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Filed Pursuant to Rule 424(b)(3)
PROSPECTUS Registration Statement No. 333-24385
$230,000,000
5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2004 AND
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
HMT TECHNOLOGY
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This Prospectus covers the resale from time to time by the holders (the
"Selling Securityholders") of up to $230,000,000 aggregate principal amount of
5 3/4% Convertible Subordinated Notes due 2004 (the "Convertible Notes") of HMT
Technology Corporation (the "Company"). This Prospectus also covers sales by the
Selling Securityholders from time to time of shares of common stock, par value
$.001 (the "Common Stock") of the Company into which the Convertible Notes are
convertible (the "Conversion Shares").
The Convertible Notes will mature on January 15, 2004. Interest on the
Convertible Notes will be paid semiannually on January 15 and July 15 of each
year, commencing July 15, 1997. The Convertible Notes are convertible, at the
option of the holder thereof, at any time after 90 days following the last date
of original issuance thereof (January 27, 1997) and prior to maturity, unless
previously redeemed or repurchased, into up to 9,684,210 shares of Common Stock
of the Company (the "Common Stock"), at an initial conversion price of $23.75
per share (equivalent to a conversion rate of approximately 42.1053 shares per
$1,000 principal amount of Convertible Notes), subject to adjustment in certain
events (the "Conversion Rate").
The Convertible Notes are redeemable, in whole or in part, at the option of
the Company, at any time on and after January 20, 2000, at the redemption prices
set forth herein together with accrued interest. The Convertible Notes do not
provide for any sinking fund. Upon a Designated Event (as defined), holders of
the Convertible Notes will have the right, subject to certain restrictions and
conditions, to require the Company to purchase all or any part of the
Convertible Notes at a purchase price equal to 101% of the principal amount
thereof together with accrued and unpaid interest to the date of purchase. See
"Description of Convertible Notes -- Repurchase at the Option of Holders."
The Convertible Notes are unsecured obligations of the Company and are
subordinate in right of payment to all existing and future Senior Debt (as
defined) of the Company. The Convertible Notes also are structurally
subordinated to all liabilities of subsidiaries of the Company. As of January
31, 1997, the Company had approximately $5.8 million of indebtedness outstanding
that constituted Senior Debt. See "Description of Convertible Notes."
The Convertible Notes were originally issued by the Company on January 21,
1997 and January 27, 1997, to Salomon Brothers Inc, Alex. Brown & Sons
Incorporated, Hambrecht & Quist LLC and Robertson, Stephens & Company LLC (the
"Initial Purchasers"), pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
provided by Section 4(2) and Rule 144A thereof, as part of their sale in a
private placement to qualified institutional buyers or other accredited
investors in transactions exempt from registration under the Securities Act, and
in sales outside the United States within the meaning of Regulation S under the
Act.
The Selling Securityholders, directly or through agents, broker-dealers or
underwriters, may sell the Convertible Notes or the Conversion Shares offered
hereby from time to time on terms to be determined at the time of sale. Such
Convertible Notes or Conversion Shares may be sold at market prices prevailing
at the time of sale or at negotiated prices. The Selling Securityholders and any
agents, broker-dealers or underwriters that participate in the distribution of
the Convertible Notes or Conversion Shares may be deemed to be "underwriters"
within the meaning of the Act, and any commission received by them and any
profit on the resale of the Common Stock purchased by them may be deemed to be
underwriting discounts or commissions under the Act. The Company will not
receive any proceeds from the sale of Convertible Notes or Conversion Shares by
the Selling Securityholders. See "Selling Securityholders" and "Plan of
Distribution."
Prior to the registration of the Convertible Notes under the registration
statement of which this Prospectus is a part (the "Registration Statement"), the
Convertible Notes have been eligible for trading in The Portal Market. Prior to
this offering there has been no public market for the Convertible Notes. The
Common Stock of the Company is quoted on the Nasdaq National Market under the
symbol "HMTT." The last reported sales price of the Company's Common Stock on
the Nasdaq National Market on March 31, 1997 was $12.25 per share.
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SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELATED TO THE SALE OF THE CONVERTIBLE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Expenses of preparing and filing the Registration Statement to which this
Prospectus relates and all post-effective amendments will be borne by the
Company. No underwriting commissions or discounts will be paid by the Company in
connection with this offering. Estimated expenses payable by the Company in
connection with this offering are approximately $200,000. The aggregate proceeds
to the Selling Securityholders from the Convertible Notes or Conversion Shares
will be the purchase price of the Convertible Notes or Conversion Shares sold
less the aggregate agents' commissions and underwriters' discounts, if any, and
other expenses of issuance and distribution not borne the Company. See "Plan of
Distribution."
The Company has agreed to indemnify the Selling Securityholders and certain
other persons against certain liabilities, including liabilities under the Act.
See "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS APRIL 29, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at
the Commission's Regional Offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains a website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such web site is http://www.sec.gov. The Company's Common Stock is listed on
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006, and
reports, proxy statements and other information concerning the Company can be
inspected at said office.
A registration statement on Form S-3 with respect to the Notes and
Conversion Shares offered hereby (together with all amendments and exhibits, the
"Registration Statement") has been filed with the Commission under the Act. This
Prospectus does not contain all of the information contained in such
Registration Statement and the exhibits and schedules thereto, certain portions
of which have been omitted pursuant to the rules and regulations of the
Commission. For further information with respect to the Company and the
Convertible Notes and Conversion Shares offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus regarding the contents of any contract or any other
documents are not necessarily complete and, in each instance, reference is
hereby made to the copy of such contract or document filed as an exhibit to the
Registration Statement. The Registration Statement, including exhibits thereto,
may be inspected without charge at the Securities and Exchange Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Public Reference Section, Securities and Exchange
Commission, Washington, D.C., 20549, upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-27586) pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996.
2. The Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders, dated August 22, 1996 (other than the portions thereof not
deemed filed with the Commission).
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1996, September 30, 1996 and December 31, 1996.
4. The Company's Registration Statement on Form 8-A filed with the
Commission on January 19, 1996.
5. The Company's Report on Form 8-K, dated January 21, 1997, filed
with the Commission on February 6, 1997, as amended by Form 8-K/A filed
with the Commission on March 11, 1997.
In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15 of the Exchange Act after
the date of this Prospectus and prior to the termination of the offering shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is also or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents that are
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such documents).
Requests for such documents should be directed to HMT Technology Corporation,
Attn: Investor Relations, 1055 Page Avenue, Fremont, California 94538, telephone
number: (510) 683-6000.
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THE COMPANY
HMT Technology Corporation is an independent supplier of high-performance
thin film disks for high-end, high-capacity hard disk drives, which in turn are
used in high-end PCs, network servers and workstations. HMT was incorporated in
Delaware in 1988 as a subsidiary of Hitachi Metals, Ltd. to acquire certain
assets and certain liabilities of the thin film division of Xidex Corporation,
which had been producing thin film disks since 1983. Since completing the
acquisition, the Company has continued to supply thin film disks to
manufacturers of hard disk drives. As used in this Prospectus, unless otherwise
indicated, the terms "Company" and "HMT" refer to HMT Technology Corporation, a
Delaware corporation, and its subsidiary. The Company's principal offices are
located at 1055 Page Avenue, Fremont, California 94538, and its telephone number
is (510) 490-3100.
RISK FACTORS
This Prospectus and documents incorporated by reference in this Prospectus
include forward-looking statements which involve risks and uncertainties. Actual
results of the Company's activities may differ significantly from the results
anticipated in such forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those factors
identified below and under the caption "Risk Factors" in documents incorporated
herein by reference. In addition to the other information in this Prospectus,
prospective investors should consider the following factors, together with the
information and financial data included or incorporated by reference in this
Prospectus, before purchasing any Notes or Conversion Shares offered hereby.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results historically have been, and may continue to
be, subject to significant quarterly and annual fluctuations. As a result, the
Company's operating results in any quarter may not be indicative of its future
performance. Factors affecting operating results include: market acceptance of
new products; timing of significant orders; changes in pricing by the Company or
its competitors; timing of product announcements and product transitions by the
Company, its customers or its competitors; order cancellations, modifications
and quantity adjustments and shipment reschedulings; changes in product mix;
manufacturing yields; the level of utilization of the Company's production
capacity; increases in production and engineering costs associated with initial
manufacture of new products; and changes in the cost of or limitations on the
availability of materials. The impact of these and other factors on the
Company's revenues and operating results in any future period cannot be
forecasted with certainty. The Company's expense levels are based, in part, on
its expectations as to future revenues. Because the Company's sales are
generally made pursuant to purchase orders that are subject to cancellation,
modification, quantity reduction or rescheduling on short notice and without
significant penalties, the Company's backlog as of any particular date may not
be indicative of sales for any future period, and such changes could cause the
Company's net sales to fall below expected levels. If revenue levels are below
expectations, operating results are likely to be materially adversely affected.
Net income, if any, and gross margins may be disproportionately affected by a
reduction in net sales because a proportionately smaller amount of the Company's
expenses varies with its revenues.
The Company derives substantially all of its net sales from the sale of
thin film disks to a small number of customers. The Company typically supplies
disks in volume for a limited number of disk drive products at any one time, and
these products have an extremely short life cycle. Due to the rapid
technological change and frequent development of new disk drive products, it is
common in the industry for the relative mix of customers and products to change
rapidly, even from quarter to quarter. Generally, new products have higher
average selling prices than more mature products. Therefore, the Company's
ability to introduce new products in a timely fashion is an important factor in
its continued success. Moreover, manufacturing yields and production capacity
utilization impact the Company's operating results. New products often have
lower manufacturing yields and are produced in lower quantities than more mature
products. Manufacturing yields generally improve as the product matures and
production volumes increase. Manufacturing yields also vary depending on the
complexity and uniqueness of product specifications. The ability to adjust
manufacturing
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procedures to reduce costs and improve manufacturing yields and productivity
during a product's life is limited, and many adjustments can only be implemented
in connection with new product introductions or upgrades. Small variations in
manufacturing yields and productivity can have a significant impact on operating
results. Furthermore, because the thin film disk industry is capital intensive
and requires a high level of fixed costs, operating results are also extremely
sensitive to changes in volume. Substantial advance planning and commitment of
financial and other resources is necessary for expansion of manufacturing
capacity, while the Company's sales are generally made pursuant to purchase
orders that are subject to cancellation, modification, quantity reduction or
rescheduling without significant penalties. The impact of any of the foregoing
factors could have a material adverse effect on the Company's business,
operating results and financial condition.
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS; LENGTHY SALES CYCLE
During fiscal 1996, the Company shipped most of its thin film disks to
three customers: Maxtor Corporation ("Maxtor"), Western Digital Corporation
("Western Digital") and Micropolis Corporation ("Micropolis"). Aggregate
shipments to Maxtor, Western Digital and Micropolis represented 40.5%, 35.8% and
9.1%, respectively, of net sales in fiscal 1996. During the last nine months
ending December 31, 1996, aggregate shipments to Maxtor, Western Digital and
Micropolis represented 44.5%, 11.8% and 9.1%, respectively, of net sales.
