-----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, DFu5rlkoOmaNzZIcAD56cG/JV1YvSJ9VjLyo9k+og7/3vUjn87lK/dcagVgCkANx 0X8jbqeJVAWeJIlFuX7srA== 0000867105-96-000014.txt : 19960816 0000867105-96-000014.hdr.sgml : 19960816 ACCESSION NUMBER: 0000867105-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYRIX CORP CENTRAL INDEX KEY: 0000867105 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 752218250 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21904 FILM NUMBER: 96614992 BUSINESS ADDRESS: STREET 1: 2703 N CENTRAL EXPRESSWAY CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 2149948387 MAIL ADDRESS: STREET 1: MS 220 STREET 2: PO BOX 853920 CITY: RICHARDSON STATE: TX ZIP: 75085-3920 10-Q 1 FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1996 ________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q _______________ (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .................... to ................... Commission File 0-21904 CYRIX CORPORATION ---------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-2218250 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2703 NORTH CENTRAL EXPRESSWAY, RICHARDSON, TX 75080 --------------------------------------------------- (Address of principal executive offices) (Zip Code) 214-968-8387 ------------ (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.004 Par Value 19,453,495 ----------------------------- ---------- (Title of Each Class) (Number of Shares Outstanding at August 2, 1996) ________________________________________________ CYRIX CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 3-4 Consolidated Statements of Income for the three months and six months ended June 30, 1996 and 1995 5 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 4. Submission of Matters to a Vote of Security Holders 20-21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 21 Signature Page 22 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
CYRIX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) (In thousands) June 30, December 31, 1996 1995 ------------------ ---------------- Current assets: Cash and cash equivalents $70,283 $44,334 Trade accounts receivable, net of valuation allowances of $8,200 at June 30, 1996 and $4,500 at December 31, 1995 30,709 44,727 Inventories: Raw materials 6,177 1,330 Work in process 9,801 6,482 Finished goods 13,390 4,461 ------------------ ---------------- Total inventories 29,368 12,273 Prepayment for product purchases (Note 5) 15,658 13,333 Income taxes receivable 10,069 3,089 Deferred taxes 8,500 10,845 Other assets 778 377 ------------------ ---------------- Total current assets 165,365 128,978 Property and equipment Land 4,964 4,964 Building and improvements 9,737 5,634 Machinery and equipment 129,750 125,050 ------------------ ---------------- 144,451 135,648 Accumulated depreciation (49,600) (37,341) ------------------ ---------------- 94,851 98,307 Prepayment for product purchases, less current portion (Note 5) 39,156 40,698 Deferred taxes and other assets 4,150 802 ------------------ ---------------- Total assets $303,522 $268,785 ================== ================
CYRIX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (In thousands) June 30, December 31, 1996 1995 ------------------ ------------------ Current liabilities: Accounts payable $15,127 $15,239 Accrued salaries and benefits 3,972 3,469 Deferred income and distributor reserves 5,891 15,526 Current maturities of long-term debt and capitalized lease obligations (Note 4) 2,667 20,053 Other accrued expenses 7,400 6,180 ------------------ ------------------ Total current liabilities 35,057 60,467 Long-term debt and capitalized lease obligations, less current maturities (Note 4) 7,506 62,325 Deferred income taxes 1,302 -- 5.5% convertible subordinated notes due June 1, 2001 (Note 4) 126,500 -- Commitments and contingencies (Notes 5 and 6) Stockholders' equity: Common stock, $.004 par value; authorized 60,000 shares, issued 20,228 at June 30, 1996 and December 31, 1995 81 81 Additional capital 47,879 46,256 Retained earnings 85,246 99,712 Less treasury stock, at cost, 821 shares at June 30, 1996 and 991 shares at December 31, 1995 (49) (56) ------------------ ------------------ Total stockholders' equity 133,157 145,993 ------------------ ------------------ Total liabilities and stockholders' equity $303,522 $268,785 ================== ================== See accompanying notes.
CYRIX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) Fiscal Quarter Ended June 30, Six Months Ended June 30, 1996 1995 1996 1995 -------------------------------------------------------------------------- Net product sales $25,068 $50,238 $74,267 $120,382 Royalty revenue (Note 3) 1,987 -- 4,394 15,000 -------------------------------------------------------------------------- Net revenues 27,055 50,238 78,661 135,382 Cost of sales 26,487 30,913 52,766 70,980 -------------------------------------------------------------------------- 568 19,325 25,895 64,402 -------------------------------------------------------------------------- Expenses: Marketing, general and administrative 13,971 10,165 26,983 20,380 Research and development 8,795 6,864 16,496 14,310 -------------------------------------------------------------------------- 22,766 17,029 43,479 34,690 -------------------------------------------------------------------------- Income (loss) from operations (22,198) 2,296 (17,584) 29,712 Other income and expense: Income from litigation settlement -- 10,000 -- 10,000 Interest income 407 701 842 1,398 Interest expense (2,208) (1,553) (4,293) (2,555) -------------------------------------------------------------------------- (1,801) 9,148 (3,451) 8,843 -------------------------------------------------------------------------- Income (loss) before provision for income taxes and extraordinary item (23,999) 11,444 (21,035) 38,555 Provision (benefit) for income taxes (8,639) 3,950 (7,631) 13,576 -------------------------------------------------------------------------- Net income (loss) before extraordinary item (15,360) 7,494 (13,404) 24,979 Extraordinary loss from early extinguishment of debt, net of income tax benefit of $598 (1,062) -- (1,062) -- -------------------------------------------------------------------------- Net income (loss) ($16,422) $ 7,494 ($14,466) $ 24,979 ========================================================================== Net income (loss) per common and common equivalent share: Income (loss) before extraordinary item ($0.79) $0.38 ($0.69) $1.26 Extraordinary item (0.06) -- (0.06) -- -------------------------------------------------------------------------- Net income (loss) ($0.85) $0.38 ($0.75) $1.26 ========================================================================== Weighted average common and common equivalent shares outstanding 19,371 19,841 19,333 19,801 ========================================================================== See accompanying notes.
CYRIX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended June 30, 1996 1995 --------------------------------------- Operating Activities Net income (loss) ($14,466) $24,979 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 13,658 7,199 Provision for doubtful accounts and OEM customer returns and pricing allowances 12,674 923 Deferred income taxes (3,333) (523) Amortization of debt issue costs 66 -- Changes in operating assets and liabilities: Receivables 1,343 6,935 Inventories (17,094) 2,989 Other current assets (401) 685 Accounts payable (112) (9,684) Deferred litigation settlement -- (5,000) Deferred income and distributor reserves (9,635) 2,580 Other accrued expenses 1,723 (830) Other assets, excluding deferred taxes (3,414) 47 --------------------------------------- Net cash provided by (used in) operating activities (18,991) 30,300 Investing Activities Prepayments for product purchases (10,000) (32,367) Reduction in prepayments for product purchases 9,217 1,626 Purchases of property and equipment (8,249) (61,267) Proceeds from redemption of investments -- 16,177 --------------------------------------- Net cash used in investing activities (9,032) (75,831) Financing activities Proceeds from issuance of 5.5% convertible subordinate notes 126,500 -- Proceeds from issuance of long term debt -- 56,667 Repayments of long-term debt and capitalized lease obligations (74,158) (4,891) Tax benefit from stock option exercises 359 667 Net proceeds from issuance of common stock 1,271 1,245 --------------------------------------- Net cash provided by financing activities 53,972 53,688 --------------------------------------- Increase in cash and cash equivalents 25,949 8,157 Cash and cash equivalents at beginning of period 44,334 43,064 --------------------------------------- Cash and cash equivalents at end of period $70,283 $51,221 ======================================= Financing and Investing Activities Not Affecting Cash Capital lease obligations incurred $1,953 -- See accompanying notes.
CYRIX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1996 1. Basis of Presentation The unaudited consolidated financial statements of Cyrix Corporation and subsidiaries ("the Company" or "Cyrix") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1996. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 1995, and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 12, 1996. The Company uses a 52/53 week fiscal year that ends on or about December 31 and 13/14 week fiscal quarters that end on or about March 31, June 30 and September 30. The accompanying financial statements have been labeled as though the Company's accounting periods ended on the respective calendar year ended December 31 and the fiscal quarter ended June 30. Fiscal year 1995 ended December 31, 1995, the second fiscal quarter of 1996 ended June 30, 1996, and the second fiscal quarter of 1995 ended July 2, 1995. The second fiscal quarters of 1996 and 1995 were each 13 week fiscal quarters, and the six month periods ending June 30, 1996 and 1995 were each 26 week periods. 2. Earnings per Common and Common Equivalent Share Earnings per common and common equivalent share are computed by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during each period. During each period presented, common stock options were the only common stock equivalents outstanding. The dilutive effects of common stock equivalents are calculated using the treasury stock method. Common stock equivalents are not included in the computation of earnings per share for any period in which their inclusion would have the effect of increasing the earnings per share amount or decreasing the loss per share amount otherwise computed. Fully diluted earnings per share is substantially the same as primary earnings per share. 3. Royalty Revenue Royalty revenue based on the sale by third-party licensees of licensed products is recognized by the Company upon fulfillment of its contractual obligations and determination of a royalty amount based on units sold. Pursuant to a November 1994 agreement which settled the contractual dispute with Texas Instruments Incorporated ("TI"), on March 1, 1995 TI paid $15 million to the Company for past royalties and a fully paid-up license related to the Company's 486DLC and 486SLC microprocessor products licensed to TI. Pursuant to the same November 1994 agreement, during the fiscal quarter and six months ended June 30, 1996, the Company received royalty revenue in the amount of $2.0 million and $4.4 million, respectively, from TI based on the sale of 486DX products. 4. Long-term Obligations In May 1996, the Company issued $126.5 million of 5.5% convertible subordinated notes ("notes") due June 1, 2001. The notes are convertible into shares of the Company's common stock at the conversion rate of 25.1572 shares per $1,000 principal amount of notes (equivalent to a conversion price of $39.75 per share). The notes are subordinated to present and future senior indebtedness of the Company, and the notes are redeemable at the option of the Company, in whole or in part, on or after June 1, 1999. The Company has agreed to file with the SEC and use reasonable efforts to cause to become effective, a shelf registration statement with respect to the resale of the notes and the sale of the shares of common stock issuable upon conversion thereof. The Company used approximately $66.6 million of the net proceeds of the offering to repay all of its outstanding indebtedness to International Business Machines Credit Corporation and General Electric Capital Corporation ("the equipment lenders"). The Company also used approximately $1.7 million ($1.1 million net of tax benefit) of the net proceeds of the offering to pay certain administrative fees and yield maintenance premiums incurred in connection with the early extinguishment of the indebtedness to the equipment lenders. The Company has financed certain land, buildings and equipment under financing agreements which contain restrictive covenants including restriction on dividends, additional debt and certain other transactions and which include the maintenance of certain net worth, net income per quarter, working capital and other financial ratios. 