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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DSC COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 54-1025763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
GEORGE B. BRUNT
1000 COIT ROAD DSC COMMUNICATIONS CORPORATION
PLANO, TEXAS, 75075 1000 COIT ROAD
(972) 519-3000 PLANO, TEXAS, 75075
(Address, including zip code, and telephone number, (972) 519-3000
including (Name, address, including zip code, and telephone
area code, of registrant's principal executive number,
offices) including area code, of agent for service)
</TABLE>
With a copy to:
DANIEL W. RABUN
BAKER & MCKENZIE
2001 ROSS AVENUE, SUITE 4500
DALLAS, TEXAS 75201
(214) 978-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=============================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS TO BE AGGREGATE PRICE AGGREGATE OFFERING REGISTRATION
OF SHARES TO BE REGISTERED REGISTERED PER SECURITY(1)(2) PRICE(1) FEE(4)
- -----------------------------------------------------------------------------------------------------------------------------
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7% Convertible Subordinated Notes..... $320,850,000 100% $320,850,000 $97,228
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share............................... 6,452,453(3) Not Applicable Not Applicable Not Applicable
- -----------------------------------------------------------------------------------------------------------------------------
Preferred Stock Purchase Rights....... 6,452,453 rights Not Applicable Not Applicable Not Applicable
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(1) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(i).
(2) Exclusive of accrued interest, if any.
(3) Such number represents the number of shares of Common Stock initially
issuable upon conversion of the Notes registered hereby and, pursuant to
Rule 416 under the Securities Act of 1933, as amended, such indeterminate
number of shares of Common Stock as may be issued from time to time upon
conversion of the Notes by reason of adjustment of the conversion price
under certain circumstances outlined in the Prospectus.
(4) In accordance with Rule 457(g), no additional registration fee is required
in respect of the Preferred Stock Purchase Rights.
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, AS AMENDED, 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> 2
PROSPECTUS
DSC COMMUNICATIONS CORPORATION
$320,850,000 7% CONVERTIBLE SUBORDINATED NOTES DUE AUGUST 1, 2004
6,452,453 SHARES OF COMMON STOCK
This Prospectus relates to the offering for resale by the selling
securityholders named herein (the "Selling Securityholders") of 7% Convertible
Subordinated Notes due August 1, 2004 (the "Notes") of DSC Communications
Corporation (the "Company") up to the aggregate principal amount of
$320,850,000. In addition, this Prospectus relates to the offering of 6,452,453
shares (subject to adjustment under certain circumstances) of the Company's
common stock, par value $.01 per share (the "Common Stock"), issued or issuable
upon conversion of the Notes. The Common Stock includes the preferred stock
purchase rights attaching to such stock pursuant to that certain Rights
Agreement dated April 25, 1996 by and between the Company and Harris Trust and
Savings Bank, formerly KeyCorp Shareholder Services, Inc. The Common Stock,
together with the Notes, are referred to herein as the "Securities." The Notes
were originally issued and sold in August 1997 in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The Notes are designated for trading on the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") system of
the National Association of Securities Dealers, Inc. The Notes are neither
listed on any stock exchange nor included on any automated quotation system. The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
"DIGI." On November 10, 1997, the last reported sale price for the Common Stock
was $24.9375 per share.
The Notes are convertible into shares of Common Stock, prior to redemption
or maturity, at a conversion rate of 20.1106 shares per $1,000 principal amount
of Notes (equivalent to a conversion price of $49.725 per share), subject to
adjustment in certain events. See "Description of the Notes -- Conversion."
Interest on the Notes is payable semi-annually February 1 and August 1,
commencing on February 1, 1998. At any time on or after August 1, 2000, the
Notes will be redeemable, in whole or in part, at the option of the Company,
upon not less than 30 days' nor more than 60 days' prior notice at redemption
prices as described herein. In the event of a Change in Control (as defined
herein), each holder of Notes may require the Company to repurchase its Notes,
in whole or in part, for cash or, at the Company's option, Common Stock (valued
at 95% of the average closing sale prices for the five trading days immediately
preceding the second trading day prior to the repurchase date) at a repurchase
price of 100% of the principal amount of Notes to be repurchased, plus accrued
interest to the repurchase date. See "Description of the Notes -- Redemption"
and "-- Repurchase at Option of Holders Upon a Change in Control."
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company and effectively subordinated in right of payment to all
indebtedness and other liabilities of the Company's subsidiaries. See
"Description of the Notes -- Subordination." As of September 30, 1997, the
aggregate amount of Senior Indebtedness outstanding was approximately $356.2
million, which includes indebtedness of the subsidiaries of the Company
guaranteed by the Company. Neither the Indenture (as defined herein) nor the
Notes limit the amount of Senior Indebtedness or other indebtedness that the
Company or its subsidiaries may incur.
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby. The Selling Securityholders directly, through agents
designated from time to time, or through dealers or underwriters to be
designated, may sell Securities from time to time on terms to be determined at
the time of sale. The specific amount of Securities to be sold, the offering
price, the names of any such agent, dealer or underwriter, and any applicable
commission or discount with respect to the particular offer will be set forth in
a Prospectus Supplement. The Company has agreed to bear all expenses of
registration of the Securities under federal and state securities laws and to
indemnify the Selling Securityholders against certain liabilities under the
Securities Act. See "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN RISKS ASSOCIATED WITH AN
INVESTMENT IN THE SECURITIES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
IT IS ANTICIPATED THAT EACH OF THE PERSONS NAMED HEREIN UNDER THE CAPTION
"SELLING SECURITYHOLDERS" MAY OFFER AND SELL THE SECURITIES FROM TIME TO TIME IN
ORDINARY TRANSACTIONS TO OR THROUGH ONE OR MORE BROKERS OR DEALERS THROUGH THE
NASDAQ NATIONAL MARKET OR ANY NATIONAL SECURITIES EXCHANGE ON WHICH THE COMMON
STOCK IS APPROVED FOR LISTING IN THE FUTURE OR IN PRIVATE TRANSACTIONS AT SUCH
PRICES AS MAY BE OBTAINABLE. ANY SUCH PERSON MAY BE DEEMED TO BE AN
"UNDERWRITER" AS THAT TERM IS DEFINED BY THE SECURITIES ACT. HOWEVER, THE
COMPANY AND SUCH PERSONS DISCLAIM THAT ANY SUCH PERSON IS AN UNDERWRITER.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 10, 1997.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SECURITYHOLDER OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
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PAGE
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Available Information....................................... 3
Incorporation of Certain Documents by Reference............. 3
Forward-Looking Statements.................................. 4
Prospectus Summary.......................................... 5
The Company................................................. 5
Recent Developments......................................... 5
The Offering................................................ 5
Risk Factors................................................ 8
Use of Proceeds............................................. 11
Ratio of Earnings to Fixed Charges.......................... 12
Description of Notes........................................ 12
United States Taxation...................................... 22
Description of Registration Rights Agreement................ 28
Selling Securityholders..................................... 29
Plan of Distribution........................................ 32
Legal Matters............................................... 33
Experts..................................................... 33
</TABLE>
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<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at the Commission's regional offices at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained at prescribed rates upon request from the Public Reference
Section of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549. The
Common Stock of the Company is listed on the Nasdaq National Market, and such
reports, proxy statements and other information can also be inspected at the
offices of the Nasdaq National Market, Reports Section, 1735 K Street N.W.,
Washington, D.C. 20006. In addition, such materials filed electronically by the
Company with the Commission are available at the Commission's World Wide Web
Site at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
Securities offered hereby. This Prospectus, which constitutes a part of that
Registration Statement, does not contain all the information set forth in that
Registration Statement and the exhibits relating thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and exhibits. Statements contained
herein concerning the provisions of any documents are necessarily summaries of
those documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission. The Registration
Statement and any amendments thereto, including exhibits filed as a part
thereof, are available for inspection and copying as set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents which have been filed with the Commission pursuant to the
Exchange Act and made a part hereof:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997;
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997;
(e) The Company's Current Report on Form 8-K filed August 26, 1997;
(f) The Company's Current Report on Form 8-K filed November 3, 1997;
and
(g) The description of the Company's Common Stock as contained in the
Company's Registration Statement on Form 8-A dated October 27, 1981,
including all amendments and reports filed for the purpose of updating such
descriptions; and the description of the Company's preferred stock purchase
rights as contained in the Company's Registration Statement on Form 8-A
dated May 13, 1996, including all amendments and reports filed for the
purpose of updating such descriptions.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering shall be deemed to be incorporated by reference into
this Prospectus and to be made a part hereof from the date of filing of such
document. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by
3
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reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
4
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The Company will furnish without charge, upon written or oral request, to
each person, including any beneficial owner, to whom this Prospectus is
delivered, a copy of any or all of the documents incorporated by reference
herein other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to DSC Communications Corporation, 1000 Coit Road, Plano,
Texas 75075, Attention: General Counsel. Telephone number (972) 519-3000.
FORWARD-LOOKING STATEMENTS
This Registration Statement contains statements relating to future results
of the Company (including certain projections and business trends) that are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, which involve risks and uncertainties.
Actual results may differ materially from the results discussed in or implied by
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those set forth under "Risk Factors" and
detailed from time to time in the filings of the Company with the Commission.
4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. The terms "the Company" and
"DSC Communications Corporation" refer solely to DSC Communications Corporation
and not its subsidiaries (except under the captions "Prospectus Summary -- The
Company" and "Risk Factors."
THE COMPANY
The Company designs, develops, manufactures and markets digital switching,
access, transport and network management system products for the worldwide
telecommunications marketplace. These products allow telecommunications service
providers to build and upgrade their networks to support a wide range of voice,
data and video services. The Company offers a comprehensive product line
including digital switching systems, intelligent network products, cellular
switching systems, digital loop carrier products, digital cross-connect products
and optical transmission systems and related advanced network management
systems. The Company develops such systems to meet U.S. and international
telecommunications standards and the specific requirements of the operating
companies of the Regional Holding Companies ("RHCs"), independent telephone
companies, long-distance carriers, private networks and companies operating
public and private communications networks in other countries.
The Company supplies products to a domestic and international customer
base, including local exchange telephone companies, long-distance carriers,
cellular telephone companies, international telephone companies, various Fortune
1000 companies and utility companies. Its domestic customers include the RHCs
and most major domestic independent telephone and long-distance companies,
including MCI Communications Corporation, U.S. Sprint Communications Company
L.P., GTE Communications Systems Corporation and WorldCom, Inc. The Company is
also a major manufacturer of high-capacity cellular switches for Motorola, Inc.,
a leading supplier of wireless communication systems throughout the world.
International customers include DDI Corporation of Japan, Tele Danmark, Deutsche
Telekom in Germany, Cable & Wireless PLC and Mercury Communications, Ltd. in the
United Kingdom, British Telecommunications PLC, Telefonos de Mexico, S.A. de
C.V. and AAP Communications, Pty. Ltd. of Australia.
The Company was incorporated under the laws of the State of Delaware in
1976. The Company's executive offices are located at 1000 Coit Road, Plano,
Texas 75075. Its telephone number is (972) 519-3000.
RECENT DEVELOPMENTS
The Company has entered into an Agreement and Plan of Merger, dated as of
October 29, 1997 (the "Merger Agreement"), pursuant to which the Company will
acquire all of the outstanding capital stock of CELCORE, Inc. ("CELCORE"), and
CELCORE will become a wholly-owned subsidiary of the Company (the "Merger").
Under the terms of the Merger Agreement, the Company would issue shares of
Common Stock in exchange for all of the outstanding shares of CELCORE and assume
substantially all of the stock options of CELCORE. The purchase price is
estimated at approximately $167 million. The Merger Agreement has been approved
by the respective Boards of Directors of the Company and CELCORE, and it is
subject to the receipt of various governmental approvals and other customary
closing conditions.
In November 1997, a U.S. District Court issued a final judgment in favor of
the Company in a lawsuit against Next Level Communications and two former
Company employees related to the theft of Company trade secrets. As a result,
the Company received proceeds of approximately $140.7 million which will be
recorded in the Company's results, net of legal and other associated costs, in
the fourth quarter of 1997.
5
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THE OFFERING
This Prospectus relates to the offering by the Selling Securityholders of
both the Notes and, to the extent the Notes have been, or are, converted, the
Common Stock. The following summary of certain terms of the Notes is not
complete and is qualified by all of the terms and conditions contained in the
Notes and in the Indenture. For a more detailed description of the terms of the
Notes, see "Description of Notes."
SECURITIES TO WHICH THIS PROSPECTUS RELATES
This Prospectus relates to the following Securities that may from time to
time be sold by the Selling Securityholders (i) up to $320,850,000 principal
amount of 7% Convertible Subordinated Notes due August 1, 2004 (the "Notes") of
the Company and (ii) all shares of Common Stock that may be acquired by any
Selling Securityholder upon conversion of any Note to which this Prospectus
relates as described in the preceding clause.
CERTAIN INFORMATION RELATING TO THE NOTES
Amount Outstanding......... As of October 31, 1997, there was outstanding an
aggregate of $400,000,000 principal amount of
Notes.
Interest Payment Dates..... February 1 and August 1 of each year, commencing on
February 1, 1998.
Issuer..................... DSC Communications Corporation, a Delaware
corporation.
Conversion Price........... $49.725 per share (equivalent to a conversion rate
of 20.1106 shares per $1,000 principal amount of
Notes), subject to adjustment.
