FORM 424B1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Prospectus Filed Pursuant to Rule 424(b)(1) of the Securities
Exchange Act of 1934
APPLIED MAGNETICS CORPORATION
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(Exact name of registrant as specified in its charter)
A Delaware Corporation 95-1950506
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identifiation No.)
75 Robin Hill Road, Goleta, California 93117
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(Address of principal executive offices)
Registrant's telephone number, including area code:
(805) 683-5353
(No Change)
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Former name, former address and former fiscal year,
if changed since last report.
Page 1 of 60 <PAGE>
September 20, 1996
Prospectus
APPLIED MAGNETICS CORPORATION
$93,000,000
7% Convertible Subordinated Debentures
Due March 15, 2006 (Interest Payable
March 15 and September 15)
and
5,000,000 Shares of Common Stock
This Prospectus relates to the public offering by the
Selling Securityholders (see "Selling Securityholders") of up to
$93,000,000 aggregate principal amount of 7% Convertible
Subordinated Debentures due March 15, 2006 (the "Debentures") of
Applied Magnetics Corporation, a Delaware corporation (the
"Company"), and the shares of common stock, par value $0.10 per
share, of the Company (the "Common Stock" and, together with the
Debentures, the "Securities") that are issuable upon conversion
of the Debentures. The Debentures are convertible into a maximum
of 5,000,000 shares of Common Stock at a conversion price of
$18.60 per share (the "Conversion Price"), subject to adjustment
in certain circumstances, at any time prior to redemption or
maturity. See "Description of the Debentures." The Common Stock
is traded on the New York Stock Exchange (the "NYSE") under the
symbol "APM." The last reported sales price of the Common Stock
on the NYSE on September 20, 1996 was $16 7/8 per share. See
"Description of Capital Stock."
Interest on the Debentures is payable semi-annually in
arrears on each of March 15 and September 15, commencing
September 15, 1996, and the Debentures will mature on March 15,
2006, unless previously redeemed. See "Description of the
Debentures."
The Debentures are redeemable at the option of the
Company, in whole or in part, at the redemption prices set forth
in this Prospectus, together with accrued and unpaid interest to
the date fixed for redemption, except that no redemption may be
made prior to April 2, 1999. The Debentures are also redeemable
at any time at the option of the Company, in whole or in part, at
a redemption price of 100% of their principal amount, together
with accrued and unpaid interest through the date fixed for
redemption upon the occurrence of certain changes in the law,
rules, regulations or rulings related to the United States
federal income tax. Upon the occurrence of a Change of Control
(as defined herein), the Company, at its option, may redeem the
Page 2 of 60 <PAGE>
Debentures, in whole but not in part, prior to April 1, 1999, at
the redemption prices set forth in this Prospectus, together with
accrued and unpaid interest to the date fixed for redemption.
See "Description of Debentures -- Redemption."
The Debentures are general unsecured obligations of the
Company and are subordinated to all present and future Senior
Indebtedness (as defined herein) of the Company and will be
effectively subordinated to all indebtedness and liabilities of
subsidiaries of the Company. The Indenture does not restrict the
incurrence of any other indebtedness or liabilities by the
Company or its subsidiaries. See "Description of Debentures --
Subordination."
The Company will not receive any proceeds from this
offering. The aggregate proceeds to the Selling Securityholders
from the sale of the Securities will be the offering price of the
Securities sold, less applicable agents' commissions and
underwriters' discounts, if any. The Company will pay all
expenses incident to the preparation and filing of a registration
statement for the Securities under federal securities laws. The
Selling Securityholders may sell the Securities from time to time
on terms to be determined at the time of sale, either directly or
through agents designated from time to time or dealers or
underwriters designated from time to time. To the extent
required, the principal amount of Debentures or the number of
shares of Common Stock to be sold, the offering price thereof,
the name of each Selling Securityholder and each agent, dealer
and underwriter, if any, and any applicable commissions or
discounts with respect to a particular offering will be set forth
in an accompanying Prospectus Supplement. See "Plan of
Distribution."
The Debentures have been designated for trading in the
Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") Market.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CAREFULLY
CONSIDERED BY PROSPECTIVE INVESTORS.
No dealer, salesman or any other person has been
authorized to give any information or to make any representation
not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having
been authorized by the Company. This Prospectus does not relate
to any securities other than those described herein or constitute
an offer to sell, or the solicitation of an offer to buy,
securities in any jurisdiction where, or to any person to whom,
it is unlawful to make such an offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that the
information herein is correct as of any time subsequent to the
date hereof or that there has been no change in the affairs of
the Company since such date.
Page 3 of 60 <PAGE>
FOR NEW HAMPSHIRE RESIDENT: NEITHER THE FACT THAT A
REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN
FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS
LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY
THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY
OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE
OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR
CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 20, 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Page 4 of 60 <PAGE>
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 periodic
reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected
and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, copies of such reports, proxy
statements and other information concerning the Company may also
be inspected and copied at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 and are also
accessible by the public using the Internet at
http://www.sec.gov.
The Company has filed with the Commission a
registration statement on Form S-3 (such registration statement,
together with all amendments and exhibits thereto, being
hereinafter referred to as the "Registration Statement") under
the Securities Act, for the registration under the Securities Act
of the Debentures and Shares offered hereby. This Prospectus
does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration
Statement and the documents incorporated herein by reference
which may be examined without charge at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies thereof may be
obtained from the Commission upon payment of the prescribed fees.
Statements herein as to the contents of any document referred to
are not necessarily complete and in each instance are qualified
in all respects by reference to the applicable documents filed
with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File
No. 1-6635) pursuant to the Exchange Act are incorporated herein
by reference:
1. The Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995, as amended by Form 10-K/A
No. 1 filed with the Commission on June 11, 1996;
2. The Company's Quarterly Report on Form 10-Q for
the quarter ended December 30, 1995;
Page 5 of 60 <PAGE>
3. The Company's Quarterly Report on Form 10-Q/A
No. 1 for the quarter ended December 30, 1995;
4. The Company's Current Report on Form 8-K filed
with the Commission on March 11, 1996;
5. The Company's Current Report on Form 8-K filed
with the Commission on March 20, 1996;
6. The Company's Current Report on Form 8-K filed
with the Commission on April 2, 1996;
7. The Company's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1996;
8. The Company's Proxy Statement with respect to the
1995 Annual Meeting of Stockholders; and
9. All other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the
termination of the Offering of the Securities.
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus and the Registration Statement of
which it is a part to the extent that a statement contained
herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any
statement so modified or superseded shall not be deemed, in its
unmodified form, to constitute a part of this Prospectus or such
Registration Statement.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST DIRECTED
TO: APPLIED MAGNETICS CORPORATION, 75 ROBIN HILL ROAD, GOLETA,
CALIFORNIA 93117-3108, ATTENTION: SECRETARY, TELEPHONE: (805)
683-5353.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by,
and should be read in conjunction with, the more detailed
information appearing elsewhere in this Prospectus and in the
consolidated financial statements, including the notes thereto,
incorporated by reference therein. Prospective investors should
carefully consider the matters set forth under the heading "RISK
FACTORS" beginning on page 11.
Page 6 of 60 <PAGE>
The Company
The Company is one of the world's leading independent
manufacturers of advanced magnetic recording heads for hard disk
drives. The Company manufactures advanced inductive thin film
and magnetoresistive ("MR") disk head products and assembles
ferrite disk head products, in each case, primarily for supply to
manufacturers of 3.5 inch hard disk drives. The Company's
products compete on the basis of price, performance and
availability. The Company's products are used in disk drives
manufactured by, among others, International Business Machines
("IBM"), Maxtor Corporation ("Maxtor"), Micropolis Corporation
("Micropolis"), NEC Electronics, Inc. ("NEC"), Quantum
Corporation ("Quantum"), Seagate Technology, Inc. ("Seagate
Technology") and Western Digital ("Western Digital").
Although the demand for disk drive units has grown
significantly in recent years largely in response to the global
proliferation of PCs and the increasing demand for data storage
capacity, such demand recently appears to be subsiding. However,
due primarily to increased sales to Western Digital, the
industry's subsiding demand for disk drive units has so far not
adversely impacted the Company's operating and financial
performance.
The Company's product line is currently centered around
thin film disk heads, the largest segment of the recording head
industry. Thin film heads permit greater storage capacity per
disk and provide higher transfer rates than ferrite disk heads.
The Company continues to expand its thin film production capacity
and further develop its thin film technology. The Company is
also committing engineering and production resources to further
its MR disk head capability, which it believes to be the next
generation of recording head technology. MR disk heads offer
still greater recording densities and other performance
advantages demanded by the disk drive market.
The Company suffered substantial losses and financial
difficulties in fiscal years 1993 and 1994. In August 1994, in
an effort to reverse this situation, the Company engaged a
consulting firm to provide it with crisis management assistance.
Mr. Craig D. Crisman, then a member of the consulting firm, was
appointed the Company's Chief Executive Officer. Under his
direction, the Company has significantly improved its yields in
thin film disk head production, implemented a number of cost
reduction programs, instituted aggressive cash management
practices, consolidated its manufacturing activities and divested
itself of certain non-core assets. These measures have
significantly improved the Company's cash and working capital
positions. The Company and Mr. Crisman entered into a five-year
employment agreement in August 1995 and on November 3, 1995,
Mr. Crisman was elected Chairman.
Page 7 of 60 <PAGE>
In an effort to capitalize on these improvements and to
add to its existing market share, the Company intends to increase
its thin film and MR disk head capacity. To achieve this goal,
the Company currently plans approximately $125 million of capital
expenditures, including those financed by operated leases, in
fiscal 1996, primarily to improve inductive thin film production
processes and increase thin film and MR production volumes.
The Company's manufacturing and assembly operations are
located in California, Ireland, Korea, Malaysia and the People's
Republic of China (the "PRC"). The Company's principal place of
business is in Goleta, California; its telephone number at that
location is 805-683-5353.
RISK FACTORS
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In addition to the other information contained in this
Prospectus and the documents incorporated herein by reference,
prospective purchasers of the Debentures and the Shares should
carefully consider the following factors before purchasing the
Debentures or the Shares being offered by this Prospectus.
RAPID TECHNOLOGICAL CHANGES
The magnetic recording head industry has been
characterized by rapidly changing technology, short product life
cycles and price erosion. The Company estimates that the
industry product life cycle is currently running as short as 12
to 18 months. The demand for smaller, lighter products with
greater data storage capacity requires disk drive and disk head
manufacturers to continue to build greater performance into
smaller products. There is no assurance that the Company's
products will achieve such performance or that the Company will
continue to qualify for disk drive manufacturers' programs.
During fiscal 1993 and 1994 and the first two quarters of fiscal
1995, the Company experienced substantial losses and significant
production and product quality problems as it sought to adapt to
the market's transition from ferrite disk heads to thin film disk
heads. There is no assurance that the Company will continue to
qualify for disk head manufacturing programs or that it will not
experience similar manufacturing and product quality problems in
the future. The Company's future success depends in large part
on its ability to develop and qualify new products on a timely
basis and in sufficient quantities that compete effectively on
the basis of price and performance. See "The Company."
FLUCTUATIONS IN QUARTERLY AND ANNUAL OPERATING RESULTS
The Company's operating results have fluctuated and may
continue to fluctuate from quarter to quarter and year to year.
The Company experienced net losses (i) for the fiscal year ended
September 30, 1991 of $18,284,000 on an aggregate basis, or $1.12
Page 8 of 60 <PAGE>
per share (a net loss from continuing operations of $15,805,000,
or $0.97 per share), (ii) for the fiscal year ended September 30,
1992 of $25,107,000 on an aggregate basis, or $1.51 per share
(net income from continuing operations of $315,000, or $0.02 per
share), (iii) for the fiscal year ended September 30, 1993 of
$43,728,000 on an aggregate basis, or $2.17 per share, and (iv)
for the fiscal year ended September 30, 1994 of $52,670,000 on an
aggregate basis, or $2.39 per share. As recently as the first
two quarters of fiscal 1995, the Company experienced substantial
losses. The Company's sales are generally made pursuant to
individual purchase orders and production is scheduled and
customer-specific materials are ordered on the basis of such
purchase orders. As customer programs mature, the Company may
have to write-down inventory and equipment. In addition, the
Company must qualify on future programs to sell its products.
The Company has also, on occasion, experienced cancellation and
rescheduling of orders and reductions in quantities ordered as
customer requirements change. As a result, the Company's backlog
may not be a reliable indicator of future sales. Cancellation,
rescheduling and reductions of orders in the future could result
in inventory losses, under-utilization of production capacity and
write-downs of tooling and equipment which would have a material
adverse effect on the Company's future operating results.
Moreover, the Company and several of its major competitors have
announced large capital expenditure programs, and there is no
assurance that market demand will be adequate to absorb this
expanded capacity. The Company's operating results have in the
past and likely will in the future be adversely affected during
periods when production capacity is under-utilized.
DEPENDENCE ON CYCLICAL HARD DISK DRIVE INDUSTRY
Demand for the Company's products is driven first by
demand for disk drive units. Demand for more and faster disk
drives is in turn driven by demand for such products as personal
computers ("PCs"), network servers, disk arrays, workstation
drives, mainframes and internet servers and for memory intensive
services such as video on demand, voicemail and multimedia
services. The disk drive industry is cyclical and historically
has experienced periods of oversupply and reduced production
levels, resulting in significantly reduced demand for disk heads,
as well as pricing pressures. The effect of these cycles on
suppliers, including the Company, has been magnified by hard disk
drive manufacturers' practice of ordering components, including
disk heads, in excess of their needs during periods of rapid
growth, which increases the severity of the drop in the demand
for components during periods of reduced growth or contraction.
