As filed with the Securities and Exchange Commission on June 7, 2000
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
VITESSE SEMICONDUCTOR CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 3674 77-0138960
-------- ---- ----------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
741 Calle Plano
Camarillo, CA 93012
(805) 388-3700
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
--------------------------------
Louis R. Tomasetta
President
Vitesse Semiconductor Corporation
741 Calle Plano
Camarillo, CA 93012
(805) 388-3700
--------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------------
Copies to:
Francis S. Currie
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, CA 94025
(650) 752-2000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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, please 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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
=================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class Amount to be Offering Price Aggregate Amount of
of Securities to be Registered Registered Per Share(1) Offering Price(1) Registration Fee
------------------------------ ---------- ------------ ----------------- ----------------
4.00% Convertible Subordinated
Debentures due 2005 ............... $720,000,000 100% $720,000,000 $190,080
Common Stock, par value
$0.01 per share.................... (2) (2) (2) (2)
=================================================================================================================
(1) Includes 6,417,827 shares of common stock initially upon conversion of
the notes at the conversion price of $112.1875 per share of common
stock. Pursuant to Rule 416 under the Securities Act, such number of
shares of common stock registered hereby shall include an indeterminate
number of shares of common stock that may be issued in connection with a
stock split, stock dividend, recapitalization or similar event.
(2) Pursuant to Rule 457(i), there is no additional filing fee with respect
to the shares of common stock issuable upon conversion of the notes
because no additional consideration will be received in connection with
the exercise of the conversion privilege.
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 this 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.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED June 7, 2000
VITESSE SEMICONDUCTOR CORPORATION
4.00% Convertible Subordinated Debentures due 2005 and
the Common Stock Issuable Upon Conversion of the Debentures
--------------------------------
Vitesse Semiconductor Corporation issued the debentures in a private
placement in March 2000. This prospectus will be used by selling securityholders
to resell their debentures and the common stock issuable upon conversion of the
debentures. We will not receive any of the proceeds from the sale of these
securities.
Holders of the debentures may convert, subject to specified conditions,
the debentures into shares of our common stock at a conversion price of
$112.1875 per share (equal to a conversion rate of 8.9136 shares per $1,000
principal amount of debentures), subject to adjustment as described in this
prospectus.
On or after March 15, 2003, we may redeem some or all of the debentures
at the redemption prices described in this prospectus under "Description of the
Debentures--Optional Redemption".
Upon the occurrence of designated events, including a change of control
of Vitesse, holders of the debentures may require us to repurchase some or all
of their debentures.
The debentures will be our unsecured subordinated obligations and will
rank junior in right of payment to all of our existing and future senior
indebtedness and will be effectively subordinated to all indebtedness and all
other liabilities of our subsidiaries. As of March 31, 2000, we had $3.2 million
of outstanding senior indebtedness.
Our shares are listed for trading on The Nasdaq Stock Market's National
Market under the symbol "VTSS". On May 31, 2000, the last reported sales price
of our common stock on the Nasdaq National Market was $50.63.
Investing in our common stock involves risks. See "Risk Factors" starting
on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is June __, 2000.
TABLE OF CONTENTS
Page
----
Forward Looking Statements................................ i
Where You Can Find Additional
Information............................................. ii
Prospectus Summary........................................ 1
Risk Factors.............................................. 3
Use of Proceeds........................................... 7
Ratio of Earnings to Fixed Charges........................ 7
Selected Consolidated Financial Data...................... 8
Description of the Debentures............................. 9
Certain United States Tax Considerations.................. 23
Selling Securityholders................................... 26
Plan of Distribution...................................... 27
Legal Matters............................................. 28
Independent Auditors...................................... 28
--------------------------------
In deciding whether to purchase the securities offered by this
prospectus, you should rely only on the information contained in this
prospectus. We have not authorized any other person to provide you with
different information. You should assume that the information contained in this
prospectus is accurate only as of the date appearing on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may change after that date.
In making your investment decision regarding the securities offered by
this prospectus, you must rely on your own examination of us and the terms of
the offering, including the merits and risks involved. You should not consider
any information in this prospectus as investment, legal or tax advice. You
should consult your own counsel, accountant and other advisors for legal, tax,
business, financial and related advice regarding the purchase of the debentures
or the common stock issuable upon conversion of the debentures. Vitesse is not
making any representation to any potential purchaser or purchasers of the
debentures or the common stock issuable upon conversion of the debentures
regarding the legality of an investment in the debentures by such potential
purchaser or purchasers under appropriate investment or similar laws.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus and the information
incorporated by reference herein contain some forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. Such statements may include words such
as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe"
and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. In particular, these statements
include, among other things, statements relating to:
o our business strategy;
o the development of our products;
o our projected capital expenditures; and
o our liquidity.
These forward-looking statements speak only as of the date of this
prospectus or as of the date of the information incorporated by reference
herein. Any or all of our forward-looking statements in this prospectus may turn
out to be wrong. They can be affected by inaccurate assumptions we might make or
by known or unknown risks and uncertainties. These risks and uncertainties
include, among others, subordination of the debentures to current and
i
future debt, our dependence on certain customers, fluctuations in our operating
results, risks related to potential acquisitions, general economic and business
conditions, and various other events, conditions and circumstances, many of
which are beyond our control and the control of the initial purchasers. See the
section entitled "Risk Factors" for a more complete description of the risks
associated with investing in the debentures. Many factors mentioned in our
discussion in this prospectus will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"), in accordance with the
Securities Exchange Act of 1934 (the "Exchange Act"). You may read and copy our
reports, proxy statements and other information filed by us at the public
reference facilities of the SEC in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. Our reports, proxy statements and other
information filed with the SEC are available to the public over the Internet at
the SEC's World Wide Web site at www.sec.gov.
We have filed a registration statement on Form S-3 under the Securities
Act of 1933 (the "Securities Act") with respect to our debentures and the common
stock issuable upon conversion of the debentures. This prospectus, which forms a
part of the registration statement, does not contain all of the information
included in the registration statement. Some information is omitted and you
should refer to the registration statement and its exhibits.
The SEC allows us to "incorporate by reference" the information we have
previously filed with them, which means that we can disclose important
information by referring you to those documents. The information incorporated by
reference is considered to be a part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below as well as
any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until our offering is complete:
(a) Our Annual Report on Form 10-K for the fiscal year ended September
30, 1999.
(b) Our Quarterly Reports on Form 10-Q for the quarters ended December
31, 1999 and March 31, 2000.
(c) Our current reports on Form 8-K dated March 6, 2000, March 13, 2000,
March 27, 2000 (as amended on May 25, 2000 and June 7, 2000), April 10, 2000 and
April 19, 2000.
(d) The description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC on November 8, 1991, including any
amendment or report filed for the purpose of updating any such description.
You may request a copy of these filings, at no cost, by writing, calling
or e-mailing us at the following address:
Vitesse Semiconductor Corporation
741 Calle Plano
Camarillo, CA 93012
Attention: Investor Relations
(805) 388-3700
invest@vitesse.com.
ii
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus or in the information incorporated by reference herein and does not
contain all the information you need to consider in making your investment
decision. You should read carefully this entire prospectus.
The Company
Vitesse is a leader in the design, development, manufacturing and
marketing of high-performance digital integrated circuits. Integrated circuits
are components necessary to all electronic systems. Our principal executive
offices are located at 741 Calle Plano, Camarillo, CA 93012 and our telephone
number is (805) 388-3700. For more information about Vitesse, we encourage you
to review the reports we file from time to time with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the year ended
September 30, 1999, and our Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1999 and March 31, 2000. References to "Vitesse," the
"Company," "we," "us" and "our" in this prospectus refer to Vitesse
Semiconductor Corporation and its subsidiaries unless the context requires
otherwise.
The Offering
Securities Offered $720 million in aggregate principal amount
of 4.00% Convertible Subordinated Debentures
due 2005.
Maturity March 15, 2005.
Interest Payment Dates March 15 and September 15 of each year,
commencing September 15, 2000. The initial
interest payment will include accrued
interest from the date the debentures are
issued.
Interest Rate 4.00% per year.
Optional Conversion by Holders Holders may convert the debentures at any
time prior to March 15, 2005, unless
previously redeemed or repurchased, into
shares of common stock at a conversion price
of $112.1875 per share (equal to a
conversion rate of 8.9136 shares per $1,000
principal amount of debentures), subject to
adjustment under certain circumstances.
Optional Redemption by Vitesse On or after March 15, 2003, we may redeem
some or all of the debentures at the
redemption prices provided under
"Description of the Debentures--Optional
Redemption by Vitesse," plus accrued and
unpaid interest to but excluding the
redemption date.
Repurchase Rights of Holders Each holder of debentures may require us to
repurchase all of the holder's debentures at
100% of their principal amount plus accrued
and unpaid interest in the event our common
stock is no longer publicly traded or
following certain change of control events.
The repurchase price is payable in:
o cash; or
-1-
o at our option, subject to the
satisfaction of certain conditions, in
common stock. The number of shares of
common stock will equal the purchase
price divided by 95% of the average
closing prices for the five
consecutive trading days ending on and
including the third trading day prior
to the repurchase date.
Subordination The debentures will be our unsecured
subordinated obligations and will rank
junior in right of payment to all of our
existing and future Senior Debt (as defined
under "Description of the Debentures "). The
debentures will be effectively subordinated
to all indebtedness and other liabilities of
our subsidiaries. As of March 31, 2000, we
had $3.2 million of outstanding Senior Debt.
Use of Proceeds We will not receive any of the proceeds from
the sale by any selling securityholder of
the debentures or the underlying common
stock.
-2-
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to purchase the debentures or the common
stock issuable upon conversion of the debentures. Any of these risks could have
a material adverse effect on our business, financial condition, results of
operations and prospects, which could in turn have a material adverse effect on
the price of the debentures and the common stock issuable upon conversion.