5. Commitments On April 8, 1994, the Company and International Business Machines Corporation ("IBM") signed an agreement whereby IBM's Microelectronics division agreed to manufacture specified quantities of wafers of Cyrix-designed products for sale to Cyrix through December 1999 at defined prices. Cyrix is responsible for the total production costs (including equipment costs) of such specified quantities of products irrespective of the number of products actually ordered by the Company. Pursuant to this agreement, Cyrix has made a capital equipment investment of approximately $88 million in an IBM manufacturing facility. The depreciation expense associated with such capital equipment, which Cyrix owns, is reimbursed to the Company by IBM on a monthly basis. In the event of expiration or termination of this agreement by either party, IBM has the option to purchase this capital equipment from Cyrix at its then net book value, if any. Also, Cyrix made prepayments for product purchases of approximately $30 million during fiscal 1994, $30 million during fiscal 1995 and $10 million on January 1, 1996. Two additional product prepayments of $10 million each are due on January 1, 1997 and January 1, 1998. Such prepayments will be credited to Cyrix as it purchases wafers from IBM at defined prices during the period from July 1, 1995 through December 31, 1999. In addition to supplying microprocessors to Cyrix, IBM has the right to manufacture an equivalent amount of Cyrix-designed products for use internally or to sell to original equipment manufacturers ("OEMs"). On May 17, 1996, the Company and IBM signed an additional agreement ("foundry agreement") whereby IBM's Microelectronics division agreed to manufacture specified quantities of wafers of Cyrix-designed products for sale to Cyrix through December 1997 at defined prices. The Company has a commitment to purchase a specified quantity of wafers from IBM for approximately $45 million during the second half of 1996. Such $45 million commitment can not be reduced without significant penalties payable by the Company. The Company can reduce or eliminate its purchase commitments under the foundry agreement for fiscal 1997 with six months notice to IBM. 6. Contingencies Microprocessor Litigation Since March 1992, the Company and Intel Corporation ("Intel") have been engaged in litigation related to certain of the Company's microprocessor products. On January 21, 1994, the United States District Court for the Eastern District of Texas, Sherman Division ruled in favor of the Company with respect to microprocessor products which were made and sold to the Company by certain Intel licensees, SGS-Thomson Microelectronics, Inc. ("SGS") and TI. Intel appealed the ruling on April 8, 1994. On December 8, 1994, the Court of Appeals for the Federal Circuit affirmed the district court's January 21, 1994 ruling. On December 23, 1994, Intel filed a petition for reconsideration of that decision and a motion for rehearing en banc with the Court of Appeals. In February 1995, the Court of Appeals for the Federal Circuit denied Intel's motion for a rehearing en banc. On January 24, 1994, the United States District Court for the Eastern District of Texas, Sherman Division began to try the Company's allegations that Intel violated certain antitrust statutes and misused its patents and Intel's allegations that the Company infringed certain Intel patents. Effective January 31, 1994, the Company and Intel entered into a settlement agreement which provides for the dismissal of the claims which were to be litigated in the January 24, 1994 trial. Pursuant to the settlement agreement, Intel granted the Company a fully paid-up, irrevocable license under claims 2 and 6 of Intel's United States patent 4,972,338 ("the Crawford patent") and certain other system patents for products sold after January 31, 1994. Intel also acknowledged that products purchased by the Company from certain licensees exhaust Intel device claims including claim 1 of the Crawford patent. Further, Intel paid $5 million to the Company. The Company and Intel agreed that if the January 21, 1994 ruling, insofar as it relates to SGS, was reversed after final adjudication or was remanded for additional findings and subsequently reversed so that Cyrix did not have a right to use claims 2 and 6 of the Crawford patent based on the SGS license, Cyrix would return the $5 million plus interest to Intel. Cyrix deferred recognition as income of the $5 million settlement payment received in February 1994 until final resolution of this issue. Intel agreed to pay the Company an additional $5 million if the January 21, 1994 SGS ruling was upheld after final adjudication. As noted previously, in December 1994, the Court of Appeals for the Federal Circuit upheld the district court's January 21, 1994 ruling and later denied Intel's motion for a rehearing en banc. The time period during which Intel had the right to appeal the case to the United States Supreme Court expired without such appeal, and the Company received the additional $5 million settlement payment in the second quarter of 1995. Therefore, the Company recognized settlement income of $10 million in the second quarter of 1995. As part of the settlement agreement, the Company and Intel agreed to litigate in the United States District Court for the Eastern District of Texas, Sherman Division, whether products manufactured by SGS affiliates under the "have-made" provision in the SGS-Intel license, sold to SGS, and then sold to the Company fall within the scope of the SGS license. On December 30, 1994, the district court ruled that SGS was licensed by Intel to exercise have-made rights by having third parties (including SGS affiliates) manufacture and sell microprocessors to Cyrix free of claims of patent infringement by Intel. Intel appealed the ruling on March 7, 1995. On March 5, 1996, the Court of Appeals for the Federal Circuit affirmed the district court's December 1994 ruling. On March 18, 1996 Intel filed a petition for a rehearing of that decision with the Court of Appeals. In April 1996, the Court of Appeals denied Intel's petition for a rehearing. The time period during which Intel had the right to appeal the case to the United States Supreme Court expired without such appeal, and the Company received a $1 million settlement payment on July 30, 1996. Therefore, the Company expects to recognize settlement income of $1 million in the third quarter of 1996. Similarly, the Company and Intel agreed to litigate in the United States District Court for the Eastern District of Texas, Sherman Division, whether IBM is licensed under claim 1 of the Crawford patent when manufacturing products that are primarily designed by the Company. On April 5, 1994, the district court granted IBM's motion to intervene, and on December 8, 1994, the district court ruled that IBM was licensed by Intel to act as a semiconductor foundry for Cyrix free of claims of patent infringement by Intel. Intel appealed the ruling on March 7, 1995. On March 5, 1996, the Court of Appeals for the Federal Circuit affirmed the district court's December 1994 ruling. The time period during which Intel had the right to appeal the case to the United States Supreme Court expired without such appeal, and the Company received a $1 million settlement payment on July 30, 1996. Therefore, the Company expects to recognize settlement income of $1 million in the third quarter of 1996. Stockholders Class Action In December 1994, eleven class actions were filed in the United States District Court for the Northern District of Texas, purportedly on behalf of purchasers of the Company's common stock, alleging that the Company and various of its officers and directors violated sections of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by issuing false and misleading statements concerning the introduction and production of the Company's Cx486DX2 40/80 MHz microprocessors. The complaints also allege that the conduct of the Company and certain of its officers and directors constituted fraud and negligent misrepresentation and that certain of such officers and directors sold shares of the Company's common stock while in possession of material undisclosed information. In June 1995, all of the actions were consolidated into one complaint in the federal district court in Dallas, Texas. The Company intends to defend the complaint vigorously. The Company moved to dismiss the consolidated amended class action complaint in July 1995. The ultimate outcome of the stockholders class action cannot presently be determined. A decision adverse to the Company in this matter could have a material adverse effect on the Company, its financial condition, its results of operations and its future prospects. Gateway Trademark Litigation By letter dated May 17, 1996, Gateway 2000, Inc. ("Gateway") alleged that Cyrix "is infringing valuable trademark and trade dress rights of Gateway 2000" in advertisements promoting Cyrix's 6x86TM personal computer systems. Gateway asserts that Cyrix's "reproduction, copy and colorable imitation of [Gateway's] registered trademark and trade dress in connection with advertising [Cyrix's] goods is likely to cause confusion, mistake or deceive the public within the meaning of the Lanham Act." The letter threatens Cyrix with actions for trademark infringement, false advertising and trade disparagement, and unfair competition. Finally, the letter suggests that Gateway might assert its rights in other nations if the advertisements have been distributed on the international market. On May 24, 1996, Cyrix filed in the United States District Court for the Northern District of Texas, Dallas Division, Cyrix Corporation v. Gateway 2000, Inc., seeking a declaratory judgment: (i) that none of Cyrix's actions or omissions relating to its advertisements of the Cyrix 6x86 computers have violated any provisions of the Lanham Act; (ii) that none of Cyrix's actions or omissions relating to its advertisements of the Cyrix 6x86 computers have violated the common law of the State of Texas or any provisions of the Texas Trademark Act, Texas Business & Commerce Code Sections 16.01 et seq., including but not limited to those provisions relating to trademark infringement, trade dress infringement and dilution; (iii) that Cyrix has not engaged in any false or unlawful advertising; (iv) that Cyrix has not engaged in any unfair competition or trade disparagement; (v) that Cyrix's conduct relating to its advertisements of the Cyrix 6x86 computers is speech protected by the U.S. Constitution and the Texas Constitution of 1876; (vi) that none of Cyrix's actions or omissions relating to its advertisements of the Cyrix 6x86 computers has violated any state or federal laws; (vii) that Cyrix's acts are privileged and/or excused by: (a) the defense of fair use; (b) the defense of opinion and parody; and (c) the defense of truth; and (viii) that Cyrix is free to use images of Holstein cows to signify Gateway (even in an unflattering fashion) in advertising of personal computers that is not factually false, deceptive or misleading. Gateway has filed motions to dismiss this case based on lack of personal jurisdiction and lack of proper service of process. Subsequently, in late June and early July Gateway filed actions in state court in New York, New Jersey, Connecticut, Massachusetts and California. Each of the state court cases are essentially mirror images of the others and allege that Cyrix, by its actions, has violated anti-dilution laws, deceptive trade practices laws, trademark infringement laws, and unfair competition laws. Cyrix believes that Gateway has also made claims under the Federal Trademark Act and certain state law claims preempted by the Federal Copyright law. Gateway has requested, among other relief, preliminary and permanent injunctions, as well as actual and punitive damages. In each of the five cases, Gateway has prayed for actual damages (typically asserting such amount is at least one million dollars) and punitive damages. Cyrix removed each of the five state court cases to the federal district courts in which each such state court is located. Cyrix has or will file Motions to Dismiss, or alternatively, to transfer all such cases to Dallas in order to consolidate all actions in a single action in Dallas. Gateway has filed Motions in each of five federal court actions seeking to have them remanded to each of the five state courts in which they were originally filed. Cyrix is opposing such efforts to remand. Gateway also has filed (or indicated it will file) motions seeking monetary sanctions against Cyrix based on Gateway's position that the five state court cases were improperly removed to federal court. Cyrix will oppose such motions and will take the position that removal was proper. Cyrix believes that it has meritorious defenses to Gateway's claims and intends to pursue the litigation vigorously. The various cases have only recently been filed, no discovery has been taken in any of them, and the ultimate outcome of this dispute cannot presently be determined. A decision adverse to the company in this matter could have a material adverse effect on the company, its financial condition, its results of operations and its future prospects. Other Matters The Company is a defendant in various other actions which arose in the normal course of business. In the opinion of management, the ultimate disposition of these other matters will not have a material adverse effect on the financial condition or overall trends in the results of operations of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth items from Cyrix's Consolidated Statements of Income as percentages of net revenues: Fiscal Quarter Ended June 30, Six Months Ended June 30, 1996 1995 1996 1995 ------------------------------------------------------------------------ Net product sales 92.7 % 100.0 % 94.4 % 88.9 % Royalty revenue 7.3 -- 5.6 11.1 -------------- ------------- -------------- ------------- Net revenues 100.0 100.0 100.0 100.0 Cost of sales 97.9 61.5 67.1 52.4 Marketing, general and administrative 51.6 20.2 34.3 15.1 Research and development 32.5 13.7 20.9 10.6 -------------- ------------- -------------- ------------- Income (loss) from operations (82.0) 4.6 (22.3) 21.9 Net interest expense (6.7) (1.7) (4.4) (0.9) Income from litigation settlement -- 19.9 -- 7.4 -------------- ------------- -------------- ------------- Income (loss) before provision for income taxes and extraordinary item (88.7) 22.8 (26.7) 28.4 Provision (benefit) for income taxes (31.9) 7.9 (9.7) 10.0 -------------- ------------- -------------- ------------- Net income (loss) before extraordinary item (56.8) 14.9 (17.0) 18.4 Extraordinary loss from early extinguishment of debt (3.9) -- (1.4) -- -------------- ------------- -------------- ------------- Net income (loss) (60.7) % 14.9 % (18.4) % 18.4 % -------------- ------------- -------------- -------------
RESULTS OF OPERATIONS Net Revenues. Net product sales of $25.1 million for the second quarter of fiscal 1996 decreased 50% compared with net product sales of $50.2 million for the second quarter of fiscal 1995. Net product sales of $74.3 million for the six months ended June 30, 1996 decreased 38% compared with net product sales of $120.4 million for the same period of fiscal 1995. Processor unit shipments for the quarter and six months ended June 30, 1996 declined by more than 75% and 53%, respectively, compared with unit shipments of the same periods of fiscal 1995. During the six months ended June 30, 1996, sales of 6x86TM and 5x86TM microprocessors represented over 90% of the Company's net product sales; sales of its 486 microprocessors, which accounted for over 90% of the Company's net product sales during the first six months of fiscal 1995, decreased substantially as their average selling prices and unit shipments of such prior generation products declined. Competitive pressures also resulted in signicant declines in average selling prices of the Company's 6x86 and 5x86 microprocessors during the second quarter, resulting in more pricing allowances than had previously been estimated. In addition to the decline in unit shipments and average selling prices, the Company increased its allowance for doubtful accounts by $2 million during the second quarter of fiscal 1996 due to the bankruptcy of one of its customers. The Company began selling computer systems during the second quarter of 1996; revenue from the sale of computer systems accounted for less than 10% of the Company's net product sales for the quarter ended June 30, 1996. Sales of processors to international customers constituted 67% and 75% of processor product sales in the second quarters of fiscal 1996 and 1995, respectively. Sales of processors to international customers constituted 57% and 69% of processor product sales in the six months ended June 30, 1996 and 1995, respectively. Sales of processors to international customers are made primarily to customers in Europe, Taiwan, Hong Kong, Korea and Japan. The Company currently sells its computer systems only to domestic customers. Net revenues for the first six months of fiscal 1995 included a one-time royalty payment in the amount of $15 million