<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 1995
REGISTRATION NO. 33-62161
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VLSI TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1109 MCKAY DRIVE 94-2597282
(State or other jurisdiction of SAN JOSE, CALIFORNIA (I.R.S. Employer
incorporation or organization) 95131 Identification No.)
Telephone: (408)
434-3100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALFRED J. STEIN
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
VLSI TECHNOLOGY, INC.
1109 MCKAY DRIVE
SAN JOSE, CA 95131
TELEPHONE: (408) 434-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
LARRY W. SONSINI, Esq. CHRISTOPHER L. KAUFMAN, Esq.
JOHN A. FORE, Esq. TRACY K. EDMONSON, Esq.
Wilson, Sonsini, Goodrich & Rosati Latham & Watkins
Professional Corporation 505 Montgomery Street, Suite 1900
650 Page Mill Road San Francisco, California 94111
Palo Alto, California 94304-1050 (415) 391-0600
(415) 493-9300
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AMOUNT AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) PRICE (2) FEE (3)
<S> <C> <C> <C>
% Convertible Subordinated Notes due 2005............ $172,500,000 $172,500,000 $59,483
Common Stock, $0.01 par value........................... (4) -- --
<FN>
(1) Includes $22,500,000 in principal amount of Notes that the Underwriters
have the option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee, in accordance with Rule 457(o) promulgated under the
Securities Act of 1933.
(3) Previously paid.
(4) Such indeterminable number of shares of Common Stock as may be required for
issuance upon conversion of the Notes being registered hereunder. Includes
Preferred Share Purchase Rights associated with such Common Stock.
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
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>
SUBJECT TO COMPLETION,
SEPTEMBER 7, 1995
PROSPECTUS
$150,000,000
[LOGO]
% CONVERTIBLE SUBORDINATED NOTES DUE 2005
The % Convertible Subordinated Notes due 2005 (the "Notes") of VLSI
Technology, Inc. ("VLSI" or the "Company") offered hereby will mature on October
1, 2005. Interest on the Notes is payable on April 1 and October 1 of each year
commencing April 1, 1996. The Notes are convertible into shares of Common Stock,
$.01 par value per share (the "Common Stock"), of the Company at any time on or
before the close of business on the last trading day prior to maturity, unless
previously redeemed, at a conversion price of $ per share, subject to
adjustment in certain events as described herein.
The Common Stock of the Company is quoted on the Nasdaq National Market
("Nasdaq") under the symbol "VLSI." On September 6, 1995, the last reported sale
price of the Common Stock on Nasdaq was $34.375 per share. See "Price Range of
Common Stock and Dividend Policy." The Company intends to apply for approval for
quotation of the Notes on the Nasdaq Stock Market under the symbol "VLSIG."
The Notes are subordinated in right of payment to all existing and future Senior
Debt (as defined) of the Company and effectively subordinated to all existing
and future liabilities and obligations of the Company's subsidiaries. As of June
30, 1995, the total principal amount of Senior Debt of the Company would have
been approximately $64.2 million (not including the Company's 7% Convertible
Subordinated Debentures due 2012, which were converted or redeemed subsequent to
June 30, 1995) and other liabilities and obligations of the Company's
subsidiaries (excluding intercompany indebtedness) that would have effectively
ranked senior to the Notes would have been approximately $33.9 million. The
Notes are redeemable, in whole or in part, at the option of the Company at any
time on or after October 3, 1997, at the redemption prices set forth herein plus
accrued interest, except that the Notes may not be redeemed prior to October 3,
1999 unless the closing price of the Common Stock is at least 125% of the
conversion price for at least 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the notice of redemption.
No sinking fund is provided for the Notes. In addition, following the occurrence
of a Designated Event (i.e., a Change of Control or Termination of Trading (each
as defined)), each holder has the right to cause the Company to purchase the
Notes at 101% of their principal amount together with accrued and unpaid
interest. See "Description of Notes."
SEE "RISK FACTORS" COMMENCING AT PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PURCHASERS OF THE NOTES.
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.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note...................................... % % %
Total(3)...................................... $ $ $
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<FN>
(1) Plus accrued interest, if any, from the date of issuance.
(2) Before deducting expenses payable by the Company estimated to be $400,000.
The Underwriters will reimburse the Company for certain of the expenses.
(3) The Company has granted the Underwriters an option, exercisable at any time
within 30 days after the date hereof, to purchase up to an additional
$22,500,000 aggregate principal amount of Notes on the terms set forth
above to cover over-allotments, if any. If the Underwriters exercise such
option in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
</TABLE>
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1995.
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
The date of this Prospectus is , 1995.
<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 reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed a registration statement on Form S-3 (herein, together
with all amendments and exhibits, referred to as the "Registration Statement")
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of 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.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by VLSI with the Commission (File No. 0-11879)
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
December 30, 1994.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
3. The Company's Current Report on Form 8-K dated August 28, 1995, updating
information regarding litigation.
4. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on April 20,
1984, as amended, and the description of the Company's Preferred Share
Purchase Rights issued and issuable pursuant to its stockholder rights
plan, contained in the Registration Statement on Form 8-A filed with the
Commission on November 20, 1989, as amended.
In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of the offering of
Common Stock shall be deemed to be incorporated by reference in this Prospectus
from the date of filing such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The Company will provide
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any and all of the documents that are incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be directed to Gregory K. Hinckley, Vice President, Finance, and Chief
Financial Officer at the principal executive offices of VLSI Technology, Inc.,
1109 McKay Drive, San Jose, California 95131 or by telephone at (408) 434-3100.
--------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AND
COMMON STOCK AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
--------------------------
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS" WITHIN
THE MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933, (2) BANKS, SAVINGS
AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH
SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A
CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL
STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT NECESSARILY AUDITED, BY
OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE
FOREGOING, (3) ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER THAN A
CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF
PURCHASING THE SECURITIES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST
$1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, AND (4) ANY
NATURAL PERSON WHO (A) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000, OR (B)
HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES). EACH CALIFORNIA RESIDENT PURCHASING THE SECURITIES
OFFERED HEREBY WILL BE DEEMED TO REPRESENT BY SUCH PURCHASE THAT IT COMES WITHIN
ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL NOT SELL OR OTHERWISE
TRANSFER SUCH SECURITY TO A CALIFORNIA RESIDENT UNLESS THE TRANSFEREE COMES
WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL ADVISE THE
TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING SUCH, WILL BE DEEMED
TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
The VLSI name and logo, Polar-TM-, FSB, ASIC Synthesizer, ChipPlanner,
Datapath Compiler and Path Finder are trademarks of the Company. This Prospectus
also includes trademarks of companies other than VLSI.
The following companies are mentioned in this Prospectus: Alcatel Alsthom
Compagnie Generale d'Electricite ("Alcatel"), AT&T Corp. ("AT&T"), Apple
Computer, Inc. ("Apple"), Cadence Design Systems, Inc. ("Cadence"), Chips and
Technologies, Inc. ("Chips and Technologies"), Cisco Systems, Inc. ("Cisco"),
Compaq Computer Corporation ("Compaq"), DSC Communications Corporation ("DSC"),
Telefonaktiebolaget LM Ericsson ("Ericsson"), Hewlett-Packard Company
("Hewlett-Packard"), Hitachi, Ltd. ("Hitachi"), Hughes Corporation ("Hughes"),
Intel Corporation ("Intel"), International Business Machines Corporation
("IBM"), Kyocera Corporation ("Kyocera"), LSI Logic Corporation ("LSI"),
Matsushita Electric Industrial Co., Ltd. ("Matsushita"), Mentor Graphics
Corporation ("Mentor Graphics"), Motorola, Inc. ("Motorola"), National
Semiconductor Corporation ("National Semiconductor"), NEC Corporation ("NEC"),
Newbridge Networks Corporation ("Newbridge"), NexGen, Inc. ("NexGen"), Oak
Technology, Inc. ("Oak Technology"), Packard Bell Electronics, Inc. ("Packard
Bell"), Pioneer Electronic Corporation ("Pioneer"), Rockwell International
Corporation ("Rockwell"), Sagem SA ("Sagem"), Silicon Graphics, Inc. ("Silicon
Graphics"), Sony Corporation ("Sony"), Tellabs, Inc. ("Tellabs"), Texas
Instruments Incorporated ("Texas Instruments" or "TI"), Thomson Consumer
Electronic ("Thomson"), Toshiba Corporation ("Toshiba") and UB Networks, Inc.
("UB Networks").
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN, OR INCORPORATED BY REFERENCE IN, THIS PROSPECTUS. SEE "RISK
FACTORS."
THE COMPANY
VLSI is a leader in the design, manufacture and sale of highly complex
application specific integrated circuits ("ASICs") -- custom chips designed for
an individual customer -- and application specific standard products ("ASSPs")
- -- semi-custom chips designed for a particular market application that may be
used by several different customers. The Company targets high-volume markets in
which it has built significant expertise and can use its library of proprietary
cells and highly integrated building blocks to assist customers in designing
products and in bringing them to market rapidly. VLSI's target markets include
the computing, communications and consumer and entertainment markets. VLSI
emphasizes high performance applications where its products are critical
elements of complex electronic systems. VLSI targets key OEM customers who are
leaders in their respective industries. The Company's major customers include
Compaq, Apple, Ericsson, Hewlett-Packard, Silicon Graphics, Tellabs and Alcatel.
VLSI produces a significant portion of its wafers (approximately 79% in the
first half of 1995) at its own facilities and augments its internal
manufacturing capacity with the foundry services of third-party wafer
subcontractors. The Company believes that this strategy improves quality,
cost-effectiveness, responsiveness to customers, access to capacity, ability to
implement leading edge process technology and time to market, as compared to
semiconductor companies that lack fabrication facilities. The semiconductor
industry is, however, currently facing capacity constraints in wafer
manufacturing and the availability of third-party wafer foundries has diminished
significantly. Due to this manufacturing capacity shortage, as well as increased
customer demand, the Company is seeking to accelerate the expansion and
upgrading of its internal and external manufacturing capacity. The Company is in
the process of completing the build-out of its fabrication facility in San
Antonio, Texas in order to increase its internal manufacturing capacity. The
Company has taken steps to secure deliveries of long lead-time equipment,
including steppers, necessary to support approximately a 50% increase in
internal wafer starts from the fourth quarter of 1995 to the fourth quarter of
1996.
Through its subsidiary, COMPASS Design Automation, Inc. ("COMPASS"), VLSI
offers an integrated suite of electronic design automation ("EDA") software
tools, foundry-flexible libraries and support services for use by systems and
circuit designers at other semiconductor and systems companies, as well as at
the Company, in creating complex integrated circuits.
The Company's principal executive offices are located at 1109 McKay Drive,
San Jose, California 95131, and the Company's telephone number is (408)
434-3100.
RECENT DEVELOPMENT
On August 25, 1995, Intel Corporation exercised in full a warrant to
purchase 2,677,604 shares of VLSI Common Stock for an aggregate exercise price
of approximately $31.3 million. See "Risk Factors -- Effect of Potential Stock
Sales."
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
The Notes......................... $150,000,000 aggregate principal amount of %
Convertible Subordinated Notes due 2005 (the "Notes"),
excluding $22,500,000 aggregate principal amount of
Notes subject to the Underwriters' over-allotment
option.
Maturity.......................... The Notes will mature on October 1, 2005 unless earlier
redeemed or converted.
Payment of Interest............... Interest on the Notes at the rate of % per annum is
payable semi-annually on April 1 and October 1 of each
year commencing April 1, 1996.
Conversion Rights................. The Notes are convertible into Common Stock of the
Company at the option of the holder at any time on or
before the close of business on the last trading day
prior to maturity, unless previously redeemed, at a
conversion price of $ per share, subject to adjustment
in certain events. See "Description of Notes --
Conversion."
Redemption at the Option of the
Company.......................... On or after October 3, 1997, the Company may, upon at
least 15 days' notice, redeem the Notes at par plus the
stated coupon (declining ratably to par at maturity),
together with accrued and unpaid interest thereon,
except that the Notes may not be redeemed prior to
October 3, 1999 unless the closing price of the Common
Stock is at least 125% of the conversion price for at
least 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to
the notice of redemption. See "Description of Notes --
Optional Redemption."
Repurchase Upon Designated
Events........................... The Notes are required to be repurchased at 101% of
their principal amount together with accrued and unpaid
interest thereon, at the option of the holder, upon the
occurrence of a Designated Event (i.e., a Change of
Control or a Termination of Trading (each as defined)).
See "Description of Notes -- Repurchase at Option of
Holders Upon a Designated Event."
Subordination..................... The Notes will be unsecured obligations of the Company
and will be subordinated in right of payment to all
existing and future Senior Debt of the Company. See
"Description of Notes -- Subordination."
Use of Proceeds................... For expansion of manufacturing capacity and for general
corporate purposes, including working capital. See "Use
of Proceeds."
Listing........................... The Company intends to apply for approval for quotation
of the Notes on the Nasdaq Stock Market under the symbol
"VLSIG." The Common Stock is traded on the Nasdaq
National Market under the symbol "VLSI."
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios and per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED (5)
FISCAL YEAR (1) ----------------------------------
------------------------------------------------ JUNE 30,
1990 (2) 1991 1992 (3) 1993 (4) 1994 JULY 1, 1994 1995 (6)
-------- -------- -------- -------- -------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues.......................... $324,828 $413,376 $428,498 $515,946 $587,091 $286,171 $347,424
Operating income (loss)............... (6,062) 23,173 (19,282) 27,082 46,749 22,014 36,787
Net income (loss)..................... (12,740) 9,873 (32,217) 15,883 31,697 14,698 11,545
Net income (loss) per share........... $ (0.52) $ 0.37 $ (1.12) $ 0.45 $ 0.85 $ 0.40 $ 0.29
Weighted average common and common
equivalent shares outstanding........ 24,339 26,657 28,865 35,276 37,446 37,201 39,579
OTHER DATA:
EBITDA (7)............................ $ 42,823 $ 71,537 $ 27,740 $ 76,582 $108,510 $ 51,787 $ 51,638
Capital expenditures (8).............. 35,296 52,062 40,123 63,475 90,694 53,409 62,369
Ratio of earnings to fixed
charges (9):
Actual.............................. -- 10) 2.04x -- 10) 2.73x 4.49x 4.57x 3.37x
Pro forma as adjusted (11).......... 2.75x 2.67x 2.29x
Ratio of EBITDA to interest
expense (7):
Actual.............................. 4.72x 7.75x 3.06x 9.50x 12.38x 12.79x 10.95x
Pro forma as adjusted (11).......... 5.95x 5.89x 5.46x
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1995
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (12) AS ADJUSTED (13)
-------- -------------- ----------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................... $234,391 $234,245 $380,245
Total assets.................................................................. 644,179 642,201 792,201
Short-term debt, including current portion of long-term obligations........... 13,098 13,098 13,098
Long-term debt and noncurrent capital lease obligations....................... 108,382 51,054 201,054
Stockholders' equity.......................................................... 369,584 425,630 425,630
<FN>
- ---------------
(1) From 1990 through 1993, VLSI's fiscal year end was the last Saturday of
December. In 1994, the Company changed its fiscal year end to the last
Friday of December. The actual dates of the Company's fiscal year ends in
the table above are December 29, 1990, December 28, 1991, December 26,
1992, December 25, 1993 and December 30, 1994. The fiscal year ended
December 30, 1994 was a 53-week year. The current fiscal year is a 52-week
year ending on December 29, 1995.
(2) Includes a special charge of $12.8 million reflecting the estimated cost of
corporate reorganization related to exiting the memory business.
(3) Includes a special charge of $22.5 million related to the de-emphasis of
older technologies, costs of streamlining sales distribution channels,
costs of relocating certain offices, writedowns of nonperforming assets and
costs associated with intellectual property matters.
(4) Includes a special charge of $1.0 million representing a write-off of
purchased in-process research and development expenses related to the
acquisition of certain assets.
(5) The six-month period ended July 1, 1994 was comprised of 27 weeks. The
six-month period ended June 30, 1995 was comprised of 26 weeks.
(6) Includes a charge of $19.4 million relating to litigation. See "Risk
Factors -- TI Litigation; Intellectual Property Matters" and "Business --
Litigation."
(7) EBITDA is defined as earnings before interest income and other expenses,
interest expense, taxes on income, depreciation and amortization. EBITDA is
presented here to provide additional information about the Company's
ability to meet its future debt service, capital expenditure and working
capital requirements and should not be construed as a substitute for or a
better indicator of results of operations or liquidity than net income or
cash flow from operating activities computed in accordance with generally
accepted accounting principles. EBITDA for the six months ended June 30,
1995 includes a charge of $19.4 million relating to litigation. See "Risk
Factors -- TI Litigation; Intellectual Property Matters" and "Business --
Litigation."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
(8) Includes capitalized interest; excludes additions to property, plant and
equipment financed by capital leases.
(9) The ratio of earnings to fixed charges is computed by dividing (x) the sum
of income before provision for income taxes and fixed charges, less
capitalized interest, by (y) fixed charges. Fixed charges consist of
interest on all indebtedness, amortization of debt expense and discount or
premium relating to indebtedness and the estimated interest component of
rental expense.
(10) As a result of the loss incurred for the years 1990 and 1992, the Company
was unable to fully cover fixed charges. The dollar amounts of such
deficiencies in 1990 and 1992 were $12.7 million and $31.6 million,
respectively.
(11) Pro forma as adjusted ratios assume (i) the redemption or conversion of the
Company's 7% Convertible Subordinated Debentures due 2012 (the
"Debentures") after June 30, 1995 as if such redemption or conversion had
been consummated as of the first day of each fiscal period and (ii) the
sale of the Notes offered hereby and receipt of the estimated net proceeds
(assuming no exercise of the Underwriters' over-allotment option) as if
such actions had been consummated as of the first day of each fiscal
period.
(12) Gives effect to the conversion or redemption of all of the Debentures after
June 30, 1995.
(13) Adjusted to reflect the conversion or redemption of all of the Debentures
after June 30, 1995 and the sale of the Notes offered hereby and the
receipt of the estimated net proceeds, assuming the Underwriters'
over-allotment option is not exercised.
</TABLE>
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE NOTES INVOLVES A SIGNIFICANT DEGREE OF RISK. A
PROSPECTIVE INVESTOR SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED
IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO PURCHASE THE NOTES AND, IN
PARTICULAR, SHOULD CONSIDER THE FOLLOWING FACTORS.
FLUCTUATIONS IN OPERATING RESULTS. The Company believes that its future
operating results will be subject to quarterly variations based upon a wide
variety of factors, including the cyclical nature of both the semiconductor
industry and the markets addressed by the Company's products, price erosion,
competitive factors, fluctuations in manufacturing yields, the timing of new
product introductions, changes in product mix, the availability and extent of
utilization of manufacturing capacity, product obsolescence, scheduling,
rescheduling and cancellation of large orders, the ability to develop and
implement new technologies, changes in effective tax rates and litigation
expenses. The Company's COMPASS subsidiary, like other companies in the EDA
business, is particularly subject to significant fluctuations in revenues due to
limited backlog and its reliance on large orders placed late in the quarter. The
Company increases its level of operating expenses and investment in
manufacturing capacity in anticipation of future growth in revenues. To the
extent this revenue growth does not materialize, the Company's operating results
would be adversely affected. In circumstances where the Company is operating at
less than full capacity or has targeted a market segment as a long-term
strategic focus, the Company may choose, in the face of severe pricing pressure,
to manufacture products at low or no profitability. The Company's second quarter
financial results were adversely affected by a $19.4 million charge to earnings
relating to a May 1995 verdict against VLSI in a patent infringement lawsuit.
See "-- TI Litigation; Intellectual Property Matters" and "Business --
Litigation."
MANUFACTURING CAPACITY LIMITATIONS. The Company's manufacturing facilities
are operating at capacity. As a result, VLSI's growth is constrained and the
Company has experienced difficulty in meeting the delivery dates requested by
customers. Although the Company intends to use the proceeds of this offering to
increase manufacturing capacity, there can be no assurance that any such
increased capacity will be sufficient to satisfy demand for its products.
Prolonged inability of VLSI to deliver products in a timely manner could result
in the loss of customers and materially adversely affect results of operations.
In addition, the Company is experiencing manufacturing inefficiencies associated
with the operation of its facilities at capacity while simultaneously working to
expand or upgrade that capacity. Significant lead time is required to acquire
and install additional wafer fabrication equipment. To the extent that the
Company is unable to procure and install such equipment in a timely manner, the
increase in wafer production capacity at its facilities would be delayed.
In addition, available third-party wafer fabrication, assembly, testing and
packaging capacity has become very limited in recent months. The Company relied
on two outside suppliers for approximately 27% and 21% of its wafer production
in 1994 and the first half of 1995, respectively. Although the Company has
ongoing relationships with these suppliers, the Company has only one contract
for guaranteed capacity. The other supplier has notified the Company that it
will reduce its allocation of wafers to VLSI in the third quarter of 1995, with
further reductions from the second quarter of 1995 levels through the second
quarter of 1996, and has indicated that it does not intend to supply wafers to
the Company thereafter. There can be no assurance that such supplier will not
further reduce its allocation to VLSI. The Company is attempting to find
alternative sources of wafer supply. In addition, the Company relies on three
suppliers for almost all assembly operations. Any material reduction in
shipments by the Company's key suppliers could also have a material adverse
effect on the Company's results of operations. As the Company is currently
unable to meet the demands of its customers for VLSI's products, which is
adversely impacting the businesses of the Company's customers, some customers
are actively seeking to second source products currently obtained from VLSI. In
addition, VLSI's relationships with key customers may be negatively affected by
the Company's inability to meet customer demands, potentially resulting in
material adverse impacts on the Company's future operating results.
MANUFACTURING RISKS. The fabrication of integrated circuits is an extremely
complex and precise process consisting of hundreds of separate steps and
requiring production in a highly controlled, clean
7
<PAGE>
environment. Minute impurities, errors in any step of the fabrication process,
defects in the masks used to print circuits on a wafer or other factors can
cause a substantial percentage of wafers to be rejected or numerous die on each
wafer to be nonfunctional. The Company may experience problems in achieving
acceptable yields in the manufacture of wafers, particularly in connection with
any expansion of its capacity or change in its processing steps. For example, in
late 1992, the Company switched processes at one step in the manufacturing line,
which caused certain VLSI chips to fail. The Company's replacement of these
chips at no charge to the customers adversely affected results of operations in
the first quarter of 1993.
In addition to manufacturing in its own facilities, VLSI has wafer
manufacturing arrangements with two integrated circuit manufacturing companies.
These wafer subcontractors are themselves subject to all of the manufacturing
risks that are applicable to VLSI's own wafer manufacturing operations. The
Company also subcontracts virtually all of its integrated circuit packaging and
a significant portion of its final testing to third parties, principally ANAM
Industrial Company in Korea, ASE Corporation in Taiwan, Advanced Semiconductor
Assembly Technology in Hong Kong and Mitsui Incorporated in Japan. In addition,
the Company's foreign subcontract manufacturing arrangements are subject to
risks such as changes in government policies, transportation delays, increased
tariffs, fluctuations in foreign exchange rates, and export and tax controls.
Any problems experienced in obtaining acceptable wafers from third party wafer
subcontractors on a timely basis to augment the Company's internal manufacturing
capacity or in the integrated circuit packaging, assembly and test operations
performed by subcontractors could delay shipments of the Company's products and
materially adversely affect the Company's results of operations.
The Company's success is also dependent upon its ability to develop and
implement new manufacturing process technologies. Semiconductor design and
process methodologies are subject to rapid technological change, requiring large
expenditures for research and development. Most of the Company's products are
currently manufactured using sub-micron CMOS processes. The Company believes
that the transition to smaller geometry process technologies will be important
to remaining competitive. The Company is in the process of expanding and
upgrading its manufacturing facility in San Jose, California to convert
production to a 6-inch CMOS wafer process. The Company's San Antonio facility,
which is currently using both 0.6-micron and 0.8-micron processes, is being
converted to 100% 0.5-micron CMOS process capability and steps to facilitize the
third and fourth modules have begun. In the second quarter of 1995,
inefficiencies caused by the work associated with the conversions of the
manufacturing facilities had a negative effect on the Company's overall gross
profit of approximately $2 million, or one percentage point of gross margin. The
work effort associated with the changes to these facilities will negatively
affect the Company's gross profit in the third quarter of 1995, could result in
further disruption to manufacturing output as well as wafer yields and could
have a material adverse impact on future operating results.
The Company is party to a joint development agreement with Hitachi, which
expires in 1997. Under such agreement, the Company and Hitachi work together to
develop advanced sub-micron processes for the manufacture of integrated
circuits. In addition, the Company is dependent on Hitachi for assistance in
developing other state-of-the-art manufacturing processes. Any failure or
disruption of the Company's joint development activities could have a material
adverse effect upon the Company's ability to implement state-of-the-art
manufacturing processes.
The Company's San Jose facility, which accounted for approximately 41% of
its total internal production in the first half of 1995, is located near major
earthquake faults and in an area that has in the recent past experienced an
extended drought. Even though the Company utilizes both of its fabrication
plants and two subcontractors to manufacture its wafers and has the ability to
shift manufacturing from one plant to another for many of its products,
disruption of operations at either of the Company's production facilities or at
those of its subcontractors for any reason, such as fire or earthquake, would
cause delays in shipments until the Company could shift the products from the
affected facility or subcontractor to another facility.