In recent years, the disk drive industry has experienced
significant growth, and the Company has expanded its capacity and
expects to do so further. There is no assurance that such growth
will continue, that the level of demand for disk drives will not
decline, or that future demand will be sufficient to support
existing and future capacity. A decline in demand for hard disk
drives may have a material adverse effect on the Company's future
operating results.
Page 9 of 60 <PAGE>
SIGNIFICANT CAPITAL NEEDS
The magnetic disk head industry is capital intensive
and requires significant expenditures for research and
development in order to develop and take advantage of
technological improvements and new technologies such as thin film
and MR disk head products. The Company believes that, in order
to achieve its objectives, it will need significant additional
resources over the next several years for capital expenditures,
working capital and research and development. In fiscal 1996,
the Company plans to spend approximately $125 million (including
amounts financed through equipment leases) on capital
expenditures, of which approximately $70.2 million was incurred
during the nine months ended June 29, 1996. The Company believes
that it will be able to fund these expenditures from a
combination of the proceeds of the Debenture Offering (as defined
below), existing cash balances, cash flow from operations,
existing credit facilities and lease financing arrangements.
However, there is no assurance that these funds will be
sufficient for its needs, and in any event, the Company may need
additional sources of capital to meet requirements in future
years. There is no assurance that such additional funds will be
available to the Company or, if available, upon terms and
conditions acceptable to the Company. If the Company were unable
to obtain sufficient capital, it would need to curtail its
operating and capital expenditures, which could adversely affect
the Company's future operating results.
RELIANCE ON SHORT-TERM BORROWING
At June 29, 1996, the Company had outstanding
approximately $45.8 million of short-term borrowings in floating
rate demand loan facilities from a bank in Malaysia, where it has
substantial manufacturing operations. The proceeds of the loan
facilities were used in the construction of assembly facilities
in Malaysia and are used for working capital purposes. In May
1995, the Company and the Malaysian bank amended these loan
facilities to include a security interest in the Company's real
property holdings in Malaysia and to include certain covenants
which preclude the Company from granting liens on and security
interests in other assets in Malaysia. While the Company has no
reason to believe the loan will be called, there is no assurance
that the bank will continue to make this credit available. If
the loan were called and the Company were unable to refinance the
loan, it would result in breach of covenants in other borrowing
facilities maintained by the Company and, thereby, create a cash
shortfall for the Company. As of June 29, 1996, $2.0 million was
available under this credit facility. In addition, the Company
has a credit line with CIT Group/Business Credit, Inc., pursuant
to which $22.5 million was available to be drawn down by the
Company as of June 29, 1996.
Page 10 of 60 <PAGE>
COMPETITION
The disk head industry is intensely competitive and
largely dependent on sales to a limited number of major disk
drive manufacturers and systems companies. The Company's top six
customers accounted for 97% of the Company's net sales in fiscal
1995, and sales to Conner Peripherals Inc. ("Conner") and Maxtor
represented approximately 41% and 19% of total sales,
respectively. The Company's revenues from Conner and Maxtor
declined materially during fiscal 1996. However, the Company has
so far been able to replace the Conner and Maxtor business with
sales to other customers, principally Western Digital. See "--
Further Consolidation of the Disk Drive Industry." Many of the
Company's competitors are significantly larger and more
diversified and have substantially greater financial, technical
and marketing resources than does the Company. Additionally, a
number of disk drive manufacturers with significantly greater
financial, technical and marketing resources than the Company,
such as IBM, Seagate Technology, Quantum, Hitachi, Ltd.
("Hitachi"), Hewlett-Packard Company and Fujitsu Limited
("Fujitsu") currently produce thin film and, in some cases, MR
heads for their own use. Seagate Technology also makes its disk
head products available to other disk drive manufacturers. Other
disk drive manufacturers could develop or acquire the ability to
produce thin film and MR heads in the future. The Company's
ability to obtain new orders from customers depends on its
ability to anticipate technological changes, develop products to
meet individualized customer requirements and to achieve timely
delivery of products that meet customer specifications at
competitive prices. In addition, the disk drive industry is also
intensely competitive and disk drive manufacturers may quickly
lose market share as a result of the successful deployment of new
technologies by their competitors or various other factors. In
recent years, certain disk drive manufacturers have declared
bankruptcy. A significant reduction in orders from or the loss
of a major customer, which could occur for any of a variety of
reasons, could have a material adverse effect on the Company's
future operating results.
FURTHER CONSOLIDATION OF THE DISK DRIVE INDUSTRY
The information technology industry is experiencing
significant consolidation. In recent years, certain disk drive
and systems companies have acquired or merged with magnetic disk
head companies in an effort to produce magnetic disk heads for
their own use. In fiscal 1994, Quantum, a major disk drive
manufacturer, acquired Digital Equipment Corporation's ("DEC")
inductive thin film head operations as well as a controlling
interest in Rocky Mountain Magnetics, a joint venture between
Storage Technology and DEC. Rocky Mountain Magnetics is
primarily engaged in the development and production of MR disk
heads. In addition, Seagate Technology, a major manufacturer of
both disk drives and recording heads, and Conner, the Company's
largest customer in fiscal 1995, recently merged. The Company's
revenues from Conner declined materially during fiscal 1996. Net
Page 11 of 60 <PAGE>
sales attributable to Conner in fiscal 1994 and 1995 were $145.1
million and $119.6 million, respectively. The Company has so far
been able to replace the Conner business with sales to other
customers, principally Western Digital. There is no assurance,
however, that overall demand for the Company's products will
continue at present levels. There is no assurance that disk
drive and systems companies will not continue to vertically
integrate and acquire the ability to produce disk heads for their
own use. Further consolidation of the disk drive industry may
reduce the number of disk drive programs requiring the Company's
products and may increase credit risks for the Company due to the
concentration of its customers. As a result, there is no
assurance that further vertical integration of disk drive and
system companies and consolidation within the disk drive industry
will not have a material adverse effect on the Company's future
operating results. See "The Company."
DEPENDENCE ON FOREIGN OPERATIONS
The Company conducts substantially all of its
production, assembly and test operations in its facilities in
Ireland, Korea, Malaysia and the People's Republic of China
("PRC"). In addition, the Company has contractual relationships
with unaffiliated parties who conduct manufacturing and assembly
operations for the Company in Malaysia and the PRC. The
Company's operations in Korea have, from time to time in recent
years, been affected by labor disruptions and slow downs. During
fiscal 1995, the Company's production facility in Malaysia faced
labor shortages as other disk drive and component manufacturers
expanded their production facilities in Malaysia. In addition to
risks of labor disruption, civil unrest and political
instability, the Company's foreign operations subject it to
delays in obtaining governmental permits and approvals, currency
exchange fluctuations, currency restrictions, trade restrictions
and transportation problems. See "The Company."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's operations and development
programs largely depends on a limited number of key technical and
management personnel as well as on its continued ability to
attract and retain skilled engineering and technical personnel.
The Company does not maintain key man life insurance on the lives
of key employees. Competition for qualified technical and
engineering personnel is intense and the Company's future success
will depend, in large part, on its ability to continue to
attract, retain, train and motivate highly skilled and dedicated
employees.
INTELLECTUAL PROPERTY
The Company relies primarily on a combination of
confidentiality agreements and internal procedures to protect its
proprietary rights in its manufacturing processes, product
designs and equipment. There is no assurance that the steps
Page 12 of 60 <PAGE>
taken by the Company will be adequate to protect its proprietary
rights or that the Company's competitors will not independently
develop or patent technologies that are equivalent or superior to
the Company's technology. In addition, certain employees of the
Company are subject to the terms of confidentiality agreements
with respect to proprietary information of their former
employers. The failure of these employees to comply with the
terms of their agreements could result in assertion of claims
against the Company and such employees which, if successful,
might restrict their role with the Company and could have a
material adverse effect on the Company's future operating
results. The Company does not believe that any of its employees
is in violation of his or her prior employment agreements in the
performance of his or her duties with the Company.
ENVIRONMENTAL REGULATIONS AND WATER SUPPLY RESTRICTIONS
The Company uses certain hazardous chemicals in its
manufacturing process and is subject to a variety of
environmental and land use regulations relating to the use,
storage, discharge and disposal of such chemicals and the conduct
of its manufacturing operations. Such environmental and land use
regulations could restrict the Company's ability to expand its
present production facilities or establish additional facilities
in other locations, or could require the Company to acquire
costly equipment or to incur other significant expenses to comply
with environmental regulations or to clean up prior discharges.
The Company, which is subject to water use restrictions, uses a
significant amount of water in its manufacturing process.
Although to date the Company has been able to obtain sufficient
water supplies without significantly increased costs, stricter
water use restrictions may be mandated and additional
expenditures for water reclamation and conservation may be
required. Any further restrictions on water use could require
the Company to reduce production and materially adversely affect
the Company's future operating results.
MANAGEMENT OF GROWTH
The Company is experiencing growth and is planning
significant internal expansion. In order to maintain and improve
operating results, the Company's management will be required to
manage this growth and the related expansion effectively. There
is no assurance that the Company's expansion will remain on
schedule or will improve operating results. As the Company
continues to expand, it may become more difficult to manage
geographically dispersed operations. The Company's failure to
effectively manage growth could have a material adverse effect on
its future operating results.
SHAREHOLDER RIGHTS PLAN
The Company has adopted a shareholder rights plan
designed to prevent takeovers not approved by the Board of
Directors. This plan could adversely affect purchasers of the
Page 13 of 60 <PAGE>
Debentures and the Shares in that it could discourage tender
offers for the Company's Common Stock.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been
volatile, ranging in price from $7.88 to $21.75 per share over
the past year. The trading price of the Company's Common Stock
has fluctuated in response to quarter-to-quarter operating
results, industry conditions, awards of orders to the Company or
its competitors, new product or product development announcements
by the Company or its competitors, general market and economic
conditions and other events or factors. In addition, the
volatility of the stock markets in recent years has caused wide
fluctuations in trading prices of stocks of technology companies
independent of their individual operating results. The market
price of the Company's Common Stock at any given time may be
adversely affected by factors independent of the Company's
operating results.
SUBORDINATION OF DEBENTURES
The Debentures are unsecured and subordinated
obligations of the Company and are subordinate to the prior
payment in full of all existing and future Senior Indebtedness
(as defined herein) of the Company and are structurally
subordinated to all indebtedness and other liabilities of the
Company's subsidiaries. At June 29, 1996, the Company's Senior
Indebtedness and the indebtedness of its subsidiaries aggregated
approximately $49.5 million. The Debentures are obligations
exclusively of the Company and not of any of its subsidiaries.
The Company's cash flow and ability to service debt, including
the Debentures, may be partially dependent upon the earnings of
its subsidiaries and the distribution of those earnings to the
Company, or upon other payments of funds by the subsidiaries to
the Company. In addition, the payment of dividends and the
making of loans and advances to the Company by its subsidiaries
may be subject to statutory, contractual or other restrictions,
are dependent upon the earnings of those subsidiaries and are
subject to various business considerations. Any right of the
Company to receive assets of any of its subsidiaries upon their
liquidation or reorganization (and the consequent right of the
holders of the Debentures to participate in those assets) will be
structurally subordinated to the claims of that subsidiary's
creditors (including trade creditors). See "Description of
Debentures -- Subordination."
ABSENCE OF EXISTING MARKET FOR DEBENTURES
The Debentures are a new issue of securities with no
established United States trading market. The Company does not
intend to list the Debentures on any national securities exchange
or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation system.
Although the Debentures have been designated for trading through
Page 14 of 60 <PAGE>
PORTAL, no assurance can be given that an active trading market
for the Debentures will develop or, if such market develops, as
to the liquidity or sustainability of such market. If a trading
market does not develop or is not maintained, holders of the
Debentures may experience difficulty in reselling the Debentures
or may be unable to sell them at all. If a market for the
Debentures develops, any such market may be discontinued at any
time. If a public trading market develops for the Debentures,
future trading prices of the Debentures will depend on many
factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for
similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the
financial condition of the Company, the Debentures may trade at a
discount from their principal amount.
LIMITATIONS ON REPURCHASE AND CONVERSION OF DEBENTURES
Upon a Change of Control (as defined herein), each
holder of Debentures will have certain rights, at the holder's
option, to require the Company to repurchase all or a portion of
such holder's Debentures. If a Change of Control were to occur,
there is no assurance that the Company would have sufficient
funds to pay the repurchase price for all Debentures tendered by
the holders thereof. The Company's failure to purchase tendered
Debentures would constitute an Event of Default under the
Indenture (as defined), which would, in turn, constitute a
further default under the Company's existing credit agreement and
may constitute a default under the terms of other indebtedness
that the Company may enter into from time to time. In such
circumstances, the subordination provisions in the Indenture (as
defined herein) would likely restrict payments to the holders of
Debentures. See "Description of Debentures -- Change of
Control."
MANDATORY CONVERSION
The Company has the right, without the consent of any
holder, to convert all (but not less than all) of the Debentures
if, at any time after April 1, 1999, the closing price of the
Company's Common Stock exceeds 130% of the Conversion Price then
in effect for at least 20 trading days within 30 consecutive
trading days. See "Description of the Debentures -- Conversion."
THE COMPANY
-----------
The Company is one of the world's leading independent
manufacturers of advanced magnetic recording heads for hard disk
drives. The Company manufactures advanced inductive thin film
and MR disk head products and assembles ferrite disk head
products, in each case, primarily for supply to manufacturers of
3.5 inch hard disk drives. The Company's products compete on the
basis of price, performance and availability. The Company's
Page 15 of 60 <PAGE>
products are used in disk drives manufactured by, among others,
IBM, Maxtor, Micropolis, NEC, Quantum, Seagate Technology and
Western Digital.
Although the demand for disk drive units has grown
significantly in recent years largely in response to the global
proliferation of PCs and the increasing demand for data storage
capacity, such demand recently appears to be subsiding. However,
due primarily to increased sales to Western Digital, the
industry's subsiding demand for disk drive units has so far not
adversely impacted the Company's operating and financial
performance.