received from TI for past royalties and a fully paid-up license related to the Company's 486DLC and 486SLC microprocessor products. Net revenues for the quarter and six months ended June 30, 1996 included royalty payments of $2.0 million and $4.4 million, respectively, received from TI based on sales of 486DX products licensed by the Company. The outlook for the Company's revenue growth, if any, is dependent upon the following factors among others: trends in the personal computer market, product development, chip set, motherboard and BIOS infrastructure support for the Company's products, market acceptance, product availability and competition. Since all of the Company's products are used in personal computers, the Company's business is closely tied to the performance of the personal computer industry. A reduced rate of growth in the demand for microprocessors could adversely affect the market for the Company's products. From time to time, the personal computer market and semiconductor industries have experienced significant downturns, often in connection with, or in anticipation of, declines in general economic conditions. These downturns have been characterized by diminished product demand, production over-capacity and subsequent accelerated erosion of average selling prices. The Company's business could be materially and adversely affected by industry-wide fluctuations in the future. Further, the outlook for the Company's microprocessor products is highly dependent on the timing of new product introductions by the Company and its competitors and other microprocessor market conditions. Intel currently has a dominant microprocessor market share, dictates the performance standards required to compete in the microprocessor market and influences product life cycles through frequent product introductions, product enhancements and price competition. Intel's developments in semiconductor design and manufacturing processes have allowed Intel to produce microprocessors that are smaller, faster and less expensive to manufacture. Intel's financial strength and microprocessor cost and performance have enabled it to reduce prices on its microprocessors within a short period of time following their introduction. As long as Intel remains in this dominant position, its product introduction schedule and pricing strategy may have a material adverse effect on the Company's business, operating results and financial condition. In addition to its dominant microprocessor market share, Intel is also beginning to dominate the entire personal computer platform. For example, Intel has obtained a dominant market share in sales of 64-bit or Pentium-class core logic chip sets and has emerged as one of the world's largest motherboard manufacturers. Further, Intel manufactures personal computers, incorporating Intel microprocessors, chip sets, motherboards and other Intel-designed components, for resale by third-party OEMs under such OEMs' names. As Intel has become the dominant competitor in these segments of the personal computer industry, third-party designers and manufacturers of core logic chip sets, motherboards, BIOS software and other components have lost market share to Intel, which owns the microprocessor designs and enjoys significantly greater financial, technical, manufacturing and marketing resources than such parties. Further, as Intel expanded its role in designing and setting standards for personal computer systems, many personal computer OEMs reduced their system development expenditures and now require processor technologies to be provided at various levels of integration. To compete with Intel at higher levels of integration as required by many personal computer OEMs and dealers, Cyrix is dependent upon the infrastructure of third-party designers and manufacturers of core logic chip sets, motherboards, BIOS software, and other components of personal computers. Therefore, to compete with Intel and deliver the higher levels of integration required by many OEMs and dealers in 1996 and beyond, the Company intends to form closer relationships with third-party designers and manufacturers of core logic chip sets, motherboards, BIOS software and other components, expand its chip set and system design capabilities, and sell a portion of the Company's processors at higher levels of integration incorporated into modules, boards and systems. There can be no assurance that the infrastructure which supports non-Intel personal computer platforms will be competitive with Intel or continue to support the Company's products. In the first six months of fiscal 1996, the Company began volume production of its 6x86-P120, -P133, -P150 and -P166 microprocessors, which provide system-level performance competitive with Intel Pentium microprocessors. The Company also introduced its 6x86-P200 microprocessors in limited volume. However, to date, the Company has experienced a lack of acceptance by large OEMs because, the Company believes, the OEMs have more confidence in Intel's financial strength, ability to access advanced process technologies, introduce microprocessors with industry-leading performance in a timely manner, supply adequate volumes of processors which meet such OEMs' performance requirements, and deliver core logic chip sets, motherboards, BIOS software and other components which compliment the microprocessor in a computer platform. Given Intel's dominance of much of the personal computer platform and its efforts to consolidate its dominant market position through an intensive advertising campaign designed to strengthen brand loyalty to Intel by the personal computer end-user, there can be no assurances that manufacturers of personal computers will design the 6x86 products into personal computers or purchase such 6x86 products in volumes and at prices that will enable Cyrix to maintain or increase its quarterly revenues. The personal computer industry has been consolidating as the larger, more established manufacturers have become more price aggressive and have been gaining market share at the expense of other domestic and international manufacturers. The majority of Cyrix's customer base consists of smaller personal computer manufacturers and distributors who service such smaller OEMs and dealers. The continued market share gains of the larger manufacturers, to which the Company has been unable to sell significant quantities of its microprocessors to date, could have the effect of subjecting the Company to greater credit risks, reducing demand for the Company's products and adversely affecting the Company's operating results. The Company relies on third parties to manufacture its processors (see risks relating to reliance on third-party manufactures in Other Factors Affecting Results of Operations). Volume production of the 6x86 processors began in the first quarter of fiscal 1996 at IBM. While performance and cost of 6x86 processors manufactured at IBM has been acceptable in fiscal 1996, the Company is working on performance enhancements to the 6x86 processor design to remain competitive with the leading performance processors in the market and ongoing improvement in manufacturing yields by IBM. However, obtaining these objectives will be difficult, and there can be no assurances that the Company and its suppliers can successfully supply advanced microprocessors with competitive performance and cost in commercial volumes in the remainder of fiscal 1996 and thereafter. In addition to supplying microprocessors to Cyrix, IBM has the right to manufacture specified quantities of Cyrix-designed products for use internally or to sell to OEMs. The Company has also licensed certain product rights to SGS and may face competition from SGS during the latter half of 1996 and thereafter if SGS becomes capable of manufacturing the 6x86 microprocessor with competitive performance. Thus, even after a Cyrix product has been designed into an OEM's personal computer, the Company has recently and may in the future face competition from IBM and SGS. Further, Intel and other competitors are expected to employ more advanced manufacturing processes than are available to the Company from IBM and SGS, potentially resulting in improved product performance and decreased manufacturing costs as compared to the Company. Given the financial strength and manufacturing advantages of Intel and other competitors, the Company's future revenues and profits may be adversely affected by price reductions by Intel, Advanced Micro Devices, Inc. ("AMD"), IBM, SGS and other competitors. On April 1, 1996, the Company introduced and began selling personal computer systems integrated by Electronic Data Systems ("EDS") to demonstrate the performance of Cyrix-designed microprocessors and systems and to strengthen Cyrix brand awareness. To date, the Company has not sold a significant volume of computer systems. The Company cannot predict the percentage of its processors which will be sold in board-level or system-level products or the increase, if any, in revenue which will result from the sales of such boards and systems during the remainder of fiscal 1996 or thereafter. Gross Margins. The Company's gross margin decreased to $0.6 million for the second quarter of 1996 from $19.3 million for the same period of 1995. The Company's gross margin decreased to $25.9 million for the six months ended June 30, 1996 from $64.4 million for the same period of 1995. During the six months ended June 30, 1996, the Company's gross margins declined compared to the same period of fiscal 1995 due to a reduction in net product sales (see Net Revenues above), a reduction in royalty revenue (see Net Revenues above) and a $2.8 million increase in the Company's allowance to state inventory at the lower of cost or market. Substantially all of the Company's gross margin in the remainder of fiscal 1996 will be generated from sales of the Company's 6x86 processors and products integrating Cyrix's 6x86 processors. The Company's gross margin as a percentage of net product sales in fiscal 1996 will be affected by the ratio of the Company's sales of microprocessors in chip form to sales at higher levels of integration such as modules, boards and systems. Quarterly growth, if any, in the Company's gross margin in the remainder of fiscal 1996 is dependent upon increasing the Company's net product sales and decreasing its processor cost per unit. Risks associated with enhancing the designs of, ramping production of, and obtaining sales orders for such microprocessors are discussed in Net Revenues (above), Reliance on Third-Party Manufacturers (below) and Product Transitions (below). Marketing, General and Administrative Expenses. Marketing, general and administrative expenses for the second quarters of fiscal 1996 and 1995 were $14 million and $10.2 million, respectively. Marketing, general and administrative expenses for the six months ended June 30, 1996 and 1995 were $27 million and $20.4 million, respectively. Marketing, general and administrative expenses for the quarter and six months ended June 30, 1996 increased compared to the same periods of fiscal 1995 primarily due to an increase in advertising and marketing efforts related to the Company's 6x86 microprocessor and the introduction of Cyrix personal computer systems. In the remainder of fiscal 1996, the Company intends to continue to assist its customers to advertise products which contain Cyrix's 6x86 processors but intends to reduce its personal computer systems advertising expenses. Due to the amount of legal expenses which the Company may incur in connection with the stockholders' class action and dispute with Gateway (see Note 6 to the Consolidated Financial Statements in Part I, Item 1) and the possibility that the Company will be subject to further litigation (see Legal Proceedings in Part II, Item 1), legal expenses could be significant in the second half of fiscal 1996 and subsequent periods. Research and Development Expenses. The Company's research and development expenses for the second quarters of fiscal 1996 and 1995 were $8.8 million and $6.9 million, respectively. The Company's research and development expenses for the six months ended June 30, 1996 and 1995 were $16.5 million and $14.3 million, respectively. The increase of research and development expenses in the quarter and six months ended June 30, 1996 compared with the same periods of fiscal 1995 was attributable to the expansion of the Company's engineering staff, design equipment and prototype expenses to support the development of microprocessor products. The Company intends to continue to increase its research and development expenses in an effort to enhance existing products and develop technologically advanced products; however, there can be no assurance that the Company's design efforts will be successful. Net Interest Expense. Interest expense for the quarter and six months ended June 30, 1996 increased to $2.2 million and $4.3 million, respectively, compared with $1.6 million and $2.6 million, respectively, for the same periods of fiscal 1995 as long-term debt and capitalized lease obligations increased when comparing the same periods. Litigation Settlement. Other income for the six months ended June 30, 1995 included a one-time settlement of $10 million from Intel related to litigation concerning the Company's microprocessor products as described in Note 6 to the Consolidated Financial Statements. Also as described in Note 6 to the Consolidated Financial Statements, other income for the third quarter of 1996 is expected to include $2 million from Intel related to litigation concerning the Company's microprocessor products. The final outcome of one or more of the issues subject to litigation as described in Note 6 to the Consolidated Financial Statements, including the stockholders' class action and dispute with Gateway, could have a material adverse effect on the Company's results of operations during fiscal 1996 or a subsequent period. In addition, potential future litigation could have a material adverse effect on the Company's results of operations in future periods. Provision (Benefit) for Income Taxes. The Company's effective tax rate was 36% and 35% in the six months ended June 30, 1996 and 1995, respectively. Other Factors Affecting Results of Operations. Reliance on Third-Party Manufacturers. During the six months ended June 30, 1996, all of the Company's processors were manufactured and sold to the Company by IBM and all of the company's computer systems were integrated by EDS. The Company expects IBM to increase production of 6x86 microprocessors in the second half of fiscal 1996. Further, the Company is working with SGS to qualify its manufacturing process for 6x86 microprocessors. The Company's 6x86 microprocessors are more complex than its earlier generation microprocessors, and such microprocessors require more advanced manufacturing processes than those required for the Company's previous products. SGS does not currently have the appropriate combination of sophisticated manufacturing equipment and advanced process technologies to manufacture the Company's 6x86 products with acceptable performance and cost. Until SGS becomes capable of