8
<PAGE>
FUTURE CAPITAL NEEDS. Semiconductor companies such as VLSI have substantial
ongoing capital requirements to obtain internal or external manufacturing
capacity. In order to remain competitive, the Company must continue to make
significant investments in capital equipment and expansion of facilities, as
well as in research and development. Development and implementation of
sub-micron manufacturing processes is particularly capital intensive, requiring
significant investments in new state-of-the-art equipment. The Company currently
has budgeted its capital expenditures for 1995 to be approximately $200 million.
The Company believes that the net proceeds of approximately $94 million from the
sale of the Common Stock in the Company's public offering in June 1995, together
with existing cash balances, cash flow from operations, available equipment
financing and net proceeds of this Notes offering will be sufficient to meet the
Company's liquidity and capital requirements through 1996. While the Company is
currently increasing its internal manufacturing capacity by completing the
build-out of its San Antonio facility, the Company believes it will need to
further expand its internal capacity as well as to explore methods to increase
external capacity. As a result, the Company may be required or choose to seek
additional equity or debt financing to fund further expansion of its internal or
external wafer fabrication capacity or for other purposes. The timing and amount
of such capital requirements cannot be precisely determined and will depend on a
number of factors, including demand for the Company's products, product mix,
changes in semiconductor industry conditions and competitive factors. There can
be no assurance that such additional financing will be available when needed or,
if available, will be on satisfactory terms. The failure to obtain financing
would hinder the Company's ability to make continued investments in capital
equipment and facilities, which could materially adversely affect the Company's
results of operations.
TI LITIGATION; INTELLECTUAL PROPERTY MATTERS. The Company is one of three
defendants in a major patent infringement suit brought by Texas Instruments with
respect to patents that have now expired, which suit resulted in a May 1995 jury
verdict against VLSI for damages of $19.4 million and a determination by the
jury that the infringement was intentional. As a result of such verdict, the
Company recorded a charge to earnings of $19.4 million in the second quarter of
1995. However, in August 1995, the trial judge overturned and set aside the jury
verdict and conditionally granted a new trial on the matter in the event that
his decision is reversed on appeal. It is anticipated that TI will appeal the
judge's reversal of the jury verdict and seek enhanced damages, pre-judgment
interest and attorneys' fees. In the event that TI's appeal is successful and
enhanced damages (which by statute may be as high as treble damages),
pre-judgment interest and/or attorneys' fees are awarded, the judgment could
result in a material reduction in liquidity, as well as an additional adverse
impact on the Company's reported results of operations. See "Business --
Litigation."
The semiconductor industry is generally characterized by vigorous protection
and pursuit of intellectual property rights and positions, which have on
occasion resulted in protracted litigation that utilizes cash and management
resources, which can have a significant adverse effect on operating results.
There can be no assurance that additional intellectual property claims will not
be made against the Company in the future or that the Company will not be
prohibited from using the technologies subject to such claims or be required to
obtain licenses and make corresponding royalty payments for past or future use.
There can be no assurance that any such licenses could be obtained on
commercially reasonable terms.
DEPENDENCE ON PERSONAL COMPUTER INDUSTRY. The Company estimates that total
sales to the personal computer market during 1994 and the first half of 1995
represented approximately 47% and 46% of the Company's net revenues,
respectively. With seven of the Company's top ten customers in the first half of
1995 operating in the personal computer industry, a deterioration of business
conditions in the personal computer industry would have a material adverse
effect on VLSI's operations. The personal computer market is volatile and is
subject to significant shifts in demand and severe pricing pressures. In
addition, the market for the Company's personal computer devices is
characterized by rapid technological change and product obsolescence. The
Company's results in the personal computer market will also be dependent in part
on the Company's ability to respond quickly to new microprocessor architectures
adopted by major OEMs. The Company's need to anticipate customer product
transitions also leads to potential inventory exposure, which could adversely
affect the Company's financial results.
9
<PAGE>
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY. The semiconductor industry
has historically been characterized by wide fluctuations in product supply and
demand. From time to time, the industry has also experienced significant
downturns, often in connection with, or in anticipation of, declines in general
economic conditions. These downturns, which in some cases have lasted for more
than a year, have been characterized by diminished product demand, production
over-capacity and subsequent accelerated erosion of average sales prices. The
Company historically has experienced prolonged over-capacity for sustained
periods of time and there can be no assurance that the Company's efforts to
increase manufacturing capacity will not result in future sustained periods of
over-capacity. The Company, like other semiconductor manufacturers with
fabrication facilities, has high fixed costs for its manufacturing facilities
and believes that its operating results were adversely affected by an industry-
wide downturn in the demand for semiconductors in 1990. This downturn coincided
with the recession in the U.S. economy and slower growth in various electronics
industries using semiconductors, including market segments in which the Company
was engaged at the time.
NEW PRODUCT RISKS. The Company's future success depends on its ability to
continue to develop and introduce new products that compete effectively on the
basis of price and performance and that satisfy customer requirements. The
Company expects to continue to invest in the research and development of new
products for all of its market segments during the balance of 1995. New product
development often requires long-term forecasting of market trends, development
and implementation of new processes and technologies and substantial capital
commitments. If the Company is unable to design, develop, manufacture and market
new products successfully and in a timely manner, its operating results will be
materially adversely affected. No assurance can be given that the Company's
product and process development efforts will be successful or that new products
will achieve market acceptance. For example, the Company expended considerable
financial and technical resources during 1993 and part of 1994 toward the
development of its Polar product, a device intended for the handheld computer
market integrating Intel's 386SL microprocessor. Because the handheld market
developed more slowly than initial expectations, the Company and Intel, its
partner in the Polar development effort, canceled the Polar project and
terminated the amended July 8, 1992 Technology Agreement between the companies.
COMPETITION. The semiconductor industry in general and the markets in which
the Company competes in particular are intensely competitive, exhibiting both
rapid technological change and ongoing price erosion as technologies mature. The
Company competes with large domestic and foreign companies that have
substantially greater financial, technical, marketing and management resources
than the Company, such as AT&T, IBM, Intel, LSI, Motorola, TI and Toshiba.
Competition is particularly intense in X86 core logic chip sets where Intel, a
dominant supplier of microprocessors to the PC industry, has become the major
supplier of Pentium PC chip sets, as well as motherboards, which is likely to
cause increased pricing and margin pressure on such chip sets. Competition faced
by COMPASS in the EDA market comes primarily from a few large established
vendors, such as Cadence and Mentor Graphics. There is no assurance that the
Company will be able to compete successfully in the future.
CONCENTRATION OF CUSTOMER BASE. Approximately two-thirds of the Company's
net revenues for the first half of 1995 were derived from sales to its top 20
customers, a large percentage of which are in the personal computer business. As
a result of the concentration of the Company's customer base, loss or
cancellation of business from any of these major customers, significant changes
in scheduled deliveries to any of these customers or decreases in the prices of
products sold to any of these customers could materially adversely affect the
Company's results of operations. These risks of customer concentration are
exacerbated by the fact that the Company's agreements with its customers for the
purchase of products are generally terminable by such customers at any time and
permit customers to cancel orders previously placed for the Company's products
without penalty. For example, in the fourth quarter of 1993, Apple, which
accounted for 19% of 1993 net revenues, postponed and, in certain cases,
canceled approximately $20 million of shipments originally planned for delivery
in 1994, adversely affecting VLSI's 1994 results of operations. Shipments to
another customer, Compaq, accounted for 22% of net revenues in 1994 and 11% of
net revenues in the first six months of 1995.
SUBORDINATION OF NOTES. The Notes will be unsecured and subordinated in
right of payment in full to all existing and future Senior Debt of the Company.
As a result of such subordination, in the event of
10
<PAGE>
bankruptcy, liquidation or reorganization of the Company, or upon the
acceleration of any Senior Debt, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Debt has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Notes then outstanding. The Company expects from time to time to
incur indebtedness constituting Senior Debt. The Notes are also structurally
subordinated to the liabilities, including trade payables, of the Company's
subsidiaries. The Indenture does not prohibit or limit the incurrence of
additional indebtedness, including Senior Debt, by the Company or its
subsidiaries and the incurrence of additional indebtedness by the Company or its
subsidiaries could adversely affect the Company's ability to pay its obligations
on the Notes. As of June 30, 1995, the Company would have had approximately
$64.2 million of Senior Debt outstanding (not including the Debentures, which
were converted or redeemed subsequent to June 30, 1995) and the indebtedness and
all other liabilities of the Company's subsidiaries (excluding intercompany
indebtedness) would have been approximately $33.9 million. See "Description of
Notes -- Subordination."
LIMITATIONS ON REPURCHASE OF NOTES. Upon a Designated Event, which includes
a Change of Control and a Termination of Trading (each as defined), each holder
of Notes will have certain rights, at the holder's option, to require the
Company to repurchase all or a portion of such holder's Notes. If a Designated
Event were to occur, there can be no assurance that the Company would have
sufficient funds to pay the repurchase price for all Notes tendered by the
holders thereof. In addition, a Designated Event would constitute an event of
default under the Company's existing credit agreement and the repurchase of
Notes as a result of a Designated Event would be prohibited by the terms of such
credit agreement unless consented to by the banks. Moreover, the Company's
repurchase of Notes as a result of the occurrence of a Designated Event may be
prohibited or limited by, or create an event of default under, the terms of
agreements related to other borrowings which the Company may enter into from
time to time, including other agreements relating to Senior Debt. See
"Description of Notes -- Repurchase at Option of Holders Upon a Designated
Event."
AVAILABILITY OF RAW MATERIALS. Raw materials essential to the Company's
business are generally available from multiple sources. However, due to
increased levels of demand, there may be an industrywide shortage of raw silicon
wafers. A prolonged inability to obtain silicon wafers or any other raw
materials could have a material adverse impact on the Company's business.
ENVIRONMENTAL REGULATIONS. The Company is subject to a variety of federal,
state and local governmental regulations related to the storage, use, discharge
and disposal of toxic, volatile or otherwise hazardous chemicals used in its
manufacturing process. Increasing public attention has been focused on the
environmental impact of semiconductor manufacturing operations. The Company's
San Jose, California facilities are located near residential areas, which could
increase the incidence of environmental complaints or investigations. There can
be no assurance that changes in environmental regulations will not impose the
need for additional capital equipment or other requirements. Any failure by the
Company to control the use of, or adequately to restrict the discharge of,
hazardous substances under present or future regulations could subject VLSI to
substantial liability or could cause its manufacturing operations to be
suspended. Such liability or suspension of manufacturing operations could have a
material adverse effect on the Company's operating results.
ABSENCE OF PUBLIC MARKET FOR THE NOTES. The Notes will be a new issue of
securities with no established trading market. The Underwriters have advised the
Company that they currently intend to make a market in the Notes. The
Underwriters are not obligated, however, to make a market in the Notes, and any
such market making may be discontinued at any time at the sole discretion of the
Underwriters without notice. While the Company currently intends to apply for
approval for the Notes to be quoted on the Nasdaq Stock Market, there can be no
assurance that a trading market for the Notes will develop or, if such market
does develop, as to the liquidity of such market.
VOLATILITY OF STOCK PRICE. The Company's Common Stock has experienced and
can be expected to experience substantial price volatility. In addition, the
stock market in general has experienced
11
<PAGE>
extreme price and volume fluctuations, which have particularly affected the
market price of many technology companies and which have often been unrelated to
the operating performance of those companies. See "Price Range of Common Stock
and Dividend Policy."
EFFECT OF POTENTIAL STOCK SALES. Intel has the right to demand registration
of 2,677,604 shares of VLSI Common Stock (the "Warrant Shares") issued upon
exercise of a warrant in August 1995. Such registration rights may be exercised
by Intel at any time. In the event that Intel exercises its demand registration
rights, the Company will be required to file a registration statement with
respect to the Warrant Shares with the Securities and Exchange Commission within
30 days of Intel's notice to VLSI, subject to certain conditions. There can be
no assurance that Intel will not elect to exercise its demand registration
rights during or shortly after this offering, which election could adversely
affect the market price of the Company's Common Stock. In addition, as of June
30, 1995, approximately 3.2 million vested and unvested shares of the Company's
Common Stock (the "Option Shares") were subject to employee and director stock
options having exercise prices below the market price of the Common Stock shown
on the cover page of this Prospectus. Many optionees may choose to exercise
their options and sell the Common Stock acquired upon exercise in the coming
months due to the significant spread between the exercise prices and current
market prices. Sales of large numbers of shares by Intel, optionees or others
may have a depressing effect on the market price for the Company's Common Stock.
See "Capitalization."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Notes offered hereby are
estimated to be approximately $146,000,000 ($167,937,500 if the Underwriters'
over-allotment option is exercised in full). The proceeds will be used primarily
for adding internal and external wafer fabrication capacity and for general
corporate purposes, including working capital. In particular, the Company
intends to install additional manufacturing equipment and to complete the
build-out of its San Antonio fabrication facility to increase manufacturing
capacity. Although the Company does not currently intend to use the proceeds of
this offering for the acquisition of the business, products or technologies of
other companies, it may in the future enter into agreements for such
acquisitions. There are no pending agreements or arrangements concerning
material acquisitions. Pending such uses, the Company intends to invest the net
proceeds in investment grade securities and interest-bearing obligations.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been traded on the over-the-counter market
under the Nasdaq symbol "VLSI" since the Company's initial public offering in
1983. The following table sets forth, for the periods indicated, the high and
low closing prices for the Common Stock on the Nasdaq National Market. The last
reported sale price for the Common Stock of the Company on September 6, 1995 as
reported by the Nasdaq National Market is set forth on the cover page of this
Prospectus. At August 31, 1995, the Company had 1,489 holders of record of its
Common Stock and 46,838,737 shares outstanding. See also "Risk Factors --
Volatility of Stock Price" and "-- Effect of Potential Stock Sales."
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1993:
First Quarter................................................................. $ 8 7/8 $ 6 3/4
Second Quarter................................................................ 8 7/8 6 1/2
Third Quarter................................................................. 18 5/8 9 1/2
Fourth Quarter................................................................ 18 5/8 9 3/4
1994:
First Quarter................................................................. $16 $ 9 5/8
Second Quarter................................................................ 15 3/8 12 1/8
Third Quarter................................................................. 15 15/16 11
Fourth Quarter................................................................ 13 1/8 10 1/2
1995:
First Quarter................................................................. $18 3/16 $11 11/16
Second Quarter................................................................ 30 1/8 16 3/4
Third Quarter (through September 6, 1995)..................................... 35 1/2 26 11/16
</TABLE>
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain all cash for use in the operation and expansion of
the Company's business and does not anticipate paying any cash dividends in the
near future. Certain of VLSI's debt agreements prohibit the payment of dividends
without the lender's consent.
13
<PAGE>
CAPITALIZATION
The following table sets forth the cash, short-term debt and total
capitalization of the Company at June 30, 1995, pro forma giving effect to the
conversion or redemption of all of the Company's 7% Convertible Subordinated
Debentures due 2012 prior to the date hereof, and pro forma as adjusted to give
effect to the offering of the Notes hereby, assuming the Underwriters'
over-allotment option is not exercised.
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED (2)
----------- -------------- ---------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Cash, cash equivalents and liquid investments (3).................. $ 220,410 $ 219,567 $ 365,567
----------- -------------- ---------------
----------- -------------- ---------------
Short-term debt:
Current portion of long-term debt................................ $ 9,400 $ 9,400 $ 9,400
Current capital lease obligations................................ 3,698 3,698 3,698
----------- -------------- ---------------
Total short-term debt.......................................... $ 13,098 $ 13,098 $ 13,098
----------- -------------- ---------------
----------- -------------- ---------------
Long-term debt:
% Convertible Subordinated Notes due 2005...................... $ -- $ -- $ 150,000
7% Convertible Subordinated Debentures due 2012.................. 57,328 -- --
Other long-term debt............................................. 47,071 47,071 47,071
Noncurrent capital lease obligations............................. 3,983 3,983 3,983
----------- -------------- ---------------
Total long-term debt........................................... 108,382 51,054 201,054
----------- -------------- ---------------
Stockholders' equity:
Preferred Shares, $.01 par value, Authorized: 2,000,000 shares;
no shares issued and outstanding................................ -- -- --
Common Stock, $.01 par value, Authorized: 99,000,000 shares;
Issued and outstanding actual: 41,403,953 shares; pro forma and
as adjusted: 44,009,679 shares (4).............................. 414 440 440
Junior Common Stock, $.01 par value, Authorized: 1,000,000
shares; no shares issued and outstanding........................ -- -- --
Additional paid-in capital....................................... 334,464 390,484 390,484
Retained earnings................................................ 34,706 34,706 34,706
----------- -------------- ---------------
Total stockholders' equity..................................... 369,584 425,630 425,630
----------- -------------- ---------------
Total capitalization......................................... $ 477,966 $ 476,684 $ 626,684
----------- -------------- ---------------
----------- -------------- ---------------
<FN>
- ------------
(1) Gives effect to the conversion or redemption of the Debentures subsequent
to June 30, 1995 pursuant to a standby underwritten call.
(2) Adjusted to reflect the conversion or redemption of all of the Debentures
after June 30, 1995 and the offering of the Notes hereby and receipt of the
estimated net proceeds, assuming the Underwriters' over-allotment option is
not exercised.
(3) Cash and cash equivalents are defined as cash and instruments with maturity
dates of 90 days or less. Liquid investments are defined as instruments
with maturity dates of between 91 and 365 days.
(4) Excludes (i) 1,364,874 shares of Common Stock subject to outstanding
options under the Company's 1982 Incentive Stock Option Plan, which plan
has expired as to future grants, (ii) 4,162,723 shares of Common Stock
reserved for issuance upon exercise of stock options under the Company's
1992 Stock Plan, of which 1,681,320 shares are subject to outstanding
options and 2,481,403 shares are available for future grant as of June 30,
1995, (iii) 2,443,950 shares of Common Stock reserved for issuance under
the Company's employee stock purchase plan, (iv) 275,000 shares of Common
Stock reserved for issuance upon exercise of stock options under the
Company's 1986 Directors' Stock Option Plan, of which 115,000 shares are
subject to outstanding options and 160,000 shares are available for future
grant, and (v) 2,677,604 shares of Common Stock issued to Intel upon
exercise of a warrant in August 1995.
</TABLE>
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data set forth below for the years
ended December 26, 1992, December 25, 1993 and December 30, 1994 and the
consolidated balance sheet data at December 25, 1993 and December 30, 1994 are
derived from the financial statements of the Company, audited by Ernst & Young
LLP, independent auditors, that are incorporated herein by reference, and are
qualified by reference to such financial statements. The consolidated statement
of operations data for the years ended December 29, 1990, and December 28, 1991,
and the consolidated balance sheet data at December 29, 1990, December 28, 1991
and December 26, 1992 are derived from financial statements of the Company that
also have been audited by Ernst & Young LLP but are not incorporated herein by
reference. The financial data at June 30, 1995 and for the six-month periods
ended July 1, 1994 and June 30, 1995 are derived from unaudited financial
statements, which include all adjustments, consisting only of normal recurring
accruals, that the Company considers necessary for a fair presentation of the
consolidated financial position and the consolidated results of operations for
these periods. Operating results for the six months ended June 30, 1995 are not
necessarily indicative of the results that may be expected for future periods or
for the year ending December 29, 1995. The data should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included herein or incorporated herein by reference.
<TABLE>
<CAPTION>
FISCAL YEAR (1)(2) SIX MONTHS ENDED (3)
-------------------------------------------------------- --------------------------------------
1990 1991 1992 1993 1994 JULY 1, 1994 (2) JUNE 30, 1995
-------- -------- -------- -------- -------- ----------------- ----------------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues.............. $324,828 $413,376 $428,498 $515,946 $587,091 $286,171 $347,424
Cost of sales............. 215,757 275,414 293,392 327,774 356,858 174,811 208,767
-------- -------- -------- -------- -------- ----------------- ----------------
Gross profit............ 109,071 137,962 135,106 188,172 230,233 111,360 138,657
Operating expenses:
Research and
development............ 35,521 39,167 50,442 65,431 78,889 38,603 42,936
Marketing, general and
administrative......... 66,862 75,622 81,446 94,651 104,595 50,743 58,934
Special charge.......... 12,750(4) -- 22,500(5) 1,008(6) -- -- --
-------- -------- -------- -------- -------- ----------------- ----------------
Operating income (loss)... (6,062) 23,173 (19,282) 27,082 46,749 22,014 36,787
Litigation charge......... -- -- -- -- -- -- (19,400)(7)
Interest income and other
expenses (net)........... 2,395 (1,161) (3,282) 1,512 3,301 1,510 2,425
Interest expense.......... (9,073) (9,234) (9,053) (8,063) (8,343) (4,048) (3,317)
-------- -------- -------- -------- -------- ----------------- ----------------
Income (loss) before
provision for taxes on
income................... (12,740) 12,778 (31,617) 20,531 41,707 19,476 16,495
Provision for taxes on
income................... -- 2,905 600 4,648 10,010 4,778 4,950
-------- -------- -------- -------- -------- ----------------- ----------------
Net income (loss)......... $(12,740) $ 9,873 $(32,217) $ 15,883 $ 31,697 $ 14,698 $ 11,545
-------- -------- -------- -------- -------- ----------------- ----------------
-------- -------- -------- -------- -------- ----------------- ----------------
Net income (loss) per
share.................... $ (0.52) $ 0.37 $ (1.12) $ 0.45 $ 0.85 $ 0.40 $ 0.29
-------- -------- -------- -------- -------- ----------------- ----------------
-------- -------- -------- -------- -------- ----------------- ----------------
Weighted average common
and common equivalent
shares outstanding....... 24,339 26,657 28,865 35,276 37,446 37,201 39,579
OTHER DATA:
EBITDA (8)................ $ 42,823 $ 71,537 $ 27,740 $ 76,582 $108,510 $ 51,787 $ 51,638
Capital expenditures
(9)...................... 35,296 52,062 40,123 63,475 90,694 53,409 62,369
Ratio of earnings to fixed
charges (10):
Actual.................. --(11) 2.04x --(11) 2.73x 4.49x 4.57x 3.37x
Pro forma as adjusted
(11)................... 2.75x 2.67x 2.29x
Ratio of EBITDA to
interest
expense (8):
Actual.................. 4.72x 7.75x 3.06x 9.50x 12.38x 12.79x 10.95x
Pro forma as adjusted
(12)................... 5.95x 5.89x 5.46x
<CAPTION>
FISCAL YEAR (1)(2) SIX MONTHS ENDED (3)
-------------------------------------------------------- --------------------------------------
1990 1991 1992 1993 1994 JULY 1, 1994 (2) JUNE 30, 1995
-------- -------- -------- -------- -------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 66.4 66.6 68.5 63.5 60.8 61.1 60.1
-------- -------- -------- -------- -------- ----------------- ----------------
Gross profit............ 33.6 33.4 31.5 36.5 39.2 38.9 39.9
Operating expenses:
Research and
development............ 10.9 9.5 11.8 12.7 13.4 13.5 12.3
Marketing, general and
administrative......... 20.7 18.3 19.0 18.3 17.8 17.7 17.0
Special charge.......... 3.9(4) -- 5.2(5) 0.2(6) -- -- --
-------- -------- -------- -------- -------- ----------------- ----------------
Operating income (loss)... (1.9) 5.6 (4.5) 5.3 8.0 7.7 10.6
Litigation charge......... -- -- -- -- -- -- 5.6(7)
Interest expense and
other, net............... 2.0 2.5 2.9 1.3 0.9 0.9 0.3
Provision for taxes on
income................... -- 0.7 0.1 0.9 1.7 1.7 1.4
-------- -------- -------- -------- -------- ----------------- ----------------
Net income (loss)......... (3.9)% 2.4% (7.5)% 3.1% 5.4% 5.1% 3.3%
-------- -------- -------- -------- -------- ----------------- ----------------
-------- -------- -------- -------- -------- ----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
AT FISCAL YEAR END (1)
------------------------------------------------ AT
1990 1991 1992 1993 1994 JUNE 30, 1995
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 65,960 $ 76,127 $102,149 $114,423 $138,704 $234,391
Total assets.............................................. 327,340 364,018 368,208 412,223 490,216 644,179
Short-term debt, including current portion of long-term
obligations.............................................. 34,945 39,661 15,707 14,606 15,516 13,098
Long-term debt and non-current capital lease
obligations.............................................. 89,277 92,633 83,178 85,855 96,804 108,382
Stockholders' equity...................................... 147,110 161,628 185,008 212,508 255,430 369,584
</TABLE>
15
<PAGE>
- -------------
(1) From 1990 through 1993, VLSI's fiscal year end was the last Saturday of
December. In 1994, the Company changed its fiscal year end to the last
Friday of December. The actual dates of the Company's fiscal year ends in
the table above are December 29, 1990, December 28, 1991, December 26, 1992,
December 25, 1993 and December 30, 1994. The fiscal year ended December 30,
1994 was a 53-week year. The current fiscal year is a 52-week year ending on
December 29, 1995.