Additionally, aggregate shipments to customers Samsung and Iomega Corporation
represented 15.7% and 11.6%, respectively, of net sales during the last nine
months ending December 31, 1996. There are a relatively small number of disk
drive manufacturers, and the Company expects that its dependence on a few
customers will continue in the future. Loss of or a reduction in orders from one
or more of the Company's customers could result in a substantial reduction in
net sales and operating results. For example, due to lower than anticipated
shipments to a customer, revenue and operating results for the quarter ended
December 31, 1996 were below those of the preceding quarter. Because many of the
Company's expense levels are based, in part, on its expectations as to future
revenues, decreases in net sales may result in a disproportionately greater
negative impact on operating results. The Company's success will therefore
depend on the success of its key customers. For example, in fiscal 1994 the
Company's operating results were adversely affected by operating difficulties
experienced by the Company's then largest customer. One or more of the Company's
customers could develop or expand their ability to produce thin film disks
internally and, as a result, could reduce the level of purchases or cease
purchasing from the Company or could sell thin film disks in competition with
the Company. For example, one of the Company's customers, Western Digital,
manufactures thin film disks for its own use and an affiliate of another
customer, Maxtor, has announced plans to do so. There has also been a trend
toward consolidation in the disk drive industry, which the Company expects to
continue. For example, in February 1996, two leading disk drive manufacturers,
Seagate Technology, Inc. ("Seagate") and Conner Peripherals, Inc., combined to
form the world's largest disk drive manufacturing company. In addition, during
the second calendar quarter of 1996, Hewlett-Packard announced its intentions to
exit the disk drive business. Also, due to cessation of its high-end
manufacturing operations, Quantum's high-end products are now being made by
Matsushita Kotobuki Electronics Industries ("MKE"). If any of the Company's
customers or competitors were to combine and reduce suppliers and competitive
product lines, the Company's business, operating results and financial condition
could be materially adversely affected.
The Company has generally sold its products to customers pursuant to
purchase orders and similar short-term arrangements. In June 1996, the Company
entered into a long-term supply agreement with Maxtor covering the supply of
disks to Maxtor over the next five years. While this agreement contemplates a
significant increase in the purchases of disks by Maxtor from current levels, it
is subject to a number of conditions and qualifications; and there can be no
assurance that Maxtor will in fact remain a significant customer during the term
of the agreement.
Qualifying thin film disks for incorporation into a new disk drive product
requires the Company to work extensively with the customer and the customer's
other suppliers to meet product specifications. Therefore, customers often
require a significant number of product presentations and demonstrations, as
well as substantial interaction with the Company's senior management, before
making a purchasing decision. Accordingly, the Company's products typically have
a lengthy sales cycle, which can range from six to 12
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months, during which the Company may expend substantial financial resources and
management time and effort with no assurance that a sale will result.
EXPANSION OF CAPACITY
Because the Company has been operating at close to full capacity, growth,
if any, in the Company's net sales depends on the successful expansion by the
Company of its manufacturing capacity. The Company has recently constructed a
new 120,000 square foot production facility at its Fremont, California site, in
which it plans to install up to 16 additional production scale sputtering lines.
The Company recently initiated production in this new facility in early calendar
1997. In addition, the Company is in the final stages of an expansion of its
facility in Eugene, Oregon to increase the production of aluminum substrates,
and has commenced volume production of nickel-plated and polished substrates at
that site. The Company currently expects to spend in excess of $200 million
during calendar 1997 for expansion of production capacity, a substantial
majority of which will be spent on the Company's Fremont, California facility.
Any delay in the completion of any of these expansion programs could have a
material adverse effect on the Company's business, results of operations and
financial condition.
INTENSE COMPETITION
The market for the Company's products is highly competitive, and the
Company expects competition to continue in the future. Certain of the Company's
competitors have significantly greater financial, technical and marketing
resources than the Company. There can be no assurance that in the future the
Company will be able to develop and manufacture products on a timely basis with
the quality and features necessary in order to remain competitive. Competitors
in the thin film disk industry fall into three groups: U.S. non-captive
manufacturers, Japan-based manufacturers and U.S. captive manufacturers.
Historically, each of these groups has supplied approximately one-third of the
worldwide thin film disk unit output. The Company's primary U.S. non-captive
competitors are Akashic Memories Corporation, a subsidiary of Kubota, Inc.,
Komag, Incorporated ("Komag") and StorMedia Incorporated. Japan-based
competitors include Fuji Electric Company, Ltd., Mitsubishi Kasei Corporation,
Showa Denko K.K. and Hoya Corporation. In addition, U.S. captive manufacturers,
which include certain computer manufacturers, as well as disk drive
manufacturers such as Seagate, Western Digital and an affiliate of Maxtor,
manufacture disks or plan to manufacture disks for their internal use as part of
their vertical integration programs. These companies could increase their
internal production and reduce or cease purchasing from independent disk
suppliers such as the Company. In the event of an oversupply of disks, these
customers are likely to utilize their internal capacity prior to purchasing
disks from independent suppliers such as the Company. Moreover, while captive
manufacturers have, to date, sold only nominal quantities of thin film disks in
the open market, there can be no assurance that such companies will not in the
future do so in direct competition with the Company. Furthermore, there can be
no assurance that other current and potential customers will not acquire or
develop capacity to produce thin film disks for internal use. Any such changes
could have a material adverse effect on the Company's business, operating
results and financial condition. Announcement or implementation of any of the
following by the Company's competitors could have a material adverse effect on
the Company's business, operating results and financial condition: changes in
pricing, product introductions, increases in production capacity, changes in
product mix and technological innovation. Specifically, the thin film disk
industry is characterized by intense price competition. The Company has
experienced pricing pressures in the past, and there can be no assurance that
the Company will not experience increased price competition in the future.
Pricing pressure has included, and may in the future include, demands for
discounts, long-term supply commitments and extended payment terms. Any increase
in price competition could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company and certain of its competitors are currently engaged in
substantial efforts to increase disk manufacturing capacity in light of the
apparent imbalance between current levels of demand for disks and existing
industry capacity. These efforts should result in significant additional
capacity in the industry within the next one to two years. To the extent that
these efforts result in industry capacity in excess of levels of
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demand, the Company could experience increased levels of competition, which
could have a material adverse effect on the Company's business, operating
results and financial condition.
MANAGEMENT OF GROWTH
The Company has experienced a period of rapid expansion in its operations
that has placed, and may continue to place, a significant strain on the
Company's management and other resources. In addition, through November 1995,
some managerial functions were performed by Hitachi Metals, Ltd., and the
Company has only recently added resources necessary to enable it to operate as
an independent company. The Company's status as a public company since its March
1996 initial public offering has placed additional demands on the Company's
management, including its finance and accounting organization. The Company's
ability to manage its operations effectively will require it to continue to
improve its operational, financial and management information systems, and to
train, motivate and manage its employees. If the Company's management is unable
to manage its operations effectively, the Company's business, operating results
and financial condition could be adversely affected.
DEPENDENCE ON INTENSELY COMPETITIVE AND CYCLICAL HARD DISK DRIVE INDUSTRY
The Company's operating results are dependent on current and anticipated
demand for high-end, high-capacity hard disk drives, which in turn depend on the
demand for high-end PCs, network servers and workstations. The disk drive
industry is cyclical and historically has experienced periods of oversupply and
reduced production levels, resulting in significantly reduced demand for thin
film disks, as well as pricing pressures. The effect of these cycles on
suppliers, including thin film disk manufacturers, has been magnified by hard
disk drive manufacturers' practice of ordering components, including thin film
disks, in excess of their needs during periods of rapid growth, which increases
the severity of the drop in the demand for components during periods of reduced
growth or contraction. In recent years, the disk drive industry has experienced
significant growth, providing the Company with the opportunity to expand its
capacity. There can be no assurance that such growth will continue, that the
level of demand will not decline, or that future demand will be sufficient to
support existing and future capacity. A decline in demand for hard disk drives
would have a material adverse effect on the Company's business, operating
results and financial condition. Additionally, the hard disk drive industry is
intensely competitive, and, in the past, some disk drive manufacturers have
experienced substantial financial difficulties. To date, the Company has not
incurred significant bad debt expense. However, there can be no assurance that
the Company will not face greater difficulty in collecting receivables or be
required to offer more liberal payment terms in the future, particularly in a
period of reduced demand. Any failure to collect or delay in collecting
receivables could have a material adverse effect on the Company's business,
operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE
The thin film disk industry has been characterized by rapid technological
development and short product life cycles. Product life cycles typically range
from nine to twelve months. As a result, the Company must continually
anticipate, and adapt its products to meet, demand for increased storage
capacity. Although the Company is continually developing new products and
production techniques, there can be no assurance that the Company will be able
to anticipate technological advances in disk drives and develop products
incorporating such advances in a timely manner or to compete effectively against
its competitors' new products. In addition, there can be no assurance that
customers will certify the Company's products for inclusion in new disk drive
products. The Company anticipates continued changes in the requirements of the
disk drive industry and thin film disk manufacturing technologies, and there can
be no assurance that the future technological innovations will not reduce demand
for thin film disks. The Company's business, operating results and financial
condition will be materially adversely affected if the Company's efforts are not
successful, if the technologies that the Company has chosen not to develop prove
to be competitive alternatives or if any trend develops toward technology that
would replace thin film disks as a storage medium.
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DEPENDENCE ON SUPPLIERS
The Company relies on a limited number of suppliers for many materials used
in its manufacturing processes, including aluminum blanks, substrates,
texturizers, plating chemicals, abrasive tapes and slurries, certifier heads,
sputter targets and certain other materials. In general, the Company seeks to
have two or three suppliers for its requirements; however, there can be no
assurance that the Company can secure more than one source for all of its
materials requirements in the future or that its suppliers will be able to meet
the Company's requirements on a timely basis or on acceptable terms. Shortages
have occurred in the past and there can be no assurance that shortages will not
occur in the future, or that materials will be available without longer lead
times. Moreover, changing suppliers for certain materials, such as lube or
buffing tape, would require that the product be requalified with each customer.
Requalification could prevent an early design-in, or could prevent or delay
continued participation in disk drive programs for which the Company's products
have been qualified. In addition, long lead times are required to obtain many
materials. Regardless of whether these materials are available from established
or new sources of supply, these lead times could impede the Company's ability to
quickly respond to changes in demand and product requirements. Furthermore, a
significant increase in the price of one or more of these materials could
adversely affect the Company's business, operating results and financial
condition. In addition, there are only a limited number of providers for thin
film disk manufacturing equipment, such as sputtering machines, glide testers
and certifiers, and ordering additional equipment for replacement or expansion
requires long lead times, limiting the rate and flexibility of capacity
expansion. Any limitations on, or delays in, the supply of materials or
equipment could disrupt the Company's production volume and could have a
material adverse effect on the Company's business, operating results and
financial condition.
While the Company has implemented procedures to monitor the quality of the
materials received from its suppliers, there can be no assurance that materials
will meet the Company's specifications and will not adversely impact
manufacturing yields or cause other production problems. Minor variations from
the Company's specifications could have a disproportionately adverse impact on
manufacturing yields. For example, in the quarter ended March 31, 1995, the
Company's operating results were materially adversely affected by chlorine
contamination of its thin film disk products that it believes resulted from
chlorine contamination of disk carriers provided by one of its suppliers.