manufacturing the Company's 6x86 processors with acceptable performance and cost and until demand for the Company's processors increases sufficiently, the Company will obtain most, if not all, of its microprocessors from IBM. There can be no assurance that SGS will be able to produce 6x86 products with acceptable performance and cost in fiscal 1996 and beyond. Further, there can be no assurance that Cyrix will be able to successfully ramp and sustain production of 6x86 products at IBM without experiencing yield problems or performance issues in the remainder of fiscal 1996 and beyond. If IBM is unable to produce the committed quantities of 6x86 products at acceptable yields, there would be a material adverse effect on the Company's revenues, margins and operating results. In summary, the Company's reliance on third party manufacturers creates risks that the Company will not be able to obtain capacity to meet its manufacturing requirements, will not be able to obtain products with acceptable performance and cost, will not have access to necessary process technologies and the possible breakdown in the relationship with the third-party manufacturers. Further, the Company has licensed some of its intellectual property to SGS and IBM to obtain access to specified levels of manufacturing capacity, and the Company could be required to license more of its intellectual property and product rights and proprietary technology to obtain additional manufacturing capacity. Thus, the Company currently faces competition from IBM and may also face competition from SGS in the future. The Company's reliance on third party manufacturers could have a material adverse affect on the Company's revenues and operating results. Product Transitions. Once current microprocessor products have been in the market place for a period of time and begin to be replaced by higher performance microprocessors (whether of the Company's or a competitor's design), the Company expects the price of such earlier generation microprocessors to decline and net sales and gross margins of such microprocessors to decrease. In order to continue to maintain its then current gross margin and levels of revenue growth, if any, the Company will therefore be required to design, develop and successfully commercialize next generation microprocessors in a timely manner. Although the Company is committed to its product development efforts, there can be no assurance that the Company will be able to introduce new products quickly enough to avoid adverse revenue transition patterns during future product transitions. While the Company believes that, during the remainder of fiscal 1996, its 6x86 microprocessors will offer performance competitive with the leading performance processors in the market at competitive prices for desktop personal computers, there can be no assurance that the Company will be able to successfully improve the performance of its microprocessors at the rate required to remain competitive with the leading performance processors in the market or compete against price decreases, since Intel and several of the Company's other competitors have substantially greater financial, technical, manufacturing and marketing resources than the Company. Further, Intel and other competitors are expected to introduce microprocessors with enhanced multimedia functionality and clock rates in excess of 200 MHz during fiscal 1996 or early 1997. There can be no assurances that the Company will not experience delays in introducing and ramping production of microprocessors with features and performance competitive with such high performance, multimedia processors introduced by Intel and other competitors. If the Company does experience such a delay in transitioning to high performance, multimedia processors, the period of time and the impact on profit margins during this product transition will be dependent upon several factors including, but not limited to the following: Cyrix may experience performance difficulties with the new product designs; Cyrix may not be able to successfully ramp production of new products at IBM and SGS without yield problems or other performance issues; and personal computer manufacturers may not design the Company's new products into their notebook and desktop computers in a timely manner or purchase the Company's products in the volumes and at the prices necessary to offset the declining market, average selling prices and profit margins of previous generation processors. Further, Intel, AMD, IBM, SGS and other competitors have in the past and could in the future significantly decrease the price of products which compete with the Company's products to protect or gain market share. Purchase commitments. Under an April 1994 agreement with IBM, Cyrix is responsible for the total production costs of specified quantities of products during each calendar quarter until the end of fiscal 1999 irrespective of the number of products actually ordered by the Company. During the second quarter of fiscal 1996, the Company sold approximately half of the units it purchased from IBM during the same time period. Therefore, the Company's processor inventory increased substantially by June 30, 1996. The Company anticipated a significant increase in the demand for its 6x86 processors, for which volume production began during the first quarter of 1996, as the introduction of such products represented the first time that the Company's microprocessors were able to provide system-level performance competitive with Intel's high performance products. Therefore, on May 17, 1996, the Company and IBM signed a foundry agreement whereby IBM's Microelectronics division agreed to manufacture additional quantities of wafers of Cyrix-designed products for sale to Cyrix through December 1997 at defined prices. Under the May 1996 foundry agreement with IBM, the Company has a commitment to purchase a specified quantity of wafers from IBM for approximately $45 million during the second half of 1996. Such $45 million commitment can not be reduced without significant penalties payable by the Company. The Company can reduce or eliminate its purchase commitments under the foundry agreement for fiscal 1997 with six months notice to IBM. In June of 1996 and in subsequent months, demand for the Company's microprocessors has not increased as rapidly as previously anticipated by the Company. Thus, there is a risk that the Company has estimated customer demand incorrectly and will purchase excess inventories in the second half of 1996. This inventory risk is heightened because the Company's customers place orders with short lead times and minimal, if any, cancellation penalties. To the extent the Company purchases excess inventories, the Company's earnings would be adversely affected. There can be no assurance that the Company will not purchase excess inventories and incur product write-offs or write-downs in the remainder of fiscal 1996 or subsequent periods. Further, there can be no assurance that the Company will be able to forecast more accurately in the future as Intel maintains its dominant market share, product life cycles become shorter and more difficult to predict and price changes and transitions to new products become more rapid. General. The markets for the Company's products are characterized by a highly competitive and rapidly changing environment in which operating results are subject to the effects of frequent product introductions, manufacturing technology innovations and rapid fluctuations in product demand. While the Company attempts to identify and respond to these changes as soon as possible, prediction of and reaction to such events is an ongoing challenge. The Company offers warranties for all of its products, the terms of which the Company believes are standard for the industry. Under such warranties, the Company may be obligated to replace defective products or products that do not perform to applicable industry standards or refund the purchase price of any such products. One of the Company's competitors, Intel, had a divide problem in the floating point unit of the Pentium microprocessor and incurred a significant charge in late 1994 to cover replacement costs, replacement material and an inventory writedown. Similarly, the Company could be obligated to recall a product that does not perform to applicable industry standards, and such a recall would likely have a material adverse effect on the Company's results of operations and future prospects. International sales represent a significant portion of the Company's net product sales. Further, many of the motherboards, chip sets and other components required to manufacture personal computers are manufactured outside of the United States. If air transportation between the United States and the Company's overseas suppliers or customers were disrupted, or shortages in the various essential materials were to occur due to foreign political or economic factors, there could be a material adverse effect on the Company's operations. The Company's future results of operations and financial condition could be impacted by the following factors, among others: trends in the personal computer market, introduction of new products by competitors, delay in the Company's introduction of higher performance products, chip set, motherboard and BIOS infrastructure support for the Company's products, market acceptance of new products introduced by the Company, intense price competition, interruption in the supply of low-cost microprocessor products from third-party manufacturers, adverse changes in general economic conditions in any of the countries in which the Company does business and adverse decisions in legal disputes with Intel or others. Liquidity and Capital Resources Cash and cash equivalents totaled $70.3 million at June 30, 1996 compared to $44.3 million at December 31, 1995. The Company's primary source of cash in the six months ended June 30, 1996 was the net proceeds of a May 1996 issuance of $126.5 million of 5.5% convertible subordinated notes due June 1, 2001. The Company's primary uses of cash in the six months ended June 30, 1996 consisted of principal payments and early extinguishment of certain long-term debt and capitalized lease obligations, capital equipment purchases, operating losses and an increase in inventories. Under an April 1994 agreement with IBM, Cyrix is responsible for the total production costs of specified quantities of products during each calendar quarter until the end of fiscal 1999 irrespective of the number of products actually ordered by the Company. During the second quarter of fiscal 1996, the Company sold approximately half of the units it purchased from IBM during the same time period. Therefore, the Company's processor inventory increased substantially by June 30, 1996. Under a May 1996 foundry agreement with IBM, the Company has a commitment to purchase an additional quantity of wafers from IBM for approximately $45 million during the second half of 1996. If demand for the Company's products does not increase substantially during the remainder of 1996, a significant portion of the Company's current cash balances will be used to fund an increase in inventories. The Company's expenditures for capital equipment decreased significantly in the six months ended June 30, 1996 as compared to the capital expenditures during the same period of fiscal 1995 as the Company completed substantially all of the capital equipment investment required by the agreement with IBM during 1995. While the Company intends to invest in additional engineering design equipment, software and manufacturing test equipment and is expanding its corporate headquarters in fiscal 1996, capital expenditures are expected to be substantially lower during the remainder of fiscal 1996 compared to fiscal 1995. The Company's long-term debt and capitalized lease obligations, excluding the 5.5% convertible subordinated notes due June 1, 2001, totaled $10.2 million at June 30, 1996. Approximately $2.7 million of such debt is scheduled for payment during the next twelve months. Such debt agreements, excluding the 5.5% convertible subordinated notes due June 1, 2001, contain provisions regarding the maintenance of certain net income per quarter, net worth, working capital and other financial ratios. While the Company was in compliance with the covenants contained in such agreements, as amended, at June 30, 1996, there can be no assurance that the Company will maintain the required net income per quarter, net worth, working capital and other financial ratios in the future. If the Company's creditors were to accelerate the maturity of the Company's long-term debt and capitalized lease obligations, excluding the 5.5% convertible subordinated notes due June 1, 2001, due to future non-compliance with such covenants, the Company's cash and cash equivalents would be reduced accordingly. The Company has a bank line of credit for up to $37.5 million which expires on January 3, 1997. Availability of the line of credit is subject to borrowing base requirements, cash flow based borrowing restrictions and compliance with loan covenants and restrictions which are similar to the covenants and restrictions in the Company's equipment financing agreements. There were no borrowings against this line of credit at June 30, 1996 nor at any time during the quarter ended June 30, 1996. Currently, no borrowings are available under this line of credit due to the cash flow based borrowing restrictions. Due to the anticipated use of cash for increased inventories in the remainder of fiscal 1996, the lack of availability under the Company's line of credit and other factors, the Company will attempt to negotiate additional financing arrangements during the next several months. However, there can be no assurance that additional financing arrangements will be available to the Company or will be available on reasonable terms. The Company's current capital plan and estimated working capital requirements are based on various product mix, selling price and unit demand assumptions and are, therefore, subject to revision due to future market conditions. If the Company is successful in achieving its business plan during the remainder of fiscal 1996, the Company believes that cash flows from operations, current cash balances, and anticipated available equipment financing will be sufficient to fund operations, capital investments and research and development projects currently planned. The Company's ability to achieve its business plan in the remainder of fiscal 1996 is dependent upon increasing sales of the Company's 6x86 microprocessors, ongoing performance enhancements to the 6x86 processor design to remain competitive with the leading performance processors in the market, ongoing improvement in manufacturing yields by IBM, pricing conditions and other factors. There can be no assurance, however, that demand for the Company's products will increase sufficiently or that the Company and its suppliers can accomplish these performance improvements and cost reductions. Further, Intel, AMD and other competitors could introduce products with better performance than the Company's products or significantly decrease the price of products which are comparable to the Company's products to protect or gain market share. Risks associated with enhancing the designs of, ramping production of, and obtaining sales orders for the Company's microprocessors are discussed in Results of Operations - Net Revenues, Reliance on Third-Party Manufacturers and Product Transitions. If the Company's cash flows from operations, current cash balances and potential additional financing arrangements are not sufficient to fund operations, capital investments and research and development projects currently planned, the Company may attempt to sell additional equity securities or issue debt to meet any such requirements. However, there can be no assurance that market conditions will make the sale of additional equity securities or the issuance of debt financially attractive. Due to the factors noted above and elsewhere in Management's Discussion and Analysis of Financial Condition and Results of Operations, the Company's future earnings, if any, and stock price may be subject to significant volatility, particularly on a quarterly basis. Past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. Any shortfall in revenue or earnings from the levels anticipated by securities analysts could have an immediate and significant effect on the trading price of the Company's common stock in any given period. Also, the Company participates in a highly dynamic industry which often results in volatility of the Company's common stock price. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 With the exception of historical information, the matters discussed in this quarterly report are forward-looking statements that involve risks and uncertainties including, but not limited to, economic conditions, trends in the personal computer market, product acceptance and demand, competitive products and pricing, new product development, availability of manufacturing capacity and competitive process technologies, availability of competitive chipsets, motherboards and software which support the company's products, the Company's ability to access external sources of capital and other risks indicated in this filing and prior filings with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 1. Legal Proceedings Current Litigation See Note 6 to the Consolidated Financial Statements included in Part I, Item 1 for a description of material pending litigation and certain related settlements. The final outcome of one or more of the issues subject to litigation as described in Note 6 to the Consolidated Financial Statements could have a material adverse effect on the Company's results of operations during the remainder of fiscal 1996 or a subsequent period. Potential Future Litigation The Company believes that Intel has a strategy of protecting its market share by filing intellectual property lawsuits against its competitors, and that Intel may assert additional patent infringement claims against the Company in the future. Potential additional Intel litigation would likely involve different patents with new combination or system claims. In addition, new patent applications are continually being filed, and pending United States patent applications are confidential until patents are issued. Thus, it is impossible to ascertain all potential patent infringement claims. The damages and legal and other expenses of any such litigation could materially and adversely affect the Company's future operating results. There could be no assurance as to the outcome of any such litigation, and an adverse decision could render the Company insolvent or severely impair the Company's future business prospects. In addition, there are many patents held by companies other than Intel which relate to the design and manufacture of semiconductor components, including microprocessors, and computer systems. Potential claims of infringement could be asserted by other holders of patents relating to semiconductor components or computer systems. Currently, the Company is a licensee under a limited number of specified patents under an agreement with Intel and is not a licensee under any patent license agreement with any other party. If the Company is alleged to infringe one or more patents, it may seek a license to the patent. However, there can be no assurance that a license will be available or available on reasonable terms. In such event, the Company may be forced to litigate the matter. If litigation were to commence, a license is not available on reasonable terms or if any other third party is found to have a valid claim against the Company, it could have a material adverse effect on the Company. Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders held on April 27, 1996, the following persons were elected to the Board of Directors:
Affirmative Votes Broker Votes Withheld Non-votes ----------- ----------- ----------- Gerald D. Rogers 16,990,865 150,221 0 Harvey B. Cash 17,045,081 96,005 0 L.J. Sevin 17,045,691 95,395 0 Jack Kemp 17,033,467 107,619 0
The following proposals were also approved at the Company's Annual Meeting of Stockholders: Affirmative Negative Broker Votes Votes Abstentions Non-votes ---------------- --------------- --------------- ---------------- Amendment and restatement of the Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock to 60,000,000 shares. 16,790,751 280,146 69,189 1,000 Amendment of the 1988 Incentive Stock Plan to increase the number of shares available to be issued upon exercise of stock purchase rights and options granted, and stock bonuses awarded by 1,000,000 shares to 7,218,334 shares of Common Stock. 9,238,802 1,275,063 346,403 6,280,818 Ratification of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 1996 17,045,196 47,352 48,538 0
Item 5. Other Information Effective August 12, 1996, James N. Chapman, Senior Vice President of Sales, resigned from the Company. Effective July 31, 1996, Michael E. Barton, Vice President of Sales for the Americas, resigned from the Company. Item 6. Exhibits and Reports on Form 8-K a. Exhibit 10.19. Agreement for Purchase of Products (Foundry) entered into as of May 17, 1996 between IBM Microelectronics and Cyrix Corporation. (Portions have been omitted and filed separately with the Commission in reliance on Rule 24b-2 and the Registrant's request for confidential treatment). Exhibit 11. Earnings per Common and Common Equivalent Share. b. On May 23, 1996, the Company filed a report on Form 8-K incorporating its May 22, 1996 press release announcing the Company's intention to offer for sale $110 million of 5.5% convertible subordinated notes. On June 27, 1996, the Company filed a report on Form 8-K incorporating its June 21, 1996 press release announcing the Company's expected loss for the quarter ending June 30, 1996. 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. Cyrix Corporation Date: August 14, 1996 By: Jay Swent ----------------------- Jay Swent Senior Vice President of Finance and Administration (Principal Financial Officer) By: Timothy W. Kinnear ----------------------- Timothy W. Kinnear Vice President of Finance (Principal Accounting Officer) INDEX TO EXHIBITS Exhibit Number Description - -------------------------------------------------------------------------------- 10.19 Agreement for Purchase of Products (Foundry) Entered into as of May 17, 1996 between IBM Microelectronics and Cyrix Corporation 11 Earnings per Common and Common Equivalent Share EX-10 2 IBM FOUNDRY AGREEMENT [Portions have been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and the Registrant's request for confidential treatment.] IBM Microelectronics Essex Junction, Vermont Agreement for Purchase of Products (Foundry) Name and Address of Buyer: Cyrix Corporation Agreement Number: CY2 2703 North Central Expressway Customer Number: Richardson, Texas 75080 Commencement Date: Address of IBM: IBM Customer Account Representative: 1000 River Street Essex Junction, Vermont 05452 This agreement ("Agreement") is entered into by and between International Business Machines Corporation ("IBM"), incorporated under the laws of the State of New York, and Cyrix Corporation, ("Buyer"), incorporated under the laws of the State of Delaware. Buyer agrees to purchase and IBM agrees sell certain semiconductor products in accordance with the terms and conditions of this Agreement including its attachments ("Attachments"). 1.0 DEFINITIONS 1.1 "Buyer Deliverable Items" shall mean the items listed in Section 2.0 of Attachment A 1.2 "Commencement Date" shall mean the date this Agreement is executed by Buyer and IBM. 1.3 "Distribution Point" shall mean the IBM location designated by IBM from which Product is shipped to Buyer. Distribution Points may be redesignated at IBM's sole discretion. 1.4 "Engineering Change" shall mean a mechanical or electrical change to the Product which affects form, fit, function or maintainability. 1.5 "Harmful Code" shall mean any computer code, programming instruction or a set of instructions that is intentionally constructed with the ability to damage, interfere with or otherwise adversely affect computer programs, data files or hardware without the consent or intent of the computer user. This definition includes, but is not limited to, self-replicating and self-propagating programming instructions commonly called viruses or worms. 1.6 "NRE" shall mean non-recurring engineering charges unique to Products manufactured under this Agreement. 1.7 "Person" shall mean any person, company or other legally recognized entity. 1.8 "Plant of Manufacture" shall mean the IBM location that manufactures the Products and/or assembly and ships Product to IBM Distribution Points or Buyer. 1.9 "Product(s)" shall mean the IBM product(s) to be sold and purchased under this Agreement as specified in Section 1.0 Attachment A. 1.10 "Purchase Order" shall mean a Purchase Order issued by Buyer for Product(s) in accordance with Section 6.0. 1.11 "Purchase Order Lead Time" shall mean the period between Purchase Order issuance by Buyer and the requested shipment date as specified in Attachment A. 1.12 "Scheduled Shipment Date" shall mean the date requested by Buyer on the Purchase Order and accepted by IBM. 1.13 "Shipment Date" shall mean the date for shipment of Product requested by Buyer in a Purchase Order. 1.14 "Subsidiary" shall mean a corporation, company or other entity: 1) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are; or 2) which does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, but more than 50% or whose ownership interest representing the right to make the decisions for such corporation, company or other entity is: now or hereafter, owned or controlled, directly or indirectly, by a party hereto, but such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists. 1.15 "Unit" shall mean a single wafer of Product. 2.0 WORK SCOPE 2.1 IBM agrees to sell Products to Buyer as requested by Buyer and accepted by IBM in accordance with Section 6.0. 2.2 IBM will not have any installation, warranty or maintenance responsibilities for Products except as referred to in Section 17.0. 2.3 Nothing in this Agreement shall be interpreted nor construed in any way as limiting, abrogating or diminishing any rights or obligations of either party, including intellectual property rights, as set forth in the Agreement for Purchase of Products between International Business Machines Corporation and Cyrix Corporation dated April 7, 1994, as amended. 3.0 TERM OF AGREEMENT The term of this Agreement will begin on the Commencement Date and will end on December 31, 1997(the "Contract Period"), subject, however, to earlier termination as permitted under Section 13.0. 4.0 SCHEDULE 4.1 IBM and Buyer agree to complete their respective responsibilities in the time frame specified in Purchase Orders issued by Buyer and accepted by IBM in accordance with Section 6.0. 4.2 Products will be ordered and delivered under this Agreement during scheduling periods (the "Scheduling Periods"). The first Scheduling Period shall begin on the Commencement Date and conclude on December 31, 1996. Subsequent Scheduling Periods shall be twelve (12) months each, and shall begin immediately following the conclusion of the first Scheduling Period, and run consecutively for the duration of the Contract Period. 5.0 PRODUCT DEMAND FORECASTS 5.1 The first Product demand forecast agreed to by Buyer and IBM is set forth in Attachment A. The forecast covers the Contract Period and is broken out by Product and month and shall constitute on the part of Buyer an obligation to purchase such forecasted quantities and on the part of IBM an obligation to supply such forecasted quantities in 1996 and up to [ * ] Units per month during 1997. Buyer may adjust the Product demand forecast set forth in Attachment A only once per calendar quarter and only upon six (6) month's prior written notice to IBM, subject to Section 5.2. 5.2 Buyer may request quantities of Products that exceed the Product demand forecast provided pursuant to Section 5.1 and that have been accepted by IBM. Such requests are subject to rejection by IBM for any reason, including but not limited to resource availability. 6.0 PURCHASE ORDERS 6.1 Buyer shall order Products by issuing written Purchase Orders. IBM shall ship Units in accordance with such Purchase Orders. Purchase Orders must be placed in advance, with at least the Purchase Order Lead Time specified in Attachment A, to allow IBM to meet Buyer's requested Shipment Date. IBM may reject Buyer's requested Shipment Date if such requested Shipment Date does not comply with the Purchase Order Lead Time. Requested Shipment Dates will be deemed accepted by IBM if the Purchase Order requesting such Shipment Date is accepted by IBM. If so accepted, a requested Shipment Date shall constitute a Scheduled Shipment Date. Buyer may request an improved Scheduled Shipment Date. However, such a request may be rejected by IBM for any reason. 6.2 Purchase Orders will be deemed accepted by IBM unless rejected in writing by IBM, specifying the reasons for rejection, within fourteen (14) calendar days after receipt of the Purchase Order. Purchase Orders may be rejected by IBM only if a Purchase Order requests quantities of Products that exceed Product demand forecasts that were accepted by IBM, requests a Shipment Date that is less than the Purchase Order Lead Time or does not comply with the terms and conditions of this Agreement . 6.3 Purchase Orders issued to IBM shall include the following: 6.3.1 Product(s) being purchased; 6.3.2 quantity of Units requested; 6.3.3 Unit price per Attachment A; 6.3.4 billing address; 6.3.5 shipping instructions, including carrier, destination address and requested Shipment Dates; 6.3.6 reference to this Agreement and Agreement Number. 6.4 This Agreement shall take precedence over and govern in case of any additional, different and/or conflicting terms and conditions in any Purchase Order(s). Purchase Orders may not vary the terms of this Agreement. Additional, different and/or conflicting terms and conditions on a Purchase Order shall be of no effect. 