(2) During 1994, the Company reclassified costs associated with its Technology
Centers from research and development to cost of sales and marketing,
general and administrative in order to make the presentation of the
Company's financial statements more comparable with the financial statements
of its closest competitors and to better reflect the nature of these costs.
Amounts reclassified in 1990, 1991, 1992, 1993 and 1994 total $18.1 million,
$18.8 million, $19.1 million, $18.4 million and $22.7 million, respectively.
Cost of sales were increased $14.1 million, $14.7 million, $14.9 million,
$14.2 million and $17.9 million for 1990, 1991, 1992, 1993 and 1994,
respectively. Marketing, general and administrative expenses were increased
$4.0 million, $4.1 million, $4.2 million, $4.2 million and $4.8 million for
1990, 1991, 1992, 1993 and 1994, respectively.
(3) The six-month period ended July 1, 1994 was comprised of 27 weeks. The
six-month period ended June 30, 1995 was comprised of 26 weeks.
(4) Represents a special charge of $12.8 million reflecting the estimated cost
of corporate reorganization related to exiting the memory business.
(5) Represents a special charge of $22.5 million related to the de-emphasis of
older technologies, costs of streamlining sales distribution channels, costs
of relocating certain offices, writedowns of nonperforming assets and costs
associated with intellectual property matters.
(6) Represents a special charge of $1.0 million reflecting a write-off of
purchased in-process research and development expenses related to the
acquisition of certain assets.
(7) Represents a charge of $19.4 million relating to litigation. See "Risk
Factors -- TI Litigation; Intellectual Property Matters" and "Business --
Litigation."
(8) EBITDA is defined as earnings before interest income and other expenses,
interest expense, taxes on income, depreciation and amortization. EBITDA is
presented here to provide additional information about the Company's ability
to meet its future debt service, capital expenditure, and working capital
requirements and should not be construed as a substitute for or a better
indicator of results of operations or liquidity than net income or cash flow
from operating activities computed in accordance with generally accepted
accounting principles. EBITDA for the six months ended June 30, 1995
includes a charge of $19.4 million relating to litigation. See "Risk Factors
-- TI Litigation; Intellectual Property Matters" and "Business --
Litigation."
(9) Includes capitalized interest; excludes additions to property, plant and
equipment financed by capital leases.
(10) The ratio of earnings to fixed charges is computed by dividing (x) the sum
of income before provision for income taxes and fixed charges, less
capitalized interest, by (y) fixed charges. Fixed charges consist of
interest on all indebtedness, amortization of debt expense and discount or
premium relating to indebtedness, and the estimated interest component of
rental expense.
(11) As a result of the loss incurred for the years 1990 and 1992, the Company
was unable to fully cover fixed charges. The amount of such deficiencies in
1990 and 1992 were $12.7 million and $31.6 million, respectively.
(12) Pro forma as adjusted ratios assume (i) the redemption or conversion of the
Debentures after June 30, 1995 as if such redemption or conversion had been
consummated as of the first day of each fiscal period and (ii) the sale of
the Notes offered hereby and receipt of the estimated net proceeds (assuming
no exercise of the Underwriters' over-allotment option) as if such actions
had been consummated as of the first day of each fiscal period.
16
<PAGE>
BUSINESS
VLSI is a leader in the design, manufacture and sale of highly complex
application specific integrated circuits ("ASICs") -- custom chips designed for
an individual customer -- and application specific standard products ("ASSPs")
- -- semi-custom chips designed for a particular market application that may be
used by several different customers. The Company targets high-volume markets in
which it has built significant expertise and can use its library of proprietary
cells and highly integrated building blocks to assist customers in designing
products and in bringing them to market rapidly. VLSI's target markets include
the computing, communications and consumer and entertainment markets. VLSI
emphasizes high performance applications where its products are critical
elements of complex electronic systems. VLSI targets key OEM customers who are
leaders in their respective industries. The Company's major customers include
Compaq, Apple, Ericsson, Hewlett-Packard, Silicon Graphics, Tellabs and Alcatel.
VLSI produces a significant portion of its wafers (approximately 79% in the
first half of 1995) at its own facilities and augments its internal
manufacturing capacity with the foundry services of third-party wafer
subcontractors. The Company believes that this strategy improves quality,
cost-effectiveness, responsiveness to customers, access to capacity, ability to
implement leading edge process technology and time to market, as compared to
semiconductor companies that lack fabrication facilities. The semiconductor
industry is, however, currently facing capacity constraints in wafer
manufacturing and the availability of third-party wafer foundries has diminished
significantly. Due to this manufacturing capacity shortage, as well as increased
customer demand, the Company is seeking to accelerate the expansion and
upgrading of its internal and external manufacturing capacity. The Company is in
the process of completing the build-out of its fabrication facility in San
Antonio, Texas in order to increase its internal manufacturing capacity. The
Company has taken steps to secure deliveries of long lead-time equipment,
including steppers, necessary to support approximately a 50% increase in
internal wafer starts from the fourth quarter of 1995 to the fourth quarter of
1996.
Through its subsidiary, COMPASS Design Automation, Inc. ("COMPASS"), VLSI
offers an integrated suite of electronic design automation ("EDA") software
tools, foundry-flexible libraries and support services for use by systems and
circuit designers at other semiconductor and systems companies, as well as at
the Company, in creating complex integrated circuits.
BUSINESS STRATEGY
VLSI's objective is to design and manufacture highly-integrated, complex
semiconductor devices that allow its customers to develop and bring to market
higher value-added systems and products. Key elements in its strategy to achieve
this objective include:
- TARGET HIGH-VOLUME MARKETS. VLSI targets high-volume markets in which it
has built significant expertise and can utilize its library of proprietary
cells and high-level building blocks to assist customers in designing
products and in bringing them to market rapidly. VLSI believes that this
allows the Company to offer more value to the customer at higher gross
margins for the Company.
- FOCUS ON LARGE, INDUSTRY-LEADING OEM CUSTOMERS. VLSI focuses its
manufacturing and research and development resources on products for OEM
customers that are leaders in their respective industries. During the
first half of 1995, approximately two-thirds of the Company's net revenues
were derived from sales to its top 20 customers, including Compaq, Apple,
Ericsson, Hewlett-Packard, Silicon Graphics, Tellabs and Alcatel.
- EMPHASIZE STANDARD CELL ASICS AND ASSPS. VLSI emphasizes standard cell
ASICs and ASSPs rather than gate arrays and other design methodologies.
The Company believes that the standard cell approach is a superior
methodology for satisfying the size, performance and power consumption
requirements of the highly complex products that form VLSI's target
markets.
17
<PAGE>
- LEVERAGE LIBRARY OF STANDARD CELLS TO REDUCE CUSTOMERS' TIME TO MARKET.
VLSI's Functional System Block ("FSB") library, an expanding collection of
pre-designed cells and high-level building blocks, provides frequently
used integrated circuit functions. The FSB library allows VLSI and its
customers to more rapidly design and integrate products, thereby reducing
VLSI's customers' time to market. VLSI's library of FSBs includes Graphics
Controllers (LCD and CRT), a DES Encryption FSB, a PCI FSB, SCSI
Controllers, an ARM RISC-based microprocessor (low power, high performance
embedded control applications), and a variety of FSBs for power
management, communications for standards such as DECT, GSM and PHS, signal
conversion, forward error correction, digital demodulation, MPEG2 and
digital signal processing.
- PROVIDE ENGINEERING DESIGN SUPPORT. The Company seeks to differentiate
itself from its competitors not only through the quality of its products,
but also through the level of its technological support and service. VLSI
operates a network of geographically dispersed Technology Centers where
experienced engineers with a specific technical focus work with customers
to develop designs for new products and to provide continuing after-sale
customer support. In 1993, VLSI established a Customer Excellence program,
which is designed to foster relationships with customers through the use
of teams focused on elements such as customer satisfaction, manufacturing
competence and technical excellence.
- EMPLOY BOTH INTERNAL AND EXTERNAL MANUFACTURING CAPACITY. VLSI produces a
significant portion of its wafers (approximately 79% in the first half of
1995) at its own facilities and augments internal manufacturing capacity
with the foundry services of third-party wafer subcontractors. The Company
believes that this strategy improves quality, cost-effectiveness,
responsiveness to customers, access to capacity, ability to implement
leading edge process technology and time to market, as compared to
semiconductor companies that lack fabrication facilities. The
semiconductor industry is, however, currently facing capacity constraints
in wafer manufacturing and the availability of third-party wafer foundries
has diminished significantly. Due to this manufacturing capacity shortage,
as well as increased customer demand, the Company is seeking to accelerate
the expansion and upgrading of its internal and external manufacturing
capacity. The Company is in the process of completing the build-out of its
fabrication facility in San Antonio, Texas in order to increase its
internal manufacturing capacity. The Company has taken steps to secure
deliveries of long lead-time equipment, including steppers, necessary to
support approximately a 50% increase in internal wafer starts from the
fourth quarter of 1995 to the fourth quarter of 1996.
18
<PAGE>
PRODUCTS AND MARKETS
VLSI shipped over 2,000 different products in 1994. The following table
illustrates certain current VLSI products, their applications and customers, all
as selected by the Company in its discretion.
SELECTED VLSI PRODUCTS AND CUSTOMERS
<TABLE>
<CAPTION>
TARGET MARKET SELECTED PRODUCTS AND DESCRIPTION SELECTED CUSTOMER(S)
<S> <C> <C> <C> <C> <C> <C>
COMPUTING
ASICs and ASSPs for personal Core logic chip sets for Pentium personal computers AT&T, Compaq, NEC,
computers, workstations and Hewlett-Packard,
mass storage application Packard Bell
Core logic and multimedia ASICs for various Macintosh Apple and Apple
Power PC systems licensees
Core logic chip set for NexGen microprocessor NexGen
ASICs for Onyx high-end 3D Graphics and high volume Silicon Graphics
entry-level workstations
COMMUNICATIONS
ASICs and ASSPs for wireless ASICs for Titan digital access cross connect system Tellabs
communication and network and ASICs and ASSPs for ATM and hub/router based solutions Cisco, Newbridge, UB
voice application Networks
Handset and basestation chips for Japanese Personal Handy Kyocera/Motorola
System (PHS).
Ericsson
Signal processing and call control chips for GSM phones
ASICs for digital subscriber loop and central office Alcatel, DSC
application
CONSUMER & ENTERTAINMENT
ASICs and ASSPs for digital Forward error correction chip and QPSK demodulator for Hughes, Matsushita,
satellite and cable set top satellite set top box NEC, Pioneer, Sagem,
box, arcade and video game Sony, Thomson
application
High performance encryption engine chip AT&T
EDA
Electronic design automation of Top-down design tools, which include ASIC Synthesizer-TM- National
complex ASICs, ICs and ASSPs and Datapath Compiler-TM- Semiconductor,
Oak Technology,
Silicon Graphics
Physical design tools, which include a floorplanning Rockwell,
tool, ChipPlanner-TM- and a place and route tool, Path Tellabs, Thomson
Finder-TM-
Sub-micron physical library products Chips and
Technologies,
Hitachi, NEC, TI
</TABLE>
LITIGATION
In July 1990, Texas Instruments filed two actions against the Company and
four other defendants, Analog Devices, Inc., Integrated Device Technology, Inc.
("IDT"), LSI Logic Corporation and Cypress Semiconductor Corporation (the
Company and such other defendants are collectively referred to as the "TI
Defendants"). IDT settled its cases with TI in late December 1992.
In the action filed before the United States International Trade Commission
("ITC"), TI sought to exclude from importation into the U.S. all TI Defendants'
products manufactured outside the U.S. that allegedly utilize a plastic
encapsulation process described in U.S. Patent No. 4,043,027 (the "027 patent").
On October 15, 1991, the Administrative Law Judge ("ALJ") found the 027 patent
to be valid and infringed by the Company's old plastic encapsulation gating
process. However, a new plastic encapsulation gating process developed and used
by the TI Defendants was found not to infringe the 027 patent. In December 1991,
the full ITC determined that it would not consider TI's appeal to overturn the
ALJ's decision on noninfringement of the new process. The United States Court of
Appeals for the Federal Circuit affirmed the ITC decision in March 1993. The 027
patent has since expired.
19
<PAGE>
TI also filed a patent infringement action against the TI Defendants in the
United States District Court for the Northern District of Texas seeking an
injunction against the sale and/or manufacture by the TI Defendants of products
that allegedly infringe the 027 patent. The action also sought damages for
alleged past infringement of the 027 patent and now expired U.S. Patent No.
3,716,764. A trial for this matter was held in April 1995, which resulted in a
May 1995 jury verdict against VLSI for damages of $19.4 million and a
determination by the jury that the infringement was intentional. As a result of
such verdict, the Company recorded a charge to earnings of $19.4 million in the
second quarter of 1995. However, in August 1995, the trial judge overturned and
set aside the jury verdict and conditionally granted a new trial on the matter
in the event his decision is reversed on appeal. It is anticipated that TI will
appeal the judge's reversal of the jury verdict and seek enhanced damages,
pre-judgment interest and attorneys' fees. In the event that TI's appeal is
successful and enhanced damages (which by statute may be as high as treble
damages), pre-judgment interest and/or attorneys' fees are awarded, the judgment
could result in a material reduction in liquidity, as well as an additional
adverse impact on the Company's reported results of operations. Due to the
uncertainty as to the final outcome of an appeal or a new trial, the Company
does not currently intend to adjust its reserves relating to this litigation
matter.
20
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued under an indenture to be dated as of September ,
1995 (the "Indenture") between the Company and Harris Trust and Savings Bank, as
trustee (the "Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The terms of the
Notes will include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of the Indenture. The Notes will be subject to
all such terms, and holders of the Notes are referred to the Indenture and the
TIA for a statement of such terms. The following is a summary of important terms
of the Notes and does not purport to be complete. Reference should be made to
all provisions of the Indenture, including the definitions therein of certain
terms and all terms made a part of the Indenture by reference to the TIA.
Certain definitions of terms used in the following summary are set forth under
"-- Certain Definitions" below. As used in this section, the "Company" means
VLSI Technology, Inc., but not any of its Subsidiaries, unless the context
requires otherwise.
GENERAL
The Notes will be general unsecured subordinated obligations of the Company,
will mature on October 1, 2005 (the "Maturity Date"), and will be limited to an
aggregate principal amount of $150,000,000 ($172,500,000 if the Underwriters'
over-allotment option is exercised). The Notes will be issued in denominations
of $1,000 and integral multiples of $1,000 in fully registered form. The Notes
are exchangeable and transfers thereof will be registrable without charge
therefor, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in connection therewith.
The Notes will accrue interest at a rate of % per annum from September ,
1995, or from the most recent interest payment date to which interest has been
paid or duly provided for, and accrued and unpaid interest will be payable
semi-annually in arrears on April 1 and October 1 of each year beginning April
1, 1996. Interest will be paid to the person in whose name the Note is
registered at the close of business on the March 15 or September 15 immediately
preceding the relevant interest payment date (other than with respect to a Note
or portion thereof called for redemption on a redemption date, or repurchased in
connection with a Designated Event on a repurchase date, during the period from
a record date to (but excluding) the next succeeding interest payment date (in
which case accrued interest shall be payable (unless such Note of portion
thereof is converted) to the holder of the Note or portion thereof redeemed or
repurchased)). Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Company maintained for such purpose or, at the
option of the Company, payment of interest may be made by check mailed to the
holders of the Notes at their respective addresses set forth in the register of
holders of Notes. Until otherwise designated by the Company, the Company's
office or agency maintained for such purpose will be the principal corporate
trust office of the Trustee.
CONVERSION
The holders of Notes will be entitled at any time on or before the close of
business on the last trading day prior to the Maturity Date of the Notes,
subject to prior redemption or repurchase, to convert any Notes or portions
thereof (in denominations of $1,000 or multiples thereof) into Common Stock of
the Company, at the conversion price of $ per share of Common Stock, subject
to adjustment as described below (the "Conversion Price"). Except as described
below, no adjustment will be made on conversion of any Notes for interest
accrued thereon or for dividends on any Common Stock issued. If Notes not called
for redemption are converted after a record date for the payment of interest and
prior to the next succeeding interest payment date, such Notes must be
accompanied by funds equal to the interest payable on such succeeding interest
payment date on the principal amount so converted. The Company is not required
to issue fractional shares of Common Stock upon conversion of Notes and, in lieu
thereof, will pay a cash adjustment based upon the market price of the Common
Stock on the last
21
<PAGE>
trading day prior to the date of conversion. In the case of Notes called for
redemption, conversion rights will expire at the close of business on the
trading day preceding the date fixed for redemption, unless the Company defaults
in payment of the redemption price, in which case the conversion right will
terminate at the close of business on the date such default is cured. In the
event any holder exercises its repurchase right upon a Designated Event, such
holder's conversion right will terminate. See "-- Repurchase at Option of
Holders Upon a Designated Event."
The right of conversion attaching to any Note may be exercised by the holder
by delivering the Note at the specified office of a conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion, and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A holder delivering a
Note for conversion will not be required to pay any taxes or duties payable in
respect of the issue 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 issue or delivery of the Common Stock in a name other than the
holder of the Note. Certificates representing shares of Common Stock will not be
issued or delivered unless all taxes and duties, if any, payable by the holder
have been paid.
The Conversion Price is subject to adjustment (under formulae set forth in
the Indenture) in certain events, including: (i) the issuance of Common Stock as
a dividend or distribution on Common Stock of the Company; (ii) certain
subdivisions and combinations of the Common Stock; (iii) the issuance to all
holders of Common Stock of certain rights or warrants to purchase Common Stock;
(iv) the dividend or other distribution to all holders of Common Stock of shares
of capital stock of the Company (other than Common Stock) or evidences of
indebtedness of the Company of assets (including securities, but excluding those
rights, warrants, dividends and distributions referred to above and dividends
and distributions in connection with the liquidation, dissolution or winding up
of the Company or paid exclusively in cash); (v) dividends or other
distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in clause (iv)) to all holders of Common Stock to the
extent such distributions, combined together with (A) all such all-cash
distributions made within the preceding 12 months in respect of which no
adjustment has been made plus (B) any cash and the fair market value of other
consideration payable in respect of any tender offers by the Company or any of
its Subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 15% of the Company's
market capitalization (being the product of the then current market price of the
Common Stock times the number of shares of Common Stock then outstanding) on the
record date for such distribution; and (vi) the purchase of Common Stock
pursuant to a tender offer made by the Company or any of its subsidiaries to the
extent that the aggregate consideration, together with (X) any cash and the fair
market value of any other consideration payable in any other tender offer
expiring within 12 months preceding such tender offer in respect of which no
adjustment has been made plus (Y) the aggregate amount of any such all-cash
distributions referred to in clause (v) above to all holders of Common Stock
within the 12 months preceding the expiration of such tender offer in respect of
which no adjustments have been made, exceeds 15% of the Company's market
capitalization on the expiration of such tender offer.
The Indenture will provide that, in the event of the occurrence of certain
events affecting the rights (the "Rights") distributed pursuant to the Company's
First Amended and Restated Stockholder Rights Plan, as amended (the "Rights
Plan"), appropriate adjustments to the Conversion Price will be made. In lieu of
any such adjustment, the Company may amend the Rights Plan to provide that upon
conversion of the Notes the holder thereof will receive, in addition to the
Common Stock issuable upon such conversion, the Rights which attached to such
shares of Common Stock or would have attached to such shares if the Rights had
not become separated from the Common Stock pursuant to the provisions of the
Rights Plan.
In the case of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination involving the Company or a sale or
conveyance to another corporation of the property
22
<PAGE>
and assets of the Company as an entirety or substantially as an entirety, in
each case as a result of which holders of Common Stock shall be entitled to
receive stock, other securities, other property or assets (including cash) with
respect to or in exchange for such Common Stock, the holders of the Notes then
outstanding will be entitled thereafter to convert such Notes into the kind and
amount of shares of stock, other securities or other property or assets, which
they would have owned or been entitled to receive upon such reclassification,
change, consolidation, merger, combination, sale or conveyance had such Notes
been converted into Common Stock immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance (assuming, in a
case in which the Company's stockholders may exercise rights of election, that a
holder of Notes would not have exercised any rights of election as to the stock,
other securities or other property or assets receivable in connection therewith
and received per share the kind and amount received per share by a plurality of
non-electing shares). Certain of the foregoing events may also constitute or
result in a Designated Event requiring the Company to offer to repurchase the
Notes. See "-- Repurchase at Option of Holders Upon a Designated Event."
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the Conversion Price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may, to the extent permitted by law, reduce
the Conversion Price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive. The Company may, at its option, make such reductions in the
Conversion Price, in addition to those set forth above, as
the Board of Directors deems advisable to avoid or diminish any income tax to
holders of Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes. See "Certain Federal Income Tax Considerations."
No adjustment in the Conversion Price will be required unless such
adjustment would require a change of at least 1% of the Conversion Price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the Conversion Price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred. Upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all obligations in respect of
such Senior Debt before the holders of Notes will be entitled to receive any
payment with respect to the Notes.
In the event of any acceleration of the Notes because of an Event of
Default, the holders of any Senior Debt then outstanding would be entitled to
payment in full of all obligations in respect of such Senior Debt before the
holders of the Notes are entitled to receive any payment or distribution in
respect thereof. The Indenture will further require that the Company promptly
notify holders of Senior Debt if payment of the Notes is accelerated because of
an Event of Default.
The Company also may not make any payment upon or in respect of the Notes if
(i) a default in the payment of the principal of, premium, if any, interest,
rent or other obligations in respect of Senior Debt
23
<PAGE>
occurs and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or other person permitted to give
such notice under the Indenture. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the date
on which such nonpayment default is cured or waived or 179 days after the date
on which the applicable Payment Blockage Notice is received. No new period of
payment blockage may be commenced unless and until (i) 365 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice and
(ii) all scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in full in cash. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
By reason of the subordination provisions described above, in the event of
the Company's liquidation or insolvency, holders of Senior Debt may receive
more, ratably, and holders of the Notes may receive less, ratably, than the
other creditors of the Company. Such subordination will not prevent the
occurrences of any Event of Default under the Indenture.
The Notes are obligations exclusively of the Company. Since the operations
of the Company are partially conducted through Subsidiaries, the cash flow and
the consequent ability to service debt, including the Notes, of the Company, are
partially dependent upon the earnings of its Subsidiaries and the distribution
of those earnings to, or upon loans or other payments of funds by those
Subsidiaries to, the Company. 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 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 Notes to participate in those assets) will be effectively subordinated to
the claims of that Subsidiary's creditors (including trade creditors), except to
the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such Subsidiary and any indebtedness
of such Subsidiary senior to that held by the Company.
As of June 30, 1995, the Company had approximately $64.2 million of
indebtedness outstanding that would have constituted Senior Debt (excluding
accrued interest and Senior Debt constituting liabilities of a type not required
to be reflected as a liability on the balance sheet of the Company in accordance
with GAAP and not including the Debentures, which were converted or redeemed
subsequent to June 30, 1995). As of June 30, 1995, there was also outstanding
approximately $33.9 million of indebtedness and other obligations of
Subsidiaries of the Company (excluding intercompany liabilities and liabilities
of a type not required to be reflected as a liability on the balance sheet of
such subsidiaries in accordance with GAAP) as to which the Notes would have been
structurally subordinated. The Indenture will not limit the amount of additional
indebtedness, including Senior Debt, which the Company can create, incur, assume
or guarantee, nor will the Indenture limit the amount of indebtedness and other
liabilities which any Subsidiary can create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation by way of set-off or
otherwise, in respect of the Notes before all Senior Debt is paid in full, then
such payment or distribution will be held by the recipient in trust for the
benefit of holders of Senior Debt, and will be immediately paid over or
delivered to the holders of Senior Debt or their representative or
representatives to the extent necessary to make payment in full of all Senior
Debt remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior Debt.
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<PAGE>
OPTIONAL REDEMPTION
The Notes may be redeemed at the option of the Company, in whole or from
time to time in part, on and after October 3, 1997, on not less than 15 nor more
than 60 days' prior written notice to the holders thereof by first class mail,
at the following redemption prices (expressed as percentages of principal
amount) if redeemed during the 12-month period beginning October 1 of each year
indicated (October 3 with respect to 1997), plus accrued and unpaid interest to
the date fixed for redemption; provided, however, that the Company may not
redeem the Notes prior to October 3, 1999 unless the closing price of the Common
Stock on the principal stock exchange or market on which the Common Stock is
then quoted or admitted to trading equals or exceeds 125% of the Conversion
Price for at least 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date the notice of redemption
is first mailed to the holders of the Notes:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---------------------------------------------------------------------- -------------
<S> <C>
1997.................................................................. %
1998.................................................................. %
1999.................................................................. %
2000.................................................................. %
2001.................................................................. %
2002.................................................................. %
2003.................................................................. %
2004.................................................................. %
2005.................................................................. 100%
</TABLE>
If less than all the Notes are to be redeemed, the Trustee will select Notes
for redemption pro rata or by lot or by any other method that the Trustee
considers fair and appropriate. The Trustee may select for redemption a portion
of the principal of any Note that has a denomination larger than $1,000. Notes
and portions thereof will be redeemed in the amount of $1,000 or integral
multiples of $1,000. The Trustee will make the selection from Notes outstanding
and not previously called for redemption.