The Company's product line is currently centered around
thin film disk heads, the largest segment of the recording head
industry. Thin film heads permit greater storage capacity per
disk and provide higher transfer rates than ferrite disk heads.
The Company continues to expand its thin film production capacity
and further develop its thin film technology. The Company is
also committing engineering and production resources to further
its MR disk head capability, which it believes to be the next
generation of recording head technology. MR disk heads offer
still greater recording densities and other performance
advantages demanded by the disk drive market.
The financial performance of manufacturers of magnetic
recording heads is, because of the high fixed cost nature of
their operations, particularly sensitive to the volume of unit
sales and the pricing of those units as well as to production
yields. The industry continues to experience rapid technological
change and compressed product life cycles. New product
development allows disk head manufacturers an opportunity to
differentiate their products and gain market share. However,
such development requires significant investment, including
substantial capital expenditures. The resulting financial
burdens make it imperative that disk head manufacturers maintain
acceptable yields at each step in the manufacturing process. In
addition, the compression of product life cycles necessitates the
rapid development and deployment of new products and limits the
period in which manufacturers may recoup their investment.
The Company experienced a decline in shipments in the
third and fourth quarters of fiscal 1992 due primarily to the
reduced demand by IBM for certain ferrite disk head products and
the continuing decline in overall demand for minislider form
factor thin film disk heads. The decline in net sales of ferrite
disk head products continued through the first quarter of fiscal
1993. As a result, in 1992 the Company began to shift its
business focus from ferrite assembly to the manufacture of the
thin film microslider form factor. The decision to pursue the
manufacture of the thin film microslider form factor required the
Company to invest significant resources in developing and
perfecting the wafer fabrication and other processes involved in
thin film microslider form factor production.
Page 16 of 60 <PAGE>
During fiscal 1993 and fiscal 1994, market demand
shifted to the thin film nanoslider form factor from the
microslider form factor and from ferrite disk heads. The
unexpectedly rapid market transition from minislider to
microslider to nanoslider form factors impacted fiscal 1993 as
the Company sustained significant losses and recorded a $49.6
million restructuring charge in the fourth quarter to consolidate
manufacturing resources and write-down production assets
(primarily related to ferrite and thin film microslider
production) to their estimated net realizable values. In fiscal
1994, the Company continued to incur operating and financial
difficulties as it struggled with its thin film nanoslider form
factor manufacturing process which impacted the Company's ability
to expand production capacity to achieve desired levels of volume
shipments in response to strong market demand.
In August 1994, in an effort to reverse this situation,
the Company engaged a consulting firm to provide it with crisis
management assistance. Mr. Craig D. Crisman, then a member of
the consulting firm, was appointed the Company's Chief Executive
Officer. Under his direction, the Company has significantly
improved its yields in thin film disk head production,
implemented a number of cost reduction programs, instituted
aggressive cash management practices, consolidated its
manufacturing activities and divested itself of certain non-core
assets. These measures have significantly improved the Company's
cash and working capital positions. The Company and Mr. Crisman
entered into a five-year employment agreement in August 1995 and
on November 3, 1995, Mr. Crisman was elected Chairman.
In an effort to capitalize on these improvements and to
add to its existing market share, the Company intends to increase
its thin film and MR disk head capacity. To achieve this goal,
the Company currently plans approximately $125 million of capital
expenditures, including those financed by operating leases, in
fiscal 1996, primarily to improve inductive thin film production
processes and increase thin film and MR production volumes.
DISK DRIVE INDUSTRY
Demand for the Company's products is driven first by
demand for disk drive units. Demand for more and faster disk
drives is in turn driven by demand for such products as PCs,
network servers, disk arrays, workstation drives, mainframes and
internet servers and for memory intensive services such as video
voicemail and multimedia services. There are a limited number of
suppliers of disk drives, of which the largest include Fujitsu,
Hewlett-Packard Company, Hitachi, IBM, Iomega Corporation,
Maxtor, Micropolis, NEC, Quantum, Samsung, Seagate Technology,
Toshiba and Western Digital. Hewlett-Packard Company recently
announced that it was discontinuing its disk drive manufacturing
operations. Some systems companies that manufacture disk drives
are vertically integrated and produce magnetic recording heads
for their own use. The Company focuses its marketing efforts on
those manufacturers with large volume disk drive programs. For
Page 17 of 60 <PAGE>
any given program, the Company may be one of several suppliers of
disk heads. The Company believes that certain disk drive
companies that are vertically integrated will continue to rely on
outside suppliers, such as the Company, as second and third
sources of supply. See "Risk Factors -- Further Consolidation of
the Disk Drive Industry."
PRODUCTS
The Company manufactures or assembles disk heads for
supply to manufacturers of hard disk drives, which are the
predominant high capacity data storage devices used in all
classes of computers. Hard disk drives typically include one to
ten disks onto and from which data is recorded and retrieved by
two to 20 recording heads. These heads are positioned by an
actuator assembly to "fly" within three one-millionths of an
inch, or less, of the surface of the disk. The head, consisting
of a slider attached to a suspension assembly, is generally
referred to as a "head gimbal assembly" or HGA. Multiple HGAs,
assembled together with other components, comprise a "head stack
assembly," or HSA. The Company supplies both HGAs and HSAs to
disk drive manufacturers.
The Company's thin film products are produced in volume
predominantly for 3.5 inch disk drives to achieve information
densities of up to 500 megabits of data per square inch of disk
surface. The Company is actively seeking to become qualified for
the production of higher capacity, low profile 3.5 inch disk
drives for use in next generation PCs and workstations. These
drives will have recording densities of up to 850 megabits per
square inch.
Development and commercialization of MR disk head
technology continues to be a major focus of the Company. MR
drives are expected to have densities of more than 1,000 megabits
per square inch. The Company currently assembles MR HSAs in
Ireland with HGAs provided by another manufacturer. The Company
is currently in production of MR disk heads and continues
development efforts to increase production capabilities.
The Company has also made important progress in the
design and production of new advanced thin film disk heads,
including higher efficiency products that increase the output
signal for a given number of coil turns. Additional advances
have been made in developing "track trimming" processes, which
produce core elements that are both narrower and of more equal
dimensions, allowing the head to write narrower and more densely
packed tracks of data onto the disk surface.
Advances have already been made in the Company's
efforts to develop and offer thin film and MR disk heads with
fully etched air bearing surfaces and other negative pressure air
bearing surfaces. These designs and processes will improve
production yields and permit heads to fly at lower, more uniform
heights or in light contact with the disk, thus contributing to
Page 18 of 60 <PAGE>
higher storage densities and improving the reliability of the
disk head. In addition, the Company has reduced the size of its
recording heads from the "microslider" to the "nanoslider" format
and is working on a further reduction to the "picoslider" format.
Smaller heads allow greater recording densities and higher
throughput in certain manufacturing operations.
TECHNOLOGY
FERRITE DISK HEADS. The Company does not manufacture
ferrite disk sliders, but rather buys ferrite sliders for
assembly into HGAs and HSAs. These heads represent older
technology and generally deliver a lower level of performance
compared to thin film or MR heads. However, recent advances in
ferrite technology have extended the useful life of ferrite heads
for incorporation in more price-competitive, lower capacity disk
drives.
Ferrite HGAs are produced by first manufacturing a
magnetic "core," which is then bonded into a slider "body" to
form the ferrite slider. This is followed by precision winding a
wire coil around the core and attaching the slider to a
suspension assembly to form an HGA.
THIN FILM DISK HEADS. Thin film disk heads are
produced with manufacturing processes adapted from semiconductor
manufacturing. First, ceramic substrates are cut into wafers.
Thin films of highly permeable magnetic material are deposited on
the wafer and electrical coils are electroplated on individual
heads on the wafer in a pattern which is imprinted through
photolithographic techniques. The wafers are then sliced into
individual heads. This process permits significantly greater
miniaturization and permits greater manufacturing precision. As
a result, thin film heads generally can be designed, developed
and manufactured in volume and with greater precision than
ferrite heads.
MR DISK HEADS. The Company is further developing its
magnetoresistive film head technology, which is an advancement
from the current thin film technology. The Company believes that
MR disk heads represent the next important magnetic recording
head technology. In contrast to thin film, which is typically
designed to "read" and "write" data using a single inductive
element, an MR disk head uses an inductive element to "write"
data onto the disk and a separate magnetoresistive element to
"read" data from the disk. MR employs magnetic materials that
vary in electrical resistance when in a magnetic field. MR heads
have the ability to read data at lower media velocities and
narrower track widths than previous technologies, permitting
their use in higher density and smaller disk drives. See "Risk
Factors -- Rapid Technological Changes."
Page 19 of 60 <PAGE>
MANUFACTURING
LOCATION AND VOLUME. The Company's manufacturing and
assembly operations are located in California, Ireland, Korea,
Malaysia and the PRC. During its fiscal year 1995, the Company
supplied HGAs in volume for eight different disk drive products
to three customers and supplied HSAs in volume for nine different
disk drive products to two customers. Over the period, the
Company sold on average 2.1 million HGAs per month (including
HGAs incorporated into HSAs) and on average 150,000 HSAs per
month. Approximately 71% of the Company's HGA shipments during
this period were shipments of nanosliders for use in 3.5 inch
disk drives.
WAFER/DISK HEAD FABRICATION -- THIN FILM AND MR
PRODUCTS. The Company's two wafer fabrication facilities are
located in Goleta, California and produce 150 millimeter
(approximately six-inch) diameter round wafers. Approximately
8,400 individual (unyielded) nanoslider heads can be produced
from one six-inch wafer. During fiscal 1995, the Company closed
its three-inch wafer fabrication operation in favor of the higher
efficiency six-inch production lines.
Completed wafers are sliced into row bars and after
testing are shipped to Penang, Malaysia for further processing.
There, row bars are converted into individual sliders in the
Company's slider fabrication facility. This process involves
high precision grinding and lapping as well as photolithography
and ion milling technologies, which define the critical air
bearing geometries permitting the head to fly within a few
millionths of an inch, or less, of the disk surface.
ASSEMBLY. The Company assembles HGAs and HSAs outside
of the United States. Principal sites are in Penang, Malaysia;
Chung-Ju, South Korea; Dublin, Ireland; and Beijing, PRC.
During fiscal 1995, due principally to growth and
intense local competition for manufacturing and assembly
personnel, the Company experienced a shortage of labor in both
South Korea and Malaysia. In an effort to mitigate this
competition for personnel, the Company has commenced a
manufacturing operation in the PRC. This location was chosen due
to the Company's previous experience with subcontractors in the
PRC and the area's abundance of labor resources.
MARKETING
As a result of the disk drive manufacturers' continuous
development of higher capacity products, head suppliers such as
the Company work closely with drive manufacturers to develop
customized HGAs and HSAs for each new disk drive. The Company
believes that the most effective means of marketing and selling
magnetic recording disk heads is to establish close relationships
with disk drive manufacturers at the engineering level, which
permits technical collaboration and are intended to result in the
Page 20 of 60 <PAGE>
Company's heads being "designed-in" for particular disk drives.
Through its product planning and marketing efforts, the Company
seeks to identify those disk drive programs whose volume and
pricing parameters will allow the Company to most efficiently
allocate its production resources.
The Company's magnetic recording disk heads are sold in
the U.S. and foreign countries by its direct sales personnel and
through subsidiaries in Singapore, Malaysia and Ireland. In
addition, the Company has granted certain exclusive marketing
rights in Japan to Hitachi Metals, Ltd.
RESEARCH AND DEVELOPMENT
In an effort to add to its existing market share, the
Company has and will continue to expend substantial amounts in
connection with its research and development efforts. The
Company's development efforts are devoted to commercialization of
advanced inductive thin film head technology and MR disk head
technology. Research and development expenditures were $32.6
million, $38.8 million and $33.7 million for fiscal years 1993,
1994 and 1995, respectively, before third party funding of $15.1
million in fiscal 1993 and $14.1 million in fiscal 1994.
CAPITAL EXPENDITURES
The Company currently plans approximately $125 million
of capital expenditures, including those financed by operating
leases, in fiscal 1996, primarily to improve inductive thin film
production processes and increase thin film and MR production
volumes. The Company believes that the net proceeds of the
Debenture Offering, together with existing cash balances, cash
flow from operations, existing credit facilities, operating lease
arrangements and the planned sales of certain real property
assets, will be sufficient to fund its planned capital
expenditures in fiscal 1996.
RATIO OF EARNINGS TO FIXED CHARGES
----------------------------------
The Company's ratio of earnings to fixed charges for
each of the periods indicated is as follows:
Page 21 of 60 <PAGE>
<TABLE>
<CAPTION>
Year Ended September 30
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Fixed Fixed Fixed Fixed
Earnings Charges Earnings Charges Earnings Charges Earnings Charges Earnings Charges
Income (loss) $3,323 $ -- $1,174 $ -- $8,677 $ -- ($51,570) $ -- $2,332 $ --
before
provision for
income taxes
and
extraordinary
charges from
continuing
operations
Add: Fixed 5,803 5,803 5,957 5,958 5,632 5,632 4,216 4,216 4,826 4,826
Charges
Interest
expense
including
amortization of
deferred
financing costs
Interest factor 1,133 1,133 1,133 1,133 1,333 1,133 1,200 1,200 3,400 3,400
in rent expense
<F1>
$10,259 $6,936 $8,264 $7,091 $15,642 $6,965 ($46,154) $5,416 $10,558 $8,226
Ratio of 1.5 1.2 2.2 ___ 1.3
earnings to
fixed charges
Page 22 of 60 <PAGE>
Excess
(Deficiency) of $3,323 $1,173 $8,677 ($51,570) $2,332
earnings to
cover fixed
charges
<F1> Calculated as one-third of minimum rent expense:
Minimum rent $3,400 $3,400 $4,000 $3,600 $10,200
Interest factor x 1/3 x 1/3 x 1/3 x 1/3 x 1/3
$1,133 $1,133 $1,133 $1,200 $3,400
Six Months Ended
March 31, 1995 March 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Fixed
Charges Earnings Charges
Earnings
Income (loss) ($14,006) $-- $18,007 $--
before
provision for
income taxes
and
extraordinary
charges from
continuing
operations
Add: Fixed 2,080 2,080 2,719 2,719
Charges
Interest
expense
including
amortization of
deferred
financing costs
Page 23 of 60 <PAGE>
Interest factor 1,688 1,688 2,300 2,300
in rent expense
<F1> ($10,238) $3,768 $23,026 $5,019
Ratio of 4.6
earnings to
fixed charges
Excess ($14,006) $18,007
(Deficiency) of
earnings to
cover fixed
charges
<F1> Calculated as one-third of minimum rent expense:
Minimum rent $5,064 $6,899
Interest factor x 1/3 x 1/3
$1,688 $2,300
</TABLE>
Page 24 of 60 <PAGE>
The ratio of earnings to fixed charges is computed by
dividing fixed charges into earnings from continuing operations
before income taxes, minority interest and extraordinary items
plus fixed charges. Fixed charges consist of interest expense,
amortization of financing costs and the estimated interest
component of rent expense.