6.5 Notwithstanding any other provision of this Agreement, in the event that IBM's ability to supply the Product is constrained for reasons beyond its reasonable control which may include but are not limited to component availability or force majeure, and the Scheduled Shipment Date cannot be met, IBM will reduce the quantities to be supplied to Buyer in proportion to the reduction in quantities of Products for the same time periods to be supplied to satisfy customers other than Buyer, which shall include IBM internal customers. Receipt of such allocated supply and later delivery of all undelivered ordered quantities after the constraint ends shall constitute Buyer's exclusive remedy in the event of such supply constraint. 7.0 PRICING 7.1 Buyer shall pay IBM the NRE applicable to the Product as set forth in Section 3.0 of Attachment A, as well as such other sums for special services as are separately listed or referenced in such Section. Amounts due at particular milestones pursuant to the schedule set forth in Attachment A shall accrue and be invoiced at the applicable milestones. 7.2 The Unit price for each Unit ordered shall be calculated at the time the applicable Purchase Order is accepted using the Price Matrix set forth in Attachment A. 7.3 For the duration of this Agreement IBM will not increase the Unit prices set forth in Attachment A unless mutually agreed upon between IBM and the Buyer. 8.0 BUYER'S PURCHASE OBLIGATION 8.1 IBM will review the quantity of Units of Product ordered by Buyer, pursuant to Product Purchase Orders, at the end of the each three (3) month calendar quarter period beginning on the Commencement Date (or, as of any earlier termination of this Agreement due to an uncured default of Buyer, IBM may conduct such review as of the date of such termination). 8.2 If Buyer's total orders of Units for any such three (3) month period have fallen short of the quantity of Units as set forth in the Product demand forecast, IBM shall invoice Buyer for the total number of Units forecasted for such period less the quantity of Units that Buyer ordered during such period. [ * * * * ] 8.3 Such invoice, if any, will be due and payable within thirty (30) days of the date of invoice. 8.4 The charges in Sections 8.1 and 8.2 will not apply to Purchase Orders that are cancelled with adequate notice to IBM pursuant to Section 12.1 below. 8.5 [ * * * * * * * ] 9.0 TITLE AND SHIPMENT 9.1 Title to each Unit of Product passes to Buyer on the date of shipment from the IBM Plant of Manufacture. 9.2 IBM shall ship all Products FOB, IBM's Plant of Manufacture, in single or multiple lots. 9.3 Risk of loss will pass to Buyer upon shipment from IBM's Plant of Manufacture. 10.0 INVOICING, PAYMENT TERMS, SECURITY INTEREST, TAXES 10.1 IBM shall invoice Buyer for all Units upon shipment. Payments under this Agreement shall be due within thirty (30) days of the date of invoice. If Buyer's account becomes in arrears, in addition to IBM's right to hold the Buyer in default under the terms of the Agreement, IBM reserves the right to ship to Buyer on a COD basis until the account is again current. 10.2 Buyer agrees to pay amounts equal to any taxes resulting from this Agreement, or any activities hereunder, exclusive of taxes based on IBM's net income. Buyer shall be responsible for any personal property taxes assessable on Products after delivery to the carrier. 10.3 Buyer hereby certifies that it holds a valid Reseller's Exemption Certificate for Products purchased for resale in each applicable taxing jurisdiction. Based on this certification, IBM shall, where the law permits, treat Buyer as exempt from applicable state and/or local sales tax for Products purchased hereunder. 10.4 Where required by state or local law, Buyer shall provide IBM with a valid Reseller's Exemption Certificate for each taxing jurisdiction to which IBM will ship Products. 10.5 Buyer shall notify IBM promptly in writing of any modification or revocation of its exempt status. Buyer shall reimburse IBM for any and all assessments resulting from a refusal by a taxing jurisdiction to recognize any Buyer exemption certificates, or from Buyer's failure to have a valid certificate. If Buyer purchases Product under this Agreement for internal use, Buyer agrees to notify IBM and pay applicable sales tax. 11.0 INTEREST ON OVERDUE PAYMENTS Buyer shall be liable for interest on any overdue payment required to be made to IBM under this Agreement, commencing on the date such payment becomes due, at an annual rate which is the greater of ten percent (10%) or one percent point higher than the prime interest rate quoted by the head office of Citibank, N.A., New York, at the close of banking on such date, or on the first business day thereafter if such date falls on a non-business day. If such interest rate exceeds the maximum legal rate in the jurisdiction where a claim therefore is being asserted, the interest rate shall be reduced to such maximum legal rate. 12.0 CANCELLATION CHARGES, RESCHEDULING AND ORDER CHANGE PROVISIONS 12.1 Buyer may cancel a Purchase Order or any portion thereof upon written notice to IBM. If the written cancellation notice is delivered to IBM less than six (6) months prior to forecasted delivery, then a cancellation charge, as specified in Attachment A, will immediately become due for each canceled Unit. 12.2 No cancellation charges will be due if cancellation occurs due to IBM's inability to meet Scheduled Shipment Dates. 12.3 [ * * * * * * * * ] 13.0 TERMINATION OF AGREEMENT 13.1 If either party is in default of any material provision of this Agreement and such default is not corrected within sixty (60) days of receipt of written notice, this Agreement may be terminated by the party not in default. 13.2 If Buyer terminates due to IBM default, all outstanding Purchase Orders shall be automatically canceled without charge to Buyer, unless IBM and Buyer mutually agree not to cancel any or all such Purchase Orders. 13.3 If IBM terminates due to Buyer default, IBM will continue processing work-in-process on a cash-in-advance basis. If IBM terminates due to Buyer default, all outstanding Purchase Orders shall be automatically canceled and adjustment charges and cancellation charges will apply in addition to any other amounts then due at IBM's discretion (except that IBM shall fill such Purchase Orders if Buyer provides for payment in advance or a letter of credit sufficient to guaranty payment thereof), provided, however, that IBM will have no obligation to accept new Purchase Orders. 13.4 Notwithstanding the provisions of Section 13.1: 13.4.1 either party shall have the right to terminate this Agreement immediately if: 13.4.2 The other party files a petition in bankruptcy, undergoes a reorganization pursuant to a petition in bankruptcy, is adjudicated a bankrupt, becomes insolvent, becomes dissolved or liquidated, files a petition for dissolution or liquidation, makes an assignment for benefit of creditors, or has a receiver appointed for its business; or 13.4.3 The other party is subject to property attachment or court injunction or court order which has a substantial negative effect on its ability to fulfill its obligations under the present Agreement. 13.4.4 Buyer shall unreasonably withhold its consent for IBM to make Mandatory Engineering Changes or Elective Engineering Changes under Section 14.0. 13.4.5 in the case of IBM, IBM believes, in its sole discretion, that Buyer's designs infringe unlicensed copyrighted or trade secret works or patents of any third party, or in the case of Buyer, Buyer believes in its sole discretion that IBM's process technologies as utilized hereunder infringe unlicensed copyrighted or trade secret works or patents of any third party. Prior to such termination becoming effective, in the event that the parties disagree as to the existence or extent of such infringement, the party first believing such infringement exists shall at its sole expense as to outside counsel fees submit the issue for resolution by outside counsel having expertise in the area of the law involved. Such party shall designate a list of five (5) of such counsel, from which the other party shall choose one, and the parties shall provide such assistance as may be necessary to enable the chosen counsel to provide a written opinion to both parties as to such infringement within thirty (30) days of when such counsel is chosen. In the event that the parties agree as to such infringement, they shall work together to resolve the issue, with the understanding that the party that is the originator of the materials to which the infringement applies shall bear the primary responsibility to use commercially practicable efforts to redesign the infringing materials or secure a license sufficient to enable IBM to perform its obligations under this Agreement. Should such redesign or license not be available within a reasonable period of time, or should the parties disagree as to the existence of such infringement, either party believing such infringement exists may; 13.4.5.1 terminate production of the infringing Product; or 13.4.5.2 terminate the Agreement if more than one Product is infringing, except that IBM will manufacture and ship wafers to Buyer for all accepted Purchase Order received from Buyer prior to an event of termination under Section 13.4.5, to the extent allowable by law, and provided that the maximum period for such manufacture shall be three (3) months. Nothing in this Agreement shall be interpreted as compelling continued production if such production could be reasonably considered a willful infringement. 13.5 In the event of termination under Section 13.4, all amounts owing to IBM shall become immediately due and payable. 14.0 ENGINEERING CHANGES 14.1 IBM may implement manufacturing Engineering Changes required to satisfy governmental standards, protect data integrity, or for safety, environmental or other reasons as reasonably determined by IBM ("Mandatory Engineering Changes") and Buyer will provide IBM with reasonable design assistance if required. IBM shall give Buyer prompt notice of Mandatory Engineering Changes and any requests for such assistance. 14.2 For all previously shipped Product not incorporating Mandatory Engineering Changes, IBM may, at Buyer's option, provide replacement Products to Buyer (including parts, materials and documentation) at Buyer's expense, except to the extent such is caused by IBM's breach of its obligations hereunder. If Buyer should refuse replacement Products and/or not provide replacement products to its customers and/or not request the return destruction of Products to be displaced by replacement Products, Buyer shall indemnify and defend IBM against third party claims arising from the same. 14.3 In addition to Mandatory Engineering Changes, IBM may implement Engineering Changes that result in cost reductions to the Product ("Elective Engineering Changes") at IBM's expense with prior approval from Buyer, which shall not be unreasonably withheld. IBM shall give Buyer prompt notice of Elective Engineering Changes. 14.4 IBM may make available other Engineering Changes ("Optional Engineering Changes"). The cost of any Optional Engineering Changes that Buyer desires to implement will be borne by Buyer and will be determined through a request for quotation process. 15.0 TECHNICAL COORDINATORS AND COMMUNICATIONS The Technical Coordinators pursuant to this Agreement are: For IBM: For Cyrix: Mr. Fred Jaquish Mr. Kevin McDonough 1000 River Street P.O. BOX 853916 Essex Junction, VT 05452 Richardson, TX 75085-3916 (FAX) 802-769-6899 (FAX) . 214-994-8444 The Technical Coordinators will be responsible for maintaining technical liaison between the parties. Unless otherwise stated elsewhere in this Agreement, all official notices between the parties concerning this Agreement shall be in writing and sent by facsimile transmission (FAX) or registered mail return receipt requested to the parties' Technical Coordinators. For purposes of this Agreement, a "notice" is deemed given upon receipt by the addressee. Either party may change the above individual, department or address by notifying the other party in the same manner as any other notice. 16.0 QUALITY ASSURANCE 16.1 IBM will follow its standing workmanship and quality assurance procedures in producing Products sold under this Agreement, consistent with Attachment B. 16.2 Should questions pertaining to Product quality or testing arise, the parties will meet at a mutually agreed-upon location and date, and at their own expense, for the purpose of reviewing IBM's quality system and testing procedures for the Product. 17.0 WARRANTIES 17.1 Buyer represents and warrants it is the originator and or rightful owner or licensee of all designs, information, and materials supplied to IBM hereunder, and that no part of such materials infringe the intellectual property of any third party. Notwithstanding the foregoing, in the case of patents, each party represents and warrants that to the best of its knowledge, none of the designs, information, and materials supplied to the other hereunder infringes the unlicensed patents of the other or any third party. 17.2 Buyer represents and warrants it will notify IBM immediately if Buyer discovers that any of the programming code it has provided contains Harmful Code, and make every effort to ensure that it is removed from all Buyer Deliverable Items. 17.3 IBM warrants that each Unit will be free from defects in material and workmanship and quality objectives as set forth in Attachment B for the period after delivery set forth in Section 7.0 of Attachment A hereto. Delivery to Buyer of each Unit is deemed to occur five (5) days after shipment from the IBM Plant of Manufacture. 17.4 Any Unit found to be defective under warranty may be returned, transportation prepaid by Buyer, to the location IBM designates for replacement. IBM will replace the Unit, ship it back to Buyer, transportation prepaid by IBM, and such Product will be considered newly delivered for warranty purposes. 17.5 Should any Unit or part returned to IBM hereunder be found by IBM to be without defect, IBM will return such Unit or part to Buyer. Payment will be due and payable by Buyer upon receipt of the invoice. 17.6 The warranty of section 17.3 does not include repair of damage resulting from failure to provide a suitable installation environment, accident, disaster, neglect, abuse, misuse, transportation, alterations, attachments, accessories, supplies, non-IBM parts, or non-IBM repairs or activities. 17.7 The warranty of section 17.3 does not cover any design functionality of Products fabricated hereunder. 17.8 THE FOREGOING WARRANTIES ARE EXCLUSIVE AND IN LIEU OF ANY OTHER WARRANTIES, EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NO COURSE OF DEALING AND NO PRODUCT DESCRIPTION SHALL BE DEEMED A WARRANTY TO ANY GOODS DELIVERABLE BY IBM. 18.0 DISCLOSURE OF INFORMATION 18.1 Any Information disclosed by IBM or Buyer (hereinafter "Discloser") to Buyer or IBM, respectively (hereinafter "Receiver"), under this Agreement is hereafter referred to as "Information". All such disclosures of Information shall be made under the supervision and control of the Technical Coordinators for IBM and Buyer. All disclosures under the Confidentiality Agreement shall be deemed to have occurred under this Agreement, except that the confidentiality period hereunder shall run from the original date of disclosure. 