NEED FOR ADDITIONAL FINANCING
The disk media business is capital intensive, and the Company believes that
in order to remain competitive, it will need significant additional financing
resources over the next several years for capital expenditures, working capital,
and research and development. Among other things, the Company's customers prefer
suppliers that can meet a substantial portion of their volume requirements, so
the Company will need to expand its manufacturing capacity to remain
competitive. The Company currently expects to spend in excess of $200 million on
capital expenditures directed toward expansion of production capacity during
calendar 1997. The Company believes that it will be able to fund planned
expenditures for at least the next twelve months from a combination of funds
available under its revolving credit facility, cash flow from operations and
existing cash balances. If it were to accelerate or increase the scope of its
facilities expansion, the Company could require additional capital prior to that
time. As of January 31, 1997, the Company had approximately $29.1 million from
the exercise of the Initial Purchasers' over-allotment option and approximately
$99.0 million in working capital, including approximately $47.1 million in cash
and cash equivalents. In addition, the Company's operations generated cash flow
of $50.4 million during the year ended March 31, 1996, and $51.6 million during
the nine months ended December 31, 1996.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not be able to develop similar technology independently.
Patents may not be issued with respect to the Company's pending patent
applications, and its issued patents may not be sufficiently broad to protect
the Company's technology. No assurance can be given that any patent
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issued to the Company will not be challenged, invalidated or circumvented or
that the rights granted thereunder will provide adequate protection to the
Company's products. In addition, the Company has only limited patent rights
outside the United States, and the laws of certain foreign countries may not
protect the Company's intellectual property rights to the same extent as do the
laws of the United States.
The Company may from time to time be notified by third parties that it may
be infringing patents owned by such third parties. If necessary, the Company may
have to seek a license under such patent or modify its products and processes in
order to avoid infringement of such patents. There can be no assurance that such
a license would be available on acceptable terms, if at all, or that the Company
could so avoid infringement of such patents, in which case the Company's
business, operating results and financial condition could be materially
adversely affected.
The Company has been contacted by Virgil L. Hedgcoth concerning the use of
certain disk preparation techniques allegedly patented by Mr. Hedgcoth (the
"Hedgcoth Patents"). Based on its review of the Hedgcoth Patents, the Company
believes that it is not infringing any claims of the Hedgcoth Patents that would
be found valid if contested in court. Mr. Hedgcoth has informed the Company that
he disagrees with its position, and he has filed and served an action against
the Company. The Company intends to defend any such action vigorously. The
Company does not believe that Mr. Hedgcoth's claims or any litigation he may
pursue would have a material adverse effect on the Company's business, operating
results or financial condition.
Litigation may be necessary to enforce the Company's patents, copyrights or
other intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or claims for indemnification resulting
from infringement claims by third parties. Such litigation, even if successful,
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its officers and personnel, many of whom would be
difficult to replace. The Company does not have employment agreements with any
employee. The loss of its officers or other key personnel, who are critical to
the Company's success, could have a material adverse effect on the business,
operating results and financial condition of the Company. In addition, the
Company's future operating results depend in part upon its ability to attract,
train, retain and motivate other qualified management, technical, manufacturing,
sales and support personnel for its operations. Competition for such personnel
is intense, especially since many of the Company's competitors are located near
the Company's facilities in Fremont, California. Among the competitive factors
in attracting personnel are compensation and benefits, equity incentives and
geographic location. There can be no assurance that the Company will be
successful in attracting or retaining such personnel. The loss of the services
of existing personnel as well as the failure to recruit additional personnel
could materially adversely effect the Company's business, operating results and
financial condition.
DEPENDENCE ON FREMONT MANUFACTURING FACILITIES; ENVIRONMENTAL ISSUES
The Company's Fremont facilities, which currently account for all of its
finished products, are located near major earthquake faults. Disruption of
operations for any reason, including power failures, work stoppages or natural
disasters such as fire, floods or earthquakes, would cause delays in, or an
interruption of, production and shipment of products, which could materially
adversely affect the Company's business, operating results and financial
condition.
The Company's operations and manufacturing processes are subject to certain
environmental laws and regulations, which govern the Company's use, handling,
storage, transportation, disposal, emission and discharge of hazardous materials
and wastes, the pre-treatment and discharge of process waste waters and its
emission of air pollutants. The Company has from time to time been notified of
minor violations of environmental laws and regulations. These violations have
been corrected in all material respects without undue expense. Environmental
laws and regulations, however, may become more stringent over time, and
8
<PAGE> 9
there can be no assurance that the Company's failure to comply with either
present or future laws or regulations, which may become more stringent, would
not subject the Company to significant compliance expenses, production
suspension or delay, restrictions on expansion or the acquisition of costly
equipment.
RISKS OF INTERNATIONAL SALES
In fiscal 1995 and 1996, substantially all of the Company's net sales
consisted of products delivered to customers in Asia, primarily foreign
subsidiaries of U.S. companies, and the Company anticipates that the substantial
majority of its products will be delivered to customers outside of the United
States for the foreseeable future. Accordingly, the Company's operating results
are subject to the risks of doing business in foreign jurisdictions, including
compliance with, or changes in, the law and regulatory requirements of foreign
jurisdictions, local content rules, taxes, tariffs or other barriers, and
transportation delays and other interruptions. Although presently all of the
Company's sales are made in U.S. dollars, there can be no assurance that future
international sales will not be denominated in foreign currency.
CONTROL BY EXISTING STOCKHOLDERS AND ANTI-TAKEOVER EFFECTS
Based on shares outstanding at December 31, 1996, directors, officers and
holders of 5% or more of the outstanding shares of Common Stock of the Company
owned approximately 54% of the outstanding shares of Common Stock (53% assuming
exercise of all outstanding options and warrants to purchase Common Stock). As a
result, the directors, officers and holders of 5% or more of the outstanding
shares of the Company's Common Stock, acting together, will have the ability to
elect all of the Company's directors and control most corporate actions. Certain
provisions of the Company's Amended and Restated Certificate of Incorporation,
Bylaws and Delaware law, including the provisions of Section 203 of the Delaware
General Corporation Law, which restrict the ability of a substantial stockholder
to acquire the Company, may also discourage certain transactions involving a
change in control of the Company. In addition to the foregoing, the ability of
the Board of Directors to issue "blank check" preferred stock without further
stockholder approval could have the effect of delaying, deferring or preventing
a change in control of the Company. See "Description of Capital Stock."
SUBORDINATION AND ABSENCE OF FINANCIAL COVENANTS
The Convertible Notes are unsecured and subordinated in right of payment in
full to all existing and future Senior Debt of the Company. As a result of such
subordination, in the event of any insolvency of the Company, the assets of the
Company will be available to satisfy obligations on the Convertible Notes only
after all Senior Debt has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Convertible Notes then
outstanding. The Indenture does not prohibit or limit the incurrence of Senior
Debt or the incurrence of other indebtedness and other liabilities by the
Company, and the incurrence of additional indebtedness and other liabilities by
the Company could adversely affect the Company's ability to satisfy its
obligations on the Convertible Notes. As of January 31, 1997, the Company had
approximately $5.8 million of outstanding indebtedness that constituted Senior
Debt. The Company anticipates that from time to time it will incur additional
indebtedness, including Senior Debt. Moreover, the cash flow and consequent
ability of the Company to service debt, including the Convertible Notes, may
become dependent in part upon the earnings from the business conducted by the
Company through subsidiaries and the distribution of those earnings, or upon
loans or other payments of funds by those subsidiaries, to the Company. See
"Description of Convertible Notes -- Subordination of Convertible Notes."
The Indenture does not contain any financial performance covenants.
Consequently, the Company is not required under the Indenture to meet any
financial tests such as those that measure the Company's working capital,
interest coverage, fixed charge coverage or net worth in order to maintain
compliance with the terms of the Indenture.
9
<PAGE> 10
LIMITATIONS ON REPURCHASE UPON A DESIGNATED EVENT
If a Designated Event were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price for all Convertible Notes tendered by
holders thereof. The Company's credit agreement with respect to its senior bank
revolving credit facility prohibits the Company from repurchasing any
Convertible Notes, which would constitute an event of default under such credit
agreement. Any future credit agreements or other agreements relating to other
indebtedness (including other Senior Debt) to which the Company becomes a party
may contain similar restrictions and provisions. If the Company does not obtain
a consent to any repurchase of the Convertible Notes upon a Designated Event,
the Company would remain prohibited from repurchasing the Convertible Notes. Any
failure by the Company to repurchase the Convertible Notes when required
following a Designated Event would result in an Event of Default under the
Indenture whether or not such repurchase is permitted by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Debt of the Company. Moreover, the occurrence of a Designated Event
may cause an event of default under Senior Debt of the Company. As a result, in
each case, any repurchase of the Convertible Notes would, absent a waiver, be
prohibited under the subordination provisions of the Indenture until the Senior
Debt is paid in full. See "Description of Convertible Notes -- Repurchase at the
Option of Holders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of the Company's Common Stock in the public
market after the Offering could adversely affect the market price of the
Company's Common Stock and the Company's ability to raise additional capital at
a price favorable to the Company. Based on beneficial ownership of Common Stock
as set forth under "Principal Stockholders" and "Leveraged Recapitalization,"
executive officers, directors and certain stockholders holding an aggregate of
28,290,926 shares of Common Stock have entered into lockup agreements with the
Initial Purchasers (the "Lockup Agreements") pursuant to which shares may not be
offered, sold or otherwise disposed of without the prior written consent of
Salomon Brothers Inc. until April 15, 1997. Upon expiration of the Lockup
Agreements, 3,392,596 of such shares will be available for immediate sale
pursuant to Rule 144 and Rule 701, and 3,136,098 of such shares will be subject
to rights of repurchase that expire at various dates through December 2004
pursuant to monthly vesting (or in some cases earlier upon the achievement of
certain performance goals) and may not be resold until such rights expire. The
remaining approximately 21,968,057 shares covered by the Lockup Agreements are
"restricted" shares within the meaning of Rule 144 adopted under the Securities
Act (the "Restricted Shares"). Such shares will be eligible for sale pursuant to
Rule 144 upon the expiration of a two-year holding period from the date such
shares were acquired (November 30, 1995), subject to certain volume limitations
under Rule 144. Upon effectiveness of amendments to the Rule 144 holding period
on April 29, 1997, which reduce the holding period from two years to one year,
such shares shall be immediately available for resale pursuant to Rule 144,
subject to certain volume limitations under Rule 144. The Holders of the
Restricted Shares also have the right to require the Company to register such
shares for sale to the public under agreements with the Company. In January
1997, the Company received Notices to Register Securities from two warrant
holders pursuant to that certain Warrant Purchase Agreement, dated as of
November 30, 1995 (the "Warrant Purchase Agreement"), by and among the Company,
The First National Bank of Boston ("FNBB") and Banque Paribas. Pursuant to
Section 7.02(b)(vi) of the Warrant Purchase Agreement, the Board of Directors of
the Company made a good faith judgment that a registration pursuant to FNBB and
Banque Paribas' requests would be detrimental to the Company and that it is in
the best interests of the Company and its stockholders to defer the filing of
such registration statement for 90 days. See "Description of Capital
Stock -- Registration Rights." Certain stockholders have indicated that they may
exercise their registration rights following the expiration of the Lockup
Agreements.
The Company has registered under the Securities Act an aggregate of
7,312,029 shares of Common Stock reserved for issuance under the Company's 1995
Management Stock Option Plan, 1995 Stock Option Plan, 1996 Equity Incentive
Plan, 1996 Non-Employee Directors' Stock Option Plan and Employee Stock Purchase
Plan (collectively, the "Stock Plans"), thus permitting the sale of such shares
by non-affiliates in the public market without restriction under the Securities
Act. The shares registered include shares issuable upon
10
<PAGE> 11
exercise of options to purchase 12,553,614 shares that were issued and
outstanding at February 28, 1997, of which options to purchase approximately
5,811,110 shares were exercisable and immediately saleable. The remainder of
these shares will become exercisable and saleable at various dates through
December 1999 pursuant to monthly vesting.
