As filed with the Securities and Exchange Commission on October 15, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
LEVEL ONE COMMUNICATIONS, INCORPORATED
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(Exact name of registrant as specified in its charter)
______________________
California 33-0128224
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9750 Goethe Road
Sacramento, California 95827
(916) 855-5000
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
______________________
ROBERT S. PEPPER, PH.D.
Level One Communications, Incorporated
Chief Executive Officer
9750 Goethe Road
Sacramento, California 95827
(916) 855-5000
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
______________________
Copies to:
GILLES S. ATTIA, ESQ. BRUCE F. DRAVIS , ESQ.
Graham & James LLP General Counsel
400 Capitol Mall, Suite 2400 Level One Communications,Incorporated
Sacramento, California 95814 9750 Goethe Road
(916) 558-6700 Sacramento, California 95827
(916) 855-5000
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
_______________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_] _________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
=============================================================================================================
Title of each Amount to be Proposed Proposed Maximum Amount of
class of securities Registered Maximum Offering Aggregate Registration
to be Registered Price Per Security Offering Price(1) Fee
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4% Convertible
Subordinated Notes
due 2004 $115,000,000 100% $115,000,000 $34,848
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Common Stock(1)
no par value 2,875,000/(2)/ -- -- --
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(1) Calculated in accordance with Rule 457(i) under the Securities Act of 1933,
as amended.
(2) Such number represents the number of shares of Common Stock as are
initially issuable upon conversion of the 4% Convertible Subordinated Notes
due 2004 registered hereby and, pursuant to Rule 416 under the Securities
Act of 1933, as amended, such indeterminate number of shares of Common
Stock as shall be required for issuance upon conversion of the aforesaid
notes. Pursuant to Rule 457(i), no registration fee is required.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION DATED OCTOBER __, 1997
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[LOGO]
4% CONVERTIBLE SUBORDINATED NOTES DUE 2004
This Prospectus relates to 4% Convertible Subordinated Notes due 2004 (the
"Notes") of Level One Communications, Incorporated ("Level One") which were
originally sold by the Company in August and September 1997 under the Securities
Act of 1933, as amended (the "Securities Act"), and the shares of the Company's
common stock, no par value ("Common Stock"), issuable upon conversion of the
Notes. The Notes registered hereby were issued and sold (the "Original
Offering") in transactions exempt from the registration requirements of the
Securities Act, to persons reasonably believed by Robertson, Stephens & Company,
Alex. Brown & Sons Incorporated and Montgomery Securities, as the initial
purchasers (the "Initial Purchasers") of the Notes, to be "qualified
institutional buyers" (as defined by Rule 144A under the Securities Act) or
other institutional "accredited investors" (as defined in Rule 501(a)(1), (2),
(3) or (7) under Regulation D of the Securities Act). The Notes and the Common
Stock issuable upon conversion thereof may be offered and sold from time to time
by the holders named herein or by their transferees, pledgees, donees or their
successors (collectively, the "Selling Holders") pursuant to this Prospectus.
The Registration Statement of which this prospectus is a part has been filed
with the Securities and Exchange Commission pursuant to a registration rights
agreement dated as of August 15, 1997 (the "Registration Rights Agreement")
between the Company and the Initial Purchasers, entered into in connection with
the Original Offering.
The Notes are convertible into shares of Common Stock at any time prior to
the close of business on the maturity date, unless previously redeemed or
repurchased, at a conversion price of $40 per share (equivalent to a conversion
rate of 25 shares per $1,000 principal amount of Notes), subject to adjustment
in certain events. On October 10, 1997, the closing price of the Common Stock,
which is listed on the Nasdaq National Market under the symbol "LEVL," was
$43.75 per share.
Interest on the Notes is payable on March 1 and September 1 of each year,
commencing on March 1, 1998. Principal and interest payments will be made
without any deduction for United States withholding taxes, except to the extent
described herein. The Notes are not redeemable by the Company prior to
September 7, 2000. At any time on or after that date, the Notes may be redeemed
at the option of the Company on at least 20 days notice, in whole or in part at
any time, initially at 102.286% of the principal amount thereof, and thereafter
at prices declining to 100% at maturity, together with accrued and unpaid
interest. See "Description of Notes -- Optional Redemption." The Notes are not
entitled to any sinking fund. The Notes will mature on September 1, 2004. The
Notes issued and sold in the Original Offering in reliance on Rule 144A have
been designated for trading on the PORTAL System of the National Association of
Securities Dealers, Inc. Notes sold pursuant to the Registration Statement of
which this Prospectus forms a part will not remain eligible for trading on the
PORTAL System.
In the event that a Repurchase Event (as defined) occurs, each holder of a
Note may require the Company to repurchase all or a portion of such holder's
Notes for cash or, at the Company's option, Common Stock (valued at 95% of the
average of the closing prices for the five trading days immediately preceding
and including the third trading day prior to the repurchase date) at a
repurchase price of 105% of the principal amount of the Notes to be repurchased,
plus accrued and unpaid interest to the repurchase date. See "Risk Factors ---
Limitations on Repurchase of Notes" and "Description of Notes -- Repurchase at
Option of Holders Upon a Repurchase Event."
The Notes are unsecured obligations, subordinated in right of payment to
all existing and future Senior Indebtedness (as defined) of the Company. See
"Description of Notes -- Subordination."
The Notes and the Common Stock issuable upon conversion of the Notes may be
sold by the Selling Holders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Selling Securityholders" and "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Notes and the Common Stock issuable upon conversion
of the Notes in respect of which this Prospectus is being delivered and the
applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
prospectus (the "Prospectus Supplement").
The Selling Holders will receive all of the net proceeds from the sale of
the Notes and the Common Stock issuable upon conversion of the Notes and will
pay all underwriting discounts and selling commissions, if any, applicable to
the sale of the Notes and the Common Stock issuable upon conversion of the
Notes. The Company is responsible for payment of all other expenses incident to
the offer and sale of the Notes and the Common Stock issuable upon conversion of
the Notes.
The Selling Holders and any broker/dealers, agents or underwriters which
participate in the distribution of the Notes and the Common Stock issuable upon
conversion of the Notes may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Notes and Common Stock issuable upon conversion of the Notes
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" for a description of
indemnification arrangements.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY. SEE "RISK
FACTORS" ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
________________________
THE DATE OF THIS PROSPECTUS IS OCTOBER 15, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and information statements and other information may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and at the Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports,
proxy statements and information statements and other information filed
electronically by the Company with the Commission are available at the
Commission's worldwide web site at http:\\www.sec.gov. The Company's Common
Stock is quoted on the Nasdaq National Market. Reports, proxy statements and
information statements and other information concerning the Company may also be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus and made a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 30, 1997 and June 29, 1997;
3. The Company's Current Report on Form 8-K dated August 14, 1997; and
4. The description of the Company's Common Stock under the caption
"Description of Registrant's Securities to be Registered" in the
Company's Registration Statement on Form 8-A, dated July 8, 1993.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement incorporated or deemed to be
incorporated herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
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The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be made orally or in
writing to the attention of Level One Communications, Incorporated, Attn:
Investor Relations, 9750 Goethe Road, Sacramento, California 95827, Telephone:
(916) 855-5000.
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PROSPECTUS SUMMARY
The following information does not purport to be complete and is qualified
in its entirety by, and should be read in conjunction with, the more detailed
information in this Prospectus and in the documents, financial statements and
other information incorporated by reference herein. The securities offered
hereby involve a high degree of risk. See "Risk Factors." This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in this Prospectus under the heading "Risk Factors"
and elsewhere in this Prospectus. Unless the context suggest otherwise,
references in this Prospectus to the "Company" or "Level One" mean Level One
Communications, Incorporated and its subsidiaries. The Company will not
undertake to update any forward-looking statement that may be made from time to
time, by or on behalf of, the Company.
All share and per share numbers in this Prospectus reflect the effect of a
3-for-2 stock split to shareholders of record on August 5, 1997 effected on
August 26, 1997.
THE COMPANY
Level One designs, develops and markets mixed-signal application specific
standard integrated circuit products ("ASSPs") for high-speed digital signal
transmission and networking connectivity to systems that transport information,
within an office or around the world. Such systems connect to local area
networks ("LANs"), wide area networks ("WANs") and public telephone transmission
networks. LANs, WANs, and telephone transmission networks make possible such
activities as the use of intra-enterprise networking ("intranets") and the use
of the Internet and World Wide Web.
Level One ASSPs transmit, regenerate and receive digitized voice, data, and
video signals using a wide variety of protocols. Because these products both
transmit and receive signals, they are called "transceivers". All networks, LAN,
WAN, and transmission, require transceivers. Level One combines its strengths in
analog and digital circuit design with its communications systems expertise to
produce mixed-signal solutions with increased functionality and greater
reliability, resulting in lower total system cost.
As the volume of transmitted digital information continues to grow,
communications original equipment manufacturers ("OEMs") that supply products
and systems to the transmission and networking markets face a fundamental
challenge of providing greater data throughput on a cost-effective basis. Level
One addresses the needs of leading communications OEMs by providing high
performance mixed-signal ASSPs that optimize the allocation of analog and
digital signal processing functions. The Company's proprietary simulation
software and sophisticated design and testing methodology accelerate the product
design cycle to improve time to market.
A key challenge for Level One's OEM customers and their end users is the
creation of access technologies that maximize the use of the large installed
base of twisted-pair copper telephone lines to transport information. With more
than 1.3 billion miles in place in the United States, copper telephone wire is
expected to remain the primary medium for local connectivity to the "electronic
superhighway" transport media that handle long-distance data transmissions. Such
long-distance transport media include copper telephone lines, coaxial cable,
fiber optic cable, wireless and satellite transmission. Copper telephone wire,
which was originally designed to transmit relatively slow analog voice signals,
requires special signal conditioning circuits to enable transmission of high-
speed digital signals.
Level One develops and sells advanced ASSPs and custom derivatives that
provide silicon connectivity solutions and achieve improved integration of
functions. The Company's current products
5
address the needs of two primary segments of the communications connectivity
market: the networking market and the transmission market.
Level One's networking products address the rapid evolution and the growing
convergence of the LAN and WAN networking connectivity markets. For these
markets, Level One produces Fast Ethernet transceivers, Ethernet transceivers,
single chip quad Ethernet repeaters, managed Ethernet repeaters, and integrated
transceiver solutions for Frame Relay, Switched 56/DDS and T1/E1 access
products.
Level One's transmission products service the growing demand for high-speed
digital signal transmission utilizing the industry-wide specifications referred
to as "T1" in North America, and "E1" in Europe, Asia and much of the rest of
the world. T1 systems transmit 1.544 million bits per second and E1 systems
transmit 2.048 million bits per second. Level One's products also address the
transmission service known as "Fractional T1," in which users can access
multiple 64kbs sub-channel rates of T1, and High-bit-rate Digital Subscriber
Line ("HDSL") service, which enables high speed transmission up to 12,000 feet
without repeaters.
