-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyjIoSd1VrIjvTUVJ86AGv9pGQQclzbw3/mS6MljAF5h1sJ2Pf0K5HVYx8LkZb25 ZjYKZc46cakMnha+MB4YiA== 0000950135-03-003055.txt : 20030514 0000950135-03-003055.hdr.sgml : 20030514 20030514160217 ACCESSION NUMBER: 0000950135-03-003055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20030330 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD SEMICONDUCTOR INTERNATIONAL INC CENTRAL INDEX KEY: 0001036960 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 043363001 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15181 FILM NUMBER: 03699176 BUSINESS ADDRESS: STREET 1: 82 RUNNING HILL RD CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 BUSINESS PHONE: 2077758100 MAIL ADDRESS: STREET 1: 82 RUNNING HILL RD CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 FORMER COMPANY: FORMER CONFORMED NAME: FSC SEMICONDUCTOR CORP DATE OF NAME CHANGE: 19970424 10-Q 1 b46535fse10vq.txt FAIRCHILD SEMICONDUCTOR FORM 10-Q 3/30/03 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2003 [ ] 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: 001-15181 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-3363001 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
82 RUNNING HILL ROAD SOUTH PORTLAND, MAINE 04106 (Address of principal executive offices, including zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 775-8100 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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] The number of shares outstanding of the issuer's classes of common stock as of the close of business on March 30, 2003:
TITLE OF EACH CLASS NUMBER OF SHARES ------------------- ---------------- Class A Common Stock, par value $.01 per share 117,231,127 Class B Common Stock, par value $.01 per share --
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES INDEX
PAGE ----- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of March 30, 2003 and December 29, 2002....................................... 2 Condensed Consolidated Statements of Operations for the Three Months Ended March 30, 2003 and March 31, 2002........ 3 Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 30, 2003 and March 31, 2002.................................................... 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 30, 2003 and March 31, 2002........ 5 Notes to Condensed Consolidated Financial Statements (Unaudited)................................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 17 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................................ 33 Item 4. Controls and Procedures..................................... 33 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 34 Item 6. Exhibits and Reports on Form 8-K............................ 34 Signature and Certifications.......................................... 35-36
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN MILLIONS) (UNAUDITED)
MARCH 30, DECEMBER 29, 2003 2002 --------- ------------ ASSETS Current assets: Cash and cash equivalents.............................. $ 599.9 $ 618.3 Short-term marketable securities....................... 2.0 2.0 Accounts receivable, net............................... 153.7 150.6 Inventories............................................ 213.3 208.8 Deferred income taxes.................................. 27.8 28.1 Other current assets................................... 10.9 12.5 -------- -------- Total current assets.............................. 1,007.6 1,020.3 Property, plant and equipment, net.......................... 650.3 660.9 Intangible assets, net...................................... 429.0 438.5 Long-term marketable securities............................. 59.7 30.4 Other assets................................................ 146.4 138.0 -------- -------- Total assets...................................... $2,293.0 $2,288.1 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt...................... $ 0.3 $ 0.4 Accounts payable....................................... 103.8 113.7 Accrued expenses and other current liabilities......... 122.7 92.8 -------- -------- Total current liabilities......................... 226.8 206.9 Long-term debt, less current portion........................ 852.5 852.8 Other liabilities........................................... 14.4 13.2 -------- -------- Total liabilities................................. 1,093.7 1,072.9 Commitments and contingencies Stockholders' equity: Class A common stock................................... 1.2 1.2 Class B common stock................................... -- -- Additional paid-in capital............................. 1,221.8 1,221.1 Accumulated deficit.................................... (20.0) (2.4) Accumulated other comprehensive loss................... (0.5) (1.1) Less treasury stock (at cost).......................... (3.2) (3.6) -------- -------- Total stockholders' equity........................ 1,199.3 1,215.2 -------- -------- Total liabilities and stockholders' equity........ $2,293.0 $2,288.1 ======== ========
See accompanying notes to unaudited condensed consolidated financial statements. 2 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- Total revenue............................................... $351.1 $336.9 Operating expenses: Cost of sales............................................. 273.6 257.3 Research and development.................................. 19.1 20.7 Selling, general and administrative....................... 39.2 34.5 Amortization of acquisition-related intangibles........... 9.5 9.3 Purchased in-process research and development............. -- 1.7 Restructuring and impairments............................. 10.4 3.6 ------ ------ Total operating expenses............................... 351.8 327.1 ------ ------ Operating income (loss)..................................... (0.7) 9.8 Interest expense............................................ 20.9 28.6 Interest income............................................. (2.5) (2.5) Other income................................................ -- (20.5) ------ ------ Income (loss) before income taxes........................... (19.1) 4.2 Provision (benefit) for income taxes........................ (1.5) 1.5 ------ ------ Net income (loss)........................................... $(17.6) $ 2.7 ====== ====== Net income (loss) per common share: Basic..................................................... $(0.15) $ 0.03 ====== ====== Diluted................................................... $(0.15) $ 0.03 ====== ====== Weighted average common shares: Basic..................................................... 117.2 100.3 ====== ====== Diluted................................................... 117.2 106.1 ====== ======
See accompanying notes to unaudited condensed consolidated financial statements. 3 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN MILLIONS) (UNAUDITED)
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- Net income (loss)........................................... $(17.6) $ 2.7 Other comprehensive income (loss), net of tax: Net change associated with hedging transactions........... (0.6) 0.2 Net amount reclassed to earnings.......................... 1.1 (0.4) Unrealized holding gain on marketable securities.......... 0.1 -- ------ ----- Comprehensive income (loss)................................. $(17.0) $ 2.5 ====== =====
See accompanying notes to unaudited condensed consolidated financial statements. 4 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) (UNAUDITED)
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- Cash flows from operating activities: Net income (loss)........................................... $(17.6) $ 2.7 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization.......................... 46.1 40.3 Amortization of deferred compensation.................. 0.7 1.0 Restructuring and impairments.......................... 10.8 1.8 Non-cash financing expense............................. 1.1 1.5 Purchased in-process research and development.......... -- 1.7 Loss on disposal of property, plant and equipment...... 1.1 (0.2) Deferred income taxes.................................. (10.1) 0.2 Gain on sale of space and defense business............. -- (20.5) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable, net............................... (3.0) (23.0) Inventories............................................ (4.5) 3.7 Other current assets................................... 2.4 0.2 Current liabilities.................................... 11.9 (10.2) Other assets and liabilities, net...................... 1.6 1.8 ------ ------ Cash provided by operating activities............. 40.5 1.0 ------ ------ Cash flows from investing activities: Capital expenditures................................... (28.8) (21.0) Purchase of molds and tooling.......................... (0.2) (1.3) Purchase of long-term marketable securities............ (48.8) -- Sale of marketable securities.......................... 19.5 -- Acquisitions and divestitures, net of cash acquired.... -- 24.6 ------ ------ Cash provided by (used in) investing activities... (58.3) 2.3 ------ ------ Cash flows from financing activities: Repayment of long-term debt............................ (0.4) (0.2) Proceeds from issuance of common stock and from exercise of stock options, net........................ 2.0 5.3 Purchase of treasury stock............................. (2.2) -- ------ ------ Cash provided by (used in) financing activities... (0.6) 5.1 ------ ------ Net change in cash and cash equivalents..................... (18.4) 8.4 Cash and cash equivalents at beginning of period............ 618.3 504.4 ------ ------ Cash and cash equivalents at end of period.................. $599.9 $512.8 ====== ======
See accompanying notes to unaudited condensed consolidated financial statements. 5 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying interim condensed consolidated financial statements of Fairchild Semiconductor International, Inc. (the Company) have been prepared in conformity with accounting principles generally accepted in the United States, consistent in all material respects with those applied in the company's Annual Report on Form 10-K for the year ended December 29, 2002. The interim financial information is unaudited, but reflects all normal adjustments, which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. The financial statements should be read in conjunction with the financial statements in the company's Annual Report on Form 10-K for the year ended December 29, 2002. Certain amounts for prior periods have been reclassified to conform to the current presentation. NOTE 2 -- INVENTORIES The components of inventories are as follows:
MARCH 30, DECEMBER 29, 2003 2002 --------- ------------ (IN MILLIONS) Raw materials............................................... $ 24.3 $ 21.6 Work in process............................................. 149.4 149.8 Finished goods.............................................. 39.6 37.4 ------ ------ Total inventories...................................... $213.3 $208.8 ====== ======
NOTE 3 -- COMPUTATION OF NET INCOME (LOSS) PER SHARE Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Potentially dilutive common equivalent shares consist of stock options and shares obtainable upon the conversion of the convertible senior subordinated notes. As a result of the net loss reported for the three months ended March 30, 2003, approximately 0.9 million common equivalent shares have been excluded from the calculation of diluted loss per common share because their effect would have been anti-dilutive. In addition, $1.8 million was not included in the computation of net loss for the three months ended March 30, 2003 and March 31, 2002, and 6.7 million potential common shares were not included in the computation of diluted earnings per share as of March 30, 2003 and March 31, 2002 as a result of the assumed conversion of the convertible senior subordinated notes because the effect would have been anti-dilutive. NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- (IN MILLIONS) Cash paid (received), net for: Income taxes.............................................. $ 0.5 $ 0.3 ===== ===== Interest.................................................. $18.4 $32.8 ===== =====
6 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- STOCK BASED COMPENSATION The Company has certain stock option plans. The Company accounts for those plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The following table illustrates the effect on net income and net income per common share as if the company applied the fair value based method of SFAS No. 123, Accounting for Stock-Based Compensation, to record expense for stock option compensation. The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net income (loss), as reported.............................. $(17.6) $ 2.7 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects................................ (12.5) (16.9) ------ ------ Pro forma net loss.......................................... $(30.1) $(14.2) ====== ====== Earnings per share: Basic -- as reported...................................... $(0.15) $ 0.03 ====== ====== Basic -- pro forma........................................ $(0.26) $(0.14) ====== ====== Diluted -- as reported.................................... $(0.15) $ 0.03 ====== ====== Diluted -- pro forma...................................... $(0.26) $(0.14) ====== ======
The weighted average fair value of options granted was $11.47 in the first quarter of 2003, and $23.36 in the first quarter of 2002. The fair value of each option grant for the Company's plans is estimated on the date of the grant using the Black-Scholes option pricing model, with the following weighted average assumptions.
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- Expected volatility......................................... 60% 60% Dividend yield.............................................. -- -- Risk-free interest rate..................................... 3.87% 3.87% Expected life, in years..................................... 6.0 6.0
NOTE 6 -- GOODWILL Effective December 31, 2001 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, which addresses financial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and other intangibles with indefinite lives are no longer amortized. Instead, the Company performs an annual test during the fourth quarter for impairment of these assets. 7 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of acquired intangible assets as of March 30, 2003 is as follows:
AS OF MARCH 30, 2003 ----------------------------- GROSS CARRYING ACCUMULATED AMOUNT AMORTIZATION -------------- ------------ (IN MILLIONS) Identifiable intangible assets: Developed technology..................................... $223.2 $ (59.5) Customer base............................................ 55.8 (28.2) Covenant not to compete.................................. 30.4 (24.2) Trademarks and tradenames................................ 24.9 (24.9) Patents.................................................. 5.3 (3.9) ------ ------- Subtotal.............................................. 339.6 (140.7) Goodwill................................................. 230.1 -- ------ ------- Total................................................. $569.7 $(140.7) ====== =======
The carrying amount of goodwill by reporting unit for the quarter ended March 30, 2003 is as follows:
DISCRETE DOMESTIC POWER ANALOG PRODUCTS OPTOELECTRONICS TOTAL -------- -------- --------------- ------ (IN MILLIONS) Balance as of March 30, 2003................ $15.5 $159.9 $54.7 $230.1
During the quarter, there were no changes to the carrying amount of goodwill due to acquisitions. The annual test for impairment of goodwill as required by SFAS No. 142 was completed during the fourth quarter of 2002. No impairment was indicated. The fair value of the reporting units for purposes of the annual impairment test were estimated using discounted future cash flows. Identified reporting units which carry goodwill include domestic analog, discrete power products, which are included in the Analog and Discrete segments, respectively, and Optoelectronics, which does not meet the requirements of a reportable segment as defined in SFAS No. 131. The estimated amortization expense for the remainder of Fiscal 2003 and for each of the five succeeding fiscal years is as follows:
ESTIMATED AMORTIZATION EXPENSE: IN MILLIONS - ------------------------------- ----------- Remainder of Fiscal 2003.................................... $23.7 Fiscal 2004................................................. 25.6 Fiscal 2005................................................. 23.7 Fiscal 2006................................................. 23.4 Fiscal 2007................................................. 18.2 Fiscal 2008................................................. 16.5
NOTE 7 -- SEGMENT INFORMATION The Company is currently organized into three reportable segments: the Analog and Mixed Signal Products Group ("Analog"), the Discrete Products Group ("Discrete") and the Logic and Memory Products Group ("Logic and Memory"). The Company has determined that its Optoelectronics Group does not meet the threshold for a separate reportable segment under SFAS No. 131, and accordingly this segment's results are included as part of the 8 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) "Other" category for all periods presented. Similarly, the Company's contract manufacturing business is not a separate reportable segment and its results are also recorded in the "Other" category. Selected operating segment financial information for the three months ended March 30, 2003 and March 31, 2002 is as follows:
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- (IN MILLIONS) REVENUE: Analog and Mixed Signal Products Group.................... $ 84.2 $ 83.1 Discrete Products Group................................... 189.5 178.8 Logic and Memory Products Group........................... 46.0 50.5 Other..................................................... 31.4 24.5 ------ ------ Total.................................................. $351.1 $336.9 ====== ======
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- (IN MILLIONS) OPERATING INCOME (LOSS): Analog and Mixed Signal Products Group.................... $ (0.2) $ 9.6 Discrete Products Group................................... 15.6 13.1 Logic and Memory Products Group........................... 0.4 0.4 Other..................................................... 3.4 1.3 ------ ----- Subtotal.................................................. 19.2 24.4 Amortization of acquisition-related intangibles........... (9.5) (9.3) Purchased in-process research and development............. -- (1.7) Restructuring and impairments............................. (10.4) (3.6) ------ ----- Total.................................................. $ (0.7) $ 9.8 ====== =====
NOTE 8 -- RESTRUCTURING AND IMPAIRMENTS During the three months ended March 30, 2003, the Company recorded a pre-tax restructuring charge of $10.4 million. The restructuring charge consisted of $5.7 million of employee separation costs relating to severance and other costs associated with approximately 190 salaried and hourly employees severed in the United States primarily as part of the 6" fab closure in Mountaintop, Pennsylvania as well as other workforce reductions. The remaining $4.7 million of restructuring charges relate to asset write-offs, environmental costs, and other charges associated with the 6" fab closure in Mountaintop, Pennsylvania as well as asset write-offs primarily associated with the closure of our Carlsbad, California office. In addition, the Company recorded a pre-tax charge of $2.2 million of additional distributor reserves in connection with the 6" fab closure. During the three months ended March 31, 2002, the Company recorded a pre-tax restructuring charge of $3.6 million. The restructuring charge consisted of employee separation costs relating primarily to severance and other costs associated with approximately 150 salaried and hourly employees severed in the United States, Europe, Japan, and Malaysia. 9 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the activity in the Company's accrual for restructuring and impairment costs for the three months ended March 30, 2003 (in millions): Accrual balance as of December 29, 2002..................... $ 4.1 Accrual................................................... 10.4 Cash payments............................................. (3.7) Non-cash items............................................ (2.7) ----- Accrual balance as of March 30, 2003........................ $ 8.1 =====
The Company expects that all amounts will be substantially paid before the end of the year. NOTE 9 -- DERIVATIVES The Company uses derivative instruments to manage exposures to foreign currencies. In accordance with SFAS No. 133, the fair value of these hedges is recorded on the balance sheet. Certain forecasted transactions are exposed to foreign currency risks. The Company monitors its foreign currency exposures to maximize the overall effectiveness of its foreign currency hedge positions. Principal currencies hedged include the euro and the Japanese yen. The Company's objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures. Changes in the fair value of derivative instruments related to time value are included in the assessment of hedge effectiveness. Hedge ineffectiveness, determined in accordance with SFAS No. 133 and SFAS No. 138, had no impact on earnings for the three months ended March 30, 2003. No cash flow hedges were derecognized or discontinued for the three months ended March 30, 2003. Derivative gains and losses included in other comprehensive income (OCI) are reclassified into earnings at the time the forecasted transaction revenue is recognized. The Company estimates that the entire $0.5 million of net unrealized derivative loss included in OCI will be reclassified into earnings within the next twelve months. NOTE 10 -- CONDENSED CONSOLIDATING FINANCIAL STATEMENTS The Company operates through its wholly owned subsidiary Fairchild Semiconductor Corporation and other indirect wholly-owned subsidiaries. Fairchild Semiconductor International, Inc. and certain of Fairchild Semiconductor Corporation's subsidiaries are guarantors under Fairchild Semiconductor Corporation's 10 3/8% and 10 1/2% Senior Subordinated Notes and its 5% Convertible Senior Subordinated Notes. These guaranties are full and unconditional. In addition, all guaranties are joint and several. Accordingly, the interim condensed consolidating financial statements are presented below. 10 CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
MARCH 30, 2003 ------------------------------------------------------------------------------------------------------- UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED FAIRCHILD FAIRCHILD NON- FAIRCHILD SEMICONDUCTOR SEMICONDUCTOR GUARANTOR GUARANTOR SEMICONDUCTOR INTERNATIONAL, INC. CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS INTERNATIONAL, INC. ------------------- -------------- ------------ ------------ ------------ ------------------- (IN MILLIONS) ASSETS Current assets: Cash and cash equivalents.......... $ -- $ 569.6 $ -- $ 30.3 $ -- $ 599.9 Short-term marketable securities........... -- 2.0 -- -- -- 2.0 Accounts receivable, net.................. -- 19.0 1.8 132.9 -- 153.7 Inventories............ -- 101.2 17.7 94.4 -- 213.3 Deferred income taxes................ -- 26.5 0.8 0.5 -- 27.8 Other current assets... -- 3.5 0.2 7.2 -- 10.9 -------- -------- ------ ------ --------- -------- Total current assets............ -- 721.8 20.5 265.3 -- 1,007.6 Property, plant and equipment, net......... -- 264.7 65.7 319.9 -- 650.3 Intangible assets, net... -- 13.3 285.2 130.5 -- 429.0 Long-term marketable securities............. -- 59.7 -- -- -- 59.7 Investment in subsidiary............. 1,193.9 1,010.6 158.2 17.0 (2,379.7) -- Other assets............. 5.9 120.3 14.5 5.7 -- 146.4 -------- -------- ------ ------ --------- -------- Total assets......... $1,199.8 $2,190.4 $544.1 $738.4 $(2,379.7) $2,293.0 ======== ======== ====== ====== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt....... $ -- $ 0.3 $ -- $ -- $ -- $ 0.3 Accounts payable....... -- 59.8 4.3 39.7 -- 103.8 Accrued expenses and other current liabilities.......... -- 67.0 10.7 45.0 -- 122.7 -------- -------- ------ ------ --------- -------- Total current liabilities....... -- 127.1 15.0 84.7 -- 226.8 Long-term debt, less current portion........ -- 852.5 -- -- -- 852.5 Net intercompany (receivable) payable... -- 15.0 (36.4) 21.4 -- -- Other liabilities........ -- 2.4 1.6 10.4 -- 14.4 -------- -------- ------ ------ --------- -------- Total liabilities.... -- 997.0 (19.8) 116.5 -- 1,093.7 -------- -------- ------ ------ --------- -------- Commitments and contingencies Stockholders' equity: Class A common stock... 1.2 -- -- -- -- 1.2 Additional paid-in capital.............. 1,221.8 -- -- -- -- 1,221.8 Retained earnings (deficit)............ (20.0) 1,193.9 563.9 621.9 (2,379.7) (20.0) Accumulated other comprehensive loss... -- (0.5) -- -- -- (0.5) Less treasury stock (at cost)................ (3.2) -- -- -- -- (3.2) -------- -------- ------ ------ --------- -------- Total stockholders' equity............ 1,199.8 1,193.4 563.9 621.9 (2,379.7) 1,199.3 -------- -------- ------ ------ --------- -------- Total liabilities and stockholders' equity............ $1,199.8 $2,190.4 $544.1 $738.4 $(2,379.7) $2,293.0 ======== ======== ====== ====== ========= ========
