Mail Stop 6010
November 17, 2005
Bertrand F. Cambou
Chief Executive Officer
Spansion Inc.
915 DeGuigne Drive
P.O. Box 3453
Sunnyvale, CA 94088
Re: Spansion Inc.
Amendment No. 5 to Registration Statement on Form S-1
Filed November 4, 2005
Registration No. 333-124041
Dear Mr. Cambou:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Fee Table
1. We refer to comment 2 in our letter dated November 2, 2005.
Please note that you must register a specific number of securities
underlying the mandatory convertible preferred stock based on a
good
faith estimate of the number of shares of Class A common stock
that
will be issued upon conversion.
2. You must register the full amount of the offering described in
your prospectus. Based on the number of shares and maximum
offering
price of your common stock offering as disclosed on the prospectus
cover, the fee table does not reflect your entire offering. Please
revise.
Concurrent Offerings, page 4
3. We note the disclosure you have added in response to comment 3
in
our letter dated November 2, 2005. It remains unclear from your
disclosure, however, why you are not raising all needed money
through
the common stock offering, how you chose the types of securities
to
offer, and how you chose the amount of each security to offer. As
requested by our prior comment 3, please revise so that this
information is clear to your investors. Also clarify how you
determined which entity would issue the securities. In addition,
if
true, please disclose that your mandatory convertible preferred
stock
will provide a higher yield to compensate the investors in those
securities for the mandatory conversion feature.
4. We reissue comment 4 in our letter dated November 2, 2005.
Please
disclose how the conversion rate will be adjusted from the rate
you
disclosed based on the date of issuance of the preferred stock.
Also
indicate the extent of possible adjustments.
Risks Related to this Offering, page 36
5. We note that the mandatory convertible preferred stock will be
convertible at your option at any time on or after the first
anniversary of that offering if the closing price per share of
your
Class A common stock exceeds an as yet to be determined dollar
amount
for at least 20 trading days within a period of 30 consecutive
trading days. Please disclose the risk of this overhang to your
holders of Class A common stock, including any potential affects
on
the trading price of your Class A common stock at such time as the
provisional conversion feature becomes available to you. Also,
include any similar risks that result from the "threshold
appreciation price."
6. We note that the dividends payable upon the mandatory
convertible
preferred stock may be payable in shares of your Class A common
stock. If material, please describe the risks to the investors in
your Class A common stock that may result from the dilutive
effects
of the issuances of Class A common stock as payment for such
dividends.
7. We note that, although the mandatory convertible preferred
stock
will not be listed or traded on any securities exchange or trading
market, a secondary market may develop for those securities. To
the
extent that a secondary market for those securities develops,
please
describe the risks to the investors in your Class A common stock
that
may result from any volatility in the value of the mandatory
convertible preferred stock in the secondary market.
If securities or industry analysts..., ... page 36
8. Please broaden your current risk factor disclosure to include
the
affects of any negative reports or credit ratings on your
mandatory
convertible preferred stock or senior unsecured notes.
Use of Proceeds, page 40
9. We note from your disclosure in the fourth paragraph that you
may
use a portion of the proceeds of your offerings to repay your
indebtedness under the Spansion Japan Revolving Loan Agreement,
Spansion Japan Term Loan and a sale-leaseback transaction entered
into in January 2005. We also note from your disclosure on page
73
that you borrowed $3.0 billion yen under the Spansion Japan
Revolving
Loan Agreement on October 26, 2005. Please note that if
indebtedness
to be discharged was incurred within one year, you should describe
the use of the proceeds of such indebtedness other than short-term
borrowings used for working capital. Refer to Instruction 4 to
Item
504 of Regulation S-K.
10. We note your response to comment 8 in our letter dated
November
2, 2005; however, it is unclear how investors in this offering
have
sufficient information to make an investment decision without
disclosure of the terms of the notes. Also, please provide us
with
the versions of the documents related to the notes that will be
used
in connection with the negotiation of the note transaction.
