As filed with the Securities and Exchange Commission on February 3, 2005
Registration No. 333-117492
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEADWATERS INCORPORATED
(Exact Name of registrant as
Specified in Its Charter)
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Delaware 87-0547337
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
Headwaters Incorporated
10653 South River Front Parkway, Suite 300
South Jordan, UT 84095
(801) 984-9400
(Address, Including Zip Code, and
Telephone Number, Including Area Code, of
registrant's Principal Executive Offices)
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Kirk A. Benson
Chief Executive Officer and Chairman of the Board of Directors
Headwaters Incorporated
10653 South River Front Parkway, Suite 300
South Jordan, UT 84095
(801) 984-9400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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With copy to:
Linda C. Williams, Esq.
Pillsbury Winthrop LLP
P.O. Box 7880
San Francisco, CA 94109
Telephone: (415) 983-1000
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Approximate date of commencement of proposed sale to the public: From
time to time after this registration statement becomes effective, as determined
by market conditions and other factors.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.[ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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Explanatory Note
The registrant is filing this Post-Effective Amendment No. 2 to Form S-3
Registration Statement to update the table under the caption "Selling
Securityholders" in the prospectus contained herein to add and delete the names
and respective holdings of certain selling securityholders who have requested
such changes.
Subject to Completion, Dated February 3, 2005
PROSPECTUS
$172,500,000
Headwaters Incorporated
2 7/8% Convertible Senior Subordinated Notes due 2016
and Shares of Common Stock Issuable upon Conversion of the Notes
______________________
Headwaters Incorporated issued the notes in a private placement in June
2004. This prospectus will be used by selling securityholders to resell their
notes and shares of common stock issuable upon conversion of their notes.
The notes are due on June 1, 2016. We will pay interest on the notes on
June 1 and December 1 of each year, beginning December 1, 2004. Holders may
convert the notes into shares of our common stock at a conversion price of
$30.00 per share, which is equivalent to a conversion rate of 33.3333 shares of
our common stock per $1,000 principal amount of notes. This conversion rate is
subject to adjustment under the terms of the notes. The notes are general,
unsecured obligations that are subordinated to all existing and future senior
indebtedness and our subsidiaries' indebtedness and other liabilities. We may
redeem any portion of the notes at any time on or after June 4, 2011, and if
specific conditions are satisfied, any time on or after June 1, 2007. On June 1,
2011, or upon the occurrence of a designated event, you may require us to
repurchase your notes.
For a more detailed description of the notes, see "Description of
Notes" beginning on page 20.
Our common stock is traded on the Nasdaq National Market under the
symbol "HDWR." The last reported sale price of our common stock on the Nasdaq
National Market on February 2, 2005 was $32.00 per share.
______________________
Investing in the notes or our common stock involves a high degree of
risk. You should carefully read and consider the "Risk Factors" beginning on
page 3.
______________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
______________________
The date of this prospectus is ____________ , 2005
TABLE OF CONTENTS
Page
SUMMARY 1
RISK FACTORS 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 16
PROCEEDS FROM THE OFFERING 17
RATIO OF EARNINGS TO FIXED CHARGES 17
SENIOR SECURED FINANCING 17
DESCRIPTION OF NOTES 19
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS 37
SELLING SECURITYHOLDERS 44
PLAN OF DISTRIBUTION 52
LEGAL MATTERS 53
EXPERTS 53
WHERE YOU CAN FIND MORE INFORMATION 54
DOCUMENTS INCORPORATED BY REFERENCE 56
ANNEX A--SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
-i-
SUMMARY
This summary contains basic information about our business. Because it
is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and our consolidated financial
statements and the related notes incorporated in this prospectus by reference,
before making an investment decision.
Headwaters' Business
Headwaters is a diversified growth company providing products,
technologies and services to the energy, construction and home improvement
industries. Headwaters has grown dramatically over the last several years, both
organically and through strategic acquisitions that have allowed us to diversify
and pursue additional growth opportunities. Headwaters' acquisition strategy has
concentrated on opportunities that complement existing business lines, command
leading market positions, are accretive to earnings and generate significant
cash flow. We conduct our business primarily through the following business
units:
Headwaters Energy Services (formerly known as Covol Fuels) is the
market leader in enhancing the value of coal used in power generation through
licensing proprietary technologies and selling chemical reagents that convert
coal into a solid synthetic fuel.
Headwaters Resources (formerly known as ISG) is the largest manager and
marketer of coal combustion products ("CCPs") in the United States. We create
commercial value for CCPs using CCPs primarily as a replacement for portland
cement in a variety of concrete products. CCPs, such as fly ash and bottom ash,
are created when coal is burned and have traditionally been an environmental and
economic burden for coal-fueled power generators but, when properly managed, can
result in additional revenue for the utilities.
Headwaters Technology Innovation Group, known as HTI, develops and
commercializes proprietary technologies to convert or upgrade fossil fuels into
higher-value products and develops nanocatalyst technologies that have multiple
industrial and chemical applications. The energy-related technologies developed
or under development include direct coal liquefaction, the conversion of
gas-to-liquid fuels and the upgrading of heavy oil to lighter materials. HTI has
also developed a proprietary nanocatalyst technology that will allow for the
custom design of catalysts on an atomic scale for multiple industrial
applications, which should reduce costs and increase the efficiency of chemical
reactions.
Headwaters Construction Materials (formerly known as American
Construction Materials) is a market leader in designing, manufacturing and
marketing architectural stone veneer under the Eldorado Stone brand and also
holds regional market leadership positions in manufacturing and marketing
concrete blocks, mortar and stucco materials. The Eldorado transaction was
financed in part with the proceeds from the notes. On September 8, 2004, we
acquired Tapco Holdings, Inc. ("Tapco"), a leading manufacturer of building
products and professional tools used in exterior residential remodeling and
construction. The total purchase price for the acquisition was $715 million in
cash, plus estimated acquisition costs of approximately $9 million.
The Tapco acquisition is described in more detail in the Form 8-K filed
on September 13, 2004, which is incorporated by reference into this prospectus.
See "Where You Can Find More Information." The acquisitions of the Tapco and
Eldorado Stone businesses in 2004 have significantly transformed the Headwaters
Construction Materials business unit and given Headwaters a national presence in
the commercial and residential improvement market. With the recent acquisition
of Tapco, this business unit has become a market leader in residential exterior
building products accessories (such as window shutters, gable vents and mounting
blocks) under various Tapco brands.
Corporate Information
Headwaters was incorporated in Delaware in 1995 under the name Covol
Technologies, Inc. In September 2000, the company's name was changed to
Headwaters Incorporated. Headwaters' principal office is located at 10653 South
River Front Parkway, Suite 300, South Jordan, Utah 84095, and our telephone
number is (801) 984-9400. Headwaters' web site is www.headwaters.com. The
information on Headwaters' web site does not constitute a part of this
prospectus.
-1-
"Headwaters," "combined company," "we," "our" and "us" refers to
Headwaters Incorporated and the Headwaters Energy Services business unit,
together with its consolidated subsidiaries Headwaters Resources and HTI, unless
the context otherwise requires. As used in this offering memorandum, "Headwaters
Resources" refers to Headwaters' subsidiary, Headwaters Resources, Inc.,
formerly Industrial Services Group, Inc., and its subsidiary, ISG Resources,
Inc., together with their consolidated subsidiaries, and "HTI" refers to
Headwaters Technology Innovation Group, Inc., together with its consolidated
subsidiaries, unless the context otherwise requires. "Eldorado" refers to
Eldorado Stone LLC, together with its subsidiaries. "Tapco" refers to Tapco
Holdings, Inc., together with its subsidiaries.
-2-
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. Our business, financial condition or results of
operations could be materially adversely affected by any of these risks. The
trading price of our common stock could decline due to any of these risks, and
you may lose all or part of your investment.
This prospectus and the documents incorporated by reference also
contain forward-looking statements that involve risks and uncertainties. Our
actual results could materially differ from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
faced by us described below and elsewhere in this prospectus and the documents
incorporated by reference.
Risks Relating to Our Business
If the continued existence of tax credits under Section 29 of the Internal
Revenue Code ("Section 29") is repealed or adversely modified, Headwaters Energy
Services' profitability will be severely affected.
Headwaters Energy Services' license fees and revenues from sales of
chemical reagents depend on the ability of our licensees and customers to
manufacture and sell qualified synthetic fuels that generate tax credits. Under
current law, Section 29 tax credits are not available for synthetic fuel sold
after December 31, 2007. In addition, there have been initiatives from time to
time to consider the early repeal or modification of Section 29. For example, in
2004, a bill was introduced in the United States House of Representatives that
would repeal the Section 29 credit for synthetic fuel produced from coal. While
passage of this bill appears to be unlikely, the bill could be reintroduced in
Congress in the future. If Section 29 expires at the end of 2007 or if it is
repealed or adversely modified, synthetic fuel facilities would probably either
close or substantially curtail production. At this time, given current prices of
coal and costs of synthetic fuel production, we do not believe that production
of synthetic fuel will be profitable absent the tax credits. In addition, if our
licensees close their facilities or materially reduce production activities
(whether after 2007, upon earlier repeal or adverse modification of Section 29
or for any other reason), it would have a material adverse effect on the
revenues and net income of Headwaters. Furthermore, Section 29 tax credits are
subject to phase-out after the unregulated average annual oil price reaches
$50.14 per barrel, adjusted annually for inflation (the one day futures trading
price on December 1, 2004 was $45.49 per barrel).
If our licensees' demand for Section 29 tax credits decreases, Headwaters Energy
Services' revenues will decrease.
Headwaters Energy Services' business depends upon the ability of our
licensees and chemical reagent customers to utilize Section 29 tax credits as
payments under our contracts are ultimately based on our customers' production
of synthetic fuels. Their ability to utilize tax credits depends upon their
taxable income. A decline in the profitability of our licensees could reduce
their ability to utilize tax credits, and, in turn, could lead to a reduction in
the production of synthetic fuel at their facilities. Such licensees could sell
their facilities to a taxpayer with more capacity to utilize the tax credits,
but any such transfer could result in short-term or long-term disruption of
operations, and therefore adversely affect our revenues and net income.
IRS reviews under Section 29 may adversely affect our licensees' production of
synthetic fuel and therefore may adversely affect Headwaters Energy Services'
profitability.
The issuance of private letter rulings ("PLRs") under Section 29 by the
Internal Revenue Service ("IRS") is important to the willingness of the owners
of synthetic fuel facilities to operate and to their ability to transfer
ownership of those facilities. However, PLRs may be modified or revoked by the
IRS.
The IRS has suspended the issuance of PLRs to synthetic fuel facility
owners several times in the past, including most recently in 2003, and the IRS
may suspend the issuance of PLRs in the future. In 2003, following an IRS
announcement that it would suspend issuance of PLRs because it questioned the
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scientific validity of procedures and tests performed by synthetic fuel facility
operators to determine that the fuel satisfied the requirements of Section 29,
certain of Headwaters' licensees reduced or ceased production, which resulted in
a material impact on Headwaters' revenue and net income. While the IRS later
indicated it would resume the issuance of PLRs, it has continued to express
concerns regarding the sampling and data/record retention practices prevalent in
the synthetic fuels industry. The expression of IRS concern regarding current
practices in the industry may adversely affect the willingness of buyers to
engage in transactions or on the willingness of current owners to operate their
facilities. If current owners are unable to sell their facilities or are
unwilling to operate them, production will not be maximized, thereby materially
decreasing our revenues and net income. We cannot predict whether the IRS may
conduct reviews or investigations of Section 29 tax credits in the future, or
whether the outcome of IRS audits involving licensees would be favorable.
Senate investigation of Section 29 tax credits may adversely affect production
by our licensees and decrease the profitability of Headwaters Energy Services.
On October 30, 2003, the Permanent Subcommittee on Investigations of
the Government Affairs Committee of the United States Senate (the
"Subcommittee") issued a notification of pending investigations. The
notification listed, among others, the synthetic fuel tax credit as a new item
to be reviewed. If the pending investigation or any future Congressional action
results in findings or announcements negative to the industry, it may adversely
affect the willingness of buyers to engage in transactions to purchase synthetic
fuel facilities or the willingness of current owners to operate their
facilities, which would have a direct, negative impact on our revenues and net
income.
In March 2004, the Subcommittee described its investigation as follows:
The Subcommittee is continuing its investigation [of] tax credits
claimed under Section 29 of the Internal Revenue Code for the sale of
coal-based synthetic fuels. This investigation is examining the
utilization of these tax credits, the nature of the technologies and
fuels created, the use of these fuels, and others [sic] aspects of
Section 29. The investigation will also address the IRS' administration
of Section 29 tax credits.
The Subcommittee conducted numerous interviews and received large
volumes of data between December 2003 and March 2004. Since that time, to our
knowledge, there has been little activity regarding the investigation.
If the IRS challenges or disallows Section 29 tax credits claimed by our
licensees, Headwaters Energy Services' profitability may decrease because future
production by these licensees may decrease.
Licensees are subject to audit by the IRS. The IRS may challenge
whether Headwaters Energy Services' licensees satisfy the requirements of
Section 29, or applicable PLRs, including placed-in-service requirements, or may
attempt to disallow Section 29 tax credits for some other reason. The IRS has
initiated audits of certain licensee-taxpayers who claimed Section 29 tax
credits, and the outcome of any such audit is uncertain. In 2004, a licensee
announced that IRS field auditors have issued a notice of proposed adjustment
challenging the placed-in-service date of three of its synthetic fuel
facilities. The licensee believes that the facilities meet the placed-in-service
requirement; however, the timing and final results of the audit are unknown. In
the event that tax credits are disallowed, licensees may seek recovery from
Headwaters Energy Services for operational or other reasons, although we believe
there would be no basis for such claims. The inability of a licensee to claim
Section 29 tax credits also would reduce our future revenue from the licensee.
In addition, IRS audit activity may have adversely affected the willingness of
buyers to engage in transactions to purchase synthetic fuel facilities or on the
willingness of current owners to operate their facilities. If current owners are
unable to sell their facilities or are unwilling to operate them at full
capacity, production will not be maximized, which could have a significant
effect on our revenues and net income.
If our licensees' demand for Section 29 tax credits is adversely influenced by
negative publicity involving the industry or transactions principally motivated
by the reduction of taxes, Headwaters Energy Services' profitability will
decrease.
There has been public scrutiny, by the media and by policymakers, of
Section 29. Outside the Section 29 context, there has been increased public
scrutiny of transactions motivated principally by the reduction of federal
income taxes. Our licensees could determine that the risk of negative publicity
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or public scrutiny associated with the Section 29 tax credits exceeds the
financial benefits from the utilization of the credits. Such licensees may seek
to mitigate or eliminate such risk by reducing or ceasing production of
synthetic fuel or disposing of their facilities, resulting in short-term or
long-term disruption of operations, in which case our revenues and profitability
would decrease.
Headwaters Energy Services' revenues result from a small number of licensees and
customers, so that any short-term or long-term decisions by one or a small
number of licensees and customers to decrease or halt production would cause our
profitability to decrease.
Headwaters Energy Services has licensed its coal-based solid synthetic
fuel technology to approximately 20 licensees, which licensees accounted for
approximately 9% of our aggregate revenues on an actual basis for fiscal 2004.
In addition, Headwaters Energy Services sells reagents to approximately 30
licensees and additional customers from whom reagent sales accounted for
approximately 24% of our aggregate revenues in 2004. Under current law,
facilities must have been placed into service prior to July 1, 1998 to be
eligible for Section 29 tax credits, so Headwaters Energy Services' business
primarily depends on existing licensees and chemical reagent customers. If any
of Headwaters Energy Services' significant licensees or chemical reagent
customers shuts down its facilities, operates its facilities at low production
levels or sells its facilities resulting in short-term or long-term disruption
of operations, our revenues and net income could be materially adversely
affected. Headwaters Energy Services' licensees must address all operational
issues including, but not limited to, feedstock availability, cost, moisture
content, British thermal unit content, correct chemical reagent formulation and
application, operability of equipment, product durability and overall costs of
operations. In some cases, licensees may be forced to relocate plants and enter
into new strategic contracts to address marketing and operational issues.
Licensee plant relocations disrupt production and delay generation of license
fees paid to us.
The growth of Headwaters Energy Services' revenues has depended in part
on increased production over time of coal-based solid synthetic fuel by its
licensees. While to date efficiencies in production and improvements in
equipment and processes used at facilities have allowed increased production,
capacity is ultimately finite for the specific facilities and could ultimately
limit future growth.
If Headwaters Energy Services is not able to develop and improve synthetic fuel
technologies in order to satisfy our customers' requirements, we may lose
customers and associated licensing and chemical reagent revenues.
For Headwaters Energy Services to remain competitive, we must be able
to develop or refine our technologies to keep up with future synthetic fuel
requirements. As licensees develop and modify their operations and choices of
coal feedstocks, we will need to modify existing methods or find new methods,
know-how, additives and other techniques to meet licensee and customer demands,
such as demands for improved efficiencies, lower costs and improvements in
synthetic fuel products, including chemical change and improved combustion
characteristics. If we are unable to develop or refine our technologies, our
customers may seek other suppliers or decrease production, thus adversely
affecting our licensing and chemical reagent revenues.
Headwaters Resources primarily sells fly ash for use in concrete; if use and
market acceptance of fly ash does not increase, Headwaters Resources will not
grow.
Headwaters Resources' growth has been and continues to be dependent
upon the increased use of fly ash in the production of concrete. Headwaters
Resources' marketing initiatives emphasize the environmental, cost and
performance advantages of replacing portland cement with fly ash in the
production of concrete. If Headwaters Resources' marketing initiatives are not
successful, Headwaters Resources may not be able to sustain its growth.
If portland cement or competing replacement products are available at lower
prices than fly ash, our sales of fly ash as a replacement for portland cement
in concrete products could suffer, causing a decline in Headwaters Resources'
revenues and net income.
An estimated 60% of Headwaters Resources' revenues for the fiscal year
ended September 30, 2003, which represents 26% of our aggregate revenues for the
year, were derived from the use of fly ash as a replacement for portland cement
in concrete products. At times, there may be an overcapacity of cement in the
world market, causing potential price decreases. The markets for Headwaters
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Resources' products are regional, in part because of the costs of transporting
CCPs, and because Headwaters Resources' business is affected by the availability
and cost of competing products in the specific regions where it conducts
business. If competing products become available at attractive prices and
performance, Headwaters Resources' revenues and net income could decrease.
Because demand for CCPs sold by Headwaters Resources is affected by fluctuations
in weather and construction cycles, Headwaters Resources' revenues and net
income could decrease significantly as a result of unexpected or severe weather
or slowdowns in the construction industry.
Headwaters Resources manages and markets CCPs and uses CCPs to produce
construction materials. Utilities produce CCPs year-round. In comparison, sales
of CCPs are generally keyed to construction market demands that tend to follow
national trends in construction with predictable increases during temperate
seasons. Headwaters Resources' CCP sales have historically reflected these
seasonal trends, with the largest percentage of total annual revenues being
realized in the quarters ended June 30 and September 30. Low seasonal demand
normally results in reduced shipments and revenues in the quarters ended March
31 and December 31.
The CCP industry is cyclical because of its dependence on building
construction and highway construction, including infrastructure repair, and is
affected by changes in general and local economic conditions. State construction
budgets are affected adversely by economic downturns. Headwaters Resources'
sales could significantly decrease as a result of a downturn in the economy in
one or more markets that it serves.
If Headwaters Resources' coal-fueled electric utility industry suppliers fail to
provide Headwaters Resources with high value CCPs on a timely basis, Headwaters
Resources' costs could increase and our growth could be hindered.
Headwaters Resources relies on the production of CCPs by coal-fueled
electric utilities. Headwaters Resources has occasionally experienced delays and
other problems in obtaining high value CCPs from its suppliers and may in the
future be unable to obtain high value CCPs on the scale and within the time
frames required by Headwaters Resources to meet its customers' needs. If
Headwaters Resources is unable to obtain CCPs or if it experiences a delay in
the delivery of high value CCPs, Headwaters Resources may be forced to incur
significant unanticipated expenses to secure alternative sources or to otherwise
maintain supply to its customers. Moreover, its revenues could be adversely
affected if these customers choose to find alternatives to Headwaters Resources
products.
With our recent acquisitions of Eldorado and Tapco, Headwaters Construction
Materials has grown to be a significant part of our business and our future
profitability is therefore increasingly dependent upon our operations in this
industry segment.