LIMITED PUBLIC MARKET FOR THE CONVERTIBLE NOTES; VOLATILITY OF CONVERTIBLE NOTE
AND COMMON STOCK PRICES
The Company does not intend to list the Convertible Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation system. The Initial
Purchasers may make a market in the Convertible Notes and the underlying Common
Stock. However, the Initial Purchasers are not obligated to make such a market
and may discontinue any market-making activities at any time without notice. In
addition, such market-making activities are subject to limits imposed by the
Exchange Act.
Although prior to the registration of the Convertible Notes under the
Registration Statement the Convertible Notes were designated for trading through
The PORTAL Market, the Convertible Notes sold hereunder will no longer be
eligible for trading through The PORTAL Market, and no assurance can be given
that an active trading market for the Convertible Notes will develop or, if such
market develops, as to the liquidity or sustainability of such market. If a
trading market does not develop or is not maintained, holders of the Convertible
Notes may experience difficulty in reselling, or an inability to sell, the
Convertible Notes. If a market for the Convertible Notes develops, any such
market may be discontinued at any time. If a public trading market develops for
the Convertible Notes, future trading prices of the Convertible Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
Depending on prevailing interest rates, the market for similar securities and
other factors, including the financial condition of the Company, the Convertible
Notes may trade at a discount from their principal amount.
Various factors such as changes in prevailing interest rates or changes in
perceptions of the Company's creditworthiness could cause the market price of
the Convertible Notes to fluctuate significantly. The trading price of the
Convertible Notes could also be significantly affected by the market price of
the Common Stock, which could be subject to wide fluctuations in response to a
variety of factors, including quarterly variations in operating results,
announcements of technological innovations or new products by the Company, its
customers or its competitors, developments in patents or other intellectual
property rights, general conditions in the computer or disk drive industry and
general economic and market conditions.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, ---------------------------
-------------------------------- DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)...... -- -- -- -- 6.3 5.9 12.8
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is computed by dividing (x) pretax
income from continuing operations plus fixed charges less interest
capitalized during the period, by (y) fixed charges. Fixed charges consist
of interest on all indebtedness, amortization of debt expense and discount
or premium relating to indebtedness. Earnings were inadequate to cover fixed
charges for all periods prior to fiscal 1996. The deficiencies of earnings
were approximately $21.1 million, $17.1 million, $17.3 million and $8.9
million, for fiscal 1992, 1993, 1994 and 1995, respectively.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Convertible
Notes and Conversion Shares by the Selling Securityholders in the offering.
11
<PAGE> 12
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $0.001 par value, and 9,100,000 shares of Preferred Stock,
$0.001 par value.
COMMON STOCK
As of February 28, 1997, there were 40,970,847 shares of Common Stock
outstanding held of record by approximately 154 stockholders. The holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
the stockholders. Subject to preferences that may be applicable to outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive rights or other
subscription rights. There are no redemption or sinking funds provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable.
PREFERRED STOCK
No shares of Preferred Stock are currently outstanding. The Board of
Directors is authorized, without further action by the Company's stockholders,
to issue up to 9,100,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon such Preferred Stock, including dividend rights, conversion rights, terms
of redemption, liquidation preference, sinking fund terms and the number of
shares constituting any series or the designation of such series, without any
further vote or action by the stockholders. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue any additional shares of Preferred Stock.
WARRANTS
In connection with the Leveraged Recapitalization, pursuant to a warrant
purchase agreement dated November 30, 1995, the Company issued to certain senior
lenders (the "Warrantholders") warrants to purchase an aggregate of 701,344
shares of Common Stock at a price of $0.0003 per share. The warrants terminate
on November 30, 2002. Upon any reorganization or reclassification, consolidation
or merger or any sale or other transfer of substantially all of its assets the
warrants may be repurchased by the Company with the consent of the
Warrantholder. In the event the Warrantholders do not consent to such
repurchase, the warrants must be exercised prior to the consummation of such
transaction and will be converted into the right to receive a comparable number
of securities or property of the surviving corporation. The warrants include a
net exercise provision, and the Warrantholders have the right to cause the
Company to repurchase the warrants and any shares issued upon exercise thereof
under certain circumstances. Upon payment of the outstanding balance of the
senior bank term loan in March 1996, the Company redeemed warrants for 280,550
shares of Common Stock at the Warrantholders' cost ($0.02 per share), leaving a
balance of 420,794 shares subject to the remaining warrants. In addition, the
Warrantholders have certain registration rights with respect to the shares of
Common Stock issuable upon exercise of such warrants.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (or their
permitted transferees) of approximately 29,656,057 shares of Common Stock
("Holders"), the Holders are entitled to certain rights with respect to the
registration of such shares under the Securities Act of 1933, as amended (the
"Securities Act"). If the Company proposes to register its Common Stock, subject
to certain exceptions, under the Securities Act, the Holders are entitled to
notice of the registration and are entitled to include, at the
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<PAGE> 13
Company's expense, such shares therein, provided that the managing underwriters
have the right to limit the number of such shares included in the registration.
In addition, certain of the Holders may require the Company at its expense on no
more than two occasions within six months to file a registration statement under
the Securities Act with respect to their shares of Common Stock. Such rights
became exercisable in September 1996. Further, certain Holders may require the
Company at its expense to register their shares on Form S-3 when such form
becomes available to the Company, subject to certain conditions and limitations.
Such right expires in March 2001.
The Warrantholders also have certain registration rights with respect to
the shares of Common Stock issuable upon exercise of the warrants pursuant to
the Warrant Purchase Agreement. If the Company proposes to register Common
Stock, the Warrantholders are entitled at the Company's expense, to include such
shares therein, provided that the maximum number of shares to be offered, as
determined by the managing underwriters, exceeds the number of shares that the
Company intends to offer. In addition, the Warrantholders holding at least 25%
of the outstanding warrants may require the Company at its expense on one
occasion to file a registration statement under the Securities Act with respect
to the Common Stock issuable upon the exercise of the warrants. The Company will
also make efforts in good faith to ensure the availability of sales pursuant
Form S-3 and Rule 144. In January 1997, the Company received Notices to Register
Securities from two warrant holders pursuant to that certain Warrant Purchase
Agreement, dated as of November 30, 1995 (the "Warrant Purchase Agreement"), by
and among the Company, The First National Bank of Boston ("FNBB") and Banque
Paribas. Pursuant to Section 7.02(b)(vi) of the Warrant Purchase Agreement, the
Board of Directors of the Company made a good faith judgment that a registration
pursuant to FNBB and Banque Paribas' requests would be detrimental to the
Company and that it is in the best interests of the Company and its stockholders
to defer the filing of such registration statement for 90 days.
In connection with the original issuance of the Convertible Notes by the
Company, the Company agreed pursuant to a registration rights agreement for the
benefit the holders of the Convertible Notes and the Common Stock issuable upon
conversion thereof the "Registration Agreement," to register the resale of such
securities pursuant to a shelf registration statement of which this Prospectus
is a part. The other registration rights described above do not give any other
holders of securities of the Company (other than the Warrantholders) the right
to participate in any such registration statement because such registration
rights are inapplicable by their terms or, to the extent otherwise applicable,
have been waived. See "Description of Convertible Notes -- Registration Rights."
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could have the effect of delaying, deferring or
preventing a change in control of the Company.
The Company's Certificate of Incorporation and Bylaws also require that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer of the Company or by any
person or persons holding shares representing at least 20% of the outstanding
capital stock. The Company's Certificate of Incorporation also specifies that
the authorized number of directors may be changed only by resolution of the
Board of Directors. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company.
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<PAGE> 14
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe Limited Partnership. Its telephone number is (617) 575-2000.
DESCRIPTION OF CONVERTIBLE NOTES
GENERAL
The Convertible Notes were initially issued by the Company on January 21,
1997 and January 27, 1997, pursuant to an Indenture dated as of January 15, 1997
(the "Indenture"), between the Company and State Street Bank and Trust Company,
as trustee (the "Trustee"). The terms of the Convertible Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act") as in effect on the date
of the Indenture. The Convertible Notes are subject to all such terms, and
holders of the Convertible Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture including the definition therein of
certain terms used below. The Indenture has been filed as an exhibit to the
Company's Current Report on Form 8-K filed with the Commission on February 6,
1997, and is also an exhibit to the Registration Statement. The following
summary of certain provisions of the Indenture and the Registration Agreement
does not purport to be complete and is qualified in its entirety by reference to
the Indenture and the Registration Agreement, including the definitions therein
of certain terms used below. The definitions of certain terms used in the
following summary are set forth below under "Certain Definitions." References in
this section to the "Company" are solely to HMT Technology Corporation, a
Delaware corporation, and not to its subsidiary.
The Convertible Notes are unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt of the
Company to the extent set forth in the Indenture. The Indenture does not limit
the amount of other indebtedness or securities that may be issued by the Company
or any of its subsidiaries.
The Company does not intend to list the Convertible Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation system. The Initial
Purchasers may make a market in the Convertible Notes and the underlying Common
Stock. However, the Initial Purchasers are not obligated to make such a market
and may discontinue any market-making activities at any time without notice. In
addition, such market-making activities are subject to limits imposed by the
Exchange Act.
Although prior to the registration of the Convertible Notes under the
Registration Statement the Convertible Notes were designated for trading through
The PORTAL Market, the Convertible Notes sold hereunder will no longer be
eligible for trading through The PORTAL Market, and no assurance can be given
that an active trading market for the Convertible Notes will develop or, if such
market develops, as to the liquidity or sustainability of such market. If a
trading market does not develop or is not maintained, holders of the Convertible
Notes may experience difficulty in reselling, or an inability to sell, the
Convertible Notes. If a market for the Convertible Notes develops, any such
market may be discontinued at any time. If a public trading market develops for
the Convertible Notes, future trading prices of the Convertible Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
Depending on prevailing interest rates, the market for similar securities and
other factors, including the financial condition of the Company, the Convertible
Notes may trade at a discount from their principal amount.
PRINCIPAL, MATURITY AND INTEREST
The Convertible Notes bear interest from January 21, 1997, at the rate per
annum set forth on the cover page of this Prospectus and will mature on January
15, 2004.
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<PAGE> 15
Interest on the Convertible Notes is payable semiannually on January 15 and
July 15 of each year (each an "Interest Payment Date"), commencing on July 15,
1997, to holders of record at the close of business on the December 31 or June
30 (each a "Regular Record Date") immediately preceding such Interest Payment
Date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Interest on the Convertible Notes accrues from the most recent date to
which interest has been paid or, if no interest has been paid, from January 21,
1997.