Conversion Rights.......... The Notes will be convertible into shares of Common
Stock of the Company at any time on or after
November 20, 1997 and prior to the close of
business on August 1, 2004, unless previously
redeemed or repurchased, at the conversion price
set forth above, subject to adjustment. Holders of
Notes called for redemption will be entitled to
convert the Notes to and including, but not after,
the close of business on the fifth Trading Day (as
defined) next preceding the date fixed for
redemption. The right to convert a Note delivered
for repurchase will terminate on the close of
business on the second Trading Day next preceding
the repurchase date. See "Description of
Notes -- Conversion Rights."
Optional Redemption........ The Notes are redeemable at the option of the
Company, on or after August 1, 2000, at the
redemption prices set forth herein, plus accrued
interest to the redemption date. See "Description
of Notes -- Redemption."
Repurchase at Option of
Holders
Upon a Change in
Control.................. Upon a Change in Control (as defined), holders of
the Notes will have the right, subject to certain
conditions and restrictions, to require the Company
to repurchase their Notes at 100% of the principal
amount thereof, plus accrued interest to the
repurchase date. The repurchase price is payable in
cash or, at the option of the Company, in Common
Stock (valued at 95% of the average closing prices
of the Common Stock for the five Trading Days
ending on and including the third Trading Day next
preceding the repurchase date). See "Description of
Notes -- Repurchase at Option of Holders Upon a
Change in Control."
Subordination.............. The Notes are unsecured obligations of the Company,
subordinated in right of payment to all existing
and future Senior Indebtedness (as defined under
"Description of Notes -- Subordination") of the
Com-
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pany. The Notes are also effectively subordinated
in right of payment to all indebtedness and other
liabilities of the subsidiaries of the Company. As
of September 30, 1997, the aggregate amount of
outstanding Senior Indebtedness of the Company was
approximately $356.2 million, which includes
indebtedness of the subsidiaries of the Company
guaranteed by the Company. The Indenture does not
restrict the incurrence of additional Senior
Indebtedness or other indebtedness by the Company
nor the incurrence of additional indebtedness or
other liabilities by the subsidiaries of the
Company. See "Description of Notes --
Subordination."
Events of Default.......... Events of default include: (a) failure to pay
principal of or premium, if any, on any Note when
due, whether or not such payment is prohibited by
the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due,
continuing for 30 days, whether or not such payment
is prohibited by the subordination provisions of
the Indenture; (c) failure to perform, or the
breach of, any other covenant of the Company in the
Indenture, continuing for 60 days after written
notice as provided in the Indenture; (d) default by
the Company in respect of any indebtedness for
money borrowed in excess of $20,000,000, which
default constitutes a failure to pay such
indebtedness at maturity or results in acceleration
of such indebtedness, if such indebtedness is not
discharged, or such acceleration is not rescinded
or annulled, within 30 days after written notice as
provided in the Indenture; and (e) certain events
of bankruptcy, insolvency or reorganization. See
"Description of Notes -- Events of Default."
Registration Rights........ Pursuant to the Registration Rights Agreement (as
defined), the Company agreed to file a Shelf
Registration Statement (as defined) (of which this
Prospectus constitutes a part) in respect of the
Notes and the Common Stock issuable upon conversion
thereof. Upon certain failures by the Company to
comply with certain of its obligations under the
Registration Rights Agreement, additional interest
will be payable on the Notes. See "Description of
Notes -- Registration Rights" and "Description of
Registration Rights Agreement."
Listing.................... The Notes are designated for trading on the PORTAL
System of the National Association of Securities
Dealers, Inc. The Company's Common Stock is quoted
on the Nasdaq National Market under the symbol
"DIGI."
RISK FACTORS
See "Risk Factors" for certain considerations relevant to an investment in
the Securities offered hereby.
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RISK FACTORS
Potential investors should carefully evaluate all of the information
contained and incorporated by reference in this Registration Statement and, in
particular, the following:
CUSTOMER CONCENTRATION
The Company has a diversified customer base including long distance
carriers, RHCs, Motorola, Inc., international PTTs and other domestic and
international independent telephone companies. However, a large portion of the
Company's revenue is concentrated among several of the Company's larger
customers. During 1996, revenue from the Company's three largest customers in
total accounted for approximately 39% of the Company's consolidated revenue.
Although the Company expects that these customer relationships will continue to
generate substantial revenue in the near term, there can be no assurance that
any of these customers will continue to purchase products, or continue to
purchase products at historical levels. Product orders generally are subject to
rescheduling and cancellation without penalty. A material reduction in the
purchases of the Company's products by any of the Company's significant
customers could have a material adverse effect on the Company.
PRODUCT OBSOLESCENCE AND IMPORTANCE OF NEW PRODUCTS
The industry in which the Company operates is characterized by rapidly
changing technological and market conditions, which may shorten product life
cycles. The Company's future competitive position and operating results depend
upon successful production and sales of its existing products, its ability to
develop and produce on a timely basis new products to meet existing and
anticipated industry demands, and its ability to reduce the costs of existing
systems, software and services. During the product development process, the
Company is required to make a substantial investment in research and
development, capital and, at times, inventory for products that often require
extensive field testing and evaluation prior to actual sales to its customers.
Delays in product completion and/or slower than expected market acceptance of
certain products have negatively impacted the Company's operating performance in
the past and also, in certain cases, resulted in adjustments to carrying values
of assets, including the majority of the non-cash special charge in the third
quarter of 1996. In addition, when the Company's products are eventually sold to
customers, there can be no assurance that such products will be profitable. The
Company may be materially adversely affected if it is unable to develop and
produce on a timely basis new products to meet existing and industry demands, if
substantial delays in the availability of new products occur, or if any of the
Company's existing or new products are not commercially successful and the
Company is therefore required to adjust the carrying value, or discontinue such
product.
TIMELY AND ADEQUATE SUPPLY OF MATERIALS
The Company generally uses standard parts and components for its products
and believes that, in most cases, there are a number of alternative, qualified
vendors for most of those parts and components. The Company purchases certain
custom components and products from single suppliers. The Company believes that
the manufacturers of the particular custom components and products should be
able to meet expected future demands. Recent changes in silicon wafer and other
electronic component technologies have required the Company to evaluate the
feasibility of "lifetime" purchases of certain component materials. Such
"lifetime" purchases may or may not be sufficient to fulfill customer demand.
Alternatively, the Company could be required to find second sourcing of these
component materials or modify existing product designs. Although the Company has
not experienced any material adverse effects from the inability to obtain timely
delivery of needed components, an unanticipated interruption of the Company's
ability to secure comparable components could have a material adverse effect on
the Company's revenues and profitability. In addition, certain of the Company's
products contain a number of subsystems or components acquired from other
manufacturers on an original equipment manufacturer ("OEM") basis. These OEM
products are often available only from a limited number of manufacturers. In the
event that an OEM product was no longer available from a current OEM vendor,
second sourcing would be required and could delay customer deliveries which
could have a material adverse effect on the Company's revenues and
profitability.
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COMPETITION
The Company currently faces significant competition in its markets and
expects that the level of price and product competition will increase. In
addition, as a result of both the trend toward global expansion by foreign and
domestic competitors and technological and public policy changes, the Company
anticipates that new and different competitors will enter its markets. These
competitors may include entrants from the telecommunications, software and data
networking industries. The Company believes that it enjoys a strong competitive
position due to its large installed base, its strong relationship with key
customers and its technological leadership and new product development
capabilities. However, many of the Company's foreign and domestic competitors
have more extensive engineering, manufacturing, marketing, financial and
personnel resources than those of the Company. The Company's ability to compete
is dependent upon several factors, including, but not limited to, product
features, innovation, quality, reliability, service, support, price and the
retention and attraction of qualified design and development personnel.
QUARTERLY EARNINGS FLUCTUATIONS AND LIQUIDITY
The Company's operating results may fluctuate significantly from quarter to
quarter due to several factors. As is the case with other companies in the
telecommunications manufacturing industry, a large portion of customer purchase
orders are received and shipments occur in the latter part of most quarters. As
a result, revenue and earnings can fluctuate significantly from quarter to
quarter based on customer requirements, and the timing of orders and shipments.
In addition, periodic operating results may be materially affected by shifts in
the mix of products delivered, including the amount of software content, the
impact of sales price changes, the timing of satisfactory completion of
development and testing of new products and product enhancements and adjustments
in the carrying value, or the discontinuation, of any of the Company's products.
See "-- Product Obsolescence and Importance of New Products." The Company has
historically experienced a stronger demand for its products in the fourth
quarter and a lower demand for its products in the first quarter; however, there
is no assurance this will continue in the future. In addition, the Company
currently estimates that approximately $135.0 million of the purchase price paid
for CELCORE will be allocated to in-process research and development which will
be charged to expense in the period the Merger is consummated, currently
estimated to be the fourth quarter of 1997.
At September 30, 1997, the Company had outstanding short and long term debt
of approximately $665 million. Some of the Company's financing arrangements
contain various financial covenants and cross-default provisions. Due to the
acquisition of CELCORE and the related write off of in-process research and
development as discussed above, the Company, subsequent to the Merger, is likely
to be in technical default under certain of its financial covenants. The Company
management believes it will be able to reach an agreement with its lender to
amend such agreements. Because of the timing of the Merger, management will not
be able to obtain amendments to the agreements prior to the issuance of this
Prospectus. However, there can be no assurance that the Company will be able to
reduce such risk without a reduction in liquidity. A default under any such
agreements could have a material adverse impact on the Company.
INTERNATIONAL GROWTH AND FOREIGN EXCHANGE
The international marketplace has become an increasingly important source
of new business opportunities for the Company as potential growth rates of some
international markets are higher than those of the United States. However,
access to customers in international markets is often more difficult due to a
variety of factors including the established relationships between the national
service providers, some of which are currently or were formerly government-owned
or -controlled, and their traditional indigenous suppliers of telecommunications
equipment. There can be no assurance that the Company will be able to overcome
these barriers. In addition, pursuit of customers in international markets may
require significant investments for an extended period before returns on such
investments, if any, are realized. The Company also has manufacturing operations
at several locations outside the United States. Such business, investment and
operating activities could be materially adversely affected by economic and
labor conditions, political instability, tax laws (including U.S. taxes on
foreign subsidiaries) and changes in the value of the United States dollar
versus the local currency in which products are sold. A significant change in
the value of the dollar against the currency
9
<PAGE> 12
of one or more countries where the Company recognizes substantial revenue or
earnings may materially adversely affect the Company's operating results. The
Company attempts to mitigate this risk through the use of forward foreign
exchange contracts where possible, although there can be no assurances that such
attempts will be successful.
KEY PERSONNEL
The Company is dependent upon the continued services and management
experience of certain of its senior management personnel. If the Company were to
lose the services of such senior management personnel, it could have a material
adverse effect on the Company.
INTELLECTUAL PROPERTY AND LICENSING
The Company's proprietary technology is a key component of the value of its
products. The Company has an established program to protect its proprietary
information through patent, trademark, copyright and trade secret procedures.
The Company currently has patents issued to it and numerous patent applications
pending in the United States and foreign countries. There is no guarantee that
the pending applications will mature into issued patents or that the patents
issued will be held valid or will provide competitive advantage to the Company
in the respective jurisdictions if challenged or circumvented. The laws of some
foreign countries do not extend the same level of protection for intellectual
property as do the laws of the United States. While the Company believes that
the protection of its intellectual property by patents, copyrights and trade
secrets has value, it also believes the continued innovative skills,
technological expertise and management abilities of its employees underlies the
success of the Company.
Because of the rapid rate of technological innovation in the
telecommunications industry, the high numbers of patents being applied for
internationally and delays in various patent offices, it is not possible to
anticipate whether each of the Company's products or any of their respective
components may be covered by a patent applied for or issued to a third party.
From time to time the Company receives notice from third parties regarding
patent or other intellectual property claims. If infringement is alleged, the
Company believes that, based upon industry practice, any necessary license or
rights from a third party may be obtained on terms that would not have a
material adverse effect on the Company's financial condition or its results of
operations. Nevertheless, there can be no assurance that the necessary licenses
would be available on acceptable terms, if at all, or that the Company would
prevail in any challenge by a third party. The inability to obtain certain
licenses or other rights or to obtain such licenses or rights on favorable
terms, or litigation arising out of such other parties' assertion, could have a
material adverse effect on the Company's business, operating results and
financial condition.
POSSIBLE VOLATILITY OF NOTES AND STOCK PRICE
The market price of the Common Stock has been, and may continue to be,
volatile. Factors such as new product announcements by the Company or its
competitors, quarterly fluctuations in the operating results of the Company, its
competitors and other technology companies may have a significant impact on the
market price of the Notes and the Common Stock into which the Notes are
convertible. In particular, if the Company were to report operating results
which did not meet the expectations of the research analysts, the market price
of the Notes and Common Stock could be materially adversely affected. From time
to time, the stock market has experienced extreme price and volume fluctuations,
which have particularly affected the market prices for many high technology
companies and which have often been unrelated to the operating performance of
the specific companies.
ABSENCE OF MARKET; TRANSFER RESTRICTIONS
There is no existing trading market for the Notes and there can be no
assurance as to the liquidity of any such market that may develop, the ability
of the holders of Notes to sell such securities, the price at which the holders
of Notes would be able to sell such securities or whether a trading market, if
it develops, will continue. If such market were to exist, the Notes could trade
at prices higher or lower than their principal amount,
10
<PAGE> 13
depending on many factors, including prevailing interest rates, the market for
similar securities and the operating results of the Company. The Company does
not intend to apply for listing of the Notes on any securities exchange or for
inclusion of the Notes on any automated quotation system.