11 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 2003 ------------------------------------------------------------------------------------------------------- UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED FAIRCHILD FAIRCHILD NON- FAIRCHILD SEMICONDUCTOR SEMICONDUCTOR GUARANTOR GUARANTOR SEMICONDUCTOR INTERNATIONAL, INC. CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS INTERNATIONAL, INC. ------------------- -------------- ------------ ------------ ------------ ------------------- (IN MILLIONS) Total revenue........... -- 304.9 36.5 398.8 (389.1) 351.1 Operating expenses: Cost of sales......... -- 16.3 1.1 256.2 -- 273.6 Cost of sales -- intercompany........ -- 254.0 34.4 100.7 (389.1) -- Research and development......... -- 7.3 5.5 6.3 -- 19.1 Selling, general and administrative...... -- 26.1 1.4 11.7 -- 39.2 Amortization of acquisition-related intangibles......... -- -- 2.3 7.2 -- 9.5 Purchased in-process research and development......... -- -- -- -- -- -- Restructuring and impairments......... -- 1.3 9.2 (0.1) -- 10.4 ------ ------ ------ ------ ------- ------ Total operating expenses......... -- 305.0 53.9 382.0 (389.1) 351.8 ------ ------ ------ ------ ------- ------ Operating income (loss)................ -- (0.1) (17.4) 16.8 -- (0.7) Interest expense........ -- 20.9 -- -- -- 20.9 Interest income......... -- (2.3) -- (0.2) -- (2.5) Other income, net....... -- -- -- -- -- -- Equity in subsidiary (income) loss......... 17.7 2.4 (14.3) -- (5.8) -- ------ ------ ------ ------ ------- ------ Income (loss) before income taxes.......... (17.7) (21.1) (3.1) 17.0 5.8 (19.1) Provision (benefit) for income taxes.......... -- (3.5) (0.1) 2.1 -- (1.5) ------ ------ ------ ------ ------- ------ Net income (loss)....... $(17.7) $(17.6) $ (3.0) $ 14.9 $ 5.8 $(17.6) ====== ====== ====== ====== ======= ======
12 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 2003 ---------------------------------------------------------------------------------------- UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED FAIRCHILD FAIRCHILD NON- FAIRCHILD SEMICONDUCTOR SEMICONDUCTOR GUARANTOR GUARANTOR SEMICONDUCTOR INTERNATIONAL, INC. CORPORATION SUBSIDIARIES SUBSIDIARIES INTERNATIONAL, INC. ------------------- -------------- ------------ ------------ ------------------- (IN MILLIONS) Cash flows provided by operating activities:..................... $ -- $ 15.9 $ 6.2 $ 18.4 $ 40.5 ------- ------- ----- ------ ------- Investing activities: Capital expenditures............ -- (9.8) (6.2) (12.8) (28.8) Purchase of molds and tooling... -- -- -- (0.2) (0.2) Purchase of long-term marketable securities.................... -- (48.8) -- -- (48.8) Sale of marketable securities... -- 19.5 -- -- 19.5 Investment (in) from affiliate..................... 0.2 (0.2) -- -- -- ------- ------- ----- ------ ------- Cash provided by (used in) investing activities....... 0.2 (39.3) (6.2) (13.0) (58.3) ------- ------- ----- ------ ------- Financing activities: Repayment of long-term debt..... -- (0.4) -- -- (0.4) Proceeds from issuance of common stock and from exercise of stock options, net............ 2.0 -- -- -- 2.0 Purchase of treasury stock...... (2.2) -- -- -- (2.2) ------- ------- ----- ------ ------- Cash used in financing activities................. (0.2) (0.4) -- -- (0.6) ------- ------- ----- ------ ------- Net change in cash and cash equivalents..................... -- (23.8) -- 5.4 (18.4) Cash and cash equivalents at beginning of period............. -- 593.4 -- 24.9 618.3 ------- ------- ----- ------ ------- Cash and cash equivalents at end of period....................... $ -- $ 569.6 $ -- $ 30.3 $ 599.9 ======= ======= ===== ====== ======= Supplemental Cash Flow Information: Cash paid (received), net during the period for: Income taxes.................. $ -- $ (0.3) $ -- $ 0.8 $ 0.5 ======= ======= ===== ====== ======= Interest...................... $ -- $ 18.4 $ -- $ -- $ 18.4 ======= ======= ===== ====== =======
13 CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
DECEMBER 29, 2002 ------------------------------------------------------------------------------------------------------- UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED FAIRCHILD FAIRCHILD NON- FAIRCHILD SEMICONDUCTOR SEMICONDUCTOR GUARANTOR GUARANTOR SEMICONDUCTOR INTERNATIONAL, INC. CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS INTERNATIONAL, INC. ------------------- -------------- ------------ ------------ ------------ ------------------- (IN MILLIONS) ASSETS Current assets: Cash and cash equivalents............. $ -- $ 593.4 $ -- $ 24.9 $ -- $ 618.3 Short-term marketable securities.............. -- 2.0 -- -- -- 2.0 Accounts receivable, net..................... -- 24.4 1.3 124.9 -- 150.6 Inventories............... -- 106.5 16.9 85.4 -- 208.8 Deferred income taxes..... -- 26.8 0.8 0.5 -- 28.1 Other current assets...... -- 3.8 0.1 8.6 -- 12.5 -------- -------- ------ ------ --------- -------- Total current assets.... -- 756.9 19.1 244.3 -- 1,020.3 Property, plant and equipment, net............ -- 268.9 64.6 327.4 -- 660.9 Intangible assets, net...... -- 13.6 287.5 137.4 -- 438.5 Long-term marketable securities................ -- 30.4 -- -- -- 30.4 Investment in subsidiary.... 1,210.4 1,010.6 156.0 14.4 (2,391.4) -- Other assets................ 5.9 111.7 14.4 6.0 -- 138.0 -------- -------- ------ ------ --------- -------- Total assets............ $1,216.3 $2,192.1 $541.6 $729.5 $(2,391.4) $2,288.1 ======== ======== ====== ====== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.......... $ -- $ 0.4 $ -- $ -- $ -- $ 0.4 Accounts payable.......... -- 50.7 3.9 59.1 -- 113.7 Accrued expenses and other current liabilities..... -- 59.8 4.6 28.4 -- 92.8 -------- -------- ------ ------ --------- -------- Total current liabilities.......... -- 110.9 8.5 87.5 -- 206.9 Long-term debt, less current portion................... -- 852.8 -- -- -- 852.8 Net intercompany (receivable) payable...... -- 15.9 (50.8) 34.9 -- -- Other liabilities........... -- 3.2 1.7 8.3 -- 13.2 -------- -------- ------ ------ --------- -------- Total liabilities....... -- 982.8 (40.6) 130.7 -- 1,072.9 -------- -------- ------ ------ --------- -------- Commitments and contingencies Stockholders' equity: Class A common stock...... 1.2 -- -- -- -- 1.2 Additional paid-in capital................. 1,221.1 -- -- -- -- 1,221.1 Retained earnings (deficit)............... (2.4) 1,210.4 582.2 598.8 (2,391.4) (2.4) Accumulated other comprehensive loss...... -- (1.1) -- -- -- (1.1) Less treasury stock (at cost)................... (3.6) -- -- -- -- (3.6) -------- -------- ------ ------ --------- -------- Total stockholders' equity............... 1,216.3 1,209.3 582.2 598.8 (2,391.4) 1,215.2 -------- -------- ------ ------ --------- -------- Total liabilities and stockholders' equity............... $1,216.3 $2,192.1 $541.6 $729.5 $(2,391.4) $2,288.1 ======== ======== ====== ====== ========= ========
14 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 ------------------------------------------------------------------------------------------------------- UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED FAIRCHILD FAIRCHILD NON- FAIRCHILD SEMICONDUCTOR SEMICONDUCTOR GUARANTOR GUARANTOR SEMICONDUCTOR INTERNATIONAL, INC. CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS INTERNATIONAL, INC. ------------------- -------------- ------------ ------------ ------------ ------------------- (IN MILLIONS) Total revenue........... $ -- $315.2 $ 39.0 $354.7 $(372.0) $336.9 Operating expenses: Cost of sales....... -- 25.1 (1.6) 233.8 -- 257.3 Cost of sales -- intercompany..... -- 251.1 37.4 83.5 (372.0) -- Research and development...... -- 9.3 5.8 5.6 -- 20.7 Selling, general and administrative... -- (9.7) 32.8 11.4 -- 34.5 Amortization of acquisition-related intangibles...... -- -- 2.4 6.9 -- 9.3 Purchased in-process research and development...... -- 1.0 0.7 -- -- 1.7 Restructuring and impairments...... -- 1.7 0.7 1.2 -- 3.6 ----- ------ ------ ------ ------- ------ Total operating expenses....... -- 278.5 78.2 342.4 (372.0) 327.1 ----- ------ ------ ------ ------- ------ Operating income (loss)................ -- 36.7 (39.2) 12.3 -- 9.8 Interest expense........ -- 28.6 -- -- -- 28.6 Interest income......... -- (2.3) (0.1) (0.1) -- (2.5) Other income............ -- -- (20.5) -- -- (20.5) Equity in subsidiary (income) loss......... (2.7) 6.9 (16.2) -- 12.0 -- ----- ------ ------ ------ ------- ------ Income (loss) before income taxes.......... 2.7 3.5 (2.4) 12.4 (12.0) 4.2 Provision for income taxes................. -- 0.8 -- 0.7 -- 1.5 ----- ------ ------ ------ ------- ------ Net income (loss)..... $ 2.7 $ 2.7 $ (2.4) $ 11.7 $ (12.0) $ 2.7 ===== ====== ====== ====== ======= ======
15 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 ---------------------------------------------------------------------------------------- UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED FAIRCHILD FAIRCHILD NON- FAIRCHILD SEMICONDUCTOR SEMICONDUCTOR GUARANTOR GUARANTOR SEMICONDUCTOR INTERNATIONAL, INC. CORPORATION SUBSIDIARIES SUBSIDIARIES INTERNATIONAL, INC. ------------------- -------------- ------------ ------------ ------------------- (IN MILLIONS) Cash flows provided by (used in) operating activities:............. $ -- $ 2.3 $1.8 $(3.1) $ 1.0 ----- ------ ---- ----- ------ Investing activities: Capital expenditures.............. -- (16.4) (0.5) (4.1) (21.0) Purchase of molds and tooling..... -- -- (1.3) -- (1.3) Purchase of long-term investments..................... -- -- -- -- -- Acquisitions and divestitures, net of cash acquired................ -- 24.6 -- -- 24.6 Investment (in) from affiliate.... (5.3) 5.3 -- -- -- ----- ------ ---- ----- ------ Cash provided by (used in) investing activities....... (5.3) 13.5 (1.8) (4.1) 2.3 ----- ------ ---- ----- ------ Financing activities: Repayment of long-term debt....... -- (0.2) -- -- (0.2) Proceeds from issuance of common stock and from issuance of stock options, net.................... 5.3 -- -- -- 5.3 Purchase of treasury stock........ -- -- -- -- -- Debt issuance costs............... -- -- -- -- -- ----- ------ ---- ----- ------ Cash provided by (used in) financing activities....... 5.3 (0.2) -- -- 5.1 ----- ------ ---- ----- ------ Net change in cash and cash equivalents....................... -- 15.6 -- (7.2) 8.4 Cash and cash equivalents at beginning of period............... -- 476.3 -- 28.1 504.4 ----- ------ ---- ----- ------ Cash and cash equivalents at end of period............................ $ -- $491.9 $ -- $20.9 $512.8 ===== ====== ==== ===== ====== Supplemental Cash Flow Information: Cash paid during the period for: Income taxes.................... $ -- $ 0.1 $ -- $ 0.2 $ 0.3 ===== ====== ==== ===== ====== Interest..................... $ -- $ 32.8 $ -- $ -- $ 32.8 ===== ====== ==== ===== ======
16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. UNLESS OTHERWISE INDICATED, REFERENCES IN THIS DISCUSSION AND ANALYSIS TO "WE," "OUR," THE "COMPANY," "FAIRCHILD," AND "FAIRCHILD INTERNATIONAL' REFER TO FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND ITS CONSOLIDATED SUBSIDIARIES, INCLUDING FAIRCHILD SEMICONDUCTOR CORPORATION, OUR PRINCIPAL OPERATING SUBSIDIARY. WE REFER TO INDIVIDUAL CORPORATIONS WHERE APPROPRIATE. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS IN THIS REPORT. SEE "FORWARD-LOOKING STATEMENTS," "OUTLOOK" AND "BUSINESS RISKS" BELOW. OVERVIEW We are one of the largest independent semiconductor companies focused solely on developing, manufacturing and selling high performance semiconductors critical to multiple end markets. We are a global company that designs, develops and markets analog, interface, discrete, standard logic, non-volatile memory and optoelectronic semiconductors. Within our broad product portfolio, we focus on providing power discrete and analog products for power management applications and interface products for system and circuit board interconnect applications. Over two-thirds of our sales in the first three months of 2003 were from power discrete and analog products used directly in power applications such as voltage conversion, power regulation, power distribution and power and battery management. We believe that we are the world's leading supplier of combined power analog and power discrete products. Our products are used as building block components in a wide variety of electronic applications, including sophisticated computers and internet hardware; communications; networking and storage equipment; industrial power supply and instrumentation equipment; portable digital consumer cameras, displays, audio/video devices, household appliances; and automotive ignition applications. Because of their basic functionality, our products provide customers with greater design flexibility than more highly integrated products and help to improve the performance of more complex devices or systems. Given these characteristics, our products have a wide range of applications. Our products are sold to customers in the personal computer, industrial, communications, consumer electronics and automotive markets. RESULTS OF OPERATIONS On a segment basis, Analog had an operating loss of $0.2 million for the first quarter of 2003, compared to operating income of $9.6 million in the comparable period of 2002. The decrease in Analog's operating income was due to a decrease in average selling prices on higher unit volumes offset by decreases in selling, general and administrative expenses as a result of our workforce reduction actions in this area. Discrete had operating income of $15.6 million in the first quarter of 2003, compared to $13.1 million in the comparable period of 2002. The increase in Discrete's operating income was primarily due to an increase in gross margins due to higher unit volumes and improved factory utilization. This increase was partially offset by $2.2 million in distributor reserves associated with the 6" Mountaintop, Pennsylvania fab closure. Logic and Memory's operating income was flat at $0.4 million for Q1 of 2003 and 2002, respectively. Lower gross margins were offset by lower research and development and selling, general and administrative expenses. REVENUES Revenues were $351.1 million in the first quarter of 2003, compared to $336.9 million in the comparable period of 2002. The increase in revenues was driven primarily by higher Discrete revenues and higher non-segment revenues driven by increased sales of LED's in our Optoelectronics business. On a segment basis, Analog revenues increased 1.3% to $84.2 million in the first quarter of 2003, from $83.1 million in the comparable period of 2002. During the quarter, increased unit volumes were offset by lower average selling prices. Discrete revenues increased 6.0% to $189.5 million in the first quarter of 2003, compared to $178.8 million in the comparable period of 2002. The increase is the result of the continued growth of power MOSFET's into virtually all end markets. These increases were offset by $2.2 million of distributor reserves associated with the 6" Mountaintop, Pennsylvania fab closure. Logic and Memory revenues decreased by 8.9% to $46.0 million in the first quarter of 2003, from $50.5 million in the comparable period of 2002. The decreases were due to lower unit volumes coupled with lower average selling prices, across all end markets. 17 As a percentage of sales, geographic sales for North America, Europe, Asia/Pacific (which for our geographic reporting purposes excludes Korea) and Korea were as follows for the three months ended March 30, 2003 and March 31, 2002:
THREE MONTHS ENDED --------------------- MARCH 30, MARCH 31, 2003 2002 --------- --------- North America............................................... 15% 16% Europe...................................................... 11 11 Asia/Pacific................................................ 52 51 Korea....................................................... 22 22 --- --- Total............................................. 100% 100% === ===
GROSS PROFIT Gross profit was $77.5 million, or 22.1% in the first quarter of 2003, compared to $79.6 million, or 23.6% in the first quarter of 2002. Gross profit includes the previously discussed distributor sales reserves in connection with the 6" fab closure ($2.2 million), which contributed (0.5%) to gross profit. The remaining decrease in gross profit for the first quarter of 2003 compared to the first quarter of 2002 was a result of increased pricing pressures across all product lines, offset by higher unit volumes. RESEARCH AND DEVELOPMENT R&D expenses were $19.1 million, or 5.4% of sales, in the first quarter of 2003, compared to $20.7 million, or 6.1% of sales, in the first quarter of 2002. The decrease in the first quarter of 2003 was due to spending reductions in response to softer market conditions. SELLING, GENERAL AND ADMINISTRATIVE SG&A was $39.2 million, or 11.2% of sales, in the first quarter of 2003, compared to $34.5 million, or 10.2% of sales, in the first quarter of 2002. The increase in the first quarter of 2003 is a result of higher selling expenses driven by higher sales, and higher payroll related costs due to resumption of certain benefits in 2003. AMORTIZATION OF ACQUISITION-RELATED INTANGIBLES Amortization of acquisition-related intangibles was $9.5 million in the first quarter of 2003, compared to $9.3 million in the first quarter of 2002. PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT Purchased in-process research and development was recorded in the first quarter of 2002 in connection with our acquisitions of certain assets from I-Cube, Inc. ($1.0 million) and Signal Processing Technologies, Inc. (SPT) ($0.7 million). RESTRUCTURING AND IMPAIRMENTS Restructuring and impairments in the first quarter of 2003 include $5.7 million of employee separation costs associated with the closure of the 6" fab in Mountaintop, Pennsylvania and other workforce reduction actions and $4.7 million of charges relating to asset write-offs, environmental costs, and other costs associated with the closure of the 6" fab in Mountaintop, Pennsylvania as well as asset write-offs associated primarily with the closure of our Carlsbad, California office. Restructuring and impairments in the first quarter of 2002 include $3.6 million associated with workforce reduction actions. 18 INTEREST EXPENSE Interest expense was $20.9 million in the first quarter of 2003, compared to $28.6 million in the comparable period of 2002. The decrease in interest expense in the first quarter of 2003 was principally the result of the redemption of $285.0 million of 10 1/8% senior subordinated notes on June 28, 2002. INTEREST INCOME Interest income was $2.5 million in the first quarter of 2003 and 2002, respectively. Interest income was flat due to lower interest rates on higher average cash balances. OTHER INCOME In the first quarter of 2002, we recorded a gain of $20.5 million related to the sale of our military and space-related discrete power product line. INCOME TAXES Income tax provision (benefit) was $(1.5) for the first quarter of 2003, compared to $1.5 million for the first quarter of 2002. The effective tax rate for the first quarter of 2003 was 8%, compared to 36% for the first quarter of 2002. The decrease in the effective tax rate was due to the changes in the magnitude and composition of taxable income by taxing jurisdiction composing consolidated taxable income. The tax rate was calculated based upon actual tax rates for the quarter rather than using a projected annual tax rate due to the uncertainty of projecting annual taxable income by tax jurisdiction. Changes in the location of taxable income (loss) could result in significant changes in the effective tax rate. LIQUIDITY AND CAPITAL RESOURCES We have a borrowing capacity of $300.0 million on a revolving basis for working capital and general corporate purposes, including acquisitions, under our senior credit facility. At March 30, 2003, adjusted for outstanding letters of credit, we had up to $299.2 million available under this senior credit facility. At March 30, 2003, we had additional outstanding letters of credit and guarantees totaling $5.0 million that were issued on behalf of unaffiliated companies with which we currently have a strategic investment or relationship. These amounts outstanding do not impact available borrowings under the senior credit facility. Our senior credit facility, the indentures governing our 10 3/8% Senior Subordinated Notes, 10 1/2% Senior Subordinated Notes and 5.0% Convertible Senior Subordinated Notes and other debt instruments we may enter into in the future may impose various restrictions and covenants on us which could potentially limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. The restrictive covenants include limitations on consolidations, mergers and acquisitions, restrictions on creating liens, restrictions on paying dividends or making other similar restricted payments, restrictions on asset sales, restrictions on capital expenditures and limitations on incurring indebtedness, among other restrictions. The covenants in the senior credit facility also include financial ratios such as a minimum interest coverage ratio and a maximum senior leverage ratio. At March 30, 2003, the company was in compliance with these covenants. The senior credit facility also limits our ability to modify our certificate of incorporation and bylaws, or enter into shareholder agreements, voting trusts or similar arrangements. Under our debt instruments, the subsidiaries of Fairchild Semiconductor Corporation cannot be restricted, except to a limited extent, from paying dividends or making advances to Fairchild Semiconductor Corporation. We believe that funds generated from operations, together with existing cash, will be sufficient to meet our debt obligations over the next twelve months. We expect that existing cash and available funds from our senior credit facility and funds generated from operations will be sufficient to meet our anticipated operating requirements and to fund our research and development and planned capital expenditures for the remainder of the year and for the next twelve months. We intend to invest approximately $140 to $150 million in 2003 on capital expenditures, including the $28.8 million we have spent through March 30, 2003. This capital primarily will be spent to expand capacity in support of in-sourcing of assembly and test capacity, including construction of our new facility in Suzhou, China, and to add capacity in our 8" Mountaintop, 19 Pennsylvania facility, to support cost reduction projects in our manufacturing facilities and information technology infrastructure projects. We frequently evaluate opportunities to sell additional equity or debt securities, obtain credit facilities from lenders or restructure our long-term debt to further strengthen our financial position. The sale of additional equity or convertible securities could result in additional dilution to our stockholders. Additional borrowing or equity investment may be required to fund future acquisitions. As of March 30, 2003, our cash and cash equivalents were $599.9 million, a decrease of $18.4 million from December 29, 2002. During the first quarter of 2003, our operations provided $40.5 million in cash compared to $1.0 million of cash in the first quarter of 2002. The increase in cash provided by operating activities reflects an increase in the first quarter of 2003 in net income (loss) adjusted for non-cash items of $3.6 million and an increase in cash flows from changes in operating assets and liabilities of $35.9 million as compared to the first quarter of 2002. Cash used in investing activities during the first quarter of 2003 totaled $58.3 million, compared to $2.3 million provided in the first quarter of 2002. The decrease primarily results from a net cash outflow for purchases of long-term marketable securities of $48.8 million in the first quarter of 2003, and net cash acquired from acquisitions and divestitures of $24.6 million in the first quarter of 2002, for which there is no comparable amount in the first quarter of 2003. Cash used in financing activities of $0.6 million for the first quarter of 2003 was primarily the repayment of long-term debt and the purchase of treasury stock, offset by the proceeds from the issuance of common stock and exercise of stock options. Cash provided by financing activities of $5.1 million for the first quarter of 2002 was primarily from proceeds from the issuance of common stock upon the exercise of options. It is customary practice in the semiconductor industry to enter into guaranteed purchase commitments or "take or pay" arrangements for purchases of certain equipment and raw materials. At March 30, 2003, obligations under these arrangements were not material to our consolidated financial statements. The table 20 below summarizes aggregate maturities of long-term debt, future minimum lease payments under noncancelable operating leases, and guarantee commitments as of March 30, 2003.