In June 2004 we acquired Eldorado and in September 2004 we acquired
Tapco. With the Eldorado and Tapco acquisitions, Headwaters Construction
Materials has grown to be a significant part of our business. This segment
produced $49.4 million in revenues (or approximately 13% of total revenue) for
fiscal year 2003; in combination with Tapco and Eldorado, on a pro forma basis,
revenues for this segment would have been $365.8 million (or approximately 51%
of total pro forma revenues) for fiscal year 2003. Headwaters' future
profitability therefore is highly dependent upon its ability to operate
successfully in this industry segment where our operations to date have not been
as significant to our total revenues.
If we do not successfully integrate Eldorado and Tapco with our existing
business, we may not realize the expected benefits of the acquisitions, and the
resources and attention required for successful integration may interrupt the
business activities of Eldorado, Tapco and our existing business.
There is a significant degree of difficulty and management distraction
inherent in the process of integrating Eldorado and Tapco, even though other
senior management continues to operate the businesses. These difficulties
include integrating Eldorado and Tapco with our existing construction materials
business, while maintaining the ongoing operations of each business,
coordinating geographically separate organizations and developing new customers
and products. Successful integration will also depend in part on our ability to
retain key officers and personnel in each of our business units.
-6-
The combination with Headwaters has resulted in the combined company
having more than 3,500 employees, which substantially increased Headwaters'
previous workforce of approximately 1,000 employees. Integration of these
additional employees, many of whom are manufacturing plant workers, could result
in various issues, including issues related to human resource benefit plans and
an increase in EEOC claims and claims for workers compensation.
As we integrate Tapco's and Eldorado's manufacturing and distribution
activities, we also have increased significantly our sales and products.
Headwaters has limited manufacturing experience and may not be able to resolve
manufacturing issues or increase efficiencies at manufacturing plants. The
integration process requires us to expand significantly our operational and
financial systems, which increases the operating complexity of our information
technology systems. Implementation of controls, systems and procedures may be
costly and time-consuming and may not be effective.
If Headwaters cannot invest additional capital into Tapco and Eldorado, we may
not be able to sustain or continue Tapco's and Eldorado's growth.
Current levels of capital expenditures may be insufficient to support
and sustain Tapco's and Eldorado's growth. Headwaters believes that an estimated
$50 million of capital in its fiscal year 2005 will be required for company-wide
growth and other purposes. Our senior secured credit facilities limits capital
expenditures for the entire business to $50 million for fiscal year 2005.
Because Tapco's and Eldorado's markets are heavily dependent on the residential
construction and remodeling market, Tapco's and Eldorado's revenues could
decrease as a result of declines in construction and remodeling activity due to
unexpected or severe weather, a rise in interest rates, a limit on availability
of credit for homeowners or other events outside our control that impact home
construction and home improvement activity.
Tapco's and Eldorado's construction markets are seasonal and cyclical.
The majority of their sales are in the residential construction market, which
tends to slow down in the winter months. If there is more severe weather than
normal or an increase in interest rates or a limit on availability of credit for
homeowners which results in a slow down in new construction or remodeling and
repair activities, there may be a negative effect on Tapco's and Eldorado's
revenues if they are not able to increase market share.
Interruption of Tapco's ability to immediately ship individual or custom product
orders could harm Tapco's reputation and result in lost revenues if customers
turn to other sources for products.
Tapco's construction materials business is highly dependent upon
immediate shipments to contractors and distributors throughout the United States
of individual orders, a large portion of which orders are manufactured upon
demand to meet customer specifications. If there is significant interruption of
business at any of Tapco's manufacturing plants or with Tapco's computer systems
that track customer orders and production, Tapco is at risk of harming its
reputation for speed and reliability with important customers and losing
short-term and long-term revenues if these customers turn to other sources.
A significant increase in the price of materials used in the production of
Tapco's products that cannot be passed on to customers could have a significant
adverse effect on net revenue. Further, Tapco depends upon a single source for a
major production material, the interruption of which would materially disrupt
Tapco's ability to manufacture products and supply products to its customers,
resulting in lost revenues and the potential loss of customers.
Certain of Tapco's products, which provided approximately 70% of
Tapco's revenues for the fiscal year ended October 31, 2003, are manufactured
from polypropylene which material is sold to Tapco by a single supplier. The
price of polypropylene is primarily a function of manufacturing capacity, demand
and the prices of petrochemical feedstocks, crude oil and natural gas liquids.
Historically, the market price of polypropylene has fluctuated. A significant
increase in the price of polypropylene that cannot be passed on to customers
could have a significant adverse effect on net revenue. There is no longterm
contract with Tapco's polypropylene supplier. Tapco does not currently maintain
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large inventories of polypropylene and alternative sources meeting Tapco's
requirements could be difficult to arrange in the short term. Therefore, Tapco's
manufacturing and ability to provide products to its customers could be
materially disrupted if this supply of polypropylene was interrupted for any
reason. Such an interruption and the resulting inability to supply Tapco's
customers with products could adversely impact Tapco's revenues and potentially
Headwaters' relationships with Tapco's customers.
Tapco's revenues would be materially adversely affected if it lost one or both
of its two major customers.
Two of Tapco's customers together accounted for approximately 25% of
its revenues in its fiscal year ended October 31, 2003. There are no long-term
contracts in place with these customers. Accordingly, any loss of or decrease in
demand from these customers would have a material adverse effect on Tapco's
business.
HTI's technologies may not be commercially developed and marketed profitably,
which could affect our future profitability.
Although HTI has developed and patented several technologies,
commercialization of these technologies is in initial stages. Market acceptance
of these technologies will depend on our ability to enter into agreements with
licensees or joint venturers to further develop and provide adequate funding to
commercialize the technologies. We may not be able to enter into these
agreements and adequate funding may not be available to fully develop and
successfully commercialize its technologies. Further, we may not be able to
market profitably HTI's technologies.
HTI will conduct business in China, where intellectual property and other laws,
as well as business conditions, may leave our intellectual property, products
and technologies vulnerable to duplication by competitors and create
uncertainties as to our legal rights against such competitors' actions.
HTI has and is expected to continue to license or otherwise make its
technology, including its nanotechnology and coal liquefaction technology,
available to entities in China. There is the risk that foreign intellectual
property laws will not protect our intellectual property to the same extent as
under United States laws, leaving us vulnerable to competitors who may attempt
to copy our products, processes or technologies. Further, the legal system of
China is based on statutory law. Under this system, prior court decisions may be
cited as persuasive authority but do not have binding precedential effect. Since
1979, the Chinese government has been developing a comprehensive system of
commercial laws and considerable progress has been made in the promulgation of
laws and regulations dealing with economic matters, such as corporate
organization and governance, foreign investment, commerce, taxation and trade.
As these laws, regulations and legal requirements are relatively new and because
of the limited volume of published case law and judicial interpretations and the
non-binding nature of prior court decisions, the interpretation and enforcement
of these laws, regulations and legal requirements involve some uncertainty.
These uncertainties could limit the legal protection or recourse available to
us. In addition, dependence on foreign licenses and conducting foreign
operations may subject us to increased risk from political change, ownership
issues or repatriation or currency exchange concerns.
We operate in industries subject to significant environmental regulation, and
compliance with and changes in regulation could add significantly to the costs
of conducting business.
The coal-based solid synthetic fuel operations of Headwaters and its
licensees are subject to federal, state and local environmental regulations that
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and disposal of waste products,
which add to the costs of doing business and expose Headwaters to potential
fines for non-compliance. If the costs of environmental compliance increase for
any reason, we may not be able to pass on these costs to customers. In order to
establish and operate the synthetic fuel plants, power plants and operations to
collect and transport CCPs and bottom ash, we, our licensees and customers have
obtained various state and local permits and must comply with processes and
procedures that have been approved by regulatory authorities. Any failure to
comply could result in the issuance of substantial fines and penalties and cause
us to incur environmental liabilities.
Certain Eldorado and Tapco manufacturing operations are also subject to
environmental regulations and permit requirements. If Eldorado and Tapco cannot
obtain additional required environmental permits for their manufacturing
facilities in a timely manner or at all, they may be subject to additional costs
and/or fines.
-8-
HTI's ordinary course of business requires using its facilities to
perform research and development activities involving coal, oil, chemicals and
energy technologies, including liquefaction of coal. As a result, petroleum and
other hazardous materials have been and are present in and on HTI's properties.
Regulatory noncompliance or accidental discharges, in spite of safeguards, could
create an environmental liability. Therefore our operations entail risk of
environmental damage, and we could incur liabilities in the future arising from
the discharge of pollutants into the environment or from waste disposal
practices.
We are involved in litigation and claims for which we incur significant costs
and are exposed to significant liability.
We are a party to some significant legal proceedings and are subject to
potential claims regarding operation of our business. These proceedings will
require that we incur substantial costs, including attorneys' fees, managerial
time and other personnel resources and costs in pursuing resolution, and adverse
resolution of these proceedings could hurt our reputation. With respect to the
still pending cases referred to in our Annual Report on Form 10-K for the year
ended September 30, 2004, the following amount of damages are being sought by
the counter parties:
o Boynton: Boynton seeks declaratory relief as well as
approximate compensatory damages between $15 million
and $25 million and punitive damages;
o AGTC: AGTC claims approximate damages between $520,000 and
$14 million;
o AJG: AJG seeks compensatory damages in the approximate
amount of $71 million and punitive damages;
o McEwan: McEwan seeks declaratory relief as well as
compensatory damages in the approximate amount of
$2.75 million and punitive damages.
Headwaters has ongoing litigation and claims incurred during the normal
course of business, including the items referred to above. Headwaters intends to
vigorously defend and/or pursue its rights in these actions. We do not currently
believe that the outcome of these actions will have a material adverse effect on
Headwaters' operations, cash flows or financial position; however, it is
possible that a change in the estimates of probable liability could occur, and
the change could be significant.
We have significant competition in our industries which may cause demand for our
products and services to decrease.
Headwaters experiences significant competition in all of its segments
and geographic regions. A failure to compete effectively or increased
competition could lead to price cuts, reduced gross margins and loss of market
share, which could decrease our profitability. Many of our competitors have
greater financial, management and other resources than Headwaters and may be
able to take advantage of acquisitions and other opportunities more readily. In
certain instances Headwaters must compete on the basis of superior products and
services rather than price, thereby increasing the costs of marketing its
services to remain competitive.
Headwaters Energy Services competes with other companies possessing
technologies to produce coal-based solid synthetic fuels and companies that
produce chemical reagents. It also experiences competition from traditional coal
and fuel suppliers and companies involved with natural resources, in addition to
those companies that specialize in the use and upgrading of industrial
byproducts. These companies may have greater financial, management and other
resources than Headwaters has and may develop superior, or more cost-effective
technologies.
This could result in a decrease in market share and therefore revenues.
Headwaters Resources has substantial competition in two main areas:
obtaining CCP management contracts with utility and other industrial companies;
and marketing CCPs and related industrial materials. There are many local,
regional and national companies that compete for market share in these areas
with similar products and with numerous other substitute products. Although
Headwaters Resources typically has long-term CCP management contracts with its
clients, some of such contracts provide for the termination of such contracts at
the convenience of the utility company upon a minimum 90-day notice. Moreover,
certain of Headwaters Resources' most significant regional CCP competitors
appear to be seeking a broader national presence, and some of these competitors
have substantially greater resources than Headwaters and Headwaters Resources.
-9-
If they were to begin to compete in the national market, or in regions where
they currently do not have operations, Headwaters Resources' could lose market
share and associated revenues.
Headwaters Construction Materials competes against numerous national
and regional manufacturers, some of which are significantly larger than
Headwaters and may have greater financial, manufacturing and distribution
resources than Headwaters.
For the HTI business, many of the world's major chemical companies are
devoting significant resources to researching and developing nanocatalysts and
catalytic processes. These companies have greater financial, management and
other resources than does Headwaters.
Our business strategy to diversify and grow through acquisitions may result in
integration costs, failures and dilution to existing stockholders.
An important business strategy of Headwaters is diversification and
growth through acquisitions. Our ability to successfully implement our strategy
is subject to a number of risks, including difficulties in identifying
acceptable acquisition candidates, consummating acquisitions on favorable terms
and obtaining adequate financing, which may adversely affect our ability to
develop new products and services and to compete in our rapidly changing
marketplace. In addition, if we consummate acquisitions through an exchange of
our securities, our existing stockholders could suffer dilution. Successful
management and integration of acquisitions are subject to a number of risks,
including difficulties in assimilating acquired operations, including loss of
key employees, diversion of management's attention from core business
operations, assumption of contingent liabilities and incurrence of potentially
significant write-offs. This strategy may not improve our operating results and
acquisitions may have a dilutive effect on existing stockholders.
If our internal controls over financial reporting under Section 404 of the
Sarbanes-Oxley Act are not adequate, our reputation could be harmed and we could
be subject to regulatory scrutiny, civil or criminal penalties or stockholder
litigation.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate
and report on our system of internal controls beginning with our Annual Report
on Form 10-K for the year ending September 30, 2005. If we fail to maintain the
adequacy of our internal controls, we could be subject to regulatory scrutiny,
civil or criminal penalties or stockholder litigation. Any inability to provide
reliable financial reports could harm our business. Section 404 of the
Sarbanes-Oxley Act also requires that our independent auditors report on
management's evaluation of our system of internal controls. Headwaters is in the
process of documenting and testing its system of internal controls to provide
the basis for its report. Further, the growth and diversification of our
business through acquisitions complicates the process of developing, documenting
and testing internal controls. At this time, due to the ongoing evaluation and
testing, no assurance can be given that there may not be significant
deficiencies or material weaknesses that would be required to be reported.
If we are unable to manage the growth of our business successfully, our revenues
and business prospects could suffer.
We have experienced significant growth recently, both internally and
through acquisitions. We may not be able to successfully manage the increased
scope of our operations or a significantly larger and more geographically
diverse workforce as we expand. Any failure to successfully manage growth could
harm our business and financial results. Additionally, growth increases the
demands on our management, our internal systems, procedures and controls. To
successfully manage growth, we must add administrative staff and periodically
update and strengthen our operating, financial and other systems, procedures and
controls, which will increase our costs and may reduce our profitability. We may
be unable to successfully implement improvements to our information and control
systems in an efficient or timely manner and may discover deficiencies in
existing systems and controls.
Unauthorized use of or infringement claims regarding our proprietary
intellectual property could adversely affect our ability to conduct our
business.
We rely primarily on a combination of trade secrets, patents, copyright
and trademark laws and confidentiality procedures to protect our intellectual
property. Despite these precautions, unauthorized third parties may
misappropriate, infringe upon, copy or reverse engineer portions of our
technology. We do not know if current or future patent applications will be
issued with the scope of the claims sought, if at all, or whether any patents
issued will be challenged or invalidated. Our business could be harmed if we
infringe upon the intellectual property rights of others. We have been, and may
-10-
be in the future, notified that we may be infringing intellectual property
rights possessed by third parties. If any such claims are asserted against us,
we may seek to enter into royalty or licensing arrangements. There is a risk in
these situations that no license will be available or that a license will not be
available on reasonable terms, precluding our use of the applicable technology.
Alternatively, we may decide to litigate such claims or attempt to design around
the patented technology. To date, while no single patent or trademark is
material to our business and the issues described in this paragraph have not
resulted in significant cost or had an adverse impact on our business, future
actions could be costly and would divert the efforts and attention of our
management and technical personnel.
Our highly leveraged capital structure affects our flexibility in responding to
changing business and economic conditions and results in high interest costs.
As of September 30, 2004, we had approximately $973 million of total
debt outstanding, including $790 million of senior indebtedness under our senior
secured credit facilities and $172.5 million of the notes. See "Senior Secured
Financing." Subject to restrictions in our senior secured credit facility, we
may also incur significant amounts of additional debt for working capital,
capital expenditures and other purposes. Our combined debt total could have
important consequences, including the following:
o we may have difficulty borrowing money for working capital,
capital expenditures, acquisitions or other purposes because
of our existing debt load and because our borrowings are
secured by all of our assets;
o we will need to use a large portion of our cash flow to pay
interest and the required principal payments on our debt,
which will reduce the amount of money available to finance our
operations, capital expenditures and other activities; and
o our senior secured credit facilities have a variable rate of
interest, which exposes us to the risk of increased interest
rates.
Our ability to make scheduled payments of the principal of, to pay
interest on or to refinance our indebtedness depends on our future performance,
which to a certain extent is subject to economic, financial, competitive and
other factors beyond our control. Our business may not continue to generate cash
flow from operations in the future sufficient to service our debt and make
necessary capital expenditures. If unable to generate such cash flow, we may be
required to adopt one or more alternatives, such as selling assets,
restructuring debt or obtaining additional equity capital on terms that may be
onerous or highly dilutive.
Covenant restrictions under our senior secured credit facility may limit our
ability to operate our business in a manner required to sustain profitability
and generate growth.
Our senior secured credit facilities, contain, among other things,
covenants that may restrict our ability to finance future operations or capital
needs, to acquire additional businesses or to engage in other business
activities. The senior secured credit facilities require approval for new
acquisitions funded with aggregate cash consideration in excess of $30 million
per year and $50 million in the aggregate until such time as our debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
is reduced to a specified amount. In addition, our senior secured credit
facilities set forth covenants requiring us to maintain specified financial
ratios and satisfy certain financial condition tests which may require that we
take action to reduce our debt or to act in a manner contrary to our business
objectives. A breach of any of these covenants could result in a default under
our senior secured credit facilities, in which event our lenders could elect to
declare all amounts outstanding to be immediately due and payable. If we are not
able to repay our obligations when they become due or are accelerated, the
lenders could foreclose on our assets. The indenture for the notes does not
restrict the amount of indebtedness, including senior indebtedness, that we may
incur.
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Risks Related to the Notes and our Common Stock
The notes are subordinated in right of payment to our existing and future senior
indebtedness and are structurally subordinated to all indebtedness and other
liabilities of our subsidiaries so we may not have sufficient assets to pay any
or all amounts due on the notes after paying our senior indebtedness in full.
The notes are unsecured and subordinated in right of payment to our
existing and future senior indebtedness. As of September 30, 2004, we had
approximately $790 million of senior indebtedness outstanding. Because the notes
are subordinated to our senior indebtedness, in the event of (1) our liquidation
or insolvency, (2) a payment default on specified types of our senior
indebtedness (as defined in "Description of Notes-Subordination of Notes"), (3)
a covenant default on our senior indebtedness entitling holders of senior
indebtedness to accelerate that indebtedness or (4) acceleration of the notes,
we will be limited in our ability to make payment on the notes until after our
senior indebtedness has been paid in full. After paying our senior indebtedness
in full, we may not have sufficient assets remaining to pay any or all amounts
due on the notes. The indenture for the notes does not restrict the amount of
indebtedness, including senior indebtedness, that we may incur.
In addition, the notes are effectively subordinated to all existing and
future indebtedness and other liabilities, including trade payables, of our
subsidiaries. At September 30, 2004, our subsidiaries had approximately $75
million of indebtedness and other liabilities outstanding. The indenture for the
notes does not restrict the amount of indebtedness or other liabilities that our
subsidiaries may incur. We expect from time to time to incur additional
indebtedness and other liabilities, which could affect our ability to pay our
obligations under the notes. See "Description of Notes-Subordination of Notes."
There is no public market for the notes, which could limit their market price or
the ability to sell them for an amount equal to or higher than their initial
offering price.
The notes are a new issue of securities for which there currently is no
trading market. We do not intend to list the notes on any national securities
exchange or to seek the admission of the notes for trading on The Nasdaq Stock
Market. The initial purchasers advised us at the time of the offering of the
notes that they intend to make a market in the notes, but they are not obligated
to do so, and if they do make a market in the notes they may stop at any time. A
market may not develop for the notes and you may not be able to sell your notes.
If any of the notes are traded after their initial issuance, they may trade at a
discount from their initial offering price. Future trading prices of the notes
will depend on many factors, including prevailing interest rates, the trading
price for our common stock, the market for similar securities, general economic
conditions and our financial condition, performance and prospects. Historically,
the market for convertible debt has been subject to disruptions that have caused
volatility in the prices of securities similar to the notes. Such a market, if
any, for the notes may suffer from similar disruptions and disruptions may
adversely affect the prices at which you may sell your notes.
We may not have the ability to raise the funds necessary to finance the
repurchase of the notes or may otherwise be restricted from making such
repurchase if required by holders pursuant to the indenture, which would result
in a default under our indenture which in turn might constitute a default under
the terms of our other indebtedness, causing much or all of our indebtedness to
become due simultaneously when we are unable to pay it.
On June 1, 2011, or in the event of a "designated event" under the
indenture, holders may require us to repurchase their notes at a price of 100%
of the principal amount of the notes, plus accrued and unpaid interest,
including liquidated damages, if any, to, but excluding, the repurchase date.