Each purchaser of Notes offered hereby in making its purchase will be
deemed to have made certain acknowledgments, representations and agreements.
Transfers of Notes and Common Stock issuable upon conversion of the Notes are
subject to certain restrictions.
ABSENCE OF MARKET; TRANSFER RESTRICTIONS
There is no existing trading market for the Notes and there can be no
assurance as to the liquidity of any such market that may develop, the ability
of the holders of Notes to sell such securities, the price at which the holders
of Notes would be able to sell such securities or whether a trading market, if
it develops, will continue. If such market were to exist, the Notes could trade
at prices higher or lower than their principal amount, depending on many
factors, including prevailing interest rates, the market for similar securities
and the operating results of the Company. The Company does not intend to apply
for listing of the Notes on any securities exchange or for inclusion of the
Notes on any automated quotation system.
Each purchaser of Notes offered hereby in making its purchase will be
deemed to have made certain acknowledgments, representations and agreements.
Transfers of Notes and Common Stock issuable upon conversion of the Notes are
subject to certain restrictions.
IMPACT OF REGULATION
The telecommunications industry is subject to regulation in the United
States and other countries. Federal and state regulatory agencies, including the
Federal Communications Commission and the various state Public Utility
Commissions and Public Service Commissions, regulate most of the Company's
domestic customers. In addition, the RHCs are restricted by the terms of the
Modified Final Judgment which resulted from the court-ordered divestiture of the
RHCs by AT&T Corporation, and which prohibited the RHCs from manufacturing
telecommunications equipment and providing interexchange or long-distance
services. In early 1996, the Telecommunications Act of 1996 (the "1996
Legislation") was passed. The 1996 Legislation contains provisions that permit
the RHCs, subject to satisfying certain conditions, to manufacture
telecommunications equipment. One or more RHCs may decide to manufacture
telecommunications equipment, to design and provide telecommunications software,
or to form alliances with other manufacturers, any of which could result in
increased competition for the Company and reduce the RHCs' and other customers'
purchases from the Company. There can be no assurance that deregulation will
continue in the future or that future deregulation will not have a material
adverse effect on the Company.
MULTI-YEAR AGREEMENTS
As part of its ongoing operations, the Company periodically enters into
agreements with customers which have a duration of greater than one year.
Certain of these agreements have included requirements to develop new
technologies, including hardware and software, as well as requirements to
provide installation of infrastructure systems. Certain of these agreements also
contain performance criteria, which, if not satisfied, could subject the Company
to substantial penalties, damages or non-payment, or could result in termination
of such agreements.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby.
11
<PAGE> 14
RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth the ratio of earnings to fixed charges for the
Company for the periods indicated. For purposes of computing such ratio, (i)
earnings consist of income before income taxes plus fixed charges (other than
interest capitalized) and (ii) fixed charges consist of interest expense,
interest capitalized, amortization of debt issuance costs and the estimated
interest portion of rental expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
- ---------------------------------- ENDED
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
- ---- ---- ----- ----- ---- ------------------
<S> <C> <C> <C> <C> <C>
1.6x 9.0x 19.6x 10.3x * 5.4x
</TABLE>
- ---------------
* Earnings were not sufficient to cover total fixed charges for the year ended
December 31, 1996 by approximately $14.7 million.
DESCRIPTION OF NOTES
The Notes were issued under an Indenture, dated as of August 12, 1997 (the
"Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee"). Wherever particular defined terms of the Indenture (including the
Notes and the various forms thereof) are referred to, such defined terms are
incorporated herein by reference. References in this section to the "Company"
are solely to DSC Communications Corporation and not to its subsidiaries. The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the detailed provisions of the Notes and the Indenture, including the
definitions therein. A copy of the Indenture was filed as an exhibit to the
Company's Current Report on Form 8-K dated, August 26, 1997.
GENERAL
In August 1997, the Company issued an aggregated principal amount of
$400,000,000 of the Notes to the Initial Purchasers (as defined in the
Indenture) pursuant to exemptions from the Securities Act. The Notes were
offered and sold by the Initial Purchasers to Qualified Institutional Buyers (as
defined in the Indenture) in reliance on Rule 144A of the Securities Act and in
offshore transactions to non-U.S. persons in reliance on Regulation S under the
Securities Act.
The Notes are unsecured subordinated obligations of the Company, and will
mature on August 1, 2004. Payment in full of the principal amount of the Notes
will be due August 1, 2004. The Notes will bear interest at the rate of 7% per
annum, payable semiannually on February 1 and August 1 of each year (each, an
"Interest Payment Date"), commencing on February 1, 1998.
The Notes are convertible into Common Stock initially at the rate of
20.1106 shares per $1,000 principal amount of Notes (equivalent to a conversion
price of $49.725 per share), subject to adjustment upon the occurrence of
certain events described below under "-- Conversion Rights," at any time on or
after November 20, 1997 and prior to the close of business on August 1, 2004,
unless previously redeemed or repurchased in such cases, not after the close of
business on the fifth Trading Day (as defined below) prior to the date of
redemption or the second Trading Day prior to the date of repurchase. "Trading
Days" means (i) if the Common Stock is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange is
open for business; (ii) if the Common Stock is quoted on the Nasdaq National
Market or any other system of automated dissemination of quotations of
securities prices, days on which trades may be effected through such system; or
(iii) if the Common Stock is not listed or admitted for trading on any national
securities exchange or quoted on the Nasdaq National Market or any other system
of automated dissemination of quotation of securities prices, days on which the
Common Stock is traded the regular way in the over-the-counter market and for
which a closing bid and a closing asked price for the Common Stock are
available.
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<PAGE> 15
The Notes are redeemable at the option of the Company, on or after August
1, 2000, in whole or in part, at the redemption prices set forth below under
"-- Redemption," plus accrued interest to the redemption date.
CONVERSION RIGHTS
The holder of any Note will have the right, at the holder's option, to
convert any portion of the principal amount of a Note that is an integral
multiple of $1,000 (provided that the unconverted portion of such Note is an
integral multiple of $1,000), into shares of Common Stock at any time on or
after November 20, 1997 and prior to the close of business on August 1, 2004,
unless previously redeemed or purchased, at a conversion price of $49.725 per
share, subject to adjustment as described below. The right to convert a Note
called for redemption or delivered for repurchase will terminate at the close of
business on the fifth Trading Day prior to the redemption date for such Note or
the second Trading Day preceding the repurchase date, as the case may be.
The right of conversion attaching to any Note may be exercised by the
holder by delivering the Note to the specified office of a Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of which
may be obtained from any Conversion Agent. The conversion date will be the date
on which the Note and the duly signed and completed notice of conversion are so
delivered. As promptly as practicable on or after the conversion date, the
Company will issue and deliver to the Trustee a certificate or certificates for
the number of full shares of Common Stock issuable upon conversion, together
with payment in cash in lieu of any fraction of a share; such certificate and
payment will be sent by the Trustee to the holder. Any Note surrendered for
conversion during the period from the close of business on any Regular Record
Date (as defined below) to the opening of business on the next succeeding
Interest Payment Date shall be accompanied by payment in New York Clearing House
funds or other funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of such
Notes being surrendered for conversion, except that if any Note or portions
thereof has been called for redemption or repurchase and, as a result, the right
to convert such Note called for redemption or repurchase would terminate during
the period between a Regular Record Date and the corresponding Interest Payment
Date, then the holder of such Note who converts such Note or a portion thereof
will be entitled to receive the amount of interest so payable and shall not be
required to repay such interest upon surrender of such Note for conversion. In
the case of any Note that has been converted after any Regular Record Date and
on or prior to the next Interest Payment Date, interest whose Stated Maturity is
on such Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest shall be paid to the holder
of such Note on such Regular Record Date. As a result of the foregoing
provisions, except as provided above, holders that surrender Notes for
conversion on a date that is not an Interest Payment Date will not receive any
interest for the period from the Interest Payment Date next preceding the date
of conversion to the date of conversion or for any later period, even if the
Notes are surrendered after a notice of redemption (except for the payment of
interest on Notes called for redemption on a redemption date or to be
repurchased on a repurchase date between a Regular Record Date and the Interest
Payment Date to which it relates). No other payment or adjustment for interest,
or for any dividends in respect of Common Stock, will be made upon conversion.
Holders of Common Stock issued upon conversion will not be entitled to receive
any dividends payable to holders of Common Stock as of any record time before
the close of business on the conversion date. No fractional shares will be
issued upon conversion but, in lieu thereof, the Company will calculate an
appropriate amount to be paid in cash based on the market price of Common Stock
at the close of business on the day of conversion. "Regular Record Date" for
interest payable in respect of any Note on any Interest Payment Date means
January 15 or July 15 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date.
With regard to a holder delivering a Note for conversion, the Company will
pay any taxes or duties in respect of the issue or delivery of Common Stock on
conversion, but the Company shall not be required to pay any tax or duty which
may be payable in respect of any transfer involved in the issue or delivery of
the Common Stock in a name other than that of the holder of the Note.
Certificates representing shares of Common Stock will not be issued or delivered
unless and until the person requesting such issuance has paid to
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<PAGE> 16
the Company the amount of any such tax or duty or has established to the
satisfaction of the Company that such tax or duty has been paid.
The conversion price is subject to adjustment in certain events, including:
(a) dividends (and other distributions) payable in Common Stock on shares of
capital stock of the Company, (b) the issuance to all holders of Common Stock of
rights, options or warrants entitling them to subscribe for or purchase Common
Stock at less than the then current market price (determined as provided in the
Indenture) of Common Stock, (c) subdivisions, combinations and reclassifications
of Common Stock, (d) distributions to all holders of Common Stock of evidences
of indebtedness of the Company, shares of capital stock, or property (including
securities, but excluding those dividends, rights, options, warrants and
distributions referred to above, dividends and distributions paid exclusively in
cash and distributions upon mergers or consolidations to which the next
succeeding paragraph applies), (e) distributions consisting exclusively of cash
(excluding any cash portion of distributions referred to in (d) above, or cash
distributed upon a merger or consolidation to which the next succeeding
paragraph applies) to all holders of Common Stock in an aggregate amount that,
combined together with (i) the aggregate amount of any other such all-cash
distributions made within the preceding 12 months in respect of which no
adjustment has been made and (ii) the aggregate amount of any cash and the fair
market value of other consideration payable in respect of any tender offer by
the Company or any of its subsidiaries for Common Stock concluded within the
preceding 12 months in respect of which no adjustment has been made, exceeds
12.5% of the Company's market capitalization (being the product of the then
current market price of the Common Stock and the number of shares of Common
Stock then outstanding) on the record date for such distribution, and (f) the
successful completion of a tender offer made by the Company or any of its
subsidiaries for Common Stock which involves an aggregate consideration that,
together with (i) the aggregate of cash and other consideration payable in a
tender offer by the Company or any of its subsidiaries for Common Stock expiring
within the 12 months preceding the expiration of such tender offer in respect of
which no adjustment has been made and (ii) the aggregate amount of any cash
distributions to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 12.5% of the Company's market capitalization on the expiration of
such tender offer. The Company may make such reductions in the conversion price
in addition to those required in the foregoing provisions as it considers to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend, distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes. No adjustment of the conversion price will be required
to be made until the cumulative adjustments amount to 1.0% or more of the
conversion price. The Company will compute any adjustments to the conversion
price pursuant to this paragraph and will give notice of any such adjustments by
mail to holders of the Notes. See "-- Notices."
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
that does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock) or any sale or transfer of all or
substantially all of the assets of the Company, each Note then outstanding will,
without the consent of the holder of any Note, become convertible only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Note was convertible immediately prior thereto
(assuming such holder of Common Stock failed to exercise any rights of election
and that such Note was then convertible).
If at any time the Company makes a distribution of property to its
stockholders that would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Notes are
convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to holders of Notes. See
"United States Taxation -- United States Holders -- Dividends."
14
<PAGE> 17
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the
Notes will be subordinated in right of payment to the extent set forth in the
Indenture to the prior payment in full of all Senior Indebtedness of the
Company. Senior Indebtedness means the principal of (and premium, if any) and
interest (including all interest accruing subsequent to the filing of a petition
initiating any proceeding under city, state, federal or foreign bankruptcy laws,
whether or not allowable as a claim in any such proceeding) on, and all fees and
other amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
of the Indenture or thereafter created, incurred or assumed: (a) indebtedness of
the Company evidenced by credit or loan agreements, notes, bonds, debentures, or
other written obligations, (b) all obligations of the Company for money
borrowed, (c) all obligations of the Company evidenced by a note or similar
instrument given in connection with the acquisition of any businesses,
properties or assets of any kind, (d) obligations of the Company as lessee under
leases required to be capitalized on the balance sheet of the lessee under
generally accepted accounting principles, (e) obligations of the Company under
interest rate and currency swaps, caps, floors, collars, hedge agreements,
forward contracts or similar agreements or arrangements intended to protect the
Company against fluctuations in interest or currency exchange rates, (f) all
obligations of the type referred to in clauses (a) through (e) above of another
person and all dividends of another person, the payment of which, in either
case, the Company has assumed or guaranteed, or for which the Company is
responsible or liable, directly or indirectly, jointly or severally, as obligor,
guarantor or otherwise, or which is secured by a lien on property of the
Company, and (g) renewals, extensions, modifications, replacements, restatements
and refundings of, or any indebtedness or obligation issued in exchange for, any
such indebtedness or obligation described in clauses (a) through (f) of this
paragraph; provided, however, that Senior Indebtedness shall not include the
Notes or any such indebtedness or obligation (a) if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which it is issued) provide that such indebtedness or obligation is
not superior in right of payment to the Notes, (b) if such indebtedness or
obligation is non-recourse to the Company or (c) if such indebtedness or
obligation is a conditional sale contract or any account payable or any other
indebtedness created or assumed by the Company in the ordinary course of
business in connection with the obtaining of inventories or services.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will first be
entitled to receive payment in full of all amounts due or to become due thereon
before the holders of the Notes will be entitled to receive any payment in
respect of the principal of or premium, if any, or interest on the Notes. In the
event of the acceleration of the maturity of any Notes, the holders of all
Senior Indebtedness outstanding at the time of such acceleration will first be
entitled to receive payment in full of all amounts due or to become due thereon
before the holders of the Notes will be entitled to receive any payment upon the
principal of or premium, if any, or interest on the Notes. No payments on
account of principal, premium, if any, or interest in respect of the Notes may
be made if there shall have occurred and be continuing a default in any payment
with respect to Senior Indebtedness, or an event of default with respect to any
Senior Indebtedness permitting the holders thereof to accelerate the maturity
thereof, or if any judicial proceeding shall be pending with respect to any such
default. For purposes of the subordination provisions, the payment, issuance or
delivery of cash, property or securities (other than "junior securities") upon
conversion of a Note will be deemed to constitute payment on account of the
principal of such Note.