REMAINDER 2-3 4-5 AFTER CONTRACTUAL OBLIGATIONS TOTAL OF 2003 YEARS YEARS 5 YEARS - ----------------------- ------ --------- ----- ------ ------- (IN MILLIONS) Debt..................................... $852.8 $ 0.3 $ 0.5 $300.6 $551.4 Operating Leases......................... 93.5 17.7 32.2 10.7 32.9 Guarantees............................... 5.0 5.0 -- -- -- ------ ----- ----- ------ ------ Total.......................... $951.3 $23.0 $32.7 $311.3 $584.3 ====== ===== ===== ====== ======
LIQUIDITY AND CAPITAL RESOURCES OF FAIRCHILD INTERNATIONAL, EXCLUDING SUBSIDIARIES Fairchild Semiconductor International, Inc. is a holding company, the principal asset of which is the stock of its sole subsidiary, Fairchild Semiconductor Corporation. Fairchild Semiconductor International on a stand-alone basis had no cash flow from operations in the first three months of 2003, nor in the first three months of 2002. Fairchild Semiconductor International on a stand-alone basis has no cash requirements for the next twelve months. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The U.S. Securities and Exchange Commission has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and which require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the policies of revenue recognition, sales reserves, inventory valuation, the impairment of long-lived assets and income taxes. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies. On an ongoing basis, we evaluate the judgments and estimates underlying all of our accounting policies, including those related to revenue recognition, sales reserves, inventory valuation, impairment of long-lived assets and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Materially different results in the amount and timing of our actual results for any period could occur if our management made different judgments or utilized different estimates. Revenue Recognition. Revenue from the sale of semiconductor products is recognized when title transfers to the customer, including distributors, which is generally upon shipment. No revenue is recognized unless there is persuasive evidence of an arrangement, the price to the buyer is fixed or determinable, and the collectibility of the sales price is reasonably assured. Contract manufacturing revenues are recognized upon completion of the contracted service. Sales Reserves. Sales reserves generally fall into four categories: customer material return reserves, distributor contract sales debit reserves, prompt payment discount reserves, and other distribution reserves. Customer material returns result from product quality, administrative or other defect issues. Distributor contract sales debits are credits given to distributors to ensure distributor profitability on individual resale transactions. Prompt payment discounts are enticements given to customers to ensure payment is made in a timely manner. Customer material reserves, distributor contract sales debit reserves and prompt payment discount reserves are based upon historical rates of return or claims and any known, specifically identified unusual returns. Other sales reserves are recorded based upon individual contracts with distributors that may 21 call for reimbursement of product scrapped or reimbursement of price changes that affect the distributor's inventory carrying value. Historically, we have not experienced material differences between our estimated sales reserves and actual results. Inventory Valuation. In determining the net realizable value of our inventories, we review the valuations of inventory considered excessively old, and therefore subject to, obsolescence and inventory in excess of customer backlog. We also adjust the valuation of inventory when estimated actual cost is significantly different than standard cost and to value inventory at the lower of cost or market. Once established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory. Impairment of Long-Lived Assets. We assess the impairment of long-lived assets, including goodwill, on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In conjunction with the implementation of the new accounting rules for goodwill as of the beginning of 2002, we completed a goodwill impairment review for the reporting units that have goodwill associated with them. We also performed an annually required review during the fourth quarter of 2002, and in both reviews we found no impairment. We will perform a similar review annually, or more frequently, if indicators of potential impairment arise. Our impairment review process is based upon a discounted cash flow analysis, which uses our estimates of revenues, driven by market growth rates and estimated costs, as well as utilizing a discount rate determined by our management to be commensurate with our cost of capital and the risk inherent in our current business model. For all other long-lived assets, our impairment review process is based upon an estimate of future undiscounted cash flows. Factors we consider that could trigger an impairment review include the following: - significant underperformance relative to expected historical or projected future operating results, - significant changes in the manner of our use of the acquired assets or the strategy for our overall business, - significant negative industry or economic trends and - significant technological changes, which would render equipment and manufacturing process, obsolete. Recoverability of assets that will continue to be used in our operations is measured by comparing the carrying value to the future undiscounted cash flows. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimated future costs. Income Taxes. We estimate our income tax provision in each of the jurisdictions in which we operate, including estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the realizability of deferred tax assets. The carrying value of our net deferred tax asset is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. A valuation allowance has been established for deferred tax assets which we do not believe meet the more likely than not criteria established by SFAS No. 109, "Accounting for Income Taxes." Our judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, or other factors. If our assumptions and consequently our estimates, change in the future, the valuation allowances we have established may be increased, resulting in increased income tax expense. Conversely, if we are ultimately able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense. FORWARD LOOKING STATEMENTS This quarterly report includes "forward-looking statements" as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as "we believe," "we expect," "we intend," "may," "will," "should," "seeks," "approxi- 22 mately," "plans," "estimates," "anticipates," or "hopeful," or the negative of those terms or other comparable terms, or by discussions of our strategy, plans or future performance. For example, the Outlook section below contains numerous forward-looking statements. All forward-looking statements in this report are made based on management's current expectations and estimates, which involve risks and uncertainties, including those described below and more specifically in the Business Risks section below. Among these factors are the following: changes in regional or global economic or political conditions (including as a result of terrorist attacks and responses to them); changes in demand for our products; changes in inventories at our customers and distributors; technological and product development risks; availability of manufacturing capacity; availability of raw materials; competitors' actions; loss of key customers; order cancellations or reduced bookings; changes in manufacturing yields or output; and significant litigation. Factors that may affect our operating results are described in the Business Risks section in the quarterly and annual reports we file with the Securities and Exchange Commission. Such risks and uncertainties could cause actual results to be materially different from those in the forward-looking statements. Readers are cautioned not to place undue reliance on the forward-looking statements. POLICY ON BUSINESS OUTLOOK DISCLOSURE AND QUIET PERIODS It is our current policy to update our business outlook at least twice each quarter. The first update is near the beginning of each quarter, within the press release that announces the previous quarter's results. The business outlook below is consistent with the outlook included in our April 17, 2003 press release announcing first quarter results. The second update is within a press release issued approximately two months into each quarter. The current business outlook is accessible at the Investor Relations section of our website at www.investor.fairchildsemi.com. Toward the end of each quarter, and until that quarter's results are publicly announced, we observe a "quiet period," when the outlook is not updated to reflect management's current expectations. The quiet period for the second quarter of 2003 will be from June 14, 2003 to July 17, 2003, when we plan to release our second quarter 2003 results. Except during quiet periods, the business outlook posted on our website reflects current guidance unless and until updated through a press release, SEC filing or other public announcement. During quiet periods, our business outlook, as posted on our website, announced in press releases and provided in quarterly, annual and special reports or other filing with the SEC, should be considered to be historical, speaking as of prior to the quiet period only and not subject to update by the company. During quiet periods, Fairchild Semiconductor representatives will not comment about the business outlook of the company's financial results or expectations. OUTLOOK We expect revenues in the second quarter of 2003 to be roughly flat sequentially. We entered the quarter with about 70% of our guided revenue already on backlog. We anticipate continued pricing pressures, and expect to offset them by additional planned manufacturing and operating spending cuts. We expect interest expense, net, to be flat from the first quarter of 2003. We expect that depreciation and amortization will increase $1 to $2 million and amortization of acquisition-related intangibles to decrease to approximately $7.9 million for the second quarter of 2003. Finally, we expect an outstanding diluted share count of approximately 119 million shares for the second quarter of 2003. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In December 2002, Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No. 123 ("SFAS No. 148"), was issued. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in not only annual, but also interim financial statements about the effect the fair value method would have had on reported results. The transition and annual disclosure 23 requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. The company intends to continue to account for options under ABP Opinion No. 25. In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34, ("FIN No. 45") was issued. FIN No. 45 clarifies requirements relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. FIN No. 45 requires that upon issuance of a guarantee, companies recognize a liability for the fair value of the obligation it assumes under that guarantee. The company has adopted the annual disclosure provisions of FIN No. 45 in the year ended December 29, 2002 consolidated financial statements. The company adopted the provisions for initial recognition and measurement and interim disclosures during the first quarter of 2003. The adoption of FIN No. 45 did not have a material effect on the consolidated financial statements. In November 2002, the Task Force reached a consensus on EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables ("Issue No. 00-21"). Issue 00-21 addresses when an arrangement with multiple deliverables should be divided into separate units of accounting. This consensus is effective for fiscal years beginning after June 15, 2003. We do not believe the impact of adopting EITF Issue No 00-21 will have a material impact on our financial statements. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is effective for fiscal years beginning after December 31, 2002. We adopted SFAS No. 146 during the first quarter of 2003. The implementation of SFAS No. 146 did not have a material impact on our financial condition or results of operations; however, it will impact the timing of recognition of activity costs. In April 2002 the FASB issued SFAS No. 145, Rescission of FASB Statement No's. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections ("SFAS No. 145"), effective for fiscal years beginning May 15, 2002 or later. It rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements and SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement also amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The impact of adopting SFAS No. 145 did not have a material impact on our financial statements. In August of 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"), which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated retirement costs. SFAS No. 143, which applies to all entities that have a legal obligation associated with the retirement of a tangible long-lived asset, is effective for fiscal years beginning after June 15, 2002. The implementation of SFAS No. 143 did not have a material impact on our financial condition or results of operations. 24 BUSINESS RISKS Our business is subject to a number of risks and uncertainties. The risks described below are not the only ones facing our company. Additional risks not currently known to us or that we currently deem immaterial also may impair our business operations: DOWNTURNS IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY OR CHANGES IN END USER MARKET DEMANDS COULD REDUCE THE VALUE OF OUR BUSINESS. The semiconductor industry is highly cyclical, and the value of our business may decline during the "down" portion of these cycles. Beginning in the fourth quarter of 2000 and continuing through most of 2001, we and the rest of the semiconductor industry experienced backlog cancellations and reduced demand for our products, resulting in significant revenue declines, due to excess inventories at computer and telecommunications equipment manufacturers and general economic conditions, especially in the technology sector. Although we believe the trough of this most recent cycle occurred in the third quarter of 2001, the semiconductor industry has yet to begin a significant recovery. We may experience renewed, possibly more severe and prolonged, downturns in the future as a result of such cyclical changes. Even as demand increases following such downturns, our profitability may not increase because of price competition that historically accompanies recoveries in demand. For example, in 2002, we sold approximately 7% more units than in 2001, yet our revenues were essentially unchanged. In addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix, changes in end user markets and the costs associated with the introduction of new products. The markets for our products depend on continued demand for personal computers, cellular telephones and consumer electronics and automotive and industrial goods, and these end user markets may experience changes in demand that will adversely affect our prospects. WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS TO SATISFY CHANGES IN CONSUMER DEMANDS. Our failure to develop new technologies, or react to changes in existing technologies, could materially delay development of new products, which could result in decreased revenues and a loss of market share to our competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the semiconductor industry. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. We may not successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner. Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive. Many of our competitors are larger, older and well established international companies with greater engineering and research and development resources than us. A fundamental shift in technologies in our product markets that we fail to identify or capitalize on relative to our competitors could have a material adverse effect on our competitive position within our industry. OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY AFFECT OUR FUTURE PERFORMANCE AND GROWTH. Failure to protect our existing intellectual property rights may result in the loss of valuable technologies or having to pay other companies for infringing on or using their intellectual property rights. We rely on patent, trade secret, trademark and copyright law to protect such technologies. Some of our technologies are not covered by any patent or patent application, and we cannot assure you that: - the patents owned by us or numerous other patents which third parties license to us will not be invalidated, circumvented, challenged or licensed to other companies; - any of our pending or future patent applications will be issued within the scope of the claims sought by us, if at all. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in some countries. 25 We also seek to protect our proprietary technologies, including technologies that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors' rights agreements with our collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of such research. Some of our technologies have been licensed on a non-exclusive basis from National Semiconductor, Samsung Electronics and other companies which may license such technologies to others, including our competitors. In addition, under a technology licensing and transfer agreement, National Semiconductor has limited royalty-free, worldwide license rights (without right to sublicense) to some of our technologies. If necessary or desirable, we may seek licenses under patents or intellectual property rights claimed by others. However, we cannot assure you that we will obtain such licenses or that the terms of any offered licenses will be acceptable to us. The failure to obtain a license from a third party for technologies we use could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes requiring the technologies. OUR FAILURE TO OBTAIN OR MAINTAIN THE RIGHT TO USE SOME TECHNOLOGIES MAY NEGATIVELY AFFECT OUR FINANCIAL RESULTS. Our future success and competitive position depend in part upon our ability to obtain or maintain proprietary technologies used in our principal products, which is achieved in part by defending claims by competitors and others of intellectual property infringement. The semiconductor industry is characterized by claims of intellectual property infringement and litigation regarding patent and other intellectual property rights. These claims relate both to products and manufacturing processes. Even though we maintain procedures to avoid infringing others' rights as part of our product and process development efforts, we cannot assure you that we will be successful, or that others will agree that our products are non-infringing. We receive direct and indirect claims of intellectual property infringement (including offers to sell us licenses), have been involved in lawsuits, and could become subject to other lawsuits, in which it is alleged that we have infringed upon the patent or other intellectual property rights of other companies. Our involvement in existing and future intellectual property litigation, or the costs of avoiding litigation by purchasing licenses rights or by other means, could result in significant expense to our company, adversely affecting sales of the challenged product or technologies and diverting the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor. In the event of an adverse outcome as a defendant in any such litigation, we may be required to: - pay substantial damages; - indemnify our customers for damages they might suffer if the products they purchase from us violate the intellectual property rights of others; - stop our manufacture, use, sale or importation of infringing products; - expend significant resources to develop or acquire non-infringing technologies; - discontinue manufacturing processes; or - obtain licenses to the intellectual property we are found to have infringed. We cannot assure you that we would be successful in such development or acquisition or that such licenses would be available under reasonable terms. Any such development, acquisition or license could require the expenditure of substantial time and other resources. WE MAY NOT BE ABLE TO CONSUMMATE FUTURE ACQUISITIONS OR SUCCESSFULLY INTEGRATE ACQUISITIONS INTO OUR BUSINESS. We have made nine acquisitions of various sizes since we became an independent company in 1997, and we plan to pursue additional acquisitions of related businesses. We believe the semiconductor industry is going through a period of consolidation, and we expect to participate in this development. The costs of acquiring and integrating related businesses, or our failure to integrate them successfully into our existing businesses, could 26 result in our company incurring unanticipated expenses and losses. In addition, we may not be able to identify or finance additional acquisitions or realize any anticipated benefits from acquisitions we do complete. We are constantly pursuing acquisition opportunities and consolidation possibilities and are in various stages of due diligence or preliminary discussions with respect to a number of potential transactions, some of which would be significant. No material potential transactions are subject to a letter of intent or otherwise so far advanced as to make the transaction reasonably certain. If we acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Some of the risks associated with acquisitions include: - unexpected losses of key employees, customers or suppliers of the acquired company; - conforming the acquired company's standards, processes, procedures and controls with our operations; - coordinating new product and process development; - hiring additional management and other critical personnel; - negotiating with labor unions; and - increasing the scope, geographic diversity and complexity of our operations. In addition, we may encounter unforeseen obstacles or costs in the integration of other businesses we acquire. Possible future acquisitions could result in the incurrence of additional debt, contingent liabilities and amortization expenses related to goodwill and other intangible assets, all of which could have a material adverse effect on our financial condition and operating results. WE DEPEND ON SUPPLIERS FOR TIMELY DELIVERIES OF RAW MATERIALS OF ACCEPTABLE QUALITY. PRODUCTION TIME AND PRODUCT COSTS COULD INCREASE IF WE WERE TO LOSE A PRIMARY SUPPLIER OR IF A PRIMARY SUPPLIER INCREASED THE PRICES OF RAW MATERIALS. PRODUCT PERFORMANCE COULD BE AFFECTED AND QUALITY ISSUES COULD DEVELOP AS A RESULT OF A SIGNIFICANT DEGRADATION IN THE QUALITY OF RAW MATERIALS WE USE IN OUR PRODUCTS. Our manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis. Our results of operations could be adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if the costs of raw materials increased significantly. Results could also be adversely affected if there is a significant degradation in the quality of raw materials used in our products, or if the raw materials give rise to compatibility or performance issues in our products, any of which could lead to an increase in customer returns or product warranty claims. Although we maintain rigorous quality control systems, errors or defects may arise from a supplied raw material and be beyond our detection or control. We purchase raw materials such as silicon wafers, lead frames, mold compound, ceramic packages and chemicals and gases from a limited number of suppliers on a just-in-time basis. From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors. In addition, we subcontract a portion of our wafer fabrication and assembly and test operations to other manufacturers, including Amkor, AUK, Enoch, Wooseok, SPS, NS Electronics (Bangkok) Ltd., Samsung Electronics, and ChipPAC. Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these subcontractors were disrupted or terminated. DELAYS IN BEGINNING PRODUCTION AT NEW FACILITIES, EXPANDING CAPACITY AT EXISTING FACILITIES, IMPLEMENTING NEW PRODUCTION TECHNIQUES, OR IN CURING PROBLEMS ASSOCIATED WITH TECHNICAL EQUIPMENT MALFUNCTIONS, ALL COULD ADVERSELY AFFECT OUR MANUFACTURING EFFICIENCIES. Our manufacturing efficiency is an important factor in our profitability, and we cannot assure you that we will be able to maintain our manufacturing efficiency or increase manufacturing efficiency to the same extent as our competitors. Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields. In the second quarter of 2003, we expect to 27 begin production at a new assembly and test facility in Suzhou, China. We will be transferring production from subcontractors to this new facility. In addition, we are currently engaged in an effort to expand capacity at some of our manufacturing facilities. As is common in the semiconductor industry, we have from time to time experienced difficulty in beginning production at new facilities or in completing transitions to new manufacturing processes at existing facilities. As a consequence, we have suffered delays in product deliveries or reduced yields. We may experience delays or problems in bringing the new Suzhou factory or other new manufacturing capacity to full production. Such delays, as well as possible problems in achieving acceptable yields, or product delivery delays relating to existing or planned new capacity could result from, among other things, capacity constraints, construction delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenues. Our operating results could also be adversely affected by the increase in fixed costs and operating expenses related to increases in production capacity if revenues do not increase proportionately. MORE THAN HALF OF OUR SALES ARE MADE BY DISTRIBUTORS WHO CAN TERMINATE THEIR RELATIONSHIPS WITH US WITH LITTLE OR NO NOTICE. THE TERMINATION OF A DISTRIBUTOR COULD REDUCE SALES AND RESULT IN INVENTORY RETURNS. Distributors accounted for 61% of our net sales for the three months ended March 30, 2003. Our top five distributors worldwide accounted for 16% of our net sales for the three months ended March 30, 2003. As a general rule, we do not have long-term agreements with our distributors and they may terminate their relationships with us with little or no advance notice. Distributors generally offer competing products. The loss of one or more of our distributors, or the decision by one or more of them to reduce the number of our products they offer or to carry the product lines of our competitors, could have a material adverse effect on our business, financial condition and results of operations. The termination of a significant distributor, whether at our or the distributor's initiative, or a disruption in the operations of one or more of our distributors, could reduce our net sales in a given quarter and could result in an increase in inventory returns. THE SEMICONDUCTOR BUSINESS IS VERY COMPETITIVE, ESPECIALLY IN THE MARKETS WE SERVE, AND INCREASED COMPETITION COULD REDUCE THE VALUE OF AN INVESTMENT IN OUR COMPANY. The semiconductor industry is, and the multi-market semiconductor product markets in particular are, highly competitive. Competitors offer equivalent or similar versions of many of our products, and customers may switch from our products to competitors' products on the basis of price, delivery terms, product performance, quality, reliability and customer service or a combination of any of these factors. Competition is especially intense in the multi-market semiconductor segment because it is relatively easier for customers to switch suppliers of more standardized, multi-market products like ours, compared to switching suppliers of more highly integrated or customized semiconductor products such as processors or system-on-a-chip products, which we do not manufacture. Even in strong markets, price pressures may emerge as competitors attempt to gain a greater market share by lowering prices. Competition in the various markets in which we participate comes from companies of various sizes, many of which are larger and have greater financial and other resources than we have and thus are better able to pursue acquisition candidates and can better withstand adverse economic or market conditions. In addition, companies not currently in direct competition with us may introduce competing products in the future. WE MAY FACE PRODUCT WARRANTY OR PRODUCT LIABILITY CLAIMS THAT ARE DISPROPORTIONATELY HIGHER THAN THE VALUE OF THE PRODUCTS INVOLVED. Our products are typically sold at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. For example, our products that are incorporated into a personal computer would be sold for several dollars, whereas the personal computer would be sold by the computer maker for several hundred dollars. Although we maintain rigorous quality control systems, we manufacture and sell approximately 16 billion individual semiconductor devices per year to customers around the world, and in the ordinary course of our business we receive warranty claims for some of these products that are defective or that do not perform to published specifications. Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and consequential claims for damages against our 28 customers from their customers), we may face claims for damages that are disproportionate to the revenues and profits we receive from the products involved. We attempt, through our standard terms and conditions of sale and other customer contracts, to limit our liability for defective products to obligations to replace the defective goods or refund the purchase price. Nevertheless, we receive claims for other charges, such as for labor and other costs of replacing defective parts, lost profits and other damages. In addition, our ability to reduce such liabilities may be limited by the laws or the customary business practices of the countries where we do business. And, even in cases where we do not believe we have legal liability for such claims, we may choose to pay for them to retain a customer's business or goodwill. Our results of operations and business could be adversely affected as a result of a significant quality or performance issue in our products, if we are required or choose to pay for the damages that result. OUR INTERNATIONAL OPERATIONS SUBJECT OUR COMPANY TO RISKS NOT FACED BY DOMESTIC COMPETITORS. Through our subsidiaries we maintain significant operations in the Philippines, Malaysia and South Korea and also operate facilities in China and Singapore. We are constructing another facility in China. We have sales offices and customers around the world. Almost three-quarters of our revenues in 2002 were from Asia. The following are risks inherent in doing business on an international level: - economic and political instability; - foreign currency fluctuations; - transportation delays; - trade restrictions; - work stoppages; and - the laws, including tax laws of, and the policies of the United States toward, countries in which we manufacture our products. THE POWER DEVICE BUSINESS SUBJECTS OUR COMPANY TO RISKS INHERENT IN DOING BUSINESS IN KOREA, INCLUDING POLITICAL RISK, LABOR RISK AND CURRENCY RISK. As a result of the acquisition of the power device business in 1999, we have significant operations in South Korea and are subject to risks associated with doing business there. Korea accounted for 22% of our revenue for the first quarter of 2003. Relations between South Korea and North Korea have been tense over most of South Korea's history, and recent concerns over North Korea's nuclear capability have created a global security issue that may adversely affect Korean business and economic conditions. We cannot assure you as to whether or when this situation will be resolved or change abruptly as a result of current or future events. An adverse change in economic or political conditions in South Korea or in its relations with North Korea could have a material adverse effect on our Korean subsidiary and our company. And, in addition to other risks disclosed relating to international operations, some businesses in South Korea are subject to labor unrest. Our power device business' sales are denominated primarily in U.S. dollars while a significant portion of its costs of goods sold and its operating expenses are denominated in South Korean won. Although we have taken steps to fix the costs subject to currency fluctuations and to balance won revenues and won costs, a significant change in this balance, coupled with a significant change in the value of the won relative to the dollar, could have a material adverse effect on our financial performance and results of operations. In addition, an unfavorable change in the value of the won could require us to write down our won-denominated assets. WE ENTERED INTO A NUMBER OF SUPPLY AND SUPPORT CONTRACTS WITH SAMSUNG ELECTRONICS IN CONNECTION WITH OUR ACQUISITION OF ITS POWER DEVICE BUSINESS IN 1999, MOST OF WHICH HAVE NOW ENDED. ANY SIGNIFICANT DECREASE IN PURCHASES BY SAMSUNG ELECTRONICS COULD SUBSTANTIALLY REDUCE OUR FINANCIAL PERFORMANCE. As a result of the acquisition of Samsung Electronics' power device business in 1999, we entered into numerous arrangements with Samsung Electronics, including arrangements relating to product sales, designation as a preferred vendor to affiliated Samsung companies and other services. Although most of these 29 arrangements have expired, Samsung Electronics remains a significant customer, due in part to the historical relationship between the business we acquired and its former parents and affiliates. There can be no assurances that these relationships will continue at historical levels. Samsung Electronics (together with its affiliates) is our largest customer, accounting for approximately 11% of total sales during the first three months of 2003. Any material reduction in the purchases of Samsung Electronics could have a material adverse effect on our results of operations. A CHANGE IN FOREIGN TAX LAWS OR A DIFFERENCE IN THE CONSTRUCTION OF CURRENT FOREIGN TAX LAWS BY RELEVANT FOREIGN AUTHORITIES COULD RESULT IN US NOT RECOGNIZING THE BENEFITS WE ANTICIPATED IN CONNECTION WITH THE TRANSACTION STRUCTURE USED TO CONSUMMATE THE ACQUISITION OF THE POWER DEVICE BUSINESS. The transaction structure we used for the acquisition of the power device business is based on assumptions about the various tax laws, including withholding tax, and other relevant laws of foreign jurisdictions. In addition, our Korean subsidiary was granted a ten-year tax holiday under Korean law in 1999. The first seven years are tax-free, followed by three years of income taxes at 50% of the statutory rate. In 2000, the tax holiday was extended such that the exemption amounts were increased to 75% in the eighth year and a 25% exemption was added to the eleventh year. If our assumptions about tax and other relevant laws are incorrect, or if foreign taxing jurisdictions were to change or modify the relevant laws, or if our Korean subsidiary were to lose its tax holiday, we could suffer adverse tax and other financial consequences or lose the benefits anticipated from the transaction structure we used to acquire that business. WE PLAN TO SIGNIFICANTLY EXPAND OUR MANUFACTURING OPERATIONS IN CHINA AND, AS A RESULT, WILL BE INCREASINGLY SUBJECT TO RISKS INHERENT IN DOING BUSINESS IN CHINA, WHICH MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE. We are building the first phase of an 800,000 square foot assembly and test facility in Suzhou, China, and expect to begin production there in the second quarter of 2003. Although we expect a significant portion of our production from this new facility will be exported out of China, especially initially, we are hopeful that a significant portion of our future revenue will result from the Chinese markets in which our products are sold, and from demand in China for goods that include our products. In addition, since 2000 we have operated an optoelectronics manufacturing facility in Wuxi, China. Our ability to operate in China may be adversely affected by changes in that country's laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. In addition, our results of operations in China are subject to the economic and political situation there. We believe that our operations in China are in compliance with all applicable legal and regulatory requirements. However, there can be no assurance that China's central or local governments will not impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures. Changes in the political environment or government policies could result in revisions to laws or regulations or their interpretation and enforcement, increased taxation, restrictions on imports, import duties or currency revaluations. In addition, a significant destabilization of relations between China and the United States could result in restrictions or prohibitions on our operations or the sale of our products in China. The legal system of China relating to foreign trade is relatively new and continues to evolve. There can be no certainty as to the application of its laws and regulations in particular instances. Enforcement of existing laws or agreements may be sporadic and implementation and interpretation of laws inconsistent. Moreover, there is a high degree of fragmentation among regulatory authorities resulting in uncertainties as to which authorities have jurisdiction over particular parties or transactions. OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH SEVERE ACQUIRED RESPIRATORY SYNDROME (SARS), INCLUDING THE RISKS OF REDUCED DEMAND FOR OUR PRODUCTS AND THE RISK OF REDUCED PRODUCTION CAPACITY. As described above, we operate a facility in Wuxi, China and are in the process of constructing a new assembly and test facility in Suzhou, China, near Shanghai. Our sales headquarters for the Asia Pacific region is located in Hong Kong and we also have significant facilities in Malaysia, the Philippines and South Korea and sales and administrative offices in Beijing, Shanghai, and Shenzhen, China as well as in Tokyo, Singapore and Taiwan. We are continuing to monitor the risks we face as a result of Severe Acquired Respiratory Syndrome (SARS). Although to date we have not observed a material impact on our bookings or results of 30 operations, we have restricted employee travel as a result of SARS, resulting in reduced direct contacts with customers. SARS, its actual and perceived effects, and the general economic and other disruptions caused by SARS may lead to reduced demand for our products in China and the rest of Asia. In the first quarter of 2003 the Asian region, including Korea, accounted for 74% of our revenue. In addition, a SARS outbreak in one of our manufacturing facilities or the facility of a supplier could have an adverse effect on our operations if we did not address the lost production capacity that would result. WE ARE SUBJECT TO MANY ENVIRONMENTAL LAWS AND REGULATIONS THAT COULD AFFECT OUR OPERATIONS OR RESULT IN SIGNIFICANT EXPENSES. Increasingly stringent environmental regulations restrict the amount and types of pollutants that can be released from our operations into the environment. While the cost of compliance with environmental laws has not had a material adverse effect on our results of operations historically, compliance with these and any future regulations could require significant capital investments in pollution control equipment or changes in the way we make our products. In addition, because we use hazardous and other regulated materials in our manufacturing processes, we are subject to risks of liabilities and claims, regardless of fault, resulting from accidental releases, including personal injury claims and civil and criminal fines, any of which could be material to our cash flow or earnings. For example: - we currently are remediating contamination at some of our operating plant sites; - we have been identified as a potentially responsible party at a number of Superfund sites where we (or our predecessors) disposed of wastes in the past; and - significant regulatory and public attention on the impact of semiconductor operations on the environment may result in more stringent regulations, further increasing our costs. Although most of our known environmental liabilities are covered by indemnities from Raytheon Company, National Semiconductor or Samsung Electronics, these indemnities are limited to conditions that occurred prior to the consummation of those transactions with those companies. Moreover, we cannot assure you that their indemnity obligations to us for the covered liabilities will be adequate to protect us. WE MAY NOT BE ABLE TO ATTRACT OR RETAIN THE TECHNICAL OR MANAGEMENT EMPLOYEES NECESSARY TO REMAIN COMPETITIVE IN OUR INDUSTRY. Our continued success depends on the retention and recruitment of skilled personnel, including technical, marketing, management and staff personnel. In the semiconductor industry, the competition for qualified personnel, particularly experienced design engineers and other technical employees, is intense, particularly in the "up" portions of our business cycle, when competitors may try to recruit our most valuable technical employees. There can be no assurance that we will be able to retain our current personnel or recruit the key personnel we require. A SUBSTANTIAL NUMBER OF SHARES OF OUR COMPANY'S COMMON STOCK ARE OWNED BY A LIMITED NUMBER OF PERSONS, AND THEIR INTERESTS MAY CONFLICT WITH YOUR INTERESTS. On March 30, 2003, affiliates of Citigroup Inc., and our directors and executive officers together owned approximately 15% of the outstanding shares of our Class A Common Stock (not including shares underlying options held by our directors and executive officers). By virtue of such stock ownership, these persons have the power to significantly influence our affairs and are able to influence the outcome of matters required to be submitted to stockholders for approval, including the election of directors and the amendment of our corporate charter and bylaws. Such persons may exercise their influence over us in a manner detrimental to the interests of other stockholders or our bondholders. WE ARE A LEVERAGED COMPANY WITH A DEBT TO EQUITY RATIO OF APPROXIMATELY 0.7 TO 1, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND LIMIT OUR ABILITY TO GROW AND COMPETE. At March 30, 2003, we had total long-term debt of $852.8 million and a ratio of debt to equity of approximately 0.7 to 1. 31 Our substantial indebtedness could have important consequences. For example, it could - require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; - increase the amount of our interest expense, because certain of our borrowings (namely borrowings under our senior credit facility, which is currently undrawn) are at variable rates of interest, which, if interest rates increase and amounts are drawn against the senior credit facility, could result in higher interest expense; - increase our vulnerability to general adverse economic and industry conditions; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; - restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities; - make it more difficult for us to satisfy our obligations with respect to the instruments governing our indebtedness; - place us at a competitive disadvantage compared to our competitors that have less indebtedness; and - limit, along with the financial and other restrictive covenants in our debt instruments, among other things, our ability to borrow additional funds, dispose of assets or pay cash dividends. Failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE INDEBTEDNESS. INCURRING MORE INDEBTEDNESS COULD EXACERBATE THE RISKS DESCRIBED ABOVE. We may be able to incur substantial additional indebtedness in the future. The indenture governing Fairchild Semiconductor Corporation's outstanding 5% Convertible Senior Subordinated Notes Due 2008 does not limit the amount of additional debt that we may incur. Although the terms of the indentures governing Fairchild Semiconductor Corporation's outstanding 10 3/8% Senior Subordinated Notes, its outstanding 10 1/2% Senior Subordinated Notes, and the credit agreement relating to the senior credit facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, additional indebtedness incurred in compliance with these restrictions could be substantial. The senior credit facility permits borrowings of up to $300.0 million. As of March 30, 2003, adjusted for outstanding letters of credit, we had up to $299.2 million available under this revolving credit facility. If new debt is added to our subsidiaries' current debt levels, the substantial risks described above would intensify. WE MAY NOT BE ABLE TO GENERATE THE NECESSARY AMOUNT OF CASH TO SERVICE OUR INDEBTEDNESS, WHICH MAY REQUIRE US TO REFINANCE OUR INDEBTEDNESS OR DEFAULT ON OUR SCHEDULED DEBT PAYMENTS. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. Our historical financial results have been, and our future financial results are anticipated to be, subject to substantial fluctuations. We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or at all, or that future borrowings will be available to us under our senior credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In addition, because our senior credit facility has variable interest rates, the cost of those borrowings will increase if market interest rates increase. If we are unable to meet our expenses and debt obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity. We cannot assure you that we would be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. 32 Restrictions imposed by the credit agreement relating to our senior credit facility, the indentures governing Fairchild Semiconductor Corporation's 10 3/8% Senior Subordinated Notes and its 10 1/2% Senior Subordinated Notes restrict or prohibit our ability to engage in or enter into some business operating and financing arrangements, which could adversely affect our ability to take advantage of potentially profitable business opportunities. The operating and financial restrictions and covenants in most of our debt instruments, such as the credit agreement relating to our senior credit facility, the indenture governing Fairchild Semiconductor Corporation's 10 1/2% Senior Subordinated Notes and the indenture governing its 10 3/8% Senior Subordinated Notes may limit our ability to finance our future operations or capital needs or engage in other business activities that may be in our interests. These debt instruments impose significant operating and financial restrictions on us that affect our ability to incur additional indebtedness or create liens on our assets, pay dividends, sell assets, engage in mergers or acquisitions, make investments or engage in other business activities. These restrictions could place us at a disadvantage relative to competitors not subject to such limitations. In addition, the credit agreement governing our senior credit facility contains other and more restrictive covenants and limits us from prepaying our other indebtedness. The senior credit facility also requires us to maintain specified financial ratios. These financial ratios become more restrictive over the life of the senior credit facility. Our ability to meet those financial ratios can be affected by events beyond our control, and we cannot assure you that we will meet those ratios. As of March 30, 2003, we were in compliance with these ratios. If we borrow money under the credit facility, a breach of any of these covenants, ratios or restrictions could result in an event of default under the senior credit facility. Upon the occurrence of an event of default under the senior credit facility, the lenders could elect to declare all amounts outstanding under the senior credit facility, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure the indebtedness. If the lenders under the senior credit facility accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure about Market Risk, in Fairchild Semiconductor International's annual report on Form 10-K for the year ended December 29, 2002 and under the subheading "Quantitative and Qualitative Disclosures about Market Risk" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 37 of the 10-K. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Under Securities and Exchange Commission (SEC) regulations implementing portions of the Sarbanes-Oxley Act of 2002, our chief executive officer and our chief financial officer are required to certify in this quarterly report their responsibility for establishing and maintaining disclosure controls and procedures designed to ensure that material information relating to our company is made known to them. Our CEO and CFO are also required to certify that they have evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days prior to the filing of this report, and that they have presented in this report their conclusions about the effectiveness of the disclosure controls and procedures as a result of the evaluation. Based on their evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective, providing them with material information relating to the company as required to be disclosed in the reports we file with the SEC on a timely basis. (b) Changes in internal controls. There were no significant changes in the company's internal controls or in other factors that could significantly affect the company's disclosure controls and procedures subsequent to the date of the CEO and CFO's evaluation discussed in paragraph (a) above, nor were there any significant deficiencies or material weaknesses in the company's internal controls. 33 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time we are involved in actual or threatened legal proceedings in the ordinary course of business. We believe that there is no such ordinary course litigation pending or threatened that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, results of operations or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NO. EXHIBIT INDEX - ------- ------------- 10.1 Amendment to Employment Agreement of Kirk P. Pond dated March 7, 2003 (Incorporated by reference from our annual report on Form 10-K for the fiscal year ended December 29, 2002) 10.2 Employment Agreement with Hans Wildenberg 10.3 Employment Agreement with John M. Watkins, Jr. 10.4 Non-statutory Stock Option Agreement with Kirk P. Pond 10.5 Non-statutory Stock Option Agreements with Hans Wildenberg 10.6 Non-statutory Stock Option Agreement with John M. Watkins, Jr. 10.7 Deferred Stock Unit Award Agreement with Kirk P. Pond 10.8 Deferred Stock Unit Award Agreements with Hans Wildenberg 10.9 Deferred Stock Unit Award Agreement with John M. Watkins, Jr. 10.10 Form of Non-qualified Stock Option Agreement with non-employee directors 99.1 Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Kirk P. Pond 99.2 Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Matthew W. Towse
(b) Reports on Form 8-K On January 21, 2003, we filed a current report on Form 8-K relating to financial information for the three and twelve months ended December 29, 2002 and forward-looking statements relating to the first quarter of 2003 as announced in a press release issued January 16, 2003. The press release is incorporated in, and filed as an exhibit to, the current report. On March 4, 2003, we filed a current report on Form 8-K relating to the update of our forward-looking guidance for the first quarter of 2003, as announced in a press release dated March 3, 2003. The press release is incorporated in, and filed as an exhibit to, the current report. ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED. 34 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Fairchild Semiconductor International, Inc. By: /s/ ROBIN A. SAWYER ------------------------------------ Robin A. Sawyer Vice President, Corporate Controller (Principal Accounting Officer) Date: May 14, 2003 35 CERTIFICATIONS I, Kirk P. Pond, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fairchild Semiconductor International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ KIRK P. POND ------------------------------------ Kirk P. Pond Chairman, President and Chief Executive Officer Date: May 14, 2003 36 CERTIFICATIONS I, Matthew W. Towse, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fairchild Semiconductor International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ MATTHEW W. TOWSE ------------------------------------ Matthew W. Towse Senior Vice President and Chief Financial Officer Date: May 14, 2003 37 EX-10.2 3 b46535fsexv10w2.txt EX-10.2 EMPLOYMENT AGREEMENT EXHIBIT 10.2 EXECUTIVE COMMITTEE EMPLOYMENT AGREEMENT THIS EXECUTIVE COMMITTEE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of April 28, 2003 between Johannes H. Wildenberg (the "EXECUTIVE") and Fairchild Semiconductor Corporation, a Delaware corporation (the "COMPANY"). For ease of reference, this Agreement is divided into the following parts, which begin on the pages indicated: PART 1-- TERM, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT (Sections 1-4, beginning on page 2) o Salary o EFIP Bonus o Other Compensation PART 2-- COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE TERMINATION (Sections 5-6, beginning on page 3) o Termination PART 3-- COMPENSATION AND BENEFITS IN CASE OF A CHANGE IN CONTROL (Section 7, beginning on page 4) o Change in Control PART 4-- TRADE SECRETS, INTELLECTUAL PROPERTY, NON-COMPETITION, REMEDIES, SEVERABILITY, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE (Sections 8-14, beginning on page 6) o Non-Compete o Confidentiality o Forfeiture in Case of Certain Events