Dilution, page 43
11. We note your disclosure that the offerings of your Class A
common
stock and mandatory convertible preferred stock will not be
dilutive
to new investors. If true, and with a view towards revised
disclosure, please tell us why you are selling your securities at
less than the pro forma as adjusted net tangible book value per
share.
Unaudited Pro Forma Consolidated Financial Data, page 44
12. Please respond to the following comments with respect to your
pro
forma balance sheet data:
* Please revise to include all of the major captions required by
Item
11-02(b)(3) of Regulation S-X.
* Please revise the pro forma balance sheet data to include a
column
to reflect pro forma adjustments. Refer to Item 11-02(b)(4) of
Regulation S-X.
* Please reference all balance sheet adjustments to notes which
clearly explain the assumptions involved. Refer to Item 11-
02(b)(6).
* It should be clear from your presentation how you determined the
amount of debt of $739.6 million and the amount of additional
paid-in
capital of $2.2 billion. Any underlying assumptions should be
discussed.
* Since you are issuing up to $400 million of debt, please tell us
and disclose what amount you used in the pro forma presentation
and
why.
* Please tell us and disclose how the pro forma information
reflects
the underlying events and transactions in the fourth, fifth, and
sixth paragraphs on page 40 of your "Use of Proceeds" section.
* Please note that the pro forma information should discuss and
reflect the impact of your accounting for the mandatory preferred
stock, including the accounting for any embedded derivatives for
which you will record a liability.
Management`s Discussion and Analysis, page 51
13. Please note that if you intend to pay a significant amount of
dividends on the preferred stock and you have no history of making
dividend payments, you should provide additional disclosures in
your
MD&A to address the specific facts and circumstances of your
dividend
policy, the risks and limitations of that policy, the likelihood
of
your ability to pay future dividends, and an analysis of your
liquidity and capital resources with respect to the intended
dividend
policy for the next year. Please refer to the speech by Todd
Hardiman, Associate Chief Accountant, at the 2004 AICPA National
Conference on Current SEC and PCAOB Developments.
Contractual Obligations, page 69
14. Please provide us with an updated table.
Spansion Japan Revolving Loan Agreement, page 71
15. Please disclose why you repaid and borrowed the amounts
indicated
on September 26, 2005 and on October 26, 2005.
Spansion Japan Term Loan, page 75
16. We note your disclosure that it is a financial covenant under
the
Spansion Japan Term Loan that Fujitsu must maintain 100% of the
ownership of Fujitsu Microelectronics Holding, Inc., the Fujitsu
subsidiary that holds 40% of the membership interests in Spansion
LLC
prior to Spansion LLC`s reorganization into a corporate structure.
Please tell us how you will accomplish the contemplated
reorganization of Spansion LLC given this financial covenant.
Also,
please provide us with your analysis as to whether you would be in
default under any of your other debt obligations if you are not in
compliance with that financial covenant. Include any appropriate
risk factor disclosure.
Spansion China Revolving Loan Agreement, page 77
17. If the form of loan agreement filed as Exhibit 10.50 to your
registration statement is the agreement entered into on October
24,
2005, please file the definitive version of this agreement.
18. Please disclose the current interest rate and maturity date of
each of the U.S. dollar and RMB borrowings.
Legal Proceedings, page 104
19. We note your response to comment 7 in your letter dated
November
4, 2005. Please include in your disclosure the statements
contained
in clause (2) of the first sentence of that response and in the
second sentence of that response.
Management, page 105
20. Please file a written consent for each of your prospective
independent directors. Refer to Securities Act Rule 438.
21. Please clarify when Ms. Hart served as the Chief Executive
Officer of Pinnacle.
Treatment of AMD Options, page 117
22. Please tell us why you have not included any disclosure
regarding
the transactions contemplated in your counsel`s letter to us dated
October 21, 2005.