The Company's proprietary technology includes systems simulation and
testing software and an extensive circuit cell library. Level One believes that
a key competitive factor in its success is its ability to use this technology,
in conjunction with industry standard design tools, to rapidly design and
introduce new products. The Company continuously reviews new opportunities in
emerging technologies such as Digital Subscriber Line ("DSL"), Switched
Ethernet, Fast and Gigabit Ethernet, infrared, ATM, wireless, frame relay and
cable transmission.
During the first half of 1997, the Company announced products and
developments for the DSL and Ethernet markets. During the first quarter of 1997,
the Company introduced its Multi-rate Digital Subscriber Line ("MDSL") chipset,
which enables the design of digital modems for Internet access, delivering 10
times the data rate of analog modems at lower component cost. During the second
quarter of 1997, the Company announced a strategic alliance between Level One,
Pairgain Technologies and ADC Telecommunications to develop the next generation
of HDSL ("HDSL2") standards and technology. HDSL2 will allow data to be
transmitted over a single pair of copper wire versus the two pairs of copper
wire currently required for HDSL. During the second quarter, the Company
released its LXT970 10/100 Fast Ethernet transceiver, which has generated
significant market acceptance. The Company sampled follow-on Fast Ethernet
products during the third quarter of 1997, with production expected in late 1997
or the first quarter of 1998. The Company also has been a significant
contributor to the development of a final specification for Gigabit Ethernet.
Level One's customer base includes many of the leading OEMs in both the
telecommunications and networking markets. The Company's sales and marketing
strategy is to achieve design wins by developing products with superior mixed-
signal processing functions that are designed into equipment offered by industry
leaders. To implement its strategy, Level One has a direct sales force and a
worldwide network of independent distributors and sales representatives.
The Company was incorporated in California in November 1985. The Company's
executive offices are located at 9750 Goethe Road, Sacramento, California 95827
and its telephone number is (916) 855-5000.
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THE OFFERING
Securities Offered.................. $115,000,000 principal amount of 4% Convertible Subordinated Notes due 2004 (the "Notes").
Interest Payment Dates.............. March 1 and September 1, beginning March 1, 1998.
Maturity............................ September 1, 2004
Conversion.......................... Convertible into Common Stock, no par value, of the Company (the "Common Stock") at any
time through the close of business on the final maturity date of the Notes, unless
previously redeemed or repurchased, at a conversion price of $40 per share, subject to
adjustment in certain events. See "Description of Notes -- Conversion."
Optional Redemption................. The Notes are not redeemable at the option of the Company prior to September 7, 2000.
Thereafter, the Notes will be redeemable on at least 20 days' notice at the option of the
Company, in whole or in part at any time, initially at 102.286% of the principal amount
thereof, and thereafter at prices declining to 100% at maturity, together with accrued and
unpaid interest. See "Description of Notes-- Optional Redemption by the Company."
Repurchase at Option of
Holders Upon a Repurchase Event.... In the event that a Repurchase Event (as defined) occurs, each holder of a Note may require
the Company to repurchase all or a portion of such holder's Notes for cash or, at the
Company's option, Common Stock (valued at 95% of the average of the closing prices for the
five trading days immediately preceding and including the third trading day prior to the
repurchase date) at a repurchase price of 105% of the principal amount of the Notes to be
repurchased, plus accrued and unpaid interest to the repurchase date. See "Risk Factors --
Limitations on Repurchase of Notes" and "Description of Notes -- Repurchase at Option of
Holders Upon a Repurchase Event."
Ranking............................. Subordinate to all existing and future Senior Indebtedness (as defined) of the Company. As
of June 29, 1997, the Company had approximately $4.3 million of indebtedness outstanding
(excluding accrued interest thereon) that would have constituted Senior Indebtedness. The
Indenture governing the terms of the Notes (the "Indenture") contains no limitations on the
incurrence of additional Senior Indebtedness or other indebtedness by the Company. See
"Description of Notes -- Subordination."
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Registration Rights................. The Company agreed to file with the Commission the registration statement of which this
Prospectus is a part with respect to the resale of the Notes and the Common Stock issuable
upon conversion of the Notes and to keep such registration statement effective until
September 25, 1999 or such shorter period ending when there ceases to be any securities
requiring registration outstanding. The Company will be required to pay liquidated damages
to the holders of the Notes or the Common Stock issuable upon conversion of the Notes, as
the case may be, under certain circumstances if the Company is not in compliance with its
registration obligations. See "Description of Notes -- Registration Rights."
Listing............................. The Notes are currently eligible for trading on the PORTAL Market. Notes sold pursuant to
this Prospectus will not remain eligible for trading on the PORTAL Market. The Company's
Common Stock is traded on the NASDAQ National Market under the symbol "LEVL".
8
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus. Potential investors
should consider carefully the following factors, as well as the more detailed
information contained elsewhere in this Prospectus, before making a decision to
invest in the Notes offered hereby.
Manufacturing Risks
The Company does not manufacture the wafers used for its products. The
Company's wafers are manufactured by foundries located in the United States,
Europe and Asia. The Company depends upon these suppliers to produce wafers at
acceptable yields and to deliver them in a timely manner at competitive prices.
The Company may sustain an adverse impact on operating results from problems
with the cost, timeliness, yield and quality of wafer deliveries from suppliers.
From time to time, the available industry-wide foundry capacity can fluctuate
significantly. During periods of constrained supply, the Company may experience
difficulty in securing an adequate supply of wafers, and/or its suppliers may
increase wafer prices. The Company's operating results depend in substantial
part on its ability to maintain or increase the capacity available from its
existing or new foundries. In prior years, the Company has experienced increased
costs and delays in customer shipments as a result of a foundry reducing
shipments to the Company without prior notice, requiring the Company to transfer
products to a new foundry. Although the Company believes that it has planned to
meet customer demand, there can be no assurances that unforeseen demand, current
supplier interruptions or other changes will not have a material impact on the
Company's business.
Manufacturing process technologies are subject to rapid change. Other
companies in the industry have experienced difficulty in migrating to new
manufacturing processes, and, consequently, have suffered reduced yields, delays
in product deliveries and increased expense levels. The Company's business,
financial condition and results of operations could be materially adversely
affected if any such transition is substantially delayed or inefficiently
implemented.
The Company is also dependent upon third-party assembly companies that
package the semiconductor die. The Company depends upon these suppliers to
produce products in a timely manner and at competitive prices. The Company may
sustain an adverse financial impact from problems with the cost, timeliness,
yield and quality of product deliveries from these suppliers.
Factors Affecting Annual and Quarterly Operating Results
The semiconductor industry is characterized by rapid technological change,
intense competitive pressure and cyclical market patterns. The Company's results
of operations are affected by a wide variety of factors, including general
economic conditions, semiconductor industry environment, changes in average
selling prices, the timing of new product introductions (by the Company and its
customers), use of new technologies, the ability to safeguard patents and
intellectual property, and rapid change of demand for products. The level of net
revenues in any specific quarter can also be affected by the level of orders
placed during that quarter. The Company attempts to respond to changes in market
conditions as soon as possible; however, the rapidity of their onset may make
prediction of and reaction to such
9
events difficult. Due to the foregoing and other factors, past results, such as
those described in this Prospectus, may not be predictive of future performance.
Dependence on New Products
The Company's future success depends on its ability to timely develop and
introduce new products which compete effectively. Because of the complexity of
its products, the Company may experience delays in completing development and
introduction of new products, and, as a result, not achieve the market share
anticipated for such products. The Company's strategy is to develop products for
the fastest growing segments of the communications market. The Company conducts
its own analysis of market trends and reviews forecasts and information provided
by industry analysts. Market conditions may change rapidly as technology,
economic, or user-preference conditions cause different communications
technologies to experience growth other than that forecast by the Company or
others. There can be no assurance that the Company will successfully identify
new product opportunities and bring new products to market in a timely manner,
that products or technologies developed by others will not render the Company's
products or technologies obsolete or noncompetitive, or that the Company's
products will be selected for design into the products of its targeted
customers. In addition, the average selling price for any particular product
tends to decrease over the product's life. To offset such price decreases, the
Company relies primarily on obtaining yield improvements and corresponding cost
reductions in the manufacture of existing products and on introducing new
products which incorporate advanced features and other price/performance factors
such that higher average selling prices and higher margins are achievable
relative to existing product lines. To the extent that cost reductions and new
product introductions with higher margins do not occur in a timely manner, or
the Company's products do not achieve market acceptance, the Company's operating
results could be adversely affected.
Management of Growth; Dependence on Key Personnel
The Company is currently experiencing a period of significant growth which
has placed, and could continue to place, a significant strain on the Company's
personnel and other resources. The Company's ability to manage its growth
effectively will require continued expansion and refinement of the Company's
operational, financial and management and control systems as well as a
significant increase in the Company's development, testing, quality control,
marketing, logistics and service capabilities, any of which could place a
significant strain on the Company's resources. The Company's success also
depends to a significant extent upon the continued services of its key personnel
and its ability to attract and retain key technical, sales and management
personnel in the future. Competition for such personnel is intense and there can
be no assurance that the Company will be able to attract and retain key
technical, sales and management personnel in the future. If the Company's
management is unable to manage growth effectively, maintain the quality and
marketability of the Company's products and retain, hire and integrate key
personnel, the Company's business, financial condition and results of operations
could be materially adversely affected.
Intellectual Property
The Company relies upon patent, trademark, trade secret and copyright law
to protect its intellectual property. There can be no assurance that such
intellectual property rights can be successfully asserted or will not be
invalidated, circumvented or challenged. Litigation, regardless of its outcome,
could result in substantial cost and diversion of resources for the Company. Any
infringement claim or other litigation against or by the Company could have a
material effect on the Company's financial condition and results of operations.
In November 1995 the Company commenced infringement litigation against a
competitor.
10
Semiconductor Industry
The semiconductor industry has historically been cyclical and subject to
significant economic downturns at various times. The Company may experience
substantial period-to-period fluctuations in operating results due to general
semiconductor industry conditions, overall economic conditions or other factors.
In addition, the securities of many high technology companies have
historically been subject to extreme price and volume fluctuations, factors
which may affect the market price of the Company's Common Stock. As is common in
the semiconductor industry, the Company frequently ships more product in the
third month of a quarter than in the other months. If a disruption in the
Company's production or shipping occurs near the end of a quarter, the Company's
revenues for that quarter could be adversely affected.
The Company must order wafers and build inventory in advance of product
shipments. There is risk that the Company could produce excess or insufficient
inventories of particular products because the Company's markets are volatile
and subject to rapid technology and price changes. This inventory risk is
heightened because certain of the Company's customers place orders with long
lead times which may be subject to cancellation or rescheduling by that
customer. To the extent the Company produces excess or insufficient inventories
of particular products, the Company's revenues and earnings could be adversely
affected.