TERMS For good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the Company and the Executive, intending to be legally bound, agree as follows: PART 1 TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT SECTION 1. TERM OF EMPLOYMENT (a) Term. Unless sooner terminated as provided in this Agreement, the term of this Agreement will begin on the effective date of this Agreement and will end on the first anniversary thereof (the "INITIAL TERM"). The term of this Agreement will be automatically extended for one or more successive one-year periods (each a "RENEWAL TERM") unless the Company or the Executive gives the other written notice of non-renewal at least 30 days before the end of the Initial Term or the applicable Renewal Term. The Initial Term and any Renewal Term are collectively referred to as the "Term." (b) Termination or Resignation. Subject to the other terms of this Agreement, including those in Part 2, either the Company or the Executive may terminate the Executive's employment with the Company at any time and for any reason or no reason upon written notice to the other party. SECTION 2. DUTIES AND SCOPE OF EMPLOYMENT (a) Position. The Company will employ the Executive (or, if the Company is not the Executive's employer, the Company will cause its appropriate subsidiary to employ the Executive) during the Term in the position of Executive Vice President and Chief Operating Officer, reporting to the Chief Executive Officer. The Executive will be given duties, responsibilities and authorities that are appropriate to this position. (b) Obligations. During the Term, the Executive will devote the Executive's full business efforts and time to the business and affairs of the Company as needed to carry out his duties and responsibilities. The foregoing shall not preclude the Executive from engaging in appropriate civic, charitable, religious or other non-profit activities or from devoting a reasonable amount of time to private investments or from serving on the boards of directors of other entities, provided that those activities do not interfere or conflict with the Executive's duties or responsibilities to the Company. SECTION 3. BASE COMPENSATION During the Term, the Company will pay the Executive, as compensation for services, a base salary at the annual rate of at least $400,000. Salary increases will be considered after the first anniversary of this Agreement, or sooner in the discretion of the Chief Executive Officer, on a basis consistent with Company policies. 2 SECTION 4. OTHER COMPENSATION (a) EFIP. During the Term the Executive will be enrolled in the Enhanced Fairchild Incentive Plan (EFIP), at a new targeted participation level of 75%. While bonuses under this program are never guaranteed, typically, if the company meets its EBITDA goals, participants receive 100% of the targeted payout. If the company exceeds those goals, participants can receive up to 200% of the targeted payout. (b) DSUs. In addition to any grants of options or other awards for which the Executive may be eligible under the Company's general stock plan, the Company will grant the Executive 20,000 deferred stock units, subject to the applicable Company plan governing such award and an award agreement under such plan not inconsistent with the terms of this paragraph. The grant date of this grant of deferred stock units will be the effective date of this Agreement. This grant will vest in 25% increments on the first four anniversaries of the grant date. The Executive will be solely responsible for any taxes associated with the receipt, vesting, or delivery of shares or cash under, this grant, and the Company will make appropriate withholdings from any distributions of shares or cash thereunder. (c) Options. (i) The Company will grant the Executive options to purchase 100,000 shares of the company's common stock, subject to the applicable Company plan governing such award and an award agreement under such plan not inconsistent with the terms of this paragraph. The grant date for this grant of options will be the effective date of this Agreement. This grant will vest in 50% increments on each of January 1, 2004 and January 1, 2005, if on each respective date the Executive is employed by the Company. The Executive will be solely responsible for any taxes associated with the foregoing stock option grant. (ii) In addition, so long as he is employed by the Company, the Company will make annual grants to the Executive of options to purchase shares of common stock, subject to the applicable Company plan governing such award, covering a number of shares as recommended by independent compensation consultants and determined by the compensation committee of the Company's board of directors. PART 2 COMPENSATION AND BENEFITS IN CASE OF TERMINATION WITHOUT CAUSE OR FOR GOOD REASON SECTION 5. TERMINATIONS AND RELATED DEFINITIONS Part 2 of the Agreement, consisting of Sections 5 and 6, describes the benefits and compensation, if any, payable in case of certain terminations of employment. Part 3 of the Agreement, consisting of Section 7, describes benefits and compensation, if any, payable in case of a Change in Control. In this Agreement, (a) "CAUSE" means (1) a willful failure by the Executive to substantially perform the Executive's duties under this Agreement, other than a failure resulting from the 3 Executive's complete or partial incapacity due to physical or mental illness or impairment, (2) a willful act by the Executive that constitutes gross misconduct and that is materially injurious to the Company, (3) a willful breach by the Executive of a material provision of this Agreement (including Sections 8 and 10) or (4) a material and willful violation of a federal or state law or regulation applicable to the business of the Company that is materially and demonstrably injurious to the Company, provided that no act, or failure to act, by the Executive shall be considered "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the Company's best interest; and (b) "GOOD REASON" means any of the following: (1) a reduction in the Executive's base salary other than as part of a broader executive pay reduction, (2) a reduction in the Executive's incentive compensation (EFIP) target other than as part of a broader executive reduction, (3) a material change in the employment benefits available to the Executive, if such change does not similarly affect all employees of the Company eligible for such benefits, or (4) a material reduction in your duties, responsibilities or authority. SECTION 6. TERMINATION BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON (a) Severance. If, during the Term, the Company terminates the Executive's employment for any reason other than Cause (including as a result of the Executive's death or disability), or if the Executive terminates his employment for Good Reason, then, provided the Executive (or his legal representative, if applicable) executes the release of claims described in Section 6(b), the Company will pay the Executive, in a lump sum immediately following the effective date of such termination, an amount equal to the Executive's base salary in effect on such termination date. The Executive will be responsible for all taxes relating to such payments and the Company will make all required withholdings of all such taxes. (b) Release of Claims. As a condition to the receipt of the payments and benefits described in Section 6(a), the Executive (or his legal representative, if applicable) shall be required to execute a release of all claims arising out of the Executive's employment or the termination thereof, including any claim of discrimination under U.S. state or federal law or any non-U.S. law, but excluding claims for indemnification from the Company under any indemnification agreement with the Company, its certificate of incorporation or bylaws (or equivalent organizing instruments), or claims under applicable directors' and officers' insurance. (c) Conditions to Receipt of Payments. Without limiting the Company's other rights or remedies in the even of the Executive's breach of any provision of this Agreement, the obligation of the Company to provide the payments described in this Section 6 shall cease if the Executive breaches any of the provisions of Section 8 or 10. PART 3 COMPENSATION AND BENEFITS IN CASE OF A CHANGE IN CONTROL 4 SECTION 7. CHANGE IN CONTROL (a) Payment. In the event of a Change in Control, if the Executive's employment is terminated by the Company other than for Cause (including as a result of the Executive's death or disability), or by the Executive for Good Reason, in either case within the time period beginning six months before the Change in Control and ending 12 months after the Change in Control, the cash payment under Section 6(a) will be paid in a lump sum within 14 days after the date of such termination. Any obligation of the Company under this Section 7 will survive any termination of this Agreement. (b) Definition. A "CHANGE IN CONTROL" means the happening of any of the following events (for purposes of this Section 7 only, the "COMPANY" means Fairchild Semiconductor International, Inc., a Delaware corporation, and not any of its subsidiaries): (1) An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) (any of which, a "PERSON") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then-outstanding shares of common stock of the Company (the "OUTSTANDING COMPANY COMMON STOCK") or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES"); excluding, however, the following: (A) Any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company, (B) Any acquisition by the Company, (C) Any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (D) Any acquisition pursuant to a transaction which complies with clauses (i), (ii) and (ii) of Section 7(b)(3); or (2) A change in the composition of the board of directors of the Company (the "BOARD") such that the individuals who, as of the effective date of this Agreement, constitute the Board (such Board shall be hereinafter referred to as the "INCUMBENT BOARD") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a member of the Board subsequent to the effective date of this Agreement, whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or 5 (3) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("CORPORATE TRANSACTION"); excluding, however, such a Corporate Transaction pursuant to which (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Corporate Transaction, and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (4) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. PART 4 TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE SECTION 8. CONFIDENTIAL INFORMATION (a) Acknowledgement. The Company and the Executive acknowledge that the services to be performed by the Executive under this Agreement are unique and extraordinary and that, as a result of the Executive's employment, the Executive will be in a relationship of confidence and trust with the Company and will come into possession of Confidential Information (as defined below) that is (1) owned or controlled by the Company, (2) in the possession of the Company and belonging to third parties or (3) conceived, originated, discovered or developed, in whole or in part, by the Executive. "CONFIDENTIAL INFORMATION" means trade secrets and other confidential or proprietary business, technical, personnel or financial information, whether or not the Executive's work product, in written, graphic, oral or other tangible or intangible forms, including specifications, samples, records, data, computer programs, drawings, diagrams, models, 6 customer names, ID's or e-mail addresses, business or marketing plans, studies, analyses, projections and reports, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and software systems and processes. Any Confidential Information that is not readily available to the public shall be considered to be a trade secret and confidential and proprietary, even if it is not specifically marked as such, unless the Company advises the Executive otherwise in writing. (b) Nondisclosure. The Executive agrees that the Executive will not, without the prior written consent of the Company, directly or indirectly, use or disclose Confidential Information to any person, during or after the Executive's employment, except as may be necessary in the ordinary course of performing the Executive's duties under this Agreement. The Executive will keep the Confidential Information in strictest confidence and trust. This Section 8(b) shall apply indefinitely, both during and after the Term. (c) Surrender Upon Termination. The Executive agrees that in the event of the termination of the Executive's employment for any reason, whether before or after the Term, the Executive will immediately deliver to the Company all property belonging to the Company, including documents and materials of any nature pertaining to the Executive's work with the Company, and will not take with the Executive any documents or materials of any description, or any reproduction thereof of any description, containing or pertaining to any Confidential Information. It is understood that the Executive is free to use information that is in the public domain, but not as a result of a breach of this Agreement. (d) Forfeiture in Certain Events. The Company may, in its sole discretion, in the event of serious misconduct by the Executive (including any misconduct prejudicial to or in conflict with the Company or its subsidiaries, or any termination of employment of the Executive for Cause), or any activity of the Executive in competition with the business of the Company or any subsidiary, (A) cancel any outstanding award of stock options, restricted stock, deferred stock units or other award granted to the Executive under a Company plan or otherwise (an "AWARD"), in whole or in part, whether or not vested or deferred, or (B) following the exercise or payment of an Award, within a period of time specified by the Company, require the Executive to repay to the Company any gain realized or payment received upon the exercise or payment of such Award (with such gain or payment valued as of the date of exercise or payment). Such cancellation or repayment obligation shall be effective as of the date specified by the Company, which may provide for an offset to any future payments owed by the Company or any subsidiary to the Executive if necessary to satisfy the repayment obligation. Any determination of whether the Executive has engaged in a serious breach of conduct or, if applicable, any activity in competition with the business of the Company or any subsidiary, will be determined by the Company in good faith and in its sole discretion. This Section 8(d) shall apply during and following the Term of this Agreement, but shall have no application following a Change in Control. 7 SECTION 9. ASSIGNMENT OF RIGHTS OF INTELLECTUAL PROPERTY The Executive will promptly and fully disclose all Intellectual Property to the Company. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive's full right, title and interest in and to all Intellectual Property. The Executive will execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company and its affiliates to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. "INTELLECTUAL PROPERTY" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal businesses hours or on or off Company premises) during the Executive's employment that relate to any business, venture or activity being conducted or proposed to be conducted by the Company or its subsidiaries at any time during the term of the Executive's employment with the Company. SECTION 10. RESTRICTIONS ON ACTIVITIES OF THE EXECUTIVE (a) Acknowledgments. The Executive agrees that he is being employed under this Agreement in a key management capacity with the Company, that the Company is engaged in a highly competitive business and that the success of the Company's business in the marketplace depends upon its goodwill and reputation for quality and dependability. The Executive further agrees that reasonable limits may be placed on his ability to compete against the Company and its affiliates as provided in this Agreement so as to protect and preserve their legitimate business interests and goodwill. (b) Agreement Not to Compete or Solicit. (1) During the Non-Competition Period (as defined below), the Executive will not engage or participate in, directly or indirectly, as principal, agent, employee, corporation, consultant, investor or partner, or assist in the management of, any business which is Competitive with the Company (as defined below). (2) During the Non-Competition Period, the Executive will not, directly or indirectly, through any other entity, hire or attempt to hire, any officer, director, consultant, executive or employee of the Company or any of its affiliates during his or her engagement with the Company or such affiliate. During the Non-Competition Period, the Executive will not call upon, solicit, divert or attempt to solicit or divert from the Company or any of its affiliates any of their customers or suppliers or potential customers or suppliers of whose names he was aware during his term of employment (other than customers or suppliers or potential customers or suppliers contacted by the Executive solely in connection with a business that is not Competitive with the Company). 8 (3) The "NON-COMPETITION PERIOD" means the period during which Executive is employed by the Company and the following 12 months. Additionally, the "Non-Competition Period" shall include any period during which the Executive is receiving payments or other benefits under this Agreement, or would have been receiving such payments or benefits but for their acceleration due to the terms of this Agreement. (4) A business shall be considered "COMPETITIVE WITH THE COMPANY" if it is engaged in any business, venture or activity in the Restricted Area (as defined below) which competes or plans to compete with any business, venture or activity being conducted or actively and specifically planned to be conducted within the Non-Competition Period (as evidence by the Company's internal written business plans or memoranda) by the Company, or any group, division or affiliate of the Company, at the date the Executive's employment under this Agreement is terminated. (5) The "RESTRICTED AREA" means the United States of America and any other country where the Company, or any group, division or affiliate of the Company, is conducting, or has proposed to conduct within the Non-Competition Period (as evidenced by the Company's internal written business plans or memoranda), any business, venture or activity, at the date the Executive's employment under this Agreement is terminated. (6) Notwithstanding the provisions of this Section 10, the parties agree that (A) ownership of not more than three percent (3%) of the voting stock of any publicly held corporation shall not, of itself, constitute a violation of this Section 10 and (B) working as an employee of an entity that has a stand-alone division or business unit which is Competitive with the Company shall not, of itself, constitute a violation of this Section 10 if the Executive is not, in any way (directly or indirectly, as principal, agent, employee, corporation, consultant, advisor, investor or partner), responsible for, compensated with respect to, or involved in the activities of such stand-alone division or business unit and does not (directly or indirectly) provide information or assistance to such stand-alone division or business unit). SECTION 11. REMEDIES It is specifically understood and agreed that any breach of the provisions of Section 8 or 10 of this Agreement would likely result in irreparable injury to the Company and that the remedy at law alone would be an inadequate remedy for such breach, and that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive and to obtain both temporary and permanent injunctive relief without the necessity of proving actual damages. 9 SECTION 12. SEVERABLE PROVISIONS The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in part because of the duration of scope thereof, the parties hereby agree that such court, in making such determination, shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable and that this Agreement in its reduced form shall be valid and enforceable to the fullest extent permitted by law. SECTION 13. SUCCESSORS (a) Company's Successors. The Company will require any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business or assets, by an agreement in substance and form satisfactory to the Executive, to assume this Agreement and to agree expressly to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. The Company's failure to obtain such agreement prior to the effectiveness of a succession shall be a breach of this Agreement and shall entitle the Executive to all of the compensation and benefits to which the Executive would have been entitled under this Agreement if the Company had terminated the Executive's employment for any reason other than Cause, on the date when such succession becomes effective. For all purposes under this Agreement, except as otherwise provided in this Agreement, the term "Company" shall include any successor to the Company's business or assets that executes and delivers the assumption agreement described in this Section 13(a), or that becomes bound by this Agreement by operation of law. (b) Executive's Successors. This Agreement and all rights of the Executive under this Agreement shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. SECTION 14. GENERAL PROVISIONS (a) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (b) Whole Agreement; Interpretation. No agreements, representations or understandings (whether oral or written and whether express or implied) that are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. In addition, the Executive hereby acknowledges and agrees that 10 this Agreement supersedes in its entirety any employment agreement between the Executive and the Company in effect immediately prior to the effective date of this Agreement. As of the effective date of this Agreement, such employment agreement shall terminate without any further obligation by either party thereto, and the Executive hereby relinquishes any further rights that the Executive may have had under such prior employment agreement. The reference table on the first page and the headings in this Agreement are for convenience of reference only and will not affect the construction or interpretation of this Agreement. The word "or" is used in its non-exclusive sense. Unless otherwise stated, the word "including" should be read to mean "including without limitation" and does not limit the preceding words or terms. All references to "Sections" or other provisions in this Agreement are to the corresponding Sections or provisions in this Agreement. All words in this Agreement will be construed to be of such gender or number as the circumstances require. (c) Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, mailed by U.S. registered or certified mail, return receipt requested, or sent by a documented overnight courier service. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address maintained in the Company's records. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Chief Executive Officer. (d) Setoff. The Company may set off against any payments owed to the Executive under this Agreement any debt or obligation of the Executive owed to the Company. (e) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maine, irrespective of Maine's choice-of-law principles. (f) Arbitration. Except as otherwise provided with respect to the enforcement of Sections 8 and 10, any dispute or controversy arising out of the Executive's employment or the termination thereof, including any claim of discrimination under U.S. (state or federal) or non-U.S. law, shall be settled exclusively by arbitration in Portland, Maine, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. (g) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this Section 14(g) shall be void. (h) Limitation of Remedies. If the Executive's employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, including under the severance policies of the Company or any subsidiary. 11 (i) Taxes. All payments made pursuant to this Agreement shall be subject to withholding of applicable taxes. (j) Discharge of Responsibility. The payments under this Agreement, when made in accordance with the terms of this Agreement, shall fully discharge all responsibilities of the Company to the Executive that existed at the time of termination of the Executive's employment. 12 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. The Executive has consulted, or has had the opportunity to consult, with counsel (who is other than the Company's counsel) prior to execution of this Agreement. EXECUTIVE /s/ Johannes H. Wildenberg -------------------------------------------- Johannes H. Wildenberg FAIRCHILD SEMICONDUCTOR CORPORATION By /s/ Kirk Pond ----------------------------------------- Its Chairman, President and CEO ---------------------------------------- 13 EX-10.3 4 b46535fsexv10w3.txt EX-10.3 EMPLOYMENT AGREEMENT Exhibit 10.3 EXECUTIVE COMMITTEE EMPLOYMENT AGREEMENT THIS EXECUTIVE COMMITTEE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of April 1, 2003 between John M. Watkins, Jr. (the "EXECUTIVE") and Fairchild Semiconductor Corporation, a Delaware corporation (the "COMPANY"). For ease of reference, this Agreement is divided into the following parts, which begin on the pages indicated: PART 1-- TERM, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT (Sections 1-4, beginning on page 2) o Salary o EFIP Bonus PART 2-- COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE TERMINATION (Sections 5-6, beginning on page 3) o Termination PART 3-- COMPENSATION AND BENEFITS IN CASE OF A CHANGE IN CONTROL (Section 7, beginning on page 4 o Change in Control PART 4-- TRADE SECRETS, INTELLECTUAL PROPERTY, NON-COMPETITION, REMEDIES, SEVERABILITY, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE (Sections 8-14, beginning on page 6) o Non-Compete o Confidentiality o Forfeiture in Case of Certain Events