However, it is possible that we will not have sufficient funds available at such
time to make the required repurchase of notes. In addition, any future credit
agreements or other agreements relating to our indebtedness may contain
provisions prohibiting the repurchase of the notes under certain circumstances,
or may provide that a designated event constitutes an event of default under
that agreement. If any agreement governing our indebtedness prohibits us from
repurchasing the notes when we become obligated to do so, we could seek the
consent of the lenders to repurchase the notes or attempt to refinance this
debt. If we do not obtain such consent or refinance the debt, we would not be
permitted to repurchase the notes. Our failure to repurchase tendered notes
would constitute an event of default under the indenture, which might constitute
a default under the terms of our other indebtedness, causing much or all of our
indebtedness to become due simultaneously when we are unable to pay it.
-12-
The price of our common stock historically has been volatile. This volatility
may make it difficult for you to resell the notes or the common stock into which
the notes are convertible, and the sale of substantial amounts of our common
stock could adversely affect the price of our common stock.
The market price for our common stock has varied between a high of
$32.02 and a low of $14.78 per share in the year ended September 30, 2004. This
volatility may make it difficult for you to resell the notes or the common stock
into which the notes are convertible, and the sale of substantial amounts of our
common stock could adversely affect the price of our common stock. Our stock
price is likely to continue to be volatile and subject to significant price and
volume fluctuations in response to market and other factors, including the other
factors discussed in "Risk Factors;" variations in our quarterly operating
results from our expectations or those of securities analysts or investors;
downward revisions in securities analysts' estimates; and announcement by us or
our competitors of significant acquisitions, strategic partnerships, joint
ventures or capital commitments.
In the past, following periods of volatility in the market price of
their stock, many companies have been the subject of securities class action
litigation. If we became involved in securities class action litigation in the
future, it could result in substantial costs and diversion of our management's
attention and resources and could harm our stock price, business, prospects,
results of operations and financial condition.
In addition, the broader stock market has experienced significant price
and volume fluctuations in recent years. This volatility has affected the market
prices of securities issued by many companies for reasons unrelated to their
operating performance and may adversely affect the price of our common stock. In
addition, our announcements of our quarterly operating results, changes in
general conditions in the economy or the financial markets and other
developments affecting us, our affiliates or our competitors could cause the
market price of our common stock to fluctuate substantially. The trading price
of the notes is expected to be affected significantly by the price of our common
stock.
In addition, the sale of substantial amounts of our common stock could
adversely impact its price. As of September 30, 2004, we had outstanding
approximately 33,774,000 shares of our common stock and options to purchase
approximately 3,802,000 shares of our common stock (of which approximately
1,821,000 were exercisable as of that date). The sale or the availability for
sale of a large number of shares of our common stock in the public market could
cause the price of our common stock to decline.
Our reported diluted earnings per share will have to be restated and decreased
due to a change in accounting guidance. This change could depress the price of
our common stock.
The Emerging Issues Task Force reached a final consensus on Issue
04-08, "The Effect of Contingently Convertible Debt on Earnings Per Share."
Under previous interpretations of FASB Statement No. 128, "Earnings Per Share,"
we exclude the potential common shares underlying the notes from the calculation
of diluted earnings per share until such time as the contingent conversion
features are met. The Task Force reached a conclusion that the contingently
issuable shares guidance in Statement No. 128 does not apply to convertible debt
with a market price trigger. As a result, the dilutive effect of contingently
convertible debt would be included in the calculation of diluted earnings per
share immediately upon issuance of the debt instrument. Under the Task Force's
conclusion, as we understand it, we will be required, for periods ending after
December 15, 2004, to retroactively restate diluted earnings per share to
include the effect of our contingently convertible debt from the issuance date
forward, as if it was already converted. This restatement, which would have the
effect of reducing our diluted earnings per share, may depress the price of our
common stock. The expected impact of the restatement on our diluted earnings per
share for the fiscal year ended September 30, 2004 is approximateley $0.07 per
share; however, the Company's contingently covertible debt has been outstanding
only since June 2, 2004 so the impact on 2004 is not representative of the
potential effect for an entire year.
If the trading prices of our common stock decrease, the trading prices of our
notes may similarly decrease.
The price of our common stock could be affected by possible sales of
our common stock by investors who view the notes as a more attractive means of
-13-
equity participation in our company and by hedging or arbitrage trading activity
that may develop involving our common stock. The hedging or arbitrage could, in
turn, affect the trading prices of the notes.
The conversion rate of the notes may not be adjusted for all dilutive events,
which may adversely affect the trading price of the notes.
The conversion rate of the notes is subject to adjustment for certain
events including, but not limited to, the issuance of stock dividends on our
common shares, the issuance of certain rights or warrants, subdivisions or
combinations of our common shares, certain distributions of assets, debt
securities, capital stock or cash to holders of our common shares and certain
issuer tender or exchange offers as described under "Description of
Notes-Conversion of Notes-Conversion Rate Adjustments." The conversion rate will
not be adjusted for other events, such as an issuance of common shares for cash,
that may adversely affect the trading price of the notes or the common shares.
Conversion of the notes will dilute the ownership interest of existing
stockholders, including holders who had previously converted their notes.
The conversion of some or all of the notes will dilute the ownership
interests of existing stockholders. Any sales in the public market of the common
stock issuable upon such conversion could adversely affect prevailing market
prices of our common stock. In addition, the existence of the notes may
encourage short selling by market participants because the conversion of the
notes could be used to satisfy short positions, or anticipated conversion of the
notes into shares of Headwaters common stock could depress the price of our
common stock.
If you hold notes, you will not be entitled to any rights with respect to our
common stock, but you will be subject to all changes made with respect to our
common stock.
If you hold notes, you will not be entitled to any rights with respect
to our common stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common stock), but if you
subsequently convert your notes to common stock you will be subject to all
changes affecting the common stock. You will have rights with respect to our
common stock only if and when we deliver shares of common stock to you upon
conversion of your notes and, to a limited extent, under the conversion rate
adjustments applicable to the notes. For example, in the event that an amendment
is proposed to our certificate of incorporation or bylaws requiring stockholder
approval and the record date for determining the stockholders of record entitled
to vote on the amendment occurs prior to delivery of common stock to you, you
will not be entitled to vote on the amendment, although you will nevertheless be
subject to any changes in the powers or rights of our common stock.
United States federal income tax consequences of owning the notes may adversely
affect certain investors.
Under the indenture governing the notes, we will agree, and by
acceptance of a beneficial interest in a note each holder will have deemed to
have agreed, to treat the note as indebtedness for U.S. federal income tax
purposes that is subject to the Treasury regulations governing contingent
payment debt instruments.
Consequently, despite some uncertainty as to the proper application of
such regulations, the notes will be treated as issued with original issue
discount for United States federal income tax purposes, and you will be required
to include such original issue discount in your income as it accrues at a
constant rate of 8.00% per year (subject to certain adjustments), compounded
semi-annually, which represents the yield on our comparable non contingent,
non-convertible, fixed rate debt instruments with terms and conditions otherwise
similar to the notes. The amount of original issue discount required to be
included by you in income for each year generally will be in excess of the
payments and accruals on the notes for non-tax purposes (i.e., in excess of the
stated semi-annual regular interest payments and accruals and any contingent
interest payments) in that year.
You will recognize gain or loss on the sale, purchase by us at your
option, exchange, conversion or redemption of a note in an amount equal to the
difference between the amount realized, including the fair market value of any
of our common stock received, and your adjusted tax basis in the note. Any gain
recognized by you on the sale, purchase by us at your option, exchange,
conversion or redemption of a note will be treated as ordinary interest income;
-14-
any loss will be ordinary loss to the extent of original issue discount
previously included in income, and thereafter as capital loss. A discussion of
the United States federal income tax consequences of ownership of the notes is
contained in this prospectus under the heading "Material United States Federal
Income Tax Considerations."
You are strongly urged to consult your tax advisor as to the U.S.
federal, state, local, non-U.S. or other tax consequences of acquiring, owning,
and disposing of the notes.
We have never paid dividends and do not anticipate paying any dividends on our
common stock in the future, so any short-term return on your investment will
depend on the market price of our capital stock.
We currently intend to retain any earnings to finance our operations
and growth. The terms and conditions of our senior secured credit facility
restrict and limit payments or distributions in respect of our capital stock.
Delaware law and our charter documents may impede or discourage a takeover,
which could cause the market price of our shares to decline.
We are a Delaware corporation, and the anti-takeover provisions of
Delaware law impose various impediments to the ability of a third party to
acquire control of us, even if a change in control would be beneficial to our
existing stockholders. In addition, our board of directors has the power,
without stockholder approval, to designate the terms of one or more series of
preferred stock and issue shares of preferred stock, including the adoption of a
"poison pill," which could be used defensively if a takeover is threatened. The
ability of our board of directors to create and issue a new series of preferred
stock and certain provisions of Delaware law and our certificate of
incorporation and bylaws could impede a merger, takeover or other business
combination involving us or discourage a potential acquirer from making a tender
offer for our common stock, which, under certain circumstances, could reduce the
market price of our common stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 regarding future events
and our future results that are based on current expectations, estimates,
forecasts, and projections about the industries in which we operate and the
beliefs and assumptions of our management. Forward-looking statements include
our expectations as to the managing and marketing of coal combustion products
and expansion of their commercial use; operations of facilities utilizing
alternative fuel technologies; the marketing of alternative fuels; the
availability of tax credits; the availability of feed stocks; the receipt of
licensing fees, royalties, and product sales revenues; our ability to leverage
our business units' complementary distribution systems; our ability to integrate
acquired companies; our ability to successfully implement improvements in
manufacturing systems; the availability of raw materials for our products; the
development, commercialization, and financing of new technologies and products
and other strategic business opportunities and acquisitions, including, without
limitation, other information about our company and each of our business units.
Actual results may vary materially from such expectations. Words such as
"expects," "anticipates," "targets," "goals," "projects," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. In addition, any statements that refer
to projections of our future financial performance, our anticipated growth and
trends in our businesses, and other characterizations of future events or
circumstances, are forward-looking. For a discussion of the factors that could
cause actual results to differ from expectations, please see the risk factors
contained in our filing on Form 10-K for the year ended September 30, 2004, and
all other information contained in and incorporated by reference in this
Prospectus. There can be no assurance that our results of operations will not be
adversely affected by such factors. Unless legally required, we undertake no
obligation to revise or update any forward-looking statements for any reason.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of the applicable report.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
events, levels of activity, performance, or achievements. We do not assume
responsibility for the accuracy and completeness of the forward-looking
statements. We do not intend to update any of the forward-looking statements
after the date of this prospectus to conform them to actual results.
-16-
PROCEEDS FROM THE OFFERING
We will not receive any proceeds from the sale of the notes or shares
of common stock offered by this prospectus. All proceeds from the sale of the
notes or the shares will be for the benefit of the selling securityholders. See
"Selling Securityholders" and "Plan of Distribution" below.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods
indicated is as follows:
Year Ended September 30, Nine Months
------------------------ Ended June 30,
--------------
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges N/A 2.23 41.53 65.38 4.51 6.26
The ratio of earnings to fixed charges is computed by dividing pre-tax
income (loss) from continuing operations, before adjustment for minority
interests in consolidated subsidiaries or income or loss from equity investees,
plus fixed charges and less capitalized interest, by fixed charges. Fixed
charges consist of interest expense, including interest expense from amortized
premiums, discounts, and capitalized expenses related to indebtedness, and the
estimated portion of rental expense deemed by us to be representative of the
interest factor of rental payments under operating leases, plus preferred equity
dividends. Earnings were insufficient to cover fixed charges for the year ended
September 30, 1999 by approximately $28.4 million.
SENIOR SECURED FINANCING
Headwaters financed its acquisition of Tapco with borrowings under new
$850 million senior secured credit facilities. These facilities are senior in
right of payment to the notes. The $850 million senior secured credit facilities
(the "Credit Facilities") consists of a Credit Agreement ("Credit Agreement")
dated September 8, 2004, and a Second Lien Credit Agreement ("Second Lien Credit
Agreement"), dated as of September 8, 2004. The Credit Agreement consists of a
$60 million revolving credit facility (the "Revolver") and a $640 million first
lien term loan (the "1st Lien Term Loan"). The Second Lien Credit Agreement
consists of a $150 million second lien term loan ("2nd Lien Term Loan"). There
are no amounts drawn on the Revolver, but it will be available for Headwaters'
future working capital and general corporate purposes. As of November 30, 2004,
the Revolver also backed up $588,000 in outstanding letters of credit issued by
Headwaters and its subsidiaries.
All obligations under the Credit Facilities are unconditionally
guaranteed by Headwaters' direct and indirect wholly-owned subsidiaries, subject
to certain exceptions. The Credit Facilities are secured by perfected first and
second priority liens and security interests in all shares of capital stock and
inter-company debt of Headwaters and its subsidiaries and all material present
and future property and assets of Headwaters and its wholly-owned subsidiaries,
subject to certain exceptions.
The Revolver bears interest, at Headwaters' option, at either the
London Interbank Offered Rate ("LIBOR") plus an assumed margin ranging from
1.75% to 2.5%, or the Base Rate plus an assumed margin ranging from minus 0.75%
to plus 1.50%. The fees for the unused commitments for the Revolver range from
0.50% to 0.75%. The margins and the commitment fees are determined quarterly in
accordance with a defined rate spread based upon the ratio (the "Total Leverage
Ratio") of Headwaters' average total funded indebtedness for the preceding four
quarters to earnings before interest, taxes, depreciation, depletion and
amortization ("EBITDA") for the twelve months ended on the last day of the most
recent calendar quarter. The 1st Lien Term Loan bears interest, at Headwaters'
option, at either (a) LIBOR plus a margin of 3.00% if the Total Leverage Ratio
is less than or equal to 3.75:1.00 and if not, at LIBOR plus a margin of 3.25%;
or (b) the Base Rate (defined below) plus a margin of 2.00% if the Total
Leverage Ratio is less than or equal to 3.75:1.00 and if not, at the Base Rate
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plus a margin of 2.25%. The 2nd Lien Term Loan bears interest, at Headwaters'
option, at either LIBOR plus an assumed margin of 5.50% or the Base Rate plus an
assumed margin of 4.50%. Base Rate is the higher of the rate announced by Morgan
Stanley Senior Funding and the overnight rate charged by the Federal Reserve
Bank of New York plus 0.50%.
Amounts outstanding under the Revolving Credit Facility shall be repaid
in full by September 8, 2009. The Lenders may accelerate the maturity of the
term loans and the Revolver if an event of default, as defined under the Credit
Agreement and Second Lien Credit Agreement, as applicable, occurs. The 1st Lien
Term Loan shall be repaid in full by April 30, 2011, subject to amortization of
27 quarterly payments due in November, February, May and August, consisting of
$12 million for each of the first 12 payments, $4 million for each of the second
12 payments, and $149,333,333 for each of the last three payments. The 2nd Lien
Term Loan shall be repaid in full by September 1, 2012. Borrowings under the 1st
Lien Term Loan and the 2nd Lien Term Loan may not be re-borrowed once repaid.
There are mandatory prepayments of the 1st Lien Term Loan in the event of
certain asset sales and debt and equity issuances and from excess cash flow.
Optional prepayments on the 1st Lien Term Loan are permitted without penalty or
premium. Optional prepayments on the 2nd Lien Term Loan are limited to an
aggregate of $50 million until September 2006. Headwaters will pay a premium of
3% on all optional prepayments on the 2nd Lien Term Loan made during the first
year, 2% on all optional prepayments during the second year, and 1% on all
optional prepayments made on such loans between the second and third years after
closing.
The 1st Lien Term Loan and the Revolver are subject to financial
covenants, including
o a maximum Total Leverage Ratio and a maximum ratio of
consolidated senior funded indebtedness minus subordinated
indebtedness to EBITDA ("Senior Leverage Ratio"), in
accordance with the following schedule:
For each four fiscal quarter
period ended: Total Leverage Ratio Senior Leverage Ratio
------------- -------------------- ---------------------
September 30, 2004 through
December 31, 2004 5.00:1.00 4.00:1.00
March 31, 2005 through
June 30, 2005 4.75:1.00 3.75:1.00
September 30, 2005 through
December 31, 2005 4.50:1.00 3.50:1.00
March 31, 2006 through
June 30, 2006 4.25:1.00 3.25:1.00
September 30, 2006 4.00:1.00 3.00:1.00
December 31, 2006 through
September 30, 2009 3.75:1.00 2.75:1.00
December 31, 2009 through
the Maturity Date 3.50:1.00 2.50:1.00
o a minimum ratio of EBITDA plus rent payments for the four
preceding fiscal quarters to scheduled payments of principal
and interest on all indebtedness for the next four fiscal
quarters of 1.10:1.00 before September 30, 2006 and 1.25:1.00
after September 30, 2006.
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In addition, there are customary negative and affirmative covenants, including
limitations on additional indebtedness; repurchasing capital stock; capital
expenditures limited to $50 million in 2004 and increasing to $60 million in
2011; mergers, acquisitions and partnerships; dividends and other restricted
payments; and asset sales and sale-leaseback transactions. Acquisitions will be
limited to $50 million each fiscal year, of which the cash consideration may not
exceed $30 million, unless the Total Leverage Ratio is less than or equal to
3.50:1:00, after giving effect to an acquisition, in which case the foregoing
limitation does not apply. The 2nd Lien Term Loan is subject to separate
customary covenants, not more onerous than those to which the 1st Lien Term Loan
and the Revolver are subject, including (i) restrictions on indebtedness,
contingent obligations, dividends, affiliate transactions, liens, sale and
leaseback transactions, asset sales, mergers and acquisitions, and investments,
and (ii) a maximum Total Leverage Ratio of 5.5:1.00 in 2004, 5.0:1.00 in 2005 to
4.50:1:00 in 2006.
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DESCRIPTION OF NOTES
We issued the notes under a contract called an indenture dated as of
June 1, 2004, between Headwaters, as issuer, and Wells Fargo Bank, N.A., as
trustee. The following description describes the material provisions of the
notes, the indenture and the registration rights agreement. We urge you to read
the indenture, the notes and the registration rights agreement in their
entirety. You may request copies of these documents at our address shown under
the caption "Documents Incorporated by Reference." The terms of the notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939.
As used in this "Description of Notes" section, references to
"Headwaters," "we," "our" or "us" refer solely to Headwaters Incorporated and
not to our subsidiaries.
General
The notes are our direct, unsecured, senior subordinated obligations
and rank junior in right of payment to all of our existing and future senior
indebtedness (see "Senior Secured Financing" for a description of our Credit
Facilities which are senior to the notes), equal in priority with any of our
future unsecured, senior subordinated indebtedness and senior in right of
payment to any unsecured subordinated indebtedness that we may incur in the
future. The notes are effectively junior to our subsidiaries' indebtedness and
other liabilities, including trade payables. Our payment obligations under the
notes are subordinated to our senior indebtedness as described under
"--Subordination of Notes." The notes are convertible into common stock upon
certain conditions, as described under "--Conversion of Notes."
We issued $172,500,000 in aggregate principal amount of notes. The
notes were issued only in denominations of $1,000 and multiples of $1,000. The
notes will mature on June 1, 2016 unless earlier converted, redeemed or
repurchased. We may from time to time repurchase the notes in open market
purchases or negotiated transactions without prior notice to holders.
Neither we nor any of our subsidiaries are subject to any financial
covenants under the indenture. In addition, neither we nor any of our
subsidiaries are restricted under the indenture from paying dividends, making
investments, incurring debt, including senior indebtedness, granting liens or
mortgages, or issuing or repurchasing our securities.
You are not afforded protection under the indenture in the event of a
highly leveraged transaction or a change in control of us except to the extent
described below under "--Repurchase at Option of the Holder" and "--Repurchase
at Option of the Holder Upon a Designated Event."
Under the indenture we agree, and by acceptance of a beneficial
interest in the notes each beneficial owner of the notes is deemed to have
agreed, among other things, for United States federal income tax purposes, to
treat the notes as indebtedness that is subject to the Treasury regulations
governing contingent payment debt instruments and, for purposes of those
regulations, to treat the fair market value of any stock received upon any
conversion of the notes as a contingent payment. However, the characterization
of instruments such as the notes and the application of such regulations is
uncertain in several respects. See "Material United States Federal Income Tax
Considerations."
The notes bear interest at a rate of 2?% per annum. We will pay
interest on June 1 and December 1 of each year, beginning December 1, 2004, to
securityholders at the close of business on the preceding May 15 and November
15, as the case may be, except interest payable upon redemption or repurchase
will be paid to the person to whom principal is payable, unless the redemption
date or repurchase date, as the case may be, falls after a record date and prior
to the corresponding interest payment date. Interest will accrue from June 1,
2004 or from the most recent date to which interest has been paid or duly
provided for. We will pay contingent interest under certain circumstances as
described under "--Contingent Interest." Interest will be computed on the basis
of a 360-day year composed of twelve 30-day months.