Provisions of the Indenture that apply to the Notes called for redemption
also apply to portions of the Notes called for redemption. If any Note is to be
redeemed in part, the notice of redemption will state the portion of the
principal amount to be redeemed. Upon surrender of a Note that is redeemed in
part only, the Company will execute and the Trustee will authenticate and
deliver to the holder a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
On and after the redemption date, unless the Company shall default in the
payment of the redemption price, interest will cease to accrue on the principal
amount of the Notes or portions thereof called for redemption and for which
funds have been set apart for payment. In the case of Notes or portions thereof
redeemed on a redemption date which is also a regularly scheduled interest
payment date, the interest payment due on such date shall be paid to the person
in whose name the Note is registered at the close of business on the relevant
record date.
REPURCHASE AT OPTION OF HOLDERS UPON A DESIGNATED EVENT
Upon the occurrence of a Designated Event, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Designated Event Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (the "Designated Event Payment").
Within 20 days following any Designated Event, the Company will mail a notice to
each holder describing the transaction or transactions that constitute the
Designated Event and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Designated Event. Rule 13e-4 under the
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<PAGE>
Exchange Act requires, among other things, the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
On the date specified for payment of the Designated Event Payment (the
"Designated Event Payment Date"), the Company will, to the extent lawful, (1)
accept for payment all Notes or portions thereof properly tendered pursuant to
the Designated Event Offer, (2) deposit with the paying agent an amount equal to
the Designated Event Payment in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company. The paying
agent will promptly mail to each holder of Notes so accepted the Designated
Event Payment for such Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
PROVIDED that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof.
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect holders.
The right to require the Company to repurchase Notes as a result of a
Designated Event could have the effect of delaying, deferring or preventing a
Change of Control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all the Notes at
the repurchase date. Consequently, this right may render more difficult or
discourage a merger, consolidation or tender offer (even if such transaction is
supported by the Company's Board of Directors or is favorable to the
stockholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
Except as described above with respect to a Designated Event, the Indenture
does not contain provisions that permit the holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. Subject to the limitation on mergers
and consolidations described below, the Company, its management or its
Subsidiaries could in the future, enter into certain transactions, including
refinancings, certain recapitalizations, acquisitions, the sale of all or
substantially all of its assets, the liquidation of the Company or similar
transactions, that would not constitute a Designated Event under the Indenture,
but that would increase the amount of Senior Debt (or any other indebtedness)
outstanding at such time or substantially reduce or eliminate the Company's
assets. There are no restrictions in the Indenture on the creation of Senior
Debt (or any other indebtedness) and, under certain circumstances, the
incurrence of significant amounts of additional indebtedness could have an
adverse effect on the Company's ability to service its indebtedness, including
the Notes.
The Credit Agreement currently prohibits the Company from purchasing any
Notes and also provides that a Designated Event as well as certain other change
of control events with respect to the Company would constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Debt to which the Company becomes a party may contain similar restrictions and
provisions. In the event a Designated Event occurs at a time when the Company is
prohibited from purchasing Notes, the Company could seek the consent of its
lenders to the purchase of Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company would remain prohibited from purchasing
Notes. In such case, the Company's failure to purchase tendered Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a further default under the Credit Agreement. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the holders of Notes.
A "Designated Event" will be deemed to have occurred upon a Change of
Control or a Termination of Trading.
26
<PAGE>
A "Change of Control" will be deemed to have occurred when: (i) any "person"
or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) of shares representing more than 50% of the combined
voting power of the then outstanding securities entitled to vote generally in
elections of directors of the Company ("Voting Stock"), (ii) the Company
consolidates with or merges into any other corporation, or conveys, transfers,
or leases all or substantially all of its assets to any person, or any other
corporation merges into the Company, and, in the case of any such transaction,
the outstanding Common Stock of the Company is changed or exchanged as a result,
unless the stockholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least a
majority of the combined voting power of the outstanding voting securities of
the corporation resulting from such transaction in substantially the same
proportion as their ownership of the Voting Stock immediately before such
transaction, or (iii) any time the Continuing Directors do not constitute a
majority of the Board of Directors of the Company (or, if applicable, a
successor corporation to the Company); PROVIDED that a Change of Control shall
not be deemed to have occurred if either (x) the last sale price of the Common
Stock for any five trading days during the ten trading days immediately
preceding the Change of Control is at least equal to 105% of the Conversion
Price in effect on the date of such Change of Control or (y) at least 90% of the
consideration (excluding cash payments for fractional shares) in the transaction
or transactions constituting the Change of Control consists of shares of common
stock that are, or upon issuance will be, traded on a United States national
securities exchange or approved for trading on an established automated
over-the-counter trading market in the United States.
The definition of Change of Control includes a phrase relating to the lease,
transfer or conveyance of "all or substantially all" of the assets of the
Company. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a lease, transfer or
conveyance of less than all of the assets of the Company to another person or
group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
A "Termination of Trading" will be deemed to have occurred if the Common
Stock (or other common stock into which the Notes are then convertible) is
neither listed for trading on a United States national securities exchange nor
approved for trading on an established automated over-the-counter trading market
in the United States.
MERGER AND CONSOLIDATION
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, person or entity as an entirety or substantially as an entirety
unless (a) the Company is the surviving corporation or the entity or the person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(b) the entity or person formed by or surviving any such consolidation or merger
(if other than the Company) or the entity or person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (c) immediately after such transaction no Default or Event of
Default exists; and (d) the Company or such person shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
such transaction and the supplemental indenture comply with the Indenture and
that all conditions precedent in the Indenture relating to such transaction have
been satisfied.
27
<PAGE>
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company, the capital stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
Upon any such consolidation, merger, sale, assignment, conveyance, lease,
transfer or other disposition in accordance with the foregoing, the successor
person formed by such consolidation or into which the Company is merged or to
which such sale, assignment, conveyance, lease, transfer or other disposition is
made will 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 had been named as the Company therein, and thereafter (except in the
case of a sale, assignment, transfer, lease, conveyance or other disposition)
the predecessor corporation will be relieved of all further obligations and
covenants under the Indenture and the Notes.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being (i) default in
payment of the principal of, or premium, if any, on the Notes, whether or not
such payment is prohibited by the subordination provisions of the Indenture;
(ii) default for 30 days in payment of any installment of interest on the Notes,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (iii) default by the Company for 60 days after notice in the
observance or performance of any other covenants in the Indenture; (iv) default
in the payment of the Designated Event Payment in respect of the Note on the
date therefor, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (v) failure to provide timely notice of a
Designated Event; (vi) failure of the Company or any Material Subsidiary to make
any payment at maturity, including any applicable grace period, in respect of
indebtedness for borrowed money of, or guaranteed or assumed by, the Company or
any Material Subsidiary which payment is in an amount in excess of $25,000,000
and continuance of such failure for 30 days after notice; (vii) default by the
Company or any Material Subsidiary with respect to any such indebtedness, which
default results in the acceleration of any such indebtedness of an amount in
excess of $25,000,000 without such indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled for 30 days after
notice; or (viii) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Material Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(viii) above with respect to the Company) occurs and is continuing, then and in
every such case the Trustee, by written notice to the Company, or the holders of
not less than 25% in aggregate principal amount of the then outstanding Notes,
by written notice to the Company and the Trustee, may declare the unpaid
principal of, premium, if any, and accrued and unpaid interest on, all the Notes
then outstanding to be due and payable. Upon such declaration such principal
amount, premium, if any, and accrued and unpaid interest will become immediately
due and payable, notwithstanding anything contained in the Indenture or the
Notes to the contrary, but subject to the provisions limiting payment described
in "-- Subordination." If any Event of Default specified in clause (viii) above
occurs with respect to the Company, all unpaid principal of, and premium, if
any, and accrued and unpaid interest on, the Notes then outstanding will
automatically become due and payable, subject to the provisions described in "--
Subordination, " without any declaration or other act on the part of the Trustee
or any holder of Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee is 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 an
indemnity satisfactory to it against any loss, liability or expense. Subject to
all provisions of the Indenture and applicable law, the holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. If a Default or Event of Default occurs and is
28
<PAGE>
continuing and is known to the Trustee, the Indenture requires the Trustee to
mail a notice of Default or Event of Default to each holder within 60 days of
the occurrence of such Default or Event of Default, PROVIDED, HOWEVER, that the
Trustee may withhold from the holders notice of any continuing Default or Event
of Default (except a Default or Event of Default in the payment of principal of,
premium, if any or interest on the Notes) if it determines that withholding
notice is in their interest. The holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may rescind any
acceleration of the Notes and its consequences if all existing Events of Default
(other than the nonpayment of principal of, premium, if any, and interest on the
Notes which has become due solely by virtue of such acceleration) have been
cured or waived and if the rescission would not conflict with any judgment or
decree of any court of competent jurisdiction. No such rescission shall affect
any subsequent Default or Event of Default or impair any right consequent
thereto.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to any
date on which the Company is prohibited from redeeming the Notes by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to such date, then the premium specified in the Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may, on behalf of the holders of all the Notes, waive any past
Default or Event of Default under the Indenture and its consequences, except
Default in the payment of principal of, premium, if any, or interest on the
Notes (other than the non-payment of principal of, premium, if any, and interest
on the Notes which has become due solely by virtue of an acceleration which has
been duly rescinded as provided above) or in respect of a covenant or provision
of the Indenture which cannot be modified or amended without the consent of all
holders of Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (a) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (b) reduce the principal of or change the fixed maturity of any Note
or, other than as set forth in the next paragraph, alter the provisions with
respect to the redemption of the Notes, (c) reduce the rate of or change the
time for payment of interest on any Notes, (d) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (e) make any Note payable
in money other than that stated in the Indenture and the Notes, (f) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Notes to receive payments of principal of, premium,
if any, or interest on the Notes, (g) waive a redemption payment with respect to
any Note, (h) make any change in the foregoing amendment and
29
<PAGE>
waiver provisions or (i) except as permitted by the Indenture, increase the
Conversion Price or, other than as set forth in the next paragraph, modify the
provisions of the Indenture relating to conversion of the Notes in a manner
adverse to the holders thereof. In addition, any amendment to the provisions of
Article 11 of the Indenture (which relate to subordination) will require the
consent of the holders of at least 75% in aggregate principal amount of the
Notes then outstanding if such amendment would adversely affect the rights of
holders of Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to (a) cure any ambiguity, defect or inconsistency, (b) provide for
uncertificated Notes in addition to or in place of certificated Notes, (c)
provide for the assumption of the Company's obligations to holders of Notes in
the circumstances required under the Indenture as described under "-- Merger and
Consolidation," (d) provide for conversion rights of holders of Notes in certain
events such as a consolidation, merger or sale of all or substantially all of
the assets of the Company, (e) reduce the Conversion Price, (f) make any change
that would provide any additional rights or benefits to the holders of Notes or
that does not adversely affect the legal rights under the Indenture of any such
holder, or (g) comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
scheduled for redemption within one year, and in either case, the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption.
GOVERNING LAW
The Indenture will provide that the Notes will be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption or repurchase. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. In case an Event of Default shall occur (and shall not
be cured) and holders of the Notes have notified the Trustee, the Trustee will
be required to exercise its powers with the degree of care and skill of a
prudent person in the conduct of such person's own affairs. Subject to such
provisions, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request of any of the holders of Notes, unless
they shall have offered to the Trustee security and indemnity satisfactory to
it.
The Indenture and the TIA will contain certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect of
any such claim as security or otherwise. Subject to the TIA, the Trustee will be
permitted to engage in other transactions, provided, however, that if it
acquires any conflicting interest (as described in the TIA), it must eliminate
such conflict or resign.
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<PAGE>
CERTAIN DEFINITIONS
"Credit Agreement" means that certain Credit Agreement, dated as of June 6,
1994, by and among the Company and the Lenders named therein and Bank of America
Illinois (as successor to Continental Bank N.A.), as Agent, providing for up to
$52,500,000 of revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means any particular Senior Debt in which the
instrument creating or evidencing the same or the assumption or guarantee
thereof (or related agreements or documents to which the Company is a party)
expressly provides that such Indebtedness shall be "Designated Senior Debt" for
purposes of the Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of such Senior Debt
to exercise the rights of Designated Senior Debt).
"Event of Default" has the meaning set forth under "-- Events of Default and
Remedies" herein.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i) (a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of the Company which is (1) given to secure all or part of
the purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that the Company is contractually obligated
to purchase or cause a third party to purchase and thereby guarantee a minimum
residual value of the lease property to the lessor and the obligations of the
Company under such lease or related document to purchase or to cause a third
party to purchase such leased property, (d) in respect of letters of credit,
bank guarantees or bankers' acceptances (including reimbursement obligations
with respect to any of the foregoing), (e) with respect to Indebtedness secured
by a mortgage, pledge, lien, encumbrance, charge or adverse claim affecting
title or resulting in an encumbrance to which the property or assets of such
person are subject, whether or not the obligation secured thereby shall have
been assumed by or shall otherwise be such person's legal liability, (f) in
respect of the balance of deferred and unpaid purchase price of any property or
assets, (g) under interest rate or currency swap agreements, cap, floor and
collar agreements, spot and forward contracts and similar agreements and
arrangements; (ii) with respect to any obligation of others of the type
described in the preceding clause (i) or under clause (iii) below assumed by or
guaranteed in any manner by such person or in effect guaranteed by such person
through an agreement to purchase (including, without limitation, "take or pay"
and similar arrangements), contingent or otherwise (and the obligations of such
person under any such assumptions, guarantees or other such arrangements); and
(iii) any and all deferrals, renewals, extensions, refinancings and refundings
of, or amendments, modifications or supplements to, any of the foregoing.
"Issue Date" means the date on which the Notes are originally issued under
the Indenture.
"Material Subsidiary" means, at any date of determination, any Subsidiary of
the Company that, together with its Subsidiaries, as of the end of such fiscal
year, was the owner of more than 25% of the
31
<PAGE>
consolidated assets of the Company, after eliminating any inter-company
receivables of such Subsidiary, all as set forth on the most recently available
consolidated financial statements of the Company and its consolidated
Subsidiaries for such fiscal year prepared in conformity with GAAP.
"Maturity Date" means October 1, 2005.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Senior Debt" means the principal of, premium, if any, and interest on, rent
under, and any other amounts payable on or in or in respect of the Credit
Agreement and any other Indebtedness of the Company (including, without
limitation, any Obligations in respect of such Indebtedness and, in the case of
Designated Senior Debt, any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law), whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements to the foregoing); PROVIDED, HOWEVER, that Senior Debt does not
include (v) Indebtedness evidenced by the Notes, (w) any liability for federal,
state, local or other taxes owed or owing by the Company, (x) Indebtedness of
the Company to any Subsidiary of the Company except to the extent such
Indebtedness is of a type described in clause (ii) of the definition of
Indebtedness, (y) trade payables of the Company (other than, to the extent they
may otherwise constitute trade payables, any obligations of the type described
in clause (ii) of the definition of Indebtedness), and (z) any particular
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Indebtedness shall not be
senior in right of payment to, or is PARI PASSU with, or is subordinated or
junior to, the Notes.
"Subsidiary" means, with respect to any person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such person or a Subsidiary of such person or (b)
the only general partners of which are such person or of one or more
Subsidiaries of such person (or any combination thereof).
32
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor's decision to purchase the Notes, and it is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations and non-United
States persons, may be subject to special rules. In addition, this discussion is
limited to persons that purchase the Notes in the offering and hold the Notes as
a "capital asset" within the meaning of Section 1221 of the Code.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of Common Stock. However, cash paid in lieu
of a fractional share of Common Stock will likely result in taxable gain (or
loss), which will be capital gain (or loss) to the extent that the amount of
such cash exceeds (or is exceeded by) the portion of the adjusted basis of the
Note allocable to such fractional share. The adjusted basis of shares of Common
Stock received on conversion will equal the adjusted basis of the Note
converted, reduced by the portion of adjusted basis allocated to any fractional
share of Common Stock exchanged for cash. The holding period of an investor in
the Common Stock received on conversion will include the period during which the
converted Notes were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion." Section 305 of the Code
and the Treasury Regulations issued thereunder may treat the holders of the
Notes as having received a constructive distribution, resulting in ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of the Company's current earnings and profits
as of the end of the taxable year to which the constructive distribution relates
and/or accumulated earnings and profits, if and to the extent that certain
adjustments in the conversion price that may occur in limited circumstances
(particularly an adjustment to reflect a taxable dividend to holders of Common
Stock) increase the proportionate interest of a holder of Notes in the fully
diluted Common Stock, whether or not such holder ever exercises its conversion
privilege. Moreover, if there is not a full adjustment to the conversion price
of the Notes to reflect a stock dividend or other event increasing the
proportionate interest of the holders of outstanding Common Stock in the assets
or earnings and profits of the Company, then such increase in the proportionate
interest of the holders of the Common Stock generally will be treated as a
distribution to such holders, taxable as ordinary income (subject to a possible
dividends received deduction in the case of corporate holders) to the extent of
the Company's current earnings and profits as of the end of the taxable year to
which the constructive distribution relates and/or accumulated earnings and
profits.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of sections 1276 through 1278 of the Code. Under the market discount
rules, if a holder of a Note purchases it at market discount (i.e., at a price
below its stated redemption price at maturity) in excess of a
statutorily-defined DE MINIMIS amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized or
the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount on
a Note may be taxable to an investor to the extent of appreciation at the time
of certain otherwise non-taxable transactions (e.g., gifts). Any accrued market
discount not
33
<PAGE>
previously taken into income prior to a conversion of a Note, however, should
(under Treasury Regulations not yet issued) carry over to the Common Stock
received on conversion and be treated as ordinary income upon a subsequent
disposition of such Common Stock to the extent of any gain recognized on such
disposition. In addition, absent an election to include market discount in
income as it accrues, a holder of a market discount debt instrument may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
debt instrument until the holder disposes of the debt instrument in a taxable
transaction.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Each holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement or other disposition of those Notes
measured by the difference (if any) between (i) the amount of cash and the fair
market value of any property received (except to the extent that such cash or
other property is attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary income) and (ii)
the holder's adjusted tax basis in those Notes (including any market discount
previously included in income by the holder). Each holder of Common Stock into
which the Notes are converted, in general, will recognize gain or loss upon the
sale, exchange, redemption, or other disposition of the Common Stock measured
under rules similar to those described in the preceding sentence for the Notes.
Special rules may apply to redemptions of Common Stock which may result in
different treatment. Any such gain or loss recognized on the sale, exchange,
redemption, repurchase, retirement or other disposition of a Note or share of
Common Stock should be capital gain or loss (except as discussed under "--
Market Discount" above), and would be long-term capital gain or loss if the Note
or the Common Stock had been held for more than one year at the time of the sale
or exchange. An investor's initial basis in a Note will be the cash price paid
therefor.
BACKUP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding" at
a rate of 31% with respect to certain "reportable payments," including interest
payments, dividend payments and, under certain circumstances, principal payments
on the Notes. These back-up withholding rules apply if the holder, among other
things, (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report properly interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to back-up withholding. A holder who does not provide the Company
with its correct TIN also may be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a holder under the back-up withholding rules
is creditable against the holder's federal income tax liability, provided the
required information is furnished to the IRS. Back-up withholding will not
apply, however, with respect to payments made to certain holders, including
corporations, tax-exempt organizations and certain foreign persons, provided
their exemption from back-up withholding is properly established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
34
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the Underwriters, the
Company has agreed to sell to the Underwriters, and the Underwriters have agreed
to purchase, the principal amount of the Notes set forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Salomon Brothers Inc.......................................................
Donaldson, Lufkin & Jenrette Securities Corporation........................
Merrill Lynch, Pierce Fenner & Smith
Incorporated.....................................................
Montgomery Securities......................................................
-----------------
Total.................................................................. $ 150,000,000
-----------------
-----------------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase the entire principal amount of the Notes offered hereby if
any Notes are purchased.
The Company has been advised by the Underwriters that they propose to offer
the Notes directly to the public at the initial public offering price set forth
on the cover of this Prospectus and to certain dealers at such price less a
concession of not more than % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of % of the principal amount of the Notes. After the initial public offering
of the Notes, the public offering price and such concessions may be changed.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act or contribute to payments that the Underwriters may be required
to make in respect thereof.
The Underwriters will reimburse the Company for certain expenses relating to
the offering.
Except for certain exceptions pertaining to certain employee benefit plans,
outstanding options and warrants to purchase Common Stock and securities
convertible into Common Stock, the Company has agreed that it will not, without
the prior written consent of Salomon Brothers Inc, for a period of 90 days after
the date on which the Underwriting Agreement is executed, directly or
indirectly, offer to sell, sell, grant any option for the sale of or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any shares of Common Stock, or any right or
option to acquire any such shares or securities. Sales by the Company to the
Underwriters are exempt from such restriction.
In connection with the offering, certain Underwriters and selling group
members who are qualifying registered market makers on Nasdaq may engage in
passive market making transactions in the Common Stock on Nasdaq in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Notes in the offering. Passive
market making transactions must comply with certain volume and price limitations
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for the security,
and if all independent bids are lowered below the passive market maker's bid,
then such bid must be lowered when cetain purchase limits are exceeded.
The Company intends to apply for approval for the Notes to be quoted on the
Nasdaq Stock Market. However, no assurance can be given that any market for the
Notes will develop. See "Risk Factors -- Absence of Public Market for the
Notes."
35
<PAGE>
LEGAL MATTERS
The validity of the Notes and the shares of Common Stock issuable upon
conversion thereof will be passed upon for the Company by Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, Palo Alto, California, and for the
Underwriters by Latham & Watkins, San Francisco, California.
EXPERTS
The consolidated financial statements and schedule of VLSI Technology, Inc.
appearing in the Company's Annual Report (Form 10-K) for the year ended December
30, 1994, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
36
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THESE SECURITIES OFFERED IN ANY JURISDICTION TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information............................. 2
Information Incorporated by Reference............. 2
Prospectus Summary................................ 3
Risk Factors...................................... 7
Use of Proceeds................................... 13
Price Range of Common Stock and Dividend Policy... 13
Capitalization.................................... 14
Selected Consolidated Financial Data.............. 15
Business.......................................... 17
Description of Notes.............................. 21
Certain Federal Income Tax Considerations......... 33
Underwriting...................................... 35
Legal Matters..................................... 36
Experts........................................... 36
</TABLE>
$150,000,000
[LOGO]
% CONVERTIBLE
SUBORDINATED NOTES
DUE 2005
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
PROSPECTUS
DATED , 1995
<PAGE>
VLSI TECHNOLOGY, INC.
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT ON FORM S-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various costs and expenses payable by the
Company (a portion of which will be reimbursed to the Company by the
Underwriters), other than underwriting discounts and commissions, with respect
to the sale and distribution of the securities being registered. All of the
amounts shown are estimates except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq Listing Fees.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 59,483
NASD Filing Fee................................................... 17,750
Nasdaq Listing Fees............................................... 27,500
Blue Sky Fees and Expenses........................................ 15,000
Legal Fees and Expenses........................................... 125,000
Accounting Fees and Expenses...................................... 50,000
Printing and Engraving............................................ 60,000
Trustee, Transfer Agent and Registrar Fees........................ 20,000
Miscellaneous..................................................... 25,267
---------
Total......................................................... $ 400,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has the power, pursuant to Section 145 of the Delaware General
Corporation Law, to limit the liability of directors to the Company for certain
breaches of fiduciary duty and to indemnify its directors, officers and other
persons for certain acts. The Company's Restated Certificate of Incorporation,
as amended, includes the following provision:
"11. LIMITATION OF DIRECTORS' LIABILITY. To the fullest extent permitted
by the Delaware General Corporation Law as the same exists or as it may
hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. Neither any amendment nor repeal of
this Article 11, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article 11, shall eliminate or reduce
the effect of this Article 11 in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article 11, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision."
Article VI of the Bylaws of the Company provides that the Company shall
indemnify certain agents of the Company against judgments, fines, settlements
and other expenses arising from such person's agency relationship with the
Company provided that the standard of conduct set forth therein is met. The
effect of Article VI is to require that the Company provide indemnification to
such agents to the maximum extent permitted by the Delaware General Corporation
Law. Agents covered by this indemnification provision include current and former
directors and officers of the Company, as well as persons who serve at the
request of the Company as directors, officers, employees or agents of another
enterprise.
In addition, the Company has entered into indemnification agreements with
each of its directors and certain of its officers. The indemnification
agreements are based on the provisions of Section 145 of the Delaware General
Corporation Law and attempt to provide the directors and officers of the Company
with the maximum indemnification allowed under Delaware law. In certain
instances, they may result in an expansion of the substantive protection
available to such individuals under the Restated Certificate of Incorporation
and the Bylaws.
II-1
<PAGE>
The Company currently maintains directors' and officers' liability
insurance, but the policy does not provide coverage for liabilities arising
under the Securities Act.
Reference is also made to Section 8 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying officers and directors of the Registrant
against certain liabilities.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1(1) Form of Underwriting Agreement.