18.2 All Information disclosed by one party to the other and identified as confidential, by having the legend "Cyrix Confidential" or "IBM Confidential", is the confidential Information of the Discloser. All confidential Information orally disclosed by the Discloser shall be documented in a writing submitted to the Receiver within thirty (30) days of the date of such oral disclosure. With respect to IBM confidential Information or Cyrix confidential Information, for a period of three (3) years from the date of disclosure, the Receiver agrees to use the same care and discretion to avoid any publication, disclosure or dissemination of any part or all of the Discloser's confidential Information outside of itself, as it employs with information of its own which it regards as confidential and which it does not desire to publish, disclose or disseminate. Such standard of care and discretion requires that the Receiver shall do, as a minimum, the following with respect to confidential Information it has received from the Discloser: 18.2.1 maintain listings of all tangible items that contain confidential Information; and 18.2.2 secure all tangible items which contain confidential Information in a safe, file, desk, cabinet or other suitable container with locking device, or in a locked room with restricted access, when such tangible items are not in use; provided, however, that this requirement shall not apply to silicon Wafers in processing and their associated manufacturing documentation. 18.3 It is understood that receipt of any confidential Information under this Agreement shall not create any obligation in any way limiting or restricting the assignment and/or reassignment of employees within the Receiver or to or from or within any of its Subsidiaries. 18.4 Disclosure of the Discloser's information by the Receiver shall not be precluded, if such disclosure is: 18.4.1 in response to a valid order of a court or other official governmental body; provided, however, that the Receiver shall if possible first have given notice to the Discloser and made a reasonable effort to obtain a protective order requiring that the confidential Information so disclosed be used only for the purposes for which the order was issued: 18.4.2 otherwise required by law; or 18.4.3 necessary to establish rights under this Agreement; provided, however, that the Receiver shall first have given notice to the Discloser and made a reasonable effort to obtain a protective order requiring that the confidential Information and/or documents so disclosed be used only for the purposes for which the order was issued. 18.5 Notwithstanding any other provisions of this Agreement, the non-disclosure obligations specified in Section 18.2 shall not apply to any Information which: 18.5.1 is already in the possession of the Receiver without obligation of confidence; 18.5.2 becomes publicly available without breach of this Agreement; 18.5.3 is released for disclosure by the Discloser with its written consent; 18.5.4 can be shown by the Receiver to have been rightfully received completely independently of this Agreement from a third party without any obligation of confidence; or 18.5.5 can be shown be the Receiver to have been developed by it completely independently of this Agreement. 18.6 The marketing by the Receiver of any Product, or other products or services, in the case of Residual Information including the supporting documentation therefor, which inherently discloses the confidential Information of the Discloser shall not in itself be deemed publication, disclosure or dissemination of such confidential Information for purposes of this Section 18.0. 18.7 Notwithstanding the foregoing provisions of this Section 18.0, either party in furtherance of its obligations under this Agreement, may, with the prior written permission of the other party, disclose the confidential Information of the other to a subcontractor or other third party, on condition that such third party agrees to accept such Information under appropriate confidentiality obligations which shall at a minimum include the obligations of Sections 18.1 through 18.7 relating to the disclosure and use of Cyrix confidential Information. 19.0 TRADEMARKS AND TRADE NAMES 19.1 Neither this Agreement nor the sale of Products hereunder shall be deemed to give either party any right to use the other's trademarks or trade names without specific, written consent. 19.2 Buyer recognizes IBM ownership of and title to the trademark "IBM," all other trademarks and trade names of IBM, and the goodwill attaching thereto and agrees that any goodwill which accrues because of Buyer's use of the trademark "IBM" and any other trademarks and trade names of IBM shall vest in and become the property of IBM. Buyer further agrees not to contest, or take any action to contest, the trademarks or trade names of IBM, or to use, employ or attempt to register any trademark or trade name which is confusingly similar to the trademarks or trade names of IBM. 20.0 PROMOTIONAL ACTIVITY IBM and Buyer agree not to disclose the terms and conditions or existence of this Agreement without the other's express written approval which shall not be unreasonably withheld. The parties shall agree in advance on the timing and content of any announcement of their relationship as set forth in this Agreement. Notwithstanding this, either party shall have the right to disclose the terms and conditions or existence of this Agreement as reasonably necessary in its sole discretion to comply with SEC requirements upon prior written notice to the other. 21.0 INTELLECTUAL PROPERTY INDEMNIFICATION AND RIGHTS 21.1 Buyer shall, at its own expense, indemnify and hold harmless IBM, its officers, directors, employees, agents and Subsidiaries, and shall pay any amounts finally awarded by a court or settlement costs, for any lawsuit alleging that the Products infringe any copyrights, trade secret, or mask works of any third party that are unlicensed to IBM, and shall defend at its own expense, including attorney's fees, any suit or claim brought against IBM alleging any such infringement. After commencement of suit, Buyer agrees to provide IBM security against its default in performing any obligation of this Section 21.1. Buyer may, at its option and expense: 21.1.1 modify or replace the Products with non-infringing Product which is functionally equivalent; 21.1.2 obtain a license for IBM to continue the manufacture and sale of the Products; or 21.1.3 if neither option of 21.1.1 or 21.1.2 is available despite the reasonable efforts of Buyer, cease to buy such the affected Product . 21.2 The obligation of Section 21.1 is contingent upon: 21.2.1 IBM giving prompt written notice to Buyer of any such claim; and 21.2.2 IBM providing Buyer with all reasonably necessary information, assistance, and authority, at Buyer's expense, as necessary for Buyer to defend such claim or suit. 21.3 Buyer shall have no obligation hereunder for any such claims which result from: 21.3.1 the combination of a Product, with other Products or products; 21.3.2 the modification of the Product by parties other than Buyer or the use or distribution of Products or products, provided, however, that such Section 21.3.1 or 21.3.2 infringement would not have existed but for such combination or modification; or 21.3.3 in the event that Buyer has offered an acceptable modification or replacement of the Products pursuant to Section 21.1.1, the use of the unmodified or unreplaced Products. 21.4 Buyer's obligations hereunder with respect to any settlement agreement is conditioned upon Buyer's consent to the terms and conditions of such settlement, which consent shall not be unreasonably withheld by Buyer. Furthermore, should IBM decide to defend itself in a suit otherwise indemnified under Section 21.1, Buyer agrees to pay the reasonable IBM cost thereof. 21.5 IBM shall, at its own expense, indemnify and hold harmless Buyer, its officers, directors, employees, agents and Subsidiaries, and shall pay any amounts finally awarded by a court or settlement costs, for any lawsuit alleging that the IBM's manufacturing technology used to manufacture Products infringes any trademark, copyright, trade secret, mask work, or other proprietary rights of any third party that are unlicensed to Buyer or IBM, and shall defend at its own expense, including attorney's fees, any suit brought against Buyer alleging any such infringement. IBM may, at its option and expense: 21.5.1 modify such process technology with non-infringing technology which is functionally equivalent; 21.5.2 obtain a license for Buyer to continue the use and distribution of such Products; or 21.5.3 if neither option 21.5.1 or 21.5.2 is available despite the reasonable efforts of IBM, to cease manufacture of the affected Product. 21.6 The obligation of Section 21.5 is contingent upon: 21.6.1 Buyer giving prompt written notice to IBM of any such claim; and 21.6.2 Buyer providing IBM with all needed information, assistance, and authority, at IBM's expense, as necessary for IBM to defend such suit. 21.7 IBM shall have no obligation hereunder for any such claims which result from: 21.7.1 the combination of a Product with other Products or other products made by IBM; 21.7.2 the modification of the Product or other product by parties other than IBM or the use or distribution of such Product, or other products; provided, however, that such Section 21.7.1 or 21.7.2 infringement would not have existed but for such combination or modification; or 21.7.3 in the event that IBM has offered a modification or replacement of such process technology pursuant to this Section 21.0, the use of the unmodified or unreplaced Products. 21.8 IBM's obligations hereunder with respect to any settlement agreement is conditioned upon IBM's consent to the terms and conditions of such settlement, which consent shall not be unreasonably withheld by IBM. Furthermore, should Buyer decide to defend itself in a suit otherwise indemnified under Section 21.5, IBM agrees to pay Buyer the reasonable cost thereof. 21.9 The purchase, receipt or possession of Products from or through IBM carries no license or immunity, express or implied, under any patent of either party covering the combination of such Products with other products purchased from others or the use of any such combination, or under any patent or other intellectual property right of any third party relating to such Products or their combinations with any other products, except that IBM intends that its sale of Products to Buyer will, to the full extent possible under law, exhaust the patent rights of IBM and the patent rights of third party licensors to IBM as to such Products. IBM does not warrant or represent that the use, sale, resale, manufacture, modification, or other utilization of such Products will not infringe any such patent or other intellectual property right referred to above, whether by direct infringement, contributory infringement or inducement of infringement. IBM, however, agrees to notify Buyer promptly of any such third party infringement or other patent claim and to make a copy of the relevant third party license agreement (if any) available to Buyer to the extent permitted by the third party license agreement. 22.0 INDEMNIFICATION Each party to this Agreement is an independent contractor and is not an agent of the other party for any purpose whatsoever. Neither party will make any warranties or representations on the other party's behalf, nor will it assume or create any other obligations on I such other party's behalf. Each party agrees to indemnify and save the other party harmless from and against any and all claims (including costs of litigation and attorney fees) arising out of any violation of this Section. 23.0 LIMITATION OF REMEDIES 23.1 IBM's entire liability and Buyer's exclusive remedy are set forth in this Section: 23.1.1 If either party wrongfully terminates this Agreement, the other party shall be liable for all damages to the other party that result from such wrongful termination. 23.1.2 Except as provided in Section 23.1.1, in all situations involving non-conforming Products furnished under this Agreement, Buyer's remedy is the replacement of the Products by IBM. 23.1.3 Except as provided in Section 23.1.1, IBM's liability for actual damages for any cause whatsoever (other than as set forth in Section 23.1.1), shall be limited to the applicable Unit Price for the specific Units that caused the damages or that are the subject matter of, or are directly related to, the cause of action. This limitation will apply, except as otherwise stated in this Section, regardless of the form of action, whether in contract or in tort, including negligence. This limitation will not apply to the payment of costs, damages and attorney's fees referred to in Section 21.0. This limitation will also not apply to claims by Buyer for bodily injury or damage to real property or tangible personal property caused by IBM's negligence. 23.1.3 Except as provided in Section 23.1.1, in no event will either party be liable to the other party for any lost profits, lost savings, incidental damages or other consequential damages, even if such party has been advised of the possibility of such damages. In addition neither party will be liable for any claim by the other party based on any third-party claim, except as provided in Section 21.0. Similarly, neither party will be liable for any damages caused by performance or nonperformance of Products. In no event will either party be liable for any damages caused by the other party's failure to perform its responsibilities. 23.1.4 In addition, IBM has no liability when the Products are used in conjunction with nuclear materials or other ultra-hazardous activities. 24.0 SUBCONTRACT AND ASSIGNMENT 24.1 IBM has the right to subcontract its responsibilities under this Agreement, provided that any subcontractor retained by IBM is obligated in writing to the same obligations as set forth herein with respect to IBM. In the event that IBM does subcontract certain portions of its responsibilities, the term "employee" as used herein shall be deemed to include such subcontractor and/or its employees. 24.2 Neither party to this Agreement may assign its rights or delegate its duties, in whole or in part, without the prior written consent of the other except that if the assets or stock of that portion of IBM to which this Agreement pertains hereafter becomes owned or controlled, directly or indirectly, by a third party, IBM may assign its entire right, title and interest in this Agreement to such third party. Any other assignments or delegations will be void. 25.0 COMPETITIVE PRODUCTS AND SERVICES Neither this Agreement nor any activities hereunder will impair any right of IBM or Buyer to design, develop, manufacture, market, service, or otherwise deal in, directly or indirectly, other products or services including those which are competitive with those offered by IBM or Buyer. 