We are Dependent on a Small Number of Customers in a Few Industries
We intend to continue focusing our sales effort on a small number of
customers in the communications and test equipment markets that require
high-performance integrated circuits. Some of these customers are also our
competitors. For the six months ended March 31, 2000, our three largest
customers accounted for 16%, 15% and 11% of our total revenues and no other
customer accounted for more than 10% of our total revenues. If any of our major
customers delays orders of our products or stops buying our products, our
business and financial condition would be severely affected.
Our Operating Results May Fluctuate
Our quarterly revenues and expenses may fluctuate in the future. These
variations may be due to a number of factors, many of which are outside our
control. Factors that could affect our future operating results include the
following:
o The loss of major customers
o Variations, delays or cancellations of orders and shipments of our
products
o Reduction in the selling prices of our products
o Significant changes in the type and mix of products being sold
o Delays in introducing new products
o Design changes made by our customers
o Our failure to manufacture and ship products on time
o Changes in manufacturing capacity, the utilization of this capacity
and manufacturing yields
o Variations in product and process development costs
o Changes in inventory levels; and
o Expenses or operational disruptions resulting from acquisitions
In the past, we have recorded significant new product and process
development costs because our policy is to expense these costs at the time that
they are incurred. We may incur these types of expenses in the future. In future
periods, we expect a substantial increase in amortization of intangible assets
resulting from recent acquisitions and interest expense resulting from recent
financing activities. These additional expenses will have a material and adverse
effect on our earnings in future periods. The occurrence of any of the above
mentioned factors could have a material adverse effect on our business and on
our financial results.
We Have Limited Manufacturing Capacity and We Depend on a New
Production Facility
During 1998, we started producing high-performance integrated circuits at
our new six-inch wafer fabrication factory in Colorado Springs, Colorado. We are
faced with several risks in the successful operation of this facility as well as
in our overall production operations. We had only produced finished four-inch
wafers until 1998 and therefore we have limited experience with the equipment
and processes involved in producing finished six-inch wafers. We do not have
excess production capacity at our Camarillo plant to offset failure of the new
Colorado facility to meet production goals. Further, some of our products have
been qualified for manufacture at only one of the two facilities. Consequently,
our failure to successfully operate the new facility could severely damage
financial results.
-3-
We also must now effectively coordinate and manage two facilities. We
have limited experience in managing production facilities located at two
different sites, and our failure to successfully do so could have a material
adverse effect on our business and operating results.
There Are Risks Associated with Recent and Future Acquisitions
In fiscal 1999, we made four strategic acquisitions. In March 2000, we
completed the acquisition of Orologic, Inc., in exchange for approximately 4.6
million shares of our common stock. In April 2000, we agreed to acquire SiTera,
Inc., for approximately $750 million of our common stock, and we expect to
complete the acquisition in the quarter ending June 30, 2000. These acquisitions
may result in the diversion of management's attention from the day-to-day
operations of the Company's business. Risks of making these acquisitions include
difficulties in the integration of acquired operations, products and personnel.
If we fail in our efforts to integrate recent and future acquisitions, our
business and operating results could be materially and adversely affected.
In addition, acquisitions could result in dilutive issuances of equity
securities, substantial debt, and amortization expenses related to goodwill and
other intangible assets. In particular, in connection with our acquisition of
Orologic, Inc., we were required to expense in-process research and development
of $45.6 million in the three months ended March 31, 2000. Further, we expect to
amortize an aggregate of approximately $446 million of goodwill and other
identifiable intangible assets over the next 2 to 6 years. In addition, we
presently expect to account for our acquisition of SiTera, Inc., as a
pooling-of-interests. However, this accounting treatment is not a condition for
the completion of the acquisition. If we are required to account for the
acquisition of SiTera, Inc., under the purchase method of accounting, we would
be required to record additional acquisition related expenses and amortization
expense related to intangible assets acquired. Except as described above, we do
not currently have any binding obligations with respect to any particular
material acquisition; however, our management frequently evaluates strategic
opportunities available. In the future we may pursue additional acquisitions of
complementary products, technologies or businesses.
Our Industry Is Highly Competitive
The high-performance semiconductor market is extremely competitive and is
characterized by rapid technological change, price erosion and increased
international competition. The communications and test equipment industries,
which are our primary target markets, are also becoming intensely competitive
because of deregulation and international competition. We compete directly or
indirectly with the following categories of companies:
o Gallium Arsenide fabrication operations of systems companies such
as Conexant and Fujitsu
o High-performance silicon integrated circuit manufacturers who use
Emitter Coupled Logic ("ECL"), Bipolar Complementary
Metal-Oxide-Semiconductor ("BiCMOS") or Complementary Metal-Oxide-
Semiconductor ("CMOS") technologies such as Hewlett Packard,
Fujitsu, Motorola, Lucent Technologies, Texas Instruments and
Applied Micro Circuits Corporation
o Internal integrated circuit manufacturing units of systems
companies such as Lucent Technologies, Siemens and Fujitsu.
Our current and prospective competitors include many large companies that
have substantially greater marketing, financial, technical and manufacturing
resources than we do.
Competition in the markets that we serve is primarily based on
price/performance, product quality and the ability to deliver products in a
timely fashion. Product qualification is typically a lengthy process and some
prospective customers may be unwilling to invest the time or expense necessary
to qualify suppliers such as Vitesse. Prospective customers may also have
concerns about the relative advantages of our products compared to more familiar
silicon-based semiconductors. Further, customers may also be concerned about
relying on a relatively small company for a critical sole-sourced component. To
the extent we fail to overcome these challenges, there could be material and
adverse effects on our business and financial results.
-4-
There is Risk Associated with Doing Business in Foreign Countries
In fiscal 1999, international sales accounted for 33% of our total
revenues, and we expect international sales to constitute a substantial portion
of our total revenues for the foreseeable future. International sales involve a
variety of risks and uncertainties, including risks related to:
o Reliance on strategic alliance partners
o Compliance with foreign regulatory requirements
o Variability of foreign economic conditions
o Changing restrictions imposed by U.S. export laws, and
o Competition from U.S. based companies that have firmly established
significant international operations
Failure to successfully address these risks and uncertainties could
adversely affect our international sales, which could in turn have a material
and adverse effect on our results of operations and financial condition.
We Must Keep Pace with Product and Process Development and Technological
Change
The market for our products is characterized by rapid changes in both
product and process technologies. We believe that our success to a large extent
depends on our ability to continue to improve our product and process
technologies and to develop new products and technologies in order to maintain
our competitive position. Further, we must adapt our products and processes to
technological changes and adopt emerging industry standards. Our failure to
accomplish any of the above could have a negative impact on our business and
financial results.
We Are Dependent on Key Suppliers
We manufacture our products using a variety of components procured from
third-party suppliers. Most of our high-performance integrated circuits are
packaged by third parties. Other components and materials used in our
manufacturing process are available from only a limited number of sources. Any
difficulty in obtaining sole- or limited-sourced parts or services from third
parties could affect our ability to meet scheduled product deliveries to
customers. This in turn could have a material adverse effect on our customer
relationships, business and financial results.
Our Manufacturing Yields Are Subject to Fluctuation
Semiconductor fabrication is a highly complex and precise process.
Defects in masks, impurities in the materials used, contamination of the
manufacturing environment and equipment failures can cause a large percentage of
wafers or die to be rejected. Manufacturing yields vary among products,
depending on a particular high- performance integrated circuit's complexity and
on our experience in manufacturing it. In the past, we have experienced
difficulties in achieving acceptable yields on some high-performance integrated
circuits, which has led to shipment delays. Our overall yields are lower than
yields obtained in a mature silicon process because we manufacture a large
number of different products in limited volume and our process technology is
less developed. We anticipate that many of our current and future products may
never be produced in volume.
Since a majority of our manufacturing costs are relatively fixed,
maintaining a number of shippable die per wafer is critical to our operating
results. Yield decreases can result in higher unit costs and may lead to reduced
gross profit and net income. We use estimated yields for valuing work-in-process
inventory. If actual yields are materially different than these estimates, we
may need to revalue work-in-process inventory. Consequently, if any of our
current or future products experience yield problems, our financial results may
be adversely affected.
-5-
Our Business Is Subject to Environmental Regulations
We are subject to various governmental regulations related to toxic,
volatile and other hazardous chemicals used in our manufacturing process. Our
failure to comply with these regulations could result in the imposition of fines
or in the suspension or cessation of our operations. Additionally, we may be
restricted in our ability to expand operations at our present locations or we
may be required to incur significant expenses to comply with these regulations.
Our Failure to Manage Growth May Adversely Affect Us
The management of our growth requires qualified personnel, systems and
other resources. In particular, the continued operation of the new facility in
Colorado Springs and its integration with the Camarillo facility will require
significant management, technical and administrative resources. Additionally, we
have recently established several product design centers worldwide. Finally, we
acquired Vermont Scientific Technologies, Inc. in November 1998, Serano Systems
Corporation in January 1999, XaQti Corporation in July 1999, and Orologic, Inc.
in March 2000, and agreed to acquire SiTera, Inc. in April 2000, and have only
limited experience in integrating the operations of acquired businesses. Failure
to manage our growth or to successfully integrate new and future facilities or
newly acquired businesses could have a material adverse effect on our business
and financial results.
We Are Dependent on Key Personnel
Due to the specialized nature of our business, our success depends in
part upon attracting and retaining the services of qualified managerial and
technical personnel. The competition for qualified personnel is intense. The
loss of any of our key employees or the failure to hire additional skilled
technical personnel could have a material adverse effect on our business and
financial results.
Our ability to repurchase debentures, if required, with cash upon a
change of control may be limited
In certain circumstances involving a change of control or the termination
of public trading of our common stock, holders of the debentures may require us
to repurchase some or all of the debentures. We cannot assure you that we will
have sufficient financial resources at such time or will be able to arrange
financing to pay the repurchase price of the debentures.
Our ability to repurchase the debentures in such event may be limited by
law, by the indenture, by the terms of other agreements relating to our senior
debt and by such indebtedness and agreements as may be entered into, replaced,
supplemented or amended from time to time. We may be required to refinance our
senior debt in order to make such payments. We may not have the financial
ability to repurchase the debentures if payment of our senior debt is
accelerated.