Equity Incentive Plan, page 118
23. Please reconcile your disclosure that you will have Class A
common stock available for issuance under the plan with the
provisions of Section 4.1 of the 2005 Equity Incentive Plan filed
as
Exhibit 10.2 to your registration statement which does not appear
to
limit the shares of common stock available under the plan to the
Class A common stock.
24. We note your disclosure that you will have up to 9,500,000
shares
of Class A Common Stock available for issuance under the plan, and
that you intend to grant stock options and restricted stock units
for
an aggregate of approximately 6,000,000 shares at the time of your
offering. If known, please disclose how many shares you will have
remaining under your 2005 stock option plan after the grants at
the
time of your offering and after you have consummated the
transactions
contemplated in your counsel`s letter to us dated October 21,
2005.
25. Please disclose the terms of the planned grants.
Employee Stock Purchase Plan, page 119
26. Please clarify your disclosure so that it is clear whether the
shares available under this plan will include any class of common
stock other than the Class A common stock.
Concurrent Offering of Mandatory Convertible Preferred Stock, page
130
27. We note the disclosure you have made in the last paragraph of
footnote 17 to your financial statements on page F-49 with respect
to
the maximum number of shares of Class A common stock that will be
issuable upon conversion of the mandatory convertible preferred
stock. Please include this disclosure in this section.
Consent of AMD or Fujitsu Required for Certain Transactions, page
136
28. We note your response to comment 21 in your letter dated
November
4, 2005 and the disclosure in the last sentence on page 9. We
also
note from Section 2.11 of your Bylaws that the denominator used
for
determining the "Aggregate Ownership Interest" for AMD and Fujitsu
will include the aggregate number of outstanding shares, on an as
converted to common stock basis, except that as converted basis
will
not include the common stock issued or issuable upon conversion of
the mandatory convertible preferred stock issued concurrently with
your offering of Class A common shares for a period of three
years.
Please disclose the effect of the provisions of Section 2.11 of
your
Bylaws on the determination of AMD and Fujitsu`s ownership
interests.
Underwriting, page 146
29. We note the response to comment 23 in your letter dated
November
4, 2005. For each underwriter engaging in an electronic
distribution
method other than the one distribution method that has already
been
reviewed by our Office of Chief Counsel, please address comment 46
in
our letter dated May 11, 2005 and comment 22 in our letter dated
September 23, 2005 with respect to these underwriters. Please
note
that this comment is applicable to electronic offers, sales or
distributions made in connection with your offering of mandatory
convertible preferred stock as well.
30. Regarding the second paragraph of your response to comment 23,
please tell us how you will seek to ensure that all syndicate
members
are conducting a distribution that is consistent with Section 5 of
the Securities Act, including the issues regarding electronic
distribution raised in our comments.
Consolidated Financial Statements, page F-1
Consolidated Balance Sheets, page F-3
31. It appears that the pro forma balance sheet presentation is
not
limited to reflecting changes in the terms of your current
capitalization that will become effective after the latest balance
sheet date. In addition, it appears that the pro forma amounts
reflect the receipt of the net proceeds from the offering and the
receipt and application of the net proceeds from your concurrent
offering of mandatory convertible preferred stock and the
concurrent
placement of notes. As such, the pro forma presentation,
including
assuming offering proceeds, does not appear to be appropriate for
presentation in your audited financial statements. Please revise
or
advise.
Note 17. Change in Capital Structure Planned Concurrently with
Common
Stock Offering (Unaudited), page F-45
32. We note your disclosure on page F-17 that states, "However, if
the Company changes its corporate structure and issues stock-based
awards in the future (See Note 17), those awards will be subject
to
the accounting and disclosure provisions of SFAS 123R and would be
expected to have a material effect on the Company`s financial
statements." We note your new disclosure in the document that you
intend to grant stock options or restricted stock units for
approximately 6,000,000 shares of your Class A common stock to
your
employees under your 2005 equity incentive plans upon the
consummation of the offering. Please revise Note 17 to discuss
your
intention to grant these options including the significant terms
and
accounting for the options and units.
