October each year. The fiscal
year-end for the periods presented are October 29, 1995, October 30, 1994,
October 31, 1993, October 25, 1992, and October 27, 1991.
**Retroactively restated for the two-for-one stock split in the form of a 100
percent stock dividend effective October 12, 1995 (see note nine to the
consolidated financial statements).
[CHART 1] [CHART 2] [CHART 3]
26 APPLIED MATERIALS
2
management's DISCUSSION AND ANALYSIS
For the fiscal year ended October 29, 1995, Applied Materials achieved record
net sales of $3.1 billion, record new orders of $3.9 billion and a backlog of
$1.5 billion compared to $715.2 million of backlog at the end of fiscal 1994.
Results of Operations
The Company's net sales increased by 84 percent for fiscal 1995 compared to
fiscal 1994 and 54 percent for fiscal 1994 compared to fiscal 1993. This
increase was driven by a strong worldwide demand for the Company's advanced
wafer process technology, multi-chamber equipment and installed base support
services. The increased demand for the Company's multi-chamber systems (the
Precision 5000, Endura and Centura platforms) reflects the robust demand for
advanced semiconductor devices and the industry's continued investment in
systems capable of performing processes required for smaller device geometries,
as well as the complex multi-level metal structures of the most advanced
semiconductor devices. The Company's installed base support services revenue
increased 47 percent from fiscal 1994, reflecting our global customers'
requirements for high reliability and uptime specifications.
Applied Materials operates in all major geographic regions of the worldwide
semiconductor industry with 68 percent of the Company's net sales in fiscal 1995
to customers located outside North America compared to 63 percent in fiscal 1994
and 62 percent in fiscal 1993. Major North American manufacturers of
microprocessors, memory and logic devices continued their capacity expansions
both in Europe and in the United States. Fiscal 1995 sales in Asia-Pacific and
Korea continued to show significant increases from fiscal 1994 levels,
reflecting customers' needs for increased dynamic random access memory (DRAM)
capacity in South Korea and increased DRAM, logic and foundry capacity in Taiwan
and Singapore. Sales in Japan increased from the prior fiscal year as Japanese
DRAM manufacturers increased their eight-inch wafer capacity for 16 Mbit
production and 64 Mbit pilot lines.
[CHART 4]
Gross margin as a percentage of net sales was 46 percent in fiscal 1995 and
1994 and 44 percent in fiscal 1993. The economies of scale in the manufacturing
and the service and support operations were offset by production inefficiencies
and costs incurred to meet the significant ramp in product shipments during
fiscal 1995.
27 APPLIED MATERIALS
3
management's DISCUSSION AND ANALYSIS
Operating expenses as a percentage of net sales were 23 percent in fiscal
1995 compared to 26 percent and 29 percent in fiscal 1994 and 1993,
respectively. The reduction during the past three years results primarily from
the Company's accelerated revenue growth and management of the growth in
operating expenses. The Company plans to continue to increase investments in
strategic facilities expansion, information systems technology and personnel to
support its current and future volumes of business. Thus, there can be no
assurance that current operating expense levels as a percentage of net sales are
indicative of future operating expenses as a percentage of net sales.
The Company's future results depend, to a considerable extent, on its ability
to maintain a competitive advantage in both the products and services it
provides. For this reason, Applied Materials believes it is critical to continue
to make substantial investments in research and development to ensure the flow
of innovative, productive, high-quality products and support services. Research,
development and engineering spending grew to $330 million or 11 percent of net
sales in 1995 compared to $189 million or 11 percent of net sales in 1994 and
$140 million or 13 percent of net sales in 1993. This considerable investment
reflects the Company's commitment to meet its customers' requirements which are
driven by rapid technological advancement. New products introduced during fiscal
1995 include the Endura VHP (Very High Productivity) PVD system, Precision
Implant 9500 xR, MxP+ Dielectric Etch Chamber, RPS Centura, DxZ Process Chamber,
the rapid thermal processing (RTP) system, and the Precision Implant xR80. The
Company also introduced additional sub-atmospheric chemical vapor deposition
processes for existing products.
[CHART 5]
Marketing, selling and administrative expenses as a percentage of net sales
were 13 percent, 14 percent and 16 percent in fiscal 1995, 1994 and 1993,
respectively. During each of these fiscal years, the Company increased spending
in marketing and selling programs to support the development of international
markets and increase awareness of new products. Increases in administrative
expenses over the last three fiscal years have been primarily to support the
Company's growth. As a percentage of net sales, these expenses have decreased
due to the revenue growth rate exceeding the growth rate in marketing, selling
and administrative expenses.
Applied Materials' effective income tax rate was 35 percent in fiscal 1995
and 1994 and 33 percent in fiscal 1993. The two percentage point increase in the
effective tax rate from fiscal 1993 is primarily the result of changes in U.S.
tax laws and variations in the Company's composition of worldwide income and
foreign taxes. The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," prospectively on November 1, 1993 and
recorded a one-time $7 million credit as the favorable impact of the accounting
change. In fiscal 1996, the Company's effective tax rate is anticipated to
remain at 35 percent.
28 APPLIED MATERIALS
4
While international markets provide the Company with significant growth
opportunities, periodic economic downturns, fluctuations in interest and foreign
currency exchange rates, trade balance issues, and potential economic and
political instability are all risks which could affect global product and
service demand. Significant operations of the Company are conducted in Japanese
yen. Forward exchange contracts and options are purchased to hedge certain
existing firm commitments and foreign currency denominated transactions expected
to occur during the next year. Gains and losses on hedge contracts are reported
as a component of the related transaction. Because the impact of movements in
currency exchange rates on foreign exchange contracts offsets the related impact
on the underlying items being hedged, these financial instruments do not subject
the Company to speculative risk that would otherwise result from changes in
currency exchange rates. While not significant in fiscal 1995, the strength of
the Japanese yen relative to the U.S. dollar resulted in a favorable impact to
the Company's results of operations after the effect of foreign currency hedging
activities. Exchange rate fluctuations between the local currencies of the
Company's subsidiaries and the U.S. dollar did not materially affect the
consolidated balance sheet.
Financial Condition, Liquidity and Capital Resources
[CHART 6]
At October 29, 1995, the Company had $769 million in cash, cash equivalents and
short-term investments, compared to $422 million at October 30, 1994. The
increase is due primarily to the increase in earnings, $321 milllion raised by
the sale of common stock in July 1995, the issuance of $73 million in
medium-term notes, other long-term debt borrowings, and increases in accounts
payable and accrued expenses offset by capital expenditures and increased levels
of accounts receivable and inventory. Accounts receivable increased $412 million
from October 1994 primarily due to increased sales volumes. Inventories
increased $182 million from October 1994 primarily to support increased demand
for products and spare parts. Capital expenditures of $266 million consisted
primarily of facility improvements and expansion, demonstration and test
equipment and information systems.