By reason of such subordination, in the event of insolvency, creditors of
the Company who are holders of Senior Indebtedness may recover more, ratably,
than the holders of the Notes, and such subordination may result in a reduction
or elimination of payments to the holders of the Notes.
As of September 30, 1997, the aggregate amount of Senior Indebtedness
outstanding was approximately $356.2 million, which includes indebtedness of the
subsidiaries of the Company guaranteed by the Company. In addition, the Notes
will be effectively subordinated to all indebtedness and other liabilities
(including trade payables and lease obligations) of the Company's subsidiaries,
because any right of the Company to receive any assets of its subsidiaries upon
their liquidation or reorganization (and the subsequent right of the holders
15
<PAGE> 18
of the Notes to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except to
the extent that the Company itself is recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interest in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by the Company.
The Indenture does not limit the Company's ability to incur Senior
Indebtedness or any other indebtedness nor does the Indenture limit the ability
of the Company's subsidiaries to incur additional indebtedness or other
liabilities.
REDEMPTION
The Notes may not be redeemed at the option of the Company prior to August
1, 2000. On and after August 1, 2000, the Notes may be redeemed, in whole or in
part, at the option of the Company, at the redemption prices specified below,
upon not less than 30 days' nor more than 60 days' prior notice as provided
under "-- Notices" below.
The redemption price (expressed as a percentage of principal amount) is as
follows for the 12-month periods beginning on August 1 of the following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000........................................................ 104.0
2001........................................................ 103.0
2002........................................................ 102.0
2003........................................................ 101.0
</TABLE>
and thereafter is equal to 100% of the principal amount, in each case together
with accrued interest to the date of redemption.
No sinking fund is provided for the Notes.
PAYMENT AND CONVERSION
The principal of the Notes will be payable in U.S. dollars, against
surrender thereof at the Corporate Trust Office of the Trustee in the Borough of
Manhattan, The City of New York, or at such other office or agency of the
Company as may be designated by it for such purpose, in U.S. currency by U.S.
dollar check drawn on, or by transfer to a U.S. dollar account (such a transfer
to be made only to a holder of an aggregate principal amount of Notes in excess
of U.S.$2,000,000 and only if such holder shall have furnished wire instructions
in writing to the Trustee no later than 15 days prior to the relevant payment
date) maintained by the holder with a bank in the Borough of Manhattan, The City
of New York. Notes will bear interest at a rate of 7% per annum from August 12,
1997 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semi-annually on February 1 and August 1 of each
year, commencing February 1, 1998, to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the preceding
January 15 or July 15, as the case may be. Payment of interest on a Note may be
made by U.S. dollar check drawn on a bank in the Borough of Manhattan, The City
of New York, mailed to the address of the person entitled thereto as such
address shall appear in the Security Registrar (as defined), or, upon written
application by the holder to the Security Registrar setting forth instructions
not later than the relevant Record Date, by transfer to a U.S. dollar account
(such a transfer to be made only to a holder of an aggregate principal amount of
Notes in excess of U.S. $2,000,000) maintained by the holder with a bank in the
Borough of Manhattan, The City of New York. No transfer to a dollar account will
be made unless the Trustee has received written wire instructions not less than
15 days prior to the relevant payment date.
Any payment on the Notes due on any day which is not a Business Day need
not be made on such day, but may be made on the next succeeding Business Day
with the same force and effect as if made on such due date, and no interest
shall accrue on such payment for the period from and after such date. "Business
Day," when used with respect to any place of payment, place of conversion or any
other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking
16
<PAGE> 19
institutions in such place of payment, place of conversion or other place, as
the case may be, are authorized or obligated by law or executive order to close.
Notes may be surrendered for conversion at the Corporate Trust Office of
the Trustee, or at such other office or agency of the Company, subject to any
laws or regulations applicable thereto and subject to the right of the Company
to terminate the appointment of any Conversion Agent as may be designated by it
for such purpose in the Borough of Manhattan, The City of New York, or at such
other offices or agencies as the Company may designate. Notes surrendered for
conversion must be accompanied by appropriate notices and any payments in
respect of interest or taxes, as applicable, as described above under
"-- Conversion Rights".
The Company has initially appointed the Trustee as Paying Agent and
Conversion Agent. The Company may at any time terminate the appointment of any
Paying Agent or Conversion Agent and appoint additional or other Paying Agents
and Conversion Agents, provided that until the Notes have been delivered to the
Trustee for cancellation, or monies sufficient to pay the principal of, premium,
if any, and interest on the Notes have been made available for payment and
either paid or returned to the Company as provided in the Indenture, it will
maintain an office or agency in the Borough of Manhattan, The City of New York
for payments with respect to the Notes and for the surrender of Notes for
conversion. Notice of any such termination or appointment and of any change in
the office through which any Paying Agent or Conversion Agent will act will be
given in accordance with "-- Notices" below.
All monies deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of principal of, premium, if any, or
interest on any Notes, which remain unclaimed at the end of two years after such
payment has become due and payable will be paid to the Company, and the holder
of such Note appertaining thereto will thereafter, as an unsecured general
creditor, look only to the Company for payment thereof.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control (as defined below) occurs, each holder of Notes
shall have the right, at the holder's option, to require the Company to
repurchase all of such holder's Notes, or any portion of the principal amount
thereof that is equal to $1,000 or an integral multiple of $1,000 in excess
thereof, on the date (the "Repurchase Date") that is 45 days after the date of
the Company Notice (as defined below), at a price equal to 100% of the principal
amount of the Notes to be repurchased (the "Repurchase Price"), together with
interest accrued to the Repurchase Date.
The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the closing prices per share of the Common Stock for the five consecutive
Trading Days ending on and including the third Trading Day preceding the
Repurchase Date; provided, that payment may not be made in Common Stock unless
such stock is listed on a national securities exchange or traded on the Nasdaq
National Market at the time of payment.
On or before the 30th day after the occurrence of a Change in Control, the
Company will give to all holders of the Notes notice, as provided in the
Indenture (a "Company Notice"), of the occurrence of such Change in Control and
of the repurchase right arising as a result thereof. The Company Notice shall be
given in accordance with "-- Notices" below. To exercise the repurchase right, a
holder of Notes must deliver to the Trustee or any Paying Agent on or before the
30th day after the date of the Company Notice irrevocable written notice of the
holder's exercise of such right, together with the Notes. At least two Trading
Days prior to the Repurchase Date, the Company must publish a Company Notice in
the manner described above specifying whether the Company will pay the
Repurchase Price in cash or in Common Stock.
A "Change in Control" shall be deemed to have occurred at such time, after
the original issuance of the Notes, of:
(i) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling
such Person to exercise 50% or more of the total voting power of all shares
of capital stock of the Company entitled to vote generally in elections of
directors (any shares of voting stock of which such
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Person is the beneficial owner that are not then outstanding being deemed
outstanding for purposes of calculating such percentage), other than any
such acquisition by the Company, any subsidiary of the Company or any
employee benefit plan of the Company existing on the date of the Indenture;
or
(ii) any consolidation or merger of the Company with or into any other
Person, any merger of another person with or into the Company, or any
conveyance, sale, transfer or lease of all or substantially all of the
assets of the Company to another Person (other than (a) any such
transaction (x) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of capital stock of the
Company or (y) pursuant to which holders of the Common Stock immediately
prior to such transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of capital
stock entitled to vote generally in the election of directors of the
continuing or surviving Person immediately after such transaction and (b)
any merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock into solely shares of
common stock);
provided, however, that a Change in Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any five
Trading Days within the period of 10 consecutive Trading Days ending immediately
after the later of the Change in Control or the public announcement of the
Change in Control (in the case of a Change in Control under clause (i) above) or
the 10 consecutive Trading Days ending immediately prior to the date of the
Change in Control (in the case of a Change in Control under clause (ii) above)
shall equal or exceed 105% of the conversion price of the Notes in effect on
each such Trading Day, or (b) all the consideration (excluding cash payments for
fractional shares) to be paid for the Common Stock in the transaction or
transactions constituting the Change in Control consists of shares of common
stock traded on a national securities exchange or quoted on the Nasdaq National
Market and as a result of such transaction or transactions the Notes become
convertible solely into such common stock. "Beneficial owner" shall be
determined in accordance with Rule 13d-3 promulgated by the Commission under the
Exchange Act, and the term "Person" shall include any syndicate or group deemed
to be a "person" under Section 13(d)(3) of the Exchange Act.
Failure by the Company to repurchase the Notes when required would result
in an Event of Default with respect to the Notes whether or not such repurchase
is permitted by the subordination provisions. See "-- Events of Default."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to Securityholders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
The Company may, to the extent permitted by applicable law, at any time
purchase Notes in the open market or by tender at any price or by private
agreement. Any Note so purchased by the Company may, to the extent permitted by
applicable law and subject to restrictions contained in the Purchase Agreement,
dated August 7, 1997, between the Company and the Initial Purchasers, be
re-issued or resold or may, at the Company's option, be surrendered to the
Trustee for cancellation. Any Notes surrendered as aforesaid may not be
re-issued or resold and will be canceled promptly.
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect holders.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person or
convey, transfer or lease all its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease all or
substantially all of its properties and assets to the Company unless (a) in the
case the Company shall consolidate with or merge into another Person or convey,
transfer or lease its properties and assets substantially as an entirety to any
Person, the Person formed by such consolidation or into which the Company is
merged, the Person which acquires by conveyance or transfer, or which leases the
properties and assets of the Company substantially as an entirety,
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shall be a corporation, limited liability company, partnership or trust, shall
be organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the payment of the principal of,
premium, if any, and interest on the Notes and the performance or observance of
every covenant of the Indenture, on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with the
Indenture, (b) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing and (c) the Company
has delivered to the Trustee an officer's certificate and an opinion of counsel,
each stating that such consolidation, merger, conveyance, transfer or lease and
supplemental indenture (if required) complies with, among other things, the
requirements set forth in this paragraph.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (a) failure to pay
principal of or premium, if any, on any Note at its maturity, whether or not
such payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (c) failure to perform, or the breach of, any covenant or warranty of
the Company in the Indenture, continuing for 60 days after written notice to the
Company by the Trustee as provided in the Indenture; (d) failure to pay when due
the principal of, or acceleration of, any indebtedness for money borrowed by the
Company in excess of $20,000,000 if such indebtedness is not discharged, or such
acceleration is not annulled, within 30 days after written notice as provided in
the Indenture; and (e) certain events of bankruptcy, insolvency or
reorganization. Subject to the provisions of the Indenture relating to the
duties of the Trustee in case an Event of Default shall occur and be continuing,
the Trustee is under no obligation to exercise any of its rights or powers under
the Indenture at the request or direction of any of the holders, unless such
holders shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee, 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.
If an Event of Default shall occur and be continuing, either the Trustee or
the holders of at least 25% in principal amount of the Outstanding Notes may
accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of Outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the nonpayment of accelerated principal, have been cured or
waived as provided in the Indenture. For information as to waiver of defaults,
see "-- Meetings, Modification and Waiver."
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee, and the
Trustee shall not have received from the holders of a majority in principal
amount of the Outstanding Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a holder of a Note for the
enforcement of payment of the principal of, premium, if any, or interest on such
Note on or after the respective Stated Maturities expressed in such Note or of
the right to convert such Note in accordance with the Indenture.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
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MEETINGS, MODIFICATION AND WAIVER
The Indenture contains provisions for convening meetings of the holders of
Notes to consider matters affecting their interests.
Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, either (i) with the written consent of
the holders of not less than a majority in aggregate principal amount of the
Notes at the time Outstanding or (ii) by the adoption of a Resolution, at a
meeting of holders of the Notes at which a quorum is present, by the holders of
at least 66 2/3% in aggregate principal amount of the Outstanding Notes
represented at such meeting or by a majority in aggregate principal amount of
the Notes at the time Outstanding. However, no such modification or amendment
may, without the consent of the holder of each Outstanding Note affected
thereby, (a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (b) reduce the principal amount or the rate of
interest payable on any Note, (c) reduce the amount payable upon redemption or
repurchase, (d) modify the provisions with respect to the repurchase right of
the holders in a manner adverse to the holders, (e) change the coin or currency
for payment of principal of, premium, if any, interest on, or any other amount
payable on, any Note, (f) impair the right to institute suit for the enforcement
of any payment in respect of any Note on or after the Stated Maturity thereof
(or, in the case of redemption or any repurchase after the redemption date or
Repurchase Date, as the case may be), (g) modify the obligation of the Company
to maintain an office or agency in New York City, (h) modify the subordination
provisions in a manner adverse to the holders of the Notes, (i) reduce the
above-stated percentage of Outstanding Notes necessary to modify or amend the
Indenture, (j) reduce the percentage of aggregate principal amount of
Outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults, (k) reduce the percentage in
aggregate principal amount of Notes Outstanding required for the adoption of a
resolution or the quorum required at any meeting of holders of Notes at which a
resolution is adopted, (l) adversely affect the right to convert any Note except
as permitted as described under "-- Conversion Rights," (m) modify the
obligation of the Company to deliver information required under Rule 144A to
permit resales of Notes and Common Stock issuable upon conversion thereof in the
event the Company ceases to be subject to certain reporting requirements under
the United States securities laws, (n) modify the provisions described under
"-- Repurchase at Option of Holders Upon a Change in Control" in a manner
adverse to the holders or (o) modify certain of the Company's obligations under
the Registration Rights Agreement or its obligation to pay additional interest
upon any failure to comply with such obligations. The quorum at any meeting
called to adopt a resolution will be persons holding or representing a majority
in aggregate principal amount of the Notes at the time Outstanding and, at any
reconvened meeting adjourned for lack of a quorum, 25% of such aggregate
principal amount.
The holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. The holders of (i) 66 2/3% in aggregate principal amount of the
Outstanding Securities represented at a meeting of holders of Outstanding
Securities at which a quorum is present or (ii) a majority in aggregate
principal amount of the Outstanding Notes may waive any past default under the
Indenture, except a default in the payment of principal, premium, if any, or
interest or a default with respect to a covenant or condition that may only be
modified or amended with the consent of each holder.
REGISTRATION RIGHTS
This summary of certain provisions of the Registration Rights Agreement,
dated as of August 12, 1997, by and between the Company and the Initial
Purchasers (the "Registration Rights Agreement") does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all the
provisions of the Registration Rights Agreement. In the Registration Rights
Agreement the Company agreed to, among other things, (i) file with the
Commission within 90 days after the date of original issuance of the Notes, a
Registration Statement (the "Shelf Registration Statement"), of which this
Prospectus is a part, covering resales of the Registrable Securities (as defined
under "Description of Registration Rights Agreement") and (ii) use its
reasonable best efforts to cause the Shelf Registration Statement to be declared
effective under the
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Securities Act within 90 calendar days after the date of such filing. See
"Description of Registration Rights Agreement."
The Company is obligated to keep the Shelf Registration Statement effective
until the earliest of (i) the expiration of two years from the time the Shelf
Registration Statement is declared effective, (ii) such time as all Registrable
Securities have been sold pursuant to the Shelf Registration Statement,
transferred pursuant to Rule 144 under the Securities Act or otherwise
transferred in a manner that results in a new security not subject to transfer
restrictions under the Securities Act being delivered pursuant to the Indenture
and (iii) such time as, in the opinion of counsel, all of the Registrable
Securities held by non-affiliates of the Company are eligible for resale
pursuant to Rule 144(k) under the Securities Act and the legends described have
been removed from such Registrable Securities. In the event that, during the
period that the Company is required to maintain the effectiveness of the Shelf
Registration Statement, the Shelf Registration Statement ceases to be effective
(or the holders are otherwise prevented or restricted by the Company from
effecting sales pursuant thereto) for more than 60 days, whether or not
consecutive, during any 12-month period (an "Effectiveness Failure"), then the
interest rate borne by the Notes will increase by an additional one-half of one
percent (0.50%) per annum from the 61st day of the applicable 12-month period
such Shelf Registration Statement ceases to be effective (or the holders are
otherwise prevented or restricted by the Company from effecting sales pursuant
thereto) until such time as the Effectiveness Failure is cured. For the purpose
of determining an Effectiveness Failure, days on which the Company has been
obligated to pay additional interest in accordance with the foregoing in respect
of a prior Effectiveness Failure within the applicable 12-month period will not
be included. The Registration Rights Agreement provides that the additional
interest described in this paragraph with respect to a Registration Default will
be the exclusive monetary remedy available to holders of Notes for such
Registration Default.
TRANSFER AND EXCHANGE
At the option of the holder upon written request, and subject to the terms
of the Indenture, any Note will be exchangeable at any time into an equal
aggregate principal amount of Notes of different authorized denominations
provided that any applicable transfer restrictions are satisfied.
Notes may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed) or exchange, at the office of any
transfer agent (the "Security Registrar"), without service charge but, in the
case of a transfer, upon payment of any taxes and other governmental charges as
described in the Indenture. Any registration of transfer or exchange will be
effected upon the transfer agent or the Security Registrar, as the case may be,
being satisfied with the documents of title and identity of the person making
the request, and subject to such reasonable regulations as the Company may from
time to time agree upon with the transfer agents and the Security Registrar, all
as described in the Indenture. Subject to the applicable transfer restrictions,
Notes may be transferred in whole or in part in authorized denominations.
The Company has initially appointed the Trustee as Security Registrar and
transfer agent, acting through its Corporate Trust Office in the Borough of
Manhattan, The City of New York. The Company reserves the right to vary or
terminate the appointment of the Security Registrar or of any transfer agent or
to appoint additional or other transfer agents or to approve any change in the
office through which any Security Registrar or any transfer agent acts, provided
that there will at all times be a Security Registrar in and a transfer agent in
the Borough of Manhattan, The City of New York.
In the event of a redemption of any Notes for any of the reasons set forth
under "-- Redemption," the Company will not be required (a) to register the
transfer or exchange of the Notes for a period of 15 days immediately preceding
the date notice is given identifying the serial numbers of the Notes called for
such redemption or (b) to register the transfer or exchange of any Note, or
portion thereof, called for redemption.
PURCHASE AND CANCELLATION
The Company or any subsidiary may at any time and from time to time
purchase Notes at any price in the open market or otherwise.
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All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered to the Trustee shall be canceled promptly by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in the Indenture.
TITLE
With respect to any Note, the Company, the Trustee, the Paying Agent and
any other agent of the Company or the Trustee may treat the Person in whose name
such Note is registered as the owner thereof for the purpose of receiving
payment thereof and for all other purposes whatsoever.
NOTICES
Notices to holders of Notes will be given by mail to the addresses of such
holders as they appear in the Security Register. Such notices will be deemed to
have been given when mailed.
Notice of a redemption of Notes will be given at least once not less than
30 nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note, indemnity satisfactory to the Trustee and the Company may be
required at the expense of the holder of such Note before a replacement Note
will be issued.
PAYMENT OF STAMP AND OTHER TAXES
The Company shall pay all stamp and other duties, if any, which may be
imposed by the United States or any political subdivision thereof or taxing
authority thereof or therein with respect to the issuance, transfer, exchange or
conversion of the Notes. The Company will not be required to make any payment
with respect to any other tax, assessment or governmental charge imposed by any
government or any political subdivision thereof or taxing authority therein.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance
with the laws of the State of New York, United States of America.
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity.
UNITED STATES TAXATION
The following is a summary of certain United States federal income and
estate tax considerations relating to the purchase, ownership and disposition of
the Notes and of Common Stock into which Notes may be converted, but does not
purport to be a complete analysis of all the potential tax considerations
relating thereto. This summary is based on laws, regulations, rulings and
decisions now in effect (or, in the case of certain United States Treasury
Regulations ("Treasury Regulations"), now in proposed form), all of which are
subject to change, possibly on a retroactive basis. This summary deals only with
holders that will hold
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Notes and Common Stock into which Notes may be converted as "capital assets"
(within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code")) and does not address tax considerations applicable to
investors that may be subject to special tax rules, such as banks, tax-exempt
organizations, insurance companies, dealers in securities or currencies, persons
that will hold Notes as a position in a hedging transaction, "straddle" or
"conversion" transaction for tax purposes, or persons that have a "functional
currency" other than the U.S. dollar. This summary discusses the tax
considerations applicable to the initial purchasers of the Notes who purchase
the Notes at their "issue price" (as defined in Section 1273 of the Code) and
does not discuss the tax considerations applicable to subsequent purchasers of
the Notes. INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means the beneficial owner
of a Note or Common Stock that for United States federal income tax purposes is
(i) a citizen or resident of the United States, (ii) treated as a domestic
corporation or domestic partnership, (iii) an estate the income of which is
subject to United States federal income tax without regard to its source or (iv)
a trust if a United States court is able to exercise primary supervision over
administration of the trust and one or more United States fiduciaries have
authority to control all substantial decisions of the trust.
Payment of Interest
Interest on a Note generally will be includible in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such holder's method of accounting for United States
federal income tax purposes.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange or redemption of a Note, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income, which is taxable as ordinary income)
and (ii) such holder's adjusted tax basis in the Note. A United States Holder's
adjusted tax basis in a Note generally will equal the cost of the Note to such
holder, less any principal payments received by such holder. Such capital gain
will be taxed at a lower rate if the United States Holder's holding period in
the Note is more than one year at the time of sale, exchange or redemption. The
capital gain rate may be further reduced if the United States Holder's holding
period in the Note is more than 18 months.
Conversion of the Notes
A United States Holder generally will not recognize any income, gain or
loss upon conversion of a Note into Common Stock except with respect to cash
received in lieu of a fractional share of Common Stock. Such United States
Holder's tax basis in the Common Stock received on conversion of a Note will be
the same as such holder's adjusted tax basis in the Note at the time of
conversion (reduced by any basis allocable to a fractional share interest), and
the holding period for the Common Stock received on conversion will generally
include the holding period of the Note converted.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the United States
Holder's adjusted tax basis in the fractional share).
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Dividends
Dividends paid on the Common Stock generally will be includible in the
income of a United States Holder as ordinary income to the extent of the
Company's current or accumulated earnings and profits.
If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of property would include distributions
of evidences of indebtedness or assets of the Company, but generally not stock
dividends or rights to subscribe for Common Stock) and, pursuant to the
anti-dilution provisions of the Indenture, the conversion price of the Notes is
decreased, or (ii) the conversion price of the Notes is decreased at the
discretion of the Company, such decrease in conversion price may be deemed to be
the payment of a taxable dividend to holders of Notes (pursuant to Section 305
of the Code). Holders of Notes could therefore have taxable income as a result
of an event pursuant to which they received no cash or property.
Sale of Common Stock
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (ii) such holder's adjusted tax basis in the Common Stock. Such
capital gain will be taxed at a lower rate if the United States Holder's holding
period in the Common Stock is more than one year at the time of the sale or
exchange. The capital gains rate may be further reduced if the United States
Holder's holding period in the Common Stock is more than 18 months. A United
States Holder's basis and holding period in Common Stock received upon
conversion of a Note are determined as discussed above under "-- Conversion of
the Notes."
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock to certain non-corporate United States
Holders, and a 31% backup withholding tax may apply to such payments if the
United States Holder (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner required, (ii) is notified by
the Internal Revenue Service (the "IRS") that he has failed to report payments
of interest and dividends properly, or (iii) under certain circumstances, fails
to certify that he has not been notified by the IRS that he is subject to backup
withholding for failure to report interest and dividend payments. Any amounts
withheld under the backup withholding rules from a payment to a United States
Holder will be allowed as a credit against such holder's United States federal
income tax liability and may entitle the United States Holder to a refund
provided that the required information is furnished to the IRS.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any beneficial
owner of a Note or Common Stock that is not a United States Holder.
Payment of Interest
Payment of interest on a Note by the Company or any Paying Agent to a
Non-United States Holder will qualify for the "portfolio interest exemption" and
therefore will not be subject to United States federal income tax or withholding
tax, provided that such interest income is not effectively connected with a
United States trade or business of the Non-United States Holder and provided
that the Non-United States Holder (i) does not actually or constructively own
10% or more of the combined voting power of all classes of stock of the Company
entitled to vote, (ii) is not a controlled foreign corporation related to the
Company actually or constructively through stock ownership, (iii) is not a bank
receiving interest on a loan entered into in the ordinary course of business,
(iv) is not, and does not receive payments in an account, within a country
designated by the IRS as not qualifying for the portfolio interest exemption (it
being understood that,
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although the IRS has not at the current time made such designation or given any
public notice it intends to do so in the future, it has the statutory authority
so to do) and (v) either (a) provides a Form W-8 (or a suitable substitute form)
signed under penalties of perjury that includes its name and address and
certifies as to its non-United States status in compliance with applicable law
and regulations, or (b) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business, holds the Note and provides a statement to the Company or
its agent under penalties of perjury in which it certifies that such a Form W-8
(or a suitable substitute) has been received by it from the Non-United States
Holder or qualifying intermediary and furnishes the Company or its agent a copy
thereof.
Recently proposed IRS regulations ("the Proposed Regulations") would
provide alternative methods for satisfying the certification requirement
described in the first paragraph above. The Proposed Regulations would also
generally require, in the case of Notes held by a foreign partnership, that (x)
the certification described above be provided by the partners, rather than by
the partnership, and (y) the partnership provide certain information, including
a United States taxpayer identification number. A look-through rule would apply
in the case of tiered partnerships. The Proposed Regulations are proposed to be
effective for payments made after December 31, 1997. There can be no assurance
that the Proposed Regulations will be adopted, or as to the provisions that they
will include if and when adopted, in temporary or final form.
Except to the extent that an applicable treaty otherwise provides, a
Non-United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the Non-United States
Holder. Effectively connected interest received by a corporate Non-United States
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate).