33. We have reviewed your response to prior comment 25. Please
respond to the following comments:
* Please refer to prior comment 2 from our May 11, 2005 letter.
We
continue to note that there are numerous blanks in the section
entitled "Concurrent Offering of Mandatory Convertible Preferred
Stock" and in this note. For example, we note that you have not
disclosed the dividend or conversion rates of the mandatory
convertible preferred stock. Please note that we would expect any
assessment of the appropriate accounting for this instrument to
include an analysis of all significant terms. Accordingly, once
all
of the significant terms are determined and disclosed we may have
additional comments.
* Once you have determined all of the terms of the mandatory
convertible preferred stock including the dividend and conversion
rates, please provide us with your analysis of those terms and
your
assessment of whether the host is more akin to equity or debt. We
note your reference to paragraph 61(l) of SFAS 133 in your
response.
Your response notes that your host contract does not have a
mandatory
redemption feature, similar to the example in paragraph 61(l) for
an
instrument that is more akin to debt. As such, you concluded that
your instrument is more akin to equity. Please note that the
example
of an instrument that is more akin to equity in paragraph 61(l) is
a
cumulative participating perpetual preferred stock. That
instrument
does not appear to be the same as the one you plan to issue
either.
Since your instrument is not the same as either of the instruments
in
the example, your analysis should discuss how you considered all
of
the significant terms of the host contract in making your
determination as to whether it is more akin to equity or debt.
For
example, we note that the security has a cumulative dividend and a
dividend make-whole provision. Unless the dividend rate is
nominal,
it appears that the dividend terms, including the make-whole
provision, would indicate that the instrument may be more akin to
debt.
* Due to the significance of the determination of whether the host
is
more akin to equity or debt on the accounting for any embedded
derivative instruments within the host contract, we may have
additional comments with respect to the accounting for any
embedded
derivatives within the host contract once that determination is
made.
* Please disclose how you will account for and value the mandatory
convertible preferred stock and any bifurcated embedded
derivatives.
* Please tell us the valuation method and significant assumptions
you
plan to use to value the dividend make-whole provision at fair
value.
Tell us how you plan to classify changes in its value within the
statement of operations.
* We note your response with respect to the determination of a
beneficial conversion feature. We also note that you would first
need to determine whether or not the conversion feature is an
embedded derivative that should be bifurcated. If not, any
consideration of the beneficial conversion feature should consider
the carrying value of the host contract after considering the fair
value of any bifurcated embedded derivative. Please see DIG Issue
B6.
* With respect to your analysis of the application of paragraph 12
of
SFAS 150, please tell us and disclose the conversion terms of the
security so that we may review your response. Please tell us in
more
detail about your analysis of why SFAS 150 does not apply to this
instrument, including whether or not the cap and floor of the
conversion feature is substantive. That is, discuss whether the
monetary value of the obligation is predominantly based on a fixed
monetary amount known at inception. Refer to paragraphs A18 - A19
of
SFAS 150.
* We note, from the disclosure on page 131, that you have the
ability, under certain circumstances to cause the conversion of
the
mandatory convertible preferred stock and that there may also be
an
early conversion, at the option of the holder, upon a cash
acquisition. In that case, you would also have to pay the holders
of
the preferred stock in cash or shares of your Class A common stock
the amount of any accumulated and unpaid dividends and the present
value of all remaining dividend payments through a date in 2008
computed using a discount rate. For the cash acquisition, you may
also elect to adjust the conversion obligation to deliver acquirer
common stock. Please tell us about your consideration of the
accounting for these terms.