The Convertible Notes are payable both as to principal and interest at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest may be
made by check mailed to the holders of the Convertible Notes at their respective
addresses set forth in the register of holders of Convertible Notes. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee or its agent maintained for such purpose. The
Convertible Notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Convertible Notes are redeemable at the option of the Company, in whole
or in part (in any integral multiple of $1,000), at any time on and after
January 20, 2000, upon not less than 15 nor more than 60 days' prior notice by
mail at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning January 15
of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------- ----------
<S> <C>
2000.............................................. 103.286%
2001.............................................. 102.464%
2002.............................................. 101.643%
2003.............................................. 100.821%
</TABLE>
and at January 15, 2004, 100%, in each case together with accrued interest to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on an Interest Payment Date). If less than
all the Convertible Notes are to be redeemed, the Trustee will select the
Convertible Notes to be redeemed by lot, pro rata. On or after the redemption
date, interest will cease to accrue on the Convertible Notes, or portion
thereof, called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Convertible Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a Designated Event, each holder of Convertible Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Convertible Notes
pursuant to the offer described below (the "Designated Event Offer") at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest thereon to the Designated Event Payment Date (the
"Designated Event Payment"). Within 30 days following any Designated Event, the
Company shall mail a notice to each holder stating: (1) that the Designated
Event Offer is being made pursuant to the covenant entitled "Designated Event"
and that all Convertible Notes tendered will be accepted for payment; (2) the
purchase price and the purchase date, which shall be no earlier than 30 days nor
later than 40 days from the date such notice is mailed (the "Designated Event
Payment Date"); (3) that any Convertible Notes not tendered will continue to
accrue interest; (4) that, unless the Company defaults in the payment of the
Designated Event Payment, all Convertible Notes accepted for payment pursuant to
the Designated Event Offer shall cease to accrue interest after the Designated
Event Payment Date; (5) that holders electing to have any Convertible Notes
purchased pursuant to a Designated
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<PAGE> 16
Event Offer will be required to surrender the Convertible Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Convertible
Notes completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the
Designated Event Payment Date; (6) that holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Designated Event Payment Date,
a telegram, telex, facsimile transmission or letter setting forth the name of
the holder, the principal amount of Convertible Notes delivered for purchase,
and a statement that such holder is withdrawing his election to have such
Convertible Notes purchased; and (7) that holders whose Convertible Notes are
being purchased only in part will be issued new Convertible Notes equal in
principal amount to the unpurchased portion of the Convertible Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.
The Company will comply with the requirements of Rules 13e-4 and 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Convertible Notes in connection with a Designated Event.
On the Designated Event Payment Date, the Company will, to the extent
lawful, (1) accept for payment Convertible Notes or portions thereof tendered
pursuant to the Designated Event Offer, (2) deposit with the Paying Agent an
amount equal to the Designated Event Payment in respect of all Convertible Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Convertible Notes so accepted together with an Officers' Certificate
stating the Convertible Notes or portions thereof tendered to the Company. The
Paying Agent shall promptly mail to each holder of Convertible Notes so accepted
payment in an amount equal to the purchase price for such Convertible Notes, and
the Trustee shall promptly authenticate and mail to each holder a new
Convertible Note equal in principal amount to any unpurchased portion of the
Convertible Notes surrendered, if any; provided, that each such new Convertible
Note shall be in a principal amount of $1,000 or an integral multiple thereof.
The Company will publicly announce the results of the Designated Event Offer on
or as soon as practicable after the Designated Event Payment Date. There can be
no assurance that the Company will have the financial resources necessary to
repurchase the Convertible Notes in such circumstances.
Except as described above with respect to a Designated Event, the Indenture
does not contain any other provisions that permit the holders of the Convertible
Notes to require that the Company repurchase or redeem the Convertible Notes in
the event of a takeover, recapitalization or similar restructuring.
The Designated Event purchase feature of the Convertible Notes may in
certain circumstances make more difficult or discourage a takeover of the
Company, and, thus, the removal of incumbent management. The Designated Event
purchase feature, however, is not the result of management's knowledge of any
specific effort to accumulate the Company's stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise, or part
of a plan by management to adopt a series of antitakeover provisions. Instead,
the Designated Event purchase feature is a result of negotiations between the
Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Designated Event, although it is possible
that the Company could decide to do so in the future. Subject to the limitations
on mergers, consolidations and sale of assets described herein, the Company
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Designated
Event under the Indenture, but that could increase the amount of indebtedness
(including Senior Debt) outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. The payment of the Designated
Event Payment is subordinated to the prior payment of Senior Debt as described
under "Subordination of Convertible Notes" below.
If a Designated Event were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price for all Convertible Notes tendered by
holders thereof. The Company's credit agreement with respect to its senior bank
revolving credit facility prohibits the Company from repurchasing any
Convertible Notes. Any future credit agreements or other agreements relating to
other indebtedness (including other Senior Debt) to which the Company becomes a
party may contain similar restrictions and provisions. If the Company does not
obtain such a
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consent or repay the Convertible Notes upon a Designated Event, the Company
would remain prohibited from repurchasing the Convertible Notes. Any failure by
the Company to repurchase the Convertible Notes when required following a
Designated Event would result in an Event of Default under the Indenture whether
or not such repurchase is permitted by the subordination provisions of the
Indenture. Any such default may, in turn, cause a default under Senior Debt of
the Company. Moreover, the occurrence of a Designated Event may cause an event
of default under Senior Debt of the Company. As a result, in each case, any
repurchase of the Convertible Notes would, absent a waiver, be prohibited under
the subordination provisions of the Indenture until the Senior Debt is paid in
full.
A "Designated Event" will be deemed to have occurred upon a Change of
Control or a Termination of Trading.
A "Change of Control" will be deemed to have occurred when: (i) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of shares representing more than 50% of the
combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other corporation, or any other
corporation merges into the Company, and, in the case of any such transaction,
the outstanding Common Stock of the Company is reclassified into or exchanged
for any other property or security, unless the stockholders of the Company
immediately before such transaction own, directly or indirectly immediately
following such transaction, at least a majority of the combined voting power of
the outstanding voting securities of the corporation resulting from such
transaction in substantially the same proportion as their ownership of the
Voting Stock immediately before such transaction, (iii) the Company conveys,
transfers or leases all or substantially all of the assets of the Company or
(iv) any time the Continuing Directors do not constitute a majority of the Board
of Directors of the Company (or, if applicable, a successor corporation to the
Company); provided, that a Change of Control shall not be deemed to have
occurred if at least 90% of the consideration (excluding cash payments for
fractional shares) in the transaction or transactions constituting the Change of
Control consists of shares of common stock that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United
States.
The definition of Change of Control includes a phrase relating to the
lease, transfer or conveyance of "all or substantially all" of the assets of the
Company. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Convertible Notes
to require the Company to repurchase such Convertible Notes as a result of a
lease, transfer or conveyance of less than all of the assets of the Company to
another person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
A "Termination of Trading" will be deemed to have occurred if the Common
Stock (or other common stock into which the Convertible Notes are then
convertible) is neither listed for trading on a United States national
securities exchange nor approved for trading on an established automated
over-the-counter trading market in the United States.
SELECTION AND NOTICE
If less than all of the Convertible Notes are to be redeemed at any time,
selection of Convertible Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Convertible Notes are listed, or, if the Convertible Notes
are not so listed, on a pro rata basis, provided that no Convertible Notes of
$1,000 or less shall be redeemed in part. Notice of redemption shall be mailed
by first class mail at least 30 but not more than 60 days before the redemption
date to each holder of Convertible Notes to be redeemed at its registered
address. If any
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Convertible Note is to be redeemed in part only, the notice of redemption that
relates to such Convertible Note shall state the portion of the principal amount
thereof to be redeemed. A new Convertible Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Convertible Note. On and after the redemption date,
interest ceases to accrue on Convertible Notes or portions of them called for
redemption.
REGISTRATION RIGHTS
Pursuant to the Registration Agreement, the Company agreed for the benefit
of the holders of the Convertible Notes and Common Stock issued upon conversion
thereof that are, in either case, Registrable Securities, that (i) it would, at
its cost, within 75 days after the first closing of the sale of the Convertible
Notes (the "Closing", which occurred on January 21, 1997), file a shelf
registration statement (the "Shelf Registration Statement") of which this
Prospectus is a part with the Commission with respect to resales of the
Convertible Notes and the Common Stock issuable upon conversion thereof, (ii)
the Company would use all reasonable efforts to cause such Shelf Registration
Statement to be declared effective under the Securities Act as soon as
practicable but in any event, within 105 days after the Closing and (iii) the
Company would use all reasonable efforts to keep such Shelf Registration
Statement continuously effective under the Securities Act until the earlier of
(a) the third anniversary of the last date of original issuance of the
Convertible Notes, (b) the date on which all of the Convertible Notes or the
Common Stock issuable upon conversion thereof may be sold by non-affiliates of
the Company pursuant to paragraph (k) of Rule 144 (or any successor provision)
promulgated by the Commission under the Securities Act and (c) the date as of
which all the Convertible Notes or the Common Stock issuable upon conversion
thereof have been sold pursuant to such Shelf Registration Statement (the "Shelf
Registration Period"). The Company shall have the right, however, to defer the
use of this Prospectus, as more fully described below.
In the event the Company failed to file the Shelf Registration Statement
within 75 days after Closing, the Shelf Registration Statement was not declared
effective under the Securities Act within 105 days after the Closing, a stop
order is issued by the Commission prior to the end of the Shelf Registration
Period or Selling Periods have been deferred more frequently or for longer
periods than are described above, the Company has agreed to pay liquidated
damages to all Notice Holders of Convertible Notes and of Common Stock issuable
upon conversion thereof until such event is cured. Further, if such event
continues for a period in excess of 30 days, the Company has agreed to pay
liquidated damages to all holders of Convertible Notes and Common Stock issued
upon conversion thereof which are, in either case, Registrable Securities,
without regard to whether such holder is a Notice Holder. Liquidated damages
shall be calculated, with respect to Convertible Notes held by a holder, at a
rate of one-half of one percent (50 basis points) per annum of the aggregate
principal amount of such Convertible Notes and, with respect to shares of Common
Stock held by a holder and issued upon conversion of Convertible Notes, the same
percentage of the aggregate principal amount of Convertible Notes that were
converted into such shares. Liquidated damages will not accrue as to any
Convertible Notes or Common Stock issuable upon the conversion thereof from and
after the earlier of (i) the date such Convertible Notes or Common Stock are no
longer Registrable Securities and (ii) the expiration of the Shelf Registration
Period. In addition, liquidated damages will not accrue as to any Convertible
Notes or Common Stock issuable upon the conversion thereof represented by the
Unrestricted Global Note (as defined) provided that such securities are not
subject to limitations on transfer under U.S. federal or state securities laws
and there shall have been at least six months during which the Shelf
Registration Statement was effective and available for effecting resales of the
Convertible Notes and the Common Stock issuable upon conversion thereof.
"Registrable Securities" means the Convertible Notes and shares of Common
Stock issued upon conversion thereof, excluding any such securities that, and
any such securities the predecessors of which, were previously sold pursuant to
a registration statement or Rule 144 under the Securities Act.