Holders may not be able to sell the debentures
The debentures are a new issue of securities for which there is currently
a very limited trading market. We cannot predict whether an active trading
market for the debentures will develop or be sustained. If an active market for
the debentures fails to develop or be sustained, the trading price of the
debentures could fall. If an active trading market were to develop, the
debentures could trade at prices that may be lower than the initial offering
price. Whether or not the debentures could trade at lower prices depends on many
factors, including:
o prevailing interest rates;
o the markets for similar securities;
o general economic conditions; and
o our financial condition, historical financial performance and
future prospects.
-6-
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the debentures
or the common stock issuable upon conversion of the debentures.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of earnings to
fixed charges:
o for the fiscal years 1995, 1996, 1997, 1998 and 1999 and for the
six months ended March 31, 2000 on an actual basis; and
o for the fiscal year 1999 and for the six months ended March 31,
2000, as adjusted to reflect the ratio as if the debentures had
been issued and outstanding throughout each such period.
o for the fiscal year 1999 and for the six months ended March 31, 2000,
assuming the acquisition of Orologic, Inc. took place as of
October 1, 1998 and 1999, respectively.
Six Months Ended
Fiscal Year Ended September 30, March-31,-2000
------------------------------- --------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Actual.......... 2.04x 14.42x 83.72x 128.85x 203.91x 79.01x
As adjusted..... 5.24x 6.78x
Pro forma....... 2.13x 6.78x
For purposes of computing the ratio of earnings to fixed charges,
earnings consist of net earnings, taxes on income and fixed charges (less
capitalized interest) and fixed charges consist of interest expense,
amortization of debt discount and issuance expense, the portion of rents
representative of an interest factor and capitalized interest.
-7-
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Vitesse as of
September 30, 1999 and 1998 and for each of the years in the three-year period
ended September 30, 1999 have been derived from and are qualified by reference
to the audited consolidated financial statements of Vitesse incorporated by
reference into this prospectus which have been audited by KPMG LLP, independent
auditors. The following selected consolidated financial data as of and for the
periods ended September 30, 1997, 1996 and 1995 were derived from audited
financial statements not included in or incorporated by reference into this
prospectus. The selected financial data as of and for the six months ended March
31, 2000 and 1999 are derived from unaudited condensed consolidated financial
statements and, in the opinion of Vitesse, contain all adjustments (which
consist only of normal recurring adjustments) necessary to present fairly the
financial position and results of operations of Vitesse as of such dates and for
such periods. The results of operations for interim periods are not necessarily
indicative of a full year's operations. This selected consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto incorporated by reference into this prospectus.
As Of And For the Six
As Of and For The Year Ended September 30, Months Ended March 31,
------------------------------------------ ----------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Revenues..................... $42,882 $66,046 $105,413 $176,885 $281,534 $127,645 $189,390
Cost and expenses:
Cost of revenues...... 22,505 31,792 45,513 70,041 104,156 48,234 66,619
Engineering, research and
development........... 8,689 11,149 19,108 33,012 49,187 23,162 32,086
Selling, general and
administrative........ 8,900 9,993 15,659 23,638 35,049 16,948 21,582
Purchased in-process
research & development -- -- -- -- -- -- 45,614
Total costs and expenses..... 40,094 52,934 80,280 126,691 188,392 88,344 165,901
------ ------ ------ ------- ------- ------ -------
Income from operations....... 2,788 13,112 25,133 50,194 93,142 39,301 23,489
Other income (loss), net..... (1,202) 613 8,036 9,385 10,748 5,249 6,477
Income before income taxes... 1,586 13,725 33,169 59,579 103,890 44,550 29,966
Income taxes................. 79 1,405 3,652 9,079 34,010 14,428 24,942
-- ----- ----- ----- ------ ------ ------
Net income................... $1,507 $12,230 $29,517 $50,500 $69,880 $30,122 $5,024
====== ======= ======= ======= ======= ======= ======
Net income per share:
Basic................. $0.02 $0.12 $0.22 $0.34 $0.46 $0.20 $0.03
Diluted............... $0.01 $0.10 $0.19 $0.31 $0.42 $0.18 $0.03
====== ======= ======= ======= ======= ======= ======
Shares used in per share
computations:
Basic................. 96,692 104,562 138,256 147,446 153,326 151,588 157,767
Diluted............... 103,842 119,486 152,888 160,500 166,458 165,630 171,058
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data:
Working capital.............. $17,889 $70,606 $179,564 $225,025 $282,022 $265,054 $796,314
Total assets................. 42,111 101,071 295,994 381,008 522,893 450,249 1,793,073
Total current liabilities.... 11,593 11,852 27,865 29,018 35,480 30,427 40,050
Long-term obligations, less
current installments.. 5,518 1,166 322 701 725 1,312 721,371
Net shareholders' equity..... 25,000 88,053 267,807 351,289 486,688 418,510 1,030,955
-8-
DESCRIPTION OF THE DEBENTURES
We issued the debentures under the indenture between us and State Street
Bank and Trust Company of California, N.A., as trustee. The terms of the
debentures include those provided in the indenture. Copies of the indenture,
including the forms of debenture, and the registration rights agreement have
been filed as exhibits to the registration statement of which this prospectus
is a part.
The following description is only a summary of the material provisions of
the debentures and the indenture. We urge you to read these documents in their
entirety because they, and not this description, define your rights as holders
of these debentures. You may request copies of these documents at our address
set forth under the caption "Where You Can Find Additional Information."
When we refer to "we," "us," "our" or "the Company" in this section, we
refer only to Vitesse and not its subsidiaries.
Brief Description of the Debentures
The debentures will be:
o limited to $720 million aggregate principal amount;
o general unsecured obligations, junior in right of payment to all of
our existing and future Senior Debt, and will be effectively
subordinated to all indebtedness and liabilities of our subsidiaries;
o convertible into our common stock at a conversion price of $112.1875
per share, subject to adjustment as described under "Conversion
Rights;"
o redeemable at our option upon the terms and at the redemption prices
set forth under "Optional Redemption by Vitesse;"
o subject to repurchase by us at your option if any one of certain
Designated Events described below occurs; and
o due on March 15, 2005, unless earlier converted, redeemed by us at
our option or repurchased by us at your option upon the occurrence of
a Designated Event.
The indenture does not contain any financial covenants and does not
restrict us from paying dividends, incurring Senior Debt or any other
indebtedness or issuing or repurchasing our other securities. The indenture
also does not protect you in the event of a highly leveraged transaction or a
change in control of Vitesse except to the extent described under "--Repurchase
at Option of Holders" below.
You may present definitive debentures for conversion, registration of
transfer and exchange, without service charge, at our office or agency in New
York City, which shall initially be the office or agency of the trustee in New
York City.
Interest
The debentures will bear interest from March 13, 2000 at the rate of 4.00%
per year. We will pay interest semiannually on March 15 and September 15 of
each year to the holders of record at the close of business on the preceding
March 1 and September 1, respectively, beginning September 15, 2000. There are
two exceptions to the preceding sentence:
(1) In general, we will not pay interest accrued and unpaid on any
debenture that is converted into our common stock. See "--Conversion Rights."
If a holder of debentures converts after a record date for an interest payment
but
9
prior to the corresponding interest payment date, it will receive on the
interest payment date interest accrued and paid on such debentures,
notwithstanding the conversion of such debentures prior to such interest payment
date, because such holder will have been the holder of record on the
corresponding record date. However, at the time such holder surrenders such
debentures for conversion, it must pay us an amount equal to the interest that
has accrued and will be paid on the interest payment date. The preceding
sentence does not apply, however, to a holder that converts, after a record date
for an interest payment but prior to the corresponding interest payment date,
debentures that are called by us for redemption. Accordingly, if we redeem
debentures on a date after a record date for an interest payment but prior to
the corresponding interest payment date, and prior to the redemption date the
holder of such debentures chooses to convert such debentures, the holder will
not be required to pay us, at the time it surrenders such debentures for
conversion, the amount of interest on such debentures it will receive on the
interest payment date.
(2) We will pay interest to a person other than the holder of record on
the record date if we redeem the debentures on a date that is after the record
date and prior to the corresponding interest payment date. In this instance, we
will pay interest accrued and unpaid on the debentures being redeemed to but
not including the redemption date to the same person to whom we will pay the
principal of such debentures.
Except as provided below, we will pay interest on:
o the global debentures to DTC in immediately available funds;
o any definitive debentures having an aggregate principal amount of
$5,000,000 or less by check mailed to the holders of these
debentures; and
o any definitive debentures having an aggregate principal amount of
more than $5,000,000 by wire transfer in immediately available funds
at the election of the holders of these debentures.
At maturity, we will pay interest on any definitive debentures at our
office or agency in New York City, which initially will be the office or agency
of the trustee in New York City. We will pay principal and premium, if any, on:
o the global debentures to DTC in immediately available funds; and
o any definitive debentures at our office or agency in New York City,
which initially will be the office or agency of the trustee in New
York City.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Interest Rate Adjustments
If a Reset Transaction occurs, the interest rate will be adjusted to equal
the Adjusted Interest Rate from the effective date of such Reset Transaction
to, but not including, the effective date of any succeeding Reset Transaction.
A "Reset Transaction" means:
o a merger, consolidation or statutory share exchange to which the
entity that is the issuer of the common stock into which the
debentures are then convertible is a party;
o a sale of all or substantially all the assets of that entity;
o a recapitalization of that common stock; or
o a distribution described in clause (4) of the seventh paragraph under
"--Conversion Rights" below,
after the effective date of which transaction or distribution the debentures
would be convertible into:
10
o shares of an entity the common stock of which had a dividend yield
for the four fiscal quarters of such entity immediately preceding the
public announcement of the transaction or distribution that was more
than 2.5% higher than the dividend yield on our common stock (or
other common stock then issuable upon conversion of the debentures)
for the four fiscal quarters preceding the public announcement of the
transaction or distribution; or
o shares of an entity that announces a dividend policy prior to the
effective date of the transaction or distribution which policy, if
implemented, would result in a dividend yield on that entity's common
stock for the next four fiscal quarters that would result in such a
2.5% increase.