Increased demand for semiconductor products may result in a reduction in
the availability of wafers from foundries. Such capacity limitations may
adversely affect the Company's ability to deliver products on a timely basis and
affect the Company's margins. Additionally, the Company believes that during
periods of strong demand and/or restricted semiconductor capacity, customers
will over-order to assure an adequate supply. Certain of the Company's customers
may cancel or postpone orders without notice if product becomes available
elsewhere.
Shortages of components from other suppliers could cause the Company's
customers to cancel or delay programs incorporating the Company's products,
resulting in the cancellation or delay of orders for the Company's products.
Intense Competition
The semiconductor industry is intensely competitive. The Company's
competition consists of semiconductor companies and semiconductor divisions of
vertically integrated companies. In the transmission market, the Company's
principal competitors are Brooktree Corporation (a subsidiary of Rockwell
International, Inc.), Crystal Semiconductor, Inc. (a subsidiary of Cirrus Logic,
Inc.) ("Crystal"), Dallas Semiconductor, Inc., Lucent Technologies Inc.
("Lucent"), PMC-Sierra Inc. and Siemens A.G. In the networking market, the
Company's principal competitors are Advanced Micro Devices, Inc., Crystal,
Integrated Circuit Systems, Inc., Lucent, Micro Linear Corp., National
Semiconductor Corporation, Quality Semiconductor, Inc., Seeq Technologies, Inc.
and Texas Instruments, Incorporated. Many of these competitors have longer
operating histories, greater name recognition, access to larger customer bases
and significantly greater financial and other resources than the Company with
which to pursue engineering, manufacturing, marketing and distribution of
products.
The ability of the Company to compete successfully in the rapidly evolving
area of high performance integrated circuit technology depends on factors both
within and outside of the Company's control. Such factors include, without
limitation, success in designing and manufacturing new products, implementing
new technologies, intellectual property programs, product quality, reliability,
price, efficiency of production, and general economic conditions. There is no
assurance that the Company will be able to compete successfully against current
and future competitors. Increased competition may result
11
in price reductions, reduced gross margins and loss of market share, any of
which may have a material adverse effect on the Company's business, financial
condition and results of operations.
International Operations
Due to its reliance on international sales and foreign third-party
manufacturing and assembly operations, the Company is subject to the risks of
conducting business outside of the United States including government regulatory
risks, political, social and economic instability, potential hostilities and
changes in diplomatic and trade relationships. There can be no assurance that
one or more of the foregoing factors will not have a material adverse effect on
the Company's business, financial condition or operating results.
Increased Leverage
In connection with the sale of the Notes, the Company has incurred
approximately $115.0 million in additional indebtedness which increases the
ratio of its long-term debt to its total capitalization from 3.0%, at June 29,
1997, to 53.7%, on a pro forma basis. As a result of this increased leverage,
the Company's principal interest obligations will increase substantially. The
degree to which the Company will be leveraged could adversely affect the
Company's ability to obtain additional financing for working capital,
acquisitions or other purposes and could make it more vulnerable to economic
downturns and competitive pressures. The Company's increased leverage could also
adversely affect its liquidity, as a substantial portion of available cash from
operations may have to be applied to meet debt service requirements and, in the
event of a cash shortfall, the Company could be forced to reduce other
expenditures and forego potential acquisitions to be able to meet such
requirements.
Subordination
The Notes are unsecured obligations of the Company and subordinated in
right of payment in full to all existing and future Senior Indebtedness (as
defined) of the Company. As a result of such subordination, in the event of any
insolvency, liquidation or reorganization of the Company, payment default on
Senior Indebtedness and certain other events, the assets of the Company will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. The Indenture does not
prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by the Company, and the incurrence of
additional indebtedness and other liabilities by the Company could adversely
affect the Company's ability to pay its obligations on the Notes. As of June 29,
1997, the Company had approximately $4.3 million of outstanding indebtedness
which would have constituted Senior Indebtedness. The Company anticipates that
from time to time it and its subsidiaries will incur additional indebtedness,
including Senior Indebtedness. See "Description of Notes -- Subordination."
Limitations on Repurchase of Notes
If a Repurchase Event (as defined) were to occur, there can be no assurance
that the Company would have sufficient financial resources, or would be able to
arrange financing to pay the repurchase price in cash for all Notes tendered by
holders thereof. The Company's ability to repurchase Notes with cash may also be
limited or prohibited by the terms of its then-existing borrowing arrangements.
Moreover, although under the Indenture the Company may elect, subject to
satisfaction of certain conditions, to pay the repurchase price for the Notes
using shares of Common Stock, any future credit agreements or other agreements
relating to other indebtedness (including other Senior Indebtedness) to which
the Company becomes a party may contain restrictions on or prohibitions of the
repurchase of the Notes by the Company that apply even if the purchase price is
paid with shares of capital stock. In the event a Repurchase Event occurs at a
time when the Company is prohibited from repurchasing Notes,
12
the Company could seek the consent of its lenders to the repurchase of the Notes
or could attempt to refinance the borrowings that contain such prohibition. If
the Company does not obtain such a consent or repay such borrowings, the Company
would remain prohibited from repurchasing Notes. In such case, the Company's
failure to repurchase the Notes would constitute an Event of Default under the
Indenture whether or not payment of the repurchase price is permitted by the
subordination provisions of the Indenture. Any such default may, in turn, cause
a default under Senior Indebtedness of the Company. Moreover, the occurrence of
a Repurchase Event in and of itself may constitute an event of default under
Senior Indebtedness of the Company. As a result, in either case, payment of the
repurchase price of the Notes with cash would, absent a waiver, be prohibited
under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. See "Description of Notes -- Subordination" and "
- -- Subordination."
No Notes may be repurchased at the option of holders upon a Repurchase
Event if there has occurred and is continuing an Event of Default described
under "Description of Notes -- Events of Default and Remedies" below (other than
a default in the payment of the repurchase price with respect to such Notes on
the repurchase date).
Absence of Public Market for the Notes and Restrictions on Resale
Prior to the Original Offering, there was no trading market for the Notes.
Although the Initial Purchasers have advised the Company that they currently
intend to make a market in the Notes, they are not obligated to do so and may
discontinue such market making at any time without notice. In addition, the
Notes are currently eligible for trading in the PORTAL Market, but Notes sold
pursuant to this Prospectus will not remain eligible for trading on the PORTAL
Market. Finally any market making activity taken by the Initial Purchasers will
be subject to the limits imposed by the Securities Act and the Exchange Act.
Accordingly, there can be no assurance that any market for the Notes will
develop or, if one does develop, that it will be maintained. The failure of an
active market for the Notes to develop or to be sustained could have a material
adverse effect on the trading price of such Notes.
Volatility of Notes and Stock Price
Economic and other external factors, many of which are beyond the control
of the Company, may have a significant impact on the Company's business and on
the market price of the Notes and the Common Stock into which the Notes are
convertible. Such factors include, without limitation, fluctuations in product
revenue and net income of the Company or its competitors, shortfalls in the
Company's operating results from levels forecast by securities analysts,
announcements concerning the Company, its competitors or customers,
announcements of technological innovations by the Company, its competitors or
its customers, the introduction of new products or changes in product pricing
policies by the Company, its competitors or its customers, market conditions in
the industry and the general state of the securities market. In addition, the
stock prices of many technology companies fluctuate significantly for reasons
that may be unrelated or disproportionate to operating results. These
fluctuations, as well as general economic, political and market conditions such
as recession or international instability, may adversely affect the market price
of the Notes and the Common Stock.
13
USE OF PROCEEDS
The Company will receive no proceeds from the sale of Securities hereunder
by the Selling Holders.
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of August 15, 1997 (the
"Indenture"), between the Company and State Street Bank and Trust Company of
California, N.A., as trustee (the "Trustee"). The terms of the Notes include
those stated in the Indenture and those stated in the Registration Rights
Agreement. The following summaries of certain provisions of the Notes, the
Indenture and the Registration Rights Agreement do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Notes, the Indenture and the Registration Rights Agreement,
including the definitions therein of certain terms which are not otherwise
defined in this Prospectus. Wherever particular provisions or defined terms of
the Indenture (or of the form of Note which is a part thereof) or the
Registration Rights Agreement are referred to, such provisions or defined terms
are incorporated herein by reference. Copies of the Indenture, form of Note and
Registration Rights Agreement are available from the Company upon request. As
used in this Description of Notes, the "Company" refers only to Level One
Communications, Incorporated and does not, unless the context otherwise
indicates, include any of its subsidiaries.
GENERAL
The Notes represent unsecured general obligations of the Company subordinate
in right of payment to certain other obligations of the Company as described
under " -- Subordination," and convertible into Common Stock as described under
" -- Conversion." The Notes are limited to $115,000,000 aggregate principal
amount, were issued in fully registered form only in denominations of $1,000 or
any multiple thereof and will mature on September 1, 2004 unless earlier
redeemed at the option of the Company or repurchased by the Company at the
option of the holder upon a Repurchase Event (as defined).
The Notes bear interest from August 27, 1997 at the rate of 4% per annum
payable semi-annually on March 1 and September 1, commencing on March 1, 1998,
to holders of record at the close of business on the preceding February 15 and
August 15, respectively (subject to certain exceptions in the case of
conversion, redemption or repurchase of such Notes prior to the applicable
interest payment date). Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal and premium, if any, will be payable, and the Notes may be presented
for conversion, registration of transfer and exchange, without service charge,
at the office of the Company maintained by the Company for such purposes in the
Borough of Manhattan, The City of New York, which shall initially be an office
or agency of the Trustee. In addition, interest may, at the Company's option, be
paid by check mailed to such holders, provided that a holder of Notes with an
aggregate principal amount in excess of $2,000,000 will be paid by wire transfer
in immediately available funds at the election of such holder.
The Indenture does not contain any financial covenants or any restrictions on
the payment of dividends, the repurchase of securities of the Company or the
incurrence of Senior Indebtedness or other indebtedness. The Indenture contains
no covenants or other provisions to afford protection to holders of Notes in the
event of a highly leveraged transaction or a change in control of the Company
except to the limited extent described under " -- Repurchase at Option of
Holders Upon a Repurchase Event" below.
No service charge will be made for any registration or transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith. The Company is not
required to exchange or register the transfer of (i) any Note
14
for a period of 15 days next preceding any selection of Notes to be redeemed,
(ii) any Note or portion thereof selected for redemption, (iii) any Note or
portion thereof surrendered for conversion, or (iv) any Note or portion thereof
surrendered for repurchase (and not withdrawn) in connection with a Repurchase
Event.
The Notes are currently eligible for trading in the Portal Market. Notes sold
pursuant to this Prospectus will not remain eligible for trading on the Portal
Market.
