<PAGE>
As filed with the Securities and Exchange Commission on August 4, 2000
Registration No. 333-41848
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
To
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
EFFICIENT NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C>
Delaware 75-2486865
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
4849 Alpha Road, Dallas, Texas 75244, (972) 852-1000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Mark A. Floyd
President and Chief Executive Officer
Efficient Networks, Inc.
4849 Alpha Road, Dallas, Texas 75244, (972) 852-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
John L. Donahue, Esq.
Adam R. Dolinko, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road, Palo Alto, California 94304-1050, (650) 493-9300
---------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 4, 2000
EFFICIENT NETWORKS, INC.
$400,000,000
5% Convertible Subordinated Notes Due 2005 and
the Common Stock Issuable Upon Conversion of the Notes
We issued the notes in a private placement in March 2000. This prospectus
will be used by selling securityholders to resell their notes and the common
stock issuable upon conversion of their notes.
The notes are convertible prior to maturity into common stock at an initial
conversion price of $181.00 per share, subject to adjustment in certain events.
We will pay interest on the notes on March 15 and September 15 of each year,
beginning on September 15, 2000. The notes will mature on March 15, 2005,
unless earlier converted or redeemed.
We may redeem all or a portion of the notes on or after March 20, 2003. In
addition, the holders may require us to repurchase the notes upon a fundamental
change prior to March 15, 2005.
The reported last sales price of our common stock on the Nasdaq National
Market on August 3, 2000 was $57.625 per share. Our common stock is traded on
the Nasdaq National Market under the symbol "EFNT."
-----------
The securities offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 7 of this prospectus for information that you should
consider before purchasing these securities.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
This prospectus is dated , 2000
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Where You Can Find More Information........................................ 3
Summary.................................................................... 5
Risk Factors............................................................... 7
Use of Proceeds............................................................ 19
Ratio of Earnings to Fixed Charges......................................... 19
Description of Notes....................................................... 20
Certain United States Federal Income Tax Considerations.................... 31
Selling Securityholders.................................................... 37
Plan of Distribution....................................................... 41
Legal Matters.............................................................. 42
Experts.................................................................... 42
</TABLE>
i
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Commission,
in accordance with the Securities Exchange Act of 1934. You may read and copy
our reports, proxy statements and other information filed by us at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices;
7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our reports, proxy statements and other information filed with
the Commission are available to the public over the Internet at the
Commission's World Wide Web site at http://www.sec.gov.
The Commission allows us to "incorporate by reference" into this prospectus
the information we file with the Commission. This means that we can disclose
important information by referring you to those documents. The information
incorporated by reference is considered to be a part of this prospectus.
Information that we file later with the Commission will automatically update
and supersede this information. We incorporate by reference the documents
listed below and any future filings made by us with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is
complete:
. The description of our Common Stock which is contained in our
Registration Statement on Form 8-A filed with the Commission on June 22,
1999 pursuant to Section 12 of the Exchange Act (File No. 000-26473),
and any description of any of our securities which is contained in any
registration statement filed after the date hereof under Section 12 of
the Exchange Act, including any amendment or report filed for the
purpose of updating any such description.
. Our Annual Report on Form 10-K for the fiscal year ended June 30, 1999
as filed with the Commission on September 13, 1999 (File No. 000-26473);
. Our Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1999 as filed with the Commission on October 20, 1999 (File No. 000-
26473);
. Our Current Report on Form 8-K as filed with the Commission on December
30, 1999 (File No. 333-77795);
. Our Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1999 as filed with the Commission on February 14, 2000 (File No.
333-77795);
. Flowpoint Corporation's Financial Statements included in our
Registration Statement on Form S-1 as filed with the Commission on
January 10, 2000 (Registration No. 333-94289);
. Our Current Report on Form 8-K as filed with the Commission on March 1,
2000 (File No. 333-77795);
. Our Current Report on Form 8-K as filed with the Commission on March 6,
2000 (File No. 333-77795);
. Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2000 as filed with the Commission on May 12, 2000 (File No. 000-26473);
. Our Quarterly Report on Form 10-Q/A for the fiscal quarter ended March
31, 2000 as filed with the Commission on July 14, 2000 (File No. 000-
26473); and
. Our Current Report on Form 8-K as filed with the Commission on July 20,
2000 (File No. 000-26473).
3
<PAGE>
You may request a copy of these filings, at no cost, by contacting us at the
following address:
Investor Relations Department
Efficient Networks, Inc.
4849 Alpha Road
Dallas, Texas 75244
Telephone: (972) 852-1000
E-Mail: [email protected]
You should rely only on the information incorporated by reference or
provided in this prospectus or a prospectus supplement or amendment. We have
not authorized anyone else to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume the information in this prospectus is accurate
as of any date other than the date on the front of those documents.
4
<PAGE>
SUMMARY
This summary highlights some information from this prospectus, and it may
not contain all of the information that is important to you. It is qualified in
its entirety by the more detailed information and consolidated financial
statements, including the notes to the consolidated financial statements,
incorporated by reference in this prospectus. You should read the full text of,
and consider carefully the more specific details contained in or incorporated
by reference into this prospectus. When used in this prospectus, the terms
"Efficient," "we," "our" and "us" refer to Efficient Networks, Inc. and not to
the selling securityholder.
Efficient Networks, Inc.
Efficient Networks is a worldwide developer and supplier of high-speed
digital subscriber line customer premises equipment for the high-speed, high-
volume digital communication, or broadband, access market. Digital subscriber
line, or DSL, solutions enable telecommunications and other communication
network service providers to provide high-speed, cost-effective broadband
access services over the existing copper wire telephone infrastructure. We
believe there is significant demand for broadband access, especially among
business users and consumers who have found current solutions to be inadequate
or too expensive. DSL networks generally consist of two core components, one
installed at the network operator's facility--typically referred to as the
central office--and one installed at the customer's home or business. The DSL
equipment installed at the customer premises is generally referred to as
customer premises equipment. We develop and produce DSL customer premises
equipment, and in particular single- and multiple-user DSL customer premises
equipment for small- to medium-size businesses, branch offices of large
corporations and consumers. Our DSL products enable applications such as high-
speed Internet access, electronic commerce, access to computer networks from
remote locations, telecommuting and extensions of corporate networks to branch
offices.
We were incorporated in Delaware in 1993. Our principal executive offices
are located at 4849 Alpha Road, Dallas, Texas 75244 and our telephone number is
(972) 852-1000. Our Website is located at http://www.efficient.com. Information
contained on our Website does not constitute part of this prospectus.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Securities Offered... $400,000,000 principal amount of 5% Convertible
Subordinated Notes Due March 15, 2005 and the common
stock underlying such notes.
Interest............. The notes bear interest at an annual rate of 5%. We will
pay interest on March 15 and September 15 of each year,
beginning September 15, 2000.
Maturity Date........ March 15, 2005.
Conversion........... The notes may be converted into common stock at any time
on or before March 15, 2005 at a conversion price of
$181.00 per share, subject to adjustment if some events
affecting our common stock occur.
Subordination........ The notes are subordinated to all senior indebtedness
and to all debt and other liabilities of our
subsidiaries. Neither we nor our subsidiaries are
limited from incurring additional debt, including
senior indebtedness, under the indenture.
Optional Redemption.. On or after March 20, 2003, we may redeem the notes at
the redemption prices listed in this prospectus,
together with accrued and unpaid interest.
Fundamental Change... In the event of a fundamental change prior to March 15,
2005, a noteholder, at its option, may require us to
redeem all or any part (provided that the principal
amount is $1,000 or an integral multiple thereof) of
the holder's notes at 100% of the principal amount of
the notes to be redeemed plus accrued interest.
Sinking Fund......... None.
Use Of Proceeds...... We will not receive any of the proceeds from the sale by
any selling securityholder of the notes or the
underlying common stock.
</TABLE>
6
<PAGE>
RISK FACTORS
Before you invest in the notes or shares of Efficient common stock
underlying the notes, you should be aware of various risks, including those
described below. You should carefully consider these risk factors, together
with all of the other information included or incorporated by reference in this
prospectus, before you decide whether to purchase the notes or the shares of
common stock underlying the notes. The risks set out below are not the only
risks we face.
If any of the following risks occur, our business, financial condition and
results of operations could be materially adversely affected. In such case, the
trading price of the notes and common stock could decline, and you may lose all
or part of your investment.
Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in this prospectus and in the documents incorporated herein by
reference. These are statements that relate to our expectations for future
events and time periods. Generally, the words "anticipate," "expect," "intend"
and similar expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties, and future events and circumstances
could differ significantly from those anticipated in the forward-looking
statements.
Risks Associated With the Digital Subscriber Line Industry
Sales of our products depend on the widespread adoption of broadband access
services and if the demand for broadband access services does not develop, then
our results of operations and financial condition would be adversely affected.
Our business would be harmed, and our results of operations and financial
condition would be adversely affected, if the use of broadband access services
does not increase as anticipated, or if our customers' broadband access
services are not well received in the marketplace. Certain critical factors
will likely continue to affect the development of the broadband access services
market. These factors include:
. inconsistent quality and reliability of service;
. lack of availability of cost-effective, high-speed service,
. inability to integrate business applications on the Internet;
. lack of interoperability among multiple vendors' network equipment;
. congestion in service providers' networks;
. inadequate security; and
. inability to meet growing demands for increasing bandwidth.
Even if these factors are adequately addressed, the market for broadband
access services to the Internet and corporate networks may fail to develop or
may develop more slowly than anticipated. If this market fails to develop or
develops more slowly than anticipated, our business would be harmed, and our
results of operations and financial condition would be adversely affected.
7
<PAGE>
Many competing technologies serve our target market. If the DSL technology upon
which our products are based does not succeed as a technological solution for
broadband access, we would not be able to sustain or grow our business.
The market for high-speed data transmission services has several competing
technologies which offer alternative solutions, and the demand for DSL services
is uncertain in light of this competition. Technologies which compete with DSL
are:
. other access solutions provided by telephone network service providers
such as dial-up analog modems, integrated services digital networks
(ISDN) and T1 services;
. broadband wireless technologies; and
. broadband cable technologies.
The introduction of new products based on these or alternative technologies
or the emergence of new industry standards could render our products less
competitive or obsolete. If any of these events occur, we would be unable to
sustain or grow our business.
If these alternatives gain market share at the expense of DSL technologies,
demand for our products would be reduced, and we would be unable to sustain or
grow our business. Additionally, wireless and cable network service providers
are well funded, and cable network service providers have large existing
customer bases. As a result, competition from these companies is intense and
expected to increase.
We depend upon network service providers to deploy DSL services in a broad and
timely manner, and if they do not, we would be unable to sell our products.
We sell our products to network service providers who in turn sell them to
end users in connection with the service provider's deployment of DSL services.
If the network service providers fail to deploy DSL services, we would be
unable to sell our products as anticipated, if at all. Factors that impact
deployments include:
. a prolonged approval process, including laboratory tests, technical
trials, marketing trials, initial commercial deployment and full
commercial deployment;
. the development of a viable business model for DSL services, including
the capability to market, sell, install and maintain DSL services;
. cost constraints, such as installation costs and space and power
requirements at the network service providers' central offices;
. varying and uncertain conditions of the installed copper wire, including
size and length, electrical interference, and crossover interference
with voice and data telecommunications services;
. problems of interoperability among DSL network equipment vendors'
products;
. evolving industry standards for DSL technologies; and
. domestic and foreign government regulation.
Risks Within the DSL Industry
Competition within the DSL market is intense and includes numerous, well
established competitors. If we are unable to compete effectively, our business
would be harmed.
Competition in the DSL customer premises equipment market is intense, and we
expect competition to increase. Many of our competitors and potential
competitors have substantially greater name recognition and technical,
financial and marketing resources than we have. In addition, many of our
competitors are able to
8
<PAGE>
offer their customers a range of products of which customer premises equipment
is only one element. Our customers may prefer to purchase from fewer vendors,
and may therefore favor competitors with broader product offerings. If we are
unable to compete successfully, our business will be harmed and our results of
operations and financial condition would be adversely affected. We cannot
assure you that we will have the financial resources, technical expertise or
marketing, distribution and support capabilities to compete successfully.
Competitive pressures could adversely affect us in the following ways:
. reduce demand for our products if customers shift their purchasing to
competitors; or
. cause us to reduce prices on our existing or future products and thereby
adversely affect our gross margins.
Our failure to enhance our existing products or to develop and introduce new
products that meet changing customer requirements and emerging industry
standards would adversely impact our ability to sell our products.