The "Adjusted Interest Rate" with respect to any Reset Transaction will be
the rate per year that is the arithmetic average of the rates quoted by two
dealers engaged in the trading of convertible securities selected by us or our
successor as the rate at which interest should accrue so that the fair market
value, expressed in dollars, of a debenture immediately after the later of:
o the public announcement of the Reset Transaction; or
o the public announcement of a change in dividend policy in connection
with the Reset Transaction,
will most closely equal the average Trading Price of a debenture for the 20
trading days preceding the date of public announcement of the Reset Transaction.
However, the Adjusted Interest Rate will not be less than 4.00% per year.
For purposes of the definition of Reset Transaction, the dividend yield on
any security for any period means the dividends paid or proposed to be paid
pursuant to an announced dividend policy on the security for that period
divided by, if with respect to dividends paid on that security, the average
Closing Price (as defined in the indenture) of the security during that period
and, if with respect to dividends proposed to be paid on the security, the
Closing Price of such security on the effective date of the related Reset
Transaction.
The "Trading Price" of a security on any date of determination means:
o the closing sale price (or, if no closing sale price is reported, the
last reported sale price) of a security (regular way) on the New York
Stock Exchange on that date;
o if that security is not listed on the NYSE on that date, the closing
sale price as reported in the composite transactions for the
principal U.S. securities exchange on which that security is listed;
o if that security is not so listed on a U.S. national or regional
securities exchange, the closing sale price as reported by the Nasdaq
National Market;
o if that security is not so reported, the last price quoted by
Interactive Data Corporation for that security or, if Interactive
Data Corporation is not quoting such price, a similar quotation
service selected by us;
o if that security is not so quoted, the average of the mid-point of
the last bid and ask prices for that security from at least two
dealers recognized as market-makers for that security; or
o if that security is not so quoted, the average of the last bid and
ask prices for that security from a dealer engaged in the trading of
convertible securities.
Conversion Rights
You may convert any outstanding debentures (or portions of outstanding
debentures) into our common stock, initially at the conversion price of
$112.1875 per share (equal to a conversion rate of 8.9136 shares per $1,000
principal amount of debentures). The conversion price is, however, subject to
adjustment as described below. We will not issue fractional shares of common
stock upon conversion of debentures. Instead, we will pay a cash
11
adjustment based upon the closing sale price of our common stock on the business
day immediately preceding the conversion date. You may convert debentures only
in denominations of $1,000 and whole multiples of $1,000.
You may exercise conversion rights at any time prior to the close of
business on the business day immediately preceding the final maturity date of
the debentures. However, if you are a holder of debentures that have been
called for redemption, you may only exercise your conversion rights prior to
the close of business on the second business day preceding the redemption date,
unless we default in payment of the redemption price. In addition, if you have
exercised your right to require us to repurchase your debentures because a
Designated Event has occurred, you may convert your debentures into our common
stock only if you withdraw your notice and convert your debentures prior to the
close of business on the business day immediately preceding the Designated
Event repurchase date.
Except as provided below, if you convert your debentures into our common
stock on any day other than an interest payment date, you will not receive any
interest that has accrued on these debentures. By delivering to the holder the
number of shares issuable upon conversion, determined by dividing the principal
amount of the debentures being converted by the conversion price, together with
a cash payment, if any, in lieu of fractional shares, we will satisfy our
obligation with respect to the debentures. That is, accrued but unpaid interest
will be deemed to be paid in full rather than canceled, extinguished or
forfeited. If you convert after a record date for an interest payment but prior
to the corresponding interest payment date, you will receive on the interest
payment date interest accrued and paid on such debentures, notwithstanding the
conversion of such debentures prior to such interest payment date, because you
will have been the holder of record on the corresponding record date. However,
at the time you surrender such debentures for conversion, you must pay us an
amount equal to the interest that has accrued and will be paid on the
debentures being converted on the interest payment date. However, the preceding
sentence does not apply to debentures that are converted after being called by
us for redemption. Accordingly, if we call your debentures for redemption on a
date that is after a record date for an interest payment but prior to the
corresponding interest payment date, and prior to the redemption date you
choose to convert your debentures, you will not be required to pay us at the
time you surrender such debentures for conversion the amount of interest on
such debentures you will receive on the date that has been fixed for
redemption.
You will not be required to pay any taxes or duties relating to the
issuance or delivery of our common stock if you exercise your conversion
rights, but you will be required to pay any tax or duty which may be payable
relating to any transfer involved in the issuance or delivery of the common
stock in a name other than yours. (If you convert any debenture within two
years after its original issuance, the common stock issuable upon conversion
will not be issued or delivered in a name other than yours unless the
applicable restrictions on transfer have been satisfied. See "Notice to
Investors.") Certificates representing shares of common stock will be issued or
delivered only after all applicable taxes and duties, if any, payable by you
have been paid.
To convert a definitive debenture, you must:
o complete the conversion notice on the back of the debenture (or a
facsimile thereof);
o deliver the completed conversion notice and the debentures to be
converted to the specified office of the conversion agent;
o pay all funds required, if any, relating to interest on the
debentures to be converted to which you are not entitled, as
described in the second preceding paragraph; and
o pay all taxes or duties, if any, as described in the preceding
paragraph.
The conversion date will be the date on which all of the foregoing
requirements have been satisfied. The debentures will be deemed to have been
converted immediately prior to the close of business on the conversion date. A
certificate for the number of shares of common stock into which the debentures
are converted (and cash in lieu of any fractional shares) will be delivered as
soon as practicable on or after the conversion date.
We will adjust the initial conversion price for certain events, including:
12
(1) issuances of our common stock as a dividend or distribution on our
common stock;
(2) certain subdivisions and combinations of our common stock;
(3) issuances to all holders of our common stock of certain rights or
warrants to purchase our common stock at less than the then current market
price of our common stock;
(4) distributions to all holders of our common stock of shares of our
capital stock (other than our common stock), evidences of our indebtedness or
assets, including securities, but excluding:
(A) the rights and warrants referred to in clause (3),
(B) any dividends and distributions in connection with a reclassification,
change, consolidation, merger, combination, sale or conveyance resulting in a
change in the conversion consideration pursuant to the second succeeding
paragraph, or
(C) any dividends or distributions paid exclusively in cash;
(5) distributions consisting exclusively of cash to all holders of our
common stock to the extent that such distributions, combined together with:
(A) all other such all-cash distributions made within the preceding 12
months for which no adjustment has been made, plus
(B) any cash and the fair market value of other consideration paid for any
tender offers by us or any of our subsidiaries for our common stock concluded
within the preceding 12 months for which no adjustment has been made,
exceeds 10% of our market capitalization on the record date for such
distribution; market capitalization is the product of the then current market
price of our common stock times the number of shares of our common stock then
outstanding; and
(6) purchases of our common stock pursuant to a tender offer made by us or
any of our subsidiaries to the extent that the same involves an aggregate
consideration that, together with
(A) any cash and the fair market value of any other consideration paid in
any other tender offer by us or any of our subsidiaries for our common stock
concluded within the 12 months preceding such tender offer for which no
adjustment has been made, plus
(B) the aggregate amount of any all-cash distributions referred to in
clause (5) above to all holders of our common stock within 12 months preceding
the expiration of a tender offer for which no adjustments have been made,
exceeds 10% of our market capitalization on the expiration of such tender offer.
We are entitled, in lieu of making certain adjustments under clause (3) or
(4) above, to provide that, subject to satisfying certain conditions, upon
conversion of the debentures, the holders of the debentures will receive, in
addition to the common stock issuable upon conversion of their debentures, the
distribution referred to in clause (3) or (4).
We will not make an adjustment in the conversion price unless such
adjustment would require a change of at least 1% in the conversion price then
in effect at such time. We will carry forward and take into account in any
subsequent adjustment any adjustment that would otherwise be required to be
made. Except as stated above, we will
13
not adjust the conversion price for the issuance of our common stock or any
securities convertible into or exchangeable for our common stock or carrying the
right to purchase any of the foregoing.
If we:
o reclassify or change our common stock (other than changes resulting
from a subdivision or combination); or
o consolidate or combine with or merge into any person or sell or
convey to another person all or substantially all of our property and
assets,
and the holders of our common stock receive stock, other securities or other
property or assets (including cash or any combination thereof) with respect to
or in exchange for their common stock, the holders of the debentures may convert
the debentures into the consideration they would have received if they had
converted their debentures immediately prior to such reclassification, change,
consolidation, combination, merger, sale or conveyance.
If a taxable distribution to holders of our common stock or other
transaction occurs which results in any adjustment of the conversion price, you
may, in certain circumstances, be deemed to have received a distribution
subject to U.S. federal income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a taxable dividend to
the holders of our common stock. See "Certain United States Federal Income Tax
Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the debentures by any amount for any period of at least 20
days. In that case, we will give at least 15 days' notice of such decrease. We
may make such reductions in the conversion price, in addition to those set
forth above, as our board of directors deems advisable to avoid or diminish any
income tax to holders of our 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.
Optional Redemption by Vitesse
At any time on or after March 15, 2003, we may redeem some or all of the
debentures on at least 20 but not more than 60 days' notice, at the following
redemption prices (expressed in percentages of the principal amount):
During the Redemption
Twelve Months Commencing Price
------------------------ ----------
March 15, 2003................. 101.00%
March 15, 2004................. 100.00%
In addition, we will pay interest on the debentures being redeemed. This
interest will include interest accrued and unpaid to, but excluding, the
redemption date. If the redemption date is an interest payment date, we will
pay the interest to the holder of record on the corresponding record date,
which may or may not be the same person to whom we will pay the redemption
price.