BOOK-ENTRY; DELIVERY AND FORM; GLOBAL CERTIFICATES
Upon the initial transfer pursuant to the Registration Statement of which this
Prospectus forms a part, the Notes may be represented by one or more fully
registered global notes (the "Global Note") as well as Notes in definitive form
registered in the name of individual purchasers or their nominees. Each such
Global Note will be deposited upon issuance with, or on behalf of, DTC and
registered in the name of DTC or its nominee (the "Global Note Registered
Owner") or will remain in the custody of the Trustee pursuant to a FAST Balance
Certificate Agreement between DTC and the Trustee. Except as set forth below,
the Global Note may be transferred, in whole and not in part, only to another
nominee of DTC or to a successor of DTC or its nominee.
DTC is a limited purpose trust company organized under the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participant organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants. Pursuant to procedures established by DTC, (i) upon
deposit of the Global Note, DTC will credit the accounts of Participants with
portions of the principal amount of the Global Note and (ii) ownership of such
interests in the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Note). The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Notes
will be limited to that extent. Except as described below, owners of interests
in the Global Note will not have Notes registered in their names, will not
receive physical delivery of Notes in definitive form and will not be considered
the registered owners thereof under the Indenture for any purpose.
None of the Company, the Trustee, nor any agent of the Company or the Trustee
will have any responsibility or liability for (i) any aspect of DTC's records or
any Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Note, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's records relating to the
beneficial ownership interests in the Global Note or (ii) any other matter
relating to the actions and practices of DTC or any of its Participants.
Payments in respect of the principal of, premium, if any, and interest on any
Notes registered in the name of the Global Note Registered Owner on any relevant
record date will be payable by the Trustee to the Global Note Registered Owner
in its capacity as the registered holder under the Indenture. Under the terms
of the Indenture, the Company and the Trustee will treat the person in whose
names the Notes, including the Global Note, are registered as the owners thereof
for
15
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company, the Trustee, nor any agent of
the Company or the Trustee has nor will have any responsibility or liability for
the payment of such amounts to beneficial owners of the Notes or for any other
matter relating to actions or practices of DTC or any of its Participants. The
Company understands that DTC's current practice, upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of DTC (unless DTC has reason to believe it will not receive payment on such
payment date). Payments by the Participants and the Indirect Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of Participants or the
Indirect Participant, and the beneficial owners and not the responsibility of
the DTC, the Trustee or the Company. Neither the Company nor the Trustee will
be liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Notes, and the Company and the Trustee may conclusively
rely on and will be protected in relying on instructions from the Global Note
Registered Owner for all purposes.
So long as DTC, or its nominee, is the registered owner or holder of a Global
Note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the Notes represented by such Global Note for all purposes under
the Indenture and the Notes. No beneficial owner of an interest in a Global
Note will be able to transfer the interest except in accordance with DTC's
applicable procedures, in addition to those provided for under the Indenture.
Transfers between Participants in DTC will be effected in the ordinary way in
accordance with DTC rules.
The Company expects that DTC will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more Participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of the Notes as to which such Participant or
Participants has or have given such direction.
Although the Company expects that DTC will agree to the foregoing procedures
in order to facilitate transfers of interests in a Global Note among
Participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Company nor the Trustee will have any responsibility for the performance by
DTC or its Participants or Indirect Participants of their respective obligations
under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for a
Global Note and a successor depositary is not obtained, the Company will issue
definitive certificated Notes in exchange for a Global Note. Such definitive
certificated Notes shall be registered in names of the owners of the beneficial
interests in the Global Note as provided by the Participants. Notes issued in
definitive certificated form will be fully registered, without coupons, in
minimum denominations of $1,000 and integral multiples of $1,000 above that
amount. Upon issuance of Notes in definitive certificated form, the Trustee is
required to register the Notes in the name of, and cause the Notes to be
delivered to, the person or persons (or the nominee thereof) identified as the
beneficial owner as DTC shall direct.
The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
16
CONVERSION
The holders of Notes are entitled at any time through the close of business on
the final maturity date of the Notes, subject to prior redemption or repurchase,
to convert any Notes or portions thereof (in denominations of $1,000 or
multiples thereof) into Common Stock of the Company, at the conversion price of
$40.00 per share, subject to adjustment as described below. Except as described
below, no adjustment will be made on conversion of any Notes for interest
accrued thereon or for dividends on any Common Stock issued. If Notes are
converted after a record date for the payment of interest and prior to the next
succeeding interest payment date, such Notes, other than Notes called for
redemption pursuant to a redemption notice mailed to the holders by the Company
in accordance with the Indenture, must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted. The Company is not required to issue fractional shares of
Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash
adjustment based upon the market price of the Common Stock on the last business
day prior to the date of conversion. In the case of Notes called for redemption,
conversion rights will expire at the close of business on the business day
preceding the date fixed for redemption, unless the Company defaults in payment
of the redemption price. A Note for which a holder has delivered a Repurchase
Event purchase notice exercising the option of such holder to require the
Company to repurchase such Note may be converted only if such notice is
withdrawn by a written notice of withdrawal delivered by the holder to the
Company prior to the close of business on the business day immediately preceding
the date fixed for repurchase.
The right of conversion attaching to any Note may be exercised by the holder
by delivering the Note at the specified office of a conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion, and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A holder delivering a
Note for conversion will not be required to pay any taxes or duties payable in
respect of the issuance or delivery of Common Stock on conversion, but will be
required to pay any tax or duty which may be payable in respect of any transfer
involved in the issuance or delivery of the Common Stock in a name other than
that of the holder of the Note. Certificates representing shares of Common Stock
will not be issued or delivered unless all taxes and duties, if any, payable by
the holder have been paid. In the case of the conversion of any Note within two
years after the original issuance of the Note, the Common Stock issuable upon
such conversion will not be issued or delivered in a name other than that of the
holder of such Note unless the applicable restrictions on transfer have been
satisfied. See "Transfer Restrictions."
The initial conversion price of $40 per share of Common Stock is subject to
adjustment (under formulae set forth in the Indenture) in certain events,
including: (i) the issuance of Common Stock as a dividend or distribution on
Common Stock; (ii) certain subdivisions and combinations of the Common Stock;
(iii) the issuance to all holders of Common Stock of certain rights or warrants
to purchase Common Stock at less than the current market price of the Common
Stock; (iv) the dividend or other distribution to all holders of Common Stock of
shares of capital stock of the Company (other than Common Stock) or evidences of
indebtedness of the Company or assets (including securities, but excluding those
rights, warrants, dividends and distributions referred to above or paid
exclusively in cash); (v) dividends or other distributions consisting
exclusively of cash (excluding any cash portion of distributions referred to in
clause (iv)) to all holders of Common Stock to the extent that such
distributions, combined together with (A) all other such all-cash distributions
made within the preceding 12 months in respect of which no adjustment has been
made plus (B) any cash and the fair market value of other consideration payable
in respect of any tender offers by the Company or any of its subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 10% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such distribution; (vi) the purchase of Common Stock pursuant to a tender offer
made by the
17
Company or any of its subsidiaries to the extent that the same involves an
aggregate consideration that, together with (X) any cash and the fair market
value of any other consideration payable in any other tender offer by the
Company or any of its subsidiaries for Common Stock expiring within the 12
months preceding such tender offer in respect of which no adjustment has been
made plus (Y) the aggregate amount of any such all-cash distributions referred
to in clause (v) above to all holders of Common Stock within the 12 months
preceding the expiration of such tender offer in respect of which no adjustments
have been made, exceeds 10% of the Company's market capitalization on the
expiration of such tender offer; and (vii) payment in respect of a tender offer
or exchange offer by a person other than the Company or any subsidiary of the
Company in which, as the closing of the offer, the Board of Directors is not
recommending rejection of the offer. The adjustment referred to in clause (vii)
above will only be made if the tender offer or exchange offer is for an amount
which increases that person's ownership of Common Stock to more than 25% of the
total shares of Common Stock outstanding, and only if the cash and value of any
other consideration included in such payment per share of Common Stock exceeds
the current market price per share of Common Stock on the business day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange. The adjustment referred to in clause (vii) above will
not be made, however, if, as of the closing of the offer, the offering documents
with respect to such offer disclose a plan or an intention to cause the Company
to engage in any transaction described below in " -- Consolidation, Merger or
Assumption."
The Indenture provides that if the Company implements a stockholders' rights
plan, such rights plan must provide that upon conversion of the Notes the
holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In the case of (i) any reclassification or change of the Common Stock (other
than changes in par value or resulting from a subdivision or combination) or
(ii) a consolidation, merger, or combination involving the Company or a sale or
conveyance to another corporation of the property and assets of the Company as
an entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets (including cash) which they would
have owned or been entitled to receive upon such reclassification, change,
consolidation, merger, combination, sale or conveyance had such Notes been
converted into Common Stock immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance (assuming, in a case in
which the Company's stockholders may exercise rights of election, that a holder
of Notes would not have exercised any rights of election as to the stock, other
securities or other property or assets (including cash) receivable in connection
therewith and received per share the kind and amount received per share by a
plurality of non-electing shares).
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may, to the extent permitted by law, reduce the
conversion price of the Notes by any amount for any period of at least 20 days,
in which case the Company shall give at least 15 days' notice of such decrease,
if the Board of Directors has made a determination that such decrease would be
in the best interests of the Company, which determination shall be conclusive.
The Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. See "Certain Federal Income Tax
Considerations."
18
No adjustment in the conversion price will be required unless such adjustment
would require a change of at least l% in the conversion price then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment. Except
as stated above, the conversion price will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common Stock
or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company prior to September
7, 2000. At any time on or after that date, the Notes may be redeemed at the
Company's option on at least 20 but not more than 60 days' notice, as a whole,
or from time to time in part, at the following prices (expressed in percentages
of the principal amount), together with accrued interest to, but excluding, the
date fixed for redemption; provided that if a redemption date is an interest
payment date, the semi-annual payment of interest becoming due on such date
shall be payable to the holder of record as of the relevant record date.
If redeemed during the 12-month period beginning September 1 (September 7,
2000 through August 31, 2001 in the case of the first such period):
REDEMPTION
YEAR PRICE
---- -----------
2000............................ 102.286%
2001............................ 101.714
2002............................ 101.143
2003............................ 100.571
and 100% at September 1, 2004.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot
or, in its discretion, on a pro rata basis or by a method the Trustee considers
fair and appropriate (as long as such method is not prohibited by the rules of
any United States national securities exchange or of an established automated
over-the-counter trading market in the United States on which the Notes are then
listed). If any Note is to be redeemed in part only, a new Note or Notes in
principal amount equal to the unredeemed principal portion thereof will be
issued. If a portion of a holder's Notes is selected for partial redemption and
such holder converts a portion of such Notes, such converted portion shall be
deemed to be taken from the portion selected for redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT
The Indenture provides that if a Repurchase Event (as defined) occurs, each
holder of Notes shall have the right, at the holder's option, to require the
Company to repurchase all of such holder's Notes, or any portion thereof that is
an integral multiple of $1,000, on the date (the "repurchase date") that is 40
calendar days after the date of the Company Notice (as defined below), for cash
at a price equal to 105% of the principal amount of the Notes, together with
accrued interest, if any, to the repurchase date (the "repurchase price"),
provided, however, that if a repurchase date is an interest payment date, the
semi-annual payment of interest becoming due on such date shall be payable to
the holder of record as of the relevant record date.