USE OF PROCEEDS
---------------
The Company will not receive any of the proceeds from
the sales of the Debentures or the Shares by the Selling
Securityholders. See "Selling Securityholders" for a list of
those persons and entities receiving the proceeds from the sales
of the Debentures or the Shares.
DESCRIPTION OF THE DEBENTURES
-----------------------------
On March 22, 1996, the Company issued and sold
$93,000,000 (aggregate principal amount) of the Debentures to
"qualified institutional buyers" (as defined in Rule 144A under
the Securities Act) ("QIBs") and other "accredited investors" (as
defined in Rule 501(a) of Regulation D under the Securities Act)
("Accredited Investors") in a private placement as part of an
offering of 7% Convertible Subordinated Debentures offered by the
Company in the aggregate principal amount of $115,000,000 (the
"Debenture Offering"). All references to the term, "Debentures,"
in this section will refer to the entire issue of 7% Convertible
Subordinated Debentures, and not just to the Debentures offered
hereby. The Debentures are issued and outstanding under an
Indenture dated as of March 22, 1996 (the "Indenture"), between
the Company and The Chase Manhattan Bank, N.A., as Trustee (the
"Trustee"). Neither the Trustee nor any of its affiliates is
affiliated with or has any material relationship with the Company
or any of the Company's affiliates. The terms of the Debentures
and the Indenture are discussed in detail herein. The Indenture
is included as an exhibit to the Registration Statement of which
this Prospectus is a part. The following description of the
Debentures and the Indenture is qualified in its entirety by
reference to the Indenture. Capitalized terms used herein
without definition have the meaning ascribed to them in the
Indenture and/or in "Description of the Debentures -- Certain
Definitions" below.
General
-------
The Debentures are unsecured general obligations of the
Company, limited in aggregate principal amount to $115,000,000
(including the Initial Purchasers' over-allotment option) and
Page 25 of 60 <PAGE>
mature on March 15, 2006. The Debentures are subordinated in
right of payment to all existing and future Senior Indebtedness
of the Company, as described under "Subordination" below. At
June 29, 1996, Senior Indebtedness of the Company and
indebtedness of its subsidiaries aggregated $49.5 million.
Neither the Indenture nor the Debentures limit the amount of
Senior Indebtedness or other indebtedness that the Company or its
subsidiaries may incur.
The Debentures bear interest at the rate per annum
stated on the cover page of this Prospectus from the date of
original issuance of Debentures pursuant to the Indenture or from
the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually in arrears on March 15
and September 15 of each year, commencing on September 15, 1996.
Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. The interest payable on
September 15, 1996, will amount to $33.639 per $1,000 principal
amount of the Debentures, and on each March 15 and September 15
thereafter will amount to $35.000 per $1,000 principal amount of
the Debentures.
Subordination
-------------
The Debentures are obligations exclusively of the
Company and not of its subsidiaries. The Company's subsidiaries
are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the
Debentures or to make funds available therefor, whether by
dividends, loans or other payments. In addition, the payment of
dividends and the making of loans and advances to the Company by
its subsidiaries may be subject to statutory or contractual
restrictions, are contingent upon the earnings of those
subsidiaries and are subject to various business considerations.
Neither the Indenture nor the Debentures restrict the Company's
subsidiaries' ability to agree to such restrictions in the
future.
The Debentures are subordinated in right of payment to
all existing and future Senior Indebtedness of the Company and
rank PARI PASSU with other unsecured subordinated indebtedness of
the Company. The rights of holders of Debentures are
structurally subordinated to all existing and future liabilities
(including trade payables and commitments under leases) of the
Company's subsidiaries. Neither the Indenture nor the Debentures
restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or its subsidiaries. Any right of
the Company to receive assets of any of its subsidiaries upon
liquidation or reorganization of the subsidiary (and the
consequent right of the holders of the Debentures to participate
in those assets) will be effectively subordinated to the claims
of that subsidiary's creditors, except to the extent that the
Company is itself recognized as a creditor of such subsidiary, in
which case the claims of the Company would still be subject to
any security interests in the assets of such subsidiary and
Page 26 of 60 <PAGE>
subordinated to any indebtedness of such subsidiary senior to
that held by the Company.
The Indenture provides that no payment may be made by
the Company on account of the principal of, premium, if any,
interest on, or Additional Amounts (as defined herein) with
respect to, the Debentures, or to acquire any of the Debentures
(including repurchases of Debentures at the option of the holder
thereof) for cash or property (other than Junior Securities (as
defined herein)), or on account of the redemption provisions of
the Debentures, (i) upon the maturity of any Senior Indebtedness
of the Company by lapse of time, acceleration (unless waived) or
otherwise, unless and until all principal of, premium, if any,
and interest on such Senior Indebtedness and all other
Obligations in respect thereof are first paid in full (or such
payment is duly provided for), or (ii) in the event of default in
the payment of any principal of, premium, if any, interest on, or
any other Obligation in respect of, any Senior Indebtedness of
the Company when it becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise
(a "Payment Default"), unless and until such Payment Default has
been cured or waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default (other
than a Payment Default) that permits the holders of Designated
Senior Indebtedness or their representative immediately to
accelerate its maturity and (ii) written notice of such event of
default given to the Company and the Trustee, by the requisite
holders of such Designated Senior Indebtedness or their
representative (a "Payment Notice"), then, unless and until such
event of default has been cured or waived or otherwise has ceased
to exist, no payment (by setoff or otherwise) may be made by or
on behalf of the Company on account of the principal of, premium,
if any, interest on, or Additional Amounts with respect to, the
Debentures, or to acquire or repurchase any of the Debentures for
cash or property, or on account of the redemption provisions of
the Debentures, in any such case other than payments made with
Junior Securities of the Company. Notwithstanding the foregoing,
unless (i) the Designated Senior Indebtedness in respect of which
such event of default exists has been declared due and payable in
its entirety within 179 days after the Payment Notice is
delivered as set forth above (the "Payment Blockage Period"), and
(ii) such declaration has not been rescinded or waived, at the
end of the Payment Blockage Period the Company shall be required
to pay all sums not paid to the holders of the Debentures during
the Payment Blockage Period due to the foregoing prohibitions and
to resume all other payments as and when due on the Debentures.
Any number of Payment Notices may be given; provided, however,
that (i) not more than one Payment Notice shall be given within
any period of 360 consecutive days, and (ii) no default that
existed upon the commencement of a Payment Blockage Period
(whether or not such event of default is on the same issue of
Designated Senior Indebtedness) shall be made the basis for the
commencement of any other Payment Blockage Period.
Page 27 of 60 <PAGE>
In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company (other than
Junior Securities) shall be received by the Trustee or the
holders of Debentures or any paying agent at a time when such
payment or distribution is prohibited by the foregoing
provisions, such payment or distribution shall be held in trust
for the benefit of the holders of Senior Indebtedness of the
Company, and shall be paid or delivered by the Trustee or such
holders of Debentures or such paying agent, as the case may be,
to the holders of the Senior Indebtedness of the Company
remaining unpaid or unprovided for or to their representative or
representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of
such Senior Indebtedness of the Company may have been issued,
ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness of the Company held or
represented by each, for application to the payment of all Senior
Indebtedness of the Company remaining unpaid, to the extent
necessary to pay or to provide for the payment of all such Senior
Indebtedness in full after giving effect to any concurrent
payment or distribution to the holders of such Senior
Indebtedness.
Upon any distribution of assets of the Company upon any
dissolution, winding up, total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary,
in bankruptcy, insolvency, receivership or a similar proceeding
or upon assignment for the benefit of creditors or any marshaling
of assets or liabilities, (i) the holders of all Senior
Indebtedness of the Company will first be entitled to receive
payment in full (or have such payment duly provided for) before
the holders of Debentures are entitled to receive any payment on
account of the principal of, premium, if any, interest on, or
Additional Amounts with respect to, the Debentures (other than
Junior Securities) and (ii) any payment or distribution of assets
of the Company of any kind or character, whether in cash,
property or securities (other than Junior Securities) to which
the holders of Debentures or the Trustee on their behalf would be
entitled (by setoff or otherwise), except for the subordination
provisions contained in the Indenture and the Debentures, will be
paid by the liquidating trustee or agent or other person making
such a payment or distribution directly to the holders of Senior
Indebtedness of the Company or their representative to the extent
necessary to make payment in full of all such Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment
or distribution to the holders of such Senior Indebtedness.
No provision contained in the Indenture or the
Debentures affects the obligation of the Company, which is
absolute and unconditional, to pay, when due, principal of,
premium, if any, interest on, and Additional Amounts with respect
to, the Debentures. The subordination provisions of the
Indenture and the Debentures do not prevent the occurrence of any
default or Event of Default or limit the rights of any holder of
Debentures, subject to the four immediately preceding paragraphs,
Page 28 of 60 <PAGE>
to pursue any other rights or remedies with respect to the
Debentures.
As a result of these subordination provisions, in the
event of the liquidation, bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the
benefit of the creditors of the Company or any of its
subsidiaries or a marshaling of assets or liabilities of the
Company and its subsidiaries, holders of the Debentures may
receive ratably less than other creditors.
Delivery and Form of Debentures
-------------------------------
A portion of the Debentures were sold to QIBs in
reliance on Rule 144A under the Securities Act and were initially
deposited with, or on behalf of, The Depository Trust Company
("DTC") and registered in the name of Cede & Co., as DTC's
nominee (such nominee being referred to herein as the "Rule 144A
Global Security Holder"), in the form of a global Debenture (the
"Rule 144A Global Debenture"). Interests in the Rule 144A Global
Debenture will be shown in, and transfers thereof will be
effected only through, records maintained by DTC and its
participants ("participants"). Only QIBs may elect to hold
Debentures through the Depository. Debentures purchased by
(i) institutional accredited investors that are not QIBs and
(ii) persons outside the United States in offshore transactions
pursuant to Regulation S under the Securities Act ("Regulation S
Purchasers") are represented by Debentures issued in definitive
registered form. Only Debentures held by QIBs may be represented
by the Rule 144A Global Debenture. The Rule 144A Global
Debenture will be reduced in principal amount to reflect the
subsequent transfer by owners of beneficial interest in the
Rule 144A Global Debenture to a Regulation S Purchaser or another
person who is not a QIB. Transfer of the Debentures must be made
in accordance with the Indenture.
The Depository is a limited-purpose trust company that
was created to hold securities for its participating
organizations (collectively, the "Participants" or the
"Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of
its Participants. The Depository's Participants include
securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to
the Depository's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect
Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only through the
Depository's Participants or the Depository's Indirect
Participants.
Page 29 of 60 <PAGE>
So long as the Rule 144A Global Security Holder is the
registered owner of the Rule 144A Debentures, the Rule 144A
Global Security Holder will be considered the sole holder under
the Indenture of the Debentures. Beneficial owners of Debentures
will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving
of any directions, instructions or approvals to the Trustee.
Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records of the Depository or
for maintaining, supervising or reviewing any records of the
Depository relating to the Debentures.
Payments in respect of the principal of, premium, if
any, interest on, and Additional Amounts with respect to, the
Debentures registered in the name of the Rule 144A Global
Security Holder on the applicable record date will be payable by
the Trustee to or at the direction of the Rule 144A Global
Security Holder in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names the Debentures,
including the Rule 144A Global Security, are registered as the
owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such
amounts to beneficial owners of Debentures. The Company
believes, however, that it is currently the policy of the
Depository immediately to credit the accounts of the relevant
Participants with such payments, in amounts proportionate to
their respective holdings of beneficial interests in the relevant
security as shown on the records of the Depository. Payments by
the Depository's Participants and the Depository's Indirect
Participants to the beneficial owners of Debentures will be
governed by standing instructions and customary practice and will
be the responsibility of the Depository's Participants or the
Depository's Indirect Participants.
Exchange and Transfer
---------------------
At the option of the Holder and subject to the terms of
the Debentures and of the Indenture, the Debentures will be
exchangeable for an equal aggregate principal amount of
Debentures of different authorized denominations, in each case
without service charge (other than the cost of delivery) and upon
payment of any taxes and other governmental charges. Debentures
shall be registered as provided in the Indenture. The Holder of
a Debenture will be treated by the Company, the Trustee and their
respective agents for all purposes as the owner of such
Debenture.
The transfer of Debentures may be registered, and
Debentures may be presented in exchange for other Debentures of
different authorized denominations, at the office of the Trustee
in The City of New York, without service charge (other than the
cost of delivery) and upon payment of any taxes or other
governmental charges.