If we do not redeem all of the debentures, the trustee will select the
debentures to be redeemed in principal amounts of $1,000 or whole multiples of
$1,000 by lot or on a pro rata basis. If any debentures are to be redeemed in
part only, we will issue a new debenture or debentures in principal amount
equal to the unredeemed principal portion thereof. If a portion of your
debentures is selected for partial redemption and you convert a portion of your
debentures, the converted portion will be deemed to be taken from the portion
selected for redemption.
Repurchase at Option of Holders
If a Designated Event occurs, you will have the right to require us to
repurchase all of your debentures not previously called for redemption, or any
portion of those debentures that is equal to $1,000 or a whole multiple of
$1,000. The repurchase date will be a business day no earlier than 30 days nor
later than 45 days after the date we
14
give notice of a Designated Event and will be specified in that notice. The
repurchase price is equal to 100% of the principal amount of the debentures to
be repurchased. We will also pay interest accrued and unpaid to, but excluding,
the repurchase date.
Upon the occurrence of a Designated Event which is a Change of Control,
instead of paying the repurchase price in cash, we may pay the repurchase price
in common stock. The number of shares of common stock a holder will receive
will equal the repurchase price divided by 95% of the average of the closing
sale prices of our common stock for the five trading days immediately preceding
and including the third day prior to the repurchase date. However, we may not
pay in common stock unless we satisfy certain conditions prior to the
repurchase date as provided in the indenture.
Within 30 days after the occurrence of a Designated Event, we are required
to give you notice of the occurrence of the Designated Event and of your
resulting repurchase right. To exercise the repurchase right, you must deliver,
prior to the close of business on the repurchase date, written notice to the
trustee of your exercise of your repurchase right, together with the debentures
with respect to which your right is being exercised. You may withdraw this
notice by delivering to the trustee a notice of withdrawal prior to the close
of business on the business day immediately preceding the repurchase date.
A "Designated Event" means a Change of Control or a Termination of
Trading.
A "Change of Control" means any event or series of events as a result of
which:
o a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of more than 50% of
the total voting power of the then outstanding voting stock of
Vitesse on a fully diluted basis;
o at any time continuing directors, that is, members of the board of
directors of Vitesse who were members of the board on the date the
debentures were originally issued or who were 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
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, do not constitute a majority of the board of
directors of Vitesse (or, if applicable, a successor corporation of
Vitesse);
o individuals who at the beginning of any period of two consecutive
calendar years constituted the board of directors (together with any
directors who are members of the board of directors on the date
hereof and any new directors whose election by the board of directors
or whose nomination for election by the stockholders of Vitesse was
approved by a vote of at least a majority of the members of the board
of directors then still in office who either were members of the
board of directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of the board of
directors then in office;
o Vitesse conveys, transfers, or leases, all or substantially all of
its assets to any such "person" or "group;" or
o Vitesse merges or consolidates with or into another corporation or
another corporation merges with or into Vitesse, and the outstanding
common stock of Vitesse is changed or exchanged into or for other
assets or securities as a result of the transaction with the effect
that immediately after such transaction any such "person" or "group"
of persons or entities shall have become the beneficial owner of
securities of the surviving corporation of such merger or
consolidation representing a majority of the total voting power of
the then outstanding voting stock of the surviving corporation.
However, a change in control will be deemed not to have occurred if:
15
o the closing sales price per share of our common stock for any five
trading days within the period of 10 consecutive trading days ending
immediately before the change in control equals or exceeds 105% of
the conversion price in effect on each such trading day; or
o at least 90% of the consideration in the transaction or transactions
constituting a change in control consists of shares of common stock
traded or to be traded immediately following such change in control
on a national securities exchange or the Nasdaq Stock Market and, as
a result of such transaction or transactions, the debentures become
convertible solely into such common stock.
A "Termination of Trading" will be deemed to have occurred if our common
stock (or other common stock into which the debentures are 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.
No quantitative or other established meaning has been given to the phrase
"all or substantially all," which appears in the definition of Change of
Control, by courts that have interpreted this phrase in various contexts. In
interpreting this phrase, courts, among other things, make a subjective
determination as to the portion of assets conveyed, considering such factors as
the value of assets conveyed, the proportion of an entity's income derived from
the assets conveyed and the significance of those assets to the ongoing
business of the entity. To the extent the meaning of such phrase is uncertain,
uncertainty will exist as to whether or not a Change of Control may have
occurred and, accordingly, as to whether or not the holders of debentures will
have the right to require us to repurchase their debentures.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders if an issuer tender offer occurs and may apply
if the repurchase option becomes available to holders of the debentures. We
will comply with this rule to the extent applicable at that time.
We may, to the extent permitted by applicable law and our Senior Debt
indentures, at any time purchase the debentures in the open market or by tender
at any price or by private agreement. Any debenture so purchased by us may, to
the extent permitted by applicable law, be reissued or resold or may be
surrendered to the trustee for cancellation. Any debentures surrendered to the
trustee may not be reissued or resold and will be canceled promptly.
The foregoing provisions would not necessarily protect holders of the
debentures if highly leveraged or other transactions involving us occur that
may adversely affect holders.
Our ability to repurchase debentures upon the occurrence of a Designated
Event is subject to important limitations. The occurrence of a Designated Event
could cause an event of default under, or be prohibited or limited by, the
terms of Senior Debt that we may incur in the future. As a result, any
repurchase of the debentures could, absent a waiver, be prohibited under the
subordination provisions of the indenture. Further, we cannot assure you that
we would have the financial resources, or would be able to arrange financing,
to pay the repurchase price for all the debentures that might be delivered by
holders of debentures seeking to exercise the repurchase right. Any failure by
us to repurchase the debentures when required following a Designated Event
could result in an event of default under the indenture, whether or not such
repurchase is permitted by the subordination provisions of the indenture. Any
such default may, in turn, cause a default under Senior Debt that we may incur
in the future. See "--Subordination" below.
Subordination
The debentures will be subordinated in right of payment to the prior
payment in full of all our existing and future Senior Debt. The indenture
provides that in the event of any distribution of our assets upon our
dissolution, winding up, liquidation or reorganization, the holders of our
Senior Debt will first be paid in cash in respect of all principal and premium,
if any, and interest (including interest accruing after the commencement of any
bankruptcy proceeding, regardless of whether such interest is an allowed claim
in such proceeding), before we make any payments of principal of, or premium,
if any, and interest on the debentures.
16
The indenture further provides if any default by us has occurred and is
continuing in the payment of principal of or premium, if any, or interest on
any Senior Debt, no payment may be made on account of principal of, premium, if
any, or interest on the debentures, until all such payments due in respect of
that Senior Debt have been paid in full. During the continuance of any event of
default with respect to any Senior Debt (other than a default in payment of the
principal of or premium, if any, or interest on, any Senior Debt), permitting
the holders thereof to accelerate the maturity thereof, no payment may be made
by us, directly or indirectly, with respect to principal of or premium, if any,
or interest on the debentures, including redemption, cash payment in lieu of
conversion and repurchase payments, for 180 days following written notice to
us, from any holder, representative or trustee under any agreement pursuant to
which that Senior Debt may have been issued, that such an event of default has
occurred and is continuing, unless such event of default has been cured or
waived or that Senior Debt has been paid in full. However, if the maturity of
that Senior Debt is accelerated, no payment may be made on the debentures until
that Senior Debt has been paid in full or such acceleration has been cured or
waived.
By reason of such subordination provisions, in the event of insolvency,
funds which we would otherwise use to pay the holders of debentures will be
used to pay the holders of Senior Debt to the extent necessary to pay Senior
Debt in full. As a result of these payments, our general creditors may recover
less, ratably, than holders of Senior Debt and such general creditors may
recover more, ratably, than holders of debentures.
The term "Senior Debt" is defined in the indenture as:
(1) any liability of the Company for borrowed money, or evidenced by an
instrument for the payment of money, or incurred in connection with the
acquisition of any property, services or assets (including securities), or
relating to a capitalized lease obligation,
(2) obligations under exchange rate contracts or interest rate protection
agreements,
(3) any obligations of the Company to reimburse the issuer of any letter
of credit, surety bond, performance bond or other guarantee of contractual
performance, and
(4) any liability of another person of the type referred to in clause (1),
(2) or (3) which has been assumed or guaranteed by the Company;
provided that Senior Debt does not include:
(1) indebtedness of the Company that by its terms is expressly equal or
subordinate in right of payment to the debentures,
(2) accounts payable or any other indebtedness of the Company to trade
creditors created or assumed by the Company in the ordinary course of business
in connection with the obtaining of materials or services, or
(3) any liability for federal, state, local or other taxes owed or owing
by the Company.
At March 31, 2000, we had approximately $3.2 million of Senior Debt
outstanding. There are no restrictions in the indenture on the creation of
additional Senior Debt or any other indebtedness.
The debentures will be our obligations exclusively and will be, in effect,
subordinated to all existing and future indebtedness (including trade payables)
of our subsidiaries. The indenture does not limit the amount of indebtedness
our subsidiaries may incur. Our ability to make required interest, principal,
repurchase, cash conversion or redemption payments on the debentures may be
impaired as a result of the obligations of our subsidiaries. Our subsidiaries
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the debentures or to make any
funds available therefor, whether by dividends, loans or other payments. Any
right we have to receive assets of any of our subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
debentures to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors, except to the extent that we are
ourselves
17
recognized as a creditor of that subsidiary, in which case our claims would
still be subordinate to any security interests in the assets of that subsidiary
and any indebtedness of that subsidiary senior to that held by us. There are no
restrictions in the indenture on the creation of additional subsidiary
obligations.
We will be obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against any losses, liabilities or expenses incurred by
it in connection with its duties relating to the debentures. The trustee's
claims for such payments will be senior to those of holders of the debentures
in respect of all funds collected or held by the trustee.