Major facility improvement and expansion projects are currently underway in
Texas, California, Japan, Taiwan, and Korea. These projects reflect efforts by
the Company to manage its manufacturing and applications lab capacity to ensure
that customer needs will continue to be met. Capital expenditures are expected
to approximate $500 million during 1996. This amount includes funds for further
expansion of facilities and investments in demonstration and test equipment,
information systems and other capital items. These expenditures are anticipated
to be financed by operating cash flows, cash on hand and the Company's existing
debt arrangements. Domestic and foreign credit facilities available at October
29, 1995 totaled $189 million.
APPLIED MATERIALS 29
5
management's DISCUSSION AND ANALYSIS
During fiscal 1995, the Company registered $267 million in medium-term notes
to be issued from time to time, at fixed or variable interest rates, as
determined at the time of issuance. As of October 29, 1995, the Company had
issued $73 million of 6.65 to 7.00 percent fixed rate, 5- and 10-year notes. The
Company's liquidity is affected by many factors, some based on the normal
on-going operations of the business and others related to the uncertainties of
the industry and global economies. Although the Company's cash requirements will
fluctuate based on the timing and extent of these factors, management believes
that cash generated from operations, together with the liquidity provided by
existing cash and investment balances and current borrowing arrangements, will
be sufficient to satisfy commitments for capital expenditures and other cash
requirements for the next fiscal year.
[CHART 7]
The Company entered into a joint venture agreement in September 1993 with
Komatsu Ltd. to form Applied Komatsu Technology, Inc. (AKT), a joint venture
corporation whose mission is to develop, manufacture and market systems used to
produce flat panel displays (see note five to the consolidated financial
statements). During fiscal 1995, AKT continued to expand its product offerings
and revenue base and in the fourth quarter recognized net income for the first
time. Applied Materials believes that AKT will not materially impact the
Company's financial condition or results of operations during fiscal 1996.
30 APPLIED MATERIALS
6
consolidated STATEMENTS OF OPERATIONS
Fiscal year ended 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net sales $3,061,881 $1,659,807 $1,080,047
Cost of products sold 1,652,033 891,512 604,363
- ----------------------------------------------------------------------------------------------------
Gross margin 1,409,848 768,295 475,684
Operating expenses:
Research, development and engineering 329,676 189,126 140,161
Marketing and selling 223,296 157,303 107,275
General and administrative 162,944 82,629 67,254
- ----------------------------------------------------------------------------------------------------
Income from operations 693,932 339,237 160,994
Interest expense 21,401 15,962 14,206
Interest income 26,012 11,222 6,770
- ----------------------------------------------------------------------------------------------------
Income from consolidated companies before taxes
and cumulative effect of accounting change 698,543 334,497 153,558
Provision for income taxes 244,490 117,074 50,674
- ----------------------------------------------------------------------------------------------------
Income from consolidated companies before
cumulative effect of accounting change 454,053 217,423 102,884
Equity in net loss of joint venture -- 3,727 3,189
- ----------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 454,053 213,696 99,695
Cumulative effect of a change in accounting for
income taxes -- 7,000 --
- ----------------------------------------------------------------------------------------------------
Net income $ 454,053 $ 220,696 $ 99,695
- ----------------------------------------------------------------------------------------------------
Earnings per share:
Income before cumulative effect of accounting change $ 2.56 $ 1.26 $ .61
- ----------------------------------------------------------------------------------------------------
Net income $ 2.56 $ 1.30 $ .61
- ----------------------------------------------------------------------------------------------------
Average common shares and equivalents 177,348 170,042 164,588
- ----------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
APPLIED MATERIALS 31
7
consolidated BALANCE SHEETS
Fiscal year ended 1995 1994
- ----------------------------------------------------------------------------------
(In thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents $ 285,845 $ 160,320
Short-term investments 483,487 262,005
Accounts receivable, less allowance for
doubtful accounts of $3,017 and $1,089 817,730 405,813
Inventories 427,413 245,710
Deferred income taxes 198,888 99,766
Other current assets 98,250 56,923
- ----------------------------------------------------------------------------------
Total current assets 2,311,613 1,230,537
Property, plant and equipment, less
accumulated depreciation 630,746 452,454
Other assets 23,020 19,674
- ----------------------------------------------------------------------------------
Total assets $2,965,379 $1,702,665
- ----------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 61,748 $ 43,081
Current portion of long-term debt 21,064 15,432
Accounts payable and accrued expenses 659,572 378,238
Income taxes payable 119,347 59,682
- ----------------------------------------------------------------------------------
Total current liabilities 861,731 496,433
Long-term debt 279,807 209,114
Deferred income taxes 11,612 11,581
Other non-current obligations 28,726 19,273
- ----------------------------------------------------------------------------------
Total liabilities 1,181,876 736,401
- ----------------------------------------------------------------------------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock; $.01 par value per share;
1,000 shares authorized; no shares issued -- --
Common stock; $.01 par value per share;
200,000 shares authorized; 179,278 and 168,208
shares outstanding 1,792 1,682
Additional paid-in capital 760,057 389,814
Retained earnings 999,979 545,926
Cumulative translation adjustments 21,675 28,842
- ----------------------------------------------------------------------------------
Total stockholders' equity 1,783,503 966,264
- ----------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,965,379 $1,702,665
- ----------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
32 APPLIED MATERIALS
8
consolidated STATEMENTS OF CASH FLOWS
Fiscal year ended 1995 1994 1993
- --------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income $ 454,053 $ 220,696 $ 99,695
Adjustments required to reconcile net income
to cash provided by operations:
Depreciation and amortization 83,231 59,051 38,894
Equity in net loss of joint venture -- 3,727 3,189
Deferred income taxes (99,345) (32,510) (21,869)
Cumulative effect of a change in accounting for
income taxes -- (7,000) --
Changes in assets and liabilities:
Accounts receivable (442,935) (135,851) (53,188)
Inventories (186,412) (80,507) (42,731)
Other current assets (43,097) (18,216) (18,342)
Other assets (3,462) (3,733) (836)
Accounts payable and accrued expenses 304,807 83,119 85,607
Income taxes payable 64,246 12,329 21,601
Other non-current obligations 11,613 9,919 4,938
- --------------------------------------------------------------------------------------------------
Cash provided by operations 142,699 111,024 116,958
- --------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (265,557) (180,440) (95,351)
Investment in joint venture -- -- (5,860)
Proceeds from sales of short-term investments 351,230 151,305 155,668
Purchases of short-term investments (572,712) (266,727) (239,034)
- --------------------------------------------------------------------------------------------------
Cash used for investing (487,039) (295,862) (184,577)
- --------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Short-term borrowings, net 18,847 (1,420) 9,907
Long-term debt borrowings 134,992 98,594 5,505
Long-term debt repayments (51,303) (7,256) (9,158)
Sales of common stock, net 370,353 134,263 21,566
- --------------------------------------------------------------------------------------------------
Cash provided by financing 472,889 224,181 27,820
- --------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (3,024) 1,380 (57)
- --------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 125,525 40,723 (39,856)
Cash and cash equivalents at beginning of year 160,320 119,597 159,453
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 285,845 $ 160,320 $ 119,597
- --------------------------------------------------------------------------------------------------
Cash payments for interest were $22,349, $14,120 and $14,187 for 1995, 1994 and
1993, respectively. Cash payments for income taxes were $221,430, $79,498 and
$31,177 for 1995, 1994, and 1993, respectively.