Page 30 of 60 <PAGE>
Subject to certain conditions, any person having a
beneficial interest in the Rule 144A Global Security may, upon
request to the Trustee, exchange such beneficial interest for
Debentures in the form of certificated Debentures. Upon any such
issuance, the Trustee is required to register such certificated
Debentures in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). All such
certificated Debentures will be subject to the legend
requirements described herein under "Notice to Investors." In
addition, if (i) the Company notifies the Trustee in writing that
the Depository is no longer willing or able to act as a
depository and the Company has not appointed a qualified
successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the
issuance of Debentures in the form of certificated Debentures
under the Indenture, then, upon surrender by the Rule 144A Global
Security Holder of the Rule 144A Global Security, Debentures in
certificated form will be issued to each person that the
Rule 144A Global Security Holder and the Depository identify as
being the beneficial owner of the related Debentures.
Neither the Company nor the Trustee will be liable for
any delay by the Rule 144A Global Security Holder or the
Depository in identifying the beneficial owners of Rule 144A
Debentures, and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the
Rule 144A Global Security Holder or the Depository for all
purposes.
Conversion
----------
The Debentures are convertible, at any time one year
after the date of original issuance of the Debentures pursuant to
the Indenture and prior to redemption or maturity, at the
holder's option, into shares of the Company's Common Stock at the
Conversion Price, provided that the Debentures may be converted
prior to such time upon the earlier of (i) the first date on
which a registration statement with respect to such Debentures is
declared effective by the U.S. Securities and Exchange Commission
and (ii) the day after the first date on which (A) any person (or
group of persons) announces that it is (or they are) commencing a
tender offer for all or part of the Company's Common Stock or (B)
the Company makes a public announcement of a proposed Change of
Control. The Conversion Price is subject to adjustment under
certain conditions. The right to convert a Debenture called for
redemption or delivered for repurchase will terminate at the
close of business on the Business Day next preceding the
redemption date or repurchase date for such Debenture.
If after April 1, 1999 and prior to maturity, the
closing price of the Company's Common Stock (determined as the
last reported sales price, in either case on the New York Stock
Exchange or, if the Common Stock is not listed or admitted to
trading on such Exchange, on the principal national securities
Page 31 of 60 <PAGE>
exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, the closing sale price quoted on the Nasdaq
Stock Market's National Market) exceeds an amount equal to 130%
of the Conversion Price for at least 20 trading days within 30
consecutive trading days, the Company at its option may convert
all (but not less than all) of the Debentures, together with
interest accrued and unpaid thereon, into fully paid and
nonassessable shares of Common Stock by giving the Trustee
written notice of its election together with information and
calculations supporting such election (the "Conversion Notice")
no later than five business days after the 20th such day (the
"Conversion Date").
Promptly after (and in any event within five business
days following) its receipt and verification of the Conversion
Notice, the Trustee shall mail notice of the Company's election
to each holder of a Debenture. Such notice shall, among things,
state (i) that the Trustee has received the Conversion Notice and
that, so long as the Company delivers a sufficient number of
shares of Common Stock (and cash in lieu of fractional shares) to
convert all outstanding Debentures and accrued and unpaid
interest thereon at the Conversion Price in effect on the first
business day following the Conversion Date by the 25th business
day following the Conversion Date (the "Surrender Date"), all
(but not less than all) Debentures shall be deemed to have been
converted on the Conversion Date, (ii) the identity of the
conversion agent for the conversion and the office or offices of
such conversion agent at which Debentures may be surrendered for
shares of Common Stock (and cash in lieu of fractional shares)
and (iii) that upon surrender to such conversion agent of such
holder's Debenture(s) and a duly completed notice of conversion
in the form attached to such holder's Debenture(s), such holder
shall receive its shares of Common Stock (and cash in lieu of
fractional shares) resulting from the Company's election to
convert all outstanding Debentures. See "-- Notices" below.
So long as the Company delivers to the applicable
conversion agent by the Surrender Date a sufficient number of
shares of Common Stock (and cash in lieu of fractional shares) to
convert all outstanding Debentures and accrued and unpaid
interest thereon through the Surrender Date at the Conversion
Price in effect on the Conversion Date, all (but not less than
all) Debentures shall be deemed to have been converted on the
Conversion Date and interest shall cease to accrue on the
Debentures from and after the Surrender Date.
The right of conversion attaching to any Debenture may
be exercised by the holder thereof by delivering the Debenture at
the specified office of a conversion agent (including such office
in Luxembourg, as described under "-- Payments, Paying Agents and
Conversion Agents" below), accompanied by a duly signed and
completed notice of conversion, in substantially the form set
forth in the Debentures. The conversion date shall be the date
Page 32 of 60 <PAGE>
on which the Debenture and the duly signed and completed notice
of conversion shall have been so delivered.
A holder delivering a Debenture for conversion will not
be required to pay any taxes or duties payable in respect of the
issuance or delivery of Common Stock on conversion but will be
required to pay any tax or duty which may be payable in respect
of any transfer involved in the issuance or delivery of the
Common Stock in a name other than that of the holder of the
Debenture. Certificates representing shares of Common Stock will
not be issued or delivered unless all taxes and duties, if any,
payable by such holder have been paid. Such certificates will be
delivered to the address specified by such holder in its
completed notice of conversion.
The Company shall not be required to make any payment
of interest in respect of any Debenture that is converted at the
option of the holder thereof on or prior to the Interest Payment
Date for the relevant period. In the case of any Debenture that
has been converted at the option of the holder thereof after any
Interest Record Date, but before the next Interest Payment Date,
interest, the stated due date of which 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 Debenture who is a holder on such Interest
Record Date. Any Debenture so converted prior to such Interest
Payment Date must be accompanied by payment of an amount equal to
the interest payable on such Interest Payment Date on the
principal amount of Debentures being surrendered for conversion.
The Conversion Price will be subject to adjustment in
certain events, including (a) dividends (and other distributions)
payable in Common Stock on any class 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 (or securities convertible into Common
Stock) at less than the then current market price (as determined
in accordance with the Debentures) unless holders of Debentures
are entitled to receive the same upon conversion,
(c) subdivisions, combinations and reclassifications of Common
Stock and (d) distributions to all holders of Common Stock of
evidences of indebtedness of the Company or assets (including
securities, but excluding those rights, options, warrants,
dividends and distributions referred to above, dividends and
distributions paid in cash out of the retained earnings of the
Company and regular quarterly dividends consistent with past
practice). In addition to the foregoing adjustments, the Company
will be permitted to make such downward adjustments in the
Conversion Price as it considers to be advisable in order that
any event treated for United States federal income tax purposes
as a dividend of stock or stock rights will not be taxable to the
holders of the Common Stock. Adjustments in the Conversion Price
of less than $0.25 will not be required, but any adjustment that
would otherwise be required to be made will be taken into account
in the computation of any subsequent adjustment. Fractional
Page 33 of 60 <PAGE>
shares of Common Stock are not to be issued or delivered upon
conversion, but, in lieu thereof, a cash adjustment will be paid
based upon the then current market price of Common Stock.
Subject to the foregoing, no payments or adjustments will be made
upon conversion on account of accrued interest on the Debentures
or for any dividends or distributions on any shares of Common
Stock delivered upon such conversion. Notice of any adjustment
of the Conversion Price will be given in the manner set forth
herein under "-- Notices" below.
Conversion Price adjustments or omissions in making
such adjustments may, under certain circumstances, be deemed to
be distributions that could be taxable as dividends under the
Internal Revenue Code to holders of Debentures or of Common
Stock.
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 United States federal income tax
purposes (e.g., distribution 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
antidilution provisions of the Debentures, the Conversion Price
of the Debentures is reduced, such reduction may be deemed to be
the payment of a taxable dividend to holders of Debentures. Such
a deemed dividend might be subject to 30% (or then applicable)
United States withholding tax unless the holder is entitled to a
reduction of the tax under a tax treaty.
In the event that the Company should merge with another
company, become a party to a consolidation or sell or transfer
all or substantially all of its assets to another company, each
Debenture then outstanding would, without the consent of any
holder of Debentures, become convertible only into the kind and
amount of securities, cash and other property receivable upon the
merger, consolidation or transfer by a holder of the number of
shares of Common Stock into which such Debenture might have been
converted immediately prior to such merger, consolidation or
transfer.
Redemption
----------
Unless previously redeemed, converted or purchased and
canceled by the Company, the Debentures will mature on March 15,
2006 and shall be redeemed at their principal amount.
Optional Redemption
-------------------
The Debentures may be redeemed, at the option of the
Company, in whole or in part, at any time after April 1, 1999, at
a redemption price equal to that percentage of their principal
amount set forth below, together with accrued and unpaid interest
to the date fixed for redemption and Additional Amounts (as
defined herein), if any, that are due and payable upon notice as
described below:
Page 34 of 60 <PAGE>
Redemption
After April 1, Price
-------------- ----------
1999 . . . . . . . . . . . . . . . . . 103%
2000 . . . . . . . . . . . . . . . . . 102%
2001 . . . . . . . . . . . . . . . . . 101%
2002 and thereafter . . . . . . . . . . 100%
In the event of a partial redemption, the Debentures to be
redeemed will be selected by the Trustee not more than 75 days
before the date fixed for redemption, by such method as the
Trustee shall deem fair and appropriate.
The Debentures may also be redeemed upon the occurrence
of a Change of Control, at the option of the Company, in whole
but not in part, prior to April 1, 1999 at the redemption prices
(expressed as percentages of the principal amount) set forth
below, in each case, together with accrued and unpaid interest to
the date fixed for redemption and Additional Amounts, if any,
that are due and payable:
Redemption
Redemption Date Price
-------------- ----------
Closing Date to October 1, 1996 . . . 124.00%
October 2, 1996 to April 1, 1997 . . . 120.50%
April 2, 1997 to October 1, 1997 . . . 117.00%
October 2, 1997 to April 1, 1998 . . . 113.50%
April 2, 1998 to October 1, 1998 . . . 110.00%
October 2, 1998 to April 1, 1999 . . 106.50%
If at any time, the Company shall determine that as a
result of any change in or amendment to the laws (or any
regulations or rulings promulgated thereunder) of the United
States or any political subdivision or taxing authority thereof
or therein affecting taxation, or any amendment to, or change in,
an official application or interpretation of such laws,
regulations or rulings, which amendment or change is announced or
becomes effective on or after the date of this Prospectus, the
Company has or will become obligated to pay Additional Amounts on
any Debentures, as described below under "Payment of Additional
Amounts," and such obligation cannot be avoided by the Company
taking reasonable measures available to it then the Company may,
at its election, redeem such Debentures (as a whole but not in
part) upon notice as described below; provided, however, that no
such notice of redemption shall be given earlier than 90 days
prior to the earliest date on which the Company would be
obligated to pay such Additional Amounts were a payment in
respect of the Debentures then due; and provided further, that at
the time such notice is given, such obligation to pay such
Additional Amounts remains in effect. In case of any such
redemption, the redemption price will be 100% of the principal
Page 35 of 60 <PAGE>
amount of the Debentures, together in each case with accrued and
unpaid interest to the date fixed for redemption and any
Additional Amounts due and payable. The Company is required to
deliver to the Trustee a certificate stating that the Company is
entitled to effect such redemption and that the conditions
precedent to the right of the Company to redeem the Debentures
have occurred and an opinion of counsel stating that the legal
conditions precedent to the right of the Company to effect such
redemption have occurred.
Notices of Redemption
---------------------
Notice of intention to redeem Debentures will be given
as described under "-- Notices" below. In the case of redemption
of all Debentures, notice will be given once not more than 60 nor
less than 30 days prior to the date fixed for redemption. In the
case of a partial redemption, notice will be given twice, the
first such notice to be given not more than 90 nor less than 45
days prior to the date fixed for redemption and the second such
notice to be given not more than 45 nor less than 30 days prior
to the date fixed for redemption.
Notices of redemption will specify the date fixed for
redemption, the applicable redemption price, the date on which
the conversion privilege expires and, in the case of a partial
redemption, the aggregate principal amount of Debentures to be
redeemed and the aggregate principal amount of Debentures which
will be outstanding after such partial redemption. In addition,
in the case of a partial redemption, the first notice will
specify the last date on which exchanges or transfers of
Debentures may be made pursuant to the provisions of "-- Exchange
and Transfer" above and the second notice will specify the serial
numbers of the Debentures and the portions thereof called for
redemption.
As used herein, "United States" means the United States
of America (including the states and the District of Columbia),
its territories and, its possessions. The term "Foreign Holder"
means any person who, for United States federal income tax
purposes, is (i) a foreign corporation, (ii) a foreign
partnership one or more of the members of which are, for United
States federal income tax purposes, foreign corporations, non-
resident alien individuals or non-resident alien fiduciaries of a
foreign estate or trust, (iii) a non-resident alien individual or
(iv) a non-resident alien fiduciary of a foreign estate or trust.
In addition, the Company may at any time and from time
to time repurchase the Debentures in the open market or in
private transactions at prices it considers attractive.
Debentures repurchased by the Company will be canceled.
Change of Control
-----------------
Each holder of a Debenture will have the right, at such
holder's option, to cause the Company to purchase such Debenture,
Page 36 of 60 <PAGE>
in whole but not in part, for a cash amount equal to 100% of the
principal amount, together with accrued and unpaid interest to
the repurchase date, if a Change of Control (as defined herein)
occurs or has occurred. Notice with respect to the occurrence of
a Change of Control will be given as described under "-- Notices"
below and not later than 30 days after the date of the occurrence
of such Change of Control. The date fixed for such purchase will
be a date not less than 30 nor more than 60 days after notice of
the occurrence of a Change of Control is given (except as
otherwise required by law). To be purchased, a Debenture must be
received with a duly executed written notice, substantially in
the form provided on the reverse side of such Debenture, at the
office of a paying agent not later than the fifth day prior to
the date fixed for such purchase. All Debentures purchased by
the Company will be canceled. Holders of Debentures who have
tendered a notice of purchase will be entitled to revoke their
election by delivering a written notice of such revocation to a
paying agent on or prior to the date fixed for such purchase. In
addition, holders of Debentures will retain the right to require
such Debentures to be converted into Common Stock (or other
securities, property or cash payable in lieu thereof by reference
to the adjustment price as provided under the adjustment
provision, see "-- Conversion") prior to the purchase date, so
long as notice to that effect, including such holder's
nontransferable receipt for the Debentures from a paying agent,
is delivered to a paying agent on or prior to the close of
business on the fifth day next preceding the applicable
Redemption Date.