4.1(2) Composite Certificate of Incorporation, as amended through May 5, 1995.
4.2(3) First Amended and Restated Rights Agreement, dated as of August 12, 1992, by and between the Company and
the First National Bank of Boston, as Rights Agent, and Amendment No. 1 thereto dated August 24, 1992.
4.3(1) Form of Indenture between the Registrant and Harris Trust and Savings Bank, as Trustee, covering
$150,000,000 of % Convertible Subordinated Notes due 2005 (including form of Note).
5.1(1) Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, regarding legality of
securities being registered.
10.1(1) Form of Second Amendment and Waiver to Credit Agreement.
12.1(1) Statement setting forth computation of ratio of earnings to fixed charges.
23.1(1) Consent of Ernst & Young LLP, Independent Auditors (see page II-5).
23.2(1) Consent of Counsel (included in Exhibit 5.1).
24.1(4) Power of Attorney (see page II-4).
25.1(1) Statement of Eligibility of Trustee.
<FN>
- ------------
(1) Filed herewith.
(2) Incorporated by reference from Exhibit to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1995.
(3) Incorporated by reference from Exhibit to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 26, 1992.
(4) Previously filed.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 15 hereof or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon
II-2
<PAGE>
Rule 430A and contained in a form of Prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933
shall be deemed to be part of this Registration Statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
VLSI Technology, Inc., a corporation organized and existing under the laws of
the State of Delaware, certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Jose, State of California, on the 6th day of
September, 1995.
VLSI Technology, Inc.
By: /s/ JOHN C. BATTY
-----------------------------------
John C. Batty,
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------- ------------------------- --------------
<C> <S> <C>
Chairman of the Board,
Chief Executive Officer
/s/ ALFRED J. STEIN* and President September 6,
--------------------------------- (Principal Executive 1995
(Alfred J. Stein) Officer) and Director
Vice President, Finance
/s/ GREGORY K. HINCKLEY* and Chief Financial September 6,
--------------------------------- Officer (Principal 1995
(Gregory K. Hinckley) Financial Officer)
/s/ BALAKRISHNAN S. IYER* Vice President and
--------------------------------- Controller (Principal September 6,
(Balakrishnan S. Iyer) Accounting Officer) 1995
/s/ PIERRE S. BONELLI*
--------------------------------- Director September 6,
(Pierre S. Bonelli) 1995
/s/ ROBERT P. DILWORTH*
--------------------------------- Director September 6,
(Robert P. Dilworth) 1995
/s/ JAMES J. KIM*
--------------------------------- Director September 6,
(James J. Kim) 1995
/s/ HORACE H. TSIANG*
--------------------------------- Director September 6,
(Horace H. Tsiang) 1995
*By: /s/ THOMAS C. TOKOS
-----------------------------
Thomas C. Tokos,
ATTORNEY IN FACT
</TABLE>
II-4
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" in this Amendment No. 1 to
Registration Statement (Form S-3) and related Prospectus of VLSI Technology,
Inc. for the registration of $172,500,000 of Convertible Subordinated Notes due
2005 and the Common Stock issuable upon conversion thereof and to the
incorporation by reference therein of our report dated January 17, 1995, with
respect to the consolidated financial statements and schedule of VLSI
Technology, Inc. included in its Annual Report (Form 10-K) for the year ended
December 30, 1994, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Jose, California
September 6, 1995
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1(1) Form of Underwriting Agreement.
4.1(2) Composite Certificate of Incorporation, as amended through May 5, 1995.
4.2(3) First Amended and Restated Rights Agreement, dated as of August 12, 1992, by and between the Company and
the First National Bank of Boston, as Rights Agent, and Amendment No. 1 thereto dated August 24, 1992.
4.3(1) Form of Indenture between the Registrant and Harris Trust and Savings Bank, as Trustee, covering
$150,000,000 of % Convertible Subordinated Notes due 2005 (including form of Note).
5.1(1) Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, regarding legality of
securities being registered.
10.1(1) Form of Second Amendment and Waiver to Credit Agreement.
12.1(1) Statement setting forth computation of ratio of earnings to fixed charges.
23.1(1) Consent of Ernst & Young LLP, Independent Auditors (see page II-5).
23.2(1) Consent of Counsel (included in Exhibit 5.1).
24.1(4) Power of Attorney (see page II-4).
25.1(1) Statement of Eligibility of Trustee.
<FN>
- ------------
(1) Filed herewith.
(2) Incorporated by reference from Exhibit to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1995.
(3) Incorporated by reference from Exhibit to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 26, 1992.
(4) Previously filed.
</TABLE>
<PAGE>
VLSI TECHNOLOGY, INC.
$150,000,000
% CONVERTIBLE SUBORDINATED NOTES DUE 2005
UNDERWRITING AGREEMENT
New York, New York
, 1995
SALOMON BROTHERS INC
MERRILL LYNCH, PIERCE FENNER & SMITH INCORPORATED
MONTGOMERY SECURITIES
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
C/O SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
VLSI Technology, Inc., a Delaware corporation (the "Company"), proposes to
sell to the underwriters named in Schedule I hereto (the "Underwriters"),
$150,000,000 principal amount of its % Convertible Subordinated Notes Due
2005 (the "Convertible Notes"), to be issued under an indenture (the
"Indenture") to be dated as of , 1995, between the Company and Harris
Trust and Savings Bank, as trustee (the "Trustee"). The Securities (as herein
defined) are convertible into shares of Common Stock, $.01 par value, of the
Company ("Common Stock"). The Company also proposes to grant to the Underwriters
an option to purchase up to an additional $22,500,000 aggregate principal amount
of Convertible Notes (the "Option Notes," and together with the Convertible
Notes, the "Securities"). Terms not otherwise defined herein have the same
meanings as set forth in the Indenture.
1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to,
and agrees with, each Underwriter as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in paragraph (c) hereof.
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933 (the "Act") and has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (file number
33-62161) on such Form, including a related preliminary prospectus, for the
registration under the Act of the offering and sale of the Securities. The
Company may have filed one or more amendments thereto, including the related
preliminary prospectus, each of which has previously been furnished to you.
The Company will next file with the Commission one of the following: (i)
prior to effectiveness of such registration statement, a further amendment
to such registration statement, including the form of final prospectus, (ii)
a final prospectus in accordance with Rules 430A and 424(b)(1) or (4), or
(iii) a final prospectus in accordance with Rules 415 and 424(b)(2) or (5).
In the case of clause (ii), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to be
included in the Prospectus with respect to the Securities and the offering
thereof. As filed, such amendment and form of final prospectus, or such
final prospectus, shall contain all Rule 430A Information, together with all
other such required information, with respect to the Securities and the
offering thereof and, except to the extent the Underwriters shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not completed
at the Execution Time,
<PAGE>
shall contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectus) as the Company
has advised you, prior to the Execution Time, will be included or made
therein. Upon the effectiveness of the Registration Statement, the Indenture
will be qualified under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and the respective rules thereunder.
(b) On the Effective Date, the Registration Statement did or will, and
when the Prospectus is first filed (if required) in accordance with Rule
424(b) and on the Closing Date, the Prospectus (and any supplements thereto)
will, comply in all material respects with the applicable requirements of
the Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the
Trust Indenture Act and the respective rules thereunder; on the Effective
Date, the Registration Statement did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading; on the Effective Date and on the Closing Date the Indenture did
or will comply in all material respects with the applicable requirements of
the Trust Indenture Act and the rules thereunder; and, on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), did not or will
not, and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto) will
not, include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that the Company makes no representations or warranties
as to (i) that part of the Registration Statement that shall constitute the
Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of the Trustee or (ii) the information contained in or omitted
from the Registration Statement or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter specifically for
inclusion in the Registration Statement or the Prospectus (or any supplement
thereto).
(c) The terms that follow, when used in this Agreement, shall have the
meanings indicated. The term "the Effective Date" shall mean each date that
the Registration Statement and any post-effective amendment or amendments
thereto became or become effective. "Execution Time" shall mean the date and
time that this Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus referred to
in paragraph (a) above, any prospectus filed with the Commission pursuant to
Rule 424(a) promulgated under the Act, and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits Rule
430A Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the Securities included in the
Registration Statement at the Effective Date; PROVIDED that if a prospectus
that meets the requirements of Section 10(a) of the Act is delivered
pursuant to Rule 434(b) under the Act, then (i) the term "Prospectus" as
used in this Agreement means the prospectus subject to completion (as
defined in Rule 434(g) under the Act) as supplemented by the information
contained in the term sheet described in Rule 434(b)(3) under the Act, and
(ii) the date of such Prospectus shall be deemed to be the date of such term
sheet. "Registration Statement" shall mean the registration statement
referred to in paragraph (a) above, including documents incorporated by
reference therein pursuant to Item 12 of Form S-3 that were filed under the
Exchange Act on or before the Effective Date of the Registration Statement,
exhibits and financial statements, as amended at the Execution Time (or, if
not effective at the Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Date (as hereinafter defined), shall also
mean such registration statement as so amended. The term "Registration
Statement" shall also include any registration statement relating to the
Securities that is filed and declared effective pursuant to Rule 462(b)
under the Act. Such term shall include any Rule 430A Information deemed to
be included therein at the Effective Date as provided by Rule 430A. "Rule
430A" and "Regulation S-K" refer to such rules or regulation under the Act.
"Rule 430A Information" means information with respect to the Securities and
the offering thereof permitted to
2
<PAGE>
be omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A. Any reference herein to the Registration Statement, a
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12
of Form S-3 that were filed under the Exchange Act on or before the
Effective Date of the Registration Statement or the issue date of such
Preliminary Prospectus or the Prospectus, as the case may be; and any
reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the filing of any
document under the Exchange Act after the Effective Date of the Registration
Statement, or the issue date of any Preliminary Prospectus or the
Prospectus, as the case may be, deemed to be incorporated therein by
reference.
(d) The documents incorporated by reference in the Prospectus, when they
became effective or were filed with the Commission, as the case may be,
complied in all material respects with the requirements of the Exchange Act
and the rules thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and any
further documents so filed and incorporated by reference in the Prospectus
or any further amendment or supplement thereto, when such documents become
effective or are filed with the Commission, as the case may be, will comply
in all material respects to the requirements of the Exchange Act and the
rules thereunder and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that the Company
makes no representations or warranties as to the information contained in or
omitted from such documents made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter specifically for inclusion in such documents.
(e) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, complied in all material respects
with the requirements of the Act and the Exchange Act and the respective
rules thereunder, and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; PROVIDED, HOWEVER, that the
Company makes no representations or warranties as to the information
contained therein or omitted therefrom made in reliance upon and in
conformity with information furnished in writing to the Company by or on
behalf of any Underwriter specifically for inclusion therein.
(f) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
the jurisdiction in which it is chartered or organized, with full corporate
power and authority to own its properties and conduct its business as
described in the Prospectus, and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction that requires such qualification wherein it owns or leases
material properties or conducts material business, except for those failures
to be so qualified or in good standing that will not in the aggregate have a
material adverse effect on the Company and its subsidiaries considered as a
whole.
(g) All the outstanding shares of capital stock of each subsidiary have
been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise set forth in the Prospectus, all
outstanding shares of capital stock of the subsidiaries are owned by the
Company either directly or through wholly owned subsidiaries (except for
directors' qualifying shares or shares held by nominees as required by the
laws of certain non-United States jurisdictions and except for shares of
common stock of COMPASS Design Automation, Inc. ("COMPASS") held by
employees or former employees of the Company or COMPASS) free and clear of
any perfected security interest and any other security interests, claims,
liens or encumbrances.
3
<PAGE>
(h) The Company's authorized, issued and outstanding capital stock is as
set forth in the Prospectus; the capital stock of the Company conforms to
the description thereof contained in the Registration Statement; the
outstanding shares of capital stock of the Company and options and warrants
to purchase capital stock of the Company have been duly and validly
authorized and issued and the outstanding shares of capital stock of the
Company are fully paid and nonassessable; and the holders of outstanding
shares of capital stock of the Company are not entitled to preemptive or
other similar rights to subscribe for the Securities.
(i) The consolidated financial statements of the Company, together with
the notes thereto, included in the Registration Statement and Prospectus
comply in all material respects with the requirements of the Act and fairly
present the financial condition of the Company as of the dates indicated and
the results of operations and changes in cash flows for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
stated therein); and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. No
other financial statements or schedules are required to be included in the
Registration Statement or Prospectus. Ernst & Young LLP, which has expressed
its opinion with respect to the financial statements and schedules filed as
a part of the Registration Statement and included in the Registration
Statement and Prospectus, are independent public accountants as required by
the Act and the rules thereunder. The financial information appearing in the
Prospectus under the captions "Prospectus Summary -- Summary Consolidated
Financial Data," "Capitalization" and "Selected Consolidated Financial Data"
are fairly stated in all material respects as of the dates and for the
periods indicated.
(j) No holders of securities of the Company other than Intel
Corporation have rights to the registration of such securities under the
Registration Statement. Except as disclosed in the Registration Statement
and the Prospectus, there are no options, warrants, agreements, contracts or
other rights in existence to purchase or acquire from the Company, or any
instruments convertible into or exchangeable for, any shares of the capital
stock or other equity interests of the Company. The descriptions of the
Company's stock option, stock bonus and other stock plans or arrangements,
and of the options or other rights granted and exercised thereunder,
included in the Registration Statement accurately and fairly present in all
material respects the information required to be disclosed with respect to
such plans, arrangements, options and rights.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) The Company has full corporate power and authority to enter into,
deliver and perform its obligations under this Agreement, the Indenture and
the Securities and to execute and deliver all other documents or
certificates required or contemplated hereby or thereby. The Securities have
been duly authorized by the Company for issuance and sale pursuant to this
Agreement, and, when issued, authenticated and delivered pursuant to this
Agreement and the Indenture against payment of the consideration set forth
herein, will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting enforcement of creditors' rights generally and (ii) that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought; and the
Securities would be entitled to the benefits provided by the Indenture; the
Indenture has been duly authorized and, on the Closing Date, will be duly
qualified under the Trust Indenture Act and, assuming due execution and
delivery by the Trustee, when executed and delivered by the Company will
constitute a valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except (i) as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting
enforcement of creditors' rights generally and (ii) that the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought; the Securities and the
4
<PAGE>
Indenture conform in all material respects to the descriptions thereof in
the Prospectus; the Indenture complies as to form in all material respects
with the requirements of the Trust Indenture Act and the respective rules
thereunder.
(m) The Securities are convertible into Common Stock of the Company in
accordance with the terms of the Indenture. The shares of Common Stock
initially issuable upon conversion of the Securities have been duly
authorized and reserved for issuance and, when the certificates therefor
have been duly countersigned by the Company's transfer agent and delivered
upon such conversion in accordance with the provisions of the Securities and
the Indenture, will be validly issued, fully paid and nonassessable, will
not have been issued in violation of or subject to any preemptive or similar
rights and will conform to the description of the Common Stock contained in
the Prospectus.
(n) The issue and sale of the Securities, the execution, delivery and
performance of the Indenture, the consummation of any other of the
transactions herein or therein contemplated, and the fulfillment of the
terms hereof and thereof will not conflict with, result in a breach or
violation of, or constitute a default under (i) any law (other than state
blue sky laws, as to which the Company makes no representation) or (ii) the
charter or by-laws of the Company or (iii) the terms of any indenture or
other material agreement or instrument to which the Company or any of its
subsidiaries is a party or bound or (iv) any judgment, order or decree
applicable to the Company or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over the Company or any of its subsidiaries.
(o) No consent, approval, authorization or order of or with any third
party (whether acting in an individual, fiduciary or other capacity) or any
court or governmental agency or body is required for the issue and sale of
the Securities, the execution, delivery and performance of the Indenture, or
the consummation of the transactions contemplated herein and therein, except
(i) such as have been obtained under the Act, (ii) such as may be required
under the blue sky laws of any jurisdiction in connection with the purchase
and distribution of the Securities by the Underwriters, (iii) the
qualification of the Indenture under the Trust Indenture Act and (iv) such
other approvals as have been obtained.
(p) There is no pending or threatened action, suit or proceeding before
any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries of a character required to
be disclosed in the Registration Statement that is not adequately disclosed
in the Prospectus, and there is no franchise, contract or other document of
a character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit, that is not described or filed as
required; and the statements in the Prospectus under the headings "Risk
Factors -- TI Litigation; Intellectual Property Matters" and "Business --
Litigation" fairly summarize the matters therein described.
(q) Except as disclosed in the Prospectus, the Company and each of its
subsidiaries holds, and is operating in compliance in all material respects
with, all franchises, grants, authorizations, licenses (other than
intellectual property licenses, which are addressed in subparagraph (r)
below), permits, easements, consents, certificates and orders of any
governmental or self-regulatory body required for the conduct of its
business and all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders are valid and in full force
and effect; and the Company and each of its subsidiaries is in compliance
with all applicable federal, state, local and foreign laws, regulations,
orders and decrees that are material to its business as described in the
Registration Statement and Prospectus. Neither the Company nor any of its
subsidiaries has transported, stored or disposed of any hazardous material
or substance in a manner that would give rise to any material liability
under current law, and neither the Company nor any of its subsidiaries has
received any inquiries from any governmental or regulatory body or any
claims in any way relating to any such liability for disposal of hazardous
materials or substances.
(r) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or bylaws or in breach of or otherwise in default
(nor has any event occurred which, with notice or lapse
5
<PAGE>
of time or both, would constitute a violation or default) in the performance
of any material obligation, agreement or condition contained in any bond,
debenture, note, indenture, loan agreement or any other material contract,
lease or other instrument to which it is subject or by which it may be
bound, or to which any of the material property or assets of the Company or
any of its subsidiaries is subject, except for such breaches of contracts as
would not result in a material adverse effect on the Company's business,
properties, condition (financial or otherwise) or results of operations.
(s) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; any real property and buildings held under
lease by the Company and its subsidiaries and any other material property
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with only such exceptions with
respect to any particular lease as are not material and do not interfere
with the use made and proposed to be made of such property by the Company
and its subsidiaries.
(t) The Company and each of its subsidiaries has applied for, owns or
possesses (or can obtain on commercially reasonable terms) adequate rights
to use all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights,
licenses, inventions, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and rights necessary for the conduct of its business as
currently carried on; except as disclosed in the Prospectus, no name that
the Company or any of its subsidiaries uses and no other aspect of the
business of the Company or any of its subsidiaries will involve or give rise
to any infringement of, or license or similar fees for, in either case that
would have a material adverse effect on the Company and its subsidiaries,
considered as a whole, any patents, patent applications, trademarks, service
marks, tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets or other similar rights of
others material to the business or prospects of the Company and its
subsidiaries, considered as a whole; except as disclosed in the Prospectus,
neither the Company nor any of its subsidiaries has received any notice
alleging any such infringement or fee; and except as disclosed in the
Prospectus, neither the Company nor any of its subsidiaries has any claim
against a third party with respect to the infringement by such third party
of patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets or other similar rights of the Company or such
subsidiary material to the business or prospects of the Company and its
subsidiaries considered as a whole.
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets
is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(v) Except as disclosed in the Prospectus, since the date of the latest
audited financial statements included or incorporated by reference in the
Prospectus, (i) neither the Company nor any of its subsidiaries has incurred
any material liability or obligation (indirect, direct or contingent) or
entered into any material verbal or written agreement or other transaction
that is not in the ordinary course of business or that could reasonably be
expected to result in a material reduction in the future earnings of the
Company and its subsidiaries; (ii) neither the Company nor any of its
subsidiaries has sustained any loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity (whether
or not covered by insurance); (iii) there has been no
6
<PAGE>
material increase in the long-term debt of the Company; and (iv) there has
been no change in the capital stock of the Company (except for any increase,
if any, due to conversion of up to $57,500,000 principal amount of the
Company's 7% Convertible Subordinated Debentures due 2012, the issuance of
shares of Common Stock to the purchasers pursuant to a standby
underwritten call, the exercise of the warrant issued to Intel Corporation
or of any employee or director stock option or the issuance of shares of
Common Stock under the Company's employee stock purchase plan) and no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock.
(w) The Company and its subsidiaries maintain insurance of the types and
in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, general liability insurance and insurance
covering real and personal property owned or leased by the Company or any of
its subsidiaries against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is in
full force and effect.
(x) The Company is not, and upon receipt and pending application of the
net proceeds from the sale of the Common Stock in the manner described in
the Prospectus will not be, an "investment company" or a company
"controlled" by an investment company within the meaning of the Investment
Company Act of 1940, as amended.
(y) The Company is not presently doing business with the government of
Cuba or with any person or affiliate located in Cuba.
2. PURCHASE AND SALE.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell
to each Underwriter, and each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of % of the principal
amount thereof, plus accrued interest, if any, on the securities from the
Closing Date to the date of issuance of the Securities, the principal amount
of the Securities set forth opposite such Underwriter's name in Schedule I
hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not
jointly, up to $22,500,000 aggregate principal amount of Option Notes at the
same purchase price per share as the Underwriters shall pay for the
Convertible Notes. Said option may be exercised only to cover
over-allotments in the sale of the Convertible Notes by the Underwriters.
Said option may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of the Prospectus upon
written or telegraphic notice by you to the Company setting forth the
principal amount of the Option Notes as to which the several Underwriters
are exercising the option and the settlement date (determined in accordance
with Section 3 hereof). Delivery of certificates for the Option Notes, and
payment therefor, shall be made as provided in Section 3 hereof. The
principal amount of Option Notes to be purchased by each Underwriter shall
be the same percentage of the aggregate principal amount of the Option Notes
to be purchased by the several Underwriters as such Underwriter is
purchasing of the Convertible Notes.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Convertible Notes
and the Option Notes (if the option provided for in Section 2(b) hereof shall
have been exercised on or before the second business day prior to the Closing
Date) shall be made at 10:00 AM, New York City time, on , 1995, or,
with the consent of the Company, such later date (not later than ,
1995) as the Underwriters shall designate, which date and time may be postponed
by agreement between the Underwriters and the Company or as provided in Section
9 hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the several Underwriters against payment by the several Underwriters of the
purchase price thereof to or upon the order of the Company by certified or
official bank check or checks
7
<PAGE>
drawn on or by a New York Clearing House bank and payable in next day funds.
Delivery of the Convertible Notes and the Option Notes shall be made at such
location you shall reasonably designate at least one business day in advance of
the Closing Date and payment for such Securities shall be made at the office of
Wilson, Sonsini, Goodrich & Rosati, Palo Alto, California. Certificates for the
Securities shall be registered in such names and in such denominations as you
may request not less than two full business days in advance of the Closing Date.
The Company agrees to have the Securities available for inspection, checking
and packaging by you in New York, New York, not later than 1:00 PM on the
business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised after the
second business day prior to the Closing Date, the Company will deliver (at the
expense of the Company) to you in New York, New York, on the date specified by
you (which shall be within three business days after exercise of said option),
certificates for the Option Notes in such names and denominations as you shall
have requested against payment of the purchase price thereof to or upon the
order of the Company by certified or official bank check or checks drawn on or
by a New York Clearing House bank and payable in next day funds. If settlement
for the Option Notes occurs after the Closing Date, the Company will deliver to
you on the settlement date for the Option Notes, and the obligation of the
Underwriters to purchase the Option Notes shall be conditioned upon receipt of,
supplemental opinions, certificates and letters confirming as of such date the
opinions, certificates and letters delivered on the Closing Date pursuant to
Section 6 hereof.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. AGREEMENTS. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus unless the Company has furnished
you a copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object. Subject to
the foregoing sentence, if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Prospectus is otherwise
required under Rule 424(b), the Company will cause the Prospectus, properly
completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Underwriters of
such timely filing. The Company will promptly advise the Underwriters (i)
when the Registration Statement, if not effective at the Execution Time, and
any amendment thereto, shall have become effective, (ii) when the
Prospectus, and any supplement thereto, shall have been filed (if required)
with the Commission pursuant to Rule 424(b), (iii) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (iv) of
any request by the Commission for any amendment of the Registration
Statement or supplement to the Prospectus or for any additional information,
(v) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (vi) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order
and, if issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were
made not misleading, or if it shall be necessary to amend the Registration
Statement or supplement the Prospectus to comply with the Act, the Exchange
Act or the Trust Indenture Act or the respective rules thereunder,
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the Company promptly will prepare and file with the Commission, subject to
the second sentence of paragraph (a) of this Section 5, an amendment or
supplement that corrects such statement or omission or effects such
compliance.
(c) As soon as practicable, the Company will make generally available to
its security holders and to the Underwriters an earnings statement or
statements of the Company and its subsidiaries that will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to counsel for the Underwriters, without
charge, a signed copy of the Registration Statement (including exhibits
thereto) and to each Underwriter a copy of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of each
Preliminary Prospectus and the Prospectus and any supplement thereto as the
Underwriters may reasonably request. The Company will pay the expenses of
printing or other production of all documents relating to the offering.
(e) The Company will arrange for the qualification of the Securities for
sale under the laws of such jurisdictions as the Underwriters may designate,
will maintain such qualifications in effect so long as required for the
distribution of the Securities and will pay the fee of the National
Association of Securities Dealers, Inc., in connection with its review of
the offering.