The market for high-speed broadband access is characterized by rapidly
changing customer demands and short product life cycles. If our product
development and enhancements take longer than planned, the availability of our
products would be delayed. Any such delay could adversely impact our ability to
sell our products and our results of operations and financial condition would
be adversely affected. Our future success will depend in large part upon our
ability to:
. identify and respond to emerging technological trends in the market;
. develop and maintain competitive products that meet changing customer
demands;
. enhance our products by adding innovative features that differentiate
our products from those of our competitors;
. bring products to market on a timely basis;
. introduce products that have competitive prices; and
. respond effectively to new technological changes or new product
announcements by others.
Our current products are not interoperable with certain products offered by
suppliers to our customers and are subject to evolving industry standards. If
our products do not interoperate with our target customers' networks or an
industry standard that achieves market acceptance, customers may refuse to
purchase our products.
In some cases, network equipment vendors, such as Cisco Systems, Inc., sell
to our target customers proprietary or unique systems with which our products
will not function. In these cases, potential customers that have purchased
network equipment that does not function with our DSL customer premises
equipment will not purchase our products for those incompatible networks.
Also, the emergence of new industry standards, whether through adoption by
official standards committees or widespread use by our target customers, could
require us to redesign our products. If such standards become widespread and
our products do not meet these standards, our product sales would decrease, and
our business would be harmed. Additionally, the adoption of new standards
increases the risk that competitors could more easily develop products that
directly compete with our products, which could result in greater competition
and pricing pressure.
9
<PAGE>
We may not be able to produce sufficient quantities of our DSL products because
we depend on third-party manufacturers. If these manufacturers fail to produce
our products in a timely manner, our ability to fulfill our customer orders
would be adversely impacted.
We rely upon third parties to manufacture our products and we expect this to
continue in the future. Our success therefore depends, in significant part, on
our third party manufacturers to cost effectively produce our products in
sufficient quantities to meet demand. There are a number of risks associated
with relying on third-party manufacturers, including the following:
. reduced control over delivery schedules;
. reduced control over quality and quality assurance; and
. reduced control over manufacturing yields and costs.
We have no long-term contracts or arrangements with any of our vendors that
guarantee product availability, the continuation of particular payment terms or
the extension of credit limits. The competitive dynamics of our market require
us to obtain components at favorable prices, but we may not be able to obtain
additional volume purchase or manufacturing arrangements on terms that we
consider acceptable, if at all. If we enter into a high-volume or long-term
supply arrangement and subsequently decide that we cannot use the products or
services provided for in the agreement, our business would also be harmed.
We may not be able to produce sufficient quantities of our products because we
obtain certain key components from, and depend on, certain sole-source
suppliers. If we are unable to obtain these sole-source components, we would
not be able to ship our products in a timely manner and our relationships with
our customers could be harmed.
We obtain certain parts, components and equipment used in our products from
sole sources of supply. For example, we obtain certain semiconductor chipsets
from Alcatel Microelectronics, Motorola, Inc., Analog Devices, Inc., Texas
Instruments Incorporated, and Conexant Systems, Inc. We also rely on Texas
Instruments Incorporated, Samsung Semiconductor Inc., and VLSI Technology, Inc.
to manufacture our application specific integrated circuits.
Although we have agreements with many of these component providers, these
agreements do not require the vendors to meet our supply demands. In recent
periods we have experienced difficulties in obtaining adequate supplies of
certain components, particularly chipsets from Alcatel and Motorola. In
addition, certain standard components, such as flash memory, have been in short
supply and, as a result, have been more expensive than anticipated.
Although these difficulties have not resulted in revenue shortfalls in prior
periods, they have lead to higher costs and to extended delivery times for
customer orders. In future periods, we could continue to experience component
supply difficulties which could continue to result in higher than anticipated
costs, extended delivery cycles and, if sufficiently severe, could cause our
revenues to fail to meet analyst expectations. Moreover, to the extent that we
experience component supply difficulties and our competitors do not, our
customers may elect to move their business to a competitor in order to ensure
timely delivery. Recapturing any business lost due to delayed deliveries may be
difficult or impossible. Any of these outcomes could harm our business.
We may be subject to product returns and product liability claims resulting
from defects in our products. Product returns and product liability claims
could result in the failure to attain market acceptance of our products and
harm our business.
Our products are complex and may contain undetected defects, errors or
failures. The occurrence of any defects, errors or failures could result in
delays in installation, product returns and warranty claims beyond that for
which we have established reserves. Any of these occurrences could also result
in the loss of or delay in market acceptance of our products, either of which
would harm our business and adversely affect our operating results and
financial condition.
10
<PAGE>
Although we have not experienced any material product liability claims to
date, the sale and support of our products entail the risk of these claims. A
successful product liability claim brought against us could be expensive,
divert the attention of management from ordinary business activities and,
correspondingly, harm our business.
Risks That May Cause Financial Fluctuations
We have incurred net losses since our inception and expect future losses.
Accordingly, we may not be able to achieve profitability, and even if we do
become profitable, we may not be able to sustain profitability.
Due to our limited operating history and our history of losses, we may never
be able to achieve profitability, and even if we do, we may not be able to
remain profitable. To achieve profitable operations on a continuing basis, we
must successfully design, develop, test, manufacture, introduce, market and
distribute our products on a broad commercial basis.
In addition to the foregoing, in connection with our acquisition of
Flowpoint Corporation in December 1999, we recorded approximately $925.1
million of intangible assets which we are amortizing at the rate of
approximately $46.3 million per quarter over a five year period. This goodwill
amortization will adversely affect operating results. Therefore, even if we
achieve positive cash flow from operations, we expect to continue to be
unprofitable for a significant additional period.
Our ability to become operationally profitable will depend on a number of
factors, many of which are beyond our control. These factors include:
. the rate of market acceptance of DSL broadband access in general and the
demand for our products in particular;
. our ability to reduce the manufacturing and component costs of our
products;
. the competitive environment for DSL customer premises equipment and the
rate at which the prices that we are able to command for our products
may decline; and
. our ability to achieve manufacturing and operational efficiencies as we
grow our operations.
Due to these factors, we cannot forecast with any degree of accuracy when or
if we will become operationally profitable or, if we achieve such
profitability, that we would be able to sustain it.
We have a short operating history and, as a result, it is difficult to predict
our future results of operations.
We have a short operating history upon which to evaluate our business. We
first commenced product shipments in August 1994 and did not introduce DSL
products until March 1998. Due to our limited operating history, it is
difficult or impossible for us to predict future results of operations. You
should not expect future revenue growth to be comparable to our recent revenue
growth. In addition, we believe that comparing different periods of our
operating results is not meaningful, and you should not rely on the results for
any period as an indication of our future performance. Investors in our common
stock must consider our business and prospects in light of the risks and
difficulties typically encountered by companies in their early stages of
development, particularly those in rapidly evolving markets such as ours.
11
<PAGE>
If sales forecasted for a particular period are not realized in that period due
to the lengthy sales cycle of our products, our operating results for that
period would be adversely affected.
If we fail to realize forecasted sales for a particular period, our
operating results would be adversely affected and our stock price would likely
decline and could decline significantly. The sales cycle of our products is
typically lengthy and involves:
. a significant technical evaluation;
. delays associated with network service providers' internal procedures to
commit to a particular product line offering and approve large capital
expenditures;
. time required to deploy new technologies within service providers'
networks; and
. testing and acceptance of new technologies.
For these and other reasons, a sale of our products generally requires six
to twelve months to complete. Furthermore, the announcement and projected
implementation of new standards may affect sales cycles, as network service
providers may choose to delay large-scale deployment of DSL services until
compliant products are available.
Our product cycles tend to be short, and we may incur substantial non-
recoverable expenses or devote significant resources to sales that do not occur
when anticipated.
In the rapidly changing technology environment in which we operate, product
cycles tend to be short. Therefore, the resources we devote to product sales
and marketing may not generate material revenues for us, and from time to time
we may need to write off excess and obsolete inventory. If we incur substantial
sales, marketing and inventory expenses in the future that we are not able to
recover, and we are not able to compensate for such expenses, our operating
results would be adversely affected. In addition, if we sell our products at
reduced prices in anticipation of cost reductions and we still have higher cost
products in inventory, our business would be harmed, and our results of
operations and financial condition would be adversely affected.
Our operating results in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, causing our stock price to decline.
Our operating results are likely to fluctuate significantly in the future on
a quarterly and an annual basis due to a number of factors, many of which are
outside our control. If our operating results do not meet the expectations of
securities analysts or investors, our stock price is likely to decline,
potentially dramatically. We cannot assure you that this will not occur because
of the numerous factors that could cause our revenues and costs to fluctuate.
These factors include the following:
. the timing and size of sales of our products and services;
. announcements of new products and product enhancements by competitors;
. the entry of new competitors into our market, including by acquisition;
. unexpected delays in introducing new or enhanced products, including
manufacturing delays;
. the mix and average selling prices of the products we sell;
. the volume and average cost of products manufactured; and
. the effectiveness of our product cost reduction efforts.
12
<PAGE>
Our customer base is concentrated, and the loss of one or more of our customers
could harm our business.
Because DSL service relies upon existing telephone lines to reach end users,
a substantial majority of potential DSL end-user accounts in the U.S. and in
other countries are controlled by a relatively small number of network service
providers. If we are not successful in maintaining relationships with these few
network service providers and the network equipment vendors that supply them,
our business will be harmed.
Although deregulation and increasing competition are expanding our potential
customer base, a small number of customers has accounted for a large portion of
our revenues to date. We sell our DSL products primarily to network service
providers, network equipment vendors and telephone company-aligned
distributors. We expect to continue to be dependent upon a relatively small
number of large customers in future periods, although the specific customers
may vary from period to period. If we are not successful in maintaining
relationships with key customers, and winning new customers, our business would
be harmed.
We derive a substantial amount of our revenues from international sources, and
difficulties associated with international operations could harm our business.
Since inception, a substantial portion of our revenues has been derived from
customers located outside of the United States, and we expect this trend to
continue. Revenues derived from customers located outside of the United States
represented 52% of our net revenues in fiscal 1998, 41% of our net revenues in
fiscal 1999 and 20% of our net revenues for the first nine months of fiscal
2000. We believe that our continued growth and ability to attain profitability
will require us to continue to penetrate international markets. If we are
unable to successfully overcome the difficulties associated with international
operations and maintain and expand our international operations, our business
would be harmed. These difficulties include:
. difficulties staffing and managing foreign operations in our highly
technical industry;
. changes in regulatory requirements which are common in the
telecommunications industry;
. licenses, tariffs and other trade barriers imposed on products such as
ours;
. political and economic instability especially in Asia and the Pacific;
. potentially adverse tax consequences;
. difficulties obtaining approvals for products from foreign governmental
agencies which regulate networks;
. compliance with a wide variety of complex foreign laws and treaties
relating to telecommunications equipment; and
. delays or difficulties collecting accounts receivable from foreign
entities that are not subject to suit in the United States.
To date, our international sales and component purchases have been
denominated solely in U.S. dollar and, accordingly, we have not been exposed to
fluctuations in non-U.S. currency exchange rates. In the future, a portion of
our international sales may be denominated in currencies other than U.S.
dollars, which would expose us to gains and losses based upon exchange rate
fluctuations. Such gains and losses may contribute to fluctuations in our
operating results.
Risks That May Affect Our Ability to Execute Our Business Plans
Our business could be adversely affected if we do not adequately address the
risks associated with acquired technologies or companies.
As part of our business strategy, we expect to continue to review potential
acquisitions that could complement our current product offerings, augment our
market coverage or enhance our technical capabilities,
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or that may otherwise offer growth opportunities. In December 1999, we acquired
Flowpoint Corporation. In connection with future acquisitions, we could issue
equity securities that would dilute our current stockholders' percentage
ownership, incur substantial debt, or assume contingent liabilities. Such
actions by us could seriously harm our results of operations and/or the price
of our common stock. Acquisitions also entail numerous other risks which could
adversely affect our business, results of operations and financial condition,
including:
. difficulties in assimilating acquired operations, technologies or
products;
. unanticipated costs or capital expenditures associated with the
acquisition;
. acquisition-related charges and amortization of acquired technology and
other intangibles that could negatively affect our reported results of
operations;
. diversion of management's attention from our business;
. adversely affect existing business relationships with suppliers and
customers; and
. failure to successfully integrate these businesses, products,
technologies and personnel.
We rely on indirect distribution channels and strategic relationships to sell
and manufacture our products, and if we are not able to maintain existing and
develop additional strategic relationships and indirect distribution channels,
our business would be harmed.