The Indenture provides that a "Change of Control" will
be deemed to have occurred (i) upon any merger or consolidation
of the Company with or into any person or any sale, transfer or
other conveyance, whether direct or indirect, of all or
substantially all of the assets of the Company, on a consolidated
basis, in one transaction or a series of related transactions,
if, immediately after giving effect to such transaction, any
"person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the
aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee or
surviving entity, (ii) when any "person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of
the total voting power in the aggregate normally entitled to vote
in the election of directors of the Company, or (iii) when,
during any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of any such 12-month
period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or
whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such
Page 37 of 60 <PAGE>
period or whose election or nomination for election was
previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
The phrase "all or substantially all" of the assets of
the Company is likely to be interpreted by reference to
applicable state law at the relevant time, and will be dependent
on the facts and circumstances existing at such time. As a
result, there may be a degree of uncertainty in ascertaining
whether a sale or transfer of "all or substantially all" of the
assets of the Company has occurred. For purposes of this
definition, (i) the terms "person" and "group" shall have the
meaning used for purposes of Rules 13d-3 and 13d-5 of the
Exchange Act as in effect on the Closing Date, whether or not
applicable; and (ii) the term "beneficial owner" shall have the
meaning used in Rules 13d-3 and 13d-5 under the Exchange Act as
in effect on the Closing Date, whether or not applicable, except
that a "person" shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage
of time or upon the occurrence of certain events.
The Change of Control provisions described above may
make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Change of Control
provisions will not prevent a leveraged buyout led by Company
management, a recapitalization of the Company or change in a
majority of the members of the Board of Directors which is
approved by then-current Board of Directors and may not afford
the holders of Debentures protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger,
spin-off or similar transaction that may adversely affect such
holders, if such transaction does not constitute a Change of
Control as set forth above.
The Company is required to comply with the provisions
of Rule 13e-4 and any other tender offer rules under the Exchange
Act which may then be applicable and is required to file a
Schedule 13E-4 or any other schedule required thereunder in
connection with any offer by the Company to purchase Debentures
at the option of holders thereof upon a Change of Control. The
Change of Control purchase feature is not however, as of the date
of this Prospectus, the result of management's knowledge of any
specific efforts to accumulate shares of Common Stock or to
obtain control of the Company by means of a merger, tender offer,
solicitation of proxies or consents or otherwise, or part of a
plan to implement a series of anti-takeover measures.
Certain of the Company's existing and future agreements
relating to its indebtedness could prohibit the purchase by the
Company of the Debentures pursuant to the exercise by a holder of
Debentures of the foregoing option, depending on the financial
circumstances of the Company at the time any such purchase may
occur, because such purchase could cause a breach of certain
covenants contained in such agreements. Such a breach may
Page 38 of 60 <PAGE>
constitute an event of default under such indebtedness as a
result of which any repurchase could, absent a waiver, be blocked
by the subordination provision of the Debentures. See
"-- Subordination." Failure of the Company to repurchase the
Debentures when required would result in an Event of Default with
respect to the Debentures whether or not such repurchase is
permitted by the subordination provisions.
Payments, Paying Agents and Conversion Agents
---------------------------------------------
The principal of, premium, if any, and interest on
Debentures will be payable in United States dollars. Payments of
such principal and premium, if any, will be made against
surrender of Debentures at the corporate trust office of the
Trustee in The City of New York or, subject to any applicable
laws and regulations, at the offices of the paying agents in
London or Luxembourg (or such other paying agencies as may be
specified in notices to the holders of Debentures in accordance
with "-- Notices" below) by United States dollar check drawn on,
or wire transfer to a United States dollar account maintained by
the holder with, a bank located in The City of New York.
Payments of any installment of interest on Debentures will be
made by a United States dollar check drawn on a bank in The City
of New York mailed to the holder at such holder's registered
address or (if arrangements satisfactory to the Company and the
Trustee are made) by wire transfer to a dollar account maintained
by the holder with a bank in The City of New York. Payment of
such interest on any Interest Payment Date will be made to the
person in whose name such Debenture is registered at the close of
business on the Interest Record Date prior to the relevant
Interest Payment Date. Accrued interest payable on any Debenture
that is redeemed will be payable against surrender of such
Debenture in the manner described above with respect to payments
of principal on Debentures, except Debentures that are redeemed
on a date after the close of business on the Interest Record Date
immediately preceding such Interest Payment Date and on or before
the Interest Payment Date, on which interest will be paid to the
holder of record on the Interest Record Date.
The Debentures may be surrendered for conversion or
exchange at the corporate trust office of the Trustee in The City
of New York or, at the option of the holder and subject to
applicable laws and regulations, at the office of any of the
conversion agents.
The Company has initially appointed the Trustee as
paying agent and conversion agent. This appointment may be
terminated at any time and additional or other paying and
conversion agents may be appointed, provided that until the
Debentures have been delivered for cancellation, or monies
sufficient to pay the principal of and premium, if any, and
interest on the Debentures have been made available for payment
and either paid or returned to the Company as provided in the
Indenture, a paying, conversion and transfer agent will be
maintained (a) in The City of New York for the payment of the
Page 39 of 60 <PAGE>
principal of and premium, if any, and interest on Debentures only
and for the surrender of Debentures for conversion and (b) in a
European city that, so long as the Debentures are listed on the
Luxembourg Stock Exchange, will be Luxembourg, for the payment of
the principal of and premium, if any, and interest on Debentures
and for the surrender of Debentures for conversion, payment,
redemption or transfer. Notice of any such termination or
appointment and of any change in the office through which any
paying, conversion, or transfer agent will act will be given in
accordance with "-- Notices" below.
All monies paid by the Company to a paying agent for
the payment of principal of, premium, if any, or interest on any
Debenture that remain unclaimed at the end of two years after
such principal, premium or interest shall have become due and
payable will be repaid to the Company, and the holder of such
Debenture will thereafter look only to the Company for payment
thereof.
Payment of Additional Amounts
-----------------------------
The Company will pay to the holder of any Debenture who
is a Foreign Holder (as defined above) such additional amounts
("Additional Amounts") as may be necessary in order that every
net payment of the principal of, interest on, of redemption price
of, such Debenture, and any cash payments made in lieu of issuing
shares of Common Stock upon conversion of a Debenture, after
withholding for or on account of any present or future tax,
assessment or governmental charge imposed upon or as a result of
such payment by the United States or any political subdivision or
taxing authority thereof or therein, will not be less than the
amount provided for in such Debenture to be then due and payable;
provided, however, that the foregoing obligations to pay
Additional Amounts shall not apply to any one or more of the
following:
(a) any tax, assessment or other governmental
charge which would not have been so imposed but for (i) the
existence of any present or former connection between such
holder (or between a fiduciary, settlor, beneficiary, member
or stockholder of, or a person holding a power over, such
holder, if such holder is an estate, trust, partnership or
corporation) and the United States, including, without
limitation, such holder (or such fiduciary, settlor,
beneficiary, member, stockholder or person holding a power)
being or having been a citizen or resident or treated as a
resident thereof or being or having been engaged in a trade
or business therein or being or having been present therein
or having had a permanent establishment therein, (ii) such
holder's present or former status as a personal holding
company, foreign personal holding company, passive foreign
investment company, foreign private foundation or other
foreign tax-exempt entity, or controlled foreign corporation
for United States federal income tax purposes or a
corporation which accumulates earnings to avoid United
Page 40 of 60 <PAGE>
States federal income tax, or (iii) such holder's status as
a bank extending credit pursuant to a loan agreement entered
into in the ordinary course of business;
(b) any tax, assessment or other governmental
charge which would not have been so imposed but for the
presentation by the holder of such Debenture for payment on
a date more than 15 days after the date on which such
payment became due and payable or on the date on which
payment thereof is duly provided, whichever occurs later;
(c) any estate, inheritance, gift, sales,
transfer or personal or intangible property tax or any
similar tax, assessment or other governmental charge;
(d) any tax, assessment or other governmental
charge which would not have been imposed but for the failure
to comply with certification, information, documentation or
other reporting requirements concerning the nationality,
residence, identity or present or former connection with the
United States of the holder or beneficial owner of such
Debenture if such compliance is required by statute,
regulation or ruling of the United States or any political
subdivision or taxing authority thereof or therein as a
precondition to relief or exemption from such tax,
assessment or other governmental charge;
(e) any tax, assessment or other governmental
charge which is payable otherwise than by deduction or
withholding from payments of principal of and premium, if
any, or interest on such Debenture;
(f) any tax, assessment or other governmental
charge imposed on interest received by a person holding,
actually or constructively, 10% or more of the total
combined voting power of all classes of stock of the Company
entitled to vote; or
(g) any tax, assessment or other governmental
charge required to be withheld by any paying agent from any
payment of principal of, or premium, if any, or interest on
any Debenture if such payment can be made without such
withholding by any other paying agent;
nor will Additional Amounts be paid with respect to payment of
the principal of, premium, if any, or interest on any such
Debenture (or cash in lieu of issuance of shares of Common Stock
upon conversion) to a person other than the sole beneficial owner
of such payment, or that is a partnership or a fiduciary to the
extent such beneficial owner, member of such partnership or
beneficiary or settlor with respect to such fiduciary would not
have been entitled to the Additional Amounts had such beneficial
owner, member, beneficiary or settlor been the holder of such
Debenture.
Page 41 of 60 <PAGE>
Events of Default
-----------------
The Indenture defines an Event of Default with respect
to the Debentures as any of the following events: (i) the
failure by the Company to pay any installment of interest on, or
Additional Amounts with respect to, the Debentures as and when
the same becomes due and payable and the continuance of any such
failure for a period of 30 days, (ii) the failure by the Company
to pay all or any part of the principal of, or premium, if any,
on the Debentures as and when the same becomes due and payable at
maturity, redemption, by acceleration or otherwise, (iii) the
failure of the Company to perform any conversion of Debentures
required under the Indenture and the continuance of any such
failure for a period of 60 days, (iv) the failure by the Company
to observe or perform any other covenant or agreement contained
in the Debentures or the Indenture and, subject to certain
exceptions, the continuance of such failure for a period of
60 days after appropriate written notice is given to the Company
by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the Debentures
outstanding, (v) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its
significant subsidiaries, (vi) a default in the payment of
principal, premium or interest when due that extends beyond any
stated period of grace applicable thereto or an acceleration for
any other reason of the maturity of any Indebtedness of the
Company or any of its significant subsidiaries with an aggregate
principal amount in excess of $5 million, and (vii) final
judgments not covered by insurance aggregating in excess of
$2 million, at any one time rendered against the Company or any
of its significant subsidiaries and not satisfied, stayed, bonded
or discharged within 60 days.
The Debentures provide that if an Event of Default
occurs and is continuing, then the Company will provide notice
thereof to the Trustee within five business days after the
Company becomes aware of such Event of Default, and the Trustee
shall then notify the holders of Debentures thereof within 90
days after its receipt of notice from the Company. If an Event
of Default occurs and is continuing, the Trustee or the holders
of 25% in aggregate principal amount of the Debentures then
outstanding may, by notice in writing to the Company (and to the
Trustee, if given by the holders) (an "Acceleration Notice"),
declare all principal and accrued interest thereon and Additional
Amounts thereof, if any, to be due and payable immediately,
whereupon such amounts shall, subject to the rights of the
holders of Senior Indebtedness, become immediately due and
payable.
Prior to the declaration of acceleration of the
maturity of the Debentures, the holders of a majority in
aggregate principal amount of the Debentures at the time
outstanding may waive on behalf of all the holders any default,
except a default in the payment of principal of, premium, if any,
or interest on or Additional Amount with respect to any Debenture
Page 42 of 60 <PAGE>
not yet cured, or a default with respect to any covenant or
provision that cannot be modified or amended without the consent
of the holder of each outstanding Debenture affected. Subject to
the provisions of the Indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request, order
or direction of any of the holders, unless such holders have
offered to the Trustee reasonable security or indemnity. Subject
to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the
Debentures at the time outstanding 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.
Limitation on Merger, Sale or Consolidation
-------------------------------------------
The Indenture provides that the Company may not,
directly or indirectly, consolidate with or merge with or into
another person or sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related
transactions, to another person or group of affiliated persons,
unless (i) either (a) the Company is the surviving entity or
(b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any
state thereof or the District of Columbia and expressly assumes
by written agreement all of the obligations of the Company in
connection with the Debentures and the Indenture; and (ii) no
default or Event of Default shall exist or shall occur
immediately after giving effect on a pro forma basis to such
transaction.
Upon any consolidation or merger or any transfer of all
or substantially all of the assets of the Company in accordance
with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which
such transfer is made, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the
Indenture with the same effect as if such successor corporation
had been named therein as the Company, and the Company will be
released from its obligations under the Indenture and the
Debentures, except as to any obligations that arise from or as a
result of such transaction.