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We will maintain an office in the Borough of Manhattan, The City of New
York, for the payment of principal and interest, and for the presentation of
notes for conversion, registration of transfer or exchange for other
denominations which shall initially be an office or agency of the trustee. We
may pay interest either:
o by check mailed to your address as it appears in the note
register, provided that if you are a holder with an aggregate
principal amount in excess of $2.0 million, you shall be paid,
at your written election, by wire transfer in immediately
available funds; or
o by transfer to an account maintained by you in the United
States.
However, payments on the global note will be made to The Depository
Trust Company, New York, New York, which we refer to as DTC, by wire transfer of
immediately available funds to the account of DTC or its nominee.
Conversion of Notes
You may convert any of your notes, in whole or in part, into shares of
our common stock prior to the close of business on the final maturity date of
the notes, subject to prior redemption or repurchase of the notes, only under
the following circumstances:
o upon satisfaction of a market price condition;
o upon a credit ratings event;
o upon satisfaction of a trading price condition;
o upon notice of redemption; or
o upon specified corporate transactions.
The number of shares of common stock you will receive upon conversion
of your notes will be determined by multiplying the number of $1,000 principal
amount notes you convert by the conversion rate on the date of conversion. You
may convert your notes in part so long as such part is $1,000 principal amount
or an integral multiple of $1,000. The initial conversion rate for the notes is
33.3333 shares of common stock per $1,000 principal amount of notes, subject to
adjustment as described below, which represents an initial conversion price of
$30.00 per share.
If we call notes for redemption, you may convert the notes only until
the close of business on the business day immediately preceding the redemption
date unless we fail to pay the redemption price. If you have submitted your
notes for repurchase upon a designated event, you may convert your notes only if
you withdraw your repurchase election. Similarly, if you exercise your option to
require us to repurchase your notes other than upon a designated event, those
notes may be converted only if you withdraw your election to exercise your
option in accordance with the terms of the indenture. Upon conversion of a note,
the holder will not receive any cash payment of interest, including contingent
interest and liquidated damages, if any, (unless such conversion occurs between
a regular record date and the interest payment date to which it relates). We
will not issue fractional shares upon conversion of notes. Instead, we will pay
cash in lieu of fractional shares based on the closing sale price (as defined
below) of the common stock on the trading day prior to the conversion date. Our
delivery to the holder of the full number of shares of our common stock into
which the note is convertible, together with any cash payment for such holder's
fractional shares, will be deemed to satisfy our obligation to pay:
o the principal amount of the note; and
o accrued but unpaid interest, including contingent interest and
liquidated damages, if any, attributable to the period from
the most recent interest payment date to the conversion date.
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As a result, accrued but unpaid interest, including contingent interest
and liquidated damages, if any, to the conversion date is deemed to be paid in
full rather than cancelled, extinguished or forfeited.
Notwithstanding the preceding two paragraphs, if notes are converted
after a record date but prior to the next succeeding interest payment date,
holders of such notes at the close of business on the record date will receive
the interest, including contingent interest and liquidated damages, if any,
payable on such notes on the corresponding interest payment date notwithstanding
the conversion. Such notes, upon surrender for conversion, must be accompanied
by funds equal to the amount of interest, including contingent interest and
liquidated damages, if any, payable on the notes so converted; provided that no
such payment need be made (1) if we have specified a redemption date that is
after a record date and prior to the next interest payment date, (2) if we have
specified a purchase date following a designated event that is during such
period or (3) only to the extent overdue interest, overdue contingent interest
or overdue liquidated damages, if any, exists at the time of conversion with
respect to such note.
Conversion Upon Satisfaction of Market Price Condition
Prior to June 1, 2011, you may surrender your note for conversion into
our common stock during any calendar quarter commencing after June 30, 2004 if
the closing sale price of our common stock exceeds 130% of the conversion price
for at least 20 trading days in the 30 consecutive trading days ending on the
last trading day of the preceding calendar quarter. If the specified threshold
is met, the notes will thereafter be convertible at any time at the option of
the holder prior to the close of business on the maturity date.
At any time on or after June 1, 2011, you may also surrender your note
for conversion into our common stock, if, on any date, the closing sale price of
our common stock exceeds 130% of the then current conversion price. If the
specified threshold is met, the notes will thereafter be convertible at any time
at the option of the holder prior to the close of business on the maturity date.
The "closing sale price" of our common stock on any date means the
closing sale price per share (or if no closing sale price is reported, the
average of the closing bid and ask prices or, if more than one in either case,
the average of the average closing bid and the average closing ask prices) on
such date as reported in composite transactions for the principal United States
securities exchange on which our common stock is traded or, if our common stock
is not listed on a United States national or regional securities exchange, as
reported by The Nasdaq Stock Market or by the National Quotation Bureau
Incorporated. In the absence of such a quotation or reporting, we will determine
the closing sale price on a basis we consider appropriate, and such
determination shall be conclusive. The "conversion price" as of any day will
equal $1,000 divided by the number of shares of common stock issuable upon a
conversion of a note.
"Trading day" means a day during which trading in securities occurs on
The Nasdaq Stock Market or, if the common stock is not quoted on The Nasdaq
Stock Market, on the principal national or regional securities exchange on which
the common stock is then listed or, if the common stock is not listed on a
national or regional securities exchange, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
Conversion Upon Credit Ratings Event
You may surrender any and all of your notes for conversion into our
common stock prior to close of business on the maturity date (1) during any
period in which the credit rating assigned to the notes by Standard & Poor's or
Moody's (or any successors to these entities) is three or more rating
subcategories below the initial credit rating assigned by Standard & Poor's or
Moody's, if Standard & Poor's and/or Moody's rates the notes or (2) if either
Standard & Poor's or Moody's no longer rates the notes, or if either of these
rating agencies suspends or withdraws the rating assigned to the notes, and
immediately prior to such termination, suspension or withdrawal of rating the
notes were rated by Standard & Poor's or Moody's, as the case may be. We are
under no obligation to obtain a rating for the notes from Standard & Poor's or
Moody's and currently do not intend to seek to obtain any such rating.
-22-
Conversion Upon Satisfaction of Trading Price Condition
Prior to the close of business on the maturity date, you may surrender
your notes for conversion into our common stock during the five business day
period after any five consecutive trading day period in which the "trading
price" per $1,000 principal amount of notes, as determined following a request
by a holder of notes in accordance with the procedures described below, for each
day of that period was less than 98% of the product of the closing sale price of
our common stock and the number of shares of common stock issuable upon
conversion of $1,000 principal amount of the notes at such time; provided,
however, you may not convert your notes in reliance on this provision if on any
trading day during such measurement period the closing sale price of our common
stock was between 100% and 130% of the then current conversion price of the
notes.
The "trading price" of the notes on any date of determination means the
average of the secondary market bid quotations obtained by the trustee for
$10,000,000 principal amount of the notes at approximately 3:30 p.m., New York
City time, on such determination date from three independent nationally
recognized securities dealers we select; provided that if three such bids cannot
reasonably be obtained by the trustee, but two such bids are obtained, then the
average of the two bids shall be used, and if only one such bid can reasonably
be obtained by the trustee, that one bid shall be used. If the trustee cannot
reasonably obtain at least one bid for $10,000,000 principal amount of the notes
from a nationally recognized securities dealer then the trading price per $1,000
principal amount of notes will be deemed to be less than 98% of the product of
the "closing sale price" of our common stock and the number of shares issuable
upon conversion of $1,000 principal amount of the notes.
In connection with any conversion upon satisfaction of the above
trading price condition, the trustee shall have no obligation to determine the
trading price of the notes unless we have requested such determination; and we
shall have no obligation to make such request unless you provide us with
reasonable evidence that the trading price per $1,000 principal amount of notes
would be less than 98% of the product of the closing sale price of our common
stock and the number of shares of common stock issuable upon conversion of
$1,000 principal amount of the notes. At such time, we shall instruct the
trustee to determine the trading price of the notes beginning on the next
trading day and on each successive trading day until the trading price per
$1,000 principal amount of notes is greater than or equal to 98% of the product
of the closing sale price of our common stock and the number of shares issuable
upon conversion of $1,000 principal amount of the notes.
Conversion Upon Notice of Redemption
If we call notes for redemption, you may convert the notes until the
close of business on the business day immediately preceding the redemption date,
after which time your right to convert will expire unless we default in the
payment of the redemption price.
Conversion Upon Specified Corporate Transactions
If we elect to:
o distribute to all holders of our common stock certain rights
or warrants entitling them to purchase, for a period expiring
within 45 days, our common stock at less than the current
market price at the time of distribution (measured by
averaging the closing prices for the 10 preceding trading
days); or
o distribute to all holders of our common stock, cash or other
assets, debt securities or certain rights to purchase our
securities, which distribution has a per share value exceeding
5% of the closing sale price of our common stock on the
trading day immediately preceding the declaration date for
such distribution;
we must notify you at least 20 days prior to the ex-dividend date for such
distribution. Once we have given such notice, you may surrender your notes for
conversion at any time until the earlier of close of business on the business
day prior to the ex-dividend date or any announcement by us that such
distribution will not take place. No adjustment to your ability to convert will
be made if you will otherwise participate in the distribution without
conversion.
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In addition, if we are a party to a consolidation, merger, binding
share exchange or sale of all or substantially all of our assets, in each case
pursuant to which our common stock would be converted into cash, securities or
other property, you may surrender your notes for conversion at any time from and
after the date which is 15 days prior to the anticipated effective date of the
transaction until and including the date which is 15 days after the actual date
of such transaction. If we are a party to a consolidation, merger, binding share
exchange or sale of all or substantially all of our assets, in each case
pursuant to which our common stock is converted into cash, securities, or other
property, then at the effective time of the transaction, your right to convert a
note into our common stock will be changed into a right to convert it into the
kind and amount of cash, securities and other property which you would have
received if you had converted your notes immediately prior to the transaction.
If the transaction also constitutes a designated event, you can require us to
redeem all or a portion of your notes as described under "--Repurchase at Option
of the Holder Upon a Designated Event."
Conversion Procedures
To convert an interest in a global note, you must deliver to DTC the
appropriate instruction form for conversion pursuant to DTC's conversion program
and comply with the last four items listed below. To convert a definitive note,
you must:
o complete and manually sign the conversion notice on the back
of the note or facsimile of the conversion notice and deliver
this notice to the conversion agent;
o surrender the note to the conversion agent;
o if required, furnish appropriate endorsements and transfer
documents;
o if required, pay all transfer or similar taxes; and
o if required, pay funds equal to interest, including contingent
interest and liquidated damages, if any, payable on the next
interest payment date.
The date you comply with these requirements is the conversion date
under the indenture. The notes will be deemed to have been converted immediately
prior to the close of business on the conversion date. Delivery of shares will
be accomplished by delivery to the conversion agent of certificates for the
relevant number of shares, other than in the case of holders of notes in
book-entry form with DTC, which shares shall be delivered in accordance with DTC
customary practices. You will not be entitled to any rights as a holder of our
common stock, including, among other things, the right to vote and receive
dividends and notices of stockholder meetings, until any conversion is
effective.
We will adjust the conversion rate if any of the following events
occurs:
o we issue common stock as a dividend or distribution on our
common stock;
o we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
o we subdivide or combine our common stock;
o we distribute to all holders of our common stock, shares of
our capital stock, evidences of indebtedness or assets,
including cash or securities but excluding:
o rights or warrants specified above; and
o dividends or distributions specified above.
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If we distribute to all holders of our common stock capital stock of,
or similar equity interests in, a subsidiary or other business unit of
ours, then, unless we distribute such capital stock or similar equity
interests to holders of notes in such distribution, the conversion rate
will be adjusted based on the market value of the securities so
distributed relative to the market value of our common stock, in each
case based on the average closing sales prices of those securities for
the ten trading days commencing on and including the fifth trading day
after the date on which "ex-dividend trading" commences for such
distribution on the Nasdaq National Market or such other national or
regional exchange or market on which the securities are then listed or
quoted.
If we distribute to all holders of our common stock cash, excluding any
dividend or distribution in connection with our liquidation,
dissolution or winding up, then the conversion rate shall be increased
so that it equals the rate determined by multiplying the conversion
rate in effect on the record date with respect to the cash distribution
by a fraction, (1) the numerator of which shall be the current market
price of a share of our common stock on the record date, and (2) the
denominator of which shall be the same price of a share on the record
date less the amount of the distribution per share. "Current market
price" shall mean the average of the daily closing sale prices per
share of common stock for the ten consecutive trading days ending on
the earlier of the date of determination and the day before the "ex"
date with respect to the distribution requiring such computation. For
purpose of this paragraph, the term "ex" date, when used with respect
to any distribution, means the first date on which the common stock
trades, regular way, on the relevant exchange or in the relevant market
from which the closing sale price was obtained without the right to
receive such distribution.
o we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
closing sale price per share of common stock on the trading
day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange
offer.
To the extent that we have a rights plan in effect upon conversion of
the notes into common stock, you will receive, in addition to the common stock,
the rights under the rights plan unless, prior to any conversion, the rights
have separated from the common stock, in which case the conversion rate will be
adjusted as if we distributed to all holders of our common stock, shares of our
capital stock, evidences of indebtedness or assets as described above, subject
to readjustment in the event of the expiration, termination or redemption of
such rights.
In the event of:
o any reclassification of our common stock;
o a consolidation, merger or combination involving us; or
o a sale or conveyance to another person or entity of all or
substantially all of our property and assets;
in which holders of our common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon
conversion of your notes you will be entitled to receive the same type of
consideration which you would have been entitled to receive if you had converted
the notes into our common stock immediately prior to any of these events.
You may in certain situations be deemed to have received a distribution
subject to United States federal income tax as a dividend in the event of any
taxable distribution to holders of common stock or in certain other situations
requiring a conversion rate adjustment. See "Material United States Federal
Income Tax Considerations."
We may, from time to time, increase the conversion rate if our board of
directors has made a determination that this increase would be in our best
interests. Any such determination by our board will be conclusive. In addition,
we may increase the conversion rate if our board of directors deems it advisable
to avoid or diminish any income tax to holders of common stock resulting from
any stock or rights distribution. See "Material United States Federal Income Tax
Considerations."
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Except as described above in this section, we will not adjust the
conversion rate for any issuance of our common stock or convertible or
exchangeable securities or rights to purchase our common stock or convertible or
exchangeable securities.
Contingent Interest
Subject to the accrual and record date provisions described herein, we
will pay contingent interest to the holders of notes during any six-month period
from June 1 to November 30 and from December 1 to May 31, with the initial
six-month period commencing June 1, 2011, if the average trading price of the
notes, determined as set forth above under "--Conversion of Notes--Conversion
Upon Satisfaction of Trading Price Condition", for the five trading days
immediately preceding the first day of the applicable six-month period equals
120% or more of the principal amount of the notes.
During any period when contingent interest shall be payable, the
contingent interest payable per note will equal 0.40% of the average trading
price of the notes during the five trading days immediately preceding the first
day of the applicable six-month interest period. We will make contingent
interest payments, if any, on the interest payment dates for the notes.
We will notify the noteholders upon determination that they will be
entitled to receive contingent interest during a six-month interest period.
Redemption by Headwaters
We may redeem all or any portion of the notes at any time on or after
June 1, 2007 and prior to June 4, 2011 upon at least 20 and not more than 60
days' notice by mail to the holders of the notes, for cash, at a redemption
price equal to 100% of the principal amount of the notes to be redeemed plus any
accrued and unpaid interest, including liquidated damages, if any, and the "make
whole" payment described below, if the closing sale price of our common stock
exceeds 130% of the conversion price for at least 20 trading days in any
consecutive 30-day trading period ending on the trading day prior to the mailing
of the notice of redemption. If the redemption date is an interest payment date,
interest shall be paid to the record holder on the relevant record date.
If we redeem notes as described above on or after June 1, 2007 and
prior to June 4, 2011, we will make a "make whole" payment in cash, shares of
our common stock or a combination thereof, at our option, equal to the present
value of all remaining scheduled payments of interest on the notes to be
redeemed through June 1, 2011. The present value of the remaining interest
payments will be computed using a discount rate equal to the Treasury Yield.
"Treasury Yield" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519) that
has become publicly available at least two business days prior to the redemption
date (or, if such Statistical Release is no longer published, any publicly
available source for similar market data)) most nearly equal to the then
remaining term to June 1, 2011; provided, however, that if the then remaining
term to June 1, 2011 is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury Yield
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the weekly average yields of United States Treasury securities
for which such yields are given, except that if the then remaining term to June
1, 2011 is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used. The number of shares of common stock a holder will receive will
equal the amount of the make whole payment to be paid in shares, divided by
97.5% of the average of the trading prices of our common stock for the five
trading days immediately preceding and including the third day prior to the date
of the provisional redemption. However, we may not pay you in common stock
unless we satisfy certain conditions described in the indenture. We must make
these "make whole" payments on all notes called for redemption prior to June 4,
2011, including notes converted after the date we mailed the notice.
We may redeem any portion of the notes at any time on or after June 4,
2011 upon at least 20 and not more than 60 days' notice by mail to the holders
of the notes, for cash at 100% of the principal amount of the notes to be
redeemed plus accrued and unpaid interest, including contingent interest and
liquidated damages, if any, to, but not including, the redemption date. If the
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redemption date falls after a record date but on or prior to the next succeeding
interest payment date, then, notwithstanding the preceding sentence, we will pay
the full amount of accrued and unpaid interest, including contingent interest
and liquidated damages, if any, on such interest payment date to the holder of
record on the close of business on the corresponding record date.
No sinking fund is provided for the notes, which means that the
indenture does not require us to redeem or retire the notes periodically.
We or a third party may, to the extent permitted by applicable law, at
any time purchase notes in the open market, by tender at any price or by private
agreement. Any note that we or a third party purchase may, to the extent
permitted by applicable law and subject to restrictions contained in the
purchase agreement with the initial purchasers, be re-issued or resold or may,
at our or such third party's option, be surrendered to the trustee for
cancellation. Any notes surrendered for cancellation may not be re-issued or
resold and will be canceled promptly.
If less than all of the outstanding notes are to be redeemed, the
trustee will select the notes to be redeemed in principal amounts of $1,000 or
multiples of $1,000 by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of your notes is selected for partial
redemption and you convert a portion of your notes, the converted portion will
be deemed to be of the portion selected for redemption.
We may not redeem the notes if we have failed to pay any interest on
the notes and such failure to pay is continuing.
Repurchase at Option of the Holder
You have the right to require us to repurchase all or a portion of the
notes on June 1, 2011. We will be required to repurchase any outstanding note
for which you deliver a written repurchase notice to the paying agent, who will
initially be the trustee. This notice must be delivered during the period
beginning at any time from the opening of business on the date that is 20
business days prior to the repurchase date until the close of business on the
date two business days prior to the repurchase date. If a repurchase notice is
given and withdrawn during that period, we will not be obligated to repurchase
the notes listed in the notice. Our repurchase obligation will be subject to
certain additional conditions.
The repurchase price payable for a note will be equal to 100% of the
principal amount, plus accrued and unpaid interest, including contingent
interest and liquidated damages, if any, to, but excluding, the repurchase date.
We must give notice of an upcoming repurchase date to all note holders
not less than 20 business days prior to the repurchase date at their addresses
shown in the register of the registrar. We will also give notice to beneficial
owners as required by applicable law. This notice will state, among other
things, the procedures that holders must follow to require us to repurchase
their notes.
The repurchase notice given by you must state:
o if certificated notes have been issued, the note certificate
numbers (or, if your notes are not certificated, your
repurchase notice must comply with appropriate DTC
procedures);
o the portion of the principal amount of notes to be
repurchased, which must be in $1,000 multiples; and
o that the notes are to be repurchased by us pursuant to the
applicable provisions of the notes and the indenture.
You may withdraw any written repurchase notice by delivering a written
notice of withdrawal to the paying agent prior to the close of business on the
business day immediately preceding the repurchase date. The withdrawal notice
must state:
o the principal amount of the withdrawn notes;
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o if certificated notes have been issued, the certificate
numbers of the withdrawn notes (or, if your notes are not
certificated, your withdrawal notice must comply with
appropriate DTC procedures); and
o the principal amount, if any, which remains subject to the
repurchase notice.
Payment of the repurchase price for a note for which a repurchase
notice has been delivered and not withdrawn is conditioned upon book-entry
transfer or delivery of the note, together with necessary endorsements, to the
paying agent at its office in the Borough of Manhattan, The City of New York, or
any other office of the paying agent, at any time after delivery of the
repurchase notice. Payment of the repurchase price for the note will be made
promptly following the later of the repurchase date and the time of book-entry
transfer or delivery of the note. If the paying agent holds money sufficient to
pay the repurchase price of the note as of the repurchase date, then, on and
after the repurchase date:
o the note will cease to be outstanding;
o interest, including liquidated damages, if any, will cease to
accrue; and
o all other rights of the holder will terminate, other than the
right to receive the repurchase price upon delivery of the
note.