Our business strategy relies on our strategic relationships with network
equipment vendors, network service providers, and suppliers of DSL technology.
If our existing relationships are not successful or our competitors are better
able to develop these relationships, our business would be harmed. End users
typically purchase DSL customer premises equipment from network service
providers, and network service providers may purchase DSL customer premises
equipment from independent network equipment vendors and distributors. We
typically work closely with our potential customers and suppliers to ensure
interoperability of products with customer networks and of components with our
DSL customer premises equipment. In addition, we rely on our strategic
relationships with telephone company-aligned distributors in order to broaden
our distribution network. Also, larger vendors of DSL customer premises
equipment may be able to leverage their size and established distribution
channels to gain a significant competitive advantage over us. We cannot assure
you that we will be able to maintain or expand our existing strategic
relationships or that we will be able to establish new relationships in the
future.
We continue to rapidly and significantly expand our operations, and our failure
to manage growth could harm our business and adversely affect our results of
operations and financial condition.
We have rapidly and significantly expanded our operations, including the
number of our employees, the geographic scope of our activities and our product
operations. We expect that further significant expansion will be required to
address potential growth in our customer base and market opportunities. Any
failure to manage growth effectively could harm our business and adversely
affect our operating results and financial condition. We cannot assure you that
we will be able to do any of the following, which we believe are essential to
successfully manage the anticipated growth of our operations:
. improve our existing and implement new operational, financial and
management information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel;
. expand and upgrade our core technologies; and
. effectively manage multiple relationships with our customers, suppliers
and other third parties.
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In the future, we may also experience difficulties meeting the demand for
our products. The installation and use of our products require training. If we
are unable to provide training and support for our products, more time may be
necessary to complete the implementation process and customer satisfaction may
be adversely affected. In addition, our suppliers may not be able to meet
increased demand for our products. We cannot assure you that our systems,
procedures or controls will be adequate to support the anticipated growth in
our operations.
Competition for qualified personnel in the networking equipment and
telecommunications industries is intense, and if we are not successful in
attracting and retaining these personnel, our business would be harmed.
Our future success will depend on the ability of our management to operate
effectively, both individually and as a group. Therefore, the future success of
our business will also depend on our ability to attract and retain high-caliber
personnel. The loss of the services of any of our key personnel, the inability
to attract or retain qualified personnel in the future or delays in hiring
required personnel, particularly engineers, could harm our business.
Because competition for qualified personnel in the networking equipment and
telecommunications industries is intense, we may not be successful in
attracting and retaining such personnel. We are seeking to hire a significant
number of additional personnel in the near future, including direct sales and
marketing personnel. There may be only a limited number of people with the
requisite skills to serve in those positions, and it may become increasingly
difficult to hire these people. In addition, we are actively searching for
research and development engineers, who also are in short supply. Our business
will be harmed if we encounter delays in hiring additional engineers.
Furthermore, competitors and others have in the past and may in the future
attempt to recruit our employees. We do not have employment contracts with any
of our key personnel.
The loss of the services of one or more of our executive officers or key
employees could harm our business.
Our executive officers and certain key sales, engineering and management
personnel may not remain with us in the future. Our executive officers and key
personnel and in particular Mark A. Floyd, our Chief Executive Officer, and
Patricia W. Hosek, our Executive Vice President of Product Operations, are
critical to our business and its future success. If we lost the services of one
or more of our executive officers or key employees, we would need to devote
substantial resources to finding replacements, and until replacements were
found, we would be operating without the skills or leadership of such
personnel, either of which could have a significant adverse effect on our
business. None of our officers or key employees is bound by agreements for any
specific employment term or covenants not to compete.
Our future success will depend in part on our ability to protect our
proprietary rights and the technologies used in our principal products, and if
we do not enforce and protect our intellectual property or if others bring
infringement claims against us, our business would be harmed.
We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality provisions and other contractual provisions to protect
our proprietary rights. However, these measures afford only limited protection.
Our failure to adequately protect our proprietary rights may adversely affect
us. Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use trade secrets
or other information that we regard as proprietary.
From time to time, third parties, including our competitors, have asserted
patent, copyright and other intellectual property rights to technologies that
are important to us. For example, we have received a letter from IBM indicating
that they hold patents on certain aspects of DSL technology, and urging us to
begin negotiating a license to the patent. We are evaluating the IBM patents,
and have not yet determined whether to seek a license. Even if we elect to
pursue a license from IBM, there can be no assurances we would find the license
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terms acceptable. We expect that we will increasingly be subject to
infringement claims as the number of products and competitors in the high-speed
data access market grows and the functionality of products overlaps.
Litigation of intellectual property rights can be expensive and require
significant management time and attention, even if ultimately successful.
Moreover, in the event of an adverse result in any future litigation with third
parties relating to proprietary rights, we could be required:
. to pay substantial damages, including treble damages if we are held to
have willfully infringed;
. to halt the manufacture, use and sale of infringing products;
. to expend significant resources to develop non-infringing technology; or
. to obtain licenses to the infringing technology, if available.
Our products and those of our customers are subject to government regulations,
and changes in current or future laws or regulations that negatively impact our
products and technologies could harm our business.
The jurisdiction of the Federal Communications Commission, or the FCC,
extends to the entire communications industry including our customers and their
products and services that incorporate our products. Future FCC regulations
affecting the broadband access services industry, our customers or our products
may harm our business. For example, FCC regulatory policies that affect the
availability of data and Internet services may impede our customers'
penetration into certain markets or affect the prices that they are able to
charge. In addition, international regulatory bodies are beginning to adopt
standards for the communications industry. Delays caused by our compliance with
regulatory requirements may result in order cancellations or postponements of
product purchases by our customers, which would harm our business and adversely
affect our results of operations and financial condition.
Additional Risks That May Affect Our Stock Price
We may engage in future acquisitions that dilute our stockholders, cause us to
incur debt and assume contingent liabilities.
As part of our business strategy, we expect to continue to review potential
acquisitions that could complement our current product offerings, augment our
market coverage or enhance our technical capabilities, or that may otherwise
offer growth opportunities. In the event of such future acquisitions, we could
issue equity securities that would dilute our current stockholders' percentage
ownership, incur substantial debt, or assume contingent liabilities. Such
actions by us could seriously harm our results of operations and/or the price
of our common stock. Acquisitions also entail numerous other risks which could
adversely affect our business, results of operations and financial condition,
including:
. difficulties in assimilating acquired operations, technologies or
products;
. unanticipated costs or capital expenditures associated with the
acquisition;
. acquisition related charges and amortization of acquired technology and
other intangibles that could negatively affect our reported results of
operations;
. diversion of management's attention from our business;
. adversely affect existing business relationships with suppliers and
customers; and
. failure to successfully integrate these businesses, products,
technologies and personnel.
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<PAGE>
Certain provisions of our charter documents may make acquiring control of our
company more difficult for a third party, which could adversely affect our
stock's market price or lessen any premium over market price that an acquirer
might otherwise pay.
Our charter documents contain provisions providing for a classified board of
directors, eliminating cumulative voting in the election of directors and
restricting our stockholders from acting without a meeting. These provisions
may make certain corporate actions more difficult and might delay or prevent a
change in control and therefore limit the price that new investors will pay for
our stock. Further, the board of directors may issue new shares of preferred
stock with certain rights, preferences, privileges and restriction, including
voting rights, without any vote by our stockholders. Our existing stockholders
may be adversely affected by the rights of this preferred stock. New preferred
stock might also be used to make acquiring control more difficult. We have no
current plans to issue shares of preferred stock. We will also indemnify
officers and directors against losses incurred in legal proceedings to the
broadest extent permitted by Delaware law.
Risks Related to this Offering
The notes are subordinated.
The notes are unsecured and subordinated in right of payment to all of our
existing and future senior indebtedness. In the event of our bankruptcy,
liquidation or reorganization or upon acceleration of the notes due to an event
of default under the indenture and in certain other events, our assets will be
available to pay obligations on the notes only after all senior indebtedness
has been paid. As a result, there may not be sufficient assets remaining to pay
amounts due on any or all of the outstanding notes. The notes also are
effectively subordinated to the liabilities, including trade payables, of our
subsidiaries. Neither we nor our subsidiaries are prohibited from incurring
debt, including senior indebtedness, under the indenture. If we or our
subsidiaries were to incur additional debt or liabilities, our ability to pay
our obligations on the notes could be adversely affected. As of March 31, 2000,
we had no senior indebtedness outstanding, and our subsidiaries had
$21.0 million of outstanding indebtedness and other liabilities, including
trade payables and excluding intercompany liabilities, as to which the notes
are effectively subordinated. We may from time to time incur additional debt,
including senior indebtedness. See "Description of Notes--Subordination of
Notes."
We may be unable to redeem the notes upon a change in control.
Upon a change in control, you may require us to purchase all or a portion of
your notes. If a change in control were to occur, we may not have enough funds
to pay the purchase price for all tendered notes. Any future credit agreements
or other agreements relating to our indebtedness may contain provisions that
prohibit the repurchase of the notes upon a change in control or may provide
that a change in control constitutes an event of default under that agreement.
If a change in control occurs at a time when we are prohibited from purchasing
the notes, we could seek the consent of our lenders to purchase the notes or
could attempt to refinance this debt. If we do not obtain a consent, we could
not purchase the notes. Our failure to purchase tendered notes would constitute
an event of default under the indenture, which might constitute a default under
the terms of our other debt. In such circumstances, or if a change in control
would constitute an event of default under our senior indebtedness, the
subordination provisions of the indenture would restrict payments to you. The
term "change in control" is limited to certain specified transactions and may
not include other events that might harm our financial condition. Our
obligation to offer to purchase the notes upon a change in control would not
necessarily afford you protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
A public market may not develop for the notes.
There is no trading market for the notes. We cannot assure you that any
market for the notes will develop or, if one does develop, that it will be
maintained. If an active market for the notes fails to develop or be sustained,
the value of the notes could decline significantly.
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<PAGE>
The notes may not be rated, however, if rated, may receive a lower rating than
anticipated by investors.
One or more rating agencies may rate the notes. If one or more rating
agencies do not assign the notes a rating or assign a rating lower than
expected by investors, the market price of the notes and our common stock could
be harmed.
The price of our notes and our common stock may be volatile.
The trading price of our common stock has been and could in the future be
subject to significant fluctuations in response to variations in quarterly
operating results, developments in the semiconductor industry general economic
conditions, changes in securities analysts' recommendations regarding our
securities and other factors. In addition, the stock market in recent years has
experienced significant price and volume fluctuations which have affected the
market prices of technology companies and which have often been unrelated to or
disproportionately impacted by the operating performance of such companies.
These broad market fluctuations may harm the market price of the notes and the
common stock into which the notes are convertible.
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<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale by any selling
securityholder of the notes or the underlying common stock.
RATIO OF EARNINGS TO FIXED CHARGES
The deficiency of earnings available to cover fixed charges for each of the
periods indicated is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30 Nine Months Ended
---------------------------------------- -------------------
March 31, March 31,
1995 1996 1997 1998 1999 1999 2000
------- ------ ------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Deficiency of earnings
available to cover
fixed charges......... $(4,295) (5,844) (6,635) (9,921) (26,405) (6,954) (54,920)
</TABLE>
These computations include us and our consolidated subsidiaries. The
deficiency is calculated by subtracting total fixed charges from earnings.
Earnings consist of pre-tax loss plus fixed charges. "Fixed charges" consist
of:
. interest expense plus the portion of rental expense under operating
leases deemed by us to be representative of the interest factor, and
. amortization of debt issuance costs.
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DESCRIPTION OF NOTES
We issued the notes under an indenture dated as of March 1, 2000 between us
and State Street Bank and Trust Company of California, N.A., as trustee. The
following summarizes some, but not all, of the provisions of the notes and the
indenture. A copy of the indenture and the form of certificate evidencing the
notes have been filed as exhibits to this registration statement.
In this section of the prospectus entitled "Description of the Notes," when
we refer to "Efficient," "we," "our," or "us," we are referring to Efficient
Networks, Inc. and not any of its subsidiaries.
General
We issued $400,000,000 in aggregate principal amount of the notes in a
private placement in March 2000. The notes are unsecured general obligations of
Efficient and are subordinate in right of payment as described under
"Subordination of Notes". The notes are convertible into common stock as
described under "Conversion of Notes". The notes were issued only in
denominations of $1,000 or in multiples of $1,000. The notes will mature on
March 15, 2005, unless earlier redeemed at our option by us or purchased by us
at your option upon a change in control.