The Company may, at its option, in lieu of paying the repurchase price in
cash, pay the repurchase price in Common Stock valued at 95% of the average of
the closing prices of the Common Stock for the five consecutive trading days
ending on and including the third trading day preceding the repurchase date.
19
Payment may not be made in Common Stock unless the Company satisfies certain
conditions with respect to such payment as provided in the Indenture.
Within 15 calendar days after the occurrence of a Repurchase Event, the
Company is obligated to mail to all holders of record of the Notes a notice (the
"Company Notice") of the occurrence of such Repurchase Event and of the
repurchase right arising as a result thereof. The Company must deliver a copy of
the Company Notice to the Trustee and cause a copy or a summary of such notice
to be published in a newspaper of general circulation in the city of New York.
To exercise the repurchase right, a holder of such Notes must deliver, on or
before the 35th day after the Company Notice, written notice to the Company (or
an agent designated by the Company for such purpose) and the Trustee of the
holder's exercise of such right, together with the Notes with respect to which
the right is being exercised, duly endorsed for transfer.
"Repurchase Event" means a Change in Control (as defined) or a Termination of
Trading (as defined).
"Change in Control" will be deemed to have occurred when (i) any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of shares representing more than 50% of the combined voting
power of the then outstanding securities entitled to vote generally in elections
of directors of the Company ("Voting Stock"); (ii) approval by stockholders of
the Company of any plan or proposal for the liquidation, dissolution or winding
up of the Company; (iii) the Company (A) consolidates with or merges into any
other corporation or any other corporation merges into the Company, and in the
case of any such transaction, the outstanding Common Stock of the Company is
changed or exchanged into or for other assets or securities as a result, unless
the stockholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least 51% of
the combined voting power of the outstanding voting securities of the
corporation resulting from such transaction in substantially the same proportion
as their ownership of the Voting Stock immediately before such transaction or
(B) conveys, transfers or leases all or substantially all of its assets to any
person; or (iv) any time Continuing Directors (as defined) do not constitute a
majority of the Board of Directors of the Company (or, if applicable, a
successor corporation to the Company); provided that a Change in Control shall
not be deemed to have occurred if either (x) the last sale price of the Common
Stock for any five trading days during the ten trading days immediately
preceding the Change in Control is at least equal to 105% of the conversion
price in effect on such day or (y) in the case of a merger or consolidation
otherwise constituting a Change in Control, all of the consideration (excluding
cash payments for fractional shares) in such merger or consolidation
constituting the Change in Control consists of common stock traded on a United
States national securities exchange or quoted on the Nasdaq National Market (or
which will be so traded or quoted when issued or exchanged in connection with
such Change in Control) and as a result of such transaction or transactions such
Notes become convertible solely into such common stock.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board on August 27, 1997 or (ii) who was
nominated or elected by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the
Company's Board of Directors was recommended or endorsed by at least a majority
of the directors who were Continuing Directors at the time of such nomination or
election or such lesser number comprising a majority of a nominating committee
if authority for such nominations or elections has been delegated to a
nominating committee whose authority and composition has been approved by at
least a majority of the directors who were continuing directors at the time such
committee was formed. (Under this definition, if the current Board of Directors
of the Company were to approve a new director or directors and then resign, no
Change in Control would occur even though the current Board of Directors would
thereafter cease to be in office.)
20
The phrase "all or substantially all" of the assets of the Company, as
included in the definition of Change in Control, is likely to be interpreted by
reference to applicable state law at the relevant time, and will be dependent on
the facts and circumstances existing at such time. As a result, there may be a
degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred.
A "Termination of Trading" shall have occurred if the Common Stock (or other
common stock into which the Notes are then convertible) is neither listed for
trading on a United States national securities exchange nor approved for trading
on an established automated over-the-counter trading market in the United
States.
If a Repurchase Event were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price in cash for all Notes tendered by holders
thereof. The Company's ability to repurchase Notes with cash may also be limited
or prohibited by the terms of its then-existing borrowing arrangements.
Moreover, although under the Indenture the Company may elect, subject to
satisfaction of certain conditions, to pay the repurchase price for the Notes
using shares of Common Stock, any future credit agreements or other agreements
relating to other indebtedness (including other Senior Indebtedness) to which
the Company becomes a party may contain restrictions on or prohibitions of the
repurchase of the Notes by the Company that apply even if the purchase price is
paid with shares of capital stock. In the event a Repurchase Event occurs at a
time when the Company is prohibited from repurchasing Notes, the Company could
seek the consent of its lenders to the repurchase of the Notes or could attempt
to refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company would remain
prohibited from repurchasing Notes. In such case, the Company's failure to
repurchase the Notes would constitute an Event of Default under the Indenture
whether or not payment of the repurchase price is permitted by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Indebtedness of the Company. Moreover, the occurrence of a
Repurchase Event may, in turn, cause a default under Senior Indebtedness of the
Company. As a result, in either case, payment of the repurchase price of the
Notes with cash would, absent a waiver, be prohibited under the subordination
provisions of the Indenture until the Senior Indebtedness is paid in full. See "
- -- Subordination" below and "Risk Factors -- Subordination."
No Notes may be redeemed at the option of holders upon a Repurchase Event if
there has occurred and is continuing an Event of Default described under " --
Events of Default and Remedies" below (other than a default in the payment of
the repurchase price with respect to such Notes on the repurchase date).
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of a highly leveraged transaction, a change in control
of the Company or other transactions involving the Company that may adversely
affect holders. The Company could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that would not
constitute a Change in Control but that would increase the amount of Senior
Indebtedness (or other indebtedness) outstanding at such time. There are no
restrictions in the Indenture or the Notes on the creation of additional Senior
Indebtedness (or any other indebtedness of the Company or any of its
subsidiaries) and the incurrence of significant amounts of additional
indebtedness could have an adverse impact on the Company's ability to service
its debt, including the Notes. The Notes are subordinate in right of payment to
all existing and future Senior Indebtedness as described under " --
Subordination" below.
Certain leveraged transactions sponsored by the Company's management or an
affiliate of the Company could constitute a Change in Control that would give
rise to the repurchase right. The Indenture does not provide the Company's Board
of Directors with the right to limit or waive the repurchase right in the event
of any such leveraged transaction. The right to require the Company to
repurchase Notes as a result of a Repurchase Event could have the effect of
delaying, deferring or preventing a Change in Control or other attempts to
acquire control of the Company unless arrangements have been made to
21
enable the Company to repurchase all of the Notes at the repurchase date.
Consequently, the right may render more difficult or discourage a merger,
consolidation or tender offer (even if such transaction is supported by the
Company's Board of Directors or is favorable to the stockholders), the
assumption of control by a holder of a large block of the Company's shares and
the removal of incumbent management. The Repurchase Event repurchase right,
however, is not the result of management's knowledge of any specific effort to
accumulate shares of Common Stock or to obtain control of the Company by means
of a merger, tender offer, solicitation or otherwise. Instead, the Repurchase
Event repurchase right is a standard term contained in other similar debt
offerings and the terms of such feature have resulted from negotiations between
the Company and the Initial Purchasers.
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to holders of the Notes. The Company will comply with this
rule to the extent applicable at that time.
SUBORDINATION
The indebtedness evidenced by the Notes is, to the extent provided in the
Indenture, subordinate to the prior payment in full of all Senior Indebtedness
(as defined) whether presently outstanding or hereafter incurred or created.
Upon any distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, the payment of the principal of,
or premium, if any, and interest on the Notes is to be subordinated to the
extent provided in the Indenture in right of payment to the prior payment in
full, in cash or in such other form of payment as may be acceptable to the
holders thereof, of all Senior Indebtedness. Moreover, in the event of any
acceleration of the Notes because of an Event of Default, the holders of any
Senior Indebtedness then outstanding would be entitled to payment in full of all
obligations in respect of such Senior Indebtedness before the holders of the
Notes are entitled to receive any payment or distribution in respect thereof.
The Company may also not make any payment upon or in respect of the Notes if
(i) a default in the payment of principal of, premium, if any, interest, or
other payment due on Senior Indebtedness occurs and is continuing beyond any
applicable period of grace or (ii) any other default occurs and is continuing
with respect to Designated Senior Indebtedness (as defined) that permits holders
of the Designated Senior Indebtedness as to which such default related to
accelerate its maturity and the Trustee and the Company receive a notice of such
default (a "Payment Blockage Notice") from a holder of Designated Senior
Indebtedness. Payments on the Notes may and shall be resumed (a) in case of
payment default, on the date on which such default is cured or waived or ceases
to exist and (b) in case of a nonpayment default with respect to Designated
Senior Indebtedness, on the earlier of the date on which such nonpayment default
is cured or waived or ceases to exist or 179 days after the date on which the
applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced pursuant to a Payment Blockage Notice unless (i) 365
days have elapsed since the first day of the effectiveness of the immediately
prior Payment Blockage Notice, and (ii) all scheduled payments of principal,
premium, if any, and interest on the Notes that have become due have been paid
in full in cash. No default (whether or not such event of default is on the same
issue of Designated Senior Indebtedness) that existed or was continuing on the
date of delivery of any Payment Blockage Notice shall be, or be made, the basis
for a subsequent Payment Blockage Notice.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest on (including any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law), and any
other payment due pursuant to, any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created: (a) all indebtedness of
the Company for money borrowed or evidenced by notes, debentures, bonds or other
securities (including, but not limited to, those which are convertible or
exchangeable for securities of the Company) and all other obligations of the
Company constituting the
22
deferred purchase price of property or assets; (b) all indebtedness of the
Company due and owing with respect to letters of credit (including, but not
limited to, reimbursement obligations with respect thereto); (c) all
indebtedness or other obligations of the Company due and owing with respect to
interest rate and currency swap agreements, cap, floor and collar agreements,
currency spot and forward contracts and other similar agreements and
arrangements; (d) all indebtedness consisting of commitment or standby fees due
and payable to lending institutions with respect to credit facilities or letters
of credit available to the Company; (e) all obligations of the Company under
leases required or permitted to be capitalized under generally accepted
accounting principles or under any lease or related document (including a
purchase agreement) that provides that the Company is contractually obligated to
purchase or cause a third party to purchase and thereby guarantee a minimum
residual value of the lease property to the lessor and the obligations of the
Company under such lease or related document to purchase or to cause a third
party to purchase such leased property; (f) all indebtedness or obligations of
others of the kinds described in any of the preceding clauses (a), (b), (c), (d)
or (e) assumed by or guaranteed in any manner by the Company or in effect
guaranteed (directly or indirectly) by the Company through an agreement to
purchase, contingent or otherwise, and all obligations of the Company under any
such guarantee or other arrangements; and (g) all renewals, extensions,
refundings, deferrals, amendments or modifications of indebtedness or
obligations of the kinds described in any of the preceding clauses (a), (b),
(c), (d), (e) or (f); unless in the case of any particular indebtedness,
obligation, renewal, extension, refunding, amendment, modification or
supplement, the instrument or other document creating or evidencing the same or
the assumption or guarantee of the same expressly provides that such
indebtedness, obligation, renewal, extension, refunding, amendment, modification
or supplement is subordinate to, or is not superior to, or is pari passu with,
the Notes; provided that Senior Indebtedness shall not include (i) any
indebtedness of any kind of the Company to any subsidiary of the Company, a
majority of the voting stock of which is owned, directly or indirectly, by the
Company, (ii) indebtedness for trade payables or constituting the deferred
purchase price of assets or services incurred in the ordinary course of
business, or (iii) the Notes.