See accompanying notes to the consolidated financial statements.
APPLIED MATERIALS 33
9
notes to consolidated FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation The consolidated
financial statements include the accounts of the Company and its subsidiaries
after elimination of all significant intercompany balances and transactions. The
Company's 50 percent joint venture investment in Applied Komatsu Technology,
Inc. (AKT) is accounted for using the equity method and is included in other
long-term assets. The Company's fiscal years reported are the 52- or 53-week
periods which end on the last Sunday of October.
Cash Equivalents All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents.
Short-Term Investments Prior to fiscal 1995, short-term investments were
carried at cost, which approximated market value. Effective October 31, 1994,
the Company adopted Statement of Financial Accounting Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities."
SFAS 115 requires investment securities to be classified as trading, available
for sale, or held to maturity. Management determines the appropriate
classification of its investments at the time of purchase and reevaluates the
classification at each balance sheet date. As of October 29, 1995, all
investments in the short-term investment portfolio are classified as available
for sale. Under SFAS 115, investments classified as available for sale are
required to be recorded at fair value and any temporary difference between an
investment's cost and its fair value is required to be recorded as a separate
component of stockholders' equity. This adoption had no material effect on the
Company's financial statements. Prior year consolidated financial statements
have not been restated to reflect this change.
Inventory Valuation Inventories are stated at the lower of cost or market, with
cost determined on a first-in, first-out (FIFO) basis.
Property, Plant and Equipment Property, plant and equipment is stated at cost.
Depreciation is provided using a straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the useful lives
of the improvements or the lease term, whichever is shorter. Gains and losses on
sales of property, plant and equipment are reflected in income. Maintenance and
repairs are charged to income as incurred. Improvements which extend the useful
life of property, plant and equipment are capitalized.
Revenue Recognition Revenue related to systems is generally recognized upon
shipment, which usually precedes customer acceptance. A provision for the
estimated future cost of system installation and warranty is recorded at the
time revenue is recognized. Service revenue is recognized ratably over the
period of the related contract.
Derivative Financial Instruments In fiscal 1995, the Company adopted Statement
of Financial Accounting Standards No. 119 (SFAS119), "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
Estimated fair values have been determined using available market information
and various valuation methods depending on the type of instrument. The Company
enters into derivative financial instruments such as forward exchange contracts
to hedge certain firm commitments denominated in foreign currencies and
purchases currency option contracts to hedge certain anticipated, but not yet
committed, transactions expected to be denominated in foreign currencies. The
purpose of the Company's foreign currency management activity is to protect the
Company from the risk that eventual cash flows from foreign currency denominated
transactions
34 APPLIED MATERIALS
10
may be adversely affected by changes in exchange rates. The term of the currency
instruments used is consistent with the timing of the committed or anticipated
transactions being hedged. The Company does not hold or issue financial
instruments for trading or speculative purposes. Deferred results of forward and
option contracts are recognized in income when the related transactions being
hedged are recognized.
Foreign Currency Translation The Company's subsidiaries located in Japan and
Europe operate using local functional currencies. Accordingly, all assets and
liabilities of these operations are translated at current exchange rates at the
end of the period and revenues and costs at average exchange rates in effect
during the period. The resulting cumulative translation adjustments are recorded
as a separate component of stockholders' equity.
Subsidiaries in Korea and in the Asia-Pacific region use the U.S. dollar as
the functional currency. Accordingly, assets and liabilities are translated at
period-end exchange rates, except for inventories and property, plant and
equipment, which are translated at historical rates. Revenues and expenses are
translated at average exchange rates in effect during the period, except for
costs related to balance sheet items which are held and translated at historical
rates. Foreign currency translation gains and losses are included in income as
they are incurred.
Earnings Per Share Earnings per common share and equivalents is computed using
the weighted average number of common shares and equivalents outstanding (see
note nine).
Reclassifications Certain amounts in fiscal years prior to fiscal 1995 have been
reclassified to conform to the fiscal 1995 presentation.
2. Financial Instruments
Investments At October 29, 1995, the fair value of the Company's short-term
investments approximated cost. Information about the contractual maturities of
short-term investments at October 29, 1995 is as follows:
Due After One
Due in One Year Year Through Due After
or Less Three Years Three Years
- ----------------------------------------------------------------------------------------------
(In thousands)
Obligations of States and Political Subdivisions $ 77,569 $ 25,375 $ 17,764
U.S. Commercial Paper, Corporate Bonds and
Medium-Term Notes 90,492 13,169 7,079
Bank Certificates of Deposit 97,101 -- --
U.S. Treasury Securities 101,641 24,109 11,465
Other Debt Securities 3,150 8,687 5,886
- ----------------------------------------------------------------------------------------------
$369,953 $ 71,340 $ 42,194
- ----------------------------------------------------------------------------------------------
At October 29, 1995, $201,684,000 of investments in debt securities are included
in cash and cash equivalents on the balance sheet.
Gross unrealized holding gains and losses and gross realized gains and losses
on sales of short-term investments were not significant as of or for the year
ended October 29, 1995. The Company manages its cash equivalents and short-term
investments as a single portfolio of highly marketable securities, all of which
are intended to be available to meet the Company's current cash requirements.
APPLIED MATERIALS 35
11
notes to consolidated FINANCIAL STATEMENTS
Derivative Financial Instruments At October 29, 1995, deferred premiums on
purchased option contracts were $4,682,000, and deferred gains and losses on
forward contracts were not material. At October 29, 1995, the Company had
forward exchange contracts to sell U.S. dollars for foreign currency with
notional amounts of $308,879,000 and forward exchange contracts to buy U.S.
dollars for foreign currency with notional amounts of $460,721,000. At October
29, 1995, the Company has currency option contracts to sell yen with gross
notional amounts of $400,000,000. All currency forward and option contracts have
maturities of less than two years and are primarily to buy or sell Japanese yen
in exchange for U.S. dollars. Management believes that these contracts should
not subject the Company to undue risk from foreign exchange movements because
gains and losses on these contracts should offset gains and losses on the
assets, liabilities and transactions being hedged. The Company is exposed to
credit-related losses in the event of nonperformance by counterparties to
financial instruments, but it does not expect any counterparties to fail to meet
their obligations.
Concentrations of Credit Risk Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash equivalents, short-term investments, trade accounts receivable, and
financial instruments used in hedging activities.
The Company invests in a variety of financial instruments such as
certificates of deposit, municipal bonds and treasury bills. The Company, by
policy, limits the amount of credit exposure with any one financial institution
or commercial issuer.
The Company's customers consist of semiconductor manufacturers located
throughout the world. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from them.
The Company maintains an allowance for uncollectible accounts receivable based
upon expected collectibility of all accounts receivable.