We are not restricted from paying dividends, incurring debt, or issuing or
repurchasing our securities under the indenture. In addition, there are no
financial covenants in the indenture. You are not protected under the indenture
in the event of a highly leveraged transaction or a change in control of
Efficient, except to the extent described under "Purchase of Notes at Your
Option Upon a Change in Control."
The notes bear interest at the annual rate of 5%. We will pay interest on
March 15 and September 15 of each year, beginning September 15, 2000, subject
to limited exceptions if the notes are converted, redeemed or purchased prior
to the interest payment date. The record dates for the payment of interest are
March 1 and September 1. We may, at our option, pay interest on the notes by
check mailed to the holders. However, a holder with an aggregate principal
amount in excess of $2,000,000 will be paid by wire transfer in immediately
available funds at their election. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
We will maintain an office in the Borough of Manhattan in New York, New York
where the notes may be presented for registration, transfer, exchange or
conversion. This office is initially an office or agency of the trustee.
Conversion of Notes
You have the right, at your option, to convert your notes into shares of
common stock at any time prior to maturity, unless previously redeemed or
purchased, at the conversion price of $181.00 per share, subject to the
adjustments described below.
Except as described below, we will not make any payment or other adjustment
for accrued interest or dividends on any common stock issued upon conversion of
the notes. If you submit your notes for conversion between a record date and
the opening of business on the next interest payment date (except for notes or
portions of notes called for redemption or subject to purchase following a
change in control on a redemption date or a purchase date, as the case may be,
occurring during the period from the close of business on a record date and
ending on the opening of business on the first business day after the next
interest payment date, or if this interest payment date is not a business day,
the second business day after the interest payment date), you must pay funds
equal to the interest payable on the converted principal amount. We will not
issue fractional shares of common stock upon conversion of notes. Instead, we
will pay cash based upon the market price of the common stock on the last
trading day prior to the date of conversion. If the notes are called for
redemption or are subject to purchase following a change in control, your
conversion rights on the notes called for
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redemption or so subject to purchase will expire at the close of business on
the last business day before the redemption date or purchase date, as the case
may be, unless we default in the payment of the redemption price or purchase
price. If you have submitted your notes for purchase upon a change in control,
you may only convert your notes if you withdraw your election in accordance
with the indenture.
The conversion price will be adjusted upon the occurrence of:
(1) the issuance of shares of our common stock as a dividend or distribution
on our common stock;
(2) the subdivision or combination of our outstanding common stock;
(3) the issuance to all or substantially all holders of our common stock of
rights or warrants entitling them for a period of not more than 60 days to
subscribe for or purchase our common stock, or securities convertible into our
common stock, at a price per share or a conversion price per share less than
the then current market price per share, provided that the conversion price
will be readjusted to the extent that such rights or warrants are not exercised
prior to the expiration;
(4) the distribution to all or substantially all holders of our common stock
of shares of our capital stock, evidences of indebtedness or other non-cash
assets, or rights or warrants excluding:
. dividends, distributions and rights or warrants referred to in clause
(1) or (3) above;
. dividends or distributions exclusively in cash referred to in clause (5)
below; and
. distribution of rights to all holders of common stock pursuant to an
adoption of a stockholder rights plan;
(5) the dividend or distribution to all or substantially all holders of our
common stock of all-cash distributions in an aggregate amount that together
with (A) any cash and the fair market value of any other consideration payable
in respect of any tender offer by us or any of our subsidiaries for our common
stock consummated within the preceding 12 months not triggering a conversion
price adjustment and (B) all other all-cash distributions to all or
substantially all holders of our common stock made within the preceding
12 months not triggering a conversion price adjustment exceeds an amount equal
to 10% of our market capitalization on the business day immediately preceding
the day on which we declare such distribution; and
(6) the purchase of our common stock pursuant to a tender offer made by us
or any of our subsidiaries to the extent that the same involves aggregate
consideration that together with (A) any cash and the fair market value of any
other consideration payable in respect of any tender offer by us or any of our
subsidiaries for our common stock consummated within the preceding 12 months
not triggering a conversion price adjustment and (B) all-cash distributions to
all or substantially all holders of our common stock made within the preceding
12 months not triggering a conversion price adjustment exceeds an amount equal
to 10% of our market capitalization on the expiration date of such tender
offer.
In the event of:
. any reclassification of our common stock, or
. a consolidation, merger or combination involving Efficient, or
. a sale or conveyance to another person of the property and assets of
Efficient as an entirety or substantially as an entirety,
in which holders of our outstanding common stock would be entitled to receive
stock, other securities, other property, assets or cash for their common stock,
holders of notes will generally be entitled to convert their notes into the
same type of consideration received by common stock holders immediately prior
to one of these types of events.
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<PAGE>
You may, in some circumstances, be deemed to have received a distribution or
dividend subject to United States federal income tax as a result of an
adjustment or the nonoccurrence of an adjustment to the conversion price.
We are permitted to reduce the conversion price of the notes by any amount
for a period of at least 20 days if our board of directors determines that such
reduction would be in the best interest of Efficient. We are required to give
at least 15 days prior notice of any reduction in the conversion price. We may
also reduce the conversion price to avoid or diminish income tax to holders of
our common stock in connection with a dividend or distribution of stock or
similar event.
No adjustment in the conversion price will be required unless it would
result in a change in the conversion price of at least one percent. Any
adjustment not made will be taken into account in subsequent adjustments.
Except as stated above, we will not adjust the conversion price for the
issuance of our common stock or any securities convertible into or exchangeable
for our common stock or the right to purchase our common stock or such
convertible or exchangeable securities.
Subordination of Notes
The indebtedness evidenced by the notes is subordinated to the extent
provided in the indenture to the prior payment in full, in cash or other
payment satisfactory to holders of senior indebtedness, of all senior
indebtedness.
Upon any distribution of our assets upon any dissolution, winding-up,
liquidation or reorganization, or in bankruptcy, insolvency, receivership or
similar proceedings, payment of the principal of, premium, if any, and interest
on the notes is to be subordinated in right of payment to the prior payment in
full, in cash or other payment satisfactory to holders of senior indebtedness,
of all senior indebtedness.
In the event of any acceleration of the notes because of an event of
default, the holders of any senior indebtedness then outstanding would be
entitled to payment in full, in cash or other payment satisfactory to holders
of senior indebtedness, of all obligations in respect to such senior
indebtedness before the holders of notes are entitled to receive any payment of
other distribution. We are required to promptly notify holders of senior
indebtedness if payment of the notes is accelerated because of an event of
default.
We also may not make any payment on the notes if:
. a default in the payment of designated senior indebtedness occurs and is
continuing beyond any applicable period of grace, or
. any other default occurs and is continuing with respect to designated
senior indebtedness that permits holders of the designated senior
indebtedness to accelerate its maturity and the trustee receives an
notice of such default, which we refer to as a payment blockage notice,
from us or any other person permitted to give this notice under the
indenture.
We may resume making payments on the notes:
. in the case of a payment default, when the default is cured or waived or
ceases to exist, and
. in the case of a nonpayment default, the earlier of when the default is
cured or waived or ceases to exist or 179 days after receipt of the
payment blockage notice.
No new period of payment blockage may be commenced pursuant to a payment
blockage notice unless and until 365 days have elapsed since our receipt of the
prior payment blockage notice.
No default that existed on the date of delivery of any payment blockage
notice to the trustee shall be the basis for a subsequent payment blockage
notice.
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By reason of the subordination provisions described above, in the event of
our bankruptcy, dissolution or reorganization, holders of senior indebtedness
may receive more, ratably, and holders of the notes may receive less, ratably,
than the other creditors of Efficient. These subordination provisions will not
prevent the occurrence of any event of default under the indenture. We are not
limited or prohibited from incurring additional senior indebtedness under the
indenture.
A portion of our operations are conducted through our subsidiaries. As a
result, our cash flow and our ability to service our debt, including the notes,
is dependent upon the earnings of our subsidiaries. In addition, we are
dependent on the distribution of earnings, loans or other payments by our
subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the notes or to provide us with
funds for our payment obligations, whether by dividends, distributions, loans
or other payments. In addition, any payment of dividends, distributions, loans
or advances by our subsidiaries to us could be subject to statutory or
contractual restrictions. Payments to us by our subsidiaries will also be
contingent upon our subsidiaries' earnings.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
notes to participate in those assets, will be effectively subordinated to the
claims of that subsidiary's creditors, including trade creditors. In addition,
even if we were a creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of our subsidiaries
and any indebtedness of our subsidiaries senior to that held by us.
As of March 31, 2000, we had no senior indebtedness, while our subsidiaries
had approximately $21.0 million of outstanding indebtedness and other
liabilities, including trade payables and excluding intercompany liabilities,
as to which the notes are effectively subordinated.
Definitions of senior indebtedness, indebtedness and designated senior
indebtedness
"designated senior indebtedness" means our obligations under any particular
senior indebtedness that expressly provides that such senior indebtedness is
"designated senior indebtedness" for purposes of the indenture.
"indebtedness" means:
(1) all of our indebtedness, obligations and other liabilities, contingent
or otherwise, for borrowed money, including:
. overdrafts, foreign exchange contracts, currency exchange agreements,
interest rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar instruments, or
. evidenced by bonds, debentures, notes or similar instruments, whether or
not the recourse of the lender is to all of our assets or to only a
portion thereof, other than any account payable or other accrued current
liability or obligation incurred in the ordinary course of business in
connection with the obtaining of materials or services,
(2) all of our reimbursement obligations and other liabilities, contingent
or otherwise, with respect to letters of credit, bank guarantees or bankers'
acceptances,
(3) all of our obligations and liabilities, contingent or otherwise, in
respect of leases required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations on our balance
sheet, or under other leases for facilities equipment or related assets,
whether or not capitalized, entered into or leased for financing purposes, as
determined by Efficient,
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<PAGE>
(4) all of our obligations and other liabilities, contingent or otherwise,
or under any lease or related document, including a purchase agreement, in
connection with the lease of real property or improvements which provides that
we are contractually obligated to purchase or cause a third party to purchase
the leased property and thereby guarantee a minimum residual value of leased
property to the lessor and all of our obligations under such lease or related
document to purchase or to cause a third party to purchase the leased property,
(5) all of our obligations, contingent or otherwise, with respect to an
interest rate, currency or other swap, cap, floor or collar agreement, hedge
agreement, forward contract, or other similar instrument or agreement or
foreign currency hedge, exchange, purchase or similar instrument or agreement,
(6) all of our direct or indirect guaranties or similar agreements to
purchase or otherwise acquire or otherwise assure a creditor against loss in
respect of, indebtedness, obligations or liabilities of another person of the
kind described in clauses (1) through (5),
(7) any indebtedness or other obligations described in clauses (1) through
(6) secured by any mortgage, pledge, lien or other encumbrance existing on
property which is owned or held by us, regardless of whether the indebtedness
or other obligation secured thereby has been assumed by us, and
(8) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (1) through (7).
"senior indebtedness" means the principal of, premium, if any, interest,
including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding, and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, indebtedness of Efficient, whether outstanding on
the date of the indenture or thereafter created, incurred, assumed, guaranteed
or in effect guaranteed by Efficient, including all deferrals, renewals
extensions or refundings of, or amendments, modifications or supplements to,
the foregoing, unless in the case of any particular indebtedness the instrument
creating or evidencing the same or the assumption or guarantee thereof
expressly provides that such indebtedness shall not be senior in right of
payment to the notes or expressly provides that such indebtedness is on the
same basis or junior to the notes.
Senior indebtedness does not include any indebtedness of Efficient to any
subsidiary of Efficient.
Optional Redemption by Efficient
We may redeem the notes on or after March 20, 2003, on at least 20 days and
no more than 60 days' notice, in whole or in part, at the following redemption
prices expressed as percentages of the principal amount:
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
Beginning on March 20, 2003 and ending on March 14, 2004.......... 101.25%
Beginning on March 15, 2004 and thereafter........................ 100.00%
</TABLE>
In each case, we will pay accrued interest to, but excluding, the redemption
date. If the redemption date is an interest payment date, interest will be paid
to the record holder on the relevant record date.
If fewer than all of the notes are to be redeemed, the trustee will select
the notes to be redeemed by lot, or in its discretion, on a pro rata basis. If
any note is to be redeemed in part only, a new note in principal amount equal
to the unredeemed principal portion will be issued. If a portion of your notes
is selected for partial redemption and you convert a portion of your notes, the
converted portion will be deemed to be of the portion selected for redemption.
No sinking fund is provided for the notes.