This will be the case whether or not book-entry transfer of the note has been
made or the note has been delivered to the paying agent.
Our ability to repurchase notes with cash may be limited by the terms
of our then-existing borrowing agreements. Even though we become obligated to
repurchase any outstanding note on a repurchase date, we may not have sufficient
funds to pay the repurchase price on that repurchase date.
We will comply with the provisions of Rule 13e-4 and any other tender
offer rules under the Exchange Act that may be applicable. We will file a
Schedule TO or any other schedule required in connection with any offer by us to
repurchase the notes.
Repurchase at Option of the Holder Upon a Designated Event
If a designated event occurs at any time prior to the maturity of the
notes, you may require us to repurchase your notes, in whole or in part, on a
repurchase date that is 30 days after the date of our notice of the designated
event. The notes will be repurchased in integral multiples of $1,000 principal
amount.
We will repurchase the notes at a price equal to 100% of the principal
amount to be repurchased, plus accrued and unpaid interest, including contingent
interest and liquidated damages, if any, to, but excluding, the repurchase date.
If the repurchase date falls after a record date and on or prior to the
corresponding interest payment date, we will pay the full amount of accrued and
unpaid interest, including contingent interest and liquidated damages, if any,
on such interest payment date to the record holder on the close of business on
the relevant record date.
We will mail to all record holders a notice of a designated event
within 15 days after it has occurred. We are also required to deliver to the
trustee a copy of the designated event notice. If you elect to require us to
repurchase your notes, you must deliver to us or our designated agent, on or
before the second business day immediately preceding the 30th day after the date
of our designated event notice, your repurchase notice and any notes to be
repurchased, duly endorsed for transfer. We will promptly pay the repurchase
price for notes surrendered for repurchase following the repurchase date.
A "designated event" will be deemed to have occurred upon a fundamental
change or a termination of trading.
A "fundamental change" is any transaction or event (whether by means of
an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) in connection with
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which all or substantially all of our common stock is exchanged for, converted
into, acquired for or constitutes solely the right to receive, consideration
which is not all or substantially all common stock, depositary receipts,
ordinary shares or other certificates representing equity interests that:
o are listed on, or immediately after the transaction or event
will be listed on, a United States national securities
exchange, or
o are approved, or immediately after the transaction or event
will be approved, for quotation on the Nasdaq National Market
or any similar United States system of automated dissemination
of quotations of securities prices.
A "termination of trading" will be deemed to have occurred if our
common stock (or other common stock, depositary receipts, ordinary shares or
other certificates representing common equity interests into which the notes are
then convertible) is neither listed for trading on a United States national
securities exchange nor approved for trading on the Nasdaq National Market.
We will comply with any applicable provisions of Rule 13e-4 and any
other applicable tender offer rules under the Exchange Act in the event of a
designated event.
These designated event repurchase rights could discourage a potential
acquirer of Headwaters. However, this designated event repurchase feature is not
the result of management's knowledge of any specific effort to obtain control of
us by means of a merger, tender offer or solicitation, or part of a plan by
management to adopt a series of antitakeover provisions. The term "designated
event" is limited to specified transactions and may not include other events
that might adversely affect our financial condition or business operations. Our
obligation to offer to repurchase the notes upon a designated event would not
necessarily afford you protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
We may be unable to repurchase the notes in the event of a designated
event. If a designated event were to occur, we may not have enough funds to pay
the repurchase price for all tendered notes. Any future credit agreements or
other agreements relating to our indebtedness may contain provisions prohibiting
repurchase of the notes under certain circumstances, or expressly prohibit our
repurchase of the notes upon a designated event or may provide that a designated
event constitutes an event of default under that agreement. If a designated
event occurs at a time when we are prohibited from repurchasing notes, we could
seek the consent of our lenders to repurchase the notes or attempt to refinance
this debt. If we do not obtain consent, we would not be permitted to repurchase
the notes. Our failure to repurchase tendered notes would constitute an event of
default under the indenture, which might constitute a default under the terms of
our other indebtedness. In these circumstances, or if a designated event would
constitute an event of default under our senior indebtedness, the subordination
provisions of the indenture may limit or prohibit payments to the holders of the
notes.
Subordination of Notes
Payment on the notes is, to the extent provided in the indenture,
subordinated in right of payment to the prior payment in full of all of our
senior indebtedness. The notes also are effectively subordinated to all debt and
other liabilities, including trade payables and lease obligations, if any, of
our subsidiaries.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of, or premium, if
any, interest, and liquidated damages, if any, on the notes will be subordinated
in right of payment to the prior payment in full of all senior indebtedness. In
the event of any acceleration of the notes because of an event of default, the
holders of any outstanding senior indebtedness would be entitled to payment in
full of all senior indebtedness obligations before the holders of the notes are
entitled to receive any payment or distribution (except that holders of notes
may receive and retain permitted junior securities and payments made from a
defeasance trust established prior to any defaults in accordance with the terms
of the indenture). We are required under the indenture to promptly notify
holders of senior indebtedness, if payment of the notes is accelerated because
of an event of default.
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We may not make any payment on the notes (except that holders of notes
may receive and retain permitted junior securities and payments made from a
defeasance trust established prior to any defaults in accordance with the terms
of the indenture) if:
o a default in the payment of designated senior indebtedness
occurs and is continuing beyond any applicable period of grace
(called a "payment default"); or
o a default other than a payment default on any designated
senior indebtedness occurs and is continuing that permits
holders of designated senior indebtedness to accelerate its
maturity, or in the case of a lease, a default occurs and is
continuing that permits the lessor to either terminate the
lease or require us to make an irrevocable offer to terminate
the lease following an event of default under the lease, and
the trustee receives a notice of such default (called "payment
blockage notice") from us or any other person permitted to
give such notice under the indenture (called a "non-payment
default").
We may resume payments and distributions on the notes:
o in case of a payment default, upon the date on which such
default is cured or waived or ceases to exist; and
o in case of a non-payment default, the earlier of the date on
which such non-payment default is cured or waived or ceases to
exist or 179 days after the date on which the payment blockage
notice is received, if the maturity of the designated senior
indebtedness has not been accelerated, or in the case of any
lease, 179 days after notice is received if we have not
received notice that the lessor under such lease has exercised
its right to terminate the lease or require us to make an
irrevocable offer to terminate the lease following an event of
default under the lease.
No new period of payment blockage may be commenced pursuant to a
payment blockage notice unless 365 days have elapsed since the initial
effectiveness of the immediately prior payment blockage notice. No non-payment
default that existed or was continuing on the date of delivery of any payment
blockage notice shall be the basis for any later payment blockage notice.
If the trustee or any holder of the notes receives any payment or
distribution of our assets in contravention of the subordination provisions of
the notes, then such payment or distribution will be held in trust for the
benefit of holders of senior indebtedness as their interests may appear.
Because of the subordination provisions discussed above, in the event
of our bankruptcy, dissolution or reorganization, holders of senior indebtedness
may receive more, ratably, and holders of the notes may receive less, ratably,
than our other creditors. This subordination will not prevent the occurrence of
any event of default under the indenture.
The notes are exclusively our obligations. A substantial portion of our
operations are conducted through 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 notes or to make any funds available for any
payment on the notes. Our cash flow and our ability to service our debt,
including the notes, is dependent upon the earnings of our subsidiaries and we
may be unable to access that cash. In addition, we are dependent on the
distribution of earnings, loans or other payments from our subsidiaries.
Further, any payment of dividends, distributions, loans or advances by our
subsidiaries to us could be subject to statutory or contractual restrictions.
Payments to us by our subsidiaries will also be contingent upon our
subsidiaries' earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors. In addition, even if we
were a creditor to any of our subsidiaries, our rights as a creditor would be
subordinate to any security interest in the assets of our subsidiaries and any
indebtedness of our subsidiaries senior to that held by us.
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The term "senior indebtedness" is defined in the indenture and includes
all amounts owing under our senior secured credit agreement dated March 31,
2004, as amended June 23, 2004, among ourselves, the lenders named therein and
Bank One, NA, as administrative agent, which we refer to as our senior secured
credit agreement and all principal, premium, interest, rent, fees, costs,
expenses and other amounts accrued or due on our existing or future
indebtedness, as defined below, or any existing or future indebtedness
guaranteed or in effect guaranteed by us, subject to certain exceptions. The
term does not include:
o any indebtedness that by its express terms is pari passu with
or junior to the notes; or
o any indebtedness we owe to any of our majority-owned
subsidiaries (except indebtedness pledged as security for
senior indebtedness of any such subsidiary); or
o the notes.
The term "permitted junior securities" means equity interests in
Headwaters, or debt securities that are subordinated to all senior indebtedness
and any debt securities issued in exchange for senior indebtedness to the same
extent as, or to a greater extent than, the notes are subordinated to senior
indebtedness under the indenture.
The term "indebtedness" is also defined in the indenture and includes,
in general terms, our liabilities in respect of borrowed money, notes, bonds,
debentures, letters of credit, bank guarantees, bankers' acceptances, capital
and certain other leases, interest rate and foreign currency derivative
contracts or similar arrangements, guarantees and certain other obligations
described in the indenture, subject to certain exceptions. The term does not
include, for example, any account payable or other accrued current liability or
obligation incurred in the ordinary course of business in connection with the
obtaining of materials or services.
The term "designated senior indebtedness" is defined in the indenture
and includes, in general terms, our senior secured credit agreement and any
senior indebtedness that by its terms expressly provides that it is "designated
senior indebtedness" for purposes of the indenture.
As of June 30, 2004, we had approximately $48.8 million of senior
indebtedness outstanding and our subsidiaries had $40.8 million of indebtedness
and other liabilities outstanding. Neither we nor our subsidiaries are
prohibited from incurring debt, including senior indebtedness, under the
indenture. We may from time to time incur additional debt, including senior
indebtedness. Our subsidiaries may also from time to time incur additional debt
and liabilities.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the notes. The
trustee's claims for these payments will generally be senior to those of
noteholders in respect of all funds collected or held by the trustee.
Merger and Sale of Assets by Headwaters
The indenture will provide that we may not consolidate with or merge
with or into any other person or convey, transfer or lease our properties and
assets substantially as an entirety to another person, unless among other items:
o we are the surviving person, or the resulting, surviving or
transferee person, if other than us is organized and existing
under the laws of the United States, any state thereof or the
District of Columbia;
o the successor person, if other than us, assumes all of our
obligations under the notes and the indenture; and
o we or such successor person will not be in default under the
indenture immediately after the transaction.
When such a person assumes our obligations in such circumstances, subject to
certain exceptions, we shall be discharged from all obligations under the notes
and the indenture.
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Events of Default; Notice and Waiver
The following will be events of default under the indenture:
o we fail to pay principal when due upon redemption or otherwise
on the notes (whether or not prohibited by the provisions
described under "Subordination of Notes" above);
o we fail to pay any interest, including contingent interest and
liquidated damages, if any, on the notes, when due and such
failure continues for a period of 30 days (whether or not
prohibited by the provisions described under "Subordination of
Notes" above);
o we fail to perform our obligation to provide a notice of a
designated event within 15 days after it has occurred;
o we fail to perform or observe any of the covenants in the
indenture for 60 days after notice from the trustee or holders
of at least 25% in principal amount of outstanding notes; or
o certain events involving our bankruptcy, insolvency or
reorganization.
The trustee may withhold notice to the holders of the notes of any
default, except defaults in payment of principal, interest, including contingent
interest or liquidated damages, if any, on the notes. However, the trustee must
consider it to be in the interest of the holders of the notes to withhold this
notice.
If an event of default occurs and continues, the trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal, and accrued interest, including contingent interest and liquidated
damages, if any, on the outstanding notes to be immediately due and payable. In
case of certain events of bankruptcy or insolvency involving us, the principal,
and accrued interest, including contingent interest and liquidated damages, if
any, on the notes will automatically become due and payable. However, if we cure
all defaults, except the nonpayment of principal, interest, including contingent
interest and liquidated damages, if any, that became due as a result of the
acceleration, and meet certain other conditions, with certain exceptions, this
declaration may be canceled and the holders of a majority of the principal
amount of outstanding notes may waive these past defaults.
Payments of principal and accrued interest, including contingent
interest and liquidated damages, if any, on the notes that are not made when due
will accrue interest at the annual rate of 1% above the then applicable interest
rate from the required payment date.
The holders of a majority of outstanding notes will have the right to
direct the time, method and place of any proceedings for any remedy available to
the trustee, subject to limitations specified in the indenture.
No holder of the notes may pursue any remedy under the indenture,
except in the case of a default in the payment of principal, or interest on the
notes, unless:
o the holder has given the trustee written notice of an event of
default;
o the holders of at least 25% in principal amount of outstanding
notes make a written request, and offer reasonable indemnity,
to the trustee to pursue the remedy;
o the trustee does not receive an inconsistent direction from
the holders of a majority in principal amount of the notes;
and
o the trustee fails to comply with the request within 60 days
after receipt.
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Modification and Waiver
The consent of the holders of a majority in principal amount of the
outstanding notes is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder of each outstanding
note if it would:
o extend the fixed maturity of any note;
o reduce the rate or extend the time for payment of interest,
including contingent interest, or liquidated damages of any
note;
o reduce the principal amount of any note;
o reduce any amount payable upon redemption or repurchase of any
note;
o adversely change our obligation to redeem any note at the
option of a holder or upon a designated event;
o impair the right of a holder to institute suit for payment on
any note;
o` change the currency in which any note is payable;
o impair the right of a holder to convert any note;
o reduce voting requirements under the indenture;
o change any obligation of ours to maintain an office or agency
in the places and for the purposes specified in the indenture;
o modify the subordination provisions of the indenture in a
manner adverse to holders of the notes;
o subject to specified exceptions, modify certain of the
provisions of the indenture relating to modification or waiver
of provisions of the indenture in a manner adverse to the
holder; or
o reduce the percentage of notes required for consent to any
modification of the indenture.
We are permitted to modify certain provisions of the indenture without
the consent of the holders of the notes.
Form, Denomination and Registration
The notes have been issued:
o in fully registered form;
o without interest coupons; and
o in denominations of $1,000 principal amount and integral
multiples of $1,000.
Global Note, Book-Entry Form
Notes are evidenced by one or more global notes. We have deposited the
global notes with DTC and registered the global notes in the name of Cede & Co.
as DTC's nominee. Except as set forth below, a global note may be transferred,
in whole or in part, only to another nominee of DTC or to a successor of DTC or
its nominee.
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Beneficial interests in a global note may be held through organizations
that are participants in DTC (called "participants"). Transfers between
participants will be effected in the ordinary way in accordance with DTC rules
and will be settled in clearing house funds. The laws of some states require
that certain persons take physical delivery of securities in definitive form. As
a result, the ability to transfer beneficial interests in the global note to
such persons may be limited.
Beneficial interests in a global note held by DTC may be held only
through participants, or certain banks, brokers, dealers, trust companies and
other parties that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (called "indirect participants"). So
long as Cede & Co., as the nominee of DTC, is the registered owner of a global
note, Cede & Co. for all purposes will be considered the sole holder of such
global note. Except as provided below, owners of beneficial interests in a
global note will:
o not be entitled to have certificates registered in their
names;
o not receive physical delivery of certificates in definitive
registered form; and
o not be considered holders of the global note.
We will pay interest, including contingent interest, if any, on and the
redemption price and the repurchase price of a global note to Cede & Co., as the
registered owner of the global note, by wire transfer of immediately available
funds on each interest payment date or the redemption or repurchase date, as the
case may be. Neither we, the trustee nor any paying agent will be responsible or
liable:
o for the records relating to, or payments made on account of,
beneficial ownership interests in a global note; or
o for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests.
Neither we, the trustee, registrar, paying agent nor conversion agent
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. DTC has advised us that it will take any
action permitted to be taken by a holder of notes, including the presentation of
notes for conversion, only at the direction of one or more participants to whose
account with DTC interests in the global note are credited, and only in respect
of the principal amount of the notes represented by the global note as to which
the participant or participants has or have given such direction.
DTC has advised us that it is:
o a limited purpose trust company organized under the laws of
the State of New York, and a member of the Federal Reserve
System;
o a "clearing corporation" within the meaning of the Uniform
Commercial Code; and
o a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes to the accounts of its
participants. Participants include securities brokers, dealers, banks, trust
companies and clearing corporations and other organizations. Some of the
participants or their representatives, together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of
interests in a global note among participants. However, DTC is under no
obligation to perform or continue to perform these procedures, and may
discontinue these procedures at any time.
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We will issue notes in definitive certificated form only if:
o DTC notifies us that it is unwilling or unable to continue as
depositary or DTC ceases to be a clearing agency registered
under the Exchange Act and a successor depositary is not
appointed by us within 90 days;
o an event of default shall have occurred and the maturity of
the notes shall have been accelerated in accordance with the
terms of the notes and any holder shall have requested in
writing the issuance of definitive certificated notes; or
o we have determined in our sole discretion that notes shall no
longer be represented by global notes.
The notes represented by the global securities are eligible to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by DTC to be settled
in immediately available funds. We expect that secondary trading in any
certificated securities will also be settled in immediately available funds.
Restrictions on Transfer, Legends
The notes will be subject to transfer restrictions as described below
under "Transfer Restrictions" and certificates for the notes will bear a legend
to this effect.
Registration Rights of the Noteholders
We entered into a registration rights agreement with the initial
purchasers of the notes. We will use our reasonable best efforts to keep the
shelf registration statement, of which this prospectus forms a part, effective
until the date there are no longer registrable securities.
When we use the term "registrable securities" in this section, we are
referring to the notes and the common stock issuable upon conversion of the
notes until the earliest of:
o the effective registration under the Securities Act and the
resale of the securities in accordance with the registration
statement;
o the expiration of the holding period with respect to the
registrable securities under Rule 144(k) under the Securities
Act;
o the sale of the registrable securities pursuant to Rule 144
under the Securities Act; or
o the registrable securities cease to be outstanding.
We may suspend the use of this prospectus under certain circumstances
relating to pending corporate developments, public filings with the SEC and
similar events. Any suspension period shall not:
o exceed 45 days in any three-month period; or
o an aggregate of 90 days for all suspensions in any 12-month
period.
Notwithstanding the foregoing, we will be permitted to suspend the use
of this prospectus for up to 60 days in any 3-month period under certain
circumstances, relating to possible acquisitions, financings or other similar
transactions or reviews by the SEC of our periodic reports.
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We will pay predetermined liquidated damages to holders on the interest
payment dates for the notes in the event the prospectus included in the
registration statement is unavailable for periods in excess of those permitted
above. Those additional amounts will accrue until the unavailability is cured:
o on the notes at an annual rate equal to 0.25% of the aggregate
principal amount of the notes outstanding for the first 90-day
period immediately following the occurrence of the event and
0.50% per annum thereafter;
o on the common stock that has been converted, at an annual rate
equal to 0.25% of an amount equal to $1,000 divided by the
conversion rate during such periods for the first 90-day
period immediately following the failure to timely file or
make effective a shelf registration statement or the failure
to make the prospectus available for the periods described
above, and such rate will increase to 0.50% per annum
thereafter until the registration statement is filed or made
effective or until the prospectus is available.
In no event will liquidated damages accrue at a rate per annum
exceeding 0.50%.
A holder who elects to sell registrable securities pursuant to the
shelf registration statement will be required to:
o be named as a selling stockholder in the related prospectus;
o deliver a prospectus to purchasers; and
o be subject to the provisions of the registration rights
agreement, including indemnification provisions.
Under the registration rights agreement we will:
o pay all customary expenses of the shelf registration
statement;
o provide each registered holder copies of the prospectus;
o notify holders when the shelf registration statement has
become effective; and
o take other reasonable actions as are required to permit
unrestricted resales of the registrable securities in
accordance with the terms and conditions of the registration
rights agreement.
We have agreed to give notice to all holders of the effectiveness of
the shelf registration statement by issuing a press release to Business Wire. In
order to sell registrable securities, a holder must complete and deliver a
notice and questionnaire (in substantially the form provided as Annex A) to us
at least three business days prior to any intended shelf registration statement.
In order to be named as a selling stockholder in the prospectus at the time of
effectiveness of the shelf registration statement, you must complete and deliver
the questionnaire to us on or prior to the tenth business day before the
effectiveness of the registration statement. Upon receipt of a completed
questionnaire after that time, together with any other information we may
reasonably request following the effectiveness, we will, within 15 business days
of receipt, file any amendments to the shelf registration statement or
supplements to the related prospectus as are necessary to permit you to deliver
your prospectus to purchasers of registrable securities, subject to our right to
suspend the use of the prospectus. We will pay the predetermined liquidated
damages described above to the holder if we fail to make the filing in the time
required or, if such filing is a post-effective amendment to the shelf
registration statement required to be declared effective under the Securities
Act, if such amendment is not declared effective within 45 days of the filing.