(f) The Company waives, to the extent permitted by law, the use of any
usury laws against any holder of Securities.
(g) The Company will reserve, from time to time, a sufficient number of
shares of Common Stock to permit the issuance of shares of Common Stock upon
the conversion of all of the outstanding Securities by the holders thereof.
(h) The Company will cause the Securities to be included for quotation
on the Nasdaq Stock Market within a reasonable amount of time after the
Closing Date.
(i) The Company agrees to notify the Nasdaq National Market of the
shares of Common Stock issuable upon conversion of the Securities and to pay
the fees required by Schedule D to the NASD By-Laws in connection therewith.
(j) The Company will not, for a period of 90 days following the
Execution Time, without the prior written consent of Salomon Brothers Inc,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any other shares of Common Stock or
any other securities convertible into, or exchangeable for, shares of Common
Stock; PROVIDED, HOWEVER, that the Company may issue and sell Common Stock
pursuant to any employee or director stock option or purchase plan of the
Company in effect at the Execution Time, the Company may issue Common Stock
as consideration in an acquisition of the stock or assets of another entity,
and the Company may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Execution Time.
(k) The Company will inform the Florida Department of Banking and
Finance at any time prior to the consummation of the distribution of the
Securities by the Underwriters if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof
or after a change occurs with respect to previously reported information.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase the Convertible Notes and the Option Notes,
as the case may be, shall be subject to the accuracy of the representations and
warranties on the part of the Company contained herein as of the Execution Time
and the Closing Date, to the accuracy of the statements of the Company made in
any certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
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(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Underwriters agree in writing to a later time,
the Registration Statement will become effective not later than (i) 6:00 PM
New York City time, on the date of determination of the public offering
price, if such determination occurred at or prior to 3:00 PM New York City
time on such date or (ii) 12:00 Noon on the business day following the day
on which the public offering price was determined, if such determination
occurred after 3:00 PM New York City time on such date; if filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b),
the Prospectus, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the Underwriters the opinion of
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel for
the Company, dated the Closing Date, to the effect that:
(i) each of the Company and COMPASS has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
the jurisdiction in which it is chartered or organized, with full
corporate power and authority to own its properties and conduct its
business as described in the Prospectus;
(ii) the Company's authorized capital stock is as set forth in the
Prospectus; the capital stock of the Company conforms to the description
thereof contained or incorporated by reference in the Registration
Statement; and the certificates for the Securities are in the form called
for by the Indenture;
(iii) this Agreement has been duly authorized, executed and delivered
by the Company;
(iv) the Indenture has been duly authorized, executed and delivered
by the Company, has been duly qualified under the Trust Indenture Act,
and constitutes a valid and binding instrument enforceable against the
Company in accordance with its terms; the Securities have been duly
authorized and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
Underwriters pursuant to this Agreement, will constitute valid and
binding obligations of the Company entitled to the benefits of the
Indenture; the Indenture complies as to form in all material respects
with the requirements of the Trust Indenture Act and the rules
thereunder; the Indenture and the Securities conform in all material
respects to the descriptions thereof contained in the Prospectus under
"Description of Notes";
(v) the shares of Common Stock initially issuable as of the Closing
Date upon conversion of the Securities have been duly authorized and
reserved for issuance upon such conversion and, if issued as of the
Closing Date upon conversion in accordance with the terms of the
Securities and the Indenture (without regard to the lack of
convertibility as of such date), (a) would be validly issued, fully paid
and nonassessable and (b) would conform to the description of the Common
Stock contained in the Prospectus;
(vi) neither the issue and sale of the Securities, nor the execution,
delivery and performance of the Indenture by the Company, nor the
consummation of any other of the transactions herein contemplated nor the
fulfillment of the terms hereof will conflict with, result in a breach or
violation of, or constitute a default under (A) the charter or by-laws of
the Company or (B) the terms of the Intel/VLSI Stock and Warrant Purchase
Agreement dated July 8, 1992, the Warrant dated August 25, 1992, issued
to Intel Corporation, [or the Credit Agreement dated as of June 6, 1994
among the Company, the lenders named therein and Continental Bank N.A.,
as agent (the "Credit Agreement"), or the Loan and Security Agreement
dated as of December 15, 1993 between the Company and the CIT
Group/Equipment Financing, Inc.,] or (C) any material judgment, order or
decree known to such counsel to be applicable to the Company or COMPASS
of any court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over the Company or COMPASS;
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(vii) no consent, approval, authorization or order of any third party
(whether acting in an individual, fiduciary or other capacity) or of any
court or governmental agency or body is required for the issue and sale
of the Securities, the execution, delivery and performance of the
Indenture or the consummation of the transactions contemplated herein,
except such as have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the Underwrit-
ers and such other approvals (specified in such opinion) as have been
obtained;
(viii) the Company is not, and upon receipt and pending application of
the net proceeds from the sale of the Common Stock in the manner
described in the Prospectus will not be, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended;
(ix) the documents incorporated by reference in the Prospectus or any
further amendment or supplement thereto made by the Company prior to such
Closing Date (other than the financial statements and related schedules
and other financial and statistical information contained therein, as to
which such counsel need express no opinion), when they became effective
or were filed with the Commission, as the case may be (unless such
documents have thereafter been amended, in which case when so amended),
complied as to form in all material respects with the requirements of the
Exchange Act and the rules thereunder; and such counsel has no reason to
believe that any such documents, when such documents became effective or
were so filed, as the case may be (or if amended, when so amended),
contained, in the case of documents that were filed under the Exchange
Act with the Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such documents were so filed (or if amended, when so
amended), not misleading; and
(x) the Registration Statement has become effective under the Act;
any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement has
been issued, no proceedings for that purpose have been instituted or
threatened; and the Registration Statement and the Prospectus (other than
the financial statements and related schedules and other financial and
statistical information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act, the Exchange Act, and the Trust
Indenture Act and the respective rules thereunder.
In addition, such counsel shall state that such counsel has no
reason to believe that at the Effective Date the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date and
as of the Closing Date, included or includes any untrue statement of a
material fact or omitted or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) The Company shall have furnished to the Underwriters the opinion of
Thomas C. Tokos, Assistant General Counsel of the Company, dated the Closing
Date, to the effect that:
(i) each of the Company, COMPASS and VLSI Tech. Gmbh ("VLSI Tech.")
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction in which it is chartered
or organized, with full corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction that requires such
qualification wherein it owns or leases material properties or conducts
material business, except for those failures to be so qualified that will
not in the aggregate have a material adverse effect on the Company and
its subsidiaries considered as a whole;
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<PAGE>
(ii) all the outstanding shares of capital stock of COMPASS and VLSI
Tech. have been duly and validly authorized and issued and are fully paid
and nonassessable, and, except as otherwise set forth in the Prospectus,
all outstanding shares of capital stock of COMPASS and VLSI Tech. are
owned by the Company either directly or through wholly owned subsidiaries
(except for directors' qualifying shares or shares held by nominees as
required by the laws of certain non-United States jurisdictions and
except for shares of common stock of COMPASS held by employees or former
employees of the Company or COMPASS) free and clear of any perfected
security interest and, to the knowledge of such counsel, after due
inquiry, any other security interests, claims, liens or encumbrances;
(iii) the Company's authorized capital stock is as set forth in the
Prospectus; the capital stock of the Company conforms to the description
thereof contained in the Registration Statement; the outstanding shares
of capital stock of the Company and options and warrants to purchase
capital stock of the Company have been duly and validly authorized and
issued and the outstanding shares of capital stock of the Company are
fully paid and nonassessable; the certificates for the Securities are in
the form called for by the Indenture; and the holders of outstanding
shares of capital stock of the Company are not entitled to preemptive or
other rights to subscribe for the Securities or the Common Stock issuable
upon conversion of the Securities;
(iv) to the knowledge of such counsel, there is no pending or
threatened in writing action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement that is not adequately disclosed
in the Prospectus, and there is no franchise, contract or other document
of a character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit, that is not described or filed
as required; and the statements in the Prospectus under the headings
"Risk Factors -- TI Litigation; Intellectual Property Matters" and
"Business -- Litigation" fairly summarize the matters therein described;
(v) this Agreement has been duly authorized, executed and delivered
by the Company;
(vi) neither the issue and sale of the Securities, nor the execution,
delivery and performance of the Indenture by the Company, nor the
consummation of any other of the transactions herein contemplated, nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, or constitute a default under (A) any law known
to such counsel (other than state blue sky laws, as to which such counsel
need not express an opinion) or (B) the respective charter or by-laws of
the Company or COMPASS or (C) the terms of any indenture or other
material agreement or instrument known to such counsel and to which the
Company or any of its subsidiaries is a party or bound or (D) any
material judgment, order or decree known to such counsel to be applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Company or any of its subsidiaries;
(vii) no holders of securities of the Company other than Intel
Corporation have rights to the registration of such securities under the
Registration Statement; and
(viii) the Registration Statement has become effective under the Act;
any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and to the best knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or threatened.
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In addition, such counsel shall state that such counsel has no
reason to believe that at the Effective Date the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date and
as of the Closing Date, included or includes any untrue statement of a
material fact or omitted or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering the opinions required by (b) or (c), such counsel may
rely (A) as to matters involving the application of laws of any jurisdiction
other than the State of California, the State of Delaware or the United
States, to the extent they deem proper and specified in such opinion, upon
the opinion of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters and (B) as
to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. References to the
Prospectus in paragraphs (b) and (c) include any supplements thereto at the
Closing Date.
(d) The Underwriters shall have received from Latham & Watkins, counsel
for the Underwriters, such opinion or opinions, dated the Closing Date, with
respect to the issuance and sale of the Securities, the Indenture, the
Registration Statement, the Prospectus (together with any supplement
thereto) and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents
as they request for the purpose of enabling them to pass upon such matters.
(e) The Company shall have furnished to the Underwriters a certificate
of the Company, signed by the Chief Executive Officer and the principal
financial or accounting officer of the Company, dated the Closing Date, to
the effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements included
in the Prospectus (exclusive of any supplement thereto), there has been
no material adverse change in the condition (financial or other),
earnings, business or properties of the Company and its subsidiaries,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(f) At the Execution Time and at the Closing Date, Ernst & Young LLP
shall have furnished to the Underwriters a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Underwriters.
(g) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter
or letters referred to in paragraph (f) of this Section 6 or (ii) any
change, or any development involving a prospective change, in or affecting
the business or properties of the Company and its subsidiaries the effect of
which, in any case referred to in clause (i) or (ii) above, is, in the
judgment of the Underwriters, so material and adverse as to make it
impractical or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto).
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<PAGE>
(h) The Company shall have obtained and provided to the Underwriters, in
form and substance satisfactory to the Underwriters and their counsel, a
consent from the lenders party to the Company's Credit Agreement to the
transactions contemplated hereby and by the Indenture.
(i) Prior to the Closing Date, the Company shall have furnished to the
Underwriters such further information, certificates and documents as the
Underwriters may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriters and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date. Notice of such cancellation shall be
given to the Company in writing or by telephone or telegraph confirmed in
writing.
7. REIMBURSEMENT OF EXPENSES.
(a) If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the
part of the Company to perform any agreement herein or comply with any
provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
(b) The Underwriters will reimburse the Company for its out-of-pocket
expenses relating to the offering of the Securities, up to a maximum of
$150,000 ($172,500 if the over-allotment option is exercised in full).
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter,
the directors, officers, employees and agents of each Underwriter and each
person who controls any Underwriter within the meaning of either the Act or
the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the
Act, the Exchange Act or other Federal or state statutory law or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Underwriter specifically for inclusion therein. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers, employees and agents,
and each person who controls the Company within the meaning of either the
Act or the Exchange Act, to the same extent as the foregoing indemnity from
the Company to each Underwriter, but only with reference to written
information
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relating to such Underwriter furnished to the Company by or on behalf of
such Underwriter specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to any
liability that any Underwriter may otherwise have. The Company acknowledges
that the statements set forth in the last paragraph of the cover page and in
the first, third and sixth paragraphs under the heading "Underwriting" in
any Preliminary Prospectus and the Prospectus constitute the only
information furnished in writing by or on behalf of the several Underwriters
for inclusion in any Preliminary Prospectus or the Prospectus, and you
confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); PROVIDED, HOWEVER, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right
to employ separate counsel (including local counsel), and the indemnifying
party shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at
the expense of the indemnifying party. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such
claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the
Company and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by
the Company and by the Underwriters from the offering of the Securities;
PROVIDED, HOWEVER, that in no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the
Underwriters shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and of the Underwriters in
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connection with the statements or omissions that resulted in such losses as
well as any other relevant equitable considerations. Benefits received by
the Company shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses), and benefits received by the
Underwriters shall be deemed to be equal to the total underwriting discounts
and commissions, in each case as set forth on the cover page of the
Prospectus. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
Company or the Underwriters. The Company and the Underwriters agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that does not take account of
the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person
who controls an Underwriter within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such Underwriter
and each person who controls the Company within the meaning of either the
Act or the Exchange Act, each officer of the Company who shall have signed
the Registration Statement and each director of the Company shall have the
same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall fail
to purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions that the principal amount of
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate principal amount of Securities set forth opposite the names of all the
remaining Underwriters) the Securities that the defaulting Underwriter or
Underwriters agreed but failed to purchase; PROVIDED, HOWEVER, that in the event
that the aggregate principal amount of Securities that the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate principal amount of Securities set forth in Schedule I hereto, the
remaining Underwriters shall have the right to purchase all, but shall not be
under any obligation to purchase any, of the Securities, and if such
nondefaulting Underwriters do not purchase all the Securities, this Agreement
will terminate without liability to any nondefaulting Underwriter or the
Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as you shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Underwriter of its liability, if any, to the Company and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in the
absolute discretion of the Underwriters, by notice given to the Company prior to
delivery of and payment for the Securities, if prior to such time (i) trading in
the Company's Common Stock shall have been suspended by the Commission or the
Nasdaq National Market or trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or limited or
minimum prices shall have been established on such Exchange or Market, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of the officers,
directors,
16
<PAGE>
employees, agents or controlling persons referred to in Section 8 hereof, and
will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Underwriters, will be mailed, delivered or
telegraphed and confirmed to them, care of Salomon Brothers Inc, at Seven World
Trade Center, New York, New York, 10048; or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at attention of the legal
department.
13. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers,
directors, employees, agents and controlling persons referred to in Section 8
hereof, and no other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the Company
and the several Underwriters.
Very truly yours,
VLSI TECHNOLOGY, INC.
By:
-----------------------------------
Gregory K. Hinckley
VICE PRESIDENT - FINANCE AND
CHIEF FINANCIAL OFFICER
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
SALOMON BROTHERS INC
By:
-----------------------------------
VICE PRESIDENT
For itself and the other several
Underwriters named in Schedule I to
the foregoing Agreement.
17
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF SECURITIES TO
UNDERWRITERS BE PURCHASED
- -------------------------------------------------------------------------------------------- -----------------
<S> <C>
Salomon Brothers Inc........................................................................ $
Donaldson, Lufkin & Jenrette Securities Corporation.........................................
Merrill Lynch, Pierce Fenner & Smith Incorporated...........................................
Montgomery Securities.......................................................................
-----------------
Total................................................................................... $
-----------------
-----------------
</TABLE>
18
<PAGE>
VLSI TECHNOLOGY, INC.
AND
---------------------
HARRIS TRUST AND SAVINGS BANK,
AS TRUSTEE
---------------------
$150,000,000
___% Convertible Subordinated Notes due 2005*
---------------------
INDENTURE
Dated as of September __, 1995
- ---------------
*Plus an over-allotment option to purchase up to $22,500,000 principal amount of
__% Convertible Subordinated Notes.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS.............................. 1
SECTION 1.01 Definitions............................................. 1
SECTION 1.02 Other Definitions....................................... 7
SECTION 1.03 Incorporation by Reference of Trust Indenture Act....... 7
SECTION 1.04 Rules of Construction................................... 8
ARTICLE 2
THE CONVERTIBLE SUBORDINATED NOTES................... 8
SECTION 2.01 Form and Dating......................................... 8
SECTION 2.02 Execution and Authentication............................ 9
SECTION 2.03 Registrar, Paying Agent and Conversion Agent............ 10
SECTION 2.04 Paying Agent To Hold Money in Trust..................... 10
SECTION 2.05 Holder Lists............................................ 10
SECTION 2.06 Transfer and Exchange................................... 11
SECTION 2.07 Replacement Convertible Subordinated Notes.............. 11
SECTION 2.08 Outstanding Convertible Subordinated Notes.............. 12
SECTION 2.09 When Treasury Convertible Subordinated Notes
Disregarded............................................. 12
SECTION 2.10 Temporary Convertible Subordinated Notes................ 12
SECTION 2.11 Cancellation............................................ 13
SECTION 2.12 Defaulted Interest...................................... 13
SECTION 2.13 CUSIP Number............................................ 13
ARTICLE 3
REDEMPTION............................... 14
SECTION 3.01 Notices to Trustee...................................... 14
SECTION 3.02 Selection of Convertible Subordinated Notes To Be
Redeemed................................................ 14
SECTION 3.03 Notice of Redemption.................................... 14
SECTION 3.04 Effect of Notice of Redemption.......................... 15
SECTION 3.05 Deposit of Redemption Price............................. 16
SECTION 3.06 Convertible Subordinated Notes Redeemed in Part......... 16
SECTION 3.07 Conversion Arrangement on Call for Redemption........... 16
i
<PAGE>
ARTICLE 4
COVENANTS............................... 16
SECTION 4.01 Payment of Convertible Subordinated Notes............... 16
SECTION 4.02 Commission Reports...................................... 17
SECTION 4.03 Compliance Certificate.................................. 17
SECTION 4.04 Maintenance of Office or Agency......................... 17
SECTION 4.05 Continued Existence..................................... 18
SECTION 4.06 Repurchase Upon Designated Event........................ 18
SECTION 4.07 Appointments to Fill Vacancies in Trustee's Office...... 20
SECTION 4.08 Stay, Extension and Usury Laws.......................... 21
ARTICLE 5
SUCCESSORS............................... 21
SECTION 5.01 When the Company May Merge, Etc......................... 21
SECTION 5.02 Successor Corporation Substituted....................... 22
SECTION 5.03 Purchase Option on Change of Control.................... 22
ARTICLE 6
DEFAULTS AND REMEDIES......................... 22
SECTION 6.01 Events of Default....................................... 22
SECTION 6.02 Acceleration............................................ 24
SECTION 6.03 Other Remedies.......................................... 25
SECTION 6.04 Waiver of Past Defaults................................. 25
SECTION 6.05 Control by Majority..................................... 25
SECTION 6.06 Limitation on Suits..................................... 26
SECTION 6.07 Rights of Holders To Receive Payment.................... 26
SECTION 6.08 Collection Suit by Trustee.............................. 26
SECTION 6.09 Trustee May File Proofs of Claim........................ 27
SECTION 6.10 Priorities.............................................. 27
SECTION 6.11 Undertaking for Costs................................... 27
ARTICLE 7
THE TRUSTEE.............................. 28
SECTION 7.01 Duties of the Trustee................................... 28
SECTION 7.02 Rights of the Trustee................................... 29
SECTION 7.03 Individual Rights of the Trustee........................ 30
SECTION 7.04 Trustee's Disclaimer.................................... 30
SECTION 7.05 Notice of Defaults...................................... 31
SECTION 7.06 Reports by the Trustee to Holders....................... 31
ii
<PAGE>
SECTION 7.07 Compensation and Indemnity.............................. 31
SECTION 7.08 Replacement of the Trustee.............................. 32
SECTION 7.09 Successor Trustee by Merger, etc........................ 33
SECTION 7.10 Eligibility, Disqualification........................... 34
SECTION 7.11 Preferential Collection of Claims Against Company....... 34
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE................ 34
SECTION 8.01 Discharge of Indenture.................................. 34
SECTION 8.02 Deposited Monies to be Held in Trust by Trustee......... 35
SECTION 8.03 Paying Agent to Repay Monies Held....................... 35
SECTION 8.04 Return of Unclaimed Monies.............................. 35
SECTION 8.05 Reinstatement........................................... 35
ARTICLE 9
AMENDMENTS............................... 36
SECTION 9.01 Without the Consent of Holders.......................... 36
SECTION 9.02 With the Consent of Holders............................. 37
SECTION 9.03 Compliance with the Trust Indenture Act................. 38
SECTION 9.04 Revocation and Effect of Consents....................... 38
SECTION 9.05 Notation on or Exchange of Convertible Subordinated
Notes................................................... 39
SECTION 9.06 Trustee Protected....................................... 39
ARTICLE 10
GENERAL PROVISIONS........................... 39
SECTION 10.01 Trust Indenture Act Controls............................ 39
SECTION 10.02 Notices................................................. 40
SECTION 10.03 Communication by Holders With Other Holders............. 40
SECTION 10.04 Certificate and Opinion as to Conditions Precedent...... 40
SECTION 10.05 Statements Required in Certificate or Opinion........... 41
SECTION 10.06 Rules by Trustee and Agents............................. 42
SECTION 10.07 Legal Holidays.......................................... 42
SECTION 10.08 No Recourse Against Others.............................. 42
SECTION 10.09 Counterparts............................................ 42
SECTION 10.10 Other Provisions........................................ 42
SECTION 10.11 Governing Law........................................... 43
SECTION 10.12 No Adverse Interpretation of Other Agreements........... 43
SECTION 10.13 Successors.............................................. 43
SECTION 10.14 Severability............................................ 43
SECTION 10.15 Table of Contents, Headings, Etc........................ 44
iii
<PAGE>
ARTICLE 11
SUBORDINATION ............................. 44
SECTION 11.01 Agreement to Subordinate................................ 44
SECTION 11.02 Liquidation; Dissolution; Bankruptcy.................... 44
SECTION 11.03 Default on Senior Debt and/or Designated Senior Debt.... 45
SECTION 11.04 Acceleration of Convertible Subordinated Notes.......... 46
SECTION 11.05 When Distribution Must Be Paid Over..................... 46
SECTION 11.06 Notice by Company....................................... 46
SECTION 11.07 Subrogation............................................. 46
SECTION 11.08 Relative Rights......................................... 47
SECTION 11.09 Subordination May Not Be Impaired by Company............ 47
SECTION 11.10 Distribution or Notice to Representative................ 47
SECTION 11.11 Rights of Trustee and Paying Agent...................... 48
SECTION 11.12 Authorization to Effect Subordination................... 48
SECTION 11.13 Article Applicable to Paying Agents..................... 48
SECTION 11.14 Senior Debt Entitled to Rely............................ 48
ARTICLE 12
CONVERSION OF CONVERTIBLE SUBORDINATED NOTES.............. 48
SECTION 12.01 Right to Convert........................................ 48
SECTION 12.02 Exercise of Conversion Privilege; Issuance of
Common Stock on Conversion; No Adjustment for
Interest or Dividends................................... 49
SECTION 12.03 Cash Payments in Lieu of Fractional Shares.............. 51
SECTION 12.04 Conversion Price........................................ 51
SECTION 12.05 Adjustment of Conversion Price.......................... 51
SECTION 12.06 Effect of Reclassification, Consolidation, Merger or
Sale.................................................... 61
SECTION 12.07 Taxes on Shares Issued.................................. 62
SECTION 12.08 Reservation of Shares; Shares to Be Fully Paid;
Listing of Common Stock................................. 62
SECTION 12.09 Responsibility of Trustee............................... 63
SECTION 12.10 Notice to Holders Prior to Certain Actions.............. 63
iv
<PAGE>
CROSS-REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION
310(a)(1).................................................................7.10
(a)(2)................................................................7.11
(a)(3)................................................................N.A.
(a)(4)................................................................N.A.
(b)......................................................7.08, 7.10, 10.02
(c)...................................................................N.A.
311(a)....................................................................7.11
(b)...................................................................7.11
(c)...................................................................N.A.
312(a)....................................................................2.05
(b)..................................................................10.03
(c)..................................................................10.03
313(a)....................................................................7.06
(b)(1)................................................................N.A.
(b)(2)................................................................7.06
(c)............................................................7.06, 10.02
(d)...................................................................7.06
314(a).............................................................4.01, 10.02
(b)...................................................................N.A.
(c)(1)...............................................................10.04
(c)(2)...............................................................10.04
(c)(3)................................................................N.A.
(d)...................................................................N.A.
(e)..................................................................10.05
(f)...................................................................N.A.
315(a).................................................................7.01(b)
(b)............................................................7.05, 10.02
(c)................................................................7.01(a)
(d)................................................................7.01(c)
(e)...................................................................6.11
316(a)(last sentence).....................................................2.09
(a)(1)(a).............................................................6.05
(a)(2)(b).............................................................6.04
(a)(2)................................................................N.A.
(b)...................................................................6.02
317(a)(1).................................................................6.08
(a)(2)................................................................6.09
(b)...................................................................2.04
N.A. means not applicable.