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<PAGE>
Purchase of Notes at Your Option Upon a Change in Control
If a change in control occurs, you will have the right to require us to
purchase all or any part of your notes 30 business days after the occurrence of
a change in control at a purchase price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest to, but excluding, the purchase
date. Notes submitted for purchase must be in $1,000 or multiples of $1,000
principal amount.
We shall mail to the trustee and to each holder a written notice of the
change in control within 10 business days after the occurrence of a change in
control. This notice shall state:
. the terms and conditions of the change in control;
. the procedures required for exercise of the change in control; and
. the holder's right to require Efficient to purchase the notes.
You must deliver written notice of your exercise of this purchase right to a
paying agent at any time prior to the close of business on the business day
prior to the change in control purchase date. The written notice must specify
the notes for which the purchase right is being exercised. If you wish to
withdraw this election, you must provide a written notice of withdrawal to the
paying agent at any time prior to the close of business on the business day
prior to the change in control purchase date.
A change in control will be deemed to have occurred if any of the following
occurs:
. any "person" or "group" is or becomes the "beneficial owner", directly
or indirectly, of shares of voting stock of Efficient representing 50%
or more of the total voting power of all outstanding classes of voting
stock of Efficient or has the power, directly or indirectly, to elect a
majority of the member of the board of directors of Efficient;
. Efficient consolidates with, or merges with or into, another person or
Efficient sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of the assets of Efficient, or any
person consolidates with, or merges with or into, Efficient, in any such
event other than pursuant to a transaction in which the persons that
"beneficially owned," directly or indirectly, shares of voting stock of
Efficient immediately prior to such transaction "beneficially own,"
directly or indirectly, shares of voting stock of Efficient,
representing at least a majority of the total voting power of all
outstanding classes of voting stock of the surviving or transferee
person; or
. Efficient is dissolved or liquidated.
However, a change in control will not be deemed to have occurred if either:
. the last sale price of our common stock for any five trading days during
the ten trading days immediately preceding the change in control is at
least equal to 105% of the conversion price in effect on such day; or
. in the case of a merger or consolidation, all of the consideration
excluding cash payments for fractional shares in the merger or
consolidation constituting the change in control consists of common
stock traded on a United States national securities exchange or quoted
on the Nasdaq National Market (or which will be so traded or quoted when
issued or exchanged in connection with such change in control) and as a
result of such transaction or transactions the notes become convertible
solely into such common stock.
For purposes of this change in control definition:
. ""person'' or "group" have the meanings given to them for purposes of
Sections 13(d) and 14(d) of the Exchange Act or any successor
provisions, and the term "group" includes any group acting for the
purpose of acquiring, holding or disposing or securities within the
meaning of Rule 13d-5(b)(1) under the Exchange Act, or any successor
provision;
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<PAGE>
. a "beneficial owner" will be determined in accordance with Rule 13d-3
under the Exchange Act, as in effect on the date of the indenture,
except that the number of shares of voting stock of Efficient will be
deemed to include, in addition to all outstanding shares of voting stock
of Efficient and unissued shares deemed to be held by the "person" or
"group" or other person with respect to which the change in control
determination is being made, all unissued shares deemed to be held by
all other persons;
. ""beneficially owned" has a meaning correlative to that of beneficial
owner;
. ""unissued shares" means shares of voting stock not outstanding that are
subject to options, warrants, rights to purchase or conversion
privileges exercisable within 60 days of the date of determination of a
change in control; and
. ""voting stock" means any class or classes of capital stock pursuant to
which the holders of capital stock under ordinary circumstances have the
power to vote in the election of the board of directors, managers or
trustees of any person or other persons performing similar functions
irrespective of whether or not, at the time, capital stock of any other
class or classes shall have, or might have, voting power by reason of
the happening of any contingency.
The term "all or substantially all" as used in the definition of change in
control will likely be interpreted under applicable state law and will be
dependent upon particular facts and circumstances. There may be a degree of
uncertainty in interpreting this phrase. As a result, we cannot assure you how
a court would interpret this phrase under applicable law if you elect to
exercise your rights following the occurrence of a transaction which you
believe constitutes a transfer of "all or substantially all of the assets."
We will under the indenture:
. comply with the provisions of Rule 13e-4 and Rule 14e-1, if applicable,
under the Exchange Act;
. file a Schedule TO or any successor or similar schedule if required
under the Exchange Act; and
. otherwise comply with all federal and state securities laws in
connection with any offer by us to purchase the notes upon a change in
control.
This change in control purchase feature may make more difficult or
discourage a takeover of Efficient and the removal of incumbent management.
However, we are not aware of any specific effort to accumulate shares of our
common stock or to obtain control of us by means of a merger, tender offer,
solicitation or otherwise. In addition, the change in control purchase feature
is not part of a plan by management to adopt a series of anti-takeover
provisions. Instead, the change in control purchase feature is a result of
negotiations between us and the initial purchasers of the notes.
We could, in the future, enter into certain transactions, including
recapitalizations, that would not constitute a change in control but would
increase the amount of debt, including senior indebtedness, outstanding or
otherwise adversely affect a holder. Neither we nor our subsidiaries are
prohibited from incurring debt, including senior indebtedness, under the
indenture. The incurrence of significant amounts of additional debt could
adversely affect our ability to service our debt, including the notes.
If a change in control were to occur, we may not have sufficient funds to
pay the change in control purchase price for the notes tendered by holders. In
addition, we may in the future incur debt that has similar change of control
provisions that permit holders of this debt to accelerate or require us to
repurchase this debt upon the occurrence of events similar to a change in
control. Our failure to repurchase the notes upon a change in control will
result in an event of default under the indenture, whether or not the purchase
is permitted by the subordination provisions of the indenture.
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<PAGE>
Events of Default
Each of the following constitutes an event of default under the indenture:
(1) we fail to pay principal or premium, if any, on any note when due,
whether or not prohibited by the subordination provisions of the indenture;
(2) we fail to pay any interest on any note when due if such failure
continues for 30 days, whether or not prohibited by the subordination
provisions of the indenture;
(3) we fail to perform any other covenant required of us in the indenture if
such failure continues for 60 days after notice is given in accordance with the
indenture; or
(4) certain events in bankruptcy, insolvency or reorganization of Efficient.
If an event of default, other than an event of default described in clause
(4) above, occurs and is continuing, either the trustee or the holders of at
least 25% in aggregate principal amount of the outstanding notes may declare
the principal amount of the notes to be due and payable immediately. If an
event of default described in clause (4) above occurs, the principal amount of
the notes will automatically become immediately due and payable. Any payment by
us on the notes following any such acceleration will be subject to the
subordination provisions described above.
After any such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of the
notes may, under certain circumstances, rescind and annul such acceleration if
all events of default, other than the non-payment of accelerated principal,
have been cured or waived.
Subject to the trustee's duties in the case of an event of default, the
trustee will not be obligated to exercise any of its rights or powers at the
request of the holders, unless the holders have offered to the trustee
reasonable indemnity. Subject to the trustee's indemnification, the holders of
a majority in aggregate principal amount of the outstanding notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee with respect to the notes.
No holder will have any right to institute any proceeding under the
indenture, or for the appointment of a receiver or a trustee, or for any other
remedy under the indenture unless:
. the holder has previously given to the trustee written notice of a
continuing event of default;
. the holders of at least 25% in aggregate principal amount of the
outstanding notes have made a written request and have offered
reasonable indemnity to the trustee to institute such proceeding as
trustee; and
. the trustee has failed to institute such proceeding, and has not
received from the holders of a majority in aggregated principal amount
of the outstanding notes a direction inconsistent with such request
within 60 days after such notice, request and offer.
However, these limitations do not apply to a suit instituted by a holder for
the enforcement of payment of the principal of or any premium or interest on
any note or the right to convert the note on or after the applicable due date.
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<PAGE>
Generally, the holders of not less than a majority of the aggregate
principal amount of outstanding notes may waive any default or event of default
except if:
. we fail to pay principal, premium or interest on any note when due;
. we fail to convert any note into common stock; or
. we fail to comply with any of the provisions of the indenture that would
require the consent of the holder of each outstanding note affected.
We are required to furnish to the trustee, on an annual basis, a statement
by our officers as to whether or not Efficient, to the officer's knowledge, is
in default in the performance or observance of any of the terms, provisions and
conditions of the indenture, specifying any known defaults.
Modification and Waiver
We and the trustee may make modifications and amendments to the indenture
with the consent of the holders of a majority in aggregate principal amount of
the outstanding notes.
However, neither we nor the trustee may make any modification or amendment
without the consent of the holder of each outstanding note if such modification
or amendment would:
. change the stated maturity of the principal of or interest on any note;
. reduce the principal amount of, or any premium or interest on, any note;
. reduce the amount of principal payable upon acceleration of the maturity
of any note;
. change the place or currency of payment of principal of, or any premium
or interest on, any note;
. impair the right to institute suit for the enforcement of any payment
on, or with respect to, any note;
. modify the subordination provisions in a manner materially adverse to
the holders of notes;
. adversely affect the right of holders to convert notes other than as
provided in or under the indenture;
. reduce the percentage in principal amount of outstanding notes required
for modification or amendment of the indenture;
. reduce the percentage in principal amount of outstanding notes necessary
for waiver of compliance with certain provisions of the indenture or for
waiver of certain defaults; or
. modify such provisions with respect to modification and waiver.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge into any other person, in a transaction
in which we are not the surviving corporation, or convey, transfer or lease our
properties and assets substantially as an entirety to any successor person,
unless:
. the successor person, if any, is a corporation, limited liability
company, partnership, trust or other entity organized and existing under
the laws of the United States, or any state of the United States, and
assumes our obligations on the notes and under the indenture;
. immediately after giving effect to the transaction, no default or event
of default shall have occurred and be continuing; and
. other conditions specified in the indenture are met.
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<PAGE>
Registration Rights
We have filed a registration statement, of which this prospectus forms a
part, pursuant to a registration rights agreement we entered into with the
initial purchasers in the initial private placement of the notes. Efficient
will use reasonable efforts to have this shelf registration statement declared
effective by September 4, 2000 and to keep it effective until the earliest of:
(1) July 20, 2002;
(2) the date when all registrable securities shall have been registered
under the Securities Act and disposed of; and
(3) the date on which all registrable securities are eligible to be sold to
the public pursuant to Rule 144(k) under the effectiveness period.
If:
(1) on or prior to September 4, 2000, the shelf registration statement has
not been declared effective by the SEC;
(2) we fail with respect to a notice holder that supplies the questionnaire
described below to supplement the shelf registration statement in a timely
manner in order to name additional selling securities holders; or
(3) after the shelf registration statement has been declared effective, such
shelf registration statement ceases to be effective or usable (subject to
certain exceptions) in connection with resales of notes and the common stock
issuable upon the conversion of the notes in accordance with and during the
periods specified in the registration rights agreement;
(each such event referred to in clauses (1) through (3), a registration
default), additional interest will accrue on the notes and underlying common
stock that are registrable securities over and above the rate set forth in the
title of the notes, from and including the date on which any such registration
default shall occur to but excluding the date on which all registration
defaults have been cured, at the rate of 0.5% per year for the notes (or an
equivalent amount for any common stock issued upon conversion of the notes that
are registrable securities). We will have no other liabilities for monetary
damages with respect to our registration obligations. With respect to each
holder, our obligations to pay additional interest remain in effect only so
long as the notes and the common stock issuable upon the conversion of the
notes held by the holder are "registrable securities" within the meaning of the
registrable rights agreement.
In addition, if this filing requires a post-effective amendment to the shelf
registration statement, we will pay liquidated damages if this amendment is not
declared effective within 45 business days of the filing of the post-effective
amendment.
Satisfaction and Discharge
We may discharge our obligations under the indenture while notes remain
outstanding if (1) all outstanding notes will become due and payable at their
scheduled maturity within one year or (2) all outstanding notes are scheduled
for redemption within one year, and, in either case, we have deposited with the
trustee an amount sufficient to pay and discharge all outstanding notes on the
date of their scheduled maturity or the scheduled date of redemption.
Transfer and Exchange
We have initially appointed the trustee as security registrar, paying agent
and conversion agent, acting through its corporate trust office. We reserve the
right to:
. vary or terminate the appointment of the security registrar, paying
agent or conversion agent;
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<PAGE>
. appoint additional paying agents or conversion agents; or
. approve any change in the office through which any security registrar or
any paying agent or conversion agent acts.
Purchase and Cancellation
All notes surrendered for payment, redemption, registration of transfer or
exchange or conversion shall, if surrendered to any person other than the
trustee, be delivered to the trustee. All notes delivered to the trustee shall
be cancelled promptly by the trustee. No notes shall be authenticated in
exchange for any notes cancelled as provided in the indenture.