If you do not complete and deliver a questionnaire or provide the other
information we may request, you will not be named as a selling stockholder in
the prospectus and will not be permitted to sell your registrable securities
pursuant to the shelf registration statement of which this prospectus is a part.
This summary of the registration rights agreement is not complete. This summary
is subject to, and is qualified in its entirety by reference to, all the
provisions of the registration rights agreement.
-36-
Information Concerning the Trustee
We have appointed Wells Fargo Bank, N.A., the trustee under the
indenture, as paying agent, conversion agent, note registrar and custodian for
the notes. The trustee or its affiliates may provide banking and other services
to us in the ordinary course of their business.
The indenture contains certain limitations on the rights of the
trustee, if it or any of its affiliates is then our creditor, to obtain payment
of claims in certain cases or to realize on certain property received on any
claim as security or otherwise. The trustee and its affiliates will be permitted
to engage in other transactions with us. However, if the trustee or any
affiliate continues to have any conflicting interest and a default occurs with
respect to the notes, the trustee must eliminate such conflict or resign.
Governing Law
The notes and the indenture are governed by, and construed in
accordance with, the laws of the state of New York.
-37-
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material U.S. federal income tax
consequences of the ownership and disposition of the notes and our common stock
into which the notes may be converted. This discussion is the opinion of our
counsel, Pillsbury Winthrop LLP. This discussion applies only to holders that
hold the notes and our common stock as capital assets.
This discussion does not describe all of the U.S. federal income tax
consequences that may be relevant to a holder in light of its particular
circumstances or to holders subject to special rules, such as:
o certain financial institutions;
o insurance companies;
o dealers and certain traders in securities;
o persons holding the notes or our common stock as part of a
"straddle," "hedge," "conversion" or similar transaction;
o United States Holders (as defined below) whose functional
currency is not the U.S. dollar;
o certain former citizens or residents of the United States;
o persons subject to the alternative minimum tax; and
o Non-United States Holders (as defined below) that hold, or
will hold, more than 5% of the notes or that hold, or will
hold, actually or constructively (pursuant to the conversion
feature or otherwise), more than 5% of our common stock.
The U.S. federal income tax treatment of a partner in a partnership (or
other entity classified as a partnership for U.S. federal income tax purposes)
that holds the notes generally will depend on such partner's particular
circumstances and on the activities of the partnership. Partners in such
partnerships should consult their own tax advisors.
This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), administrative pronouncements, judicial decisions and final,
temporary and proposed Treasury regulations, changes to any of which subsequent
to the date of this prospectus may affect the U.S. federal income tax
consequences described herein, possibly with retroactive effect.
Although no statutory or judicial authority directly addresses the
treatment of the notes or instruments similar to the notes for U.S. federal
income tax purposes, the Internal Revenue Service (the "IRS") issued Revenue
Ruling 2002-31 addressing the U.S. federal income tax classification and
treatment of instruments having certain features similar to the notes, and
concluded that the instruments addressed in that published guidance were subject
to the regulations governing contingent payment debt instruments. This ruling
supports certain aspects of the treatment described below. However, Revenue
Ruling 2002-31 is limited to its particular facts. In addition, no rulings have
been or are expected to be sought from the IRS with respect to the U.S. federal
income tax consequences regarding this particular offering. As a result, we
cannot assure you that the IRS will agree with the tax characterizations and the
tax consequences described below.
Persons considering the purchase of the notes are urged to consult their tax
advisors with regard to the application of the U.S. federal income tax laws to
their particular situations as well as any estate tax consequences or tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
-38-
Classification of the Notes
The notes will be treated as indebtedness for U.S. federal income tax
purposes. Under the indenture governing the notes, we agreed, and by acceptance
of a beneficial interest in a note each holder of a note will be deemed to have
agreed, to treat the notes as indebtedness for U.S. federal income tax purposes
that is subject to the Treasury regulations governing contingent payment debt
instruments (the "contingent payment debt regulations"). Pursuant to the terms
of the indenture, we have agreed, and every holder will be deemed to have agreed
(in the absence of an administrative determination or judicial ruling to the
contrary) to be bound by our application of the contingent payment debt
regulations to the notes, including our determination of the projected payment
schedule (as described below) and the rate at which interest will be deemed to
accrue on the notes for U.S. federal income tax purposes. However, the proper
application of the contingent payment debt regulations to the notes is uncertain
in a number of respects, and no assurance can be given that the IRS will not
assert that the notes should be treated differently. A different treatment of
the notes could affect the amount, timing and character of income, gain or loss
with respect to an investment in the notes. Accordingly, you are urged to
consult your tax advisor regarding the U.S. federal income and estate tax
consequences of an investment in the notes and with respect to any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction. The remainder of this discussion assumes that the notes will be
treated as indebtedness subject to the contingent payment debt regulations as
described above.
Tax Consequences to United States Holders
As used herein, the term "United States Holder" means a beneficial
owner of a note or our 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 taxable as a corporation for
U.S. federal income tax purposes, created or organized in or
under the laws of the United States or of any political
subdivision thereof;
o an estate or trust the income of which is subject to U.S.
federal income taxation regardless of its source; or
o a trust if (i) the administration of the trust is subject to
the primary supervision of a court in the United States and
one or more U.S. persons have the authority to control all
substantial decisions of the trust or (ii) the trust has a
valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
Interest Accruals on the Notes
Under the contingent payment debt regulations, a United States Holder,
regardless of its method of accounting for U.S. federal income tax purposes,
will be required to accrue interest income on the notes on a constant yield
basis at an assumed yield (the "comparable yield") determined at the time of
issuance of the notes. Accordingly, United States Holders will be required to
include interest in income, in each year prior to maturity, in excess of the
regular interest payments on the notes. Amounts treated as interest under the
contingent payment debt regulations are treated as original issue discount for
all purposes of the Code. The comparable yield for the notes is based on the
yield at which we could issue a nonconvertible fixed rate debt instrument with
no contingent payments, but with terms otherwise similar to those of the notes.
Accordingly, we have determined that the comparable yield is an annual rate of
8.00%, compounded semi-annually. The IRS may not agree with our determination of
the comparable yield, and if the comparable yield were successfully challenged
by the IRS, the redetermined yield could be materially greater or less than the
comparable yield provided by us. Moreover, in such an event, the projected
payment schedule (as described below) could differ materially from the projected
payment schedule provided by us.
The contingent payment debt regulations require that we provide to
United States Holders, solely for U.S. federal income tax purposes, a schedule
of the projected amounts of payments (which we refer to as the "projected
payment schedule") on the notes. This schedule must produce a yield to maturity
that equals the comparable yield. The projected payment schedule includes
estimates for certain contingent interest payments and an estimate for a payment
-39-
at maturity taking into account the conversion feature. In this connection, the
fair market value of any common stock (and cash, if any) received by a holder
upon conversion will be treated as a contingent payment. United States Holders
may obtain the projected payment schedule by submitting a written request for
such information to us at: Headwaters Incorporated, Attention: Harlan M.
Hatfield, General Counsel, 10653 South River Front Parkway, Suite 300, South
Jordan, Utah, 84095. Pursuant to the terms of the indenture, we have agreed, and
every United States Holder will be deemed to have agreed (in the absence of an
administrative determination or judicial ruling to the contrary), to be bound by
our determination of the comparable yield and projected payment schedule.
The comparable yield and projected payment schedule are not determined for any
purpose other than for the determination of a United States Holder's interest
accruals and adjustments thereof (as described below) in respect of the notes
for U.S. federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the notes.
Based on the comparable yield and the issue price of the notes, a
United States Holder of a note (regardless of its tax accounting method) will be
required to accrue interest as the sum of the daily portions of interest on the
notes for each day in the taxable year on which the United States Holder holds
the note, adjusted upward or downward to reflect the difference, if any, between
the actual and projected amount of any payments on the notes (as set forth
below). In addition, a United States Holder that purchases a note for an amount
which is more or less than its adjusted issue price on the date of purchase will
be required to make further adjustments in the manner described below. The
"issue price" of each note is $1,000.
The daily portions of interest in respect of a note are determined by
allocating to each day in an accrual period the ratable portion of interest on
the note that accrues in the accrual period. The amount of interest on a note
that accrues in an accrual period is the product of the comparable yield on the
note (adjusted to reflect the length of the accrual period) and the adjusted
issue price of the note. The adjusted issue price of a note at the beginning of
the first accrual period will equal its issue price and for any accrual periods
thereafter will be (x) the sum of the issue price of such note and any interest
previously accrued thereon (disregarding any positive or negative adjustments
described below) minus (y) the amount of any projected payments on the notes for
previous accrual periods.
In addition to the interest accrual discussed above, a United States
Holder will be required to recognize interest income equal to the amount of the
excess of actual payments over projected payments (a "positive adjustment") in
respect of a note for a taxable year. For this purpose, the payments in a
taxable year include the fair market value of property (including our common
stock) received in that year. If a United States Holder receives actual payments
that are less than the projected payments in respect of a note for a taxable
year, the United States Holder will incur a "negative adjustment" equal to the
amount of such difference. This negative adjustment will (i) first reduce the
amount of interest in respect of the note that a United States Holder would
otherwise be required to include in income in the taxable year and (ii) to the
extent of any excess, will give rise to an ordinary loss equal to that portion
of such excess that does not exceed the excess of (A) the amount of all previous
interest inclusions under the note over (B) the total amount of the United
States Holder's net negative adjustments treated as ordinary loss on the note in
prior taxable years. A net negative adjustment is not subject to the two percent
floor limitation imposed on miscellaneous deductions under Section 67 of the
Code. Any negative adjustment in excess of the amounts described in (i) and (ii)
will be carried forward to offset future interest income in respect of the notes
or to reduce the amount realized on a sale, conversion, exchange or retirement
of the notes.
A United States Holder whose tax basis in a note differs from the
adjusted issued price of the note at the time of acquisition must reasonably
allocate the difference to (i) daily portions of interest or (ii) the projected
payments over the remaining term of a note. An allocation to daily portions of
interest should be reasonable to the extent that the difference is due to a
change in the yield, at such acquisition date, at which we could issue a
nonconvertible fixed rate debt instrument with no contingent payments, but with
terms otherwise similar to those of the notes. An allocation to the projected
payments should be reasonable to the extent that the anticipated value of our
common stock over the remaining term of a note, determined on the basis of the
market conditions at the acquisition date, differs from the anticipated value of
our common stock, as it had been determined on the basis of market conditions
which prevailed at the time of original issuance.
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If a United States Holder's tax basis in a note is greater than the
adjusted issue price of the note, the amount of the difference allocated to a
daily portion of interest or a projected payment will be treated as a negative
adjustment on the date the daily portion accrues or the payment is made. On the
date of the adjustment, the United States Holder's adjusted tax basis in the
note will be reduced by the amount the United States Holder treats as a negative
adjustment.
If a United States Holder's tax basis in a note is less than the
adjusted issue price of the note, the amount of the difference allocated to a
daily portion of interest or to a projected payment will be treated as a
positive adjustment on the date the daily portion accrues or the payment is
made. On the date of the adjustment, the United States Holder's adjusted tax
basis in the note will be increased by the amount the United States Holder
treats as a positive adjustment.
It should be noted that generally the rules for accrual of premium or
discount will not apply. A United States Holder who purchases notes for an
amount that is more or less than the adjusted issue price of the notes should
consult its tax advisor regarding the adjustments described above.
Sale, Conversion, Exchange or Retirement of the Notes
Upon a sale, conversion, exchange or retirement of a note for cash or
our common stock, a United States Holder will recognize gain or loss equal to
the difference between the amount realized on the sale, conversion, exchange or
retirement (including the fair market value of our common stock received, if
any) and such United States Holder's adjusted tax basis in the note. A United
States Holder's adjusted tax basis in a note will be equal to the United States
Holder's purchase price for the note, increased by any interest income
previously accrued by the United Stated Holder (determined without regard to any
positive or negative adjustments to interest accruals described above) and
decreased by the amount of any projected payments previously made on the notes
to the United States Holder. A United States Holder will treat any gain as
interest income and any loss as ordinary loss to the extent of the excess of
previous interest inclusions over the total negative adjustments previously
taken into account as ordinary loss, and the balance as capital loss. The
deductibility of capital losses is subject to limitations. A United States
Holder who sells the notes at a loss that meets certain thresholds may be
required to file a disclosure statement with the IRS.
A United States Holder's tax basis in our common stock received upon a
conversion of a note will equal the then current fair market value of such
common stock. The United States Holder's holding period for the common stock
received will commence on the day immediately following the date of conversion.
Constructive Dividends
If at any time we increase the conversion rate, either at our
discretion or pursuant to the conversion rate adjustment provisions, the
increase may be deemed to be the payment of a taxable dividend to the United
States Holders of the notes. Holders should carefully review the conversion rate
adjustment provisions and consult their own tax advisors with respect to the tax
consequences of any such adjustment. Generally, a reasonable increase in the
conversion rate in the event of stock dividends or distributions of rights to
subscribe for our common stock will not be a taxable dividend.
Taxation of Distributions on Common Stock
Distributions paid on our common stock received upon conversion of a
note, other than certain pro rata distributions of common shares, will be
treated as a dividend to the extent paid out of current or accumulated earnings
and profits (as determined under U.S. federal income tax principles) and will be
includible in income by the United States Holder. If a distribution exceeds our
current and accumulated earnings and profits, the excess will be first treated
as a tax-free return of the United States Holder's investment, up to the United
States Holder's tax basis in the common stock. Any remaining excess will be
treated as a capital gain. Dividends received by a corporate United States
Holder may qualify for a dividends-received deduction and, for taxable years
beginning after December 31, 2002 and before January 1, 2009, dividends received
-41-
by United States Holders who are individuals may qualify for preferential rates
of taxation; however, in each case, certain holding period and other limitations
may apply.
Sale or Other Disposition of Common Stock
Gain or loss realized by a United States Holder on the sale or other
disposition of our common stock received upon conversion of a note will be
capital gain or loss for U.S. federal income tax purposes, and will be long-term
capital gain or loss if the United States Holder held the common stock for more
than one year. The amount of the United States Holder's gain or loss will be
equal to the difference between the United States Holder's adjusted tax basis in
the common stock disposed of and the amount realized on the disposition. A
United States Holder who sells the stock at a loss that meets certain thresholds
may be required to file a disclosure statement with the IRS.
Tax Consequences to Non-United States Holders
As used herein, the term "Non-United States Holder" means a beneficial
owner of a note or our common stock that is, for U.S. federal income tax
purposes:
o an individual who is classified as a nonresident alien for
U.S. federal income tax purposes;
o a foreign corporation; or
o a foreign estate or trust.
Payments on and Gain or Loss on Sale or Conversion of Notes
All payments on the notes made to a Non-United States Holder, including
a payment in our common stock or cash pursuant to a conversion, exchange or
retirement of a note and any gain realized on a sale of the notes, will be
exempt from U.S. federal income and withholding tax, provided that:
o the Non-United States Holder does not own, actually or
constructively (pursuant to the conversion feature or
otherwise), 10% or more of the total combined voting power of
all classes of our stock entitled to vote and is not a
controlled foreign corporation related, directly or
indirectly, to us through stock ownership and is not a bank
receiving certain types of interest;
o the certification requirement described below has been
fulfilled with respect to the Non-United States Holder;
o such payments are not effectively connected with the conduct
by such Non-United States Holder of a trade or business in the
United States;
o in the case of a sale, conversion, exchange or retirement of
the notes, such Non-United States Holder is not an individual
who is present in the United States for 183 days or more in
the taxable year of disposition or certain other conditions
are not met;
o our common stock continues to be, and the notes are, actively
traded within the meaning of section 871(h)(4)(C)(v)(1) of the
Code (which, for these purposes and subject to certain
exceptions, includes trading on the Nasdaq National Market);
and
o in the case of gain realized on the sale, conversion, exchange
or retirement of the notes, we are not, and have not been
within the shorter of the five-year period preceding such
sale, conversion, exchange or retirement and the period during
which the Non-United States Holder held the notes, a U.S. real
property holding corporation. We believe that we are currently
not a U.S. real property holding corporation for U.S. federal
income tax purposes, but there is no assurance that we will
not become one in the future. If we become a U.S. real
property holding corporation, any gain realized on the sale,
-42-
conversion, exchange or retirement of a note by a Non-United
States Holder will be subject to U.S. federal income tax if
our stock is no longer regularly traded on an established
securities market (as defined in the applicable Treasury
regulations).
The certification requirement referred to above will be fulfilled if
the beneficial owner of a note certifies on IRS Form W-8BEN (or suitable
successor form), under penalties of perjury, that it is not a U.S. person and
provides its name and address. If a Non-United States Holder of a note is
engaged in a trade or business in the United States, and if payments on the
note, or any gain realized on the sale, conversion, exchange or retirement of
the note, are effectively connected with the conduct of this trade or business,
the Non-United States Holder, although exempt from U.S. withholding tax, will
generally be taxed in the same manner as a United States Holder (see "Tax
Consequences to United States Holders" above), except that the Non-United States
Holder will be required to provide a properly executed IRS Form W-8ECI (or
suitable successor form) in order to claim an exemption from withholding tax.
These Non-United States Holders should consult their own tax advisors with
respect to other tax consequences of the ownership of the notes, including the
possible imposition of a branch profits tax at 30% (or at a reduced rate under
an applicable tax treaty) for corporate Non-United States Holders.
Constructive Dividends
If a Non-United States Holder were deemed to have received a
constructive dividend (see "-Tax Consequences to United States
Holders-Constructive Dividends" above), the Non-United States Holder generally
will be subject to withholding tax at a 30% rate, subject to reduction by an
applicable tax treaty, on the taxable amount of the dividend. To claim the
benefit of a tax treaty, a Non-United States Holder must comply with all
certification requirements necessary to qualify for treaty benefits. It is
possible that U.S. federal tax on the constructive dividend would be withheld
from the interest paid to the Non-United States Holders of the notes. A
Non-United States Holder who is subject to withholding tax under such
circumstances should consult its own tax advisor as to whether it can obtain a
refund for all or a portion of the withholding tax.
Common Stock
Dividends paid to a Non-United States Holder on our common stock
generally will be subject to U.S. withholding tax at a 30% rate, subject to
reduction under an applicable treaty. In order to obtain a reduced rate of
withholding, a Non-United States Holder will be required to provide a properly
executed IRS Form W-8BEN (or suitable successor form) certifying its entitlement
to benefits under a treaty. A Non-United States Holder who is subject to
withholding tax under such circumstances should consult its own tax advisor as
to whether it can obtain a refund for all or a portion of the withholding tax.
If a Non-United States Holder of our common stock is engaged in a trade
or business in the United States, and if the dividends (or constructive
dividends, see "Constructive Dividends" above) are effectively connected with
the conduct of this trade or business, the Non-United States Holder, although
exempt from U.S. withholding tax, will generally be taxed in the same manner as
a United States Holder (see "Tax Consequences to United States Holders" above),
except that the Non-United States Holder will be required to provide a properly
executed IRS Form W-8ECI (or suitable successor form) in order to claim an
exemption from withholding tax. These Non-United States Holders should consult
their own tax advisors with respect to other tax consequences of the ownership
of our common stock, including the possible imposition of a branch profits tax
at 30% (or at a reduced rate under an applicable tax treaty) for corporate
Non-United States Holders.
A Non-United States Holder generally will not be subject to U.S.
federal income and withholding tax on gain realized on a sale or other
disposition of the common stock received upon a conversion of a note, unless:
o the gain is effectively connected with the conduct by such
Non-United States Holder of a trade or business in the United
States,
o in the case of a Non-United States Holder who is a nonresident
alien individual, the individual is present in the United
States for 183 or more days in the taxable year of the
disposition and certain other conditions are met, or
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o we are or have been a U.S. real property holding corporation
at any time within the shorter of the five year period
preceding such sale, exchange or disposition and the period
during which the Non-United States Holder held the common
stock. We believe that we are currently not a U.S. real
property holding corporation for U.S. federal income tax
purposes, but there is no assurance that we will not become
one in the future. If we become a U.S. real property holding
corporation, any gain realized on the sale or exchange of the
common stock by a Non-United States Holder will be subject to
U.S. federal income tax if our stock is no longer regularly
traded on an established securities market (as defined in the
applicable Treasury regulations).