TERMS For good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the Company and the Executive, intending to be legally bound, agree as follows: PART 1 TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT SECTION 1. TERM OF EMPLOYMENT (a) Term. Unless sooner terminated as provided in this Agreement, the term of this Agreement will begin on the effective date of this Agreement and will end on the second anniversary thereof (the "INITIAL Term"). The term of this Agreement will be automatically extended for one or more successive one-year periods (each a "RENEWAL TERM") unless the Company or the Executive gives the other written notice of non-renewal at least 30 days before the end of the Initial Term or the applicable Renewal Term. The Initial Term and any Renewal Term are collectively referred to as the "Term." (b) Termination or Resignation. Subject to the other terms of this Agreement, including those in Part 2, either the Company or the Executive may terminate the Executive's employment with the Company at any time and for any reason or no reason upon written notice to the other party. SECTION 2. DUTIES AND SCOPE OF EMPLOYMENT (a) Position. The Company will employ the Executive (or, if the Company is not the Executive's employer, the Company will cause its appropriate subsidiary to employ the Executive) during the Term in the position of Senior Vice President and Chief Information Officer, reporting to the Senior Executive Vice President responsible for finance and information technology and to the Chief Operating Officer. The Executive will be given duties, responsibilities and authorities that are appropriate to this position. (b) Obligations. During the Term, the Executive will devote the Executive's full business efforts and time to the business and affairs of the Company as needed to carry out his duties and responsibilities. The foregoing shall not preclude the Executive from engaging in appropriate civic, charitable, religious or other non-profit activities or from devoting a reasonable amount of time to private investments or from serving on the boards of directors of other entities, provided that those activities do not interfere or conflict with the Executive's duties or responsibilities to the Company. SECTION 3. BASE COMPENSATION During the Term, the Company will pay the Executive, as compensation for services, a base salary at the annual rate of at least $285,000. Salary increases will be considered after the first anniversary of this Agreement, or sooner in the discretion of the Chief Executive Officer, on a basis consistent with Company policies. 2 SECTION 4. OTHER COMPENSATION EFIP. During the Term the Executive will be enrolled in the Enhanced Fairchild Incentive Plan (EFIP), at a new targeted participation level of 50%. While bonuses under this program are never guaranteed, typically, if the company meets its EBITDA goals, participants receive 100% of the targeted payout. If the company exceeds those goals, participants can receive up to 200% of the targeted payout. PART 2 COMPENSATION AND BENEFITS IN CASE OF TERMINATION WITHOUT CAUSE OR FOR GOOD REASON SECTION 5. TERMINATIONS AND RELATED DEFINITIONS Part 2 of the Agreement, consisting of Sections 5 and 6, describes the benefits and compensation, if any, payable in case of certain terminations of employment. Part 3 of the Agreement, consisting of Section 7, describes benefits and compensation, if any, payable in case of a Change in Control. In this Agreement, (a) "CAUSE" means (1) a willful failure by the Executive to substantially perform the Executive's duties under this Agreement, other than a failure resulting from the Executive's complete or partial incapacity due to physical or mental illness or impairment, (2) a willful act by the Executive that constitutes gross misconduct and that is materially injurious to the Company, (3) a willful breach by the Executive of a material provision of this Agreement (including Sections 8 and 10) or (4) a material and willful violation of a federal or state law or regulation applicable to the business of the Company that is materially and demonstrably injurious to the Company, provided that no act, or failure to act, by the Executive shall be considered "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the Company's best interest; and (b) "GOOD REASON" means any of the following: (1) a reduction in the Executive's base salary other than as part of a broader executive pay reduction, (2) a reduction in the Executive's incentive compensation (EFIP) target other than as part of a broader executive reduction, (3) a material change in the employment benefits available to the Executive, if such change does not similarly affect all employees of the Company eligible for such benefits, or (4) a material reduction in your duties, responsibilities or authority. SECTION 6. TERMINATION BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON (a) Severance. If, during the Term, the Company terminates the Executive's employment for any reason other than Cause (including as a result of the Executive's death or disability), or if the Executive terminates his employment for Good Reason, then, provided the Executive (or his legal representative, if applicable) executes the release of claims described in Section 6(b), the Company will pay the Executive, in a lump sum or, at the Company's option, in installments over 24 months following the effective date of such 3 termination, an amount equal to two times the Executive's base salary in effect on such termination date. The Executive will be responsible for all taxes relating to such payments and the Company will make all required withholdings of all such taxes. (b) Release of Claims. As a condition to the receipt of the payments and benefits described in Section 6(a), the Executive (or his legal representative, if applicable) shall be required to execute a release of all claims arising out of the Executive's employment or the termination thereof, including any claim of discrimination under U.S. state or federal law or any non-U.S. law, but excluding claims for indemnification from the Company under any indemnification agreement with the Company, its certificate of incorporation or bylaws (or equivalent organizing instruments), or claims under applicable directors' and officers' insurance. (c) Conditions to Receipt of Payments. Without limiting the Company's other rights or remedies in the even of the Executive's breach of any provision of this Agreement, the obligation of the Company to provide the payments described in this Section 6 shall cease if the Executive breaches any of the provisions of Section 8 or 10. PART 3 COMPENSATION AND BENEFITS IN CASE OF A CHANGE IN CONTROL SECTION 7. CHANGE IN CONTROL (a) Payment. In the event of a Change in Control, if the Executive's employment is terminated by the Company other than for Cause (including as a result of the Executive's death or disability), or by the Executive for Good Reason, in either case within the time period beginning six months before the Change in Control and ending 12 months after the Change in Control, the cash payment under Section 6(a) will be paid in a lump sum within 14 days after the date of such termination. Any obligation of the Company under this Section 7 will survive any termination of this Agreement. (b) Definition. A "CHANGE IN CONTROL" means the happening of any of the following events (for purposes of this Section 7 only, the "COMPANY" means Fairchild Semiconductor International, Inc., a Delaware corporation, and not any of its subsidiaries): (1) An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) (any of which, a "PERSON") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then-outstanding shares of common stock of the Company (the "OUTSTANDING COMPANY COMMON STOCK") or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES"); excluding, however, the following: (A) Any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from 4 the Company, (B) Any acquisition by the Company, (C) Any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (D) Any acquisition pursuant to a transaction which complies with clauses (i), (ii) and (ii) of Section 7(b)(3); or (2) A change in the composition of the board of directors of the Company (the "BOARD") such that the individuals who, as of the effective date of this Agreement, constitute the Board (such Board shall be hereinafter referred to as the "INCUMBENT BOARD") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a member of the Board subsequent to the effective date of this Agreement, whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (3) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("CORPORATE TRANSACTION"); excluding, however, such a Corporate Transaction pursuant to which (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Corporate Transaction, and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the 5 members of the board of directors of the corporation resulting from such Corporate Transaction; or (4) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. PART 4 TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE SECTION 8. CONFIDENTIAL INFORMATION (a) Acknowledgement. The Company and the Executive acknowledge that the services to be performed by the Executive under this Agreement are unique and extraordinary and that, as a result of the Executive's employment, the Executive will be in a relationship of confidence and trust with the Company and will come into possession of Confidential Information (as defined below) that is (1) owned or controlled by the Company, (2) in the possession of the Company and belonging to third parties or (3) conceived, originated, discovered or developed, in whole or in part, by the Executive. "CONFIDENTIAL INFORMATION" means trade secrets and other confidential or proprietary business, technical, personnel or financial information, whether or not the Executive's work product, in written, graphic, oral or other tangible or intangible forms, including specifications, samples, records, data, computer programs, drawings, diagrams, models, customer names, ID's or e-mail addresses, business or marketing plans, studies, analyses, projections and reports, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and software systems and processes. Any Confidential Information that is not readily available to the public shall be considered to be a trade secret and confidential and proprietary, even if it is not specifically marked as such, unless the Company advises the Executive otherwise in writing. (b) Nondisclosure. The Executive agrees that the Executive will not, without the prior written consent of the Company, directly or indirectly, use or disclose Confidential Information to any person, during or after the Executive's employment, except as may be necessary in the ordinary course of performing the Executive's duties under this Agreement. The Executive will keep the Confidential Information in strictest confidence and trust. This Section 8(b) shall apply indefinitely, both during and after the Term. (c) Surrender Upon Termination. The Executive agrees that in the event of the termination of the Executive's employment for any reason, whether before or after the Term, the Executive will immediately deliver to the Company all property belonging to the Company, including documents and materials of any nature pertaining to the Executive's work with the Company, and will not take with the Executive any documents or materials of any description, or any reproduction thereof of any description, containing or pertaining to any Confidential Information. It is understood that the Executive is free to 6 use information that is in the public domain, but not as a result of a breach of this Agreement. (d) Forfeiture in Certain Events. The Company may, in its sole discretion, in the event of serious misconduct by the Executive (including any misconduct prejudicial to or in conflict with the Company or its subsidiaries, or any termination of employment of the Executive for Cause), or any activity of the Executive in competition with the business of the Company or any subsidiary, (A) cancel any outstanding award of stock options, restricted stock, deferred stock units or other award granted to the Executive under a Company plan or otherwise (an "AWARD"), in whole or in part, whether or not vested or deferred, or (B) following the exercise or payment of an Award, within a period of time specified by the Company, require the Executive to repay to the Company any gain realized or payment received upon the exercise or payment of such Award (with such gain or payment valued as of the date of exercise or payment). Such cancellation or repayment obligation shall be effective as of the date specified by the Company, which may provide for an offset to any future payments owed by the Company or any subsidiary to the Executive if necessary to satisfy the repayment obligation. Any determination of whether the Executive has engaged in a serious breach of conduct or, if applicable, any activity in competition with the business of the Company or any subsidiary, will be determined by the Company in good faith and in its sole discretion. This Section 8(d) shall apply during and following the Term of this Agreement, but shall have no application following a Change in Control. SECTION 9. ASSIGNMENT OF RIGHTS OF INTELLECTUAL PROPERTY The Executive will promptly and fully disclose all Intellectual Property to the Company. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive's full right, title and interest in and to all Intellectual Property. The Executive will execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company and its affiliates to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. "INTELLECTUAL PROPERTY" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal businesses hours or on or off Company premises) during the Executive's employment that relate to any business, venture or activity being conducted or proposed to be conducted by the Company or its subsidiaries at any time during the term of the Executive's employment with the Company. SECTION 10. RESTRICTIONS ON ACTIVITIES OF THE EXECUTIVE (a) Acknowledgments. The Executive agrees that he is being employed under this Agreement in a key management capacity with the Company, that the Company is engaged in a highly competitive business and that the success of the Company's business in the marketplace depends upon its goodwill and reputation for quality and 7 dependability. The Executive further agrees that reasonable limits may be placed on his ability to compete against the Company and its affiliates as provided in this Agreement so as to protect and preserve their legitimate business interests and goodwill. (b) Agreement Not to Compete or Solicit. (1) During the Non-Competition Period (as defined below), the Executive will not engage or participate in, directly or indirectly, as principal, agent, employee, corporation, consultant, investor or partner, or assist in the management of, any business which is Competitive with the Company (as defined below). (2) During the Non-Competition Period, the Executive will not, directly or indirectly, through any other entity, hire or attempt to hire, any officer, director, consultant, executive or employee of the Company or any of its affiliates during his or her engagement with the Company or such affiliate. During the Non-Competition Period, the Executive will not call upon, solicit, divert or attempt to solicit or divert from the Company or any of its affiliates any of their customers or suppliers or potential customers or suppliers of whose names he was aware during his term of employment (other than customers or suppliers or potential customers or suppliers contacted by the Executive solely in connection with a business that is not Competitive with the Company). (3) The "NON-COMPETITION PERIOD" means the period during which Executive is employed by the Company and the following 12 months. Additionally, the "Non-Competition Period" shall include any period during which the Executive is receiving payments or other benefits under this Agreement, or would have been receiving such payments or benefits but for their acceleration due to the terms of this Agreement. (4) A business shall be considered "COMPETITIVE WITH THE COMPANY" if it is engaged in any business, venture or activity in the Restricted Area (as defined below) which competes or plans to compete with any business, venture or activity being conducted or actively and specifically planned to be conducted within the Non-Competition Period (as evidence by the Company's internal written business plans or memoranda) by the Company, or any group, division or affiliate of the Company, at the date the Executive's employment under this Agreement is terminated. (5) The "RESTRICTED AREA" means the United States of America and any other country where the Company, or any group, division or affiliate of the Company, is conducting, or has proposed to conduct within the Non-Competition Period (as evidenced by the Company's internal written business plans or memoranda), any business, venture or activity, at the date the Executive's employment under this Agreement is terminated. (6) Notwithstanding the provisions of this Section 10, the parties agree that (A) ownership of not more than three percent (3%) of the voting stock of any 8 publicly held corporation shall not, of itself, constitute a violation of this Section 10 and (B) working as an employee of an entity that has a stand-alone division or business unit which is Competitive with the Company shall not, of itself, constitute a violation of this Section 10 if the Executive is not, in any way (directly or indirectly, as principal, agent, employee, corporation, consultant, advisor, investor or partner), responsible for, compensated with respect to, or involved in the activities of such stand-alone division or business unit and does not (directly or indirectly) provide information or assistance to such stand-alone division or business unit). SECTION 11. REMEDIES It is specifically understood and agreed that any breach of the provisions of Section 8 or 10 of this Agreement would likely result in irreparable injury to the Company and that the remedy at law alone would be an inadequate remedy for such breach, and that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive and to obtain both temporary and permanent injunctive relief without the necessity of proving actual damages. SECTION 12. SEVERABLE PROVISIONS The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in part because of the duration of scope thereof, the parties hereby agree that such court, in making such determination, shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable and that this Agreement in its reduced form shall be valid and enforceable to the fullest extent permitted by law. SECTION 13. SUCCESSORS (a) Company's Successors. The Company will require any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business or assets, by an agreement in substance and form satisfactory to the Executive, to assume this Agreement and to agree expressly to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. The Company's failure to obtain such agreement prior to the effectiveness of a succession shall be a breach of this Agreement and shall entitle the Executive to all of the compensation and benefits to which the Executive would have been entitled under this Agreement if the Company had terminated the Executive's employment for any reason other than Cause, on the date when such succession becomes effective. For all purposes under this Agreement, except as otherwise provided in this Agreement, the term "Company" shall include any successor to the Company's business or assets that executes 9 and delivers the assumption agreement described in this Section 13(a), or that becomes bound by this Agreement by operation of law. (b) Executive's Successors. This Agreement and all rights of the Executive under this Agreement shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. SECTION 14. GENERAL PROVISIONS (a) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (b) Whole Agreement; Interpretation. No agreements, representations or understandings (whether oral or written and whether express or implied) that are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. In addition, the Executive hereby acknowledges and agrees that this Agreement supersedes in its entirety any employment agreement between the Executive and the Company in effect immediately prior to the effective date of this Agreement, provided that the agreement by the Company to forgive certain indebtedness of the Executive in the principal amount of $529,782, plus accrued interest to the date of forgiveness, and to pay any taxes associated with such forgiveness, provided the Executive remains employed by the Company on July 23, 2004, shall remain in full force and effect, and provided, further, that the Executive's agreement to repay certain other indebtedness in the principal amount of $235,030, plus accrued interest, on or before July 23, 2004, shall remain in full force and effect. Except as provided in the foregoing provisos, as of the effective date of this Agreement, any such prior employment agreement shall terminate without any further obligation by either party thereto, and the Executive hereby relinquishes any further rights that the Executive may have had under such prior employment agreement. The reference table on the first page and the headings in this Agreement are for convenience of reference only and will not affect the construction or interpretation of this Agreement. The word "or" is used in its non-exclusive sense. Unless otherwise stated, the word "including" should be read to mean "including without limitation" and does not limit the preceding words or terms. All references to "Sections" or other provisions in this Agreement are to the corresponding Sections or provisions in this Agreement. All words in this Agreement will be construed to be of such gender or number as the circumstances require. (c) Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, mailed by U.S. registered or certified mail, return receipt requested, or sent by a documented overnight courier service. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address maintained in the Company's records. 10 In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Chief Executive Officer. (d) Setoff. The Company may set off against any payments owed to the Executive under this Agreement any debt or obligation of the Executive owed to the Company. (e) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maine, irrespective of Maine's choice-of-law principles. (f) Arbitration. Except as otherwise provided with respect to the enforcement of Sections 8 and 10, any dispute or controversy arising out of the Executive's employment or the termination thereof, including any claim of discrimination under U.S. (state or federal) or non-U.S. law, shall be settled exclusively by arbitration in Portland, Maine, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. (g) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this Section 14(g) shall be void. (h) Limitation of Remedies. If the Executive's employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, including under the severance policies of the Company or any subsidiary. (i) Taxes. All payments made pursuant to this Agreement shall be subject to withholding of applicable taxes. (j) Discharge of Responsibility. The payments under this Agreement, when made in accordance with the terms of this Agreement, shall fully discharge all responsibilities of the Company to the Executive that existed at the time of termination of the Executive's employment. 11 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. The Executive has consulted, or has had the opportunity to consult, with counsel (who is other than the Company's counsel) prior to execution of this Agreement. EXECUTIVE /s/ John M. Watkins, Jr. -------------------------------------------- John M. Watkins, Jr. FAIRCHILD SEMICONDUCTOR CORPORATION By /s/ Kirk P. Pond ----------------------------------------- Its Chairman, President and CEO ---------------------------------------- 12 EX-10.4 5 b46535fsexv10w4.txt EX-10.4 NON-STATUTORY STOCK OPTION AGMNT Exhibit 10.4 (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN NON-QUALIFIED STOCK OPTION AGREEMENT This is a Non-Qualified Stock Option Agreement dated APRIL 28, 2003 (the Grant Date) between Fairchild Semiconductor International, Inc. (the Company) and KIRK POND, a salaried employee of the Company or one of its subsidiaries (you or the Optionee). - ------------------------------------------------------------------------------------------------------------------------------------ The Company grants you the option to purchase up to 250,000 shares of the Company's Class A Common Stock at OPTION GRANT; an exercise price of $11.50 per share. This option grant is subject to the terms of the Fairchild EXERCISE PRICE Semiconductor Stock Plan, as well as to the terms of this agreement, and your Employment Agreement dated March 7, 2003 (your "Employment Agreement"). This grant under the Fairchild Semiconductor Stock Plan has been authorized by the board of directors. - ------------------------------------------------------------------------------------------------------------------------------------ The term of your option is 8 years plus one day from the Grant Date. Your option terminates at the end of OPTION TERM; VESTING the term and cannot be exercised after the term. You can exercise your option only to the extent it has vested. Your option will vest in increments, as follows: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date.................................................25% 2nd Anniversary of Grant Date.................................................50% 3rd Anniversary of Grant Date.................................................75% 4th Anniversary of Grant Date................................................100% provided that your option will vest in its entirety upon your retirement from the Company in accordance with the terms of your employment agreement with the Company, or otherwise in accordance with other agreements governing your employment. - ------------------------------------------------------------------------------------------------------------------------------------ You must remain an employee of the Company or a subsidiary to be able to exercise your option, except as TERMINATION OF follows, or as otherwise provided in any agreement governing your employment with the Company: EMPLOYMENT Death, Disability, Certain Cases of Retirement, Qualifying Termination. In the event your employment terminates as a result of your (i) death, (ii) Disability, (iii) retirement upon or following the expiration of the initial term of your Employment Agreement or (iv) Qualifying Termination, your option may thereafter be exercised in whole or in part at any time before the expiration of the option term. All other cases. If your employment terminates for any reason other than those provided in the preceding paragraph, your option may be exercised to the extent provided by the Fairchild Semiconductor Stock Plan. - ------------------------------------------------------------------------------------------------------------------------------------ Your option is not transferable except by will or the laws of decent and distribution. During your lifetime NON-TRANSFERABILITY only you can exercise your option. This option shall not be subject to attachment or similar process. Any attempted sale, pledge, assignment, transfer or other disposition of your option contrary to the provisions of this agreement, or the levy of any attachment or similar process upon your option, shall be null and void without effect. - ------------------------------------------------------------------------------------------------------------------------------------ Nothing in this agreement gives you the right to remain employed by the Company or any subsidiary. This MISCELLANEOUS agreement shall be governed by the laws of the State of Maine, without regard to conflicts of laws principles. The section and paragraph headings in this agreement are for convenience of reference only and shall not affect the construction or interpretation of this agreement. - ------------------------------------------------------------------------------------------------------------------------------------ Your signature and the signature of an authorized officer of the Company below indicate your and the SIGNATURES Company's agreement to the terms of this Non-Qualified Stock Option Agreement as of the Grant Date. OPTIONEE: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ Kirk P. Pond /s/ Kirk P. Pond ------------------------- ------------------------- KIRK POND Kirk P. Pond SSN/GLOBAL ID: Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