26.0 FORCE MAJEURE Neither IBM nor Buyer shall be in default or liable for any delay or failure of compliance with this Agreement due to an act of nature, public enemy, freight embargo, or other cause if such act of nature, public enemy, freight embargo, strike or other cause is beyond the control of the defaulting party. A non-performing party shall cure as soon as practicable. 27.0 NOTICES All notices required to be given under this Agreement will be in writing and deemed given if sent postage prepaid or by facsimile transmission (FAX), receipt confirmed, to the parties as follows: Cyrix Corporation P.O. BOX 853919m MS 250 Richardson, Texas 75085-3419 Attention: Mr. Kevin McDonough (FAX) 214-968-8444 International Business Machines Corporation 1000 River Street Essex Junction, Vermont 05452 Attention: Contract Administrator Mail Stop: B965-3 Dept. LJGV (FAX) 802-769-3988 28.0 COMPLIANCE WITH LAWS AND REGULATIONS Each party will comply with all applicable federal, state and local laws, regulations and ordinances including, but not limited to, the regulations of the U.S. Government relating to the export of commodities and technical data insofar as they relate to the activities under this Agreement. Buyer agrees that machines, commodities, and technical data provided under this Agreement are subject to restrictions under the export control laws and regulations of the United States of America, including but not limited to the U.S. Export Administration Act and the U.S. Export Administration Regulations. Buyer hereby gives its written assurance that neither machines, commodities or technical data provided by IBM under this Agreement, nor the direct product thereof, will be exported, or re-exported, directly or indirectly, to prohibited countries or nationals thereof without first obtaining applicable government approval. Buyer agrees it is responsible for obtaining required government documents and approvals prior to export of any machine, commodity, or technical data. 29.0 QUARTERLY MEETING AND DISPUTE RESOLUTION The Technical Coordinators for IBM and Buyer will meet once each calendar quarter and more often as mutually determined by the parties to address issues arising under or relating to this Agreement. In the event a dispute arises under or relating to this Agreement which the Technical Coordinators are unable to resolve, before either party files suit or takes any other legal action, the general manager for logic and subsystems of the IBM Microelectronics Division and the chief executive officer of Buyer shall attempt to resolve the issue. If after communication, either believes the issue cannot be resolved by such means, either party or both are free to take legal action as set forth in Section 30.0 hereunder. 30.0 GOVERNING LAW This Agreement shall be construed, and the legal relations between the parties hereto shall be determined, in accordance with the substantive laws of the State of New York, without regard to the conflict of laws principles thereof. The parties hereto expressly waive any right they may have to a jury trial and agree that any proceeding under this Agreement shall be tried by a judge without a jury. 31.0 SEVERABILITY If any section or subsection of this Agreement is found by competent judicial authority to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of any such section or subsection in every other respect and the remainder of this Agreement shall continue in effect so long as the redacted Agreement still expresses the intent of the parties. If the intent of the parties cannot be preserved, this Agreement shall be either renegotiated or terminated. 32.0 LIMITATION ON ACTIONS No actions, regardless of form, arising out of this Agreement, may be brought by either party more than two (2) years after the cause of action has arisen, or, in the case of nonpayment, more than two (2) years from the date the last payment was due. 33.0 WAIVER Failure by either party to insist in any instance on strict conformance by the other to any term of this Agreement or failure by either party to act in the event of a breach will not be construed as a consent to or waiver of any subsequent breach of the same or of any other term contained in this Agreement. 34.0 CHANGE OR AMENDMENTS This Agreement may be modified only by a written amendment signed by persons authorized to so bind Buyer and IBM. This Agreement shall not be supplemented or modified by any course of dealing, course of performance or trade usage. The term "this Agreement" as used herein includes any applicable Attachments or future written amendment made in accordance with this Section. 35.0 SURVIVAL All obligations and duties which by their nature survive the expiration or termination of this Agreement shall remain in effect beyond any expiration or termination. 36.0 HEADINGS The headings in this Agreement are for convenience only and are not intended to affect the meaning or interpretation of this Agreement. 37.0 SOLE AGREEMENT THE PARTIES ACKNOWLEDGE THAT EACH HAS READ THIS AGREEMENT AND ITS ATTACHMENTS, UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT THIS AGREEMENT AND ITS ATTACHMENTS ARE THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, WHICH SUPERSEDES ALL PROPOSALS OR ALL PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING THE WAFERS MANUFACTURED AND SOLD BY IBM AND PURCHASED BY BUYER HEREUNDER WHICH THE PARTIES AGREE SHALL BE THE WAFER QUANTITIES THAT EXCEED THAT PORTION OF THE QUANTITY "Q" WAFERS THAT BUYER IS ENTITLED TO PURCHASE FROM IBM PURSUANT TO AGREEMENT NUMBER CY1 BY AND BETWEEN INTERNATIONAL BUSINESS MACHINES CORPORATION AND CYRIX CORPORATION DATED APRIL 04, 1994, AS AMENDED. - -------- [* Confidential material omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.] Agreed to: Agreed to: INTERNATIONAL BUSINESS MACHINES CYRIX CORPORATION CORPORATION By: /s/ Keith Slack By: /s/ Timothy W. Kinnear ----------------------------- ---------------------------- Authorized Signature Authorized Signature Keith Slack Timothy W. Kinnear ----------------------------- ---------------------------- Name (Type or Print) Name (Type or Print) GM Microprocessor Products Vice President of Finance ----------------------------- ---------------------------- Title Title May 17, 1996 May 14, 1996 ----------------------------- ---------------------------- Date Date Attachment A Product Purchase Information 1.0 Eligible Products: Products: [ * ] or other designs that are mutually agreed upon by IBM and the Buyer to be suitable for volume production. 2.0 Buyer Deliverable Items: Not Applicable 3.0 NRE Charges and NRE Payment Schedule: [ * ] 4.0 Product Quantities and Forecast: 4.1 1996 Product Demand Forecast: Number of wafer outs JUN [ * JUL * AUG * SEPT * OCT * NOV * DEC * ] 4.2 1997 Product Demand Forecast: Number of wafer outs JAN [ * FEB * MAR * APR * MAY * JUN * JUL * AUG * SEPT * OCT * NOV * DEC * ] Buyer may substitute a quantity of [ * ] wafers for a portion or all of the quantity of [ * ] wafers forecasted hereunder upon written notice to IBM at least three (3) months prior to Scheduled Shipment Date. 5.0 Price Quantity Matrix: [ * 1996 Price per wafer * 1997 (1st Quarter) Price per wafer * 1997 (2nd Quarter) Price per wafer * 1997 (3rd Quarter) Price per wafer * 1997 (4th Quarter) Price per wafer * ] 6.0 Purchase Order Lead Time: Thirteen (13) weeks prior to Shipment Date 7.0 Warranty Period: Twelve (12) months 8.0 Cancellation Charges: For wafers forecasted in Section 4.0 of this Attachment A. If a cancellation notice Then the applicable percentage of is given to IBM: total purchase price due to IBM will be: Greater than six (6) months [ * prior to a Scheduled Shipment Date With less than six (6) months prior to a Scheduled Shipment Date but prior to wafer start * After wafer start and before first layer metalization (RIT A) * After first layer metalization (RIT A) * ] 9.0 Shipping/Billing Information: FOB: IBM Plant of Manufacture Order Location: Bill To: International Business Machines Cyrix Corporation Corporation P.O. BOX 850058 1000 River Street Richarson, Texas 75080 - 0058 Essex Junction, Vermont 05452 Attn: Accounts Payable Attention: Order Desk Fax: (802) 769-1833 - -------- [* Confidential material omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.] ATTACHMENT B QUALITY OBJECTIVES 1. IBM production devices shipped in wafer format shall meet IBM's standing quality, reliability, defect density and yield specifications. Unless specifically noted, Product shipped to Buyer will be unprobed wafers and shipped with all production documentation. 2. IBM Products with the cooperation of Buyer will be subject to the following quality standards. a) Wafer Dimensions, Lot Sizes and Packing: Buyer's production devices will be manufactured in wafer format such that they meet IBM standards for dimensions, die layout, lot size, etc. A. Wafer Size: IBM will ship 8 inch diameter wafers. B. Wafer Thickness and Finish: IBM and Buyer will agree upon specifications for wafer thickness and back finish. C. Die Layout: IBM will be responsible for the layout of Buyer's die, consistent with IBM's defect monitoring strategy, such that a maximum number of whole die are derived per wafer. IBM will receive feedback from Buyer on non-yielding die locations. As agreed to between IBM and Buyer, the die layout will be optimized to correct for such conditions. D. Packing: 1. Unprobed wafers: Unprobed wafers will be shipped in containers using shipping methods approved by Buyer, which approval will not be unreasonably withheld. All unprobed material containers shall have the necessary identification labels including lot number, number of wafers, device type and wafer number(s), if available. 2. Damaged Goods: Buyer will provide feedback on wafers damaged during transit which are related to inadequate packing. IBM will then take reasonable corrective action. b) [ * * * * * * ] c) Visual Criteria: Buyer's production devices will meet the IBM's outgoing wafer inspection criteria including wafer warpage, thickness, back finish, passivation integrity, visual defect inspection criteria and packing integrity. Buyer may request additional criteria to the IBM's outgoing inspection procedure. d) Electrical Criteria: A. Parametrics: Product will be screened via parametric test probe scribe level sample testing. Only wafers that pass the criteria under sampling plans and specifications will be shipped to Buyer. IBM will demonstrate an active Statistical Process Control program for the purposes of controlling and reducing the variability of key device parametrics including voltage thresholds, breakdown voltages, poly lengths and drive currents. e) Reliability Criteria: IBM shall demonstrate via an ongoing reliability monitoring program that Buyer's production material meets IBM's reliability targets. The data should include reliability data taken periodically from production wafers (i.e. wafer level reliability test data taken from scribe lane test structures) of the same technology as Buyer's wafers. Buyer will provide feedback on packaged device reliability performance. All significant process changes shall require reliability and quality qualification (i.e., wafer level reliability testing, burn-in, etc.). f) Defect Density: Buyer will work with IBM on achieving production device functional yields which are limited primarily by random defects. Buyer expects stable production yields which are consistent with defect density predictions. IBM shall demonstrate an ongoing defect density reduction program with objectives to meet and continually reduce defect densities. g) Non-Conforming Material: A. All production non-conforming material must be pre-approved before shipment by IBM and Buyer. B. Buyer reserves the right to reject and return production non-conforming material if standard yield, performance, and/or reliability criteria are not met. C. By special request, Buyer may require that material be shipped without top passivation in order to facilitate failure analysis, testing and debugging. Buyer will not use this material for production shipments. D. Prototype and other non-production material will be accepted by Buyer and may not meet the quality criteria described herein. h) Documentation: A. All Buyer wafer lots (including non-production lots) must be shipped with a complete listing of the parametric test probe data, wafer lot ID, device ID, total wafer shipped, wafer thickness, and when applicable, special notices of exception and/or comment (for example, non-standard processing, non-production status, special instructions, etc.). B. Electronic Data Link: In order to enhance communications, analysis capabilities, and minimize manual efforts, both parties shall work together to set up an electronic data link from IBM to Buyer. Buyer will accept the electronic format in place of the manual data reports accompanying each lot. C. Parametric Test Probe Data: A printout or electronic transfer of the test probe data shall be submitted with each wafer lot. D. Process Travelers: In order to assist in yield, performance and reliability problem solving efforts, wafer lot process travelers shall be made available to Buyer as needed. - -------- [* Confidential material omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.] EX-11 3 EARNINGS PER SHARE CALCULATION
EXHIBIT 11 CYRIX CORPORATION AND SUBSIDIARIES EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Fiscal Quarters Ended June 30, Six Months Ended June 30, 1996 1995 1996 1995 ---------------------------------------------------------- Weighted average common shares outstanding 19,371 18,989 19,333 18,941 Incremental shares related to assumed exercise of stock options, if dilutive * 852 * 860 ------------- ------------- -------------- ------------ Weighted average common and common equivalent shares 19,371 19,841 19,333 19,801 ============== ============= ============== ============ Income (loss) before extraordinary item ($15,360) $7,494 ($13,404) $24,979 Extraordinary loss from early extinguishment of debt (1,062) -- (1,062) -- -------------- ------------- -------------- ------------ Net income (loss) ($16,422) $7,494 ($14,466) $24,979 ============== ============= ============== ============ Earnings (loss) per common and common equivalent share: Income (loss) before extraordinary item ($0.79) $0.38 ($0.69) $1.26 Extraordinary item (0.06) -- (0.06) -- ----------------------------------------------------------- Net income (loss) ($0.85) $0.38 ($0.75) $1.26 =========================================================== * The computations of earnings per share do not give effect to common stock equivalents for any period in which their inclusion would have the effect of decreasing the loss per share otherwise computed. The computations of earnings per share on a fully diluted basis do not differ significantly from the amounts calculated on a primary basis shown above.
EX-27 4 2Q 1996 FINANCIAL DATA SCHEDULE
5 1000 6-MOS DEC-29-1996 JAN-01-1996 JUN-30-1996 70,283 0 30,709 8,200 29,368 165,365 144,451 49,600 303,522 35,057 0 0 0 81 133,076 303,522 74,267 78,661 52,766 52,766 43,479 0 4,293 (21,035) (7,631) (13,404) 0 (1,062) 0 (14,466) (.75) (.75)
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