__________
*This Cross-Reference Table is not part of the Indenture.
v
<PAGE>
THIS INDENTURE, dated as of September__, 1995, is between VLSI
Technology, Inc., a Delaware corporation (the "Company"), and Harris Trust
and Savings Bank (the "Trustee"). The Company has duly authorized the
creation of its __% Convertible Subordinated Notes due 2005 (the "Convertible
Subordinated Notes") and to provide therefor the Company and the Trustee have
duly authorized the execution and delivery of this Indenture. Each party
agrees as follows for the benefit of the other party and for the equal and
ratable benefit of the holders from time to time of the Convertible
Subordinated Notes.
ARTICLE 1
DEFINITIONS
SECTION 1.01 DEFINITIONS.
"Affiliate" means, when used with reference to any person, any other
person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, the referent person, as the case may be. For the
purposes of this definition, "control" when used with respect to any specified
person means the power to direct or cause the direction of management or
policies of the referent person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative of the foregoing.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"Change of Control" means the occurrence of one or more of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of shares
representing more than 50% of the combined voting power of the then
outstanding securities entitled to vote generally in election of directors
(the "Voting Stock") of the Company, (b) the Company consolidates with or
merges into any other corporation, or conveys, transfers, or leases all or
substantially all of its assets to any person, or any other corporation
merges into the Company, and, in the case of any such transaction, the
outstanding Common Stock of the Company is changed or exchanged as a result,
unless the stockholders of the Company immediately before such transaction
own, directly or indirectly immediately following such transaction, at least
a majority of the combined voting power of the outstanding voting securities
of the corporation resulting from such transaction in
1
<PAGE>
substantially the same proportion as their ownership of the Voting Stock of the
Company immediately before such transaction, or (c) any time the Continuing
Directors do not constitute a majority of the Board of Directors of the Company
(or, if applicable, a successor corporation to the Company); PROVIDED that a
Change of Control shall not be deemed to have occurred if either (y) the last
sale price of the Common Stock for any five trading days during the ten trading
days immediately preceding the Change of Control is at least equal to 105% of
the Conversion Price in effect on the date of such Change of Control or (z) at
least 90% of the consideration (excluding cash payments for fractional shares)
in the transaction or transactions constituting the Change of Control consists
of shares of common stock that are, or upon issuance will be, traded on a United
States national securities exchange or approved for trading on an established
automated over-the-counter trading market in the United States.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company and which is not subject to redemption by the Company. Subject to the
provisions of Section 12.06, however, shares issuable on conversion of
Convertible Subordinated Notes shall include only shares of the class
designated as Common Stock of the Company at the date of this Indenture or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and which are not
subject to redemption by the Company; PROVIDED that if at any time there
shall be more than one such resulting class, the shares of each such class
then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all
such reclassifications.
"Company" means the party named as such above until a successor replaces
it in accordance with Article 5 and thereafter means the successor.
A "consolidated subsidiary" of any person means a subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such person as a consolidated subsidiary.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"Convertible Subordinated Notes" means the Convertible Subordinated Notes
issued under this Indenture.
2
<PAGE>
"Conversion Price" means the initial conversion price specified in the
form of Note in Section 17 of such form, as adjusted in accordance with the
provisions of Article 12.
"Corporate Trust Office" means the corporate trust office of the Trustee
at which at any particular time its corporate business shall principally be
administered; as of the date hereof, the office of the Corporate Trust Office
is located at Harris Trust and Savings Bank, 111 W. Monroe, 6 West,
Chicago, Il 60606.
"Credit Agreement" means that certain Credit Agreement, dated as of
June 6, 1994, by and among the Company and the Lenders named therein and Bank
of America Illinois (as successor to Continental Bank N.A.), as Agent,
providing for up to $52,500,000 of revolving credit borrowings, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Event" means the occurrence of a Change of Control or a
Termination of Trading.
"Designated Senior Debt" means any particular Senior Debt with respect
to which the instrument creating or evidencing the same or the assumption or
guarantee thereof (or related agreements or documents to which the Company is
a party) expressly provides that such Indebtedness shall be "Designated
Senior Debt" for purposes of the Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the right
of such Senior Debt to exercise the rights of Designated Senior Debt.)
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i) (a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of the Company which is (1) given to secure all or part of
the purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that the Company is contractually obligated
to purchase or cause a third party
3
<PAGE>
to purchase and thereby guarantee a minimum residual value of the lease property
to the lessor and the obligations of the Company under such lease or related
document to purchase or to cause a third party to purchase such leased property,
(d) in respect of letters of credit, bank guarantees or bankers' acceptances
(including reimbursement obligations with respect to any of the foregoing), (e)
with respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance,
charge or adverse claim affecting title or resulting in an encumbrance to which
the property or assets of such person are subject, whether or not the obligation
secured thereby shall have been assumed by or shall otherwise be such person's
legal liability, (f) in respect of the balance of deferred and unpaid purchase
price of any property or assets, (g) under interest rate or currency swap
agreements, cap, floor and collar agreements, spot and forward contracts and
similar agreements and arrangements; (ii) with respect to any obligation of
others of the type described in the preceding clause (i) or under clause (iii)
below assumed by or guaranteed in any manner by such person or in effect
guaranteed by such person through an agreement to purchase (including, without
limitation, "take or pay" and similar arrangements), contingent or otherwise
(and the obligations of such person under any such assumptions, guarantees or
other such arrangements); and (iii) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements to,
any of the foregoing.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Interest Payment Date" means April 1 and October 1 of each year.
"Issue Date" means the date on which the Convertible Subordinated Notes
are originally issued under this Indenture.
"Material Subsidiary" means, at any date of determination, any subsidiary
of the Company that, together with its subsidiaries, as of the end of such
fiscal year, was the owner of more than 25% of the consolidated assets of the
Company, after eliminating any inter-company receivables of such subsidiary, all
as set forth on the most recently available consolidated financial statements of
the Company and its consolidated subsidiaries for such fiscal year prepared in
conformity with GAAP.
"Maturity Date" means October 1, 2005.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the President, the Chief Financial Officer, the Chief Accounting Officer, any
Executive Vice President, Senior Vice President or Vice President (whether or
not designated by a number or numbers or word or words before or after the
title "Vice President"), the Treasurer, any other executive officer, the
Secretary and any Assistant Treasurer or any Assistant Secretary of the
Company.
4
<PAGE>
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the principal executive officer, principal financial officer or
principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who may be
an employee of or counsel to the Company or the Trustee except to the extent
otherwise indicated in this Indenture.
A "person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"redemption date" when used with respect to any of the Convertible
Subordinated Notes to be redeemed, means the date fixed by the Company for
such redemption pursuant to Article 3 of this Indenture and the Convertible
Subordinated Notes.
"redemption price" when used with respect to any of the Convertible
Subordinated Notes to be redeemed, means the price fixed for such redemption
pursuant to Article 3 of this Indenture and the Convertible Subordinated
Notes.
"Regular Record Date" means the March 15 or September 15 immediately
preceding each Interest Payment Date.
"Representative" means the (a) Indenture trustee or other trustee,
agent or representative for any Senior Debt or (b) with respect to any Senior
Debt that does not have any such trustee, agent or other representative, (i)
in the case of such Senior Debt issued pursuant to an agreement providing for
voting arrangements as among the holders or owners of such Senior Debt, any
holder or owner of such Senior Debt acting with the consent of the required
persons necessary to bind such holders or owners of such Senior Debt and (ii)
in the case of all other such Senior Debt, the holder or owner of such Senior
Debt.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Debt" means the principal of, premium, if any, and interest on,
rent under, and any other amounts payable on or in respect of the Credit
Agreement and any other indebtedness of the Company (including, without
limitation, any Obligations in respect of such Indebtedness and, in the case of
Designated Senior Debt, any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law), whether
outstanding on the date of this Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or
5
<PAGE>
refundings of, or amendments, modifications or supplements to the foregoing);
PROVIDED, HOWEVER, that Senior Debt does not include (v) Indebtedness
evidenced by the holders of Convertible Subordinated Notes, (w) any liability
for federal, state, local or other taxes owed or owing by the Company, (x)
Indebtedness of the Company to any subsidiary of the Company except to the
extent such Indebtedness is of a type described in clause (ii) of the definition
of Indebtedness, (y) trade payables of the Company (other than, to the extent
they may otherwise constitute trade payables, any obligations of the type
described in clause (ii) of the definition of Indebtedness), and (z) any
particular Indebtedness in which the instrument creating or evidencing the same
or the assumption or guarantee thereof (or related agreements or documents to
which the Company is a party) expressly provides that such Indebtedness shall
not be senior in right of payment to, or is PARI PASSU with, or is
subordinated or junior to, the Convertible Subordinated Notes.
A "subsidiary" means with respect to any person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of capital stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such person or one or more of the other subsidiaries of that
person (or a combination thereof) and (ii) any partnership (a) the sole
general partners of which are such person or of one or more subsidiaries of
such person or (b) the only general partners of which are such person or of
one or more subsidiaries of such person (or any combination thereof).
"Termination of Trading" means a date when the Common Stock (or other
common stock into which the Convertible Subordinated Notes are then convertible)
is neither listed for trading on a United States national securities exchange
nor approved for trading on an established automated over-the-counter trading
market in the United States.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of execution of this Indenture, except
as provided in Sections 9.03 and 12.06.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporation trust matters.
"U.S. Government Obligations" means direct obligation of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged. In order to have money available on a payment
date to pay principal or interest on the Convertible Subordinated Notes, the
U.S. Government Obligations shall be payable as to principal or interest on or
before such payment date in such amounts as will provide the necessary money.
U.S. Government Obligations shall not be callable at the issuer's option.
6
<PAGE>
SECTION 1.02 OTHER DEFINITIONS.
Defined in
Section
"Bankruptcy Law"..........................................................6.01
"business day"...........................................................10.07
"Current Market Price"...................................................12.05
"closing price"..........................................................12.05
"Conversion Agent"........................................................2.03
"Custodian"...............................................................6.01
"Designated Event Date"...................................................4.06
"Designated Event Offer"..................................................4.06
"Designated Event Offer Termination Date".................................4.06
"Designated Event Payment"................................................4.06
"Designated Event Payment Date"...........................................4.06
"Event of Default"........................................................6.01
"Expiration Time"........................................................12.05
"fair market value"......................................................12.05
"Legal Holiday"..........................................................10.07
"New Rights Plan"........................................................12.05
"non-electing share".....................................................12.06
"Paying Agent"............................................................2.03
"Payment Blockage Notice"................................................10.04
"Purchased Shares".......................................................12.05
"Record Date"............................................................12.05
"Registrar"...............................................................2.03
"Rights".................................................................12.05
"Rights Plan"............................................................12.05
"Securities".............................................................12.05
"trading day"............................................................12.05
"Trigger Event"..........................................................12.05
"United States Government Obligations"....................................8.01
"Voting Stock"............................................................1.01
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Commission;
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"indenture securities" means the Convertible Subordinated Notes;
"indenture security holder" means a holder of a Convertible
Subordinated Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Convertible Subordinated Notes means the Company or
any other obligor on the Convertible Subordinated Notes.
All other terms in this Indenture that are defined by the TIA, defined by
TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
SECTION 1.04 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) the male, female and neuter genders include one another.
ARTICLE 2
THE CONVERTIBLE SUBORDINATED NOTES
SECTION 2.01 FORM AND DATING.
The Convertible Subordinated Notes and the Trustee's certificate of
authentication relating thereto shall be substantially in the form set forth in
Exhibit A, which is part of this Indenture, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture. The Convertible Subordinated Notes may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Convertible Subordinated Notes and any notation,
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legend or endorsement on them. Each Convertible Subordinated Note shall be
dated the date of its authentication.
The terms and provisions contained in the Convertible Subordinated Notes
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
SECTION 2.02 EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Convertible Subordinated Notes for the Company
by manual or facsimile signature. The Company's seal shall be reproduced on the
Convertible Subordinated Notes.
If an Officer whose signature is on a Convertible Subordinated Note no
longer holds that office at the time the Convertible Subordinated Note is
authenticated, the Convertible Subordinated Note shall nevertheless be valid.
A Convertible Subordinated Note shall not be valid until authenticated by
the manual signature of the Trustee. The signature shall be conclusive evidence
that the Convertible Subordinated Note has been authenticated under this
Indenture.
Upon a written order of the Company signed by an Officer of the Company,
the Trustee shall authenticate Convertible Subordinated Notes for original issue
up to an aggregate principal amount of $150,000,000 (plus up to $22,500,000
aggregate principal amount of Convertible Subordinated Notes that may be sold by
the Company pursuant to the over-allotment option granted pursuant to the
Underwriting Agreement, dated as of September ___, 1995, among the Company and
Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation,
Merrill Lynch, Pierce Fenner & Smith Incorporated and Montgomery Securities).
The aggregate principal amount of Convertible Subordinated Notes outstanding at
any time may not exceed that amount except as provided in Section 2.07.
The Convertible Subordinated Notes shall be issuable only in registered
form without coupons and only in denominations of $1,000 or any integral
multiple thereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Convertible Subordinated Notes. An authenticating agent may
authenticate Convertible Subordinated Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same right as an
Agent to deal with the Company or an Affiliate of the Company.
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SECTION 2.03 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain or cause to be maintained in such locations as
it shall determine, which may be the Corporate Trust Office, an office or
agency: (i) where securities may be presented for registration of transfer or
for exchange ("Registrar"); (ii) where Convertible Subordinated Notes may be
presented for payment ("Paying Agent"); (iii) an office or agency where
Convertible Subordinated Notes may be presented for conversion (the "Conversion
Agent"); and (iv) where notices and demands to or upon the Company in respect of
Convertible Subordinated Notes and this Indenture may be served by the holders
of the Convertible Subordinated Notes. The Registrar shall keep a register of
the Convertible Subordinated Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars, one or more additional paying
agents and one or more additional conversion agents. The term "Paying Agent"
includes any additional paying agent and the term "Conversion Agent" includes
any additional Conversion Agent. The Company may change any Paying Agent,
Registrar, Conversion Agent or co-registrar without prior notice. The Company
shall notify the Trustee of the name and address of any Agent not a party to
this Indenture and shall enter into an appropriate agency agreement with any
Registrar, Paying Agent, Conversion Agent or co-registrar not a party to this
Indenture. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company or any of its subsidiaries may act as Paying
Agent, Registrar, Conversion Agent or co-registrar, except that for purposes of
Articles 3 and 8 and Section 4.06, neither the Company nor any of its
subsidiaries shall act as Paying Agent. If the Company fails to appoint or
maintain another entity as Registrar, or Paying Agent or Conversion Agent, the
Trustee shall act as such, and the Trustee shall initially act as such.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent (other than the Trustee, who
hereby so agrees), to agree in writing that the Paying Agent will hold in trust
for the benefit of holders of the Convertible Subordinated Notes or the Trustee
all money held by the Paying Agent for the payment of principal or interest on
the Convertible Subordinated Notes, and will notify the Trustee of any default
by the Company in respect of making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee. Upon payment over to the Trustee, the Paying
Agent (if other than the Company or a subsidiary of the Company) shall have no
further liability for the money. If the Company or a subsidiary of the Company
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the holders of the Convertible Subordinated Notes all money held
by it as Paying Agent.
SECTION 2.05 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
holders of Convertible Subordinated
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Notes and shall otherwise comply with TIA Section 312(a). If the Trustee
is Registrar, the Company shall furnish to the Trustee at least seven
business days before each Interest Payment Date and as the Trustee may
request in writing within fifteen (15) days after receipt by the Company of
any such request (or such lesser time as the Trustee may reasonably request
in order to enable it to timely provide any notice to be provided by it
hereunder) a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of holders of Convertible
Subordinated Notes.
SECTION 2.06 TRANSFER AND EXCHANGE.
When Convertible Subordinated Notes are presented to the Registrar or a
co-registrar with a request to register a transfer or to exchange them for an
equal principal amount of Convertible Subordinated Notes for other
denominations, the Registrar shall register the transfer or make the exchange
if its requirements for such transactions are met. To permit registrations
of transfers and exchanges, the Company shall issue and the Trustee shall
authenticate Convertible Subordinated Notes at the Registrar's request,
bearing registration numbers not contemporaneously outstanding. No service
charge shall be made for any registration of transfer or exchange (except as
otherwise expressly permitted herein), but the Company may require payment of
a sum sufficient to cover any transfer tax or similar governmental charge
payable upon exchanges pursuant to Sections 2.10, 3.06, 9.05 or 12.02.
The Company shall not be required (i) to issue, register the transfer
of or exchange Convertible Subordinated Notes during a period beginning at
the opening of business 15 days before the day of any selection of
Convertible Subordinated Notes for redemption under Section 3.02 and ending
at the close of business on the day of selection, (ii) to register the
transfer or exchange of any Convertible Subordinated Note so selected for
redemption in whole or in part, except the unredeemed portion of any
Convertible Subordinated Note being redeemed in part or (iii) to register the
transfer of any Convertible Subordinated Notes surrendered for repurchase
pursuant to Section 4.06.
All Convertible Subordinated Notes issued upon any transfer or exchange
of Convertible Subordinated Notes in accordance with this Indenture shall be
the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture as the Convertible Subordinated
Notes surrendered upon such registration of transfer or exchange.
SECTION 2.07 REPLACEMENT CONVERTIBLE SUBORDINATED NOTES.
If the holder of a Convertible Subordinated Note claims that the
Convertible Subordinated Note has been lost, destroyed or wrongfully taken,
the Company shall issue and the Trustee shall authenticate a replacement
Convertible Subordinated Note if the Trustee's requirements are met. If
required by the Trustee or the Company as a condition of receiving a
replacement Convertible Subordinated Note, the holder of a Convertible
Subordinated Note must provide a certificate of loss and an indemnity and/or
an indemnity bond sufficient, in the judgment of both the Company and the
Trustee, to fully protect the Company, the Trustee, any Agent and any
authenticating agent from any loss, liability, cost or expense which any of
them may suffer or incur if the Convertible Subordinated Note is replaced.
The Company and the Trustee may charge the relevant holder for their expenses
in replacing any Convertible Subordinated Note.
The Trustee or any authenticating agent may authenticate any such
substituted Convertible Subordinated Note, and deliver the same upon the
receipt of such security or indemnity as the Trustee, the Company and, if
applicable, such authenticating agent may require. Upon the issuance of any
substituted Convertible Subordinated Note, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses connected
therewith. In case any Convertible Subordinated Note which has matured or is
about to mature, or has been called for redemption pursuant to Section 4.06
or is about to be converted into Common Stock shall become mutilated or be
destroyed, lost or stolen, the Company may, instead of issuing a substitute
Convertible Subordinated Note, pay or authorize the payment of or convert or
authorize the conversion of the same (without surrender thereof except in the
case of a mutilated Convertible Subordinated Note), as the case may be, if the
applicant for such payment or conversion shall furnish to the Company, to the
Trustee and, if applicable, to the authenticating agent such security or
indemnity as may be required by them to save each of them harmless for any
loss, liability, cost or expense caused by or connected with such
substitution, and, in case of destruction, loss or theft, evidence
satisfactory to the Company, the Trustee and, if applicable, any paying agent
or conversion agent of the destruction, loss or theft of such Convertible
Subordinated Note and of the ownership thereof.
Every replacement Convertible Subordinated Note is an additional
obligation of the Company.
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SECTION 2.08 OUTSTANDING CONVERTIBLE SUBORDINATED NOTES.
The Convertible Subordinated Notes outstanding at any time are all the
Convertible Subordinated Notes properly authenticated by the Trustee except for
those cancelled by the Trustee, those delivered to it for cancellation, and
those described in this Section as not outstanding.
If a Convertible Subordinated Note is replaced pursuant to Section 2.07,
it ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Convertible Subordinated Note is held by a bona fide
purchaser.
If Convertible Subordinated Notes are considered paid under Section
4.01 or converted under Article 12, they cease to be outstanding and interest
on them ceases to accrue.
Subject to Section 2.09 hereof, a Convertible Subordinated Note does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the Convertible Subordinated Note.
SECTION 2.09 WHEN TREASURY CONVERTIBLE SUBORDINATED NOTES DISREGARDED.
In determining whether the holders of the required principal amount of
Convertible Subordinated Notes have concurred in any direction, waiver or
consent, Convertible Subordinated Notes owned by the Company or an Affiliate of
the Company shall be considered as though they are not outstanding except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Convertible Subordinated
Notes which the Trustee knows are so owned shall be so disregarded.
SECTION 2.10 TEMPORARY CONVERTIBLE SUBORDINATED NOTES.
Until definitive Convertible Subordinated Notes are ready for delivery,
the Company may prepare and the Trustee shall authenticate temporary Convertible
Subordinated Notes. Temporary Convertible Subordinated Notes shall be
substantially in the form of definitive Convertible Subordinated Notes but may
have variations that the Company considers appropriate for temporary Convertible
Subordinated Notes. If temporary Convertible Subordinated Notes are issued, the
Company will cause definitive Convertible Subordinated Notes to be prepared
without unreasonable delay. After the preparation of definitive Convertible
Subordinated Notes, the temporary Convertible Subordinated Notes shall be
exchangeable for definitive Convertible Subordinated Notes upon surrender of the
temporary Convertible Subordinated Notes at any office or agency of the Company
designated pursuant to Section 2.03 without charge to the holder of the
Convertible Subordinated Note. Upon surrender for cancellation of any one or
more temporary Convertible Subordinated Notes the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Convertible Subordinated Notes of authorized
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denominations. Until so exchanged, the temporary Convertible Subordinated Notes
shall in all respects be entitled to the same benefits under this Indenture as
definitive Convertible Subordinated Notes.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Convertible Subordinated Notes to
the Trustee for cancellation. The Registrar and Paying Agent shall forward
to the Trustee any Convertible Subordinated Notes surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else
shall cancel Convertible Subordinated Notes surrendered for registration of
transfer, exchange, payment, replacement, conversion, redemption, repurchase
or cancellation and shall dispose of cancelled Convertible Subordinated Notes
as the Company directs, PROVIDED that the Trustee shall not be required to
destroy such Convertible Subordinated Notes. The Company may not issue new
Convertible Subordinated Notes to replace Convertible Subordinated Notes that
it has paid, or that have been delivered to the Trustee for cancellation or
that any holder has converted pursuant to Article 12 hereof, redeemed
pursuant to Article 3 or repurchased pursuant to Section 4.06.
SECTION 2.12 DEFAULTED INTEREST.
If the Company fails to make a payment of interest on the Convertible
Subordinated Notes, it shall pay such defaulted interest plus, to the extent
lawful, any interest payable on the defaulted interest. It may pay such
defaulted interest, plus any such interest payable on it, to the persons who are
holders of Convertible Subordinated Notes on a subsequent special record date.
The Company shall fix any such record date and payment date. At least 15 days
before any such record date, the Company shall mail to holders of the
Convertible Subordinated Notes a notice that states the record date, payment
date and amount of such interest to be paid.
SECTION 2.13 CUSIP NUMBER.
The Company in issuing the Convertible Subordinated Notes may use a
"CUSIP" number, and if so, such CUSIP number shall be included in notices of
redemption or exchange as a convenience to holders of Convertible Subordinated
Notes; PROVIDED, HOWEVER, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Convertible Subordinated Notes and that reliance
may be placed only on the other identification numbers printed on the
Convertible Subordinated Notes. The Company will promptly notify the Trustee of
any change in the CUSIP number.
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ARTICLE 3
REDEMPTION
SECTION 3.01 NOTICES TO TRUSTEE.
If the Company elects to redeem Convertible Subordinated Notes pursuant
to the optional redemption provisions of paragraph 5 of the Convertible
Subordinated Notes, it shall furnish to the Trustee, at least 15 (20 if less
than all of the then outstanding Convertible Subordinated Notes are to be
redeemed or if the Company requests the Trustee to give notice of redemption
pursuant to Section 3.03) days but not more than 60 days before a redemption
date (unless a shorter period shall be satisfactory to the Trustee), an
Officers' Certificate setting forth (i) the Section of this Indenture
pursuant to which the redemption shall occur, (ii) the redemption date, (iii)
the principal amount of Convertible Subordinated Notes to be redeemed (if
less than all) and (iv) the redemption price.
SECTION 3.02 SELECTION OF CONVERTIBLE SUBORDINATED NOTES TO BE REDEEMED.
If less than all the Convertible Subordinated Notes are to be redeemed,
the Trustee shall select the Convertible Subordinated Notes to be redeemed by
lot or pro rata or by a method that complies with the requirements of any
exchange on which the Convertible Subordinated Notes are listed or quoted
that the Trustee considers fair and appropriate. The Trustee shall make the
selection not more than 60 days and not less than 15 days before the
redemption date from Convertible Subordinated Notes outstanding not
previously called for redemption. The Trustee may select for redemption
portions of the principal of Convertible Subordinated Notes that have a
denomination larger than $1,000 or integral multiple thereof. Convertible
Subordinated Notes and portions thereof will be redeemed in the amount of
$1,000 or integral multiples of $1,000. Provisions of this Indenture that
apply to Convertible Subordinated Notes called for redemption also apply to
portions of Convertible Subordinated Notes called for redemption. The
Trustee shall notify the Company promptly of the Convertible Subordinated
Notes or portions of Convertible Subordinated Notes to be called for
redemption.