Events of Default
Each of the following constitutes an event of default under the indenture:
(1) default in the payment of interest on the debentures when due and
payable and continuance of such default for a period of 30 days;
(2) default in the payment of principal of (or premium, if any, on) any
debenture at maturity, redemption or otherwise;
(3) default in the payment of principal or interest, on debentures
required to be purchased by us as described under "Repurchase at Option of
Holders;"
(4) default in the performance of or breach of any other of our covenants
or agreements in the indenture or under the debentures (other than a default
specified in clause (1), (2) or (3) above) and such default or breach continues
for a period of 60 consecutive days after written notice by the trustee or the
holders of 25% or more in aggregate principal amount of the debentures;
(5) there occurs with respect to any agreements, indentures or instruments
under which we have indebtedness of $50.0 million or more in the aggregate, not
including any amounts we may owe under reimbursement or similar obligations to
banks, sureties or other entities which have issued letters of credit, surety
bonds, performance bonds or other guarantees relating to the performance by us
or our subsidiaries of contractual obligations to customers, to the extent any
demands made under any such reimbursement or similar obligation relate to a
draw under the related letter of credit or other instrument which draw is being
contested in good faith through appropriate proceedings, whether such
indebtedness now exists or shall hereafter be created, a default that has
caused the holder thereof to declare such indebtedness to be due and payable
prior to its stated maturity and such indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled by the thirtieth
day after notice of the default has been given to us by the trustee or to us
and the trustee by holders of at least 25% in aggregate principal amount of the
debentures; provided, that if the default under the indenture or instrument is
remedied or cured by us or waived by the holders of such indebtedness before
the entry of judgment in favor of the trustee, then the event of default under
the indenture will be deemed likewise to have been remedied, cured or waived;
or
(6) there occurs certain events of bankruptcy, insolvency or
reorganization with respect to us.
The indenture will provide that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the debentures
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 of 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 debentures when due or in the payment of any
redemption or repurchase obligation.
If an event of default shall occur and be continuing (the default not
having been cured or waived as provided under "--Modifications, Amendments and
Meetings" below), the trustee or the holders of at least 25% in aggregate
principal amount of the debentures then outstanding may declare the debentures
due and payable at their principal amount together with accrued interest, and
thereupon the trustee may, at its discretion, proceed to protect and enforce
the rights of the holders of debentures by appropriate judicial proceedings.
Such declaration may be rescinded or
18
annulled either with the written consent of the holders of a majority in
aggregate principal amount of the debentures then outstanding or a majority in
aggregate principal amount of the debentures represented at a meeting at which a
quorum (as specified under "--Modifications, Amendments and Meetings" below) is
present, in each case upon the conditions provided in the indenture.
The indenture contains a provision entitling the trustee, subject to the
duty of the trustee during the occurrence of a default to act with the required
standard of care, to be indemnified by the holders of debentures before
proceeding to exercise any right or power under the indenture at the request of
such holders. The indenture provides that the holders of a majority in
aggregate principal amount of the debentures then outstanding through their
written consent, or the holders of a majority in aggregate principal amount of
the debentures then outstanding represented at a meeting at which a quorum is
present, 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
upon the trustee.
We will be required to furnish annually to the trustee a statement as to
the fulfillment of our obligations under the indenture.
Consolidation, Merger or Assumption
We may, without the consent of the holders of debentures, consolidate
with, merge into or transfer all or substantially all of our assets to any
other corporation organized under the laws of the United States or any of its
political subdivisions provided that:
o the surviving corporation assumes all our obligations under the
indenture and the debentures;
o at the time of such transaction, no event of default, and no event
which, after notice or lapse of time, would become an event of
default, shall have happened and be continuing; and
o certain other conditions are met.
Modifications, Amendments and Meetings
Changes Requiring Approval of Each Affected Holder
The indenture (including the terms and conditions of the debentures)
cannot be modified or amended without written consent or the affirmative vote
of the holder of each debenture affected by such change to:
o change the maturity of the principal of or any installment of
interest on that debenture;
o reduce the principal amount of, or any premium or interest on that
debenture;
o change the currency of payment of that debenture or interest thereon;
o impair the right to institute suit for the enforcement of any payment
on or with respect to that debenture;
o modify our obligations to maintain an office or agency in New York
City;
o except as otherwise permitted or contemplated by provisions
concerning corporate reorganizations, adversely affect the repurchase
option of holders upon a change of control or the conversion rights
of holders of the debentures;
o modify the subordination provisions of the indenture in a manner
adverse to the holders of debentures;
o modify the redemption provisions of the indenture in a manner adverse
to the holders of debentures;
19
o reduce the percentage in aggregate principal amount of debentures
outstanding necessary to modify or amend the indenture or to waive
any past default; or
o reduce the percentage in aggregate principal amount of debentures
outstanding required for the adoption of a resolution or the quorum
required at any meeting of holders of debentures at which a
resolution is adopted.
Changes Requiring Majority Approval
Except as otherwise described herein, the indenture (including the terms
and conditions of the debentures) may be modified or amended either:
o with the written consent of the holders of at least a majority in
aggregate principal amount of the debentures at the time outstanding;
or
o by the adoption of a resolution at a meeting of holders by at least a
majority in aggregate principal amount of the debentures represented
at such meeting.
Changes Requiring No Approval
The indenture (including the terms and conditions of the debentures) may
be modified or amended by us and the trustee, without the consent of the holder
of any debenture, for the purposes of, among other things:
o adding to our covenants for the benefit of the holders of debentures;
o surrendering any right or power conferred upon us;
o providing for conversion rights of holders of debentures if any
reclassification or change of our common stock or any consolidation,
merger or sale of all or substantially all of our assets occurs;
o providing for the assumption of our obligations to the holders of
debentures in the case of a merger, consolidation, conveyance,
transfer or lease;
o reducing the conversion price, provided that the reduction will not
adversely affect the interests of the holders of debentures;
o complying with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act of 1939, as amended;
o making any changes or modifications necessary in connection with the
registration of the debentures under the Securities Act as
contemplated in the registration rights agreement; provided that such
change or modification does not, in the good faith opinion of our
board of directors and the trustee, adversely affect the interests of
the holders of debentures in any material respect;
o curing any ambiguity or correcting or supplementing any defective
provision contained in the indenture; provided that such modification
or amendment does not, in the good faith opinion of our board of
directors and the trustee, adversely affect the interests of the
holders of debentures in any material respect; or
o adding or modifying any other provisions which we and the trustee may
deem necessary or desirable and which will not adversely affect the
interests of the holders of debentures.
20
Meetings; Consents
The indenture contains provisions for convening meetings of the holders of
debentures to consider matters affecting their interests and for the taking of
actions by the holders on such matters by written consent in lieu of a meeting.
Quorum
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the
debentures at the time outstanding and, at any reconvened meeting adjourned for
lack of a quorum, 25% of the aggregate principal amount.
Satisfaction and Discharge
We may satisfy and discharge our obligations under the indenture while
debentures remain outstanding, subject to certain conditions, if:
o all outstanding debentures will become due and payable at their
scheduled maturity within one year; or
o all outstanding debentures are scheduled for redemption within one
year, and, in either case, we have deposited with the trustee an
amount sufficient to pay and discharge all outstanding debentures on
the date of their scheduled maturity or the scheduled date of
redemption.
Governing Law
The indenture and the debentures will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
Information Concerning the Trustee and Transfer Agent
State Street Bank and Trust Company of California, N.A., as trustee under
the indenture, has been appointed by us as paying agent, conversion agent,
registrar and custodian with regard to the debentures. EquiServe, L.P. is the
transfer agent and registrar for our common stock. The trustee or its
affiliates may from time to time in the future provide banking and other
services to us in the ordinary course of their business.
21
CERTAIN UNITED STATES TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the
debentures and common stock into which the debentures may be converted. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations, and judicial decisions and
administrative interpretations thereunder, as of the date hereof, all of which
are subject to change, possibly with retroactive effect. There can be no
assurance that the Internal Revenue Service (the "IRS") will not challenge one
or more of the tax results described herein, and we have not obtained, nor do
we intend to obtain, a ruling from the IRS with respect to the U.S. federal tax
consequences of acquiring or holding debentures or common stock.
This discussion does not purport to address all tax considerations that
may be important to a particular holder in light of the holder's circumstances
(such as the alternative minimum tax provisions of the Code), or to certain
categories of investors (such as certain financial institutions, tax-exempt
organizations, dealers in securities, persons who hold debentures or common
stock as part of a hedge, conversion or constructive sale transaction, or
straddle or other risk reduction transaction or persons who have ceased to be
United States citizens or to be taxed as resident aliens) that may be subject
to special rules. This discussion is limited to holders of debentures who hold
the debentures and any common stock into which the debentures are converted as
capital assets. This discussion also does not address the tax consequences
arising under the laws of any foreign, state or local jurisdiction.
Persons considering the purchase of a debenture should consult their own
tax advisors as to the particular tax consequences to them of acquiring,
holding, converting or otherwise disposing of the debentures and common stock,
including the effect and applicability of state, local or foreign tax laws.
Tax Consequences to U.S. Holders
For purposes of this discussion, the term "U.S. Holder" means a beneficial
owner of a debenture or common stock that is for U.S. federal income tax
purposes:
o a citizen or resident of the United States,
o a corporation or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or
o an estate or trust, the income of which is subject to United States
federal income taxation regardless of its source.
If a partnership holds debentures, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. Partners of partnerships holding debentures or common stock should
consult their tax advisers.
Interest on Debentures. Interest paid on a debenture will generally be
taxable to a U.S. Holder as ordinary income at the time it accrues or is
received in accordance with the U.S. Holder's method of accounting for federal
income tax purposes. The debentures will not generally be treated as bearing
original issue discount for federal income tax purposes.
Finally, we intend to take the position that the possibility of an
interest rate reset as described under "Description of the Debentures--Interest
Rate Adjustments" is a remote contingency as of the issue date of the
debentures within the meaning of the applicable Treasury Regulations. Under
this approach, if an interest rate reset occurs, interest paid at the Adjusted
Interest Rate would be treated as stated interest on the debentures that is
subject to the same rules as described under "--Interest on Debentures." Our
determination that the possibility of an interest rate reset is a remote
contingency is binding upon all holders of the debentures, unless a holder
properly discloses to the IRS that it is taking a contrary position. It is
possible, however, that the IRS might take a different position, in which case
U.S. Holders might be required to treat the debentures as contingent payment
debt instruments. The rules
22
applicable to contingent payment debt instruments are complex. Generally, if the
debentures were treated as contingent payment debt instruments, U.S. Holders
would be required to accrue interest on the debentures at a "comparable yield",
which may be higher than the stated rate of interest on the debentures, and any
gain on sale, exchange, redemption or retirement of debentures would be treated
as ordinary income rather than as capital gain. Prospective holders are urged to
consult their own tax advisors regarding the foregoing.