Fair Value of Financial Instruments For certain of the Company's financial
instruments, including cash and cash equivalents, short-term investments,
accounts receivable, notes payable, accounts payable, and accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
Consequently, such instruments are not included in the following table which
provides information regarding the estimated fair values of other financial
instruments, both on and off the balance sheet:
1995 1994
- -------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------------
(In thousands)
Long-term debt $300,871 $316,599 $224,546 $221,471
- -------------------------------------------------------------------------------------------------------
Forward exchange contracts:*
Sell foreign currency, primarily yen $408,200 $409,397 $214,637 $219,318
Buy foreign currency, primarily yen $282,978 $283,770 $136,454 $139,921
- -------------------------------------------------------------------------------------------------------
*Notional amount
The estimated fair value for long-term debt is based primarily on quoted market
prices for the same or similar issues. The fair value of forward exchange
contracts is based on quoted market prices of comparable instruments. At October
29, 1995, the fair value of foreign currency option contracts was $29,400,000
and the premiums paid were $5,410,000. The fair value and premium amounts of
foreign currency option contracts were not material as of October 30, 1994.
36 APPLIED MATERIALS
12
3. Inventories
1995 1994
- -----------------------------------------------------------------------------------------
(In thousands)
Customer service spares $131,411 $ 75,860
Systems raw materials 118,627 56,309
Work-in-process 139,537 81,389
Finished goods 37,838 32,152
- -----------------------------------------------------------------------------------------
$427,413 $245,710
- -----------------------------------------------------------------------------------------
4. Property, Plant and Equipment
Useful Lives
In Years 1995 1994
- -----------------------------------------------------------------------------------------
(In thousands)
Land $ 62,710 $ 58,950
Buildings and leasehold improvements 2 - 65 342,629 266,892
Demonstration and manufacturing equipment 3 - 7 174,956 114,880
Furniture, fixtures and other equipment 3 - 10 176,408 110,951
Construction in progress 102,960 70,917
- -----------------------------------------------------------------------------------------
859,663 622,590
Less accumulated depreciation 228,917 170,136
- -----------------------------------------------------------------------------------------
$630,746 $452,454
- -----------------------------------------------------------------------------------------
5. Applied Komatsu Technology Joint Venture
In September 1993, the Company entered into an agreement with Komatsu Ltd. to
form Applied Komatsu Technology, Inc. (AKT), a joint venture corporation to
develop, manufacture and market systems used to produce flat panel displays. The
Company's initial investment in AKT aggregated $6,916,000, which included the
net book value of contributed cash and certain tangible and intangible assets,
as well as the costs of formation. Komatsu Ltd. contributed $35,000,000 of cash
to AKT. The Company's investment in AKT was reduced to zero as a result of its
share of AKT's net losses in fiscal 1993 and 1994. The difference between the
Company's investment and its interest in the book value of AKT's net assets will
be amortized when AKT achieves sustained profitability. Royalties received by
the Company on AKT sales did not materially affect the Company's results of
operations in fiscal 1995, 1994 or 1993.
6. Notes Payable
The Company has credit facilities for borrowings in various currencies up to
$250,595,000 on an unsecured basis; $125,000,000 represents a revolving credit
agreement in the U.S. with a group of eight banks. This agreement includes
facility fees, allows for borrowings at rates including the lead bank's prime
reference rate, requires compliance with certain financial and nonfinancial
covenants and expires in September 1998. The remaining $125,595,000 of credit
facilities are primarily with Japanese and European banks at rates indexed to
their prime reference rate. At October 29, 1995, $61,748,000 was outstanding
under Japanese credit facilities at an average annual rate of 2 percent.
APPLIED MATERIALS 37
13
7. Long-Term Debt
Interest Maturity
Rate Date 1995 1994
- ------------------------------------------------------------------------------------------
(In thousands)
Secured Japanese debt 1.55 - 5.55% 1997 - 2010 $ 60,371 $ 49,546
Unsecured senior notes 9.62% 1996 - 1999 67,500 75,000
Noncallable unsecured
senior notes 8.00% 2004 100,000 100,000
Medium-term notes 6.65 - 7.00% 2000 - 2005 73,000 --
- ------------------------------------------------------------------------------------------
300,871 224,546
Less current portion 21,064 15,432
- ------------------------------------------------------------------------------------------
$279,807 $209,114
- ------------------------------------------------------------------------------------------
Japanese debt is due in equal periodic installments and is secured by property
and equipment having an approximate net book value of $80,707,000 at October 29,
1995.
The unsecured senior notes are fixed-rate and require annual principal
payments each April 1 from 1995 through 1999. There is a prepayment penalty
based on current interest rates and the remaining time to maturity. The notes
contain covenants that include limitations on additional borrowings, liens
placed on assets, dividends and certain other major transactions, and require
compliance with certain financial tests and ratios.
The noncallable unsecured senior notes are fixed-rate and require semi-annual
interest payments on March 1 and September 1 with the principal payable in 2004.
The notes contain certain financial covenants that include limitations on
additional borrowings by U.S. subsidiaries, liens placed on assets, and sale and
leaseback transactions.
On August 24, 1995, the Company commenced a program to offer from time to
time up to $266,931,000 in medium-term notes. At October 29, 1995, the Company
had issued $73,000,000 of fixed-rate notes, and the remaining notes may be
issued at fixed or variable rates, as determined at the time of issuance. The
notes contain certain financial covenants that include limitations on additional
borrowings by U.S. subsidiaries, liens placed on assets, and sale and leaseback
transactions.
Aggregate principal payments required on long-term debt are:
- ------------------------------------------------------------------------------------------
(In thousands)
1996 $ 21,064
1997 $ 21,720
1998 $ 25,569
1999 $ 28,097
2000 $ 34,904
Thereafter $169,517
- ------------------------------------------------------------------------------------------
38 APPLIED MATERIALS
14
8. Accounts Payable and Accrued Expenses
1995 1994
- ----------------------------------------------------------------------------------------------------
(In thousands)
Accounts payable $244,014 $119,039
Compensation and employee benefits 109,388 70,474
Installation and warranty 133,035 77,057
Unearned income 32,530 24,324
Other 140,605 87,344
- ----------------------------------------------------------------------------------------------------
$659,572 $378,238
- ----------------------------------------------------------------------------------------------------
9. Stockholders' Equity
On September 14, 1995, the Company declared a two-for-one stock split in the
form of a 100 percent stock dividend to holders of record of the Company's
common stock on September 26, 1995. The dividend shares were distributed to
stockholders on October 12, 1995. All prior period common stock and applicable
share data appearing in the consolidated financial statements and notes thereto
have been restated to reflect this stock dividend.