EX-10.5 6 b46535fsexv10w5.txt EX-10.5 NON-STATUTORY STOCK OPTION AGMENT Exhibit 10.5 (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN NON-QUALIFIED STOCK OPTION AGREEMENT This is a Non-Qualified Stock Option Agreement under the Fairchild Semiconductor Stock Plan, dated APRIL 28, 2003 (the Grant Date) between Fairchild Semiconductor International, Inc. (the Company) and JOHANNES H WILDENBERG, a regular salaried employee of the Company or one of its subsidiaries (you or the Optionee). - ------------------------------------------------------------------------------------------------------------------------------------ OPTION GRANT; The Company grants you the option to purchase up to 50,000 shares of the Company's Class A Common Stock at an EXERCISE PRICE exercise price of $11.50 per share. This option grant is subject to the terms of the Fairchild Semiconductor Stock Plan and to the terms of this agreement. If there is a conflict between the terms of this agreement and those of the Plan, the terms of the Plan will govern. Capitalized terms not defined in this agreement are defined in the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ OPTION TERM; The term of your option is 8 years and one day from the Grant Date. Your option terminates at the end of the VESTING term and cannot be exercised after the term. You can exercise your option only to the extent it has vested. Your option will vest in increments, as follows: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date....................................25% 2nd Anniversary of Grant Date....................................50% 3rd Anniversary of Grant Date....................................75% 4th Anniversary of Grant Date...................................100% - ------------------------------------------------------------------------------------------------------------------------------------ TERMINATION OF You must remain an employee of the Company or an Affiliate to be able to exercise your option, except as EMPLOYMENT follows: Retirement, Disability or death. If your employment terminates because of your Retirement or Disability (as those terms are defined in the Plan) or your death, then you (or your estate) will have five years from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. In addition, if your employment terminates because of your Retirement or Disability and you die within the five-year exercise period, your estate will have at least one year after your death to exercise, unless the option term ends earlier, in which case your estate will have until the end of the term to exercise. Termination by the Company. If your employment is terminated for Cause (as defined in the Plan), all options will be terminated, whether or not vested, and you may have to repay any gains on prior exercised options. See Sections 5(l) and 12 of the Plan. If your employment is terminated by the Company not for Cause and not as a result of your Retirement, Disability or death, then you (or your estate) will have 90 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. All other cases. If your employment terminates because you quit, or for any other reason other than those stated above, you (or your estate, if you die within the period) will have 30 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. Regardless of the cause of your termination, you (or your estate) can exercise your option only to the extent it is vested on your termination date. - ------------------------------------------------------------------------------------------------------------------------------------ NON-TRANSFERABILITY Your option is not transferable except by will or the laws of descent and distribution. During your lifetime only you can exercise your option. This option shall not be subject to attachment or similar process. Any attempted sale, pledge, assignment, transfer or other disposition of your option contrary to the provisions of this agreement or the Plan, or the levy of any attachment or similar process upon your option, shall be null and void without effect. - ------------------------------------------------------------------------------------------------------------------------------------ SIGNATURES Your signature and the signature of an authorized officer of the Company below indicate your and the Company's agreement to the terms of this Non-Qualified Stock Option Agreement as of the Grant Date. OPTIONEE: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ Johannes H Wildenberg /s/ Kirk P. Pond ---------------------------- --------------------------- JOHANNES H WILDENBERG Kirk P. Pond GLOBAL ID/SSN: Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
(FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN NON-QUALIFIED STOCK OPTION AGREEMENT This is a Non-Qualified Stock Option Agreement under the Fairchild Semiconductor Stock Plan, dated APRIL 28, 2003 (the Grant Date) between Fairchild Semiconductor International, Inc. (the Company) and JOHANNES H WILDENBERG, a regular salaried employee of the Company or one of its subsidiaries (you or the Optionee). - ------------------------------------------------------------------------------------------------------------------------------------ OPTION GRANT; The Company grants you the option to purchase up to 100,000 shares of the Company's Class A Common Stock at EXERCISE PRICE an exercise price of $11.50 per share. This option grant is subject to the terms of the Fairchild Semiconductor Stock Plan and to the terms of this agreement. If there is a conflict between the terms of this agreement and those of the Plan, the terms of the Plan will govern. Capitalized terms not defined in this agreement are defined in the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ OPTION TERM; The term of your option is 8 years and one day from the Grant Date. Your option terminates at the end of the VESTING term and cannot be exercised after the term. You can exercise your option only to the extent it has vested. Your option will vest in increments, as follows: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date...................................50% 2nd Anniversary of Grant Date..................................100% - ------------------------------------------------------------------------------------------------------------------------------------ TERMINATION OF You must remain an employee of the Company or an Affiliate to be able to exercise your option, except as EMPLOYMENT follows: Retirement, Disability or death. If your employment terminates because of your Retirement or Disability (as those terms are defined in the Plan) or your death, then you (or your estate) will have five years from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. In addition, if your employment terminates because of your Retirement or Disability and you die within the five-year exercise period, your estate will have at least one year after your death to exercise, unless the option term ends earlier, in which case your estate will have until the end of the term to exercise. Termination by the Company. If your employment is terminated for Cause (as defined in the Plan), all options will be terminated, whether or not vested, and you may have to repay any gains on prior exercised options. See Sections 5(l) and 12 of the Plan. If your employment is terminated by the Company not for Cause and not as a result of your Retirement, Disability or death, then you (or your estate) will have 90 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. All other cases. If your employment terminates because you quit, or for any other reason other than those stated above, you (or your estate, if you die within the period) will have 30 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. Regardless of the cause of your termination, you (or your estate) can exercise your option only to the extent it is vested on your termination date. - ------------------------------------------------------------------------------------------------------------------------------------ NON-TRANSFERABILITY Your option is not transferable except by will or the laws of descent and distribution. During your lifetime only you can exercise your option. This option shall not be subject to attachment or similar process. Any attempted sale, pledge, assignment, transfer or other disposition of your option contrary to the provisions of this agreement or the Plan, or the levy of any attachment or similar process upon your option, shall be null and void without effect. - ------------------------------------------------------------------------------------------------------------------------------------ SIGNATURES Your signature and the signature of an authorized officer of the Company below indicate your and the Company's agreement to the terms of this Non-Qualified Stock Option Agreement as of the Grant Date. OPTIONEE: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ Johannes H Wildenberg /s/ Kirk P. Pond -------------------------- --------------------------- JOHANNES H WILDENBERG Kirk P. Pond GLOBAL ID/SSN: Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
EX-10.6 7 b46535fsexv10w6.txt EX-10.6 NON-STATUTORY STOCK OPTION AGMT Exhibit 10.6 (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN NON-QUALIFIED STOCK OPTION AGREEMENT This is a Non-Qualified Stock Option Agreement under the Fairchild Semiconductor Stock Plan, dated APRIL 28, 2003 (the Grant Date) between Fairchild Semiconductor International, Inc. (the Company) and JOHN M WATKINS, a regular salaried employee of the Company or one of its subsidiaries (you or the Optionee). - ------------------------------------------------------------------------------------------------------------------------------------ OPTION GRANT; The Company grants you the option to purchase up to 17,500 shares of the Company's Class A Common Stock at EXERCISE PRICE an exercise price of $11.50 per share. This option grant is subject to the terms of the Fairchild Semiconductor Stock Plan and to the terms of this agreement. If there is a conflict between the terms of this agreement and those of the Plan, the terms of the Plan will govern. Capitalized terms not defined in this agreement are defined in the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ OPTION TERM; The term of your option is 8 years and one day from the Grant Date. Your option terminates at the end of VESTING the term and cannot be exercised after the term. You can exercise your option only to the extent it has vested. Your option will vest in increments, as follows: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date..................................................25% 2nd Anniversary of Grant Date..................................................50% 3rd Anniversary of Grant Date..................................................75% 4th Anniversary of Grant Date.................................................100% - ------------------------------------------------------------------------------------------------------------------------------------ TERMINATION OF You must remain an employee of the Company or an Affiliate to be able to exercise your option, except as EMPLOYMENT follows: Retirement, Disability or death. If your employment terminates because of your Retirement or Disability (as those terms are defined in the Plan) or your death, then you (or your estate) will have five years from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. In addition, if your employment terminates because of your Retirement or Disability and you die within the five-year exercise period, your estate will have at least one year after your death to exercise, unless the option term ends earlier, in which case your estate will have until the end of the term to exercise. Termination by the Company. If your employment is terminated for Cause (as defined in the Plan), all options will be terminated, whether or not vested, and you may have to repay any gains on prior exercised options. See Sections 5(l) and 12 of the Plan. If your employment is terminated by the Company not for Cause and not as a result of your Retirement, Disability or death, then you (or your estate) will have 90 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. All other cases. If your employment terminates because you quit, or for any other reason other than those stated above, you (or your estate, if you die within the period) will have 30 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. Regardless of the cause of your termination, you (or your estate) can exercise your option only to the extent it is vested on your termination date. - ------------------------------------------------------------------------------------------------------------------------------------ NON-TRANSFERABILITY Your option is not transferable except by will or the laws of descent and distribution. During your lifetime only you can exercise your option. This option shall not be subject to attachment or similar process. Any attempted sale, pledge, assignment, transfer or other disposition of your option contrary to the provisions of this agreement or the Plan, or the levy of any attachment or similar process upon your option, shall be null and void without effect. - ------------------------------------------------------------------------------------------------------------------------------------ SIGNATURES Your signature and the signature of an authorized officer of the Company below indicate your and the Company's agreement to the terms of this Non-Qualified Stock Option Agreement as of the Grant Date. OPTIONEE: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ John M. Watkins /s/ Kirk P. Pond -------------------------- --------------------- JOHN M WATKINS Kirk P. Pond GLOBAL ID/SSN: Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
EX-10.7 8 b46535fsexv10w7.txt EX-10.7 DEFERRED STOCK UNIT AGMNT Exhibit 10.7 (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT AGREEMENT PARTICIPANT: Kirk Pond EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 83,334 THIS AGREEMENT, effective as of the Date of Grant set forth above, is between Fairchild Semiconductor International, Inc., a Delaware corporation (the "Company", "we", "our" or "us") and the Participant named above ("you" or "yours"), pursuant to the provisions of the Fairchild Semiconductor Stock Plan (the "Plan") with respect to the number of Deferred Stock Units ("Units") specified above. Capitalized terms used and not defined in this Agreement shall have the meanings given to them in the Plan. This Agreement consists of this document, any related Settlement Election Form, and the Plan. You and the Company agree as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ 1. APPLICATION OF This Agreement and your rights under this Agreement are subject to all the terms and conditions of the PLAN; ADMINISTRATION Plan, as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 2. VESTING The Units will vest (becoming "Vested Units") on the following Vesting Dates if you are employed or in the service of the Company or an Affiliate on those dates: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date..................................................25% 2nd Anniversary of Grant Date..................................................50% 3rd Anniversary of Grant Date..................................................75% 4th Anniversary of Grant Date.................................................100% - ------------------------------------------------------------------------------------------------------------------------------------ 3. RIGHTS You will not be entitled to any privileges of ownership of the shares of Common Stock underlying your STOCKHOLDER Units (the "Shares") unless and until Shares are actually delivered to you under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 4. DIVIDENDS You will be credited with additional Deferred Stock Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Units as if such Units had been actual Shares, based on the Fair Market Value of a Share on the applicable dividend payment date. Any such additional Deferred Stock Units shall be considered Units under this Agreement and shall also be credited with additional Deferred Stock Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions as Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Deferred Stock Units will be credited with respect to any dividend in connection with which Units are adjusted pursuant to Section 3(c) of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 5. SETTLEMENT OF UNITS (a) Time of Settlement. Each Vested Unit will be settled by the delivery of one Share to you or, in the event of your death, to your designated beneficiary, promptly following the date or dates (any such date, the "Settlement Date") you have elected on the attached Settlement Election Form. You may change the Settlement Election Date one time only, and only to a later date, as provided in the Settlement Election Form. (b) Termination Prior to Settlement Date. If your employment or service with the Company is terminated prior to any Settlement Date, your Units will be treated as specified in the Settlement Election Form. (c) Forfeiture of Unvested Units. All Units that are not Vested Units at the time of termination will be forfeited effective as of the last Settlement Date to occur under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 6. TRANSFERABILITY Your Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ 7. TAXES (a) Social Security and Medicare Taxes. You may be subject to Social Security tax, and you will be subject to Medicare tax on the date or dates your Units become Vested Units under Section 2 above, based on the Fair Market Value of the Shares underlying the Units that vest. The Company will pay such taxes on your behalf, including any income, Social Security and Medicare taxes attributable to the Company's payment of such taxes. Payments on your behalf will be reflected in your compensation for federal, state and local income tax purposes. (b) Income Taxes. You will be subject to U.S. federal income tax on the Settlement Date, based on the Fair Market Value of Shares received in settlement of Vested Units. YOU WILL BE SOLELY RESPONSIBLE FOR THE PAYMENT OF ALL SUCH INCOME TAXES, AS WELL AS FOR ANY OTHER STATE, LOCAL OR NON-U.S. TAXES THAT MAY BE RELATED TO YOUR RECEIPT OF THE SHARES. Not later than 90 days before any scheduled Settlement Date, you must arrange with the Company for the timely payment of all withholding taxes the Company is obligated to collect from you and remit to U.S. and other applicable tax authorities. - ------------------------------------------------------------------------------------------------------------------------------------ 8. MISCELLANEOUS (a) This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company's or such Affiliate's right to terminate your employment or service at any time. (b) Without limiting the generality of Section 1 above, with the approval of the Board, and subject to the terms of the Plan, the Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect your rights under this Agreement without your consent. (c) This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. (d) To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. - ------------------------------------------------------------------------------------------------------------------------------------ 9. SIGNATURES By the signatures below, the Participant and the authorized representative of the Company acknowledge agreement to this Deferred Stock Unit Agreement as of the Grant Date specified above. PARTICIPANT: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ Kirk Pond /s/ Kirk Pond ---------------- ---------------- KIRK POND Kirk P. Pond Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of this Deferred Stock Unit Agreement; 2. Sign the BOTH copies of the Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT SETTLEMENT ELECTION FORM This Settlement Election Form relates to the following grant of Deferred Stock Units: PARTICIPANT: Kirk Pond EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 83,334
- ------------------------------------------------------------------------------------------------------------------------------------ 1. SETTLEMENT ELECTION CHECK ONLY ONE OPTION: _____ SPECIFIED DATE. Subject to Sections 2 and 3 below, I elect to have all Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me on ____________________, which date is at least one year following the Grant Date of such Units. If the date specified occurs before the last scheduled Vesting Date under this grant, then Units that vest after such specified date will be settled promptly following any such subsequent Vesting Date(s). _____ VESTING DATES. Subject to Sections 2 and 3 below, I elect to have Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me promptly following each date or dates on which vesting of Units occurs. - ------------------------------------------------------------------------------------------------------------------------------------ 2. AUTOMATIC I hereby acknowledge and agree that (a) if my employment is terminated for any reason other than Cause, SETTLEMENT UPON Death or Disability, any Vested Units will be settled on the first anniversary of my termination date, (b) TERMINATION if my employment is terminated for Cause, all units will be immediately forfeited, and (c) if my employment is terminated for Death or Disability, any Vested Units will be settled following my termination date. - ------------------------------------------------------------------------------------------------------------------------------------ 3. ONE-TIME CHANGE OF I understand that, once, but only once, I can change my election to a later (but not earlier) Settlement ELECTION PERMITTED Date than indicated in Section 1 above by filing a new Settlement Election Form with the Company at any time on or before the day (the "Change Deadline Day") that falls one year before the earliest Settlement Date that would occur based on my election in Section 1. I understand that I cannot change my election after the Change Deadline Day, and that I cannot change my election more than once. If the Change Deadline Day falls on a day that is not a business day for the Company, then the last day to change the election in Section 1 will be the first business day following the Change Deadline Day. Any new Settlement Election Form will revoke the previously filed Settlement Election Form, except that, if any Settlement Date purportedly elected on the new form falls within one year after the Change Deadline Day, then such new form will have no effect and the previously elected Settlement Date shall continue to apply. - ------------------------------------------------------------------------------------------------------------------------------------ 4. SIGNATURE PARTICIPANT: DATED AS OF: April 28, 2003 ------------------------------- --------------- KIRK POND - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of the Deferred Stock Unit Agreement; 2. Sign the BOTH copies of this Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. EX-10.8 9 b46535fsexv10w8.txt EX-10.8 DEFERRED STOCK UNIT AGMNT Exhibit 10.8 (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT AGREEMENT PARTICIPANT: Johannes H Wildenberg EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 16,667 THIS AGREEMENT, effective as of the Date of Grant set forth above, is between Fairchild Semiconductor International, Inc., a Delaware corporation (the "Company", "we", "our" or "us") and the Participant named above ("you" or "yours"), pursuant to the provisions of the Fairchild Semiconductor Stock Plan (the "Plan") with respect to the number of Deferred Stock Units ("Units") specified above. Capitalized terms used and not defined in this Agreement shall have the meanings given to them in the Plan. This Agreement consists of this document, any related Settlement Election Form, and the Plan. You and the Company agree as follows: - ------------------------------------------------------------------------------------------------------------------------------------ 1. APPLICATION OF This Agreement and your rights under this Agreement are subject to all the terms and conditions of the Plan, PLAN; as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. ADMINISTRATION It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 2. VESTING The Units will vest (becoming "Vested Units") on the following Vesting Dates if you are employed or in the service of the Company or an Affiliate on those dates: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date................................25% 2nd Anniversary of Grant Date................................50% 3rd Anniversary of Grant Date................................75% 4th Anniversary of Grant Date...............................100% - ------------------------------------------------------------------------------------------------------------------------------------ 3. RIGHTS AS You will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Units STOCKHOLDER (the "Shares") unless and until Shares are actually delivered to you under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 4. DIVIDENDS You will be credited with additional Deferred Stock Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Units as if such Units had been actual Shares, based on the Fair Market Value of a Share on the applicable dividend payment date. Any such additional Deferred Stock Units shall be considered Units under this Agreement and shall also be credited with additional Deferred Stock Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions as Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Deferred Stock Units will be credited with respect to any dividend in connection with which Units are adjusted pursuant to Section 3(c) of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 5. SETTLEMENT OF (a) Time of Settlement. Each Vested Unit will be settled by the delivery of one Share to you or, in the event UNITS of your death, to your designated beneficiary, promptly following the date or dates (any such date, the "Settlement Date") you have elected on the attached Settlement Election Form. You may change the Settlement Election Date one time only, and only to a later date, as provided in the Settlement Election Form. (b) Termination Prior to Settlement Date. If your employment or service with the Company is terminated prior to any Settlement Date, your Units will be treated as specified in the Settlement Election Form. (c) Forfeiture of Unvested Units. All Units that are not Vested Units at the time of termination will be forfeited effective as of the last Settlement Date to occur under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 6. TRANSFERABILITY Your Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ 7. TAXES (a) Social Security and Medicare Taxes. You may be subject to Social Security tax, and you will be subject to Medicare tax on the date or dates your Units become Vested Units under Section 2 above, based on the Fair Market Value of the Shares underlying the Units that vest. The Company will pay such taxes on your behalf, including any income, Social Security and Medicare taxes attributable to the Company's payment of such taxes. Payments on your behalf will be reflected in your compensation for federal, state and local income tax purposes. (d) Income Taxes. You will be subject to U.S. federal income tax on the Settlement Date, based on the Fair Market Value of Shares received in settlement of Vested Units. YOU WILL BE SOLELY RESPONSIBLE FOR THE PAYMENT OF ALL SUCH INCOME TAXES, AS WELL AS FOR ANY OTHER STATE, LOCAL OR NON-U.S. TAXES THAT MAY BE RELATED TO YOUR RECEIPT OF THE SHARES. Not later than 90 days before any scheduled Settlement Date, you must arrange with the Company for the timely payment of all withholding taxes the Company is obligated to collect from you and remit to U.S. and other applicable tax authorities. - ------------------------------------------------------------------------------------------------------------------------------------ 8. MISCELLANEOUS (a) This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company's or such Affiliate's right to terminate your employment or service at any time. (b) Without limiting the generality of Section 1 above, with the approval of the Board, and subject to the terms of the Plan, the Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect your rights under this Agreement without your consent. (c) This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. (d) To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. - ------------------------------------------------------------------------------------------------------------------------------------ 9. SIGNATURES By the signatures below, the Participant and the authorized representative of the Company acknowledge agreement to this Deferred Stock Unit Agreement as of the Grant Date specified above. PARTICIPANT: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ Johannes H. Wildenberg Kirk P. Pond -------------------------- JOHANNES H WILDENBERG Kirk P. Pond Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of this Deferred Stock Unit Agreement; 2. Sign the BOTH copies of the Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT SETTLEMENT ELECTION FORM This Settlement Election Form relates to the following grant of Deferred Stock Units: PARTICIPANT: Johannes H Wildenberg EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 16,667 - ------------------------------------------------------------------------------------------------------------------------------------ 1. SETTLEMENT CHECK