Sale, Exchange, Redemption or Retirement of Debentures. Upon the sale,
exchange, redemption or retirement of a debenture, a U.S. Holder will recognize
taxable gain or loss equal to the difference between such holder's adjusted tax
basis in the debenture and the amount realized on the sale, exchange,
redemption or retirement (except any portion that represents interest not
previously included in income). A U.S. Holder's adjusted tax basis in a
debenture will generally equal the cost of the debenture to such holder. In
general, gain or loss realized on the sale, exchange or retirement of a
debenture will be capital gain or loss. Prospective investors should consult
their tax advisers regarding the treatment of capital gains (which may be taxed
at lower rates than ordinary income for taxpayers who are individuals, trust or
estates and have held their debentures for more than one year) and losses (the
deductibility of which is subject to limitations).
Conversion into, or Repurchase for, Common Stock. In general, a U.S.
Holder of debentures will not recognize gain or loss on the conversion of a
debenture into common stock or a repurchase of a debenture for common stock,
except for
o common stock you receive with respect to interest that has accrued
but not been included in income, or
o any cash you receive instead of a fractional share of common stock.
Upon a U.S. Holder's conversion of a debenture into common stock or the
repurchase of a debenture for common stock, a portion of the common stock
received with a fair market value equal to the amount of interest that has
accrued but not been included in income will be taxable to the U.S. Holder as
ordinary interest income. The receipt of cash in lieu of a fractional share of
common stock should generally result in capital gain or loss (measured by the
difference between the cash received for the fractional share interest and the
U.S. Holder's tax basis in the fractional share interest), the taxation of
which is described above in "--Sale, Exchange, Redemption or Retirement of
Debentures." A U.S. Holder's basis in the common stock received on conversion
or repurchase of a debenture will be the same as the U.S. Holder's basis in the
debenture at the time of conversion, increased by the amount of income, if any,
recognized with respect to accrued interest, and reduced by any tax basis
allocable to a fractional share. The holding period for the common stock
received on conversion or repurchase will include the holding period of the
debenture converted, except that the holding period of the common stock
allocable to interest that has accrued but not been included in income may
commence with the conversion or repurchase.
Ownership and Disposition of Common Stock. Dividends, if any, paid on the
common stock generally will be includable in the income of a U.S. Holder as
ordinary income to the extent of the U.S. Holder's ratable share of our current
or accumulated earnings and profits. Upon the sale or exchange of common stock,
a U.S. Holder generally will recognize capital gain or capital loss equal to
the difference between the amount realized on such sale or exchange and the
holder's adjusted tax basis in such shares. Prospective investors should
consult their tax advisers regarding the treatment of capital gains (which may
be taxed at lower rates than ordinary income for taxpayers who are individuals,
trust or estates and have held their common stock for more than one year) and
losses (the deductibility of which is subject to limitations).
Adjustment of Conversion Rate. If at any time we make a distribution of
property to shareholders that would be taxable to such shareholders as a
dividend for federal income tax purposes (for example, distributions of
evidences of indebtedness or our assets, but generally not stock dividends or
rights to subscribe for common stock) and, pursuant to the anti-dilution
provisions of the Indenture, the Conversion Rate of the debentures is
increased, such increase may be deemed to be the payment of a taxable dividend
to U.S. Holders of debentures. If the Conversion Rate is increased at our
discretion or in certain other circumstances, such increase also may be deemed
to be the payment of a taxable dividend to U.S. Holders of debentures.
Moreover, in certain other circumstances, the
23
absence of such an adjustment to the Conversion Rate of the debentures may
result in a taxable dividend to the holders of common stock.
Tax Consequences to Non-U.S Holders
For purposes of this discussion, the term "Non-U.S. Holder" means a
beneficial owner of a debenture or common stock that is, for United States
federal income tax purposes:
o a nonresident alien individual,
o a foreign corporation, or
o a nonresident alien fiduciary of a foreign estate or trust.
If a partnership holds debentures, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. Partners of partnerships holding debentures or common stock should
consult their tax advisers.
Interest on Debentures. Payment on a debenture by us or any paying agent
to a Non-U.S. Holder of a debenture will not be subject to withholding of U.S.
federal income tax, provided that, with respect to payments of interest,
o the Non-U.S. Holder does not actually or constructively own 10
percent or more of the combined voting power of all classes of our
capital stock,
o the Non-U.S. Holder is not a controlled foreign corporation related
to us through stock ownership, and
either
o the beneficial owner of the debenture certifies to the applicable
payer or its agent, under penalties of perjury, that is not a U.S.
person and provides its name and address on IRS Form W-8 (or a
suitable substitute form), or
o a financial institution that holds customers' securities in the
ordinary course of its trade or business certifies under penalties of
perjury that it (or a financial institution between it and the
beneficial owner) has received an IRS Form W-8 from the beneficial
owner and furnishes a copy of the form to the payer.
If these requirements are not satisfied, a 30 percent withholding tax will
apply to interest payments on the debentures, unless the interest is
effectively connected with a U.S. trade or business, or an applicable treaty
provides for a lower rate of, or exemption from, withholding tax.
Sale, Exchange or Redemption of Debentures or Shares of Common Stock. In
general, a Non-U.S. Holder will not be subject to U.S. federal income tax on
gain realized on the sale, exchange or redemption of debentures or shares of
common stock received in exchange therefor, unless
o such gain is effectively connected with the conduct by the holder of
a trade or business in the United States or
o in the case of gain realized by an individual holder, the holder is
present in the United States for 183 days or more in the taxable year
of the sale and either
o such gain or income is attributable to an office or other fixed place
of business maintained in the United States by such holder, or
o such holder has a "tax home" in the United States and certain other
requirements are met.
24
Conversion into, or Repurchase for, Common Stock. A Non-U.S. Holder
generally will not be subject to U.S. federal income tax on the conversion of a
debenture into, or repurchase of a debenture for, shares of common stock.
However, to the extent a Non-U.S. Holder receives cash in lieu of a fractional
share upon conversion, any gain upon the receipt of cash would be subject to
the rules described above regarding the sale or exchange of common shares.
Dividends on Shares of Common Stock. In general, any dividend paid, or
deemed paid, on common stock (including a deemed distribution on the debentures
described above under "Tax Consequences to U.S. Holders--Adjustment of
Conversion Rate,") to a Non-U.S. Holder will be subject to U.S. federal income
tax withholding at a rate of 30 percent, unless a lower rate is provided by an
applicable tax treaty or the distribution is effectively connected with the
conduct of a trade or business in the United States by the Non-U.S. Holder. For
either of these exceptions to apply, the Non-U.S. Holder may be required to
provide a properly executed certificate claiming the benefit of a treaty or
exemption.
Information Reporting and Backup Withholding
U.S. Holders. Information reporting and backup withholding may apply to
payments of principal, interest, premium or dividends on or the proceeds from
the sale or other disposition (including a payment of cash in lieu of a
fractional share upon conversion) of the debentures or common stock with
respect to certain noncorporate U.S. Holders. Such U.S. Holders generally will
be subject to backup withholding at a rate of 31 percent unless the U.S. Holder
provides a correct taxpayer identification number and certain other
information, certified under penalties of perjury, to the payer, or otherwise
establishes an exemption from backup withholding. Any amount withheld under
backup withholding is allowable as a credit against the U.S. Holder's federal
income tax liability, provided the proper information is provided to the IRS.
Non-U.S. Holders. In general, information reporting will apply to payments
of interest and/or premium (if any) on the debentures or dividends on the
common stock, and backup withholding at a rate of 31 percent may apply unless
the payee certifies that it is not a U.S. person or otherwise establishes an
exemption. In addition, information reporting and backup withholding will apply
to payments of principal on the debentures unless the payee certifies that it
is not a U.S. person or otherwise establishes an exemption.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a debenture or common stock
effected outside the United States by a foreign office of a foreign "broker"
(as defined in applicable Treasury regulations), provided that such broker
o derives less than 50 percent of its gross income for certain periods
from the conduct of a trade or business in the United States,
o is not a controlled foreign corporation for U.S. federal income tax
purposes and
o with respect to sales effected after December 31, 2000, is not a
foreign partnership that, at any time during its taxable year, is 50
percent or more (by income or capital interest) owned by U.S. persons
or is engaged in the conduct of a U.S. trade or business.
Payment of the proceeds of the sale of a debenture or common stock
effected outside the United States by a foreign office of any other broker will
not be subject to backup withholding tax, but will be subject to information
reporting requirements unless such broker has documentary evidence in its
records that the beneficial owner is a Non-U.S. Holder and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption.
Payment of the proceeds of a sale or other disposition (including a payment of
cash in lieu of a fractional share upon conversion) of a debenture or common
stock by the United States office of a broker will be subject to information
reporting requirements and backup withholding tax unless the beneficial owner
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption.
25
SELLING SECURITYHOLDERS
We originally issued the debentures in a private placement in March 2000.
Selling securityholders may offer and sell the debentures and the underlying
common stock pursuant to this prospectus.
The following table contains information furnished to us by selling
securityholders as of _____, 2000, with respect to the selling securityholders
and the principal amount of debentures and the underlying common stock
beneficially owned by each selling securityholder that may be offered using
this prospectus.
Principal amount Number
of debentures of shares
beneficially owned Percentage of common stock Percentage
that may be of debentures that may be of common stock
Name sold hereby outstanding sold hereby(1) outstanding(2)
- ---- ------------------ ------------- --------------- ---------------
.............................................. $+ +% + +%
Any other holder of debentures or future
transferee, pledgee, donee or successor
or any holder(3).......................... $+ +% + +%
- ---------
* Less than one percent.