Additional Cumulative
Common Stock Paid-in Retained Translation
Shares Amount Capital Earnings Adjustments
- ----------------------------------------------------------------------------------------------------
(In thousands)
Balance at October 25, 1992 156,392 $1,564 $234,103 $225,535 $ 12,909
Net issuances under stock plans* 4,364 44 21,522 -- --
Translation adjustments -- -- -- -- 3,390
Net income -- -- -- 99,695 --
- ----------------------------------------------------------------------------------------------------
Balance at October 31, 1993 160,756 1,608 255,625 325,230 16,299
Net issuances under stock plans* 2,852 28 23,562 -- --
Stock offering 4,600 46 110,627 -- --
Translation adjustments -- -- -- -- 12,543
Net income -- -- -- 220,696 --
- ----------------------------------------------------------------------------------------------------
Balance at October 30, 1994 168,208 1,682 389,814 545,926 28,842
Net issuances under stock plans* 3,020 30 49,132 -- --
Stock offering 8,050 80 321,111 -- --
Translation adjustments -- -- -- -- (7,167)
Net income -- -- -- 454,053 --
- ----------------------------------------------------------------------------------------------------
Balance at October 29, 1995 179,278 $1,792 $760,057 $999,979 $ 21,675
- ----------------------------------------------------------------------------------------------------
* Includes 200 shares of treasury stock issued under stock plans in 1994.
Includes tax benefits of $36,940, $27,402, and $18,708 for 1995, 1994 and
1993, respectively.
APPLIED MATERIALS 39
15
notes to consolidated FINANCIAL STATEMENTS
In July 1995, the Company sold 8,050,000 shares of common stock in a public
offering at a price of $41.38 per share prior to underwriters' commissions.
Proceeds after underwriters' commissions and other offering costs were
$321,191,000. In March 1994, the Company sold 4,600,000 shares of common stock
in a public offering at a price of $25.13 per share prior to underwriters'
commissions. Proceeds after underwriters' commissions and other offering costs
were $110,673,000.
Common shares reserved for issuance upon exercise of outstanding stock
options and shares available for future grants aggregated approximately
23,423,000 shares at October 29, 1995.
10. Employee Benefit Plans
Stock Options The Company grants options to key employees and non-employee
directors to purchase its common stock at fair market value at the date of
grant. Generally, options vest over a four-year period. The stock option plan
provides for the payment of the stock option exercise price with cash or
previously owned shares of the Company's common stock at fair market value.
There were 9,454,000, 7,310,000, and 11,446,000 shares available for grant at
the end of fiscal 1995, 1994 and 1993, respectively. Stock option activity was
as follows:
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Outstanding, beginning of year 11,538 10,926 15,384
Granted 5,808 4,582 1,052
Exercised (3,049) (3,522) (5,294)
Canceled (328) (448) (216)
- ----------------------------------------------------------------------------------------------------
Outstanding, end of year 13,969 11,538 10,926
- ----------------------------------------------------------------------------------------------------
Exercisable, end of year 3,846 3,744 3,216
- ----------------------------------------------------------------------------------------------------
Consideration received for options exercised during
year (ranging from $2.41 to $23.00 per share
in 1995, $1.44 to $18.06 per share in 1994 and
$1.03 to $9.44 per share in 1993) $ 13,545 $ 12,556 $13,123
- ----------------------------------------------------------------------------------------------------
Aggregate purchase price of options outstanding at
end of year (ranging from $2.41 to $52.50 per share
in 1995, $2.38 to $25.50 per share in 1994 and
$1.03 to $18.06 per share in 1993) $294,585 $112,114 $46,451
- ----------------------------------------------------------------------------------------------------
Employee Stock Purchase Plan On September 25, 1995, the Company's Board of
Directors approved an Employee Stock Purchase Plan which provides substantially
all employees with the right to acquire shares of the Company's common stock
based on a percentage of compensation. The purchase price will be equal to 85%
of the lower of the fair market values as of the beginning or end of the
six-month offering period. The plan is effective December 1, 1995.
40 APPLIED MATERIALS
16
Employee Bonus Plans The Company has various employee bonus plans. A profit
sharing bonus plan distributes a percentage of pretax profits to substantially
all of the Company's employees up to a maximum percentage of compensation.
Another plan awards annual bonuses to the Company's executive staff based on the
achievement of profitability and other specific performance criteria. The
Company also has agreements with certain key technical employees that provide
for additional compensation related to the success of new product development as
well as achievement of specified profitability criteria. Charges to expense
under these plans were $55,805,000, $31,166,000 and $19,838,000 in fiscal 1995,
1994 and 1993, respectively.
Employee Savings and Retirement Plan The Employee Savings and Retirement Plan
is qualified under Section 401(k) of the Internal Revenue Code. The Company
contributes a percentage of the amount of salary deferral contributions made by
each participating employee. Company contributions become 20 percent vested
after an employee's third year of service and vest an additional 20 percent for
each year of service thereafter, becoming fully vested after seven years of
service. All Company contributions are invested in the Company's common stock.
Expenses were $14,837,000, $6,417,000 and $4,935,000 for fiscal 1995, 1994 and
1993, respectively.
Defined Benefit Plans of Foreign Subsidiaries Certain of the Company's foreign
subsidiaries have defined benefit pension plans covering substantially all of
their eligible employees. The benefits under these plans are based on years of
service and final average compensation levels. Funding is limited to statutory
requirements. The provisions under these plans aggregated $4,240,000, $3,344,000
and $2,973,000, consisting principally of service cost, for fiscal 1995, 1994
and 1993, respectively. The aggregate accumulated benefit obligation, projected
benefit obligation and fair value of plan assets at October 29, 1995 were
$15,769,000, $22,623,000 and $8,125,000, respectively.
11. Income Taxes
Effective November 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." The Company adopted SFAS 109 prospectively, and amounts presented for
fiscal 1993 have not been restated. The cumulative effect of adopting SFAS 109
resulted in a one-time credit of $7,000,000, or $0.04 per share, and is reported
separately in the consolidated statement of operations. Adoption of SFAS 109 did
not have any other significant effects on the fiscal 1994 tax provision.
The adoption of SFAS 109 changed the Company's method of accounting for income
taxes from the deferred method, pursuant to APB 11, to an asset and liability
approach. Under APB 11, deferred taxes were recognized for income and expense
items that were reported in different years for financial reporting and income
tax purposes. Under the asset and liability approach of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their existing tax bases.
Provisions are made for estimated United States and foreign income taxes,
less available tax credits and deductions, which may be incurred on the
remittance of the Company's share of foreign subsidiaries' undistributed
earnings.
APPLIED MATERIALS 41
17
notes to consolidated FINANCIAL STATEMENTS
The components of income from consolidated companies before taxes and
cumulative effect of accounting change were as follows:
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(In thousands)
U.S. $584,804 $276,483 $132,434
Foreign 113,739 58,014 21,124
- ----------------------------------------------------------------------------------------------------
Income from consolidated companies
before taxes and cumulative effect of
accounting change $698,543 $334,497 $153,558
- ----------------------------------------------------------------------------------------------------
The components of the provision for income taxes were as follows:
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(In thousands)
Current:
U.S. $243,576 $ 96,106 $ 47,050
Foreign 62,627 32,343 14,170
State 37,378 17,083 11,259
- ----------------------------------------------------------------------------------------------------
343,581 145,532 72,479
- ----------------------------------------------------------------------------------------------------
Deferred:
U.S. (90,264) (21,672) (18,015)
Foreign (4,179) (4,555) (3,790)
State (4,648) (2,231) --
- ----------------------------------------------------------------------------------------------------
(99,091) (28,458) (21,805)
- ----------------------------------------------------------------------------------------------------
Provision for income taxes $244,490 $117,074* $ 50,674
- ----------------------------------------------------------------------------------------------------
*Excludes cumulative effect of accounting change.