CONVERSION
The holder of any Convertible Note has the right, exercisable at any time
after 90 days following the date of original issuance of any Convertible Notes
and prior to maturity, to convert the principal amount thereof
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(or any portion thereof that is an integral multiple of $1,000) into shares of
Common Stock at the conversion price set forth on the cover page of this
Prospectus, subject to adjustment as described below (the "Conversion Price"),
except that if a Convertible Note is called for redemption, the conversion right
will terminate at the close of business on the Business Day immediately
preceding the date fixed for redemption. Except as described below, no
adjustment will be made on conversion of any Convertible Notes for interest
accrued thereon or for dividends on any Common Stock issued. If Convertible
Notes not called for redemption are converted after a record date for the
payment of interest and prior to the next succeeding Interest Payment Date, such
Convertible Notes must be accompanied by funds equal to the interest payable on
such succeeding Interest Payment Date on the principal amount so converted. No
fractional shares will be issued upon conversion but a cash adjustment will be
made for any fractional interest.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including: (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock; (ii) the subdivision or
combination of the outstanding Common Stock; (iii) the issuance to substantially
all holders of Common Stock of rights or warrants to subscribe for or purchase
Common Stock (or securities convertible into Common Stock) at a price per share
less than the then current market price per share, as defined; (iv) the
distribution of shares of capital stock of the Company (other than Common
Stock), evidences of indebtedness or other assets (excluding dividends in cash,
except as described in clause (v) below) to all holders of Common Stock; (v) the
distribution, by dividend or otherwise, of cash to all holders of Common Stock
in an aggregate amount that, together with the aggregate of any other
distributions of cash that did not trigger a Conversion Price adjustment to all
holders of its Common Stock within the 12 months preceding the date fixed for
determining the stockholders entitled to such distribution and all Excess
Payments in respect of each tender offer or other negotiated transaction by the
Company or any of its Subsidiaries for Common Stock concluded within the
preceding 12 months not triggering a Conversion Price adjustment, exceeds 15% of
the product of the current market price per share (determined as set forth
below) on the date fixed for the determination of stockholders entitled to
receive such distribution times the number of shares of Common Stock outstanding
on such date; (vi) payment of an Excess Payment in respect of a tender offer or
other negotiated transaction by the Company or any of its Subsidiaries for
Common Stock, if the aggregate amount of such Excess Payment, together with the
aggregate amount of cash distributions made within the preceding 12 months not
triggering a Conversion Price adjustment and all Excess Payments in respect of
each tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for Common Stock concluded within the preceding 12 months not
triggering a Conversion Price adjustment, exceeds 15% of the product of the
current market price per share (determined as set forth below) on the expiration
of such tender offer times the number of shares of Common Stock outstanding on
such date; and (vii) the distribution to substantially all holders of Common
Stock of rights or warrants to subscribe for securities (other than those
securities referred to in clause (iii) above). In the event of a distribution to
substantially all holders of Common Stock of rights to subscribe for additional
shares of the Company's capital stock (other than those securities referred to
in clause (iii) above), the Company may, instead of making any adjustment in the
Conversion Price, make proper provision so that each holder of a Convertible
Note who converts such Convertible Note after the record date for such
distribution and prior to the expiration or redemption of such rights shall be
entitled to receive upon such conversion, in addition to shares of Common Stock,
an appropriate number of such rights. No adjustment of the Conversion Price will
be made until cumulative adjustments amount to one percent or more of the
Conversion Price as last adjusted.
The Indenture provides that, if the Company implements a stockholder rights
plan, such rights plan must provide that upon conversion of the Convertible
Notes the holders will receive, in addition to the Common Stock issuable upon
such conversion, such rights (whether or not such rights have separated from the
Common Stock at the time of such conversion).
If the Company reclassifies or changes its outstanding Common Stock, or
consolidates with or merges into any person or transfers or leases all or
substantially all its assets, or is a party to a merger that reclassifies or
changes its outstanding Common Stock, the Convertible Notes will become
convertible into the kind and amount of securities, cash or other assets which
the holders of the Convertible Notes would have owned
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immediately after the transaction if the holders had converted the Convertible
Notes immediately before the effective date of the transaction.
The Indenture also provides that if rights, warrants or options expire
unexercised the Conversion Price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
In the Indenture, the "current market price" per share of Common Stock on
any date is deemed to be the average of the Daily Market Prices for the shorter
of (i) 30 consecutive business days ending on the last full trading day on the
exchange or market referred to in determining such Daily Market Prices prior to
the time of determination (as defined in the Indenture) or (ii) the period
commencing on the date next succeeding the first public announcement of the
issuance of such rights or warrants or such distribution through such last full
trading day prior to the time of determination.
"Excess Payment" means the excess of (A) the aggregate of the cash and fair
market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer or other
negotiated transaction over (B) the market value of such acquired shares after
giving effect to the completion of the tender offer or other negotiated
transaction.
The Company from time to time may to the extent permitted by law reduce the
Conversion Price by any amount for any period of at least 20 days, in which case
the Company shall give at least 15 days' notice of such reduction, if the Board
of Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the Conversion Price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain Federal Income Tax
Considerations."
SUBORDINATION OF CONVERTIBLE NOTES
The Convertible Notes are subordinate in right of payment to all existing
and future Senior Debt. The Indenture does not restrict the amount of Senior
Debt or other indebtedness of the Company or any Subsidiary of the Company. In
addition, the Convertible Notes are structurally subordinated to all
indebtedness and other liabilities of the Company's Subsidiaries. As of January
31, 1997, the Company had approximately $5.8 million of indebtedness outstanding
that constituted Senior Debt, none of which constituted Designated Senior Debt.
The payment of the principal of, interest on or any other amounts due on
the Convertible Notes are subordinated in right of payment to the prior payment
in full of all Senior Debt of the Company. No payment on account of principal
of, redemption of, interest on, liquidated damages on or any other amounts due
on the Convertible Notes (including, without limitation, any Designated Event
Payments), and no redemption, purchase or other acquisition of the Convertible
Notes (including, without limitation, pursuant to a Designated Event Offer) may
be made unless (i) full payment of amounts then due on all Senior Debt have been
made or duly provided for pursuant to the terms of the instrument governing such
Senior Debt, and (ii) at the time for, or immediately after giving effect to,
any such payment, redemption, purchase or other acquisition, there shall not
exist under any Senior Debt or any agreement pursuant to which any Senior Debt
has been issued, any default which shall not have been cured or waived and which
shall have resulted in the full amount of such Senior Debt being declared due
and payable. In addition, the Indenture provides that if any of the holders of
any issue of Designated Senior Debt notify (the "Payment Blockage Notice") the
Company and the Trustee that a default has occurred giving the holders of such
Designated Senior Debt or the Representative of such holders the right to
accelerate the maturity thereof, no payment on account of principal of,
redemption of, interest on, liquidated damages on or any other amounts due on
the Convertible Notes (including, without limitation, any Designated Event
Payments), and no purchase, redemption or other acquisition of the Convertible
Notes (including, without limitation, pursuant to a Designated Event Offer) will
be made for the period (the "Payment Blockage Period") commencing on the date
notice is received and ending on the earlier of (A) the date on which such event
of default shall have been cured or waived or
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(B) 180 days from the date notice is received. Notwithstanding the foregoing
(but subject to the provisions contained in the first sentence of this
paragraph), unless the holders of such Designated Senior Debt or the
Representative of such holders shall have accelerated the maturity of such
Designated Senior Debt, the Company may resume payments on the Convertible Notes
after the end of such Payment Blockage Period. Not more than one Payment
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Senior Debt during such period.
Upon any distribution of its assets in connection with any dissolution,
winding-up, liquidation or reorganization of the Company or acceleration of the
principal amount due on the Convertible Notes because of an Event of Default,
all Senior Debt must be paid in full before the holders of the Convertible Notes
are entitled to any payments whatsoever.
If payment of the Convertible Notes is accelerated because of an Event of
Default, the Company or the Trustee will promptly notify the holders of Senior
Debt or the trustee(s) for such Senior Debt of the acceleration. The Company may
not pay the Convertible Notes until five days after such holders or trustee(s)
of Senior Debt receive notice of such acceleration and, thereafter, may pay the
Convertible Notes only if the subordination provisions of the Indenture
otherwise permit payment at that time.
As a result of these subordination provisions, in the event of the
Company's insolvency, holders of the Convertible Notes may recover ratably less
than general creditors of the Company.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation) any person, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets unless (i) (a) the Company is the
surviving or continuing corporation or (b) the person formed by or surviving any
such consolidation or merger (if other than the Company) or the person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or person formed by or surviving any such
consolidation or merger (if other than the Company) assumes all the Obligations
of the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Convertible Notes and the Indenture;
(iii) such sale, assignment, transfer, lease, conveyance or other disposition of
all or substantially all of the Company's properties or assets shall be as an
entirety or virtually as an entirety to one person and such person shall have
assumed all the obligations of the Company, pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee, under the Convertible Notes
and the Indenture; (iv) immediately after such transaction no Default or Event
of Default exists; and (v) the Company or such person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such transaction and the supplemental indenture comply with the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder of any Convertible Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Convertible Notes unless such consideration
is offered to be paid or agreed to be paid to all holders of the Convertible
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any Convertible Notes are outstanding, the Company will file with the
Commission and furnish to the holders of Convertible Notes all quarterly and
annual financial information required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including a "Management's Discussion and
Analysis of Financial Condition and
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Results of Operations" and, with respect to the annual consolidated financial
statements only, a report thereon by the Company's independent auditors.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Convertible Notes; (ii) default in payment when due of principal on the
Convertible Notes; (iii) default in the payment of the Designated Event Payment
in respect of the Convertible Note on the date therefor, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (iv)
failure to provide timely notice of a Designated Event; (v) failure by the
Company for 60 days after notice to comply with any other covenants and
agreements contained in the Indenture or the Convertible Notes; (vi) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries), whether such indebtedness or
guarantee now exists or is created after the date on which the Convertible Notes
are first authenticated and issued, which default (a) is caused by a failure to
pay when due principal or interest on such indebtedness within the grace period
provided in such indebtedness (which failure continues beyond the longer of any
applicable grace period or 30 days) (a "Payment Default") or (b) results in the
acceleration of such indebtedness prior to its express maturity and, in each
case, the principal amount of any such indebtedness, together with the principal
amount of any other such indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $10 million
or more; (vii) failure by the Company or any Subsidiary of the Company to pay
final judgments (other than any judgment as to which a reputable insurance
company has accepted full liability) aggregating in excess of $10 million, which
judgments are not stayed within 60 days after their entry; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Material Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Convertible
Notes may declare all the Convertible Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Material Subsidiary, all outstanding Convertible Notes will become due and
payable without further action or notice. Holders of the Convertible Notes may
not enforce the Indenture or the Convertible Notes except as provided in the
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Convertible Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Convertible Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Convertible
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Convertible Notes waive any existing Default or Event of Default and
its consequences under the Indenture except a continuing Default or Event of
Default in the payment of the Designated Event Payment or interest on, or the
principal of, the Convertible Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Convertible Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to exchange or register
the transfer of (i) any Convertible Note for a period of 15 days next preceding
any selection of Convertible Notes to be redeemed, (ii) any Convertible Note or
portion thereof selected for redemption or (iii) any Convertible Note or portion
thereof surrendered for repurchase (and not withdrawn) in connection with a
Designated Event.
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The registered holder of a Convertible Note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or the
Convertible Notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the then outstanding Convertible
Notes (including consents obtained in connection with a tender offer or exchange
offer for Convertible Notes), and any existing default or compliance with any
provision of the Indenture or the Convertible Notes may be waived with the
consent of the holders of a majority in principal amount of the then outstanding
Convertible Notes (including consents obtained in connection with a tender offer
or exchange offer for Convertible Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Convertible Notes held by a nonconsenting holder of
Convertible Notes) (i) reduce the amount of Convertible Notes whose holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Convertible Note or alter the provisions with
respect to the redemption of the Convertible Notes, (iii) reduce the rate of or
change the time for payment of interest on any Convertible Note, (iv) waive a
default in the payment of principal of or interest on any Convertible Notes
(except a rescission of acceleration of the Convertible Notes by the holders of
at least a majority in aggregate principal amount of the Convertible Notes and a
waiver of the payment default that resulted from such acceleration), (v) make
any Convertible Note payable in money other than that stated in the Convertible
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Convertible Notes to
receive payments of principal of or interest on the Convertible Notes, (vii)
waive a redemption payment with respect to any Convertible Note, (viii) impair
the right to convert the Convertible Notes into Common Stock, (ix) modify the
conversion or subordination provisions of the Indenture in a manner adverse to
the holders of the Convertible Notes or (x) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Convertible Notes, the Company and the Trustee may amend or supplement the
Indenture or the Convertible Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Convertible Notes in addition to or
in place of certificated Convertible Notes, to provide for the assumption of the
Company's obligations to holders of the Convertible Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the holders of the Convertible Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission in order to qualify, or maintain the
qualification of, the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
An affiliate of the Trustee is a lender to the Company under the Company's
existing revolving credit facility. An affiliate of the Trustee is also the
transfer agent for the Company's Common Stock.