ONLY ONE OPTION: ELECTION _____ SPECIFIED DATE. Subject to Sections 2 and 3 below, I elect to have all Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me on ____________________, which date is at least one year following the Grant Date of such Units. If the date specified occurs before the last scheduled Vesting Date under this grant, then Units that vest after such specified date will be settled promptly following any such subsequent Vesting Date(s). _____ VESTING DATES. Subject to Sections 2 and 3 below, I elect to have Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me promptly following each date or dates on which vesting of Units occurs. - ------------------------------------------------------------------------------------------------------------------------------------ 2. AUTOMATIC I hereby acknowledge and agree that (a) if my employment is terminated for any reason other than Cause, Death SETTLEMENT UPON or Disability, any Vested Units will be settled on the first anniversary of my termination date, (b) if my TERMINATION employment is terminated for Cause, all units will be immediately forfeited, and (c) if my employment is terminated for Death or Disability, any Vested Units will be settled following my date. - ------------------------------------------------------------------------------------------------------------------------------------ 3. ONE-TIME I understand that, once, but only once, I can change my election to a later (but not earlier) Settlement Date CHANGE OF than indicated in Section 1 above by filing a new Settlement Election Form with the Company at ELECTION PERMITTED any time on or before the day (the "Change Deadline Day") that falls one year before the earliest Settlement Date that would occur based on my election in Section 1. I understand that I cannot change my election after the Change Deadline Day, and that I cannot change my election more than once. If the Change Deadline Day falls on a day that is not a business day for the Company, then the last day to change the election in Section 1 will be the first business day following the Change Deadline Day. Any new Settlement Election Form will revoke the previously filed Settlement Election Form, except that, if any Settlement Date purportedly elected on the new form falls within one year after the Change Deadline Day, then such new form will have no effect and the previously elected Settlement Date shall continue to apply. - ------------------------------------------------------------------------------------------------------------------------------------ 4. SIGNATURE PARTICIPANT: DATED AS OF: April 28, 2003 ------------------------- JOHANNES H WILDENBERG - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of the Deferred Stock Unit Agreement; 2. Sign the BOTH copies of this Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT AGREEMENT PARTICIPANT: Johannes H Wildenberg EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 20,000 THIS AGREEMENT, effective as of the Date of Grant set forth above, is between Fairchild Semiconductor International, Inc., a Delaware corporation (the "Company", "we", "our" or "us") and the Participant named above ("you" or "yours"), pursuant to the provisions of the Fairchild Semiconductor Stock Plan (the "Plan") with respect to the number of Deferred Stock Units ("Units") specified above. Capitalized terms used and not defined in this Agreement shall have the meanings given to them in the Plan. This Agreement consists of this document, any related Settlement Election Form, and the Plan. You and the Company agree as follows: - ------------------------------------------------------------------------------------------------------------------------------------ 1. APPLICATION OF This Agreement and your rights under this Agreement are subject to all the terms and conditions of the Plan, as PLAN; it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is ADMINISTRATION expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 2. VESTING The Units will vest (becoming "Vested Units") on the following Vesting Dates if you are employed or in the service of the Company or an Affiliate on those dates: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date................................25% 2nd Anniversary of Grant Date................................50% 3rd Anniversary of Grant Date................................75% 4th Anniversary of Grant Date...............................100% - ------------------------------------------------------------------------------------------------------------------------------------ 3. RIGHTS AS You will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Units STOCKHOLDER (the "Shares") unless and until Shares are actually delivered to you under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 4. DIVIDENDS You will be credited with additional Deferred Stock Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Units as if such Units had been actual Shares, based on the Fair Market Value of a Share on the applicable dividend payment date. Any such additional Deferred Stock Units shall be considered Units under this Agreement and shall also be credited with additional Deferred Stock Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions as Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Deferred Stock Units will be credited with respect to any dividend in connection with which Units are adjusted pursuant to Section 3(c) of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 5. SETTLEMENT OF (a) Time of Settlement. Each Vested Unit will be settled by the delivery of one Share to you or, in the event UNITS of your death, to your designated beneficiary, promptly following the date or dates (any such date, the "Settlement Date") you have elected on the attached Settlement Election Form. You may change the Settlement Election Date one time only, and only to a later date, as provided in the Settlement Election Form. (b) Termination Prior to Settlement Date. If your employment or service with the Company is terminated prior to any Settlement Date, your Units will be treated as specified in the Settlement Election Form. (c) Forfeiture of Unvested Units. All Units that are not Vested Units at the time of termination will be forfeited effective as of the last Settlement Date to occur under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 6. TRANSFERABILITY Your Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ 7. TAXES (a) Social Security and Medicare Taxes. You may be subject to Social Security tax, and you will be subject to Medicare tax on the date or dates your Units become Vested Units under Section 2 above, based on the Fair Market Value of the Shares underlying the Units that vest. The Company will pay such taxes on your behalf, including any income, Social Security and Medicare taxes attributable to the Company's payment of such taxes. Payments on your behalf will be reflected in your compensation for federal, state and local income tax purposes. (d) Income Taxes. You will be subject to U.S. federal income tax on the Settlement Date, based on the Fair Market Value of Shares received in settlement of Vested Units. YOU WILL BE SOLELY RESPONSIBLE FOR THE PAYMENT OF ALL SUCH INCOME TAXES, AS WELL AS FOR ANY OTHER STATE, LOCAL OR NON-U.S. TAXES THAT MAY BE RELATED TO YOUR RECEIPT OF THE SHARES. Not later than 90 days before any scheduled Settlement Date, you must arrange with the Company for the timely payment of all withholding taxes the Company is obligated to collect from you and remit to U.S. and other applicable tax authorities. - ------------------------------------------------------------------------------------------------------------------------------------ 8. MISCELLANEOUS (a) This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company's or such Affiliate's right to terminate your employment or service at any time. (b) Without limiting the generality of Section 1 above, with the approval of the Board, and subject to the terms of the Plan, the Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect your rights under this Agreement without your consent. (c) This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. (d) To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. - ------------------------------------------------------------------------------------------------------------------------------------ 9. SIGNATURES By the signatures below, the Participant and the authorized representative of the Company acknowledge agreement to this Deferred Stock Unit Agreement as of the Grant Date specified above. PARTICIPANT: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ Johannes H. Wildenberg /s/ Kirk P. Pond -------------------------- JOHANNES H WILDENBERG Kirk P. Pond Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of this Deferred Stock Unit Agreement; 2. Sign the BOTH copies of the Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT SETTLEMENT ELECTION FORM This Settlement Election Form relates to the following grant of Deferred Stock Units: PARTICIPANT: Johannes H Wildenberg EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 20,000 - ------------------------------------------------------------------------------------------------------------------------------------ 1. SETTLEMENT CHECK ONLY ONE OPTION: ELECTION _____ SPECIFIED DATE. Subject to Sections 2 and 3 below, I elect to have all Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me on ____________________, which date is at least one year following the Grant Date of such Units. If the date specified occurs before the last scheduled Vesting Date under this grant, then Units that vest after such specified date will be settled promptly following any such subsequent Vesting Date(s). _____ VESTING DATES. Subject to Sections 2 and 3 below, I elect to have Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me promptly following each date or dates on which vesting of Units occurs. - ------------------------------------------------------------------------------------------------------------------------------------ 2. AUTOMATIC I hereby acknowledge and agree that (a) if my employment is terminated for any reason other than Cause, Death SETTLEMENT UPON or Disability, any Vested Units will be settled on the first anniversary of my termination date, (b) if my TERMINATION employment is terminated for Cause, all units will be immediately forfeited, and (c) if my employment is terminated for Death or Disability, any Vested Units will be settled following my termination date. - ------------------------------------------------------------------------------------------------------------------------------------ 3. ONE-TIME CHANGE I understand that, once, but only once, I can change my election to a later (but not earlier) Settlement Date OF ELECTION than indicated in Section 1 above by filing a new Settlement Election Form with the Company at any time on PERMITTED or before the day (the "Change Deadline Day") that falls one year before the earliest Settlement Date that would occur based on my election in Section 1. I understand that I cannot change my election after the Change Deadline Day, and that I cannot change my election more than once. If the Change Deadline Day falls on a day that is not a business day for the Company, then the last day to change the election in Section 1 will be the first business day following the Change Deadline Day. Any new Settlement Election Form will revoke the previously filed Settlement Election Form, except that, if any Settlement Date purportedly elected on the new form falls within one year after the Change Deadline Day, then such new form will have no effect and the previously elected Settlement Date shall continue to apply. - ------------------------------------------------------------------------------------------------------------------------------------ 4. SIGNATURE PARTICIPANT: DATED AS OF: April 28, 2003 -------------------------- JOHANNES H WILDENBERG - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of the Deferred Stock Unit Agreement; 2. Sign the BOTH copies of this Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. EX-10.9 10 b46535fsexv10w9.txt EX-10.9 DEFERRED STOCK AGREEMENT Exhibit 10.9 (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT AGREEMENT PARTICIPANT: John M Watkins EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 5,834 THIS AGREEMENT, effective as of the Date of Grant set forth above, is between Fairchild Semiconductor International, Inc., a Delaware corporation (the "Company", "we", "our" or "us") and the Participant named above ("you" or "yours"), pursuant to the provisions of the Fairchild Semiconductor Stock Plan (the "Plan") with respect to the number of Deferred Stock Units ("Units") specified above. Capitalized terms used and not defined in this Agreement shall have the meanings given to them in the Plan. This Agreement consists of this document, any related Settlement Election Form, and the Plan. You and the Company agree as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ 1. APPLICATION OF This Agreement and your rights under this Agreement are subject to all the terms and conditions of the PLAN; ADMINISTRATION Plan, as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 2. VESTING The Units will vest (becoming "Vested Units") on the following Vesting Dates if you are employed or in the service of the Company or an Affiliate on those dates: Vesting Date Percentage Vested (including portion that vested the preceding year) 1st Anniversary of Grant Date.................................................25% 2nd Anniversary of Grant Date.................................................50% 3rd Anniversary of Grant Date.................................................75% 4th Anniversary of Grant Date................................................100% - ------------------------------------------------------------------------------------------------------------------------------------ 3. RIGHTS AS You will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Units STOCKHOLDER (the "Shares") unless and until Shares are actually delivered to you under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 4. DIVIDENDS You will be credited with additional Deferred Stock Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Units as if such Units had been actual Shares, based on the Fair Market Value of a Share on the applicable dividend payment date. Any such additional Deferred Stock Units shall be considered Units under this Agreement and shall also be credited with additional Deferred Stock Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions as Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Deferred Stock Units will be credited with respect to any dividend in connection with which Units are adjusted pursuant to Section 3(c) of the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ 5. SETTLEMENT OF UNITS (a) Time of Settlement. Each Vested Unit will be settled by the delivery of one Share to you or, in the event of your death, to your designated beneficiary, promptly following the date or dates (any such date, the "Settlement Date") you have elected on the attached Settlement Election Form. You may change the Settlement Election Date one time only, and only to a later date, as provided in the Settlement Election Form. (b) Termination Prior to Settlement Date. If your employment or service with the Company is terminated prior to any Settlement Date, your Units will be treated as specified in the Settlement Election Form. (c) Forfeiture of Unvested Units. All Units that are not Vested Units at the time of termination will be forfeited effective as of the last Settlement Date to occur under this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 6. TRANSFERABILITY Your Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ 7. TAXES (a) Social Security and Medicare Taxes. You may be subject to Social Security tax, and you will be subject to Medicare tax on the date or dates your Units become Vested Units under Section 2 above, based on the Fair Market Value of the Shares underlying the Units that vest. The Company will pay such taxes on your behalf, including any income, Social Security and Medicare taxes attributable to the Company's payment of such taxes. Payments on your behalf will be reflected in your compensation for federal, state and local income tax purposes. (b) Income Taxes. You will be subject to U.S. federal income tax on the Settlement Date, based on the Fair Market Value of Shares received in settlement of Vested Units. YOU WILL BE SOLELY RESPONSIBLE FOR THE PAYMENT OF ALL SUCH INCOME TAXES, AS WELL AS FOR ANY OTHER STATE, LOCAL OR NON-U.S. TAXES THAT MAY BE RELATED TO YOUR RECEIPT OF THE SHARES. Not later than 90 days before any scheduled Settlement Date, you must arrange with the Company for the timely payment of all withholding taxes the Company is obligated to collect from you and remit to U.S. and other applicable tax authorities. - ------------------------------------------------------------------------------------------------------------------------------------ 8. MISCELLANEOUS (a) This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company's or such Affiliate's right to terminate your employment or service at any time. (b) Without limiting the generality of Section 1 above, with the approval of the Board, and subject to the terms of the Plan, the Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect your rights under this Agreement without your consent. (c) This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. (d) To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. - ------------------------------------------------------------------------------------------------------------------------------------ 9. SIGNATURES By the signatures below, the Participant and the authorized representative of the Company acknowledge agreement to this Deferred Stock Unit Agreement as of the Grant Date specified above. PARTICIPANT: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. /s/ John M. Watkins /s/ Kirk P. Pond ------------------- ---------------- JOHN M WATKINS Kirk P. Pond Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of this Deferred Stock Unit Agreement; 2. Sign the BOTH copies of the Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. (FAIRCHILD SEMICONDUCTOR LOGO) FAIRCHILD SEMICONDUCTOR STOCK PLAN DEFERRED STOCK UNIT SETTLEMENT ELECTION FORM This Settlement Election Form relates to the following grant of Deferred Stock Units: PARTICIPANT: John M Watkins EMPLOYEE ID: GLOBAL ID: DATE OF GRANT: April 28, 2003 NUMBER OF DEFERRED STOCK UNITS GRANTED: 5,834
- ------------------------------------------------------------------------------------------------------------------------------------ 1. SETTLEMENT ELECTION CHECK ONLY ONE OPTION: _____ SPECIFIED DATE. Subject to Sections 2 and 3 below, I elect to have all Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me on ____________________, which date is at least one year following the Grant Date of such Units. If the date specified occurs before the last scheduled Vesting Date under this grant, then Units that vest after such specified date will be settled promptly following any such subsequent Vesting Date(s). _____ VESTING DATES. Subject to Sections 2 and 3 below, I elect to have Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me promptly following each date or dates on which vesting of Units occurs. - ------------------------------------------------------------------------------------------------------------------------------------ 2. AUTOMATIC I hereby acknowledge and agree that (a) if my employment is terminated for any reason other than Cause, SETTLEMENT UPON Death or Disability, any Vested Units will be settled on the first anniversary of my termination date, (b) TERMINATION if my employment is terminated for Cause, all units will be immediately forfeited, and (c) if my employment is terminated for Death or Disability, any Vested Units will be settled following my termination date. - ------------------------------------------------------------------------------------------------------------------------------------ 3. ONE-TIME CHANGE OF I understand that, once, but only once, I can change my election to a later (but not earlier) Settlement ELECTION PERMITTED Date than indicated in Section 1 above by filing a new Settlement Election Form with the Company at any time on or before the day (the "Change Deadline Day") that falls one year before the earliest Settlement Date that would occur based on my election in Section 1. I understand that I cannot change my election after the Change Deadline Day, and that I cannot change my election more than once. If the Change Deadline Day falls on a day that is not a business day for the Company, then the last day to change the election in Section 1 will be the first business day following the Change Deadline Day. Any new Settlement Election Form will revoke the previously filed Settlement Election Form, except that, if any Settlement Date purportedly elected on the new form falls within one year after the Change Deadline Day, then such new form will have no effect and the previously elected Settlement Date shall continue to apply. - ------------------------------------------------------------------------------------------------------------------------------------ 4. SIGNATURE PARTICIPANT: DATED AS OF: April 28, 2003 ------------------ -------------- JOHN M WATKINS - ------------------------------------------------------------------------------------------------------------------------------------
TO ACCEPT YOUR DSU GRANT: 1. Sign BOTH copies of the Deferred Stock Unit Agreement; 2. Sign the BOTH copies of this Settlement Election Form; 3. Retain one copy of each for your records; 4. Return one copy of each in the enclosed envelope to the Human Resources Service Center, Mail Stop 35-1D, 82 Running Hill Road, South Portland, ME 04106 USA. EX-10.10 11 b46535fsexv10w10.txt EX-10.10 FORM OF NON-QUALIFIED STOCK OPTION Exhibit 10.10 (FAIRCHILD SEMICONDUCTOR LOGO) [We entered into the following form of Non-qualified Stock Option Agreement with each of the following non-employee directors: Charles P. Carinalli, Richard M. Cashin, Jr., Charles M. Clough, Ronald A. Shelly, Paul C. Schorr IV and William N. Stout] FAIRCHILD SEMICONDUCTOR STOCK PLAN NON-QUALIFIED STOCK OPTION AGREEMENT This is a Non-Qualified Stock Option Agreement under the Fairchild Semiconductor Stock Plan, dated APRIL 28, 2003 (the Grant Date) between Fairchild Semiconductor International, Inc. (the Company) and _______________, a director of the Company or one of its subsidiaries (you or the Optionee). - ------------------------------------------------------------------------------------------------------------------------------------ OPTION GRANT; The Company grants you the option to purchase up to 15,000 shares of the Company's Class _______ A Common Stock EXERCISE PRICE at an exercise price of $11.50 per share. This option grant is subject to the terms of the Fairchild Semiconductor Stock Plan and to the terms of this agreement. If there is a conflict between the terms of this agreement and those of the Plan, the terms of the Plan will govern. Capitalized terms not defined in this agreement are defined in the Plan. - ------------------------------------------------------------------------------------------------------------------------------------ OPTION TERM; The term of your option is 8 years and one day from the Grant Date. Your option terminates at the end of the VESTING term and cannot be exercised after the term. You can exercise your option only to the extent it has vested. Your option will vest in increments, as follows: Vesting Date Percentage Vested 1st Anniversary of Grant Date.........................100% - ------------------------------------------------------------------------------------------------------------------------------------ TERMINATION OF You must remain a director of the Company or an Affiliate to be able to exercise your option, except as SERVICE follows: Retirement, Disability or death. If your service as a director terminates because of your Retirement or Disability (as those terms are defined in the Plan) or your death, then you (or your estate) will have five years from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. In addition, if your service as a director terminates because of your Retirement or Disability and you die within the five-year exercise period, your estate will have at least one year after your death to exercise, unless the option term ends earlier, in which case your estate will have until the end of the term to exercise. Termination by the Company. If your service as a director is terminated for Cause (as defined in the Plan), all options will be terminated, whether or not vested, and you may have to repay any gains on prior exercised options. See Sections 5(l) and 12 of the Plan. If your service as a director is terminated by the Company not for Cause and not as a result of your Retirement, Disability or death, then you (or your estate) will have 90 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. All other cases. If your service as a director terminates because you quit, or for any other reason other than those stated above, you (or your estate, if you die within the period) will have 30 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. Regardless of the cause of your termination, you (or your estate) can exercise your option only to the extent it is vested on your termination date. - ------------------------------------------------------------------------------------------------------------------------------------ NON-TRANSFERABILITY Your option is not transferable except by will or the laws of descent and distribution. During your lifetime only you can exercise your option. This option shall not be subject to attachment or similar process. Any attempted sale, pledge, assignment, transfer or other disposition of your option contrary to the provisions of this agreement or the Plan, or the levy of any attachment or similar process upon your option, shall be null and void without effect. - ------------------------------------------------------------------------------------------------------------------------------------ SIGNATURES Your signature and the signature of an authorized officer of the Company below indicate your and the Company's agreement to the terms of this Non-Qualified Stock Option Agreement as of the Grant Date. OPTIONEE: FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. _____________________________ /s/ Kirk P. Pond GLOBAL ID/SSN: Kirk P. Pond Chairman, President and CEO - ------------------------------------------------------------------------------------------------------------------------------------
EX-99.1 12 b46535fsexv99w1.txt EX-99.1 906 CERTIFICATION (POND) EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report Fairchild Semiconductor International, Inc. (the "Company") on Form 10-Q for the period ended March 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kirk P. Pond, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company. /s/ Kirk P. Pond - -------------------------- Kirk P. Pond Chief Executive Officer May 14, 2003 EX-99.2 13 b46535fsexv99w2.txt EX-99.2 906 CERTIFICATION (TOWSE) EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report Fairchild Semiconductor International, Inc. (the "Company") on Form 10-Q for the period ended March 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Matthew W. Towse, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company. /s/ Matthew W. Towse - -------------------------- Matthew W. Towse Chief Financial Officer May 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----