The provision for income taxes differs from the amount computed by applying the
statutory U.S. federal income tax rate as follows:
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(In thousands)
Tax provision at U.S. statutory rate $244,490 $117,074 $ 53,438
Effect of foreign operations taxed
at various rates 16,457 7,480 2,643
State income taxes, net of federal benefit 21,274 9,654 7,341
Research tax credits (4,273) (3,063) (1,690)
FSC benefit (14,770) (6,900) (4,566)
Tax exempt interest (2,514) (1,600) (1,379)
Foreign tax credits (18,352) (6,808) (5,193)
Other 2,178 1,237 80
- ----------------------------------------------------------------------------------------------------
Provision for income taxes $244,490 $117,074* $ 50,674
- ----------------------------------------------------------------------------------------------------
*Excludes cumulative effect of accounting change.
42 APPLIED MATERIALS
18
The components of the net deferred income tax asset under SFAS 109 are as
follows:
1995 1994
- ----------------------------------------------------------------------------------------------------
(In thousands)
Deferred tax assets:
Inventory reserves and basis difference $ 41,203 $ 20,366
Warranty and installation reserves 51,594 23,470
Other 106,091 55,930
Deferred tax liabilities:
Depreciation (9,636) (2,681)
Other (1,976) (8,900)
- ----------------------------------------------------------------------------------------------------
Net deferred tax assets $187,276 $ 88,185
- ----------------------------------------------------------------------------------------------------
For fiscal 1993, the components of the deferred tax provision under APB 11 were
as follows:
1993
- ----------------------------------------------------------------------------------------------------
(In thousands)
Net increase in financial accruals not currently tax deductible:
Warranty and installation $ (6,617)
Other financial accruals (11,377)
Difference in tax versus book depreciation 1,207
Cost inventoriable for tax, not for books 138
Other (5,156)
- ----------------------------------------------------------------------------------------------------
Total deferred tax provision $(21,805)
- ----------------------------------------------------------------------------------------------------
12. Industry Segment and Foreign Operations
The Company currently operates exclusively in the semiconductor wafer
fabrication equipment industry. The Company's sales and service operations are
the principal revenue producing activities. For geographical reporting, revenues
are attributed to the geographic location of the sales and service
organizations, and costs directly and indirectly incurred in generating revenues
are similarly assigned. Corporate assets consist primarily of cash, cash
equivalents and short-term investments. Corporate operating expenses consist
primarily of general and administrative expenses not allocable to geographic
regions.
APPLIED MATERIALS 43
19
notes to consolidated FINANCIAL STATEMENTS
During fiscal years 1995 and 1994, no sales to individual customers were
greater than 10 percent of net sales. Sales to one customer represented 16
percent of the Company's net sales in 1993.
Income from
Net Sales Operations Total Assets
- ----------------------------------------------------------------------------------------------------
(In thousands)
1995:
North America $ 988,709 $ 228,247 $1,226,231
Japan 790,773 150,893 574,914
Korea 504,273 205,766 46,557
Europe 470,609 103,617 249,216
Asia-Pacific 307,517 120,002 183,290
Corporate -- (114,593) 685,171
- ----------------------------------------------------------------------------------------------------
Consolidated $3,061,881 $ 693,932 $2,965,379
- ----------------------------------------------------------------------------------------------------
1994:
North America $ 611,670 $ 139,562 $ 724,093
Japan 454,939 75,324 378,571
Korea 192,260 57,374 30,996
Europe 292,189 77,956 121,822
Asia-Pacific 108,749 38,101 52,809
Corporate -- (49,080) 394,374
- ----------------------------------------------------------------------------------------------------
Consolidated $1,659,807 $ 339,237 $1,702,665
- ----------------------------------------------------------------------------------------------------
1993:
North America $ 405,991 $ 71,338 $ 454,085
Japan 269,552 8,961 255,827
Korea 105,396 34,184 14,625
Europe 218,825 49,322 104,110
Asia-Pacific 80,283 34,602 34,071
Corporate -- (37,413) 257,434
- ----------------------------------------------------------------------------------------------------
Consolidated $1,080,047 $ 160,994 $1,120,152
- ----------------------------------------------------------------------------------------------------
Intercompany transfers of products from the United States to other regions were
$1,267,077,000, $538,442,000 and $370,668,000 in fiscal years 1995, 1994 and
1993, respectively, and from Europe were $81,429,000, $67,934,000 and
$28,462,000 in 1995, 1994 and 1993, respectively. Transfers and commission
arrangements between geographic areas are at prices sufficient to recover a
reasonable profit. At October 29, 1995, net accounts receivable from customers
located in the United States were $160,095,000, while net accounts receivable
from customers located in Japan, Korea, Europe and the Asia-Pacific regions were
$368,895,000, $58,571,000, $141,195,000, and $88,974,000, respectively.
44 APPLIED MATERIALS
20
13. Commitments and Contingencies
The Company leases certain of its facilities and equipment under noncancelable
operating leases and has options to renew most leases, with rentals to be
negotiated. In February 1993, the Company entered into a four-year operating
lease for previously leased office and general operating facilities in Santa
Clara, California, providing for monthly payments which vary based on the London
interbank offering rate (LIBOR). At the end of this lease, the Company has the
option to acquire the property at its original cost or arrange for the property
to be acquired. The Company is contingently liable under an 85 percent
first-loss clause for up to $33,786,000 at October 29, 1995. Management believes
that this contingent liability will not have a material adverse effect on the
Company's financial position or results of operations. In addition, the Company
must maintain compliance with financial covenants similar to those included in
its credit facilities.
Total rent expense in fiscal 1995, 1994 and 1993 was $41,672,000, $28,083,000
and $23,870,000, respectively. Aggregate minimum future rental commitments are:
- --------------------------------------------------------------------------------
(In thousands)
1996 $38,909
1997 28,549
1998 18,630
1999 13,138
2000 9,449
Thereafter 62,018
- --------------------------------------------------------------------------------
Selected trade notes, representing Japan's accounts receivable, are discounted
at financial institutions with recourse. As of October 29, 1995, $107,447,000 of
such receivables were outstanding.
The Company is the plaintiff in two patent infringement lawsuits against
another company. The defendant has filed a counterclaim in one of these lawsuits
and has other claims against the Company in three separate patent infringement
lawsuits. The Company has also filed a declaratory judgment action against the
aforementioned company.Trials have been successfully completed in the two
lawsuits initiated by the Company; the Court found the Company's patents valid
and infringed. The Company also initiated a suit for patent infringement against
a second company; the defendant filed counterclaims for unfair competition which
were severed and stayed. The Company recently filed a second suit against this
same company alleging claims of patent infringement and seeking a declaration of
invalidity of the defendant's patents. The defendant company also filed suit
against the Company on the same patents. Finally, the Company is named as a
defendant in a lawsuit in which the plaintiff alleges the Company infringes five
patents. The Company is also named as a defendant in other litigation arising in
the normal course of business. Also in the normal course of business, the
Company from time to time receives and makes inquiries with regard to possible
patent infringement. Management believes that it is unlikely that the outcome of
these lawsuits or of the patent infringement inquiries will have a material
adverse effect on the Company's financial position or results of operations.