Even though such effectively connected interest is subject to income tax, and
may be subject to the branch profits tax, it is not subject to withholding tax
if the holder delivers a completed IRS Form 4224 to the payor.
Interest income of a Non-United States Holder that is not effectively
connected with a United States trade or business and that does not qualify for
the portfolio interest exemption described above will generally be subject to a
30% (or, if applicable, a lower treaty rate) withholding tax.
Sale, Exchange or Redemption of the Notes
A Non-United States Holder of a Note will generally not be subject to
United States federal income tax or withholding tax on any gain realized on the
sale, exchange or redemption of the Note (including the receipt of cash in lieu
of fractional shares upon conversion of a Note in Common Stock) unless (1) the
gain is effectively connected with a United States trade or business of the
Non-United States Holder, (2) in the case of a Non-United States Holder who is
an individual, such holder is present in the United States for a period or
periods aggregating 183 days or more during the taxable year of the disposition,
and either such holder has a "tax home" in the United States or the disposition
is attributable to an office or other fixed place of business maintained by such
holder in the United States, (3) the holder is subject to tax pursuant to the
provisions of the Code applicable to certain United States expatriates, or (4)
the Company is a United States real property holding corporation. See "-- United
States Foreign Investment in Real Property Tax Act."
Conversion of the Notes
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Note into Common Stock by a Non-United States
Holder except with respect to the receipt of cash in lieu of fractional shares
by Non-United States Holders upon conversion of a Note where any of the
conditions described above under "-- Sale, Exchange or Redemption of the Notes"
is satisfied.
Sale or Exchange of Common Stock
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Common Stock
unless any of the conditions described above under "-- Sale, Exchange or
Redemption of the Notes" is satisfied.
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<PAGE> 28
Dividends
Dividends paid (or deemed paid, as described above under "-- United States
Holders -- Dividends") on Common Stock to a Non-United States Holder (excluding
dividends that are effectively connected with the conduct of a trade or business
in the United States by such United States Holder and are taxable as described
below) will be subject to United States federal withholding tax at a 30% rate
(or, if applicable, a lower treaty rate). Except to the extent that an
applicable tax treaty otherwise provides, a Non-United States Holder will be
taxed in the same manner as a United States Holder on dividends paid (or deemed
paid) that are effectively connected with the conduct of a trade or business in
the United States by the Non-United States Holder. If such Non-United States
Holder is a foreign corporation, it may also be subject to a United States
branch profits tax at a 30% rate (or, if applicable, a lower treaty rate). Even
though such effectively connected dividends are subject to income tax, and may
be subject to the branch profits tax, they will not be subject to U.S.
withholding tax if the holder delivers a completed IRS Form 4224 to the payor.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding tax
discussed above and, under the current interpretation of Treasury Regulations,
for purposes of determining the applicability of a tax treaty rate. Under the
Proposed Regulations described in "-- Payment of Interest" however, a Non-United
States Holder of Common Stock who wished to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification requirements.
In addition, under the Proposed Regulations, the certification and information
reporting requirements described above in the second paragraph under "-- Payment
of Interest" would apply with respect to dividends paid on Common Stock held by
a foreign partnership.
Death of a Non-United States Holder
A Note held by an individual who is not a citizen or resident of the United
States at the time of death will not be includible in the decedent's gross
estate for United States estate tax purposes, provided that such Holder or
beneficial owner did not at the time of death actually or constructively own 10%
or more of the combined voting power of all classes of stock of the Company
entitled to vote, and provided that, at the time of death, payments with respect
to such Note would not have been effectively connected with the conduct by such
Non-United States Holders of a trade or business within the United States.
Common Stock actually or beneficially held by a Non-United States Holder at
the time of his death (or previously transferred subject to certain retained
rights or powers) will be subject to United States federal estate tax unless
otherwise provided by an applicable estate tax treaty.
Information Reporting and Backup Withholding Tax
Under current law, United States information reporting requirements and
backup withholding tax will not apply to payments on a Note to a Non-United
States Holder if the Form W-8 or similar statement described in "-- Payment of
Interest" is duly provided by such Non-United States Holder, provided that the
payor does not have actual knowledge that the holder is a United States person.
If and when the Proposed Regulations described in "-- Payment of Interest"
become effective, alternative certification requirements (and, possibly,
partner-level certification requirements in the case of holders that are foreign
partnerships) may apply with respect to Notes. See "-- Payment of Interest."
Information reporting and backup withholding tax also will not apply to any
nominee or other agent of the beneficial owner of such Note, unless such
custodian, nominee or agent (i) is a United States person, (ii) derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States or (iii) is a controlled foreign corporation as to
the United States. Payment on a Note to the beneficial owner thereof by a United
States office of a custodian, nominee or agent is subject to information
reporting and backup withholding requirements, unless the beneficial owner of
the Note provides the Form W-8 or suitable substitute statement described in
"-- Payment of Interest" or the beneficial owner otherwise establishes an
exemption.
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<PAGE> 29
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a Note or any payment of the
proceeds of the sale of Common Stock effected outside the United States by a
foreign office of a "broker" (as defined in applicable Treasury Regulations),
unless such, broker (i) is a United States person, (ii) derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States or (iii) is a controlled foreign corporation as to the United
States. Payment of the proceeds of any such sale effected outside the United
States by a foreign office of any broker that is described in (i), (ii) or (iii)
of the preceding sentence will not be subject to backup withholding tax, but
will be subject to information reporting requirements unless such broker has
documentary evidence in its records that the beneficial owner is a Non-United
States Holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Payment of the proceeds of any such sale to
or through the United States office of a broker is subject to information
reporting and backup withholding requirements, unless the beneficial owner of
the Note provides the Form W-8 or suitable substitute statement described in
"-- Payment of Interest" or otherwise establishes an exemption.
If paid to an address outside the United States, dividends on Common Stock
held by a Non-United States Holder will not under current law be subject to the
information reporting and backup withholding requirements discussed in this
section, provided that the payor does not have actual knowledge that the payee
is a United States person. However, under the Proposed Regulations, dividend
payments generally would be subject to information reporting and backup
withholding unless applicable certification requirements are satisfied. See
"-- Payment of Interest" with respect to these requirements and the additional
requirements that would be applicable to foreign partnerships under the Proposed
Regulations.
The backup withholding and information reporting rules are currently under
review by the Department of the Treasury, and their application to the Notes and
Common Stock could be changed prospectively by future regulations.
United States Foreign Investment in Real Property Tax Act
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"), any
person who acquires a "United States real property interest" (as described
below) from a foreign person must deduct and withhold a tax equal to 10% of the
amount realized by the foreign transferor. In addition, a foreign person who
disposes of a United States real property interest generally is required to
recognize gain or loss that is subject to United States federal income tax. With
respect to any Non-United States Holder, "United States real property interest"
generally includes any interest (other than an interest solely as creditor) in a
United States corporation unless it is established under specific procedures
that the corporation is not (and was not for the lesser of such Non-United
States Holder's holding period in the interest or the prior five-year period) a
"United States real property holding corporation." The Company does not believe
that it is a United States real property holding corporation as of the date
hereof, although it has not conducted or obtained an appraisal of its assets to
determine whether it is now or will be a United States real property holding
corporation. If the Company is unable to establish that it is not a United
States real property holding corporation, then, unless an exemption applies,
both the Common Stock and Notes would be treated as United States real property
interests. As discussed below, however, an exemption should apply to the Common
Stock and the Notes except with respect to a Non-United States Holder whose
beneficial ownership of Common Stock or the Notes exceeds 5% of the total fair
market value.
An interest in a United States corporation generally will not be treated as
a United States real property interest if, at any time during the calendar year,
any class of stock of the corporation is "regularly traded" on an established
securities market (the "regularly-traded exemption"). The Company believes that
the Company's Common Stock is regularly traded on an established securities
market within the meaning of the applicable regulations, although there can be
no assurance that the Common Stock will remain regularly traded. The remainder
of this discussion assumes that the Common Stock is and will remain regularly
traded on an established securities market.
The regularly-traded exemption is not available to a regularly traded
interest (such as the Common Stock) if such interest is owned by a person who
beneficially owns (actually or constructively) more than 5%
27
<PAGE> 30
of the total fair market value of that class of interests at any time during the
five-year period ending on the date of disposition of such interest or other
applicable determination date. Accordingly, except with respect to a sale or
other disposition of Common Stock by a Non-United States Holder whose aggregate
beneficial ownership has exceeded that 5% threshold, no withholding or income
taxation under the FIRPTA rules should be required with respect to the sale,
exchange or other disposition of Common Stock by a Non-United States Holder.
The regularly-traded exemption will apply to a "non-regularly traded class
of interests" in a United States corporation that is convertible into a
regularly traded class of interests in the corporation unless, on the date such
non-regularly traded interest was acquired by its present holder, such interest
had a fair market value greater than the fair market value on that date of 5% of
the regularly traded class of the corporation's stock into which it is
convertible. (Interests of a non-regularly traded class acquired over a period
of time will be aggregated for purposes of applying the 5% test described
above.) This discussion assumes that the Notes constitute interests that are
non-regularly traded interests convertible into a regularly traded class of
interests. (It is not entirely certain how the regularly traded exemption will
apply if the Notes become "regularly traded" within the meaning of the FIRPTA
rules. For example, the regularly traded exemption may in that event not apply
to a Non-United States Holder who actually and constructively owned more than 5%
of the Notes even though Notes owned by such Non-United States Holder
represented no more than 5% of the value of the outstanding Common Stock.
Therefore, such Non-United States Holder could be required to recognize gain or
loss that is subject to United States Federal income tax with respect to a
transfer of Notes. However, a transfer of Notes would not be subject to the 10%
withholding tax discussed above if the Notes were regularly traded, regardless
of whether the transferor held more than 5% of the Notes.) Accordingly, except
with respect to the sale, exchange, conversion or redemption of the Notes by a
Non-United States Holder whose aggregate actual or constructive ownership of
such Notes on an applicable determination date had a fair market value greater
than 5% of the Common Stock, no withholding or income taxation under the FIRPTA
rules should be required with respect to the sale, exchange, conversion or
redemption of Notes by a Non-United States Holder. A Non-United States Holder
who sells or otherwise disposes of Notes may be required to inform its
transferee whether such Notes constitute a United States real property interest.
Any investor that may approach or exceed 5% ownership, either alone or in
conjunction with related persons, should consult its own tax advisor concerning
the United States tax consequences that may result.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
The following summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement.
SHELF REGISTRATION STATEMENT
The Registration Rights Agreement required the Company to file a Shelf
Registration Statement, of which this Prospectus is a part, with the Commission
for the benefit of the holders of the Notes and the Common Stock issuable upon
conversion thereof (collectively, the "Registrable Securities") within 90 days
of August 12, 1997 and to use its reasonable best efforts to have the Shelf
Registration Statement declared effective within 90 days after such filing. The
Company is obligated to keep the Shelf Registration Statement effective until
the earliest of (i) the expiration of two years from the time the Shelf
Registration Statement is declared effective, (ii) such time as all Registrable
Securities have been sold pursuant to the Shelf Registration Statement,
transferred pursuant to Rule 144 under the Securities Act or otherwise
transferred in a manner that results in a new security not subject to transfer
restrictions under the Securities Act being delivered pursuant to the Indenture
and (iii) such time as, in the opinion of counsel, all of the Registrable
Securities held by non-affiliates of the Company are eligible for resale
pursuant to Rule 144(k) under the Securities Act and the legends described under
"Notice to Investors" have been removed from such Registrable Securities.
28
<PAGE> 31
ADDITIONAL INTEREST
If the Company fails to comply with certain of its obligations under the
Registration Rights Agreement, additional interest is payable on the Notes as
described under "Description of Notes -- Registration Rights."
UNDERWRITTEN OFFERING
The Registration Rights Agreement provides that holders of 33 1/3% of the
Registrable Securities may elect to have one underwritten offering. The managing
underwriter(s) for any such offering must be selected by holders of 50% of the
Registrable Securities to be included in the underwritten offering and must be
reasonably acceptable to the Company. The Company has the right to defer any
underwritten offering for up to 120 days for a valid business reason.
FEES AND EXPENSES
In the Registration Rights Agreement, the Company agreed to pay all fees
and expenses incident to the filing of the Shelf Registration Statement and
maintaining its effectiveness for resales of Registrable Securities. In
addition, the Company agreed to pay up to a maximum of $85,000 for the fees and
disbursements of a single counsel selected by holders of not less than 25% of
the Registrable Securities to represent them in connection with the Shelf
Registration Statement. Except as provided in the preceding sentence, the
holders of Registrable Securities included in the Shelf Registration Statement
are responsible (on a pro rata basis based on the principal amount of
Registrable Securities included therein) for the fees and disbursements of such
counsel.
In the case of an underwritten offering, the Company will pay up to a
maximum of $200,000 for the fees and expenses in connection therewith (the fees
and disbursements of one counsel for the holders participating in such offering
being included in such fees and expenses). The holders participating in such
offering will be responsible (on a pro rata basis based on the principal amount
of Registrable Securities included in such offering) for all fees and expenses
of such underwritten offering in excess of $200,000, including any fees and
expenses of counsel to the holders, counsel to the Company and the Company's
independent public accountants that may constitute part of such excess amount.
In no event will the Company be responsible for underwriting discounts or
commissions in connection with such underwritten offering.