The term "Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of holders of such Senior Indebtedness to exercise the
rights of Designated Senior Indebtedness).
Notwithstanding the foregoing, in the event that the Trustee or any holder of
Notes receives any payment or distribution of assets of the Company of any kind
in contravention of any of the terms of the Indenture, whether in cash, property
or securities, including, without limitation, by way of set-off or otherwise, in
respect of the Notes before all Senior Indebtedness is paid in full, then such
payment or distribution will be held by the recipient in trust for the benefit
of the holders of Senior Indebtedness of the Company, and will be immediately
paid over or delivered to the holders of Senior Indebtedness of the Company or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to make payment in full of all Senior
Indebtedness of the Company remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Indebtedness of the Company.
As of June 29, 1997, the Company had approximately $4.3 million of
indebtedness outstanding (excluding accrued interest) that would have
constituted Senior Indebtedness. The Indenture does not limit the amount of
additional indebtedness, including Senior Indebtedness, which the Company can
create, incur, assume or guarantee.
23
No provision contained in the Indenture or the Notes affects the obligation of
the Company, which is absolute and unconditional, to pay, when due, principal
of, premium, if any, and interest on, the Notes. The subordination provisions of
the Indenture and the Notes will not prevent the occurrence of any default or
Event of Default or limit the rights of any holder of Notes to pursue any other
rights or remedies with respect to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings or an assignment for the benefit of the creditors of the Company or
a marshaling of assets or liabilities of the Company and its subsidiaries,
holders of the Notes may receive ratably less than other creditors.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: (i) a default in
payment of the principal of, or premium, if any, on the Notes (whether or not
such payment is prohibited by the subordination provisions of the Indenture);
(ii) default for 30 days in payment of any installment of interest on the Notes
(whether or not such payment is prohibited by the subordination provisions of
the Indenture); (iii) default by the Company for 45 days after notice given in
accordance with the Indenture in the observance or performance of any other
covenants in the Indenture; (iv) default in the payment of the repurchase price
in respect of the Note on the repurchase date therefor (whether or not such
payment in cash of the repurchase price is prohibited by the subordination
provisions of the Indenture); (v) failure to provide timely notice of a
Repurchase Event; (vi) failure of the Company or any Significant Subsidiary (as
defined) to make any payment at maturity, including any applicable grace period,
in respect of Indebtedness (which term as used in the Indenture means
obligations of, or guaranteed or assumed by, the Company or any Significant
Subsidiary for borrowed money), in an amount in excess of $5,000,000 and
continuance of such failure for 30 days after notice given in accordance with
the Indenture; (vii) default by the Company or any Significant Subsidiary with
respect to any Indebtedness, which default results in the acceleration of
Indebtedness in an amount in excess of $5,000,000 without such Indebtedness
having been discharged or such acceleration having been rescinded or annulled
for 30 days after notice given in accordance with the Indenture; or (viii)
certain events involving bankruptcy, insolvency or reorganization of the Company
or any Significant Subsidiary.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of the Notes notice of
all uncured defaults known to it, but the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the best interest to such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the Notes when due or in the payment of any redemption or
repurchase obligation.
The Indenture provides that if any Event of Default shall have occurred and be
continuing, the Trustee or the holders of not less than 25% in principal amount
of the Notes then outstanding may declare the principal of and premium, if any,
on the Notes to be due and payable immediately, but if the Company shall cure
all defaults (except the nonpayment of interest on, premium, if any, and
principal of any Notes which shall have become due by acceleration) and certain
other conditions are met, such declaration may be canceled and past defaults may
be waived by the holders of a majority in principal amount of Notes then
outstanding. If an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization were to occur, all unpaid principal of and accrued
interest on the outstanding Notes will become due and payable immediately
without any declaration or other act on the part of the Trustee or any holders
of Notes, subject to certain limitations.
The Indenture provides that the holders of a majority in principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, subject to certain limitations specified
24
in the Indenture. Before proceeding to exercise any right or power under the
Indenture at the direction of such holders, the Trustee shall be entitled to
receive from such holders reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction. The right of a holder to institute a proceeding with respect to
the Indenture is subject to certain conditions precedent, including the written
notice by such holder of an Event of Default and an offer to indemnify to the
Trustee, along with the written request by the holders of not less than 25% in
principal amount of the outstanding Notes that such a proceeding be instituted,
but the holder has an absolute right to institute suit for the enforcement of
payment of the principal of, and premium, if any, and interest on, such holder's
Notes when due and to convert such Notes.
The holders of not less than a majority in principal amount of the outstanding
Notes may on behalf of the holders of all Notes waive any past defaults, except
(i) a default in payment of the principal of, or premium, if any, or interest
on, any Note when due, (ii) a failure by the Company to convert any Notes into
Common Stock or (iii) in respect of certain provisions of the Indenture which
cannot be modified or amended without the consent of the holder of each
outstanding Note affected thereby.
The Company is required to furnish to the Trustee annually within 120 days of
the end of the fiscal year a statement of certain officers of the Company
stating whether or not to the best of their knowledge the Company is in default
in the performance and observation of certain terms of the Indenture and, if
they have knowledge that the Company is in default, specifying such default. The
Company is also required, upon becoming aware of any default or Event of
Default, to deliver to the Trustee a statement specifying such default or Event
of Default and the action the Company has taken, is taking or proposes to take
with respect thereto.
CONSOLIDATION, MERGER OR ASSUMPTION
The Indenture provides that the Company may not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets, whether in a single transaction
or a series of related transactions, to another person or group of affiliated
persons, unless (i) either (a) in the case of a merger or consolidation that
does not involve a transfer of all or substantially all of the Company's assets,
the Company is the surviving entity or (b) the resulting, surviving or
transferee entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
written agreement all of the obligations of the Company in connection with the
Notes and the Indenture; (ii) no default or Event of Default shall exist or
shall occur immediately after giving effect on a pro forma basis to such
transaction; and (iii) certain other conditions are satisfied.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee, with
the consent of the holders of not less than a majority in principal amount of
the Notes at the time outstanding, to modify the Indenture or any supplemental
indenture or the rights of the holders of the Notes, except that no such
modification shall (i) extend the fixed maturity of any Note, reduce the rate or
extend the time or payment of interest thereon, reduce the principal amount
thereof or premium, if any, thereon, reduce any amount payable upon redemption
or repurchase thereof, impair, or change in any respect adverse to the holders
of Notes, the obligation of the Company to repurchase any Note upon the
happening of a Repurchase Event, impair or adversely affect the right of a
holder to institute suit for the payment thereof, change the currency in which
the Notes are payable, or impair, or change in any respect adverse to the holder
of the Notes, the right to convert the Notes into Common Stock subject to the
terms set forth in the Indenture or modify the provisions of the Indenture with
respect to the subordination of the Notes in a manner adverse to the holders of
the Notes, without the consent of the holder of each Note so affected, or (ii)
reduce the aforesaid percentage of Notes, without the consent of the holders of
all of the Notes then outstanding.
25
REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchasers have entered into the Registration
Rights Agreement pursuant to which the Company, at its expense, has filed with
the Commission the Registration Statement of which this Prospectus is a part
(the "Registration Statement") covering resales of the Registrable Securities by
the holders thereof and has agreed to use its best efforts to cause such
registration statement to become effective as promptly as is practicable and to
keep the registration statement effective until the earlier of such date that is
two years after September 25, 1997 or until the Registration Statement is no
longer required for transfer of any Registrable Securities. For purposes of the
foregoing, "Registrable Securities" means each Note and share of Common Stock
issued upon conversion thereof until the date on which such Note or share of
Common Stock has been effectively registered under the Securities Act and
disposed of in accordance with the Registration Statement or the date on which
such Note or share of Common Stock is distributed to the public pursuant to Rule
144 under the Securities Act or is salable pursuant to Rule 144(k) under the
Securities Act (or any similar provisions then in force) or the date on which
such Note or share of Common Stock ceases to be outstanding, whichever date is
earliest.
The Registration Rights Agreement provides that (i) the Company file the
Registration Statement with the Commission on or prior to 60 days after August
27, 1997 (the "Closing Date") and (ii) the Company will cause the Registration
Statement to be declared effective by the Commission as promptly as practicable
but in no event later than 120 days after the Closing Date. If (i) the
Registration Statement is not filed with the Commission on or prior to 60 days
after the Closing Date, (ii) the Registration Statement has not been declared
effective by the Commission within 120 days after the Closing Date or (iii) the
Registration Statement is filed and declared effective but shall thereafter
cease to be effective or usable (without being succeeded immediately by an
additional Registration Statement filed and declared effective which is then
available for effecting resales of Registrable Securities) for a period of time
which shall exceed 90 days in the aggregate in any period of 365 consecutive
days (each such event referred to in clauses (i) through (iii), a "Registration
Default"), the Company will pay liquidated damages to each holder of Securities,
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Notes and, if applicable, on an equivalent basis per share (subject to
adjustment in the event of stock splits, stock recombinations, stock dividends
and the like) of Common Stock constituting Registrable Securities held by such
holder. The rate of accrual of the liquidated damages will increase by an
additional $0.05 per week per $1,000 principal amount of Notes and, if
applicable, by an equivalent amount per week per share (subject to adjustment as
set forth above) of Common Stock constituting Registrable Securities for each
subsequent 90-day period until the applicable Registration Statement is filed,
the applicable Registration Statement is declared effective and becomes
available for effecting sales of securities, or the Registration Statement again
becomes effective and becomes available for effecting sales of securities, as
the case may be, up to a maximum amount of liquidated damages of $0.25 per week
per $1,000 principal amount of Notes or if applicable, an equivalent amount per
week per share (subject to adjustment as set forth above) of Common Stock
constituting Restricted Securities. Following the cure of a Registration
Default, liquidated damages will cease to accrue with respect to such
Registration Default (without in any way limiting the effect of any subsequent
Registration Default). All accrued liquidated damages shall be paid to the
holders of Notes or shares of Common Stock (as applicable) in the same manner as
interest payments on the Notes on semiannual payment dates which correspond to
interest payment dates for the Notes. The use of the Registration Statement for
effecting resales of Registrable Securities may be suspended in certain
circumstances described in the Registration Rights Agreement upon notice by the
Company to the holders of the Registrable Securities, subject to the rights of
the holders of Registrable Securities to receive liquidated damages if the
aggregate number of days of such suspensions in any year exceeds the periods
described above.