APPLIED MATERIALS 45
21
notes to consolidated FINANCIAL STATEMENTS
14. Unaudited Quarterly Consolidated Financial Data
Quarter
---------------------------------------------------- Total
First Second Third Fourth Year
- ----------------------------------------------------------------------------------------------------
(In thousands, except per share data)
1995:
Net sales $506,108 $675,439 $897,684 $982,650 $3,061,881
Gross margin 238,012 305,010 408,428 458,398 1,409,848
Net income 65,808 93,635 139,212 155,398 454,053
Earnings per share .38 .54 .78 .84 2.56
- ----------------------------------------------------------------------------------------------------
Quarter
---------------------------------------------------- Total
First Second Third Fourth Year
- ----------------------------------------------------------------------------------------------------
(In thousands, except per share data)
1994:
Net sales $340,449 $411,332 $440,228 $467,798 $1,659,807
Gross margin 155,979 189,391 205,572 217,353 768,295
Income before
cumulative effect of
accounting change 37,391 55,071 58,136 63,098 213,696
Net income 44,391 55,071 58,136 63,098 220,696
Earnings per share:
Income before
cumulative effect of
accounting change .22 .32 .34 .37 1.26
Net income .27 .32 .34 .37 1.30
- ----------------------------------------------------------------------------------------------------
46 APPLIED MATERIALS
22
report of MANAGEMENT
Management is responsible for the preparation and integrity of the consolidated
financial statements appearing in the Annual Report. The financial statements
were prepared in conformity with generally accepted accounting principles
appropriate in the circumstances and, accordingly, include some amounts based on
management's best judgments and estimates. Financial information in the Annual
Report is consistent with that in the financial statements.
Management is responsible for maintaining a system of internal business
controls and procedures to provide reasonable assurance, at an appropriate
cost/benefit relationship, that assets are safeguarded and that transactions are
authorized, recorded and reported properly. The internal control system is
augmented by appropriate reviews by management, written policies and guidelines,
careful selection and training of qualified personnel, and a written Code of
Business Ethics applicable to all employees of the Company. Management believes
that the Company's internal controls provide reasonable assurance that assets
are safeguarded against material loss from unauthorized use or disposition and
that the financial records are reliable for preparing financial statements and
other data and maintaining accountability for assets.
The Audit Committee of the Board of Directors, composed solely of Directors
who are not officers of the Company, meets periodically with the independent
accountants, our internal auditors and management to discuss internal business
controls, auditing and financial reporting matters. The Committee reviews with
the independent accountants the scope and results of the audit effort. The
Committee also meets with the independent accountants without management present
to ensure that the independent accountants have free access to the Committee.
The independent accountants, Price Waterhouse LLP, are engaged to examine the
consolidated financial statements of the Company and conduct such tests and
related procedures as they deem necessary in accordance with generally accepted
auditing standards. The opinion of the independent accountants, based upon their
audit of the consolidated financial statements, is contained in this Annual
Report.
/s/ James C. Morgan /s/ James W. Bagley
- ------------------- -------------------
James C. Morgan James W. Bagley
Chairman and Chief Executive Officer Vice Chairman and Chief Operating Officer
/s/ Dan Maydan /s/ Gerald F. Taylor
- -------------- --------------------
Dan Maydan Gerald F. Taylor
President Senior Vice President, Finance and
Chief Financial Officer
November 22, 1995
APPLIED MATERIALS 47
23
report of INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Applied Materials, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Applied Materials, Inc. and its
subsidiaries at October 29, 1995 and October 30, 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
October 29, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 11 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective November 1, 1993.
Price Waterhouse LLP
San Jose, California
November 22, 1995
Stockholders' Information
- -------------------------
Legal Counsel Form 10-K
Orrick, Herrington & Sutcliffe A copy of Applied Materials' 10-K Annual Report,
San Francisco, California filed with the Securities and Exchange Commission,
which contains additional information relating to the
Independent Accountants Company, is available without charge. We welcome
Price Waterhouse LLP questions from potential and existing stockholders.
San Jose, California
Please contact:
Number of Registered Stockholders: 1,619 William W. Ong
Manager, Investor Relations
Stock Listing Applied Materials, Inc.
Applied Materials, Inc. is traded on the 3050 Bowers Avenue
Nasdaq National Market, Nasdaq Symbol: AMAT Santa Clara, California 95054-3299
(800) 882-0373
Transfer Agent
Harris Trust Company of California
Los Angeles, California
Stock Price History
- -------------------
Fiscal Year 1995 1994
- --------------------------------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------------------------------
First Quarter 26 1/4 19 1/2 21 7/8 15
Second Quarter 30 13/16 19 1/4 25 7/8 18 13/16
Third Quarter 53 11/16 30 1/16 24 5/8 19 3/8
Fourth Quarter 59 1/8 45 3/8 26 1/4 21 1/2
- --------------------------------------------------------------------------------------------------------
The preceding table sets forth the high and low closing sale prices as reported
on the Nasdaq National Market during the last two years. Stock prices reported
prior to October 12, 1995 have been restated to reflect the two-for-one stock
split in the form of a 100 percent stock dividend (see note nine to the
consolidated financial statements).
48 APPLIED MATERIALS
24
APPENDIX TO 1995 ANNUAL REPORT
DESCRIPTION OF GRAPHS
In this Appendix, the following descriptions of certain graphs in the
Company's 1995 Annual Report that are omitted from the EDGAR version are more
specific with respect to the actual numbers, amounts and percentages than is
determinable from the graphs themselves. The Company submits such more specific
descriptions only for the purpose of complying with the requirements for
transmitting this Annual Report on Form 10-K electronically via EDGAR; such more
specific descriptions are not intended in any way to provide information that is
additional to the information otherwise provided in the Annual Report.
Page Number 26
Graph Title: REVENUE PER EMPLOYEE
(Dollars in thousands)
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991
and vertical axis containing thousands of dollars. Revenue per employee is $291,
$255, $228, $192, and $180 thousand for 1995, 1994, 1993, 1992, and 1991,
respectively.
Page Number 26
Graph Title: TOTAL ASSETS
(Dollars in millions)
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991
and vertical axis containing dollars in millions. Assets are split by Cash and
Short-term Investments and Other Assets. Cash and Short-term Investments are
$769, $422, $266, $223, and $140 million for 1995, 1994, 1993, 1992, and 1991,
respectively. Other Assets are $2,196, $1,280, $854, $631, and $521 million for
1995, 1994, 1993, 1992, and 1991, respectively.
Page Number 26
Graph Title: DEBT TO EQUITY RATIO
(Percent)
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991
and vertical axis containing percent. Debt to equity ratio is 17%, 22%, 22%,
24%, and 33% for 1995, 1994, 1993, 1992, and 1991, respectively.