INDEMNIFICATION
In the Registration Rights Agreement, the Company agreed to indemnify the
holders of Registrable Securities against certain liabilities, including
liabilities under the Securities Act, and each holder of Registrable Securities
included in the Shelf Registration Statement is obligated to indemnify the
Company and any other holder against any liability with respect to any
information furnished by such holder in writing to the Company expressly for use
in the Shelf Registration Statement.
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company to Goldman, Sachs & Co. and
NationsBanc Capital Markets, Inc. (the "Initial Purchasers") on August 12, 1997,
pursuant to an exemption from the registration requirements of the Securities
Act provided by Section 4(2) thereof. The Notes were sold simultaneously by the
Initial Purchasers in transactions exempt from the registration requirements of
the Securities Act pursuant to Rule 144A of the Securities Act or Regulation S
of the Securities Act. An aggregate of $400,000,000 principal amount of Notes
was issued and was outstanding as of October 31, 1997.
This Prospectus relates to the offer and sale by each Selling
Securityholder of the following securities (the "Resale Securities"): (i) the
Notes that are set forth in the table below with respect to such Selling
Securityholder (as such table may be amended from time to time by means of a
supplement or amendment
29
<PAGE> 32
hereto) and (ii) all shares of Common Stock that may be acquired by any Selling
Securityholder upon conversion of any Note to which this Prospectus relates as
described in the preceding clause.
The "Selling Securityholders" include: (i) each person and entity that is
identified as a Selling Securityholder in the table below (as such table may be
supplemented or amended from time to time by means of a supplement or amendment
hereto) and (ii) any transferee, donee, pledgee or other successor of any such
person or entity that acquires any of the Resale Securities in a transaction
exempt from the registration requirements of the Securities Act and that is
identified in a supplement or amendment hereto.
Based upon information provided to the Company by each Selling
Securityholder, the table below indicates with respect to each Selling
Securityholder: (i) the aggregate principal amount of Notes beneficially owned
by such Selling Securityholder and (ii) the aggregate number of shares of Common
Stock issuable upon conversion of such Notes (rounded down to the nearest whole
number) based upon the current per share conversion price. The table below also
indicates by footnote reference any material relationship that a Selling
Securityholder has had with the Company during the preceding three years. This
Prospectus covers all Securities shown in the table below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
PRINCIPAL AMOUNT ISSUABLE UPON
SELLING SECURITYHOLDER(1) OF NOTES OWNED CONVERSION OF NOTES(2)
------------------------- ---------------- ----------------------
<S> <C> <C>
Natwest Securities Limited............................... $65,755,000 1,322,372
Bear Stearns Securities Corporation...................... 63,795,000 1,282,955
UBS Securities LLC....................................... 20,000,000 402,212
J. P. Morgan & Co. Incorporated(3)....................... 15,000,000 301,659
MainStay Convertible Fund................................ 14,500,000 291,603
General Motors Pension Fund.............................. 14,000,000 281,548
CFW-C, L.P............................................... 10,000,000 201,106
Swiss Bank Corporation -- London Branch.................. 8,500,000 170,940
The Northwestern Mutual Life Insurance Company(4)........ 8,000,000 160,884
Kennilworth Partners LP.................................. 7,000,000 140,774
Merrill, Lynch, Pierce, Fenner & Smith, Inc.............. 6,640,000 133,534
SMM Company B.V.......................................... 6,100,000 122,674
Allstate Insurance Company............................... 5,000,000 100,553
Bankers Trust International.............................. 5,000,000 100,553
Oregon -- Equity Fund.................................... 5,000,000 100,553
Tribeca Investments, L.L.C............................... 5,000,000 100,553
Pimco Renaissance Fund................................... 4,500,000 90,497
Silverton International Fund Limited..................... 4,100,000 82,453
South Dakota Retirement System........................... 4,000,000 80,442
Kellner, DiLeo & Co...................................... 3,650,000 73,403
HSBC Securities, Inc..................................... 3,200,000 64,353
American Investors Life Insurance Company................ 3,000,000 60,331
Canadian Imperial Holdings............................... 3,000,000 60,331
Employers Reinsurance Corporation........................ 3,000,000 60,331
BancAmerica Robertson Stephens........................... 2,980,000 59,929
New York Life Separate Account #7........................ 2,500,000 50,276
Travelers Indemnity Company.............................. 2,331,000 46,877
Nomura Securities (Bermuda) Ltd.......................... 2,000,000 40,221
Motors Insurance Corp.................................... 1,750,000 35,193
The Travelers Insurance Company.......................... 1,502,000 30,206
Donaldson, Lufkin & Jenrette Securities Corp............. 1,500,000 30,165
Offshore Strategies Ltd.................................. 1,350,000 27,149
PRIM Board............................................... 1,165,000 23,428
Salomon Brothers Equity Arbritrage Finance Limited I..... 1,125,000 22,624
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
PRINCIPAL AMOUNT ISSUABLE UPON
SELLING SECURITYHOLDER(1) OF NOTES OWNED CONVERSION OF NOTES(2)
------------------------- ---------------- ----------------------
<S> <C> <C>
Argent Classic Convertible Arbitrage Fund (Bermuda)
L.P.................................................... 1,000,000 20,110
Argent Classic Convertible Arbitrage Fund, L.P........... 1,000,000 20,110
Pacific Life Insurance Company........................... 1,000,000 20,110
Goldman Sachs & Co., Bank, Zurich........................ 900,000 18,099
Salomon Brothers Diversified Arbitrage Strategies Fund
Ltd.................................................... 875,000 17,596
The Minnesota Mutual Life Insurance Company.............. 865,000 17,395
MIMLIC Asset Management Co............................... 865,000 17,395
Arkansas PERS............................................ 850,000 17,094
Halliburton Company Employee Benefit..................... 820,000 16,490
Delaware PERS............................................ 725,000 14,580
Castle Convertible Fund, Inc............................. 500,000 10,055
KD Offshore Fund, C.V.................................... 500,000 10,055
Pacific Life Insurance Company........................... 500,000 10,055
Pacific Life Insurance Company........................... 500,000 10,055
Starvest Discretionary................................... 500,000 10,055
Laterman Strategies 90's LLC............................. 360,000 7,239
Salomon Brothers Total Return Fund....................... 350,000 7,038
Fairfax County URS Convertible Bonds..................... 295,000 5,932
ICI American Holdings.................................... 290,000 5,832
Laterman & Co............................................ 290,000 5,832
Zeneca Holdings.......................................... 290,000 5,832
Kapiolani Medical........................................ 190,000 3,821
Woodson W. Fishback Trust................................ 170,000 3,418
The Travelers Life & Annuity Company..................... 167,000 3,358
NALCO Chemical Co. Retirement Plan....................... 135,000 2,714
Mildred Fishback Revocable Trust......................... 130,000 2,614
ALCAN Corp. Master Retirement Trust...................... 125,000 2,513
Hawaii Airlines Pilots Retirement Plan................... 125,000 2,513
Fairfax County Police Pension and Retirement Fund........ 110,000 2,212
Benjamin Moore & Co. Retirement Income................... 100,000 2,011
IBEW Local 292 Pension Fund.............................. 100,000 2,011
Hawaii Airlines -- IAM................................... 85,000 1,709
Paloma Securities L.L.C.................................. 50,000 1,005
Nestle USA............................................... 45,000 904
AICPA Long Term Investment Fund.......................... 20,000 402
Halliburton Foundation, Inc.............................. 20,000 402
Hawaii Airlines Salaried Emply........................... 20,000 402
AICPA Revised Staff Pension Plan......................... 15,000 301
Holton Arms School Pooled Investment Fund................ 15,000 301
Inland Foundation, Inc................................... 10,000 201
</TABLE>
- ---------------
(1) Each Selling Securityholder is the beneficial owner of the indicated Notes.
In certain cases, the indicated Notes may be held of record by a nominee or
custodian for the account of the Selling Securityholder.
(2) The per share conversion price and, therefore, the number of shares of
Common Stock that may be issuable upon conversion of the Notes is subject to
adjustment as described under "Description of Notes -- Conversion Rights."
(3) As of November 4, 1997, J. P. Morgan & Co. Incorporated, through its various
subsidiaries, including J. P. Morgan Investment Management, Inc. and Morgan
Guaranty Trust Company of New York, held in
31
<PAGE> 34
a fiduciary capacity 19,721 outstanding shares of Common Stock. Such shares
are not covered by this Prospectus.
(4) As of October 27, 1997, Northwestern Mutual Series Fund, Inc. and Mason
Street Funds, Inc., affiliates of The Northwestern Mutual Life Insurance
Company were the owners of 56,200 shares and 600 shares, respectively, of
Common Stock. Such shares are not covered by this Prospectus.
(5) As of October 31, 1997, Mildred Fishback Revocable Trust was the owner of
1,200 outstanding shares of Common Stock. Such shares are not covered by
this Prospectus.
Assuming that the Selling Securityholders dispose of all securities covered
by this Prospectus (and assuming no additional acquisitions or dispositions of
Notes or shares of Common Stock by such Selling Securityholders), none of the
Selling Securityholders would continue to own any Notes or shares of Common
Stock (except for the shares currently owned by a Selling Securityholder
described in the footnotes to the table above).
PLAN OF DISTRIBUTION
The Notes were issued in connection with a private placement. The Resale
Securities, of which the Notes constitute a part, may be sold from time to time
by the Selling Securityholders. The Selling Securityholders may from time to
time sell all or a portion of the Resale Securities in transactions in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Resale
Securities may be sold directly or through broker-dealers. If the Resale
Securities are sold through broker-dealers, the Selling Securityholders may pay
brokerage commissions and charges. The methods by which the Resale Securities
may be sold include (a) a block trade (which may involve crosses) in which the
broker or dealer so engaged will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) by a broker or dealer as principal and resale by such broker or
dealer for its own account pursuant to this Prospectus; (c) exchange
distributions and/or secondary distributions; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers and (e)
privately negotiated transactions.
Pursuant to the provisions of the Registration Rights Agreement entered
into by and between the Company and the Initial Purchaser, the Company will pay
the costs and expenses incident to its registration and qualification of the
Resale Securities offered hereby, including registration and filing fees. In
addition, the Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities arising under the Securities
Act. See "Description of Notes -- Registration Rights Agreement."
The holders of the Resale Securities are qualified institutional buyers
within the meaning of Rule 144A of the Securities Act or non-U.S. persons within
the meaning of Regulation S under the Securities Act. Prior to any use of this
Prospectus for the resale of the Resale Securities registered herein, this
Prospectus will be amended or supplemented to set forth the name of the Selling
Securityholder, the amount of the Notes and/or the number of shares of Common
Stock beneficially owned by such Selling Securityholder, and the amount of the
Notes and/or the number of shares of Common Stock to be offered for resale by
such Selling Securityholder. The supplemented or amended Prospectus will also
disclose whether any Selling Securityholder selling in connection with such
supplemented or amended Prospectus has held any position or office with, been
employed by or otherwise had a material relationship with, the Company or any of
its affiliates during the three years prior to the date of the supplemented or
amended Prospectus.
The Selling Securityholders and any broker-dealer participating in the
distribution of the Resale Securities may be deemed to be "underwriters" within
the meaning of the Securities Act, and any profit and any commissions paid or
any discounts or concessions allowed to any such broker-dealer may be deemed to
be underwriting discounts and commissions under the Securities Act. The Selling
Securityholders may indemnify any broker-dealer that participates in
transactions involving the sale of Notes and the Common Stock against certain
liabilities, including liabilities under the Securities Act.
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<PAGE> 35
There can be no assurances that the Selling Securityholders will sell any
or all of the Resale Securities offered by them hereunder. The resale of the
Resale Securities will be freely transferable in the hands of persons other than
affiliates of the Company. The Common Stock is listed and principally traded on
the Nasdaq National Market under the symbol "DIGI."
The Company will receive none of the proceeds from the resale of the Resale
Securities.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Selling Securityholders by Baker & McKenzie, Dallas, Texas.
EXPERTS
The consolidated financial statements and schedule of the Company and its
subsidiaries incorporated by reference or included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, have been audited by
Ernst & Young LLP independent auditors, as set forth in their reports thereon
incorporated by reference or included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
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<PAGE> 36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The table below sets forth the estimated expenses expected to be paid by
the Company in connection with the issuance and distribution of the Resale
Securities covered by this Registration Statement. For information concerning
certain additional expenses that the Company and/or the Selling Securityholders
may be required to pay in the event that there is an underwritten offering of
the Resale Securities, see "Plan of Distribution."
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $121,212
Printing and Engraving Expenses............................. 5,000
Legal Fees and Expenses (other than Blue Sky)............... 30,000
"Blue Sky" Fees and Expenses................................ 1,000
Accounting Fees and Expenses................................ 5,000
Miscellaneous............................................... 2,788
--------
Total............................................. $165,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DSC's bylaws require that directors and officers be indemnified to the
maximum extent permitted by law. DSC's Restated Certificate of Incorporation
includes a provision eliminating, to the fullest extent permitted by Delaware
law, director liability for monetary damages for breaches of fiduciary duty.