The Company will provide to each registered holder copies of such prospectus,
notify each registered holder when the Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Registrable Securities. A holder who sells the Registrable
Securities
26
pursuant to the Registration Statement generally will be required to be named as
a selling stockholder in the related prospectus and to deliver a prospectus to
purchasers and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such holder (including certain indemnification
provisions). Holders of the Registrable Securities will be required to deliver
information to be used in connection with the Registration Statement in order to
have their Registrable Securities included in the Registration Statement.
TAXATION OF NOTES
See "Certain Federal Income Tax Considerations" for a discussion of certain
federal tax aspects which will apply to holders of Notes.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
scheduled for redemption within one year, and, in either case, the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption.
GOVERNING LAW
The Indenture, the Registration Rights Agreement and the Notes are governed by
and construed in accordance with the laws of the State of New York.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company of California, N.A., the Trustee under the
Indenture, has been appointed by the Company as the initial paying agent,
conversion agent, registrar and custodian with regard to the Notes. The Company
may maintain deposit accounts and conduct other banking transactions with the
Trustee or its affiliates in the ordinary course of business, and the Trustee
and its affiliates may from time to time in the future provide banking and other
services to the Company in the ordinary course of their business.
The Indenture and the Trust Indenture Act of 1939, as amended (the "TIA"),
will contain certain limitations on the rights of the Trustee, should it become
a creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received in respect of any such claim as security or
otherwise. Subject to the TIA, the Trustee will be permitted to engage in other
transactions, provided, however, that if it acquires any conflicting interest
(as described in the TIA), it must eliminate such conflict or resign.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 157,500,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. At June 29, 1997, there
were 20,233,058 shares of Common Stock outstanding held of record by
approximately 173 holders.
COMMON STOCK
Each share of Common Stock is entitled to participate pro rata in
distributions upon liquidation. The holders of Common Stock may receive
dividends as declared by the Board of Directors out of funds legally available
therefor. Holders of Common Stock have no pre-emptive, subscription, conversion,
redemption or similar rights. All outstanding shares of Common Stock are fully
paid and non-assessable.
27
The holders of a majority of the outstanding shares of Common Stock have the
voting power to approve mergers, sales of substantially all of the Company's
assets and similar material corporate transactions. Holders of Common Stock are
entitled to one vote for each share of Common Stock on all matters submitted to
a vote of shareholders, except that for the election of directors each
shareholder has cumulative voting rights and is entitled to as many votes as
shall equal the number of shares held by such shareholder multiplied by the
number of directors to be elected, and such shareholder may cast all his or her
votes for a single candidate or distribute such votes among any or all of the
candidates as he or she chooses. However, no shareholder shall be entitled to
cumulate votes for a candidate (that is, to cast for any candidate a number of
votes greater than the number of shares of stock held by such shareholder)
unless such candidate's name has been placed in nomination prior to the voting
and the shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate votes. The rights, privileges and
preferences of the holders of Common Stock are subject to the rights of the
holders of any shares of Preferred Stock that may be designated and issued by
the Company in the future.
PREFERRED STOCK
The Company's Board of directors, without the approval of the holders of the
Common Stock, is authorized to designate for issuance up to 10,000,000 shares of
Preferred Stock in such series and with such rights, privileges and preferences
as the Board of Directors may determine. Issuance of Preferred Stock may
adversely affect the rights, privileges and preferences afforded the holders of
Common Stock, including a decrease in the amounts available for distribution to
holders of the Common Stock in the event of a liquidation or payment of
preferred dividends. Issuance of shares of Preferred Stock may also have the
effect of preventing or delaying a change in control of the Company without
further action by the shareholders and could make removal of present management
of the Company more difficult. The Company currently has no plans to designate
and/or issue any shares of Preferred Stock.
WARRANTS
The Company has outstanding warrants to purchase up to 36,234 shares of its
Common Stock with exercise prices ranging from $1.55 to $14.00 per share.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe LLP.
28
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and Common Stock into which Notes may be converted, but does not purport to be a
complete analysis of all the potential tax considerations relating thereto. This
summary is based on laws, regulations, rulings and decisions now in effect, all
of which are subject to change. This summary deals only with holders that will
hold Notes and Common Stock into which Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, foreign persons or persons that will hold Notes as a position in a
hedging transaction, "straddle" or "conversion transaction" for tax purposes or
persons deemed to sell Notes or Common Stock under the constructive sale
provisions of the Code. This summary discusses the tax considerations applicable
to the initial purchasers of the Notes who purchase the Notes at their "issue
price" as defined in Section 1273 of the Code and does not discuss the tax
considerations applicable to subsequent purchasers of the Notes. The Company has
not sought any ruling from the Internal Revenue Service (the "IRS") with respect
to the statements made and the conclusions reached in the following summary, and
there can be no assurance that the IRS will agree with such statements and
conclusions. In addition, the IRS is not precluded from successfully adopting a
contrary position. This summary does not consider the effect of any applicable
foreign, state, local or other tax laws.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND
ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR
UNDER ANY APPLICABLE TAX TREATY.
TAXATION OF INTEREST
Interest paid on the Notes will be included in the income of a holder as
ordinary income at the time it is treated as received or accrued, in accordance
with the holder's regular method of tax accounting. Failure of the Company to
file or cause to be declared effective a Shelf Registration Statement as
described under "Description of Notes--Registration Rights" will cause
additional interest to accrue on the Notes in the manner described therein.
According to Treasury Regulations, the possibility of a change in the interest
rate will not affect the amount of interest income recognized by a holder (or
the timing of such recognition) if the likelihood of the change, as of the date
the Notes are issued, is remote. The Company believes that the likelihood of a
change in the interest rate on the Notes is remote and does not intend to treat
the possibility of a change in the interest rate as affecting the yield to
maturity of any Note. Similarly, the Company intends to take the position that a
"Repurchase Event" is remote under the Treasury Regulations, and likewise does
not intend to treat the possibility of a "Repurchase Event" as affecting the
yield to maturity of any Note.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a Note, a holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest income not previously included in income which is taxable as
ordinary income) and (ii) such holder's adjusted tax basis in the Note. A
holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such holder. Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period in the Note is more than one year at the time of
sale, exchange or redemption. On August 5, 1997, legislation was enacted which,
among other things, will reduce to 20% the maximum rate of tax on long-term
capital gains on property held by an individual for more than 18
29
months. Gain on capital assets held by an individual more than one year and up
to 18 months is subject to tax at a maximum rate of 28%. Gain on capital assets
held by an individual for one year or less is generally taxed at ordinary income
rates. Holders are urged to consult their own tax advisors with respect to the
new legislation.
CONVERSION OF THE NOTES
A holder generally will not recognize any income, gain or loss upon conversion
of a Note into Common Stock except with respect to cash received in lieu of a
fractional Share of Common Stock. A holder's tax basis in the Common Stock
received on conversion of a Note will be the same as such holder's adjusted tax
basis in the Note at the time of conversion (reduced by any basis allocable to a
fractional share interest), and the holding period for the Common Stock received
on conversion will generally include the holding period of the Note converted.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for a fractional share of Common Stock.
Accordingly, the receipt of cash in lieu of a fractional share of Common Stock
generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the holder's adjusted tax
basis in the fractional share).
DIVIDENDS; ADJUSTMENT TO CONVERSION PRICE
Dividends paid on the Common Stock generally will be includable in the income
of a holder as ordinary income to the extent of the Company's current or
accumulated earnings and profits.
Holders of convertible debt instruments such as the Notes may, in certain
circumstances, be deemed to have received constructive distributions where the
conversion ratio of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments provided
in the Notes (including, without limitation, adjustments in respect of taxable
dividends to stockholders of the Company) will not qualify as being pursuant to
a bona fide reasonable adjustment formula. If such adjustments are made, the
holders of Notes might be deemed to have received constructive distributions
taxable as dividends.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a holder generally will recognize
capital gain or loss equal to the difference between (i) the amount of cash and
the fair market value of any property received upon the sale or exchange and
(ii) such holder's adjusted tax basis in the Common Stock. Such capital gain or
loss will be long-term capital gain or loss if the holder's holding period in
Common Stock is more than one year at the time of the sale or exchange. On
August 5, 1997, legislation was enacted which, among other things, will reduce
to 20% the maximum rate of tax on long-term capital gains on property held by an
individual for more than 18 months. Gain on capital assets held by an individual
more than one year and up to 18 months is subject to tax at a maximum rate of
28%. Gain on capital assets held by an individual for one year or less is
generally taxed at ordinary income rates. Holders are urged to consult their own
tax advisors with respect to the new legislation. A holder's basis and holding
period in Common Stock received upon conversion of a Note are determined as
discussed above under " -- Conversion of the Notes."
30
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock, and a 31% backup withholding tax may apply
to such payments if the holder either (i) fails to demonstrate that the holder
comes within certain exempt categories of holders or (ii) fails to furnish or
certify his correct taxpayer identification number to the payor in the manner
required, is notified by the IRS that he has failed to report payments of
interest and dividends properly, or under certain circumstances, fails to
certify that he has not been notified by the IRS that he is subject to backup
withholding for failure to report interest and dividend payments. Any amounts
withheld under the backup withholding rules from a payment to a holder will be
allowed as a credit against such holder's United States federal income tax and
may entitle the holder to a refund, provided that the required information is
furnished to the IRS.
31
SELLING SECURITYHOLDERS
The Notes offered hereby were originally issued by the Company and sold by the
Initial Purchasers, in a transaction exempt from the registration requirements
of the Securities act, to persons reasonably believed by such initial purchaser
to be "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act), or other institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act. The Selling Holders
(which term includes their transferees, pledgees, donees or their successors)
may from time to time offer and sell pursuant to this Prospectus any or all of
the Notes and Common Stock issued upon conversion of the Notes.
The following table sets forth information with respect to the Selling Holders
and the respective principal amounts of Notes beneficially owned by each Selling
Holder that may be offered pursuant to this Prospectus. Such information has
been obtained from the Selling Holders. None of the Selling Holders has, or
within the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or affiliates, except
as noted below. Because the Selling Holders may offer all or some portion of
the Notes or the Common Stock issuable upon conversion thereof pursuant to this
Prospectus, no estimate can be given as to the amount of the Notes or the Common
Stock issuable upon conversion thereof that will be held by the Selling Holders
upon termination of any such sales. In addition, the Selling Holders identified
below may have sold, transferred or otherwise disposed of all or a portion of
their Notes since the date on which they provided the information regarding
their Notes in transactions exempt from the registration requirements of the
Securities Act.