Amendments and Supplements
--------------------------
Modifications and amendments to the Indenture or to the
terms and conditions of the Debentures may be made and future
compliance with or any past default by the Company under any of
the provisions thereof may be waived, or any acceleration
thereunder annulled, with the consent of the holders of not less
than a majority in aggregate principal amount of the Debentures
at the time outstanding (excluding for purposes of such
calculation the aggregate principal amount of Debentures held by
Page 43 of 60 <PAGE>
the Company or any of its subsidiaries) or by the adoption of a
resolution, at a meeting of holders of the Debentures at which a
quorum (as defined below) is present and acting throughout, by
not less than a majority in aggregate principal amount of the
Debentures present or represented at such meeting (excluding for
purposes of such calculation the aggregate principal amount of
Debentures held by the Company or any of its subsidiaries);
provided, however, that the amount approving such resolution is
not less than 25% of the aggregate principal amount of the
Debentures then outstanding (excluding for purposes of such
calculation the aggregate principal amount of Debentures held by
the Company or any of its subsidiaries); and provided further
that no such modification or amendment to the terms and
conditions of the Debentures may, without the consent or the
affirmative vote of the holder of each Debenture affected thereby
may: (a) waive a default in the payment of principal of, premium,
if any, or interest on or Additional Amount with respect to any
Debenture; (b) change the stated maturity of the principal or
premium, if any, or any installment of interest on any Debenture;
(c) reduce the principal amount of or the rate (or extend the
time for payment) of interest on or any premium payable upon
redemption of or Additional Amounts payable with respect to any
such Debenture; (d) change the obligation of the Company to pay
Additional Amounts as described above (except as otherwise
permitted by the Debentures or the Indenture); (e) change the
coin or currency in which any Debenture or interest thereon is
payable; (f) adversely affect the right to cause the Company to
redeem or the right to convert any such Debenture; (g) modify the
obligations of the Company to maintain an office or agency in The
City of New York and outside the United States for payment of the
Debentures; (h) modify the subordination provisions of the
Debenture in a manner adverse to the holders of Debentures; or
(i) reduce the requirements under the Indenture for quorum or
voting, or reduce the percentage in principal amount of the
outstanding Debentures the consent of whose holders is required
for any amendment or modification of the Indenture or the terms
and conditions of the Debentures or the consent of whose holders
is required for any waiver (of compliance with certain provisions
of the Indenture or the Debentures or certain defaults thereunder
and their consequences) provided for in the Debentures. The
quorum at any meeting called to adopt a resolution will be the
persons holding or representing a majority in aggregate principal
amount of the Debentures at the time outstanding (excluding for
purposes of such calculation the aggregate principal amount of
Debentures held by the Company or any of its subsidiaries) and
the quorum at any adjourned meeting will be persons holding or
representing 25% in aggregate principal amount of the Debentures
at the time outstanding (excluding for purposes of such
calculation the aggregate principal amount of Debentures held by
the Company or any of its subsidiaries).
Any instrument given by or on behalf of any holder of a
Debenture in connection with any consent to any such
modification, amendment or waiver will be irrevocable once given
and will be conclusive and binding on all subsequent holders of
Page 44 of 60 <PAGE>
such Debenture. Any modifications, amendments or waivers to the
Indenture or to the terms and conditions of the Debentures will
be conclusive and binding on all holders of Debentures, whether
or not they have given such consent or were present at any
meeting, and on holders of Debentures, whether or not notation of
such modifications, amendments or waivers is made upon the
Debentures.
Rule 144A Information Requirement
---------------------------------
The Company has agreed to furnish to the holders or
beneficial owners of the Debentures or the underlying Common
Stock and prospective purchasers of the Debentures or the
underlying Common Stock designated by the holders of the
Debentures or the underlying Common Stock, upon their request,
the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act until such time as such
securities are no longer "restricted securities" within the
meaning of Rule 144 under the Securities Act.
Reports
-------
The Company shall deliver to the Trustee and to each
holder of Debentures, within 15 days after it is required to file
such with the Commission, annual and quarterly consolidated
financial statements substantially equivalent to financial
statements required to be included in reports filed with the
Commission including, with respect to annual information only, a
report thereon by the Company's certified independent public
accountants as such is required in such reports to the
Commission, in each case, together with management's discussion
and analysis of the Company's financial condition and results of
operations.
Notices
-------
Notices to holders of the Debentures will be given by
publication in a leading daily newspaper in the English language
of general circulation in The City of New York and in London and,
so long as the Debentures are listed on the Luxembourg Stock
Exchange, in a daily newspaper of general circulation in
Luxembourg or, if publication in either London or Luxembourg is
not practical, in Europe. Such publication is expected to be
made in The Wall Street
---------------
Journal (Eastern Edition), the Financial Times and the Luxembourg
------- --------------- ----------
Wort. In addition, notices to holders of Debentures will be
given
----
by mail to the addresses of such holders as they appear in the
register maintained by the Trustee on the fifteenth day prior to
such mailing. Such notices will be deemed to have been given on
the date of such publication or mailing or, if published in such
Page 45 of 60 <PAGE>
newspapers on different dates, on the date of the first such
publication.
Replacement of Debentures
-------------------------
Debentures that become mutilated, destroyed, stolen or
lost will be replaced by the Company at the expense of the holder
thereof upon delivery to the Trustee of the Debentures 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 Debenture, an indemnity satisfactory to the Company and
the Trustee may be required at the expense of the holder of such
Debenture before a replacement Debenture, as the case may be,
will be issued.
Governing Law
-------------
The Debentures and the Indenture are governed by and
construed in accordance with the laws of the State of New York,
United States, without giving effect to its conflicts of law
rules.
Registration Rights
----------------------------------
Pursuant to the Registration Rights Agreement between
the Company and the Initial Purchasers, the Company has filed
with the Commission a shelf registration statement on Form S-3
(the "Shelf Registration Statement") of which this Prospectus is
a part, to cover resales of Transfer Restricted Securities (as
defined herein) by the holders thereof who satisfy certain
conditions relating to the provision of information in connection
with the Shelf Registration Statement. For purposes of the
foregoing, "Transfer Restricted Securities" means each Debenture
and any underlying share of Common Stock issued upon conversion
thereof until the date on which such Debenture or share of Common
Stock has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration
Statement or the date on which such Debenture or share of Common
Stock is distributed to the public pursuant to Rule 144, under
the Securities Act or is salable pursuant to Rule 144(k) under
the Securities Act (or any similar provisions then in force).
Certain Definitions
-------------------
"Business Day" or "business day" means, with respect to
any act to be performed pursuant to the Indenture or the terms of
the Debentures, each Monday, Tuesday, Wednesday, Thursday or
Friday that is not a day on which banking institutions in the
place where such act is to occur are authorized or obligated by
applicable law, regulation or executive order to close; provided
however, if any such action is to be taken on a day that is not a
Business Day such action shall be taken on the next succeeding
Business Day
Page 46 of 60 <PAGE>
"Capital Stock" means, with respect to any corporation,
any and all shares, interests, rights to purchase (other than
convertible or exchangeable indebtedness), warrants, options,
participations or other equivalents of or interests (however
designated) in stock issued by that corporation.
"Designated Senior Indebtedness" means (i) the
Indebtedness outstanding under the Company's financing agreement
with The CIT Group/Credit Business, Inc. and (ii) any other
Senior Indebtedness having a principal amount of at least
$5,000,000 that is designated as "Designated Senior Indebtedness"
by written notice from the Company to the Trustee.
"Disqualified Capital Stock" means (a) except as set
forth in clause (b) below, with respect to any person, Capital
Stock of such person that, by its terms or by the terms of any
security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the
passage of time would be, required to be redeemed or repurchased
(including at the option of the holder thereon by such person or
any of its subsidiaries, in whole or in part, on or prior to the
Stated Maturity of the Debentures and (b) with respect to any
subsidiary of such person (including with respect to any
subsidiary of the Company), any Capital Stock other than any
common stock with no preference, privileges, or redemption or
repayment provisions.
"Indebtedness" of any person means, without
duplication, (a) all liabilities and obligations, contingent or
otherwise, of any such person, (i) in respect of borrowed money
(whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereon,
(ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) representing the balance deferred and unpaid
of the purchase price of any property or services, except such as
would constitute trade payables to trade creditors in the
ordinary course of business, (iv) evidenced by bankers
acceptances or similar instruments issued or accepted by banks,
(v) for the payment of money relating to a capitalized lease
obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any
letter of credit; (b) all net obligations of such person under
interest swap and hedging obligations; (c) all liabilities of
others of the kind described in the preceding clauses (a) or (b)
that such person has guaranteed or that is otherwise its legal
liability and all obligations to purchase, redeem or acquire any
Capital Stock; and (d) any and all deferrals, renewals,
extensions, refinancings and refundings (whether direct or
indirect) of any liability of the kind described in any of the
preceding clauses (a), (b) or (c), or this clause (d), whether or
not between or among the same parties.
"Junior Securities" of any person means any Qualified
Capital Stock and any Indebtedness of such person that is
(i) subordinated in right of payment to the Debentures and has no
Page 47 of 60 <PAGE>
scheduled installment of principal due, by redemption, sinking
fund payment or otherwise, on or prior to the Stated Maturity of
the Debentures and (ii) subordinated in right of payment to all
Senior Indebtedness at least to the same extent as the
Debentures.
"Obligations" means any principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documentation governing any
Senior Indebtedness.
"Qualified Capital Stock" means any Capital Stock of
the Company that is not Disqualified Capital Stock.
"Senior Indebtedness" of the Company means any
Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed,
guaranteed or in effect guaranteed by the Company, unless the
instrument creating or evidencing such Indebtedness provides that
such Indebtedness is not senior or superior, in right of payment,
to the Debentures or to other Indebtedness which is PARI PASSU
with, or subordinated to, the Debentures. In no event shall
Senior Indebtedness include (a) indebtedness of the Company owed
or owing to any subsidiary of the Company or any officer,
director or employee of the Company or any subsidiary thereof;
(b) any liability for taxes owed or owing by the Company; or
(c) trade payables to trade creditors of the Company in the
ordinary course of business.
"Stated Maturity" when used with respect to any
Debenture, means March 15, 2006.
DESCRIPTION OF CAPITAL STOCK
----------------------------
PREFERRED STOCK
The Company has authorized a class of Preferred Stock
consisting of 5,000,000 shares, $.10 par value. The Board of
Directors of the Company has authority, without any further
action by the holders of Common Stock, to divide the Preferred
Stock into series, to fix the number of shares comprising any
series and to fix or alter the voting powers, designations,
preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions,
including dividend rights, dividend rates, conversion rights,
rights and terms of redemption, rights upon dissolution or
liquidation and sinking fund provisions, of any wholly unissued
series of Preferred Stock.
COMMON STOCK
The authorized Common Stock of the Company consists of
40,000,000 shares, $.10 par value. Holders of Common Stock have
one vote for each share held, are not entitled to cumulate their
Page 48 of 60 <PAGE>
votes for the election of directors and do not have preemptive
rights. The shares are not subject to redemption. Subject to
the terms of any shares of Preferred Stock which may be issued,
holders of Common Stock are entitled to receive such dividends as
are declared by the Board of Directors out of funds legally
available therefor and are entitled to participate equally in the
assets of the Company available for distribution in the event of
liquidation or dissolution. The Company is subject to certain
dividend restrictions under a loan agreement.
RIGHTS PLAN
In October 1988, the Board of Directors declared a
dividend of one Right for each outstanding share of Common Stock
of the Company to stockholders of record on November 4, 1988.
Each Right entitles the holder to buy the economic equivalent of
one share of Common Stock in the form of one one-hundredth of a
share of a newly created series of participating preferred stock
of the Company at an exercise price of $75.00 per share. The
Rights are exercisable only if a person or group acquires 20% or
more of the voting power of the Company (an "Acquiring Person")
or announces a tender or exchange offer which would result in a
person or group becoming an Acquiring Person, in either case,
without the prior consent of the Company.
If any person or group becomes the beneficial owner of
20% or more of the voting power of the Company (other than as a
result of a tender offer or exchange offer for all outstanding
shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors who are
not officers of the Company to be both adequate and otherwise in
the best interests of the Company and its stockholders), then
each Right (other than those owned by the Acquiring Person or
related parties) will entitle its holder to purchase, at the
Right's exercise price, shares of the Company's Common Stock or
common stock equivalents having a market value of twice the
Right's exercise price ("Flip-In Right"). The Flip-In Right will
result in substantial dilution of an Acquiring Persons' voting
and economic interest in the Company and a substantial economic
benefit to the other stockholders of the Company.
In addition, after a person or group becomes an
Acquiring Person, if the Company is involved in a merger or other
business combination transaction with another person in which its
common shares are changed or exchanged, or the Company sells 50%
or more of its assets or earning power to another person, each
Right (other than owned by the Acquiring Person or related
parties) will entitle its holder to purchase, at the Right's
exercise price, shares of Common Stock of such other person
having a market value of twice the Right's exercise price.
The Company will be entitled to redeem the Rights at
one cent per Right (i) at any time before a person or group
becomes an Acquiring Person without prior approval, (ii) in
connection with an acquisition of the Company not involving the
Page 49 of 60 <PAGE>
Acquiring Person and in which all stockholders are treated alike
or (iii) after the Flip-In Right is triggered and the exercise
period has expired if and for as long as no person owns 20% of
the Common Stock of the Company. The Rights expire at the
earlier of (i) ten years after adoption of the Rights Plan, or
(ii) consummation of a merger following a tender offer approved
by the Board, in either case unless earlier redeemed by the
Company.
The Exercise Price payable, and the number of shares of
Common Stock or other securities or property issuable, upon
exercise of the Rights are subject to adjustments from time to
time to prevent dilution (i) in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of the Preferred
Stock of certain rights or warrants to subscribe for Preferred
Stock or convertible securities or securities having the same or
more favorable rights, privileges and preferences as the
Preferred Stock at less than the current market price of the
Preferred Stock, or (iii) upon the distribution to holders of the
Preferred Stock of evidences of indebtedness or assets or of
subscription rights or warrants (other than those referred to
above).