+ To be filed by Amendment.
(1) Assumes conversion of all of the holder's debentures at a conversion
price of $112.1875 per share of common stock. However, this conversion
price will be subject to adjustment as described under "Description of
Debentures--Conversion." As a result, the amount of common stock issuable
upon conversion of the debentures may increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using ___ shares
of common stock outstanding as of _____, 2000. In calculating this
amount, we treated as outstanding the number of shares of common stock
issuable upon conversion of all of that particular holder's debentures.
However, we did not assume the conversion of any other holder's
debentures.
(3) Information about other selling securityholders will be set forth in
prospectus supplements, if required. Assumes that any other holders of
debentures, or any future transferees, pledgees, donees or successors of
or from any such other holders of debentures, do not beneficially own any
common stock other than the common stock issuable upon conversion of the
debentures at the initial conversion rate.
We prepared this table based on the information supplied to us by the
selling securityholders named in the table and we have not sought to verify
such information.
The selling securityholders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their debentures since the date on which the
information in the above table is presented. Information about the selling
securityholders may change over time. Any changed information will be set forth
in prospectus supplements.
Because the selling securityholders may offer all or some of their
debentures or the underlying common stock from time to time, we cannot estimate
the amount of the debentures or underlying common stock that will be held by
the selling securityholders upon the termination of any particular offering.
See "Plan of Distribution."
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the debentures and
the underlying common stock offered by this prospectus. The debentures and the
underlying common stock may be sold from time to time to purchasers:
o directly by the selling securityholders;
26
o through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions
from the selling securityholders or the purchasers of the debentures
and the underlying common stock.
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the debentures and the underlying common
stock may be deemed to be "underwriters." As a result, any profits on the sale
of the debentures and underlying common stock by selling securityholders and
any discounts, commissions or concessions received by any such broker-dealers
or agents might be deemed to be underwriting discounts and commissions under
the Securities Act. If the selling securityholders were to be deemed
underwriters, the selling securityholders may be subject to certain statutory
liabilities of, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.
If the debentures and underlying common stock are sold through
underwriters or broker-dealers, the selling securityholders will be responsible
for underwriting discounts or commissions or agent's commissions.
The debentures and underlying common stock may be sold in one or more
transactions at:
o fixed prices;
o prevailing market prices at the time of sale;
o varying prices determined at the time of sale; or
o negotiated prices.
These sales may be effected in transactions:
o on any national securities exchange or quotation service on which the
debentures and underlying common stock may be listed or quoted at the
time of the sale, including the Nasdaq National Market in the case of
the common stock;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or services or in
the over-the-counter market; or
o through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the debentures and underlying common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short sales of the
debentures and underlying common stock in the course of hedging their
positions. The selling securityholders may also sell the debentures and
underlying common stock short and deliver debentures and underlying common
stock to close out short positions, or loan or pledge debentures and underlying
common stock to broker-dealers that in turn may sell the debentures and
underlying common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the debentures and the underlying
common stock by the selling securityholders. Selling securityholders may not
sell any or all of the debentures and the underlying common stock offered by
them pursuant to this prospectus. In addition, we cannot assure you that any
such selling securityholder will not transfer, devise or gift the debentures
and the underlying common stock by other means not described in this
prospectus.
27
Our common stock trades on the Nasdaq National Market under the symbol
"VTSS". We do not intend to apply for listing of the debentures on any
securities exchange or for quotation through Nasdaq. Accordingly, no assurance
can be given as to the development of liquidity or any trading market for the
debentures. See "Risk Factors-Holders may not be able to sell the debentures."
There can be no assurance that any selling securityholder will sell any or
all of the debentures or underlying common stock pursuant to this prospectus.
In addition, any debentures or underlying common stock covered by this
prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the
Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to
this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the debentures and the underlying common stock by
the selling securityholders and any other such person. In addition, Regulation
M of the Exchange Act may restrict the ability of any person engaged in the
distribution of the debentures and the underlying common stock to engage in
market-making activities with respect to the particular debentures and the
underlying common stock being distributed for a period of up to five business
days prior to the commencement of such distribution. This may affect the
marketability of the debentures and the underlying common stock and the ability
of any person or entity to engage in market-making activities with respect to
the debentures and the underlying common stock.
Pursuant to the registration rights agreement filed as an exhibit to the
registration statement of which this prospectus is a part, we and the selling
securityholders will be indemnified by the other against certain liabilities,
including certain liabilities under the Securities Act or will be entitled to
contribution in connection with these liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the debentures and underlying common stock
to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents.
LEGAL MATTERS
The validity of the issuance of Vitesse Semiconductor Corporation's
securities offered by this prospectus will be passed upon for Vitesse
Semiconductor Corporation by Davis Polk & Wardwell, Menlo Park, California.
EXPERTS
The consolidated financial statements and schedule of Vitesse
Semiconductor Corporation as of September 30, 1999 and 1998 and for each of the
years in the three year period ended September 30, 1999, have been incorporated
by reference herein, and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. Ernst & Young LLP, independent auditors, have audited Orologic,
Inc.'s financial statements included in Vitesse Semiconductor Corporation's
Current Report on Form 8-K dated March 31, 2000, as amended on May 25, 2000 and
on June 7, 2000, for the years ended December 31, 1999 and 1998, as set forth
in their report (which contains an explanatory paragraph describing conditions
that raise substantial doubt about Orologic, Inc.'s ability to continue as a
going concern as described in Note 2 to the financial statements), which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Orologic, Inc.'s financial statements are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
28
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Company will pay all expenses incident to the offering and sale to the
public of the shares being registered other than any commissions and discounts
of underwriters, dealers or agents and any transfer taxes. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the Securities and Exchange Commission ("SEC") registration fee.
SEC registration fee...................................... $ 190,080
Legal fees and expenses................................... 25,000
Accounting fees and expenses.............................. 25,000
Miscellaneous expenses.................................... 9,920
---------
Total....................................... $ 250,000
=========
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Paragraph 9 of the Registrant's
Amended Certificate of Incorporation and Article 6 of the Registrant's Bylaws
provide for indemnification of the Registrant's directors and officers to the
maximum extent permitted by the Delaware General Corporation Law. The
Registrant also maintains, and intends to continue to maintain, insurance for
the benefit of its directors and officers to insure such persons against
certain liabilities, including liabilities under the Securities laws. Reference
is also made to Section 8 of the Registration Rights Agreement (Exhibit 4.1
hereof) indemnifying officers and directors of the Registration against certain
liabilities.
Item 16. Exhibits.
4.1* Indenture, dated as of March 7, 2000, between the Company and
Lehman Brothers Inc., Goldman, Sachs & Co and Prudential
Securities Incorporated, including the form of the Company's
4.00% Convertible Subordinated Debentures Due 2005.
4.2* Registration Rights Agreement, dated as of March 13, 2000, between the
Company and Lehman Brothers Inc., Goldman, Sachs & Co. and Prudential
Securities Incorporated.
4.3 Form of Debenture (included in Exhibit 4.1).
5.1+ Opinion of Davis Polk & Wardwell.
12 Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP, Independent Accountants.
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-3).
25.1 Statement of Eligibility of Trustee for Indenture under Trust Indenture
Act of 1939 on Form T-1.
- ---------
* Previously filed with the Securities and Exchange Commission on the
Registrant's Quarterly Report on Form 10-Q for the three months ended
March 31, 2000.
+ To be filed by Amendment.
II-1
Item 17. Undertakings.
A. Undertaking Pursuant to Rule 415
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 material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, 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 this offering.
B. Undertaking Regarding Filings Incorporating Subsequent Exchange Act
Documents by Reference
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement 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.
C. Undertaking in Respect of Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant 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 Registrant 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 Securities Act and will be governed
by the final adjudication of such issue.
II-2
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 the 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 Camarillo, State of California, on this 4th day of
June, 2000.
VITESSE SEMICONDUCTOR CORPORATION
By /s/ Eugene F. Hovanec
--------------------------------------
Name: Eugene F. Hovanec
Title: Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Louis R. Tomasetta and Eugene F.
Hovanec, 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 on Form S-3, 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 below by the following persons on the
4th day of June 2000 in the capacities indicated.
Signature Title
--------- -----
/s/ Louis R. Tomasetta President, Chief Executive Officer, and
- ----------------------------------- Director (principal executive officer)
Louis R. Tomasetta
/s/ Eugene F. Hovanec Vice President, Finance and Chief
- ----------------------------------- Financial Officer (principal financial
Eugene F. Hovanec and accounting officer)
/s/ James A. Cole Director
- ----------------------------------
James A. Cole
/s/ Pierre R. Lamond Chairman of the Board of Directors
- ----------------------------------
Pierre R. Lamond
/s/ John C. Lewis Director
- ----------------------------------
John C. Lewis
/s/ Alex Daly Director
- ----------------------------------
Alex Daly
/s/ Vincent Chan Director
- ----------------------------------
Vincent Chan
II-3
INDEX TO EXHIBITS
Exhibit
Number Description
- --------- -----------
4.1* Indenture, dated as of March 7, 2000, between the
Company and Lehman Brothers Inc., Goldman, Sachs & Co
and Prudential Securities Incorporated, including the
form of the Company's 4.00% Convertible Subordinated
Debentures Due 2005.
4.2* Registration Rights Agreement, dated as of March 13, 2000, between
the Company and Lehman Brothers Inc., Goldman, Sachs & Co. and
Prudential Securities Incorporated.
4.3 Form of Debenture (included in Exhibit 4.1).
5.1+ Opinion of Davis Polk & Wardwell.
12 Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP, Independent Accountants.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-3).
25.1 Statement of Eligibility of Trustee for Indenture under
Trust Indenture Act of 1939 on Form T-1.
- ---------
* Previously filed with the Securities and Exchange Commission on the
Registrant's Quarterly Report on Form 10-Q for the three months ended
March 31, 2000.
+ To be filed by Amendment.
II-4