The holders of a majority in principal amount of the then outstanding
Convertible Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that, in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Convertible Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
23
<PAGE> 24
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the Indenture and
the Registration Agreement without charge by writing to HMT Technology
Corporation, Attn: Investor Relations, 1055 Page Avenue, Fremont, California
94538.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein, for which no definition is provided.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of equity interests in any entity,
including, without limitation, corporate stock and partnership interests.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
"Designated Senior Debt" means (i) the obligations of the Company under the
Credit Agreement (defined as the Company's existing bank credit agreement, as
amended or modified from time to time) and (ii) any other Senior Debt which, at
the date of determination, has an aggregate principal amount outstanding of, or
commitments to lend up to, at least $10.0 million and is specifically designated
by the Company in the instrument evidencing or governing such Senior Debt as
"Designated Senior Debt" for purposes of the Indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
indebtedness.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i)(a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of such person which is (1) given to secure all or part of
the purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that such person is contractually obligated
to purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guarantees or bankers' acceptances, (e) with
respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance, charge
or adverse claim affecting title or resulting in an encumbrance to which the
property or assets of such person are subject, whether or not the obligation
secured thereby shall have been assumed or guaranteed by or shall otherwise be
such person's legal liability, (f) in respect of the balance of deferred and
unpaid purchase price of any property or assets, (g) under interest rate or
currency swap agreements, cap, floor and collar agreements, spot and forward
contracts and similar agreements and arrangements; (ii) with respect to any
obligation of others of the type described in the preceding clause (i) or under
clause (iii) below assumed by or guaranteed in any manner by such person or in
effect guaranteed by such person through an agreement to purchase (including,
without limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any such assumptions,
guarantees or other such arrangements); and (iii) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing.
24
<PAGE> 25
"Material Subsidiary" means any Subsidiary of the Company which is
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act (as such Regulation is in effect on the date
hereof).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Debt.
"Senior Debt" means the principal of, interest on, fees, costs and expenses
in connection with, and other amounts due on Indebtedness of the Company,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed by the Company, unless, in the instrument
creating or evidencing or pursuant to which Indebtedness is outstanding, it is
expressly provided that such Indebtedness is not senior in right of payment to
the Convertible Notes. Senior Debt includes, with respect to the obligations
described above, interest accruing, pursuant to the terms of such Senior Debt,
on or after the filing of any petition in bankruptcy or for reorganization
relating to the Company, whether or not post-filing interest is allowed in such
proceeding, at the rate specified in the instrument governing the relevant
obligation. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include: (a) Indebtedness of or amounts owed by the Company for
compensation to employees, or for goods, services or materials purchased in the
ordinary course of business; (b) Indebtedness of the Company to a Subsidiary of
the Company; or (c) any liability for Federal, state, local or other taxes owed
or owing by the Company.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof.
25
<PAGE> 26
SELLING SECURITYHOLDERS
The following table sets forth the name of each Selling Securityholder and
relationship, if any, with the Company and (i) the amount of Convertible Notes
owned by each Selling Securityholder as of March 20, 1997 (assuming no
Convertible Notes have been sold under this Prospectus as of such date), (ii)
the maximum amount of Convertible Notes which may be offered for the account of
such Selling Securityholder under this Prospectus, (iii) the amount of Common
Stock owned by each Selling Securityholder as of March 20, 1997, and (iv) the
maximum amount of Common Stock which may be offered for the account of such
Selling Securityholder under this Prospectus.
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT OF
AMOUNT OF CONVERTIBLE COMMON STOCK COMMON STOCK
CONVERTIBLE NOTES OFFERED OWNED PRIOR TO OFFERED
NAME OF SELLING SECURITYHOLDER NOTES OWNED($) HEREBY($) OFFERING(1) HEREBY($)
- ---------------------------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Lincoln National Life Insurance... 6,455,000 6,455,000 271,789 271,789
AARP Growth and Income Fund....... 5,700,000 5,700,000 240,000 240,000
Scudder Growth and Income Fund.... 5,300,000 5,300,000 223,157 223,157
Putnam Capital Appreciation
Fund............................ 3,850,000 3,850,000 162,105 162,105
Oregon Equity Fund................ 3,500,000 3,500,000 147,368 147,368
SAIF Corporation.................. 3,000,000 3,000,000 126,315 126,315
OCM Convertible Trust............. 2,985,000 2,985,000 125,684 125,684
Lincoln National Convertible
Securities Fund................. 2,420,000 2,420,000 101,894 101,894
State of Connecticut Combined
Investment Funds................ 2,360,000 2,360,000 99,368 99,368
Delta Air Lines Master Trust...... 1,815,000 1,815,000 76,421 76,421
Vanguard Convertible Securities
Fund, Inc....................... 1,700,000 1,700,000 71,578 71,578
Pension Reserves Investment
Management Board................ 1,325,000 1,325,000 55,789 55,789
San Diego County.................. 1,265,000 1,265,000 53,263 53,263
Arkansas P.E.R.S.................. 1,200,000 1,200,000 50,526 50,526
State of Delaware -- Froley,
Revy............................ 1,020,000 1,020,000 42,947 42,947
Nicholas-Applegate Income & Growth
Fund............................ 958,000 958,000 40,336 40,336
Hughes Aircraft Company Master
Retirement Trust................ 940,000 940,000 39,578 39,578
Weirton Trust..................... 750,000 750,000 31,578 31,578
State Employees' Retirement Fund
of the State of Delaware........ 740,000 740,000 31,157 31,157
ICI American Holdings Pension
Trust........................... 410,000 410,000 17,263 17,263
Zeneca Holdings Pension Trust..... 410,000 410,000 17,263 17,263
Walker Art Center................. 300,000 300,000 12,631 12,631
Starvest Discretionary
Portfolio....................... 300,000 300,000 12,631 12,631
San Diego City Retirement......... 297,000 297,000 12,505 12,505
J.M. Hull Associates, L.P......... 250,000 250,000 10,526 10,526
Wake Forest University............ 236,000 236,000 9,936 9,936
Partner Reinsurance Company,
Limited......................... 210,000 210,000 8,842 8,842
Kapiolani Medical Center.......... 200,000 200,000 8,421 8,421
Engineers Joint Pension Fund...... 150,000 150,000 6,315 6,315
Nalco Chemical Co. Retirement
Trust........................... 135,000 135,000 5,684 5,684
United National Life Insurance.... 115,000 115,000 4,842 4,842
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT OF
AMOUNT OF CONVERTIBLE COMMON STOCK COMMON STOCK
CONVERTIBLE NOTES OFFERED OWNED PRIOR TO OFFERED
NAME OF SELLING SECURITYHOLDER NOTES OWNED($) HEREBY($) OFFERING(1) HEREBY($)
- ---------------------------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Austin Firefighters............... 109,000 109,000 4,589 4,589
Retirement Plan for Pilots of
Hawaiian Airlines, Inc.......... 100,000 100,000 4,210 4,210
Baptist Hospital.................. 95,000 95,000 4,000 4,000
Occidental College................ 90,000 90,000 3,789 3,789
Boston Museum of Fine Arts........ 40,000 40,000 1,684 1,684
Dunham & Associates Fund II....... 7,000 7,000 294 294
Dunham & Associates Ser. II....... 3,000 3,000 126 126
Delaware Group Dividend & Income
Fund, Inc....................... 1,000 1,000 42 42
Subtotal.......................... $ 50,741,000 $ 50,741,000 2,136,446 2,136,446
Unnamed holders of Convertible
Notes or any future transferees,
pledgees, donees or successors
of or from any such unnamed
holders(3)...................... $179,259,000 $ 179,259,000 7,547,764 7,547,764
Total........................ $230,000,000 $ 230,000,000 9,684,210 9,684,210
</TABLE>
- ---------------
(1) Comprises the shares of Common Stock into which the Convertible Notes held
by such Selling Securityholder are convertible at the initial conversion
rate. The Conversion Rate and the number of shares of Common Stock issuable
upon conversion of the Convertible Notes are subject to adjustment under
certain circumstances. See "Description of Convertible Notes -- Conversion."
Accordingly, the number of shares of Common Stock issuable upon conversion
of the Convertible Notes may increase or decrease from time to time.
(2) Assumes conversion into Common Stock of the full amount of Convertible Notes
held by the Selling Securityholder at the initial conversion rate and the
offering of such shares by such Selling Securityholder pursuant to this
Prospectus. The Conversion Rate and the number of shares of Common Stock
issuable upon conversion of the Convertible Notes is subject to adjustment
under certain circumstances. See "Description of Convertible
Notes -- Conversion." Accordingly, the number of shares of Common Stock
issuable upon conversion of the Convertible Notes may increase or decrease
from time to time. Fractional shares will not be issued upon conversion of
the Convertible Notes; rather, cash will be paid in lieu of fractional
shares, if any.
(3) No such holder may offer Convertible Notes pursuant to this Prospectus until
such holder is included as a Selling Securityholder in a supplement to this
Prospectus in accordance with the Registration Agreement (as defined).
(4) Assumes that the unnamed holders of Convertible Notes or any future
transferees, pledgees, donees or successors of or from any such unnamed
holder do not beneficially own any Common Stock other than the Common Stock
issuable upon conversion of the Convertible Notes at the initial conversion
rate.
Because the Selling Securityholders may, pursuant to this Prospectus, offer
all or some portion of the Convertible Notes and Common Stock they presently
hold or, with respect to Common Stock, have the right to acquire upon conversion
of such Convertible Notes, no estimate can be given as to the amount of the
Convertible Notes and Common Stock that will be held by the Selling
Securityholders upon termination of any such sales. In addition, the Selling
Securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Convertible Notes and Common Stock since
the date on which they provided the information regarding their Convertible
Notes and Common Stock, in transactions exempt from the registration
requirements of the Securities Act. See "Plan of Distribution."
27
<PAGE> 28
Only Selling Securityholders identified above who beneficially own the
Convertible Notes and Common Stock set forth opposite each such Selling
Securityholder's name in the foregoing table on the effective date of the
Registration Statement may sell such Convertible Notes and Common Stock pursuant
to this Prospectus. The Company may from time to time, in accordance with the
Registration Agreement, include additional Selling Securityholders in
supplements to this Prospectus.
Other than as set forth in the table, none of the Selling Securityholders
listed above had any material relationship with the Company other than as a
result of ownership of the Convertible Notes, within the three-year period
ending on the date of this Prospectus.
The Company will pay the expenses of registering the Convertible Notes and
Common Stock being sold hereunder.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from this offering. The
Selling Securityholders may sell all or a portion of the Convertible Notes and
the Conversion Shares beneficially owned by them and offered hereby from time to
time on any exchange on which the securities are listed on terms to be
determined at the times of such sales. The Selling Securityholders may also make
private sales directly or through a broker or brokers. Alternatively, any of the
Selling Securityholders may from time to time offer the Convertible Notes or
shares of Common Stock beneficially owned by them through underwriters, dealers
or agents, who may receive compensation in the form of underwriting discounts,
commissions or concessions from the Selling Securityholders and the purchasers
of the Convertible Notes or Conversion Shares for whom they may act as agent.