We may, to the extent permitted by law, purchase notes in the open market or
by tender offer at any price or by private agreement. Any notes purchased by us
may, to the extent permitted by law, be reissued or resold or may, at our
option, be surrendered to the trustee for cancellation. Any notes surrendered
for cancellation may not be reissued or resold and will be promptly cancelled.
Replacement of Notes
We will replace mutilated, destroyed, stolen or lost notes at your expense
upon delivery to the trustee of the mutilated notes, or evidence of the loss,
theft or destruction of the notes satisfactory to us and the trustee. In the
case of a lost, stolen or destroyed note, indemnity satisfactory to the trustee
and us may be required at the expense of the holder of such note before a
replacement note will be issued.
Governing Law
The indenture and the notes are governed by, and construed in accordance
with, the law of the State of New York, without regard to conflicts of laws
principles.
Concerning the Trustee
State Street Bank and Trust Company of California, N.A., is the trustee
under the indenture. The trustee is permitted to deal with Efficient and any
affiliate of Efficient with the same rights as if it were not trustee. However,
under the Trust Indenture Act, if the trustee acquires any conflicting interest
and there exists a default with respect to the notes, the trustee must
eliminate such conflicts or resign.
The holders of a majority in principal amount of all outstanding notes have
the right to direct the time, method and place of conducting any proceeding for
exercising any remedy or power available to the trustee. However, any such
direction may not conflict with any law or the indenture, may not be unduly
prejudicial to the rights of another holder or the trustee and may not involve
the trustee in personal liability.
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<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes some of the U.S. federal income tax considerations
relating to the purchase, ownership, and disposition of the notes and of common
stock into which the notes may be converted. This summary does not provide a
complete analysis of all potential tax considerations. The information provided
below is based on existing authorities. These authorities may change, or the
Internal Revenue Service (the "IRS") might interpret the existing authorities
differently. In either case, the tax consequences of purchasing, owning or
disposing of notes or common stock could differ from those described below. The
summary generally applies only to "U.S. Holders" that hold the notes or common
stock as "capital assets" (generally, for investment). For this purpose, U.S.
Holders include citizens or residents of the United States and corporations
organized under the laws of the United States or any state. Trusts are U.S.
Holders if they are subject to the primary supervision of a U.S. court and the
control of one of more U.S. persons. Special rules apply to nonresident alien
individuals and foreign corporations or trusts ("Non-U.S. Holders"). This
summary describes some, but not all, of these special rules. For U.S. federal
income tax purposes, income earned through a foreign or domestic partnership or
similar entity is attributed to its owners. The summary generally does not
address tax considerations that may be relevant to particular investors because
of their specific circumstances, or because they are subject to special rules.
Finally, the summary does not describe the effect of the federal estate and
gift tax laws on U.S. Holders or the effects of any applicable foreign, state,
or local laws.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FEDERAL ESTATE OR GIFT TAX LAWS,
FOREIGN, STATE, OR LOCAL LAWS, AND TAX TREATIES.
U.S. Holders
Taxation of Interest
U.S. Holders will be required to recognize as ordinary income any interest
paid or accrued on the notes, in accordance with their regular method of
accounting.
Sale, Exchange or Redemption of the Notes
A U.S. Holder will generally recognize capital gain or loss if the holder
disposes of a note in a sale, redemption or exchange other than a conversion of
the note into common stock. The holder's gain or loss will equal the difference
between the proceeds received by the holder and the holder's adjusted tax basis
in the note. The proceeds received by the holder will include the amount of any
cash and the fair market value of any other property received for the note. The
holder's tax basis in the note will generally equal the amount the holder paid
for the note. The gain or loss recognized by a holder on a disposition of the
note will be long-term capital gain or loss if the holder held the note for
more than one year. Long-term capital gains of individual taxpayers are
generally taxed at a maximum rate of 20 percent. The deductibility of capital
losses is subject to limitation.
The portion of any proceeds that is attributable to accrued interest will
not be taken into account in computing the holder's capital gain or loss.
Instead, that portion will be recognized as ordinary interest income to the
extent that the holder has not previously included the accrued interest in
income.
Market Discount; Acquisition Premium
If a U.S. Holder purchases a Note for an amount that is less than the Note's
stated redemption price at maturity, the amount of such difference will be
treated as market discount for U.S. federal income tax purposes, unless the
difference is less than a specified de minimis amount. The amount of such
difference is not included in the income of a U.S. Holder as it accrues unless
such U.S. Holder so elects. Under the market discount rules, a U.S. Holder
generally will be required to treat any principal payment on, or any gain on
the sale, exchange,
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<PAGE>
retirement or other disposition of, a Note as ordinary income to the extent of
any market discount that has not previously been included in income and that is
treated as having accrued on the Note at the time of such payment or
disposition. If a U.S. holder makes a gift of a Note, accrued market discount,
if any, will be recognized as if the U.S. Holder had sold the Note for a price
equal to its fair market value. In addition, the U.S. Holder may be required to
defer, until the maturity of the Note or, in certain circumstances, the earlier
disposition of the Note, the deduction of any interest incurred or maintained
to purchase or carry the Note. Any accrued market discount not taken into
income prior to conversion of a Note into Common Stock generally will be
treated as ordinary income upon the disposition of the Common Stock.
As noted above, U.S. Holder of a Note may elect to include market discount
in income currently as it accrues (on either a straight-line or constant
interest rate basis), in which case the rules described above regarding the
deferral of interest deductions would not apply. This election to include
market discount in income currently, once made, applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS. Market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the
Note, unless the U.S. Holder elects to accrue market discount on a constant
interest rate basis.
A U.S. Holder who purchases a Note for an amount that is greater than the
sum of all amounts payable on the Note after the purchase date other than
qualified stated interest will be considered to have purchased the Note at a
premium. Qualified stated interest is stated interest that is unconditionally
payable in cash or in property (other than debt instruments of the issuer) at
least annually at a single fixed rate. Payments of interest on each Note will
be qualified stated interest. The amount of any premium on a Note will be
reduced by the value, determined under any reasonable method, of the conversion
option. If a U.S. Holder elects to have the premium rules apply, the U.S.
holder's premium generally may be amortized as an offset against interest
income on the Note over the period from the date of purchase to the maturity
date of the Note using a constant interest rate method. However, if a Note is
purchased at a time when it may be optionally redeemed for an amount that is in
excess of its principal amount, special rules would apply that could result in
a deferral of the amortization of the premium until later in the Note's term.
An election to amortize premium, once made, applies to all taxable obligations
held or acquired on or after the first day of the first taxable year to which
the election applies and may not be revoked without the consent of the IRS.
Premium on a Note held by a U.S. Holder who does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of
the Note.
Conversion of the Notes
A U.S. Holder generally will not recognize any income, gain or loss on
converting a note into common stock. If the holder receives cash in lieu of a
fractional share of stock; however, the holder would be treated as if he
received the fractional share and then had the fractional share redeemed for
the cash. The holder would recognize capital gain or loss equal to the
difference between the cash received and that portion of his basis in the stock
attributable to the fractional share. The holder's aggregate basis in the
common stock will equal his adjusted basis in the note. The holder's holding
period for the stock will include the period during which he held the note.
Dividends
If, after a U.S. Holder converts a note into common stock, we make a
distribution in respect of that stock, the distribution will be treated as a
dividend, taxable to the U.S. Holder as ordinary income, to the extent it is
paid from our current or accumulated earnings and profits. If the distribution
exceeds our current and accumulated profits, the excess will be treated first
as a tax-free return of the holder's investment, up to the holder's basis in
his common stock. Any remaining excess will be treated as capital gain. If the
U.S. Holder is a U.S. corporation, it would generally be able to claim a
deduction equal to a portion of any dividends received.
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<PAGE>
The terms of the notes allow for changes in the conversion price of the
notes in certain circumstances. A change in conversion price that allows
noteholders to receive more shares of common stock on conversion may increase
the noteholders' proportionate interest in our earnings and profits or assets.
In that case, noteholders would be treated as though they received a dividend
in the form of our stock. Such a constructive stock dividend would be taxable
to the noteholders even though they would not actually receive any cash or
other property. A taxable constructive stock dividend would result, for
example, if the conversion price is adjusted to compensate noteholders for
distributions of cash or property to our shareholders.
Not all changes in conversion price that allow noteholders to receive more
stock on conversion, however, increase the noteholders' proportionate interests
in Efficient. For instance, a change in conversion price could simply prevent
the dilution of the noteholders' interests upon a stock split or other change
in capital structure. Changes of this type, if made by a bona fide, reasonable
adjustment formula, are not treated as constructive stock dividends.
Conversely, if an event occurs that dilutes the noteholders' interests and the
conversion price is not adjusted, the resulting increase in the proportionate
interests of our shareholders could be treated as a taxable stock dividend to
them. Any taxable constructive stock dividends resulting from a change to, or
failure to change, the conversion price would be treated like dividends paid in
cash or other property. They would result in ordinary income to the recipient,
to the extent of our current or accumulated earnings and profits, with any
excess treated as a tax-free return of capital or as capital gain.
Sale of Common Stock
A U.S. Holder will generally recognize capital gain or loss on a sale or
exchange of common stock. The holder's gain or loss will equal the difference
between the proceeds received by the holder and the holder's adjusted tax basis
in the stock. The proceeds received by the holder will include the amount of
any cash and the fair market value of any other property received for the
stock. The gain or loss recognized by a holder on a sale or exchange of stock
will be long-term capital gain or loss if the holder held the stock for more
than one year.
Special Tax Rules Applicable to Non-U.S. Holders
Taxation of Interest
Payments of interest to nonresident persons or entities are generally
subject to U.S. federal income tax at a rate of 30 percent, collected by means
of withholding by the payor. Payments of interest on the notes to most Non-U.S.
Holders, however, will qualify as "portfolio interest," and thus will be exempt
from the withholding tax, if the holders certify their nonresident status as
described below. The portfolio interest exception will not apply to payments of
interest to a Non-U.S. Holder that
. owns, directly or indirectly, at least 10 percent of our voting stock,
or
. is a "controlled foreign corporation" that is related to us.
In general, a foreign corporation is a controlled foreign corporation if at
least 50 percent of its stock is owned, directly or indirectly, by one or more
U.S. persons that each owns, directly or indirectly, at least 10 percent of the
corporation's voting stock.
The portfolio interest exception and several of the special rules for Non-
U.S. Holders described below apply only if the holder certifies its nonresident
status. A Non-U.S. Holder can meet this certification requirement by providing
a Form W-8BEN or appropriate substitute form to us, or our paying agent. If the
holder holds the note through a financial institution or other agent acting on
the holder's behalf, the holder will be required to provide appropriate
documentation to the agent. The holder's agent will then be required to provide
certification to us or our paying agent, either directly or through other
intermediaries. For payments made to a foreign partnership after December 31,
2000, the certification requirements generally apply to the partners rather
than the partnership.
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Sale, Exchange or Redemption of Notes
Non-U.S. Holders generally will not be subject to U.S. federal income tax on
any gain realized on the sale, exchange, or other disposition of notes. This
general rule, however, is subject to several exceptions. For example, the gain
would be subject to U.S. federal income tax if
. the gain is effectively connected with the conduct by the Non-U.S.
Holder of a U.S. trade or business,
. the Non-U.S. Holder was a citizen or resident of the United States and
thus is subject to special rules that apply to expatriates, or
. the rules of the Foreign Investment in Real Property Tax Act ("FIRPTA")
(described below) treat the gain as effectively connected with a U.S.
trade or business.
The FIRPTA rules may apply to a sale, exchange or other disposition of notes
if we are, or were within five years before the transaction, a "U.S. real
property holding corporation" ("USRPHC"). In general, we would be a USRPHC if
interests in U.S. real estate comprised most of our assets. We do not believe
that we are a USRPHC or that we will become one in the future. The FIRPTA rules
would apply to a disposition of notes by a Non-U.S. Holder only if the holder
owned, directly or indirectly, more than 5 percent of our common stock within
five years before the holder's disposition of the notes. For this purpose, the
Non-U.S. Holder would be treated as owning the stock that the holder could
acquire on conversion of the holder's notes. If all of these conditions were
met, and the FIRPTA rules applied to the sale, exchange, or other disposition
of notes by a Non-U.S. Holder, then any gain recognized by the holder would be
treated as effectively connected with a U.S. trade or business, and would thus
be subject to U.S. federal income tax.