Stockholders of the Company may, depending upon the
circumstances, recognize taxable income in the event that the
Rights become exercisable for Common Stock of the Company (or
other consideration) or for common stock of the acquiring company
as set forth above.
SECTION 203 OF THE DELAWARE LAW
The Company is a Delaware corporation and is subject to
Section 203 of the Delaware General Corporation Law the ("DGCL").
Section 203 of the DGCL prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a
corporation's outstanding voting stock or an affiliate of such
person) from engaging in a "business combination" (as defined)
with a Delaware corporation for three years following the date
such person became an interested stockholder unless (i) before
such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which
the interested stockholder became an interested stockholder or
approved the business combination; (ii) upon consummation of the
transaction that resulted in the interested stockholder becoming
an interested stockholder, the interested stockholder owns at
least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and employee
stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer); or (iii)
following the transaction in which such person became an
interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized at a
Page 50 of 60 <PAGE>
meeting of stockholders by vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203 of the DGCL, the
restrictions described above also do not apply to certain
business combinations proposed by an interested stockholder
following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous
three years or became an interested stockholder with the approval
of a majority of the corporation's directors. The provisions of
Section 203 of the DGCL requiring a supermajority vote of
disinterested shares to approve certain corporate transactions
could enable a minority of the Company's stockholders to exercise
veto power over such transactions.
SELLING SECURITYHOLDERS
-----------------------
The following table sets forth certain information as
of July 10, 1996 (except as otherwise indicated) as to the
security ownership of the Selling Securityholders. Except as set
forth below, none of the Selling Securityholders has had a
material relationship with the Company or any of its predecessors
or affiliates within the past three years.
<TABLE>
Principal Amount
of Debentures
Beneficially Owned
Prior to Offering Principal Amount of
-------------------- Debentures That May
Name Amount Percent Be Sold
---- ------ ------- ------------------
<S> <C> <C> <C>
Advest, Inc. $ 50,000 <F*> $ 50,000
90 Statehouse Sq.
Hartford, CT 06103
Bank of New York $ 4,450,000 3.87% $ 4,450,000
925 Patterson Plank Road
Secaucus, NJ 07094
Bankers Trust Company $ 8,450,000 7.35% $ 8,450,000
c/o BT Services Tennessee
Inc.
Pension Trust Services
648 Grassmere Park Drive
Nashville, TN 37211
Page 51 of 60 <PAGE>
<S> <C> <C> <C>
Bear Stearns Securities $ 50,000 <F*> $ 50,000
Corp.
One Metrotech Center
North
Brooklyn, NY 11201-3862
Bankers Trust $ 65,000 <F*> $ 65,000
Company/NatWest
Securities, Ltd.
16 Wall Street, 5th Floor
New York, NY 10005
Boston Safe Deposit & $ 6,030,000 5.24% $ 6,030,000
Trust Co.
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Chase Manhattan Bank, $18,150,000 15.78% $18,150,000
N.A. (The)
One Chase Manhattan Plaza
3B - Proxy Dept.
New York, NY 10081
Chemical Bank $ 775,000 <F*> $ 775,000
Auto Settle Department
4 New York Plaza, 4th
Floor
New York, NY 10004
Citibank, N.A. $ 2,010,000 1.75% $ 2,010,000
111 Wall Street
20th Floor, Zone 9
New York, NY 10043
Custodial Trust Company $ 860,000 <F*> $ 860,000
101 Carnegie Center
Princeton, NJ 08540
First Tennessee Bank, $ 1,430,000 1.24% $ 1,430,000
N.A. (Memphis)
P.O. Box 84
Memphis, TN 38101
Page 52 of 60 <PAGE>
<S> <C> <C> <C>
First National Bank of $ 185,000 <F*> $ 185,000
Maryland (The)
Trust Division -
Operations Dept. 101-623
25 S. Charles Street
Baltimore, MD 21201
Harris Trust & Savings $ 100,000 <F*> $ 100,000
Bank
Proxy Operations
111 West Monroe Street,
1130
Chicago, IL 60690
Investors Bank & $ 180,000 <F*> $ 180,000
Trust/M.F. Custody
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Morgan (J.P.) Securities $ 1,000,000 <F*> $ 1,000,000
Inc., WF
60 Wall Street, 14th
Floor
New York, NY 10060-0060
Lehman Brothers, Inc. $ 2,025,000 1.76% $ 2,025,000
c/o BSCC ATT: Proxy Dept.
P.O. Box 29198
Brooklyn, NY 11202-9198
Mercantile, Safe Deposit $ 2,025,000 1.76% $ 2,025,000
and Trust Company
766 Old Hammonds Ferry
Road
Proxy Unit #230-20
Linthicum, MD 21090
Montgomery Securities $ 2,300,000 2.00% $ 2,300,000
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Morgan Guaranty Trust Co. $ 4,800,000 4.17% $ 4,800,000
of New York
37 Wall Street, 16th
Floor
New York, NY 10260
Northern Trust Co. - $ 900,000 <F*> $ 900,000
Trust
801 S. Canal C-In
Chicago, IL 60607
Page 53 of 60 <PAGE>
<S> <C> <C> <C>
Republic New York $ 500,000 <F*> $ 500,000
Securities Corp.
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Salomon Brothers Inc $ 2,945,000 2.56% $ 2,945,000
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
SSB-Custodian $32,520,000 28.28% $32,520,000
Quincy Securities
Processing
A5W P.O. Box 1631
Boston, MA 02105-1631
UBS Securities Inc. $ 500,000 <F*> $ 500,000
299 Park Avenue, 8th
Floor
New York, NY 10171-0026
Wagner, Stott & Co. $ 700,000 <F*> $ 700,000
20 Broad Street
New York, NY 10005
<F*> Less than 1%
The following table sets forth certain information as of July 19,
1996 as to the security ownership of the Selling Securityholders.
</TABLE>
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned Prior
Name to Offering
---- -----------------------
Number Percent
------ -------
<S> <C> <C>
Advest, Inc. 9,464 <F*>
90 Statehouse Sq.
Hartford, CT 06103
Bank of New York 534,255 2.30%
925 Patterson Plank Road
Secaucus, NJ 07094
Page 54 of 60 <PAGE>
<S> <C> <C>
Bankers Trust Company 980,842 4.23%
c/o BT Services Tennessee
Inc.
Pension Trust Services
648 Grassmere Park Drive
Nashville, TN 37211
Bear Stearns Securities 2,070,419 8.93%
Corp.
One Metrotech Center
North
Brooklyn, NY 11201-3862
Bankers Trust 0 --
Company/NatWest
Securities, Ltd.
16 Wall Street, 5th Floor
New York, NY 10005
Boston Safe Deposit & 635,164 2.74%
Trust Co.
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Chase Manhattan Bank, 400,000 1.72%
N.A. (The)
One Chase Manhattan Plaza
3B - Proxy Dept.
New York, NY 10081
Chemical Bank 0 --
Auto Settle Department
4 New York Plaza, 4th
Floor
New York, NY 10004
Citibank, N.A. 125,411 <F*>
111 Wall Street
20th Floor, Zone 9
New York, NY 10043
Custodial Trust Company 0 --
101 Carnegie Center
Princeton, NJ 08540
First Tennessee Bank, 0 --
N.A. (Memphis)
P.O. Box 84
Memphis, TN 38101
Page 55 of 60 <PAGE>
<S> <C> <C>
First National Bank of 0 --
Maryland (The)
Trust Division -
Operations Dept. 101-623
25 S. Charles Street
Baltimore, MD 21201
Harris Trust & Savings 0 --
Bank
Proxy Operations
111 West Monroe Street,
1130
Chicago, IL 60690
Investors Bank & 0 --
Trust/M.F. Custody
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Morgan (J.P.) Securities 0 --
Inc., WF
60 Wall Street, 14th
Floor
New York, NY 10060-0060
Lehman Brothers, Inc. 112,162 <F*>
c/o BSCC ATT: Proxy Dept.
P.O. Box 29198
Brooklyn, NY 11202-9198
Mercantile, Safe Deposit 9,400 <F*>
and Trust Company
766 Old Hammonds Ferry
Road
Proxy Unit #230-20
Linthicum, MD 21090
Montgomery Securities 42,500 <F*>
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Morgan Guaranty Trust Co. 112,900 <F*>
of New York
37 Wall Street, 16th
Floor
New York, NY 10260
Northern Trust Co. - 339,450 1.46%
Trust
801 S. Canal C-In
Chicago, IL 60607
Page 56 of 60 <PAGE>
<S> <C> <C>
Republic New York 0 --
Securities Corp.
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Salomon Brothers Inc 4,000 <F*>
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
SSB-Custodian 1,295,587 5.59%
Quincy Securities
Processing
A5W P.O. Box 1631
Boston, MA 02105-1631
UBS Securities Inc. 500,000 2.16%
299 Park Avenue, 8th
Floor
New York, NY 10171-0026
Wagner, Stott & Co. 0 --
20 Broad Street
New York, NY 10005
<F*> Less than 1%
</TABLE>
Additional Selling Securityholders may be identified
and other information concerning Selling Securityholders may be
set forth in Prospectus Supplements from time to time.
Other than by ownership of the Debentures or Common
Stock, none of the Selling Securityholders has had any material
relationship with the Company within the past three years.
Because the Selling Securityholders may offer all or
only some of the Debentures that they now hold and/or shares of
Common Stock issued upon conversion thereof in the offering
contemplated by this Prospectus and because there are presently
no agreements, arrangements or understandings concerning the sale
of any of the Debentures or shares of Common Stock issuable upon
conversion thereof, no estimate can be given about the principal
amount of Debentures or shares of Common Stock that will be held
by the Selling Securityholders after completion of this offering.
See "Plan of Distribution" herein.
Page 57 of 60 <PAGE>
PLAN OF DISTRIBUTION
--------------------
The Debentures and the Shares are being registered to
permit public secondary trading of such securities by the holders
thereof from time to time after the date of this Prospectus. The
Company has agreed, among other things, to bear all expenses
(other than underwriting discounts, selling commissions and fees
and expenses of counsel and other advisors to holders of the
Debentures and the underlying Common Stock) in connection with
the registration and sale of the Debentures and the Shares
covered by this Prospectus.
The Company will not receive any of the proceeds from
the offering of Debentures and the Shares by the Selling
Securityholders. The Company has been advised by the Selling
Securityholders that the Selling Securityholders may sell all or
a portion of the Debentures and Shares beneficially owned by them
and offered hereby from time to time on any exchange on which the
securities are listed on terms to be determined at the times of
such sales. The Selling Securityholders may also make private
sales directly or through a broker or brokers. Alternatively,
any of the Selling Securityholders may from time to time offer
the Debentures or shares of Common Stock beneficially owned by
them through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, commissions
or concessions from the Selling Securityholders and the
purchasers of the Debentures or shares or Common Stock from whom
they may act as agent. The aggregate proceeds to the Selling
Securityholders from the sale of the Debentures of shares or
Common Stock offered by them hereby will be the purchase price of
such Debentures or shares of Common Stock less discounts and
commissions, if any.
The Debentures and the Shares may be sold from time to
time in one or more transactions at fixed offering prices, which
may be changed, or at varying prices determined at the time of
sale or at negotiated prices. Such prices will be determined by
the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or
commissions in connection therewith.
The outstanding Common Stock is listed for trading on
the New York Stock Exchange, and the Shares of Common Stock have
been approved for listing on the New York Stock Exchange. The
Company does not intend to apply for listing of the Debentures on
any securities exchange. Accordingly, no assurance can be given
as to the development of liquidity of any trading market that may
develop for the Debentures.
In order to comply with the securities laws of certain
states, if applicable, the Debentures and Shares will be sold in
such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states the Debentures and
Shares may not be sold unless they have been registered or
Page 58 of 60 <PAGE>
qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is
complied with.
The Selling Securityholders and any broker and any
broker-dealers, agents or underwriters that participate with the
Selling Securityholders in the distribution of the Debentures or
the Shares may be deemed to be, underwriters, within the meaning
of the Securities Act, in which event any commissions received by
such broker-dealers, agents or underwriters any profit on the
resale of the Debentures or the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the
Securities Act.
In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 or Rule 144A of the
Securities Act may be sold under Rule 144 or Rule 144A rather
than pursuant to this Prospectus. There is no assurance that any
Selling Securityholder will sell any or all of the Debentures or
Shares described herein, and any Selling Securityholder may
transfer, devise or gift such securities by other means not
described herein.
The Debentures were originally sold to NatWest
Securities Limited, Salomon Brothers Inc and Montgomery
Securities in March 1996 in a private placement. The Company
agreed to indemnify and hold NatWest Securities Limited, Salomon
Brothers Inc and Montgomery Securities harmless against certain
liabilities under the Securities Act that could arise in
connection with the sale of the Debentures by NatWest Securities
Limited, Salomon Brothers Inc and Montgomery Securities. The
Company and the Selling Securityholders are obligated to
indemnify each other against certain liabilities arising under
the Securities Act.
The Company will use its best efforts to keep the
registration statement effective until the Shelf Registration
Statement is no longer required for transfer of the Debentures or
the underlying Common Stock. Expenses of preparing and filing
the registration statement and all post-effective amendments will
be borne by the Company.
To the Company's knowledge, no person presently intends
to make a market in the Debentures.
LEGAL MATTERS
-------------
The validity of the Securities offered hereby will be
passed upon for the Company by Sheppard, Mullin, Richter &
Hampton LLP, Los Angeles, California.
EXPERTS
-------
Page 59 of 60 <PAGE>
The consolidated balance sheets of Applied Magnetics
Corporation and Subsidiaries as of September 30, 1995 and 1994,
and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years
in the period ended September 30, 1995, and the related
schedules, incorporated by reference in this prospectus and
elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are incorporated
herein in reliance upon the authority of said firm as experts in
giving said reports.
Page 60 of 60 <PAGE>