Each Selling Securityholder will be responsible for payment of commissions,
concessions and discounts of underwriters, dealers or agents. The aggregate
proceeds to the Selling Securityholders from the sale of the Convertible Notes
or Conversion Shares offered by them hereby will be the purchase price of such
Convertible Notes or Conversion Shares less discounts and commissions, if any.
The Convertible Notes and the Conversion Shares offered hereby may be sold
from time to time by the Selling Securityholders to purchasers directly by any
of the Selling Securityholders acting as principal for its own account in one or
more transactions at a fixed price, which may be changed, or at varying prices
determined at the time of sale or at negotiated prices. Such prices will be
determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or commissions in
connection therewith.
The Company's outstanding Common Stock is listed for trading on the Nasdaq
National Market. The Initial Purchasers may make a market in the Convertible
Notes; however, they are not obligated to do so and any such market-making may
be discontinued at any time without notice, in the sole discretion of the
Initial Purchasers. The Company does not intend to apply for listing of the
Convertible Notes on any securities exchange. Accordingly, no assurance can be
given as to the development of any trading market that may develop for the
Convertible Notes. See "Risk Factors -- Lack of Trading Market for the
Convertible Notes; Volatility of Convertible Note and Common Stock Prices."
In order to comply with the securities laws of certain states, if
applicable, the Convertible Notes and Conversion Shares may be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Convertible Notes and Conversion Shares may not
be sold unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
The Selling Securityholders and any underwriters, dealers or agents that
participate in the distribution of the Convertible Notes and Conversion Shares
offered hereby may be deemed to be underwriters within the meaning of the Act,
and any discounts, commissions or concessions received by them and any provided
pursuant to the sale of shares by them might be deemed to be underwriting
discounts and commissions under the Act.
28
<PAGE> 29
In addition, any securities covered by this Prospectus which 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. There is no
assurance that any Selling Securityholder will sell any or all of the
Convertible Notes or Conversion Shares described herein, and any Selling
Securityholder may transfer, devise or gift such securities by other means not
described herein.
The Convertible Notes were originally sold to the Initial Purchasers in
January 1997 in a private placement. The Company agreed to indemnify and hold
the Initial Purchasers harmless against certain liabilities which they may incur
under the Securities Act, the Exchange Act or otherwise that could arise in
connection with the offering of the Convertible Notes by the Initial Purchasers.
The Company entered into a Registration Agreement with the Initial
Purchasers for the benefit of holders of the Convertible Notes to register their
Convertible Notes and Conversion Shares under applicable Federal and state
securities laws under certain circumstances and at certain times. The
Registration Agreement provides for cross-indemnification of the Selling
Securityholders and the Company to the extent permitted by law, for losses,
claims, damages, liabilities and expenses arising, under certain circumstances,
out of any registration of the Convertible Notes and Conversion Shares.
The Company will use its best efforts to cause the registration statement
to which this prospectus relates to become effective as soon as practicable and
to keep the registration statement effective for a period of three years from
January 27, 1997 (the latest date of original issuance of the Convertible
Notes), or until the registration statement is no longer required for transfer
of the Convertible Notes or the Conversion Shares. The Company is permitted to
suspend the use of this Prospectus in connection with the sales of Convertible
Notes and the Conversion Shares by holders upon the happening of certain events
or if there exists any fact that makes any statement of material fact made in
this Prospectus untrue or that requires the making of additions to or changes in
the prospectus in order to make the statements herein not misleading until such
time as the Company advises the Selling Securityholders that use of the
prospectus may be resumed. Expenses of preparing and filing the registration
statement and all post-effective amendments will be borne by the Company. Such
expenses are estimated to be $200,000.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Convertible Notes. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and
judicial decisions now in effect all of which are subject to change (possibly
with retroactive effect) or different interpretations. This discussion does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor's decision to purchase the Convertible Notes, and it is
not intended to be wholly applicable to all categories of investors, some of
which, such as dealers in securities, banks, insurance companies, tax-exempt
organizations and non-United States persons, may be subject to special rules. In
addition, this discussion is limited to persons that purchase the Convertible
Notes pursuant to this Prospectus and hold the Convertible Notes as a "capital
asset" within the meaning of Section 1221 of the Code.
ALL PROSPECTIVE PURCHASERS OF THE CONVERTIBLE NOTES ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CONVERTIBLE NOTES
AND THE COMMON STOCK.
INTEREST INCOME
A holder of a Convertible Note will generally be required to report as
income for federal income tax purposes interest earned on the Convertible Note
in accordance with the holder's method of tax accounting. A holder of a
Convertible Note using the accrual method of accounting for tax purposes is
required to include interest in ordinary income as such interest accrues, while
a cash basis holder must include interest in income when payments are received
(or made available for receipt).
29
<PAGE> 30
CONVERSION OF CONVERTIBLE NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes on a conversion of the Convertible Notes into shares of Common Stock.
However, cash paid in lieu of a fractional share of Common Stock will likely
result in taxable gain (or loss), which will be capital gain or loss, to the
extent that the amount of such cash exceeds (or is exceeded by) the portion of
the adjusted basis of the Convertible Note allocable to such fractional share.
The adjusted basis of shares of Common Stock received on conversion will equal
the adjusted basis of the Convertible Note converted, reduced by the portion of
adjusted basis allocated to any fractional share of Common Stock exchanged for
cash. The holding period of an investor in the Common Stock received on
conversion will include the period during which the converted Convertible Notes
were held.
The conversion price of the Convertible Notes is subject to adjustment
under certain circumstances. See "Description of Convertible
Notes -- Conversion." Section 305 of the Code and the Treasury Regulations
issued thereunder may treat the holders of the Convertible Notes as having
received a constructive distribution, resulting in ordinary income (subject to a
possible dividends received deduction in the case of corporate holders) to the
extent of the Company's then current and/or accumulated earnings and profits, if
and to the extent that certain adjustments in the conversion price that may
occur in limited circumstances (particularly an adjustment to reflect a taxable
dividend to holders of Common Stock) increase the proportionate interest of a
holder of Convertible Notes in the fully diluted Common Stock, whether or not
such holder ever exercises its conversion privilege. Moreover, if there is not a
full adjustment to the conversion price of the Convertible Notes to reflect a
stock dividend or other event increasing the proportionate interest of the
holders of outstanding Common Stock in the assets or earnings and profits of the
Company, then such increase in the proportionate interest of the holders of the
Common Stock generally will be treated as a distribution to such holders,
taxable as ordinary income (subject to a possible dividends received deduction
in the case of corporate holders) to the extent of the Company's then current
and/or accumulated earnings.
MARKET DISCOUNT
Investors acquiring Convertible Notes pursuant to this Prospectus should
note that the resale of those Convertible Notes may be adversely affected by the
market discount provisions of sections 1276 through 1278 of the Code. Under the
market discount rules, if a holder of a Convertible Note purchases it at market
discount (i.e., at a price below its stated redemption at maturity) in excess of
a statutorily-defined de minimis amount and thereafter recognizes gain upon a
disposition or retirement of the Convertible Note, then the lesser of the gain
recognized or the portion of the market discount that accrued on a ratable basis
(or, if elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount on
a Convertible Note may be taxable to an investor to the extent of appreciation
at the time of certain otherwise non-taxable transactions (e.g., gifts). Any
accrued market discount not previously taken into income prior to a conversion
of a Convertible Note, however, should carry over to the Common Stock received
on conversion and be treated as ordinary income upon a subsequent disposition of
such Common Stock to the extent of any gain recognized on such disposition. In
addition, absent an election to include market discount in income as it accrues,
a holder of a market discount debt instrument may be required to defer a portion
of any interest expense that otherwise may be deductible on any indebtedness
incurred or maintained to purchase or carry such debt instrument until the
holder disposes of the debt instrument in a taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF CONVERTIBLE NOTES
Each holder of Convertible Notes generally will recognize gain or loss upon
the sale, exchange, redemption, repurchase, retirement or other disposition of
those Convertible Notes measured by the difference (if any) between (i) the
amount of cash and the fair market value of any property received (except to the
extent that such cash or other property is attributable to the payment of
accrued interest not previously included in income, which amount will be taxable
as ordinary income) and (ii) the holder's adjusted tax basis in those
Convertible Notes (including any market discount previously included in income
by the holder). Each holder of Common Stock into which the Convertible Notes are
converted, in general, will recognize gain
30
<PAGE> 31
or loss upon the sale, exchange, redemption or other disposition of the Common
Stock measured under rules similar to those described in the preceding sentence
for the Convertible Notes. Special rules may apply to redemptions of Common
Stock which may result in different treatment. Any such gain or loss recognized
on the sale, exchange, redemption, repurchase, retirement or other disposition
of a Convertible Note or share of Common Stock should be capital gain or loss
(except as discussed under "-- Market Discount" above), and would be long-term
capital gain or loss if the Convertible Note or the Common Stock had been held
for more than one year at the time of the sale or exchange. An investor's
initial basis in a Convertible Note will be the cash price paid therefor.
BACK-UP WITHHOLDING
A holder of Convertible Notes or Common Stock may be subject to "back-up
withholding" at a rate of 31% with respect to certain "reportable payments,"
including interest payments, dividend payments and, under certain circumstances,
principal payments on the Convertible Notes. These back-up withholding rules
apply if the holder, among other things, (i) fails to furnish a social security
number or other taxpayer identification number ("TIN") certified under penalties
of perjury within a reasonable time after the request therefor, (ii) furnishes
an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalty of perjury, that the TIN furnished is the correct number and that
the holder is not subject to back-up withholding. A holder who does not provide
the Company with its correct TIN also may be subject to penalties imposed by the
IRS. Any amount withheld from a payment to a holder under the back-up
withholding rules is creditable against the holder's federal income tax
liability, provided the required information is furnished to the IRS. Back-up
withholding will not apply, however, with respect to payments made to certain
holders, including corporations, tax-exempt organizations and certain foreign
persons, provided their exemption from back-up withholding is properly
established.
The Company will report to the holders of Convertible Notes and Common
Stock and to the IRS the amount of any "reportable payments" for each calendar
year and the amount of tax withheld, if any, with respect to such payments.
LEGAL MATTERS
The validity of the issuance of the Convertible Notes and Conversion Shares
offered hereby has been passed upon for the Company by Cooley Godward LLP, Palo
Alto, California.
EXPERTS
The consolidated financial statements of the Company included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996,
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report dated April 25, 1996, except for Note
11 as to which the date is May 6, 1996, and are incorporated by reference herein
in reliance upon the report of such firm, which report is given upon their
authority as experts in accounting and auditing.
31
<PAGE> 32
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents By
Reference........................... 2
The Company........................... 3
Risk Factors.......................... 3
Ratio of Earnings To Fixed Charges.... 11
Use of Proceeds....................... 11
Description of Capital Stock.......... 12
Description of Convertible Notes...... 14
Selling Securityholders............... 26
Plan of Distribution.................. 28
Certain Federal Income Tax
Consequences........................ 29
Legal Matters......................... 31
Experts............................... 31
</TABLE>
======================================================
======================================================
$230,000,000
5 3/4% CONVERTIBLE SUBORDINATED
NOTES DUE 2004 AND
SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION THEREOF
HMT TECHNOLOGY
--------------------
PROSPECTUS
--------------------
APRIL 29, 1997
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