Conversion of the Notes
A Non-U.S. Holder generally will not recognize any income, gain or loss on
converting a note into common stock. Any gain recognized as a result of the
holder's receipt of cash in lieu of a fractional share of stock would also
generally not be subject to U.S. federal income tax. See "Special Tax Rules
Applicable to Non-U.S. Holders--Sale of Common Stock," below.
Dividends
Dividends paid to a Non-U.S. Holder on common stock received on conversion
of a note will generally be subject to U.S. withholding tax at a 30 percent
rate. The withholding tax might not apply, however, or might apply at a reduced
rate, under the terms of a tax treaty between the United States and the Non-
U.S. Holder's country of residence. A Non-U.S. Holder must demonstrate its
entitlement to treaty benefits by certifying its nonresident status. Some of
the common means of meeting this requirement are described above under "Special
Tax Rules Applicable to Non-U.S. Holders--Taxation of Interest."
Sale of Common Stock
Non-U.S. Holders will generally not be subject to U.S. federal income tax on
any gains realized on the sale, exchange, or other disposition of common stock.
This general rule, however, is subject to exceptions, some of which are
described under "Special Tax Rules Applicable to Non-U.S. Holders--Sale,
Exchange or Redemption of Notes."
Income or Gains Effectively Connected with a U.S. Trade or Business
The preceding discussion of the tax consequences of the purchase, ownership
or disposition of notes or common stock by a Non-U.S. Holder assumes that the
holder is not engaged in a U.S. trade or business. If any interest on the
notes, dividends on common stock, or gain from the sale, exchange or other
disposition of the notes or stock is effectively connected with a U.S. trade or
business conducted by the Non-U.S. Holder, then the income or gain will be
subject to U.S. federal income tax at the regular graduated rates. If the Non-
U.S.
34
<PAGE>
Holder is eligible for the benefits of a tax treaty between the United States
and the holder's country of residence, any "effectively connected" income or
gain will be subject to U.S. federal income tax only if it is also attributable
to a permanent establishment maintained by the holder in the United States.
Payments of dividends that are effectively connected with a U.S. trade or
business, and therefore included in the gross income of a Non-U.S. Holder, will
not be subject to the 30 percent withholding tax. To claim exemption from
withholding, the holder must certify its qualification, which can be done by
filing a Form W-8ECI. If the Non-U.S. Holder is a corporation, that portion of
its earnings and profits that are effectively connected with its U.S. trade or
business would generally be subject to a "branch profits tax." The branch
profits tax rate is generally 30 percent, although an applicable tax treaty
might provide for a lower rate.
U.S. Federal Estate Tax
The estates of nonresident alien individuals are subject to U.S. federal
estate tax on property with a U.S. situs. The notes will not be U.S. situs
property as long as interest on the notes paid immediately before the death of
the holder would have qualified as portfolio interest, exempt from withholding
tax as described above under "Special Tax Rules Applicable to Non-U.S. Holders:
Taxation of Interest." Because we are a U.S. corporation, our common stock will
be U.S. situs property, and therefore will be included in the taxable estate of
a nonresident alien decedent. The U.S. federal estate tax liability of the
estate of a nonresident alien may be affected by a tax treaty between the
United States and the decedent's country of residence.
Backup Withholding and Information Reporting
The Code and the Treasury regulations require those who make specified
payments to report the payments to the IRS. Among the specified payments are
interest, dividends, and proceeds paid by brokers to their customers. The
required information returns enable the IRS to determine whether the recipient
properly included the payments in income. This reporting regime is reinforced
by "backup withholding" rules. These rules require the payors to withhold tax
at a 31 percent rate from payments subject to information reporting if the
recipient fails to cooperate with the reporting regime by failing to provide
his taxpayer identification number to the payor, furnishing an incorrect
identification number, or repeatedly failing to report interest or dividends on
his returns. The information reporting and backup withholding rules do not
apply to payments to corporations, whether domestic or foreign.
Payments of interest or dividends to individual U.S. Holders of notes or
common stock will generally be subject to information reporting, and will be
subject to backup withholding unless the holder provides us or our paying agent
with a correct taxpayer identification number.
The information reporting and backup withholding rules do not apply to
payments that are subject to the 30 percent withholding tax on dividends or
interest paid to nonresidents, or to payments that are exempt from that tax by
application of a tax treaty or special exception. Therefore, payments of
dividends on common stock, or interest on notes, will generally not be subject
to information reporting or backup withholding. To avoid backup withholding on
dividends paid after December 31, 2000, a Non-U.S. Holder will have to certify
its nonresident status. Some of the common means of doing so are described
under "Special Rules Applicable to Non-U.S. Holders--Taxation of Interest."
Payments made to U.S. Holders by a broker upon a sale of notes or common
stock will generally be subject to information reporting and backup
withholding. If, however, the sale is made through a foreign office of a U.S.
broker, the sale will be subject to information reporting but not backup
withholding. If the sale is made through a foreign office of a foreign broker,
the sale will generally not be subject to either information reporting or
backup withholding. This exception may not apply, however, if the foreign
broker is owned or controlled by U.S. persons, or is engaged in a U.S. trade or
business.
Payments made to Non-U.S. Holders by a broker upon a sale of notes or common
stock will not be subject to information reporting or backup withholding as
long as the Non-U.S. Holder certifies its foreign status.
35
<PAGE>
Any amounts withheld from a payment to a holder of notes or common stock
under the backup withholding rules can be credited against any U.S. federal
income tax liability of the holder.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE
INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S.
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING, AND
DISPOSING OF OUR NOTES OR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY
PROPOSED CHANGE IN APPLICABLE LAWS.
36
<PAGE>
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement in March 2000. Selling
securityholders may offer and sell the notes and the underlying common stock
pursuant to this prospectus.
The following table contains information obtained by Efficient pursuant to a
request made to the selling securityholders on June 22, 2000, with respect to
the selling securityholders and the principal amount of notes and the
underlying common stock beneficially owned by each selling security holder that
may be offered using this prospectus.
<TABLE>
<CAPTION>
Principal Amount Number of
at Shares of
Maturity of Notes Common
Beneficially Percentage Stock That Percentage of
Owned That May Be of Notes May Common Stock
Name Sold Outstanding Be Sold(1) Outstanding(2)
---- ----------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
AIM Strategic Income
Fund................... $2,000,000 * 11,049 *
Alta Partners Holdings,
LDC.................... 5,969,000 1.5% 32,977 *
Argent Classic
Convertible Arbitrage
Fund
(Bermuda) L.P ......... 15,000,000 3.8% 82,872 *
Argent Classic
Convertible Arbitrage
Fund L.P. ............. 4,000,000 1.0% 22,099 *
Argent Convertible
Arbitrage Fund Ltd. ... 1,000,000 * 5,524 *
Arkansas Public
Employees Retirement
System................. 1,030,000 * 5,690 *
Arkansas Teachers
Retirement System...... 3,512,000 * 19,403 *
Banc of America
Securities LLC......... 8,550,000 2.1% 47,237 *
Baptist Health of South
Florida................ 190,000 * 1,049 *
BBT Fund, L.P. ......... 18,000,000 4.5% 99,447 *
BNY Hamilton Equity
Income Fund............ 5,000,000 1.3% 27,624 *
Boston Museum of Fine
Arts................... 115,000 * 635 *
California Public
Employees' Retirement
System Nominee Name:
Surfboard & Co. ....... 3,000,000 * 16,574 *
Castle Convertible Fund,
Inc. .................. 500,000 * 2,762 *
Champion International
Corporation............ 618,000 * 3,414 *
Children's Medical
Center................. 200,000 * 1,105 *
Christian Science
Trustees for
Gifts/Endowment........ 535,000 * 2,955 *
Chrysler Corporation
Master Retirement
Trust.................. 4,265,000 1.1% 23,563 *
City of Richmond
Retirement System...... 110,000 * 607 *
City of Worcester
Retirement System...... 150,000 * 828 *
Clinton Riverside
Convertible Portfolio
Limited................ 2,000,000 * 11,049 *
Cornell University
Endowment--Domestic
Sector................. 1,350,000 * 7,458 *
Credit Suisse First
Boston Corporation..... 37,150,000 9.3% 205,248 *
Dallas Police & Fire
Pension System......... 800,000 * 4,419 *
David Lipscomb
University General
Endowment.............. 385,000 * 2,127 *
Delaware Pers........... 1,545,000 * 8,535 *
Delta Air Lines Master
Trust.................. 1,605,000 * 8,867 *
Detroit Edison
Employees' Retirement
Trust.................. 700,000 * 3,867 *
Detroit Medical Center
Endowment/Depreciation
Fund................... 120,000 * 663 *
Detroit Medical Center
Pension Plan........... 230,000 * 1,270 *
Deutsche Bank Securities
Inc.................... 1,500,000 * 8,287 *
Dow Corning Retirement
Plan................... 250,000 * 1,381 *
Engineers Joint Pension
Fund................... 476,000 * 2,629 *
EQAT Alliance Growth &
Income Account......... 12,915,000 3.2% 71,353 *
EQAT Alliance Growth
Investors.............. 6,950,000 1.7% 38,397 *
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Number of
at Shares of
Maturity of Notes Common
Beneficially Percentage Stock That Percentage of
Owned That May Be of Notes May Common Stock
Name Sold Outstanding Be Sold(1) Outstanding(2)
---- ----------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Equitable Life Assurance
Separate Account--
Balanced............... 380,000 * 2,099 *
Equitable Life Assurance
Separate Account--
Convertibles........... 7,745,000 1.9% 42,790 *
Fiduciary Trust Company
International.......... 750,000 * 4,143 *
Firemen's Annuity &
Benefit Fund of
Chicago--Medium Grade
Portfolio.............. 180,000 * 994 *
Forrestal Funding Master
Trust.................. 5,155,000 1.3% 28,480 *
General Motors Pension
Fund--High Yield
Sector................. 1,500,000 * 8,287 *
Goldman Sachs &
Company................ 200,000 * 1,105 *
Granville Capital
Corporation............ 4,000,000 1.0% 22,099 *
Halliburton Company--
High Yield Sector...... 750,000 * 4,143 *
Health Services
Retirement Plan........ 200,000 * 1,105 *
Houston Firemen's Relief
and Pension Fund "B"... 1,500,000 * 8,287 *
Houston Municipal
Employees Pension
System................. 1,250,000 * 6,906 *
HT Insight Convertible
Securities Fund........ 250,000 * 1,381 *
IBM Pension Plan........ 700,000 * 3,867 *
ICI American Holdings
Trust.................. 825,000 * 4,558 *
JMG Capital Partners,
LP..................... 12,000,000 3.0% 66,298 *
KBC Financial Products.. 800,000 * 4,419 *
Loomis Sayles Bond
Fund................... 1,000,000 * 5,524 *
Loomis Sayles High Yield
Fixed Income Fund...... 300,000 * 1,657 *
Loomis Sayles High Yield
Fund................... 100,000 * 552 *
Loomis Sayles
International High
Yield Fund............. 400,000 * 2,209 *
Lyxor Master Fund....... 500,000 * 2,762 *
Maine State Retirement
System................. 1,350,000 * 7,458 *
Memphis Light, Gas &
Water Retirement Fund.. 4,405,000 1.1% 24,337 *
MetLife General Motors
High Yield Pension..... 600,000 * 3,314 *
MetLife Pension DB
Separate Account 249... 300,000 * 1,657 *
Metropolitan Life Loomis
Sayles High Yield Bond
Portfolio.............. 760,000 * 4,198 *
Minneapolis Teachers
Retirement Fund........ 550,000 * 3,038 *
Morgan Stanley & Co. ... 10,000,000 2.5% 55,248 *
Morgan Stanley Dean
Witter Convertible
Securities Trust....... 5,500,000 1.4% 30,386 *
Morgan Stanley Dean
Witter Income Builder.. 3,000,000 * 16,574 *
Morgan Stanley Dean
Witter Variable Income
Builder................ 2,000,000 * 11,049 *
Motion Picture Industry
Health Plan--Active
Member Fund............ 495,000 * 2,734 *
Motion Picture Industry
Health Plan--Retiree
Member Fund............ 250,000 * 1,381 *
New York State Electric
& Gas Corp. Retirement
Benefit Plan........... 200,000 * 1,105 *
Nicholas-Applegate
Convertible Fund....... 1,346,000 * 7,436 *
Norfolk County
Retirement Board....... 150,000 * 828 *
OCM Convertible Trust... 1,890,000 * 10,442 *
Oppenheimer Convertible
Securities Fund........ 6,000,000 1.5% 33,149 *
Pacific Life Insurance
Company................ 1,500,000 * 8,287 *
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Number of
at Shares of
Maturity of Notes Common
Beneficially Percentage Stock That Percentage of
Owned That May Be of Notes May Common Stock
Name Sold Outstanding Be Sold(1) Outstanding(2)
---- ----------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Partner Reinsurance
Company Ltd............ 850,000 * 4,696 *
Partners Healthcare
System Inc............. 50,000 * 276 *
Partners Healthcare
System Inc. Pension.... 200,000 * 1,105 *
Pension Reserves
Investment Trust....... 3,250,000 * 17,955 *
Peter & Elizabeth Tower
Foundation............. 35,000 * 193 *
Physicians Life......... 373,000 * 2,060 *
Pilgrim Convertible
Fund................... 4,931,000 1.2% 27,243 *
Putnam Asset Allocation
Funds--Balanced
Portfolio.............. 337,000 * 1,861 *
Putnam Asset Allocation
Funds--Conservative
Portfolio.............. 204,000 * 1,127 *
Putnam Convertible
Income--Growth Trust... 4,565,000 1.1% 25,221 *
Putnam Convertible
Opportunities and
Income Trust........... 119,000 * 657 *
Putnam High Income
Convertible Bond Fund.. 724,000 * 4,000 *
Reliant Energy
Retirement Plan........ 1,050,000 * 5,801 *
Robertson Stephens...... 17,000,000 4.3% 93,922 *
San Diego City
Retirement............. 956,000 * 5,281 *
San Diego County
Convertible............ 2,482,000 * 13,712 *
San Diego County
Employee's Retirement
Association............ 350,000 * 1,933 *
State Employees'
Retirement Fund of the
State of Delaware...... 2,160,000 * 11,933 *
State of Connecticut
Combined Investment
Funds.................. 4,815,000 1.2% 26,602 *
State of Connecticut
Fund "F"............... 1,650,000 * 9,116 *
State of Oregon Equity.. 6,500,000 1.6% 35,911 *
State of Rhode Island
Employees Retirement
System................. 3,220,000 * 17,790 *
Teamsters Affiliates
Pension Plan........... 680,000 * 3,756 *
Teamsters Retirement &
Family Protection
Plan................... 35,000 * 193 *
The Frist Foundation.... 1,220,000 * 6,740 *
Ubkam Arbitrage Fund.... 4,100,000 1.0% 22,651 *
Ubkam Global High Yield
Fund................... 5,400,000 1.4% 29,834 *
United Food and
Commercial Workers Tri-
State Pension Fund..... 200,000 * 1,105 *
United Mine Workers of
America Health and
Retirement Fund........ 1,000,000 * 5,524 *
Value Line Convertible
Fund, Inc. ............ 500,000 * 2,762 *
Vanguard Convertible
Securities Fund,
Inc. .................. 4,920,000 1.23% 27,182 *
Van Kampen Convertible
Securities Fund........ 1,500,000 * 8,287 *
Van Kampen Harbor Fund.. 9,500,000 2.4% 52,486 *
Wake Forest University.. 906,000 * 5,005 *
Wasserstein Perella
Securities Inc. ....... 3,000,000 * 16,574 *
Winchester Convertible
Plus Ltd............... 525,000 * 2,900 *
Writers Guild--Industry
Health Fund............ 295,000 * 1,629 *
Zeneca Holdings Trust... 790,000 * 4,364 *
Any other holder of
Notes or future
transferee, pledgee,
donee or successor of
any holder (3)(4)...... 87,107,000 21.8% 481,254 *
</TABLE>
39
<PAGE>
--------
* Less than 1%.