If a Non-United States Holder of our common stock is engaged in a trade
or business in the United States, and if the gain on the common stock is
effectively connected with the conduct of this trade or business, the Non-United
States Holder will generally be taxed in the same manner as a United States
Holder (see "Tax Consequences to United States Holders" above). These Non-United
States Holders should consult their own tax advisors with respect to other tax
consequences of the disposition of the common stock, including the possible
imposition of a branch profits tax at 30% (or at a reduced rate under an
applicable tax treaty) for corporate Non-United States Holders.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS in connection with
payments on the notes, the common stock and the proceeds from a sale or other
disposition of the notes or the common stock. A United States Holder may be
subject to United States backup withholding tax on these payments if it fails to
provide its taxpayer identification number to the paying agent and comply with
certification procedures or otherwise establish an exemption from backup
withholding. A Non-United States Holder may be subject to United States
information reporting and backup withholding tax on these payments unless the
Non-United States Holder complies with certification procedures to establish
that it is not a U.S. person. The certification procedures required of
Non-United States Holders to claim the exemption from withholding tax on certain
payments on the notes, described above, will satisfy the certification
requirements necessary to avoid the backup withholding tax as well. The amount
of any backup withholding from a payment will be allowed as a credit against the
holder's U.S. federal income tax liability and may entitle the holder to a
refund, provided that the required information is timely furnished to the IRS.
-44-
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement to Morgan Stanley
& Co. Incorporated, J.P. Morgan Securities, Inc., Adams, Harkness & Hill, Inc.,
RBC Capital Markets Corporation, and Stephens Inc., as initial purchasers, on
June 1, 2004 pursuant to Section 4(2) of the Securities Act. The notes were
resold by the initial purchasers to qualified institutional buyers under Rule
144A under the Securities Act. Those purchasers may have made subsequent
transfers of the notes to purchasers that are qualified institutional buyers
pursuant to Rule 144A. We have no knowledge whether the selling securityholders
listed below received the notes on the initial distribution or through
subsequent transfers after the close of the initial private placement. Upon
request by a selling securityholder following the effectiveness of the
registration statement of which this prospectus is a part, we will file a
prospectus supplement naming those transferees, donees or pledgees or their
successors who are able to offer and sell the notes and the underlying common
stock pursuant to this prospectus. We have included as Annex A a form of notice
and questionnaire to be completed and delivered by a holder interested in
selling notes or common stock pursuant to this prospectus.
The following table sets forth information that we have received
through February 2, 2005 regarding the principal amount of notes and the
underlying common stock, beneficially owned by each selling securityholder, that
may be offered using this prospectus. Information with respect to selling
security holders and beneficial ownership of the notes is based upon information
provided by or on behalf of the selling securityholders. Unless otherwise
described below, no selling securityholder nor any of its affiliates is a
broker-dealer, has held any position or office with, been employed by or
otherwise has had any material relationship with us or our affiliates during the
three years prior to the date of this prospectus. No selling securityholder that
is a broker-dealer acquired the notes as compensation for underwriting
activities, purchased the securities outside of the ordinary course of business
or, at the time of the purchase of the securities, had any agreements or
understandings, directly or indirectly, with any person to distribute the
securities. Selling securityholders that are affiliates of broker-dealers
purchased the securities in the ordinary course of business and at the time of
the purchase of the securities, had no agreements or understandings, directly or
indirectly, with any person to distribute the securities.
A selling securityholder may offer all, some or none of the notes or
the shares of the common stock issuable upon conversion of the notes.
Accordingly, no estimate can be given as to the amount or percentage of the
notes or our common stock that will be held by the selling securityholders upon
termination of sales pursuant to this prospectus. In addition, the selling
securityholders identified below may have sold, transferred or disposed of all
or a portion of their notes since the date on which they provided the
information regarding their holdings in transactions exempt from the
registration requirements of the Securities Act. Information about the selling
securityholders may change over time. Changed information regarding selling
securityholders will be set forth in an amendment to the registration statement,
of which this prospectus is a part, or a supplement to this prospectus, as
required by law.
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Principal Amount Number of
of Notes Number of Shares Shares of Percentage of
Beneficially Percentage of of Common Stock Common Stock Common Stock
Owned that may be Notes Beneficially that may be Outstanding (%)
Name Offered ($) Outstanding (%) Owned Offered (1) (2) (38)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Advisory Convertible 1,500,000 * 50,000 50,000 *
Arbitrage Fund (I),
L.P. (3)(4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Argent Classic Convertible 5,230,000 3.0 174,333 174,333 *
Arbitrage Fund
(Bermuda) Ltd. (5)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Argent Classic Convertible 1,100,000 * 36,667 36,667 *
Arbitrage Fund L.P. (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
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- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Principal Amount Number of
of Notes Number of Shares Shares of Percentage of
Beneficially Percentage of of Common Stock Common Stock Common Stock
Owned that may be Notes Beneficially that may be Outstanding (%)
Name Offered ($) Outstanding (%) Owned Offered (1) (2) (38)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Argent Classic Convertible 210,000 * 7,000 7,000 *
Arbitrage Fund II, L.P.
(6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Argent LowLev Convertible 550,000 * 18,333 18,333 *
Arbitrage Fund, LLC (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Argent LowLev Convertible 20,000 * 667 667 *
Arbitrage Fund II, LLC
(6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Argent LowLev Convertible 5,310,000 3.1 177,000 177,000 *
Arbitrage Fund Ltd. (5)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
BNP Paribas Equity 4,128,000 2.4 137,600 137,600 *
Strategies, SNC (7) (4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
BP Amoco PLC Master Trust 1,365,000 * 45,500 45,500 *
(8)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
CIBC World Markets (9) 1,100,000 * 36,667 36,667 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Class C Trading Company, 280,000 * 9,333 9,333 *
Ltd. (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Clinton Multistrategy 5,400,000 3.1 180,000 180,000 *
Master Fund, Ltd. (10)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Clinton Riverside 1,800,000 1.0 60,000 60,000 *
Convertible Portfolio
Limited (10)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
CNH CA Master Account, 4,500,000 2.6 150,000 150,000 *
L.P. (11)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
CooperNeff Convertible 3,359,000 1.9 111,967 111,967 *
Strategies (Cayman)
Master Fund, LP (7)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Credit Suisse First 30,000 * 1,000 1,000 *
Boston, LLC (12) (4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
CSS, LLC (9) 2,000,000 1.2 66,667 66,667 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Custom Investments PCC, 150,000 * 5,000 5,000 *
Ltd. (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
DBAG London (13)(4) 6,525,000 3.8 217,500 217,500 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Deutsche Bank Securities, 2,250,000 1.3 75,000 75,000 *
Inc. (9)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
DKR Soundshore Opportunity 1,000,000 * 33,333 33,333 *
Holding Fund Ltd. (14)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
The Drake Offshore Master 13,000,000 7.5 433,333 433,333 1.3
Fund, Ltd. (15)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Family Service Life 150,000 * 5,000 5,000 *
Insurance Co. (16) (4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
-46-
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Principal Amount Number of
of Notes Number of Shares Shares of Percentage of
Beneficially Percentage of of Common Stock Common Stock Common Stock
Owned that may be Notes Beneficially that may be Outstanding (%)
Name Offered ($) Outstanding (%) Owned Offered (1) (2) (38)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Fore Convertible 2,299,000 1.3 76,633 76,633 *
MasterFund, Ltd. (17)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Fore Plan Asset Fund, Ltd. 218,000 * 7,267 7,267 *
(17)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
FrontPoint Convertible 2,000,000 1.2 66,667 66,667 *
Arbitrage Fund, L.P.
(18)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Global Bermuda Limited 700,000 * 23,333 23,333 *
Partnership (19)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Grace Brothers, Ltd. (20) 1,000,000 * 33,333 33,333 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Grace Convertible 7,000,000 4.1 233,333 233,333 *
Arbitrage Fund, Ltd. (20)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Guardian Life Insurance 5,700,000 3.3 190,000 190,000 *
Co. (16) (4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Guardian Pension Trust 400,000 * 13,333 13,333 *
(16) (4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
HFR CA Global Select 180,000 * 6,000 6,000 *
Master Trust Account (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Hotel Union and Hotel 372,000 * 12,400 12,400 *
Industry of Hawaii
Pension Plan (8)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
ING Convertible Fund (21) 2,000,000 1.2 66,667 66,667 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
ING VP Convertible 50,000 * 1,667 1,667 *
Portfolio (21)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Institutional Benchmarks 1,614,000 * 53,800 53,800 *
Master Fund Ltd. (8)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
KBC Financial Products USA 2,500,000 1.4 83,333 83,333 *
Inc. (22) (9)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Lakeshore International, 2,800,000 1.6 93,333 93,333 *
Ltd. (19)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
LDG Limited (23) 382,000 * 12,733 12,733 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Lexington Vantage Fund c/o 30,000 * 1,000 1,000 *
TQA Investors, LLC (7)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Lighthouse Multi-Strategy 150,000 * 5,000 5,000 *
Master Fund, Ltd. (24)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Lyxor/Convertible 700,000 * 23,333 23,333 *
Arbitrage Fund Limited (7)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
-47-
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Principal Amount Number of
of Notes Number of Shares Shares of Percentage of
Beneficially Percentage of of Common Stock Common Stock Common Stock
Owned that may be Notes Beneficially that may be Outstanding (%)
Name Offered ($) Outstanding (%) Owned Offered (1) (2) (38)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Lyxor Master Fund Ref: 560,000 * 18,667 18,667 *
Argent/LowLev CB c/o
Argent (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Lyxor/Quest Fund Ltd. (24) 300,000 * 10,000 10,000 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Man Mac 1 Ltd. c/o Fore 851,000 * 28,367 28,367 *
Research & Management,
LP (25)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
McMahan Securities Co. 500,000 * 16,667 16,667 *
L.P. (26) (9)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Mohican VCA Master Fund 600,000 * 20,000 20,000 *
(27)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
MSS Convertible Arbitrage 19,000 * 633 633 *
1 c/o TQA Investors,
LLC (23)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Newport Alternative Income 1,680,000 * 56,000 56,000 *
Fund (28)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Park Avenue Life Insurance 50,000 * 1,667 1,667 *
Co. (16) (4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Partners Group Alternative 370,000 * 12,333 12,333 *
Strategies PCC LTD (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Quest Global Convertible 300,000 * 10,000 10,000 *
Fund Ltd (24)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Ritchie Convertible 430,000 * 14,333 14,333 *
Arbitrage Trading (29)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Royal Bank of Canada (30) 2,250,000 1.3 75,000 75,000 *
(4)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
S.A.C. Capital Associates, 2,000,000 1.2 66,667 66,667 *
LLC (31)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Sagamore Hill Hub Fund 4,000,000 2.3 133,333 133,333 *
Ltd. (32)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Silvercreek II Limited (28) 4,410,000 2.6 147,000 147,000 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Silvercreek Limited 5,910,000 3.4 197,000 197,000 *
Partnership (28)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Silver Convertible 360,000 * 12,000 12,000 *
Arbitrage Fund, LDC (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Singlehedge US Convertible 963,000 * 32,100 32,100 *
Arbitrage Fund (7)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Sphinx Convertible 1,800,000 1.0 60,000 60,000 *
Arbitrage (Clinton)
Segregated Portfolio (9)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
-48-
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Principal Amount Number of
of Notes Number of Shares Shares of Percentage of
Beneficially Percentage of of Common Stock Common Stock Common Stock
Owned that may be Notes Beneficially that may be Outstanding (%)
Name Offered ($) Outstanding (%) Owned Offered (1) (2) (38)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Sphinx Convertible Arb 894,000 * 29,800 29,800 *
Fund SPC (8)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Sphinx Fund c/o TQA 436,000 * 14,533 14,533 *
Investors, LLC (22)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
SSI Blended Market Neutral 747,000 * 24,900 24,900 *
L.P (8)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
SSI Hedged Convertible 972,000 * 32,400 32,400 *
Market and Neutral L.P.
(8)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Sturgeon Limited (7) 850,000 * 28,333 28,333 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
TQA Master Fund, Ltd. (23) 3,153,000 1.8 105,100 105,100 *
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
TQA Master Plus Fund, Ltd. 5,538,000 3.2 184,600 184,600 *
(23)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
UBS AG London (33) 11,000,000 6.4 366,666 366,666 1.1
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Value Line Convertible 300,000 * 10,000 10,000 *
Fund, Inc. (34)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Viacom Inc. Pension Plan 36,000 * 1,200 1,200 *
Master Trust (8)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Wachovia Securities 7,500,000 4.3 250,000 250,000 *
International Ltd. (9)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Waterstone Market Neutral 1,916,000 1.1 63,867 63,867 *
Masterfund, Ltd. (35)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Waterstone Market Neutral 978,000 * 32,600 32,600 *
MAC 51, Ltd. (35)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Xavex-Convertible 150,000 * 5,000 5,000 *
Arbitrage 2 Fund (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Xavex-Convertible 744,000 * 24,800 24,800 *
Arbitrage 7 Fund c/o
TQA Investors, LLC (23)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Xavex-Convertible 470,000 * 15,667 15,667 *
Arbitrage 10 Fund c/o
Argent (6)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Zazore Convertible 3,000,000 1.7 100,000 100,000 *
Arbitrage Fund L.P. (36)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Zurich Institutional 611,000 * 20,367 20,367 *
Benchmarks Master Fund
Ltd. c/o TQA Investors,
LLC (23)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
-49-
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Principal Amount Number of
of Notes Number of Shares Shares of Percentage of
Beneficially Percentage of of Common Stock Common Stock Common Stock
Owned that may be Notes Beneficially that may be Outstanding (%)
Name Offered ($) Outstanding (%) Owned Offered (1) (2) (38)
- ---------------------------- ------------------- ----------------- ------------------ ----------------- -----------------
Unidentified Selling 14,800,000 8.6 493,333 493,333 1.4
Securityholders or
future transferees,
pledgees, donees or
successors and such
holders (37)
- -------------------------------------------------------------------------------------------------------------------
* Less than 1%.
(1) Assumes conversion of all of the holder's notes at a conversion
rate of 33.3333 shares of common stock per $1,000 principal amount of notes.
However, this conversion rate will be subject to adjustment as described under
"Description of Notes - Conversion of Notes." As a result, the number of shares
of common stock issuable upon conversion of the notes may increase or decrease
in the future.
(2) Calculated based on Rule 13d-3(d)(i), using 33,586,430 shares of
common stock outstanding as of June 30, 2004. In calculating this amount for
each holder, we treated as outstanding the number of shares of common stock
issuable upon conversion of all that holder's notes, but we did not assume
conversion of any other holder's notes.
(3) The managing member of the limited partnership is Advisory Capital
Strategies Group, Inc., which is majority owned by American Express Asset
Management Group, Inc., which is part of American Express Company, a publicly
held company.
(4) The selling securityholder is an affiliate of a registered
broker-dealer.
(5) Mr. Henry J. Cox has sole voting power over these notes and the
shares of common stock issuable upon conversion of these notes.
(6) Messrs. Nathanial Brown and Robert Richardson exercise voting and
investment control over these notes and the shares of common stock issuable upon
conversion of these notes.
(7) Mr. Christian Menestoer has sole voting power over these notes and
the shares of common stock issuable upon conversion of these notes.
(8) Messrs. George Douglas and John Gottfurcht and Ms. Amy Jo
Gottfurcht exercise voting and investment control over these notes and the
shares of common stock issuable upon conversion of these notes.
(9) The selling securityholder is a registered broker-dealer.
(10) Mr. Michael Vacca has sole voting power over these notes and the
shares of common stock issuable upon conversion of these notes.
(11) Messrs. Robert Krail, Mark Mitchell and Todd Pulvino exercise
voting power and investment control over these notes and the shares of common
stock issuable upon conversion of these notes.
(12) Mr. Gerry Murtalgo has sole voting power over these notes and the
shares of common stock issuable upon conversion of these notes.
-50-
(13) Mr. Patrick Corrigan has sole voting power over these notes and
the shares of common stock issuable upon conversion of these notes.
(14) The investment manager of the selling securityholder is DKR
Capital Partners L.P., a registered investment adviser.
(15) Ms. Stacey Feller has sole voting power over these notes and the
shares of common stock issuable upon conversion of these notes.
(16) Mr. John Murphy has sole voting power over these notes and the
shares of common stock issuable upon conversion of these notes. The selling
security holder is an affiliate of Park Avenue Securities and Guardian Investor
Services LLC, which are registered broker-dealers and indirect, wholly-owned
subsidiaries of the Guardian Life Insurance Co. of America.
(17) Mr. David Egglishaw has sole voting power over these notes and the
shares of common stock issuable upon conversion of these notes.
(18) Messrs. Philip Duff, W. Gillespie Caffray and Paul Ghaffari
exercise voting and investment control over these notes and the shares of common
stock issuable upon conversion of these notes.
(19) Messrs. Michael Frey and John Brandenburg exercise voting power
and investment control over these notes and the shares of common stock issuable
upon conversion of these notes.
(20) Messrs. Michael Brailn and Bradford Whitmore exercise voting power
and investment control over these notes and the shares of common stock issuable
upon conversion of these notes.
(21) The investment manager of the selling securityholder is ING
Investments, LLC, a registered investment adviser.
(22) Mr. Luke Edwards exercises sole voting and investment control over
these notes and the shares of common stock issuable upon conversion of these
notes. The selling securityholder is a registered broker-dealer.
(23) Messrs. Robert Butman, John Idona, George Esser, Paul Bucci and
Bartholomew Tesoriero exercise voting and investment control over these notes
and the shares of common stock issuable upon conversion of these notes.
(24) Messrs. James Dodlin and Frank Campana exercise voting and
investment control over these notes and the shares of common stock issuable upon
conversion of these notes.
(25) Man-Diversified Fund II Ltd. is the controlling entity of Man Mac
1 Ltd. The manager shares of Man-Diversified II Ltd. are owned 75% by Albany
Management Company Limited and 25% by Man Holdings Limited. The registered
shareholder of Albany Management Company Limited is Argonaut Limited, a Bermuda
company which is controlled by Michael Collins, a resident of Bermuda. Man
Holdings Limited is a subsidiary of Man Group plc, which is a publicly traded
company listed on the London Stock Exchange.
(26) Messrs. D. Bruce McMahan, Jay T. Glassman, Norman L. Ziegler,
Scott Dillinger and Ronald P. Fertig and Ms. Patricia Ramsom exercise voting and
investment control over these notes and the shares of common stock issuable upon
conversion of these notes. The selling securityholder is a registered
broker-dealer.
(27) Messrs. Eric Hage and Daniel Hage exercise voting and investment
control over these notes and the shares of common stock issuable upon conversion
of these notes.
(28) Ms. Louis Morwick and Ms. Bryn Joynt exercise voting and
investment control over these notes and the shares of common stock issuable upon
conversion of these notes.
(29) Thane Ritchie exercises voting and investment control over these
notes and the shares of common stock issuable upon conversion of these notes.
-51-
(30) The selling securityholder is required to file periodic reports
with the SEC pursuant to Section 15(d) of the Securities Exchange Act of 1934.
(31) Pursuant to investment agreements, each of S.A.C. Capital
Advisors, LLC, a Delaware limited liability company ("SAC Capital Advisors"),
and S.A.C. Capital Management, LLC, a Delaware limited liability company ("SAC
Capital Management") share all investment and voting power with respect to the
securities held by S.A.C. Capital Associates, LLC. Mr. Steven A. Cohen controls
both SAC Capital Advisors and SAC Capital Management. Each of SAC Capital
Advisors, SAC Capital Management and Mr. Cohen disclaim beneficial ownership of
any of these notes and the shares of common stock issuable upon conversion of
these notes.
(32) Mr. Steve Bloom exercises voting and investment control over these
notes and the shares of common stock issuable upon conversion of these notes.
(33) Mr. Dominic Lynch exercises voting and investment control over
these notes and the shares of common stock issuable upon conversion of these
notes.
(34) The selling securityholder is a registered investment fund.
(35) Mr. Shawn Bergerson has sole voting power and investment control
over these notes and the shares of common stock issuable upon conversion of
these notes.
(36) Mr. Gene T. Pretti exercises voting and investment control over
these notes and the shares of common stock issuable upon conversion of these
notes.
(37) Information about other selling securityholders, who are currently
unknown to us, will be set forth in a pre-effective or post-effective amendment
to the registration statement of which this prospectus is a part, to the extent
that any such securityholder notifies us pursuant to the registration rights
agreement of its intent to dispose of notes pursuant to the registration
statement.
(38) Assumes that any other holders of notes, or their future
transferees, pledgees or donees or their successors, do not beneficially own any
common stock other than the common stock issuable upon conversion of the notes
at the initial conversion rate.