Section 145 of the General Corporation Law of the State of Delaware
provides that a director or officer of a corporation (i) shall be indemnified by
the corporation for all expenses of litigation or other legal proceedings
brought against such person by reason of the fact that such person is or was a
director or an officer of the corporation when he is successful on the merits,
(ii) may be indemnified by the corporation for the expenses, judgments, fines,
and amounts paid in settlement of such litigation (other than a derivative suit)
even if he is not successful on the merits if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation (and, in the case of a criminal proceeding, had no reason to
believe his conduct was unlawful), and (iii) may be indemnified by the
corporation for expenses of a derivative suit (a suit by a stockholder alleging
a breach by a director or officer of a duty owed to the corporation), even if he
is not successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no such indemnification may be made in accordance
with this clause (iii) if the director or officer is adjudged liable to the
corporation, unless a court determines that, despite such adjudication but in
view of all circumstances, he is fairly and reasonably entitled to
indemnification of such expenses. The indemnification described in clauses (ii)
and (iii) above shall be made only upon order by a court or a determination by
(a) a majority of directors who are not parties to such action, (b) a majority
vote of a committee consisting of such disinterested directors, (c) independent
legal counsel in a written opinion if no such disinterested directors exist, or
if such disinterested directors so direct, or (d) the stockholders, that
indemnification is proper because the applicable standard of conduct is met.
Expenses incurred by a director or officer in defending an action may be
advanced by the corporation prior to the final disposition of such action upon
receipt of an undertaking by such director or officer to repay such expenses if
it is ultimately determined that he is not entitled to be indemnified in
connection with the proceeding to which the expenses relate.
DSC has purchased and currently has in force directors' and officers'
liability insurance policies which cover certain liabilities of directors and
officers arising out of claims based on certain acts or omissions by them in
their capacity as directors or officers. DSC has entered into indemnification
agreements with certain of its directors and executive officers. Each of these
agreements, among other things, contractually obligates DSC to, under certain
circumstances, indemnify the officer or director against certain expenses and
liabilities arising out of legal proceedings which may be brought against such
officer or director by reason of his status or service as a director or officer.
In addition, in a related trust agreement (the "Trust Agreement"), DSC has
II-1
<PAGE> 37
provided $1 million to be held in trust by a third-party trustee to be used to
satisfy DSC's obligations pursuant to the indemnification agreements which have
been executed and any similar agreements which may be executed in the future.
The Trust Agreement further provides that DSC's Board of Directors may, in its
discretion, provide up to an additional $1 million to the trustee.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 -- Indenture, dated August 12, 1997, between the Company and
The Bank of New York, as Trustee (incorporated by
reference to Exhibit No. 4.1 to the Company's Current
Report on Form 8-K, Commission File No. 0-10018)
4.2 -- Registration Rights Agreement, dated as of August 12,
1997, among the Company, Goldman, Sachs & Co. and
NationsBanc Capital Markets, Inc. (incorporated by
reference to Exhibit No. 4.2 to the Company's Current
Report on Form 8-K, Commission File No. 0-10018)
4.3 -- Form of Notes (included in Exhibit 4.1)
4.4 -- Restated Certificate of Incorporation of the Company
dated November 3, 1997 (incorporated by reference to
Exhibit No. 3.1 to the Company's Registration Statement
on Form S-4, Registration No. 333-39591, dated November
5, 1997)
4.5 -- Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit No. 3.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996,
Commission File No. 0-10018, dated March 31, 1997)
4.6 -- Rights Agreement, dated April 25, 1996 between the
Company and Harris Trust and Savings Bank, formerly
KeyCorp Shareholder Services, Inc. as rights agent
(incorporated by reference to Exhibit No. 4 to the
Company's Current Report on Form 8-K, Commission File No.
0-010018, dated May 9, 1996)
*5.1 -- Form of Opinion of Baker & McKenzie
*12.1 -- Computation of ratio of earnings to fixed charges
*23.1 -- Consent of Ernst & Young LLP
*23.2 -- Consent of Baker & McKenzie (included in Exhibit 5.1)
*24 -- Power of Attorney (see signature pages of Registration
Statement)
*25 -- Form T-1 Statement of Eligibility and Qualification of
Trustee (bound separately)
</TABLE>
- ---------------
* Filed herewith.
ITEM 17. UNDERTAKINGS
(a) 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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. 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
II-2
<PAGE> 38
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the Plan
of Distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Plano, State of Texas, on November 10, 1997.
DSC COMMUNICATIONS CORPORATION
By: /s/ JAMES L. DONALD
----------------------------------
James L. Donald
Chairman of the Board, President
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes and appoints James L. Donald and Gerald F. Montry, and each of
them, either one of whom may act without joinder of the other, as his
attorney-in-fact to sign on his behalf individually and in the capacity stated
below all amendments and post-effective amendments to this Registration
Statement as that attorney-in-fact may deem necessary or appropriate.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES L. DONALD Chairman of the Board, President November 10, 1997
- ----------------------------------------------------- and Chief Executive Officer
James L. Donald (Principal Executive Officer)
/s/ GERALD F. MONTRY Senior Vice President, Chief November 10, 1997
- ----------------------------------------------------- Financial Officer, and Director
Gerald F. Montry (Principal Financial Officer)
/s/ KENNETH R. VINES Vice President, Finance (Principal November 10, 1997
- ----------------------------------------------------- Accounting Officer)
Kenneth R. Vines
/s/ RAYMOND J. DEMPSEY Director November 10, 1997
- -----------------------------------------------------
Raymond J. Dempsey
/s/ SIR JOHN FAIRCLOUGH Director November 10, 1997
- -----------------------------------------------------
Sir John Fairclough
/s/ JAMES L. FISCHER Director November 10, 1997
- -----------------------------------------------------
James L. Fischer
/s/ ROBERT S. FOLSOM Director November 10, 1997
- -----------------------------------------------------
Robert S. Folsom
/s/ WILLIAM O. HUNT Director November 10, 1997
- -----------------------------------------------------
William O. Hunt
/s/ MORTON L. TOPFER Director November 10, 1997
- -----------------------------------------------------
Morton L. Topfer
</TABLE>
II-4
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 -- Indenture, dated August 12, 1997, between the Company and
The Bank of New York, as Trustee (incorporated by
reference to Exhibit No. 4.1 to the Company's Current
Report on Form 8-K, Commission File No. 0-10018)
4.2 -- Registration Rights Agreement, dated as of August 12,
1997, among the Company, Goldman, Sachs & Co. and
NationsBanc Capital Markets, Inc. (incorporated by
reference to Exhibit No. 4.2 to the Company's Current
Report on Form 8-K, Commission File No. 0-10018)
4.3 -- Form of Notes (included in Exhibit 4.1)
4.4 -- Restated Certificate of Incorporation of the Company
dated November 3, 1997 (incorporated by reference to
Exhibit No. 3.1 to the Company's Registration Statement
on Form S-4, Registration No. 333-39591, dated November
5, 1997
4.5 -- Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit No. 3.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996,
Commission File No. 0-10018, dated March 31, 1997)
4.6 -- Rights Agreement, dated April 25, 1996 between the
Company and Harris Trust and Savings Bank, formerly
KeyCorp Shareholder Services, Inc. as rights agent
(incorporated by reference to Exhibit No. 4 to the
Company's Current Report on Form 8-K, Commission File No.
0-010018, dated May 9, 1996)
5.1 -- Form of Opinion of Baker & McKenzie
12.1 -- Computation of ratio of earnings to fixed charges
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Baker & McKenzie (included in Exhibit 5.1)
24 -- Power of Attorney (see signature pages of Registration
Statement)
25 -- Form T-1 Statement of Eligibility and Qualification of
Trustee (bound separately)
</TABLE>
<PAGE> 1
EXHIBIT 5.1
, 1997
DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
Re: Registration of Common Stock of DSC Communications Corporation
Gentlemen:
On November 10, 1997, DSC Communications Corporation, a Delaware
corporation (the "Company"), filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"). Such
Registration Statement relates to the registration by the Company of an
aggregate of $320,850,000 7% Convertible Subordinated Notes due August 1, 2004
(the "Notes") and of an aggregate of 6,452,453 shares of the Company's common
stock, $.01 par value per share (the "Shares"), issuable upon conversion of the
Notes. The Shares include the preferred stock purchase rights attaching to such
stock pursuant to that certain Rights Agreement dated April 25, 1996 by and
between the Company and Harris Trust and Savings Bank, formerly KeyCorp
Shareholder Services, Inc. We have acted as counsel to the Company in connection
with the preparation and filing of the Registration Statement.
In connection therewith, we have examined and relied upon the original or
copies, certified to our satisfaction, of (i) the Restated Certificate of
Incorporation and the Amended and Restated Bylaws of the Company; (ii) copies of
resolutions of the Board of Directors of the Company authorizing the issuance of
the Notes and the Shares and related matters; (iii) the Registration Statement
and all exhibits thereto; and (iv) such other documents and instruments as we
have deemed necessary for the expression of opinions herein contained. In making
the foregoing examinations, we have assumed the genuineness of all signatures
and the authenticity of all documents submitted to us as originals, and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. As to various questions of fact material to this opinion,
we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of officers or directors of the Company and upon
documents, records and instruments furnished to us by the Company, without
independent check or verification of their accuracy.
Based on the foregoing, we are of the following opinion:
1. The Notes have been duly authorized and issued by the Company.
2. The Shares have been duly authorized by the Company and, when
issued upon conversion of the Notes as contemplated by the Registration
Statement, will be duly and validly issued and will be fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not admit that we come
within the category of persons whose consent is required by Section 7 of the Act
or the rules and regulations of the Commission thereunder.
Very truly yours,
BAKER & McKENZIE
<PAGE> 1
EXHIBIT 12.1
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT FOR RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- -------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes... $16,894 $109,456 $ 223,190 $289,950 $ (12,186) $138,331
Fixed charges....................... 28,639 13,637 11,939 31,011 38,329 30,725
Less: Capitalized interest.......... (1,112) (895) (1,640) (2,557) (2,492) (3,055)
------- -------- --------- -------- --------- --------
Total...................... $44,421 $122,198 $ 233,489 $318,404 $ 23,651 $166,001
Interest expense.................... $21,347 $ 6,256 $ 2,075 $ 18,599 $ 26,355 $ 19,334
Capitalized interest................ 1,112 895 1,640 2,557 2,492 3,055
Amortization of debt issuance
costs............................. 380 86 124 255 282 436
Interest portion of rent expense.... 5,800 6,400 8,100 9,600 9,200 7,900
------- -------- --------- -------- --------- --------
Total fixed charges................. $28,639 $ 13,637 $ 11,939 $ 31,011 $ 38,329 $ 30,725
Ratio of Earnings to Fixed
Charges........................... 1.6 9.0 19.6 10.3 * 5.4
</TABLE>
- ---------------
* Earnings were not sufficient to cover total fixed charges for the year ended
December 31, 1996 by approximately $14.7 million.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of DSC Communications Corporation ("DSC") and
related Prospectus for the registration of the 7% Convertible Subordinated
Notes, shares of DSC's common stock and preferred stock purchase rights and to
the incorporation by reference therein of our report dated January 23, 1997,
with respect to the consolidated financial statements and schedule of DSC
incorporated by reference or included in its Annual Report (Form 10-K) for the
year ended December 31, 1996, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
------------------------------------
Dallas, Texas,
November 10, 1997
<PAGE> 1
EXHIBIT 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------------
DSC COMMUNICATIONS CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 54-1025763
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1000 Coit Road
Plano, Texas 75075
(Address of principal executive offices) (Zip code)
----------------------------
7% Convertible Subordinated Notes
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 20th day of October, 1997.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
----------------------------
Name: Walter N. Gitlin
Title: Vice President
- 3 -
<PAGE> 4
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin ............................................................................ $ 7,769,502
Interest-bearing balances .................................................................... 1,472,524
Securities:
Held-to-maturity securities .................................................................. 1,080,234
Available-for-sale securities ................................................................ 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell............................................................... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................... 35,352,045
LESS: Allowance for loan and
lease losses ......................... 625,042
LESS: Allocated transfer risk
reserve ............................... 429
Loans and leases, net of unearned
income, allowance, and reserve ............................................................ 34,726,574
Assets held in trading accounts ................................................................ 1,611,096
Premises and fixed assets (including
capitalized leases) ........................................................................ 676,729
Other real estate owned ........................................................................ 22,460
Investments in unconsolidated
subsidiaries and associated
companies .................................................................................... 209,959
Customers' liability to this bank on
acceptances outstanding .................................................................... 1,357,731
Intangible assets ............................................................................ 720,883
Other assets ................................................................................. 1,627,267
-----------
Total assets ................................................................................. $57,514,958
===========
LIABILITIES
Deposits:
In domestic offices ........................................................................ $26,875,596
Noninterest-bearing ..................... 11,213,657
Interest-bearing ....................... 15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ............................................................. 16,334,270
Noninterest-bearing ..................... 596,369
Interest-bearing ....................... 15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase........................................................... 1,583,157
Demand notes issued to the U.S.
Treasury ..................................................................................... 303,000
Trading liabilities ............................................................................ 1,308,173
Other borrowed money:
With remaining maturity of one year
or less .................................................................................... 2,383,570
With remaining maturity of more than
one year through three years.................................................................... 0
With remaining maturity of more than
three years .............................................................................. 20,679
Bank's liability on acceptances exe-
cuted and outstanding ........................................................................ 1,377,244
Subordinated notes and debentures .............................................................. 1,018,940
Other liabilities ............................................................................ 1,732,792
-----------
Total liabilities ............................................................................ 52,937,421
-----------
EQUITY CAPITAL
Common stock ................................................................................... 1,135,284
Surplus ...................................................................................... 731,319
Undivided profits and capital
reserves ..................................................................................... 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities ................................................................................... 1,948
Cumulative foreign currency transla-
tion adjustments ............................................................................. (12,272)
-----------
Total equity capital ......................................................................... 4,577,537
-----------
Total liabilities and equity
capital....................................................................................... $57,514,958
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyl )
J. Carter Bacot ) Directors
Alan R. Griffith )
---------------------