(1) Assumes conversion of all of the holder's notes at a conversion price of
$181.00 per share of common stock. However, this conversion price will be
subject to adjustment as described under "Description of Notes--Conversion
of Notes." As a result, the amount of common stock issuable upon conversion
of the notes may increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using 55,737,156
shares of common stock outstanding as of June 22, 2000. In calculating this
amount, we treated as outstanding the number of shares of common stock
issuable upon conversion of all of that particular holder's notes. However,
we did not assume the conversion of any other holder's notes.
(3) Information about other selling security holders will be set forth in
prospectus supplements, if required.
(4) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of notes,
do not beneficially own any common stock other than the common stock
issuable upon conversion of the notes at the initial conversion rate.
We prepared this table based on the information supplied to us by the
selling securityholders named in the table.
The selling securityholders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their notes since the date on which the
information in the above table is presented. Information about the selling
securityholders may change from over time. Any changed information will be set
forth in prospectus supplements.
Because the selling securityholders may offer all or some of their notes or
the underlying common stock from time to time, we cannot estimate the amount of
the notes or underlying common stock that will be held by the selling
securityholders upon the termination of any particular offering. See "Plan of
Distribution."
40
<PAGE>
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
underlying common stock offered by this prospectus. The notes and the
underlying common stock may be sold from time to time to purchasers:
. directly by the selling securityholders; or
. through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers of the notes and the
underlying common stock.
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the notes and the underlying common stock
may be deemed to be "underwriters." As a result, any profits on the sale of the
notes and underlying common stock by selling securityholders and any discounts,
commissions or concessions received by any such broker-dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities
Act. If the selling securityholders were to deemed underwriters, the selling
securityholders may be subject to certain statutory liabilities of, including,
but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act.
If the notes and underlying common stock are sold through underwriters or
broker-dealers, the selling securityholders will be responsible for
underwriting discounts or commissions or agent's commissions.
The notes and underlying common stock may be sold in one or more
transactions at:
. fixed prices;
. prevailing market prices at the time of sale;
. varying prices determined at the time of sale; or
. negotiated prices.
These sales may be effected in transactions:
. on any national securities exchange or quotation service on which the
underlying common stock may be listed or quoted at the time of the sale,
including the Nasdaq National Market, in the case of the common stock;
. in the over-the-counter market;
. in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
. through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the notes and underlying common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short sales of the
notes and underlying common stock in the course of hedging their positions. The
selling securityholders may also sell the notes and underlying common stock
short and deliver notes and underlying common stock to close out short
positions, or loan or pledge notes and underlying common stock to broker-
dealers that in turn may sell the notes and underlying common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter, broker-
dealer or agent regarding the sale of the notes and the underlying common stock
by the selling securityholders. Selling securityholders may not sell any or all
of the notes and the underlying common stock offered by them pursuant to this
prospectus. In addition, we cannot assure you
41
<PAGE>
that any such selling securityholder will not transfer, devise or gift the
notes and the underlying common stock by other means not described in this
prospectus.
Our common stock trades on the Nasdaq National Market under the symbol
"EFNT." We do not intend to apply for listing of the notes on any securities
exchange or for quotation through Nasdaq. Accordingly, no assurance can be
given as to the development of liquidity or any trading market for the notes.
See "Risk Factors--A public market may not develop for the notes."
There can be no assurance that any selling securityholder will sell any or
all of the notes or underlying common stock pursuant to this prospectus. In
addition, any notes or underlying common stock covered by this prospectus that
qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be
sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.
Pursuant to the registration rights agreement filed as an exhibit to this
registration statement, we and the selling securityholders will be indemnified
by the other against certain liabilities, including certain liabilities under
the Securities Act or will be entitled to contribution in connection with these
liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and underlying common stock to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
The validity of the issuance of Efficient's securities offered by this
prospectus will be passed upon for Efficient Networks, Inc. by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of Efficient Networks, Inc. as of June
30, 1998 and 1999, and for each of the years in the three-year period ended
June 30, 1999 have been incorporated by reference herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of FlowPoint Corporation as of March 31, 1998,
August 31, 1998 and February 28, 1999 and for the years ended March 31, 1997
and 1998, the five-month period ended August 31, 1998 and the six-month period
ended February 28, 1999 have been incorporated by reference herein in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
42
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with this offering. All amounts are estimates except
for the registration fee:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $105,600
Trustee's fees and expenses........................................ 3,000
Accounting fees and expenses....................................... 10,000
Legal fees and expenses............................................ 75,000
Miscellaneous...................................................... 26,400
--------
Total............................................................ $220,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF EFFICIENT
The Registrant's certificate of incorporation limits the liability of the
Registrant's directors to the maximum extent permitted by Delaware law. Section
145(a) of the General Corporation Law of the State of Delaware ("Delaware
Corporation Law") provides, in general, that a corporation shall have the power
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that the person
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. Such
indemnity may be against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person
in connection with such action, suit or proceeding, if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation and if, with respect to any criminal
action or proceeding, the person did not have reasonable cause to believe the
person's conduct was unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any expenses (including attorneys'
fees) actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability under the provisions of Section 145.
The Registrant's certificate of incorporation and bylaws provide that it
will indemnify its directors and executive officers, and that it may indemnify
its other officers and employees and other agents, to the fullest extent
permitted by law. The Registrant believes that indemnification under its bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. The Registrant's bylaws also permit it to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or
II-1
<PAGE>
her actions in such capacity, regardless of whether the bylaws would permit
indemnification. The Registrant has entered into agreements to indemnify its
directors and executive officers, in addition to indemnification provided for
in its bylaws. These agreements, among other things, provide for
indemnification of the Registrant's directors and executive officers for
expenses, judgments, fines and settlement amounts incurred by any such person
in any action or proceeding arising out of such person's services as a director
or executive officer of the Registrant or at its request. The Registrant
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers. The Registrant
also maintains directors and officers liability insurance. At present, the
Registrant is not aware of any pending litigation or proceeding involving any
director, officer, employee or agent of Registrant where indemnification will
be required or permitted. Furthermore, the Registrant is not aware of any
threatened litigation or proceeding that might result in a claim for indemnity
by these individuals.
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
4.1* Certificate of Incorporation (1)
4.2* Bylaws, as amended (2)
4.3* Indenture (3)
4.4* Registration Rights Agreement (3)
4.5* Form of Note (included in Exhibit 4.1)(3)
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
12.1* Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.3 (included in Exhibit 5.1)
24.1* Power of Attorney of certain directors and officers of Efficient
Networks, Inc.
Form T-1 Statement of Eligibility of Trustee for Indenture under the
25.1* Trust Indenture Act of 1939
</TABLE>
--------
* Previously filed.
(1) Incorporated by reference to exhibits filed the Registrant's Registration
Statement on Form S-1 (Registration No. 333-77795) declared effective July
14, 1999.
(2) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K (File No. 000-26473) for the fiscal year ended June 30,
1999.
(3) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q/A (File No. 000-26473) for the for the fiscal quarter
ended March 31, 2000 as filed with the Commission on July 14, 2000.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act,
II-2
<PAGE>
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement,
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that clauses (a) and (b) do not apply if the information
required to be included in a post-effective amendment by such clauses is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities, other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Amendment No. 1 to the
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on August 4, 2000.
EFFICIENT NETWORKS, INC.
/s/ Mark A. Floyd
By: _________________________________
Name: Mark A. Floyd
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Mark A. Floyd President, Chief Executive August 4, 2000
____________________________________ Officer and Chairman of the
Mark A. Floyd Board of Directors
(Principal Executive
Officer)
/s/ Jill S. Manning Vice President and Chief August 4, 2000
____________________________________ Financial Officer
Jill S. Manning (Principal Financial and
Accounting Officer)
* Director August 4, 2000
____________________________________
Bruce W. Brown
* Director August 4, 2000
____________________________________
James P. Gauer
* Director August 4, 2000
____________________________________
Robert A. Hoff
* Director August 4, 2000
____________________________________
William L. Martin III
* Director August 4, 2000
____________________________________
Thomas H. Peterson
* Director August 4, 2000
____________________________________
Anthony T. Maher
* Director August 4, 2000
____________________________________
Robert C. Hawk
*By: /s/ Mark A. Floyd
____________________________________
Mark A. Floyd
Attorney-In-Fact
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
4.1* Certificate of Incorporation (1)
4.2* Bylaws, as amended (2)
4.3* Indenture (3)
4.4* Registration Rights Agreement (3)
4.5* Form of Note (included in Exhibit 4.1)(3)
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
12.1* Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.3 (included in Exhibit 5.1)
24.1* Power of Attorney of certain directors and officers of Efficient
Networks, Inc.
Form T-1 Statement of Eligibility of Trustee for Indenture under the
25.1* Trust Indenture Act of 1939
</TABLE>
--------
* Previously filed.
(1) Incorporated by reference to exhibits filed the Registrant's Registration
Statement on Form S-1 (Registration No. 333-77795) declared effective July
14, 1999.
(2) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K (File No. 000-26473) for the fiscal year ended June 30,
1999.
(3) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q/A (File No. 000-26473) for the for the fiscal quarter
ended March 31, 2000 as filed with the Commission on July 14, 2000.