================================================================================
Principal Amount of Number of Shares of
Notes Common Stock
Beneficially Owned and Beneficially Owned and
Name Offered Hereby Offered Hereby(1)(2)
================================================================================
United National Insurance $ 60,000 1,500
- -------------------------------------------------------------------------------
Lincoln National Life Insurance $ 1,665,000 41,625
- -------------------------------------------------------------------------------
Lincoln National Convertible
Securities Fund $ 1,225,000 30,625
- -------------------------------------------------------------------------------
Weirton Trust $ 380,000 9,500
- -------------------------------------------------------------------------------
Walker Art Center $ 140,000 3,500
- -------------------------------------------------------------------------------
Christian Science Trustees for
Gifts and Endowments $ 90,000 2,250
- -------------------------------------------------------------------------------
Declaration of Trust for the
Defined Benefit Plans of ICI
American Holdings Inc. $ 370,000 9,250
- -------------------------------------------------------------------------------
Declaration of Trust for the
Defined Benefit Plans of
ZENECA Holdings, Inc. $ 255,000 6,375
- -------------------------------------------------------------------------------
Delaware State Employees
Retirement Fund $ 1,250,000 31,250
- -------------------------------------------------------------------------------
First Church of Christ,
Scientist-Endowment $ 105,000 2,625
- -------------------------------------------------------------------------------
General Motors Employees
Domestic Group Trust $ 4,440,000 111,000
- -------------------------------------------------------------------------------
J.W. McConnell Family
Foundation $ 255,000 6,375
- -------------------------------------------------------------------------------
Summer Hill Global
Partners L.P. $ 35,000 875
- -------------------------------------------------------------------------------
Thermo Electron Balanced
Investment Fund $ 340,000 8,500
- -------------------------------------------------------------------------------
Hillside Capital Incorporated
Corporate Account $ 110,000 2,750
- -------------------------------------------------------------------------------
Argent Classic Convertible
Arbitrage Fund L.P. $ 1,700,000 42,500
- -------------------------------------------------------------------------------
Swiss Bank Corporation $ 4,250,000 106,250
- -------------------------------------------------------------------------------
Stark International $ 787,000 19,675
- -------------------------------------------------------------------------------
Sheperd Investments
International, Ltd. $ 1,463,000 36,575
- -------------------------------------------------------------------------------
OCM Convertible Limited
Partnership $ 150,000 3,750
- -------------------------------------------------------------------------------
Chrysler Corporation Master
Retirement Trust $ 1,850,000 46,250
- -------------------------------------------------------------------------------
R(2) Investment, Inc. $ 1,000,000 25,000
- -------------------------------------------------------------------------------
Husic Capital Management as a
Discretionary Asset Manager
for the Ameritech Pension Plan $ 750,000 18,750
- -------------------------------------------------------------------------------
Colonial Penn Insurance Co. $ 562,000 14,050
- -------------------------------------------------------------------------------
Colonial Penn Life Ins. Co. $ 563,000 14,075
- -------------------------------------------------------------------------------
Glen Eagles Fund Ltd. $ 725,000 18,125
- -------------------------------------------------------------------------------
(3)(4)
- -------------------------------------------------------------------------------
Total $24,520,000 613,000
===============================================================================
(1) Includes shares of Common Stock issuable upon conversion of the Notes.
(2) Assumes a conversion price of $40 per share, and a cash payment in lieu of
any fractional share interest; such conversion price is subject to
adjustment as described under "Description of Notes --Conversion."
Accordingly, the number of shares of Common Stock issuable upon conversion
of the Notes may increase or decrease from time to time. Under the terms of
Indenture, fractional shares will not be issued upon conversion of the
Notes; cash will be paid in lieu of fractional shares, if any.
(3) Information concerning other Selling Holders will be set forth in Prospectus
Supplements from time to time, if required.
(4) Assumes that any other holders of Notes or any future transferee from any
such holder does not beneficially own any Common Stock other than the Common
Stock issuable upon conversion of the Notes at the initial conversion rate.
The Selling Holders identified above may have sold, transferred or otherwise
disposed of, in transactions exempt from the registration requirements of the
Securities Act, all or a portion of their Notes since the date on which the
information in the preceding table is presented. Because the Selling Holders
may offer all or some of the Notes that they hold and/or Conversion Shares
pursuant to the offering contemplated by this Prospectus, no estimate can be
given as to the amount of the Notes or Conversion Shares that will be held by
the Selling Holders upon the termination of this offering. See
32
"Plan of Distribution."
Information concerning the Selling Holders may change from time to time and
any such changed information will be set forth in supplements to this prospectus
if and when necessary. In addition, the per share conversion price, and
therefore the number of shares issuable upon conversion of the Notes, is subject
to adjustment under certain circumstances. Accordingly, the aggregate principal
amount of Notes and the number of shares of Common Stock issuable upon
conversion thereof offered hereby may increase or decrease.
33
PLAN OF DISTRIBUTION
The Notes and Common Stock offered hereby may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the Selling Holders
may from time to time offer the Notes and Common Stock to or through
underwriters, broker/dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling Holders
or the purchasers of Notes and Common Stock for whom they may act as agents.
The Selling Holders and any underwriters, broker/dealers or agents that
participate in the distribution of Notes and Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of Notes and Common Stock by them and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Notes and Common Stock offered hereby may be sold form time to time in one
or more transactions at fixed prices, at prevailing market prices at the time of
sale, any varying prices determined at the time of sale or at negotiated prices.
the sale of the Notes and the Common Stock issuable upon conversion thereof may
be effected in transactions (which may involve crosses or block transactions)
(i) on any national or international securities exchange or quotation service on
which the Notes or the Common Stock may be listed or quoted at the time of sale,
(ii) in the over-the-counter market, (iii) in transactions otherwise than on
such exchanges or in the over-the-counter market or (iv) through the writing of
options. At the time a particular offering of the Notes and the Common Stock is
made, a Prospectus Supplement, if required, will be distributed which will set
forth the aggregate amount and type of Notes and Common Stock being offered and
the terms of the offering, including the name or names of any underwriters,
broker/dealers or agents, any discounts, commissions and other terms
constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Notes and Common Stock will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Notes and Common Stock may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or any
exemption from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Notes and Common Stock by the
Selling Holders. The foregoing may affect the marketability of the Notes and
the Common Stock.
Pursuant to the Registration Agreement, all expenses of the registration of
the Notes and Common Stock will be paid by the Company, including, without
limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
34
LEGAL MATTERS
The validity of the Notes and the Common Stock has been passed upon for the
Company by Graham & James LLP, Sacramento, California.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company for the years ended
December 29, 1996, December 30, 1995 and December 31, 1994 incorporated by
reference in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto.
35
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Selling Holder.
This Prospectus does not constitute an offer to sell or the solicitation of any
offer to buy any security other than the shares of Common Stock offered by this
Prospectus, nor does it constitute an offer to sell or a solicitation of any
offer to buy the shares of Common Stock by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that information contained herein is correct as of any time
subsequent to the date hereof.
================================================================================
================================================================================
$115,000,000
4% Convertible Subordinated Notes Due 2004
LEVEL ONE
COMMUNICATIONS,
INCORPORATED
______________
PROSPECTUS
______________
===============================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
-------------------------------------------
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the securities being registered hereunder.
All of the amounts shown are estimates (except for the SEC registration fee).
SEC registration fee
Printing and engraving expenses
Printing fees and expenses
Legal fees and expenses
Blue Sky fees and expenses
Miscellaneous
-----------------------------------
TOTAL
None of these expenses will be paid by the Selling Holders pursuant to the
terms of the agreements under which the shares of Common Stock to be sold hereby
were issued.
Item 15. Indemnification of Directors and Officers
-----------------------------------------
The Company has provisions in its Amended and Restated Articles of
Incorporation which eliminate the liability of the company's directors to the
Company and its shareholders for monetary damages to the fullest extent
permissible under California law and provisions which authorize the damages to
the fullest extent permissible under California law and provisions which
authorize the Company to indemnify its directors and agents by bylaws,
agreements or otherwise, to the fullest extent permitted by law. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission. The Company's Bylaws, as amended,
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by California law, including circumstances in which
indemnification is otherwise discretionary under California law. In addition,
the Company has entered into agreements with its directors and executive
officers that will require the Registrant, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or executive officers to the fullest extent not prohibited by law.
II-1
Item 16. Exhibits
--------
The following exhibits are filed herewith:
Exhibit
Number Description
- ------ -----------
4.1 Indenture dated as of August 15, 1997 among the Company and State Street
Bank and Trust Company of California (National Association), as Trustee.
4.2 Form of 4% Convertible Subordinated Note due 2004.
4.3 Registration Rights Agreement dated as of August 15, 1997 among the Company
and Robertson, Stephens & Company LLC, Alex. Brown & Sons Incorporated, and
Montgomery Securities.
5.1 Opinion of Graham & James LLP
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Graham & James LLP (included in Exhibit 5.1)
24.1 Power of Attorney (See page II-4).
25.1 Statement of Eligibility and Qualification Under the Trust Indenture Act of
1939 of a Corporation designated to act as Trustee on Form T-1.
II-2
Item 17. Undertakings
------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
additional or changed material information with respect to the plan of
distribution.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sacramento, and State of California, on this 15th day
of October, 1997.
LEVEL ONE COMMUNICATIONS, INCORPORATED
By: /s/ Robert S. Pepper
-------------------------------------
Robert S. Pepper, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert S. Pepper and John Kehoe, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- ------------------------ -------------- ----
/s/Robert S. Pepper President, Chief October 15, 1997
- ------------------------
(Robert S. Pepper) Executive Officer and
Director
(Principal Executive Officer)
/s/John Kehoe Vice President October 15, 1997
- ------------------------
(John Kehoe) Chief Financial
Officer and Secretary
(Principal Financial Officer)
/s/Thomas J. Connors Director October 15, 1997
- ------------------------
(Thomas J. Connors)
/s/Martin Jurick Director October 15, 1997
- ------------------------
(Martin Jurick)
II-4
/s/Paul Gray Director October 15, 1997
- ------------------------
(Paul Gray)
/s/Henry Kressel Director October 15, 1997
- ------------------------
(Henry Kressel)
/s/Joseph P. Landy Director October 15, 1997
- ------------------------
(Joseph P. Landy)
II-5
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
The following exhibits are filed herewith:
Exhibit
Number Description
- ------ -----------
4.1 Indenture dated as of August 15, 1997 among the Company and State
Street Bank and Trust Company of California (National Association),
as Trustee.
4.2 Form of 4% Convertible Subordinated Note due 2004.
4.3 Registration Rights Agreement dated as of August 15, 1997 among the
Company and Robertson, Stephens & Company LLC, Alex. Brown & Sons
Incorporated, and Montgomery Securities.
5.1 Opinion of Graham & James LLP
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Graham & James LLP (included in Exhibit 5.1)
24.1 Power of Attorney (See page II-4).
25.1 Statement of Eligibility and Qualification Under the Trust Indenture
Act of 1939 of a Corporation designated to act as Trustee on Form
T-1.