Preferred Stock Prospectus
34. We note your disclosure that shares of your Class A common
stock
used to pay dividends may be delivered to the transfer agent to be
sold, resulting in net cash proceeds to be distributed to the
holders
of the mandatory convertible preferred stock in an amount equal to
the cash dividends otherwise payable. It appears that the
offering
of shares of Class A common stock issuable in satisfaction of the
payment of dividends will be a primary offering made on an at-the-
market and delayed basis and that you are not eligible to offer
securities on that basis. If you disagree, please provide us with
a
legal analysis supporting your conclusions and tell us whether the
transfer agent will be registered as a broker-dealer.
35. We note that you have not indicated the dividend rate
applicable
to the mandatory convertible preferred stock in your prospectus.
Since the dividend rate would appear to be a material term, please
tell us how you determined that you can exclude such information
from
your prospectus.
36. We note your revisions in response to comment 26; however,
please
do not replace the vague term "certain" with equally vague
disclosure
like "specific."
Preferred Stock Prospectus Cover
37. We note your response to comment 28 in your response letter
dated
November 4, 2005. It remains unclear why much of the detail is
necessary for a prospectus cover.
The opportunity for equity appreciation..., page A-7
38. Please clarify whether the number of shares of your Class A
common stock that are issuable upon mandatory conversion will
decrease if the applicable market value increases to a disclosed
dollar amount. If so, please indicate that amount.
Description of Mandatory Convertible Preferred Stock, page A-11
39. We note your disclosure in response to comment 30 and your
statement in the last sentence of response 27. However, your
prospectus must be substantially revised so that investors can
understand why you included each of the features of the preferred
stock and how the features operate. Your explanation could be
based
on a bona fide estimate of the public offering price within your
disclosed price range. To the extent necessary to explain the
operation of the security`s features, you should include charts.
Likewise, to the extent that the operation of a feature of the
preferred stock will affect an investment in the common stock, you
should include a similar, clear explanation of that feature on the
common stock prospectus.
Dividends, page A-12
40. We note the disclosure added in response to comment 32. It
appears that you intend to use the proceeds from your offerings to
make dividend payments. Please add appropriate disclosure in the
applicable "Use of Proceeds" section. Provide similar disclosure
if
you intend to use proceeds from an offering to make principal or
interest payments on the notes being offered in the concurrent
transaction.
41. Please disclose whether you currently intend to make the
required
dividend payments in cash.
United States Federal Income Tax Considerations, page A-31
42. We note your revisions in response to comment 34 in our letter
dated November 2, 2005, however, the second sentence of your first
paragraph on page A-31 still appears to disclaim responsibility
for
your disclosure. As well, the first sentence on page 142 contains
a
similar impermissible disclaimer. Please revise the first
sentence
on page 142 and the second sentence in the first paragraph on page
A-
31 to remove these inappropriate disclaimers.
43. We note your response to comment 36 in your letter dated
November
4, 2005; however, your document must explain why you cannot
unequivocally state each tax consequence, describe the degree of
uncertainty, disclose possible outcomes and provide appropriate
risk
factors.
Exhibits
44. Please file complete exhibits with all attachments. For
example,
we note several annexes and exhibits that appear to be missing
exhibit 1.1.
Exhibit 1.2
45. Please reconcile your disclosure that the mandatory
convertible
preferred stock will not be listed or traded on any securities
exchange or trading market with the representation contained in
Section 6(i) of the form of Mandatory Convertible Preferred Stock
Underwriting Agreement.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Thomas Dyer at (202) 551-3641 or Kaitlan
Tillan, Assistant Chief Accountant, at (202) 551-3604 if you have
questions regarding comments on the financial statements and
related
matters. Please contact Tim Buchmiller at (202) 551-3635 or me at
(202) 551-3617 with any other questions.
Sincerely,
Russell Mancuso
Branch Chief
cc: Tad J. Freese, Esq.
Robert W. Phillips, Esq.
Michael P. Maher, Esq.
(via facsimile)
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Bertrand F. Cambou
Spansion Inc.
November 17, 2005
Page 12