-52-
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and
the underlying common stock offered by this prospectus. The notes and the
underlying common stock may be sold from time to time to purchasers:
o directly by the selling securityholders; or
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 notes and the underlying common stock.
The selling securityholders who are broker-dealers and those
broker-dealers or agents who participate in the distribution of the notes and
the underlying common stock on behalf of selling securityholders are deemed to
be "underwriters" within the meaning of the Securities Act. As a result, any
profits on the sale of the underlying common stock by selling securityholders
who are broker dealers and any discounts, commissions or concessions received by
broker-dealers or agents on behalf of selling securityholders are deemed to be
underwriting discounts and commissions under the Securities Act. If the selling
securityholders are deemed to be underwriters, the selling securityholders may
be subject to certain statutory liabilities as underwriters under the Securities
Act and the Exchange Act.
If the notes and the 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 notes and the 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 notes 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 the sales of the notes and the 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 notes and the underlying common stock in the course of
hedging their positions. The selling securityholders may also sell the notes and
the underlying common stock short and deliver notes and the underlying common
stock to close out short positions, or loan or pledge notes and the underlying
common stock to broker-dealers that in turn may sell the notes and the
underlying common stock.
-53-
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 notes and the underlying common
stock by the selling securityholders. We cannot assure you that any selling
securityholder will sell any or all of the notes or the underlying common stock
offered by them pursuant to this prospectus. Any notes 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. In addition, we cannot assure you that any
selling securityholder will not transfer, devise or gift the notes and the
underlying common stock by other means not described in this prospectus.
Our common stock trades on the Nasdaq National Market under the symbol
"HDWR." We do not intend to apply for listing of the notes on any securities
exchange or for quotation through the Nasdaq National Market. Accordingly, no
assurance can be given as to the development of liquidity or any trading market
for the notes.
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 notes and the underlying common stock by the
selling securityholders and any such other person. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the notes 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 notes and the underlying
common stock and the ability of any person or entity to engage in market-making
activities with respect to the notes and the underlying common stock.
Any selling securityholder that is a registered broker-dealer is an
"underwriter" within the meaning of Section 2(11) of the Securities Act.
Advisory Convertible Arbitrage Fund, BNP Paribas Equity Strategies, SNC, CIBC
World Markets, Credit Suisse First Boston LLC, CSS LLC, Deutsche Bank
Securities, Inc., Family Service Life Insurance Co., Guardian Life Insurance
Co., Guardian Pension Trust, KBC Financial Products USA Inc., McMahan Securities
Co. LP, Park Avenue Life Insurance Co. and Royal Bank of Canada are the only
selling securityholders that are registered broker-dealers or affiliates
thereof. We do not have a material relationship with any of these entities, and
none of these entities has the right to designate or nominate a member or
members of our board of directors. These securityholders did not purchase their
notes directly from us, and we are not aware of any underwriting plan or
agreement, underwriters' or dealers' compensation, or passive market making or
stabilizing transactions involving the purchase or distribution of these
securities by these securityholders.
Pursuant to the registration rights agreement that has been
incorporated by reference as an exhibit to this registration statement, we and
the selling securityholders will each indemnify the other against specified
liabilities, including 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 underlying common stock to the public
other than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The validity of notes and common stock offered by this prospectus is
being passed upon for us by Pillsbury Winthrop LLP, San Francisco, California
and New York, New York.
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, has
audited our consolidated financial statements included in our Annual Report on
Form 10-K for the year ended September 30, 2004, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. Our consolidated financial statements are incorporated
by reference in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
-54-
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements, and
other information with the Securities and Exchange Commission. You may read and
copy any materials we file with the Commission at the Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Commission at 1-800-SEC-0330 for more information on its public reference
room. The Commission also maintains an Internet website at http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
We have filed with the Commission a registration statement that
contains this prospectus on Form S-3 (Regeneration No. 333-117492) under the
Securities Act of 1933. The registration statement relates to the notes and the
common stock issuable on conversion of the notes offered by the selling
securityholders. This prospectus is part of the registration statement and
includes and incorporates by reference additional information and exhibits.
Please refer to the registration statement and its exhibits and schedules for
further information with respect to the Company, the notes and the common stock.
You may read and obtain a copy of the registration statement and its exhibits
and schedules from the Commission, as described in the preceding paragraph.
We have not authorized anyone to provide you with information or to
represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. The selling securityholders are
offering to sell, and seeking offers to buy, only the notes and the underlying
shares of common stock covered by this prospectus, and only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date, regardless of the time of
delivery of this prospectus or of any sale of notes or the underlying shares of
common stock.
-55-
DOCUMENTS INCORPORATED BY REFERENCE
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be a part of this prospectus, and later information that we
file with the Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the Commission under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 between the date of the initial
filing of the post-effective amendment to the registration statement of which
this prospectus is a part and the effectiveness of the post-effective amendment,
as well as between the date of this prospectus and the time this offering is
completed. The documents we incorporate by reference are:
o Our Annual Report on Form 10-K for the fiscal year ended
September 30, 2004.
o Our Current Reports on Form 8-K, filed with the SEC on
November 10 (other than with respect to Items 2.02 and 7.01
and Exhibit 99.1 thereto), and on Form 8-K/A filed with the
SEC on December 7 and 13, 2004.
o The description of our common stock contained in our amended
Annual Report on Form 10-K/A, filed with the SEC on April 24,
1996.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and number:
Investor Relations
Headwaters Incorporated
10653 South River Front Parkway, Suite 300
South Jordan, UT 84095
(801) 984-9400
-56-
ANNEX A
HEADWATERS INCORPORATED
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial holder of 2-7/8% Convertible Senior
Subordinated Notes due 2014 (the "Notes") of Headwaters Incorporated (the
"Company") or shares of common stock, par value $.001 (the "Common Stock" and,
together with the Notes, the "Registrable Securities"), of the Company issuable
upon conversion of the Notes understands that the Company has filed with the
Securities and Exchange Commission (the "SEC") a registration statement on Form
S-3 (the "Shelf Registration Statement") for the registration and resale under
Rule 415 of the Securities Act of 1933 (the "Securities Act"), of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement (the "Registration Rights Agreement"), dated as of June 1, 2004
between the Company and the Initial Purchasers named therein. The Registration
Rights Agreement is available from the Company upon request at the address set
forth below. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement.
Each beneficial owner of Registrable Securities is entitled to the
benefits of the Registration Rights Agreement. In order to sell or otherwise
dispose of any Registrable Securities pursuant to the Shelf Registration
Statement, a beneficial owner of Registrable Securities generally will be
required to be named as a selling securityholder in the related prospectus,
deliver a prospectus to purchasers of Registrable Securities and be bound by
those provisions of the Registration Rights Agreement applicable to such
beneficial owner (including certain indemnification provisions as described
below). Beneficial owners are encouraged to complete and deliver this Notice and
Questionnaire prior to the effectiveness of the Shelf Registration Statement so
that such beneficial owners may be named as selling securityholders in the
related prospectus at the time of effectiveness. Upon receipt of a completed
Notice and Questionnaire from a beneficial owner following the effectiveness of
the Shelf Registration Statement, the Company will within 15 business days of
such receipt or within 15 business days of the end of any suspension period file
such amendments to the Shelf Registration Statement or supplements to the
related prospectus as are necessary to permit such holder to deliver such
prospectus to purchasers of Registrable Securities.
Certain legal consequences arise from being named as selling
securityholders in the Shelf Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Shelf Registration
Statement and the related prospectus.
Notice
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby gives notice to the Company of its intention to
sell or otherwise dispose of Registrable Securities beneficially owned by it and
listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the
Shelf Registration Statement. The undersigned, by signing and returning this
Notice and Questionnaire, understands that it will be bound by the terms and
conditions of this Notice and Questionnaire and the Registration Rights
Agreement.
Pursuant to the Registration Rights Agreement, the undersigned has
agreed to indemnify and hold harmless the Company's directors and officers and
each person, if any, who controls the company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934 (the "Exchange Act"), from and against certain losses arising in connection
with statements concerning the undersigned made in the Shelf Registration
Statement or the related prospectus in reliance upon the information provided in
this Notice and Questionnaire.
The undersigned hereby provides the following information to the
Company and represents and warrants that such information is accurate and
complete.
-1-
Questionnaire
1. (a) Full legal name of Selling Securityholder:
_______________________________________________________________________
(b) Full legal name of Registered Holder (if not the same as (a) above)
through which Registrable Securities listed in Item (3) below are held:
_______________________________________________________________________
(c) Full legal name of the broker-dealer or other third party through which
Registrable Securities listed in (3) below are held:
_______________________________________________________________________
(d) Full legal name of the Depository Trust Company participant (if
applicable and if not the same as (b) above) through which Registrable
Securities listed in (3) below are held:
_______________________________________________________________________
(e) If Selling Securityholder is not, and is not a wholly-owned subsidiary
of a company that is, required to file periodic and other reports
(e.g., Forms 10-K, 10-Q, 8-K) with the SEC pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (including a registered
investment fund under the Investment Advisers Act of 1940), please
provide, as indicated below, the name(s) and address(es) of the natural
person or persons that have voting and investment control over the
Registrable Securities, indicating in each case whether sole or shared:
-2-
- -----------------------------------------------------------------------------------------------------------------
Number of Securities over Which Such Person(s) Have:
------------------------------------------------------------------------
Name(s) Type of Shared
Registrant's Sole Voting Sole Investment Shared Voting Investment
Securities Control Control Control Control
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
- ----------------------- ---------------- ----------------- ----------------- ----------------- ------------------
(f) If the Selling Securityholder has transferred any Registrable
Securities, please provide the name and contact information of the
transferee and the amount of Registrable Securities transferred:
_______________________________________________________________________
-3-
Unless otherwise indicated in the space provided below, all Notes and
all shares of Common Stock listed in response to Item (1)(e) above, and
all shares of Common Stock issuable upon conversion of the Notes listed
in response to Item (1)(e) above, will be included in the Shelf
Registration Statement. If the undersigned does not wish all such Notes
and or shares of Common Stock to be so included, please indicate below
the principal amount or the number of shares to be included:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
-4-
2. Address for Notices to Selling Securityholder:_________________________
_______________________________________________________________________
_______________________________________________________________________
Telephone, including area code:________________________________________
Fax, including area code:______________________________________________
Contact Person:________________________________________________________
3. Beneficial Ownership of the Company securities owned by the Selling
Securityholder:
Except as set forth below in this Item (3), the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item (1).
(a) Type and Amount of other Company securities beneficially owned by
the Selling Securityholder:
_______________________________________________________________________
_______________________________________________________________________
(b) CUSIP No(s). of such other Company securities beneficially owned:
_______________________________________________________________________
_______________________________________________________________________
4. Relationship with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (5% or
more) has held any position or office or has had any other material
relationship with the Company (or its predecessors or affiliates)
during the past three years.
State any exceptions here:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5. (a) Is the Selling Securityholder a registered broker-dealer?
_______________________________________________________________________
(b) If the answer to Item 5(a) is yes, did the Selling Securityholder
acquire the Registrable Securities as compensation for placement
agent or investment banking services to the Company (if yes,
please explain)?
_______________________________________________________________________
_______________________________________________________________________
-5-
(c) Is the Selling Securityholder an affiliate of a registered
broker-dealer(s)? (For purposes of this response, an "affiliate"
of, or person "affiliated" with, a specified person, is a person
that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the
person specified.)
_______________________________________________________________________
_______________________________________________________________________
(d) If the answer to Item 5(c) is yes, identify the registered
broker-dealer(s) and describe the nature of the affiliation(s):
_______________________________________________________________________
_______________________________________________________________________
(e) If the answer to Item 5(c) is yes, did the Selling Securityholder
acquire the Registrable Securities in the ordinary course of
business (if not, please explain)?
_______________________________________________________________________
_______________________________________________________________________
(f) If the answer to Item 5(c) is yes, did the Selling Securityholder,
at the time of purchase of the Registrable Securities, have any
agreements, understandings or arrangements, directly or indirectly,
with any person to distribute the Registrable Securities (if yes,
please explain)?
_______________________________________________________________________
_______________________________________________________________________
-6-
6. Plan of distribution:
_______________________________________________________________________
Except as set forth below, the undersigned (including its donees or
pledgees) intends to distribute the Registrable Securities listed above
in Item (1) pursuant to the Shelf Registration Statement only as
follows (if at all): Such Registrable Securities may be sold from time
to time directly by the undersigned or alternatively through
underwriters or broker-dealers or agents. If the Registrable Securities
are sold through underwriters or broker-dealers, the Selling
Securityholder will be responsible for underwriting discounts or
commissions or agents' commissions and their professional fees. Such
Registrable Securities may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale, or at negotiated prices. Such
sales may be effected in transactions (which may involve block
transactions) (i) on any national securities exchange or quotation
service on which the Registrable Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market or (iii) in
transactions otherwise than on such exchanges or services or in the
over-the-counter market. The Selling Securityholder may pledge or grant
a security interest in some or all of the Registrable Securities owned
by it and, if it defaults in the performance of its secured
obligations, the pledgees or secured parties may offer and sell the
Registrable Securities from time to time pursuant to the prospectus.
The Selling Securityholder also may transfer and donate Registrable
Securities in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the selling
securityholder for purposes of the prospectus.
_______________________________________________________________________
State any exceptions here:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Note: In no event will such method(s) of distribution take the form of
an underwritten offering of the Registrable Securities without
the prior agreement of the Company.
The undersigned acknowledges that it understands its obligation to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M thereunder (or any successor
rules or regulations) and the provisions of the Securities Act relating to
prospectus delivery, in connection with any offering of Registrable Securities
pursuant to the Shelf Registration Statement. The undersigned agrees that
neither it nor any person acting on its behalf will engage in any transaction in
violation of such provisions.
The Selling Securityholder hereby acknowledges its obligations under
the Registration Rights Agreement to indemnify and hold harmless certain persons
set forth therein.
Pursuant to the Registration Rights Agreement, the Company has agreed
under certain circumstances to indemnify the Selling Securityholders against
certain liabilities.
In accordance with the undersigned's obligation under the Registration
Rights Agreement to provide such information as may be required by law for
inclusion in the Shelf Registration Statement, the undersigned agrees to
promptly notify the Company of any inaccuracies or changes in the information
-7-
provided herein that may occur subsequent to the date hereof at any time while
the Shelf Registration Statement remains effective. All notices hereunder and
pursuant to the Registration Rights Agreement shall be made in writing at the
address set forth below.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and the
related prospectus. The undersigned understands that such information will be
relied upon by the Company in connection with the preparation or amendment of
the Shelf Registration Statement and the related prospectus.
By signing below, the undersigned agrees that if the Company notifies
the undersigned that the Shelf Registration Statement is not available, the
undersigned will suspend use of the prospectus until receipt of notice from the
Company that the prospectus is again available.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has
caused this Notice and Questionnaire to be executed and delivered either in
person or by its duly authorized agent.
Beneficial Owner
By:________________________________________
Name:
Title:
Dated: _______________________
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE
TO THE COMPANY AT:
Headwaters Incorporated
10653 South River Front Parkway, Suite 300
South Jordan, Utah 84095
Attention: Harlan M. Hatfield, General Counsel
with a faxed copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Facsimile: (415) 983-1200
Attention: Joan Burns, Esq.
-8-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the
registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the selling securityholders. All amounts are estimated except
the SEC registration fee.
Amount
------
SEC registration fee.................................. $ 21,856
Printing costs........................................ 2,000
Accounting fees and expenses.......................... 50,000
Legal fees and expenses............................... 75,000
Trustee and Transfer Agent fees and expenses.......... 10,000
Miscellaneous......................................... 5,000
----------
Total........................................ $ 163,856
==========
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person, including an officer and director, who was
or is, or is threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such cooperation), by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of such corporation, and, with respect to any criminal actions and
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify any person, including an officer or director,
who was or is, or is threatened to be made, a party to any threatened, pending
or contemplated action or suit by or in the right of such corporation, under the
same conditions, except that no indemnification is permitted without judicial
approval if such person is adjudged to be liable to such corporation. Where an
officer or director of a corporation is successful, on the merits or otherwise,
in the defense of any action, suit or proceeding referred to above, or any
claim, issue or matter herein, the corporation must indemnify such person
against the expenses (including attorneys' fees) which such officer or director
actually and reasonably incurred in connection therewith.
Article VII of the registrant's certificate of incorporation exonerates
the Registrant's directors from personal liability for monetary damages for
breach of the fiduciary duty of care as a director, except for any breach of the
directors' duty of loyalty for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law, for any improper
declaration of dividends or for any transaction from which the director derived
an improper personal benefit. Article VII does not eliminate a stockholder's
right to seek non-monetary, equitable remedies, such as an injunction or
rescission, to redress an action taken by the directors. However, as a practical
matter, equitable remedies may not be available in all situations, and there may
be instances in which no effective remedy is available.
-II-1-
The registrant maintains directors' and officers' liability insurance policies.
The registrant has entered into contracts with its directors and executive
officers providing for indemnification of the registrant's officers and
directors to the fullest extent permitted by applicable law.
Item 16. Exhibits
Exhibit
Number Description of Document
4.1 Indenture, dated as of June 1, 2004, between the registrant
and Wells Fargo Bank, N.A., including the form of Note.
Incorporated by reference to Exhibit 10.87 filed with
Headwaters' Current Report on Form 8-K, filed July 8, 2004.*
4.2 Registration Rights Agreement, dated as of June 1, 2004, among
the registrant and Morgan Stanley & Co. Incorporated, J.P.
Morgan Securities Inc., Adams, Harkness & Hill, Inc., RBC
Capital Markets Corporation and Stephens Inc.*
5.1 Opinion of Pillsbury Winthrop LLP.*
8.1 Tax opinion of Pillsbury Winthrop LLP.*
12.1 Computation of Ratios of Earnings to Fixed Charges.
Incorporated by reference to Exhibit 12.1 filed with
Headwaters' Quarterly Report on Form 10-Q, for the quarter
ended June 30, 2004.*
23.1 Consent of Ernst & Young LLP, Independent Registered Public
Accounting Firm.
23.6 Consent of Pillsbury Winthrop LLP (included in its opinions
filed as Exhibit 5.1 and 8.1 to this Registration Statement).
24.1 Power of Attorney.*
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of a Corporation Designated to Act as a
Trustee on Form T-1.*
- -------------
* Previously filed.
-II-2-
Item 17. Undertakings
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 Commission 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) 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;
Provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference 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 the offering.
(4) 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 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.
-II-3-
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Post-Effective Amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
South Jordan, State of Utah, on February 3, 2005.
HEADWATERS INCORPORATED
By /s/ KIRK A. BENSON
-------------------------------------
Kirk A. Benson
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 2 to Registration Statement on Form S-3 has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
* Director and Chief Executive February 3, 2005
- ---------------------- Officer (Principal Executive
Kirk A. Benson Officer)
* Chief Financial Officer (Principal February 3, 2005
- ---------------------- Financial and Accounting Officer)
Steven G. Stewart
* Director February 3, 2005
- ----------------------
James A. Herickhoff
* Director February 3, 2005
- ----------------------
Raymond J. Weller
* Director February 3, 2005
- ----------------------
E. J. "Jake" Garn
* Director February 3, 2005
- ----------------------
R. Sam Christensen
* Director February 3, 2005
- ----------------------
William S. Dickinson
* Director February 3, 2005
- ----------------------
Malyn K. Malquist
*By /s/ Harlan M. Hatfield
- ---------------------------
Attorney-in-Fact
-II-4-
EXHIBIT INDEX
Exhibit Description of Document
Number
4.1 Indenture, dated as of June 1, 2004, between the registrant
and Wells Fargo Bank, N.A., including the form of Note.
Incorporated by reference to Exhibit 10.87 filed with
Headwaters' Current Report on Form 8-K, filed July 8, 2004.*
4.2 Registration Rights Agreement, dated as of June 1, 2004, among
the registrant and Morgan Stanley & Co. Incorporated, J.P.
Morgan Securities Inc., Adams, Harkness & Hill, Inc., RBC
Capital Markets Corporation and Stephens Inc.*
5.1 Opinion of Pillsbury Winthrop LLP.*
8.1 Tax opinion of Pillsbury Winthrop LLP.*
12.1 Computation of Ratios of Earnings to Fixed Charges.
Incorporated by reference to Exhibit 12.1 filed with
Headwaters' Quarterly Report on Form 10-Q, for the quarter
ended June 30, 2004.*
23.1 Consent of Ernst & Young LLP, Independent Registered Public
Accounting Firm.
23.6 Consent of Pillsbury Winthrop LLP (included in its opinions
filed as Exhibits 5.1 and 8.1 to this Registration Statement).
24.1 Power of Attorney.*
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of a Corporation Designated to Act as a
Trustee on Form T-1.*
- -----------------
* Previously filed.
-II-5-