Page Number 27
Graph Title: SALES BY GEOGRAPHIC REGION
(Dollars in millions)
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991
and vertical axis containing dollars in millions. Each bar is split by the
United States, Japan, Europe, Korea, and Asia-Pacific. The following table lists
the amount of net sales by geographic region in millions of dollars:
25
SALES BY GEOGRAPHIC REGION 1991 1992 1993 1994 1995
---- ---- ---- ---- ----
U.S. $216.5 $296.7 $ 406.0 $ 611.7 $ 988.7
Japan 258.4 227.3 269.6 455.0 790.8
Europe 95.3 136.1 218.7 292.1 470.6
Korea 34.2 46.7 105.4 192.2 504.2
Asia-Pacific 34.2 44.6 80.3 108.8 307.5
------ ------ -------- -------- -------
Total $638.6 $751.4 $1,080.0 $1,659.8 $3061.8
====== ====== ======== ======== =======
Page Number 28
Graph Title: R D & E EXPENSES
(Dollars in millions)
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991
and vertical axis containing dollars in millions. Data contained in the graph is
located on page 26 of the 1995 Annual Report in the Selected Consolidated
Financial Data Table on the Research, development and engineering line item.
Page Number 29
Graph Title: CAPITAL EXPENDITURES
(Dollars in millions)
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and 1991
and vertical axis containing dollars in millions. Capital expenditures are split
by Land, Buildings and Improvements and Other. Land, Buildings and Improvements
are $118, $107, $49, $33, and $45 million for 1995, 1994, 1993, 1992, and 1991,
respectively. Other is $148, $73, $46, $28, and $18 million for 1995, 1994,
1993, 1992, and 1991, respectively.
Page Number 30
Graph Title: WORKING CAPITAL
(Dollars in millions)
Bar graph with horizontal axis containing years 1995, 1994, 1993, 1992, and
1991, and vertical axis containing dollars in millions. Data contained in the
graph is located on page 26 of the 1995 Annual Report in the Selected
Consolidated Financial Data Table on the Working capital line item.
1
Exhibit 21
SUBSIDIARIES OF APPLIED MATERIALS, INC.
State or Country of
Incorporation
Subsidiaries of Applied Materials, Inc. or Organization
---------------------------------------------------------------------------- --------------------
Applied Materials Japan, Inc. Japan
Applied Materials Europe BV (1) Netherlands
Applied Materials International BV Netherlands
Applied Acquisition Subsidiary California
Applied Materials International, Inc. California
Applied Materials (Holdings) (2) California
Applied Materials Asia-Pacific, Ltd. (3) Delaware
Applied Materials Israel, Ltd. Israel
---------------------------------------------------------------------------- --------------------
(1) Applied Materials Europe BV owns the following
subsidiaries:
Applied Materials GmbH Germany
Applied Materials France SARL France
Applied Materials Ltd. England
Applied Materials Ireland Ltd. Ireland
Applied Materials Sweden AB Sweden
Applied Materials Israel Services (1994) Ltd. Israel
---------------------------------------------------------------------------- --------------------
(2) Applied Materials (Holdings) owns the following subsidiary:
Applied Implant Technology, Ltd. California
---------------------------------------------------------------------------- --------------------
(3) Applied Materials Asia-Pacific, Ltd. owns the following subsidiaries:.
Applied Materials Korea, Ltd. Korea
Applied Materials Taiwan, Ltd. Taiwan
Applied Materials South East Asia, Ltd. Singapore
Applied Materials China, Ltd. Hong Kong
---------------------------------------------------------------------------- --------------------
50-50 joint venture between Applied Materials, Inc. and Komatsu Ltd.:
Applied Komatsu Technology, Inc. Japan
102
1
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos. ; 2-69114; 2-77988; 2-77987; 2-85545; 2-94205;
33-24530; 33-24531; 33-52072; 33-52076; 33-63847; 33-64285) and to the
incorporation by reference in the Prospectus constituting part of the
Registration Statement on Form S-3 (No. 33-60301) of Applied Materials, Inc. of
our report dated November 22, 1995 appearing on page 48 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 21 of this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
San Jose, California
January 11 , 1996
103
1
Exhibit 24
POWER OF ATTORNEY
The undersigned directors and officers of Applied Materials, Inc., a
Delaware corporation (the "Company") hereby constitute and appoint James C.
Morgan and Gerald F. Taylor, and each of them with full power to act without the
other, the undersigned's true and lawful attorney-in-fact, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead in the undersigned's capacity as an officer and/or
director of the Company, to execute in the name and on behalf of the undersigned
an annual report of the Company on Form 10-K for the fiscal year ended October
29, 1995 (the "Report"), under the Securities and Exchange Act of 1934, as
amended, and to file such Report, with exhibits thereto and other documents in
connection therewith and any and all amendments thereto, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done and to take any other action of any type
whatsoever in connection with the foregoing which, in the opinion of such
attorney-in-fact, may be of benefit to, in the best interest of, or legally
required of, the undersigned, it being understood that the documents executed by
such attorney-in-fact on behalf of the undersigned pursuant to this Power of
Attorney shall be in such form and shall contain such terms and conditions as
such attorney-in-fact may approve in such attorney-in-fact's discretion.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of
December, 1995.
/s/ MICHAEL H. ARMACOST /s/ ALFRED J. STEIN
- ------------------------------------- ---------------------------------
Michael H. Armacost Alfred J. Stein
Director Director
/s/ HERBERT M. DWIGHT, JR. /s/ JAMES C. MORGAN
- ------------------------------------- ---------------------------------
Herbert M. Dwight, Jr. James C. Morgan
Director Chairman, Chief Executive Officer
and Director (Principal Executive
Officer)
/s/ GEORGE B. FARNSWORTH /s/ JAMES W. BAGLEY
- ------------------------------------- ---------------------------------
George B. Farnsworth James W. Bagley
Director Vice Chairman and Director
/s/ PHILIP V. GERDINE /s/ DAN MAYDAN
- ------------------------------------- ---------------------------------
Philip V. Gerdine Dan Maydan
Director President and Director
/s/ TSUYOSHI KAWANISHI /s/ GERALD F. TAYLOR
- ------------------------------------- ---------------------------------
Tsuyoshi Kawanishi Gerald F. Taylor
Director Senior Vice President and Chief
Financial Officer (Principal
Financial Officer)
/s/ PAUL R. LOW /s/ MICHAEL K. O'FARRELL
- ------------------------------------- ---------------------------------
Paul R. Low Michael K. O'Farrell
Director Corporate Controller (Principal
Accounting Officer)
104
5
1,000
YEAR
OCT-29-1995
OCT-29-1995
285,845
483,487
820,747
3,017
427,413
2,311,613
859,663
228,917
2,965,379
861,731
300,871
1,792
0
0
1,781,711
2,965,379
3,061,881
3,061,881
1,652,033
1,652,033
329,676
0
21,401
698,543
244,490
454,053
0
0
0
454,053
2.56
2.56