SECTION 3.03 NOTICE OF REDEMPTION.
At least 15 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption to each holder whose Convertible
Subordinated Notes are to be redeemed.
The notice shall identify the Convertible Subordinated Notes to be
redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
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(3) if any Convertible Subordinated Note is being redeemed in
part, the portion of the principal amount of such Convertible Subordinated
Note to be redeemed and that, after the redemption date, upon surrender of
such Convertible Subordinated Note, a new Convertible Subordinated Note or
Convertible Subordinated Notes in principal amount equal to the unredeemed
portion will be issued;
(4) that Convertible Subordinated Notes called for redemption must
be surrendered to the Paying Agent to collect the redemption price;
(5) that interest on Convertible Subordinated Notes called for
redemption and for which funds have been set apart for payment, ceases to
accrue on and after the redemption date (unless the Company defaults in
the payment of the redemption price);
(6) the Paragraph of the Convertible Subordinated Notes pursuant
to which the Convertible Subordinated Notes are being redeemed;
(7) the aggregate principal amount of Convertible Subordinated
Notes (if less than all) that are being redeemed;
(8) the CUSIP number of the Convertible Subordinated Notes
(PROVIDED that the disclaimer permitted by Section 2.13 may be made);
(9) the name and address of the Paying Agent;
(10) that Convertible Subordinated Notes called for redemption may
be converted at any time prior to the close of business on the last
trading day immediately preceding the redemption date and if not converted
prior to the close of business on such date, the right of conversion will
be lost; and
(11) that in the case of Convertible Subordinated Notes or portions
thereof called for redemption on a date that is also an Interest Payment
Date, the interest payment due on such date shall be paid to the person in
whose name the Convertible Subordinated Note is registered at the close of
business on the relevant Regular Record Date.
At the Company's request, the Trustee shall give notice of redemption in
the Company's name and at its expense.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Convertible Subordinated Notes called
for redemption become due and payable on the redemption date at the redemption
price set forth in the Convertible Subordinated Note.
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SECTION 3.05 DEPOSIT OF REDEMPTION PRICE.
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money in immediately available funds sufficient
to pay the redemption price of and accrued interest on all Convertible
Subordinated Notes to be redeemed on that date. The Trustee or the Paying Agent
shall return to the Company any money not required for that purpose.
On and after the redemption date, unless the Company shall default in
the payment of the redemption price, interest will cease to accrue on the
principal amount of the Convertible Subordinated Notes or portions thereof
called for redemption and for which funds have been set apart for payment. In
the case of Convertible Subordinated Notes or portions thereof redeemed on a
redemption date which is also an Interest Payment Date, the interest payment
due on such date shall be paid to the person in whose name the Convertible
Subordinated Note is registered at the close of business on the relevant
Regular Record Date.
SECTION 3.06 CONVERTIBLE SUBORDINATED NOTES REDEEMED IN PART.
Upon surrender of a Convertible Subordinated Note that is redeemed in
part, the Company shall issue and the Trustee shall authenticate for the holder
of a Convertible Subordinated Note at the expense of the Company a new
Convertible Subordinated Note equal in principal amount to the unredeemed
portion of the Convertible Subordinated Note surrendered.
SECTION 3.07 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
In connection with any redemption of Convertible Subordinated Notes,
the Company may arrange for the purchase and conversion of any Convertible
Subordinated Notes by an arrangement with one or more investment bankers or
other purchasers to purchase such Convertible Subordinated Notes by paying to
the Trustee in trust for the holders, on or before the date fixed for
redemption, an amount not less than the applicable redemption price, together
with interest accrued to the date fixed for redemption, of such Convertible
Subordinated Notes. Notwithstanding anything to the contrary contained in
this Article 3, the obligation of the Company to pay the redemption price of
such Convertible Subordinated Notes, together with interst accrued to the
date fixed for redemption, shall be deemed to be satisfied and discharged to
the extent such amount is so paid by the purchasers. If such an agreement is
entered into, a copy of which will be filed with the Trustee prior to the
dated fixed for redemption, any Convertible Subordinated Notes not duly
surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such holders and (notwithstanding anything to the contrary
contained in Article 12) surrendered by such purchasers for conversion, all
as of immediately prior to the close of business on the date fixed for
redemption (and the right to convert any such Convertible Subordinated Notes
shall be deemed to have been extended through such time), subject to payment
of the above amount as aforesaid. At the direction of the Company, the
Trustee shall hold and dispose of any such amount paid to it in the same
manner as it would monies deposited with it by the Company for the redemption
of Convertible Subordinated Notes. Without the Trustee's prior written
consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Convertible Subordinated Notes shall increase
or otherwise affect any of the powers, duties, responsibilities or
obligations of the Trustee as set forth in this Indenture, and the Company
agrees to indemnify the Trustee from, and hold it harmless against, any loss,
liability or expense arising out of or in conversion of any Convertible
Subordinated Notes between the Company and such purchasers to which the
Trustee has not consented in writing, including the costs and expenses
incurred by the Trustee in the defense of any claim or liability arising out
of or in connection with the exercise or performance of any of its powers,
duties, responsibilities or obligations under this Indenture.
ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF CONVERTIBLE SUBORDINATED NOTES.
The Company shall pay the principal of and interest on the Convertible
Subordinated Notes on the dates and in the manner provided in the Convertible
Subordinated Notes. Principal, interest, the redemption price and the
Designated Event Payment shall be considered paid on the date due if the
Trustee or Paying Agent (other than the Company or a subsidiary of the
Company) holds as of 10:00 a.m. New York City time on that date immediately
available funds designated for and sufficient to pay all principal, interest,
the redemption price and the Designated Event Payment then due, PROVIDED,
HOWEVER, that money held by the Agent for the benefit of holders of Senior
Debt pursuant to the provisions of Article 11 hereof or the payment of which
to the holders of the Convertible Subordinated Notes is prohibited by Article
11 shall not be considered to be designated for the payment of any principal
of or interest on the Convertible Subordinated Notes within the meaning of
this Section 4.01.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue principal, at the rate borne by Convertible Subordinated Notes,
compounded semiannually; and (ii) overdue installments of
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interest (without regard to any applicable grace period) at the same rate,
compounded semiannually.
SECTION 4.02 COMMISSION REPORTS.
The Company shall comply with Section 314(a) of the TIA.
SECTION 4.03 COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has fully performed
its obligations under this Indenture and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge,
the Company is not in default in the performance or observance of any of the
terms and conditions hereof (or, if any Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he
or she may have knowledge) and, that to the best of his or her knowledge, no
event has occurred and remains in existence by reason of which payments on
account of the principal of or interest on the Convertible Subordinated Notes
are prohibited.
The Company shall, so long as any of the Convertible Subordinated Notes
are outstanding, deliver to the Trustee, forthwith upon becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default.
SECTION 4.04 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain or cause to be maintained the office or agency
required under Section 2.03. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency not maintained by the Trustee. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, presentations, surrenders, notices and demands with
respect to the Convertible Subordinated Notes may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Convertible Subordinated Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designation.
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SECTION 4.05 CONTINUED EXISTENCE.
Subject to Article 5, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence.
SECTION 4.06 REPURCHASE UPON DESIGNATED EVENT.
Following a Designated Event (the date of each such occurrence being
the "Designated Event Date"), the Company shall notify the holders of
Convertible Subordinated Notes in writing of such occurrence and shall make
an offer (the "Designated Event Offer") to repurchase all Convertible
Subordinated Notes then outstanding at a repurchase price (the "Designated
Event Payment") equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to, but excluding, the "Designated Event Payment
Date" (as defined below).
Notice of a Designated Event shall be mailed by or at the direction of the
Company to the holders of Convertible Subordinated Notes as shown on the
register of such holders maintained by the Registrar not less than 20 days after
the applicable Designated Event Date at the addresses as shown on the register
of holders maintained by the Registrar, with a copy to the Trustee and the
Paying Agent. The Designated Event Offer shall remain open until a specified
date (the "Designated Event Offer Termination Date") which is at least 20
business days from the date such notice is mailed. During the period specified
in such notice, holders of Convertible Subordinated Notes may elect to tender
their Convertible Subordinated Notes in whole or in part in integral multiples
of $1,000 in exchange for cash. Payment shall be made by the Company in respect
of Convertible Subordinated Notes properly tendered pursuant to this Section on
a specified business day (the "Designated Event Offer Payment Date") which shall
be no earlier than five business days after the applicable Designated
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Event Offer Termination Date and no later than 60 days after the applicable
Designated Event.
The notice, which shall govern the terms of the Designated Event Offer,
shall include such disclosures as are required by law and shall state:
(a) that a Designated Event Offer is being made pursuant to this
Section 4.06 and that all Convertible Subordinated Notes will be accepted
for payment;
(b) the Designated Event Payment (including the amount of accrued
interest, if any) for each Convertible Subordinated Note, the Designated
Event Offer Termination Date and the Designated Event Offer Payment Date;
(c) that any Convertible Subordinated Note not accepted for
payment will continue to accrue interest in accordance with the terms
thereof;
(d) that, unless the Company defaults on making the Designated
Event Payment, any Convertible Subordinated Note accepted for payment
pursuant to the Designated Event Offer shall cease to accrue interest
on or after the Designated Event Offer Payment Date;
(e) that holders electing to have Convertible Subordinated Notes
repurchased pursuant to a Designated Event Offer will be required to
surrender their Convertible Subordinated Notes to the Paying Agent at the
address specified in the notice prior to 5:00 p.m., New York City time, on
the Designated Event Offer Termination Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the
Trustee and the Paying Agent;
(f) that holders of Convertible Subordinated Notes will be
entitled to withdraw their election if the Paying Agent receives, not
later than 5:00 p.m., New York City time, on the Designated Event Offer
Termination Date, a facsimile transmission or letter setting forth the
name of the holder, the principal amount of Convertible Subordinated Notes
the holder delivered for purchase, the Convertible Subordinated Note
certificate number (if any) and a statement that such holder is
withdrawing his election to have such Convertible Subordinated Notes
purchased;
(g) that holders whose Convertible Subordinated Notes are
repurchased only in part will be issued Convertible Subordinated Notes
equal in principal amount to the unpurchased portion of the Convertible
Subordinated Notes surrendered;
(h) the instructions that holders must follow in order to tender
their Convertible Subordinated Notes; and
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(i) that in the case of a Designated Event Offer Termination Date
that is also an interest payment date, the interest payment due on such
date shall be paid to the person in whose name the Convertible
Subordinated Note is registered at the close of business on the relevant
Designated Event Offer Termination Date.
On the Designated Event Offer Termination Date the Company shall (i)
accept for payment Convertible Subordinated Notes or portions thereof
tendered pursuant to the Designated Event Offer, (ii) deposit with the Paying
Agent money sufficient to pay the Designated Event Payment of all Convertible
Subordinated Notes or portions thereof so tendered and accepted and (iii)
deliver to the Trustee the Convertible Subordinated Notes so accepted
together with an Officers' Certificate setting forth the Convertible
Subordinated Notes or portions thereof tendered to and accepted for payment
by the Company. On the Designated Event Payment Date, the Paying Agent shall
mail or deliver to the holders of Convertible Subordinated Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such holders a new Convertible
Subordinated Note equal in principal amount to any unpurchased portion of the
Convertible Subordinated Note surrendered. Any Convertible Subordinated
Notes not so accepted shall be promptly mailed or delivered by the Company to
the holder thereof.
SECTION 4.07 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE.
The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, will appoint, in the manner provided in Section 7.08, a Trustee, so
that there shall at all times be a Trustee hereunder.
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SECTION 4.08 STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter enforced, that may affect the Company's
obligation to pay the Convertible Subordinated Notes; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law insofar as such law applies to the Convertible
Subordinated Notes, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
ARTICLE 5
SUCCESSORS
SECTION 5.01 WHEN THE COMPANY MAY MERGE, ETC.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets to, any person as an entirety or substantially as an entirety unless:
(a) either (i) the Company shall be the surviving or continuing
corporation or (ii) the person (if other than the Company) formed by or
surviving any such consolidation or into which the Company is merged or
the person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company
substantially as an entirety (1) shall be a corporation organized and
validly existing under the laws of the United States or any State thereof
or the District of Columbia and (2) shall expressly assume, by
supplemental indenture in form reasonably satisfactory to the Trustee,
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Convertible
Subordinated Notes and the performance of every covenant of the
Convertible Subordinated Notes and this Indenture on the part of the
Company to be performed or observed;
(b) immediately after giving effect to such transaction no
Default and no Event of Default shall have occurred and be continuing;
and
(c) the Company or such person shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with this
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provision of this Indenture and that all conditions precedent in this
Indenture relating to such transaction have been satisfied.
For purposes of this Section 5.01, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more subsidiaries of the
Company, the capital stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any such consolidation, merger, sale, assignment or other
disposition in accordance with Section 5.01, the successor person formed by
such consolidation or into which the Company is merged or to which such sale,
conveyance, lease or transfer or other disposition is made will succeed to,
and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor had
been named as the Company therein, and thereafter (except in the case of a
sale, assignment, transfer, lease, conveyance or other disposition) the
predecessor corporation will be relieved of all further obligations and
covenants under this Indenture and the Convertible Subordinated Notes.
SECTION 5.03 PURCHASE OPTION ON CHANGE OF CONTROL.
This Article 5 does not affect the obligations of the Company (including
without limitation any successor to the Company) under Section 4.06.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT.
An "Event of Default" with respect to any Convertible Subordinated Notes
occurs if:
(a) the Company defaults in the payment (whether or not such
payment is prohibited by the subordination provisions of Article 11 of
this Indenture) of principal of, or premium, if any, on the Convertible
Subordinated Notes when due at maturity, upon repurchase, upon
acceleration or otherwise, including, without limitation, failure of the
Company to repurchase the Convertible Subordinated Notes on the date
required pursuant to Section 4.06 or of the Company to make any optional
redemption payment when required pursuant to Article 3; or
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(b) the Company defaults in the payment (whether or not such
payment is prohibited by the subordination provisions of Article 11 of
this Indenture) of any installment of interest on the Convertible
Subordinated Notes when due (including any interest payable in connection
with a repurchase pursuant to Section 4.06 or in connection with any
optional redemption payment pursuant to Article 3) and continuance of
such default for more than 30 days; or
(c) the Company defaults (other than a default set forth in
clauses (a) and (b) above) in the performance of, or breach of, any other
covenant or warranty of the Company set forth in this Indenture or the
Convertible Subordinated Notes and fails to remedy such default or breach
within a period of 60 days after the receipt of written notice from the
Trustee or the holders of at least 25% in aggregate principal amount of
the then outstanding Convertible Subordinated Notes; or
(d) the Company fails to provide notice of any Designated Event in
accordance with Section 4.06; or
(e) failure of the Company or any Material Subsidiary to make any
payment at maturity, including any applicable grace period, in respect of
indebtedness for borrowed money of, or guaranteed or assumed by, the
Company or any Material Subsidiary which payment in an amount in excess
of $25,000,000 and continuance of such failure for 30 days after notice
thereof from the Trustee or the holders of at least 25% in aggregate
principal amount of the then outstanding Convertible Subordinated Notes;
or
(f) default by the Company or any Material Subsidiary with respect
to any indebtedness referred to in clause (e) above which default results
in the acceleration of any such indebtedness of an amount in excess of
$25,000,000 without such indebtedness having been paid or discharged or
such acceleration having been cured, waived, rescinded or annulled for 30
days after notice thereof from the Trustee or the holders of at least 25%
in aggregate principal amount of the then outstanding Convertible
Subordinated Notes; or
(g) the Company or any Material Subsidiary, pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
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(iv) makes a general assignment for the benefit of its
creditors; or
(h) a court of competent jurisdiction enters a judgment, order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Material
Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any Material
Subsidiary, and the order or decree remains unstayed and in effect
for 90 days.
(iii) orders the liquidation of the Company or any Material
Subsidiary, and the order or decree remains unstayed and in effect
for 90 days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
In the case of any Event of Default pursuant to the provisions of
this Section 6.01 occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium which the Company would have had to pay if the Company
then had elected to redeem the Convertible Subordinated Notes pursuant to
Paragraph 5 of the Convertible Subordinated Notes of this Indenture, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law, anything in this Indenture or in the Convertible
Subordinated Notes contained to the contrary notwithstanding.
If an Event of Default occurs prior to any date on which the
Comapny is prohibited from redeeming the Convertible Subordinated Notes
pursuant to the optional redemption provisions of Article 3 of this Indenture
by reason of any wilful action (of inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Convertible Subordinated Notes prior to such date, then the
premium specified in this Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the
Convertible Subordinated Notes.
SECTION 6.02 ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clauses (g) and (h) of Section 6.01) occurs and is continuing, then and in every
such case the Trustee, by written notice to the Company, or the holders of at
least 25% in aggregate principal amount of the then outstanding Convertible
Subordinated Notes, by written notice to the Company and the Trustee, may
declare the unpaid principal of and accrued interest on all the Convertible
Subordinated Notes to be due and payable. Upon such declaration such principal
amount, premium, if any, and accrued and unpaid interest shall become
immediately due and payable, notwithstanding anything contained in this
Indenture or the Convertible Subordinated Notes to the contrary but subject to
the provisions of Article 11 hereof. If any Event of Default with respect to
the Company specified in clauses (g) or (h) of Section 6.01 occurs, all unpaid
principal of and premium, if any, and accrued and unpaid interest on the
Convertible Subordinated Notes then outstanding shall become automatically due
and payable subject to
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the provisions of Article 11 hereof, without any declaration or other act on the
part of the Trustee or any holder of Convertible Subordinated Notes.
The holders of a majority in aggregate principal amount of the then
outstanding Convertible Subordinated Notes by notice to the Trustee may
rescind an acceleration of the Convertible Subordinated Notes and its
consequences if all existing Events of Default (other than nonpayment of
principal of or premium, if any, and interest on the Convertible Subordinated
Notes which has become due solely by virtue of such acceleration) have been
cured or waived and if the rescission would not conflict with any judgment or
decree of any court of competent jurisdiction. No such rescission shall
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
SECTION 6.03 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Convertible Subordinated Notes or to enforce the
performance of any provision of the Convertible Subordinated Notes or this
Indenture. The Trustee may maintain a proceeding even if it does not possess
any of the Convertible Subordinated Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any holder of a Convertible
Subordinated Note in exercising any right or remedy occurring upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. All remedies are cumulative to the extent
permitted by law.
SECTION 6.04 WAIVER OF PAST DEFAULTS.
The holders of a majority in aggregate principal amount of the Convertible
Subordinated Notes then outstanding may, on behalf of the holders of all the
Convertible Subordinated Notes waive an existing Default or Event of Default and
its consequences, except a Default or Event of Default in the payment of the
principal of or interest on the Convertible Subordinated Notes (other than the
non-payment of principal of and premium, if any, and interest on the Convertible
Subordinated Notes which has become due solely by virtue of an acceleration
which has been duly rescinded as provided above), or in respect of a covenant or
provision of this Indenture which cannot be modified or amended without the
consent of all holders of Convertible Subordinated Notes. When a Default is
waived, it is cured and stops continuing. No waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 6.05 CONTROL BY MAJORITY.
The holders of a majority in principal amount of the then outstanding
Convertible Subordinated Notes may 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 it. However, the Trustee may refuse to follow
any direction that conflicts with law or this
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Indenture that the Trustee determines may be unduly prejudicial to the rights
of other holders of Convertible Subordinated Notes or that may involve the
Trustee in personal liability; PROVIDED, that the Trustee shall have no duty
or obligation (subject to Section 7.01) to ascertain whether or not such
actions of forebearances are unduly prejudicial to such holders; PROVIDED
FURTHER, that the Trustee may take any other action the Trustee deems proper
that is not inconsistent with such directions.
SECTION 6.06 LIMITATION ON SUITS.
A holder of a Convertible Subordinated Note may not pursue any remedy with
respect to this Indenture or the Convertible Subordinated Notes unless:
(1) the holder gives to the Trustee notice of a continuing Event
of Default;
(2) the holders of at least 25% in principal amount of the then
outstanding Convertible Subordinated Notes make a request to the Trustee
to pursue the remedy;
(3) such holder or holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(5) during such 60-day period the holders of a majority in
principal amount of the then outstanding Convertible Subordinated Notes do
not give the Trustee a direction inconsistent with the request.
A holder of a Convertible Subordinated Note may not use this Indenture to
prejudice the rights of another holder or to obtain a preference or priority
over another holder.
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Subject to the provisions of Article 11 hereof, notwithstanding any
other provision of this Indenture, the right of any holder of a Convertible
Subordinated Note to receive payment of principal, premium, if any, and
interest on the Convertible Subordinated Note, on or after the respective due
dates expressed in the Convertible Subordinated Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, or to
bring suit for the enforcement of the right to convert the Convertible
Subordinated Note shall not be impaired or affected without the consent of
the holder of a Convertible Subordinated Note.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Convertible Subordinated Notes and interest on
overdue principal and interest and such further amount as
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shall be sufficient to cover the costs and, to the extent lawful, expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and the
holders of Convertible Subordinated Notes allowed in any judicial proceedings
relative to the Company, its creditors or its property. Nothing contained
herein shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any holder of a Convertible Subordinated Note any
plan of reorganization, arrangement, adjustment or composition affecting the
Convertible Subordinated Notes or the rights of any holder thereof, or to
authorize the Trustee to vote in respect of the claim of any holder in any such
proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 7.07, including
payment of all compensation, expenses and liabilities incurred, and all
advances made, by the Trustee, and the costs and expenses of collection;
Second: to holders of Senior Debt to the extent required by Article
11;
Third: to holders of Convertible Subordinated Notes for amounts due
and unpaid on the Convertible Subordinated Notes for principal, premium,
if any, and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Convertible
Subordinated Notes for principal, premium, if any, and interest,
respectively; and
Fourth: to the Company.
Except as otherwise provided in Section 2.12, the Trustee may fix a record
date and payment date for any payment to holders of Convertible Subordinated
Notes.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit, other than the Trustee, of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party
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litigant. This Section does not apply to a suit by the Trustee, a suit by a
holder pursuant to Section 6.07 or a suit by holders of more than 10% in
principal amount of the then outstanding Convertible Subordinated Notes.
ARTICLE 7
THE TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture and
covenants and agrees to perform the same, as herein expressed. Whether or not
herein expressly so provided, every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Article 7.
SECTION 7.01 DUTIES OF THE TRUSTEE.
(a) If an Event of Default known to the Trustee has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of an Event of Default known to the
Trustee:
(1) The duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any statements, certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the form required by
this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section;
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
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(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that is in any way related to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability in the performance of any of its
duties or the exercise of any of its rights and powers hereunder.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree with the Company. Money held in trust by
the Trustee need not be segregated from other funds except to the extent
required by law.
SECTION 7.02 RIGHTS OF THE TRUSTEE.
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate, or any other
certificate, statement, instrument, opinion, report, notice, request, consent,
order, security or other document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not investigate any
fact or matter contained therein.
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof is herein specifically prescribed). In addition,
before the Trustee acts or refrains from acting, it may require an Officers'
Certificate, an Opinion of Counsel or both. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection from liability in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through its attorneys and
agents and other persons not regularly in its employ and shall not be
responsible for the misconduct or negligence of any attorney or agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its discretion,
rights or powers.
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(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by Officers of the Company.
(f) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(g) The Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by this Indenture at the request, order or
discretion of any of the holders of Convertible Subordinated Notes pursuant to
the provisions of this Indenture, unless such holders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred therein or thereby.
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, security or other document
unless requested in writing to do so by the holders of not less than a majority
in aggregate principal amount of the Convertible Subordinated Notes then
outstanding, PROVIDED that if the Trustee determines in its sole and absolute
discretion to make any such investigation, then it shall be entitled, upon
reasonable prior notice and during normal business hours, to examine the books
and records and the premises of the Company, personally or by agent or attorney,
and the reasonable expenses of every such examination shall be paid by the
Company or, if paid by the Trustee or any predecessor Trustee, shall be
reimbursed by the Company upon demand.
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty and the Trustee shall not be
answerable for other than its negligence or willful misconduct.
[(j) Except for (i) a default under Sections [5.01(a) or (b)] hereof,
or (ii) any other event of which the Trustee has "actual knowledge" and which
event, with the giving of notice or the passage of time or both, would
constitute an Event of Default under this Indenture, the Trustee shall not be
deemed to have notice of an default or event unless specifically notified in
writing of such event by the Company or the holders of not less than 25% in
aggregate principal amount of the Convertible Subordinated Notes then
outstanding; as used herein, the term "actual knowledge" means the actual
fact or statement of knowing, without any duty to make any investigation with
regard thereto.]
(k) The Trustee shall not be responsible for the computation of any
adjustment to the Conversion Price or for any determination as to whether an
adjustment is required.
SECTION 7.03 INDIVIDUAL RIGHTS OF THE TRUSTEE.
Subject to Sections 7.10 and 7.11, the Trustee in its individual or any
other capacity may become the owner or pledgee of Convertible Subordinated
Notes with the same rights it would have if it were not the Trustee and may
otherwise deal with the Company or an Affiliate and receive, collect, hold
and retain collections from the Company with the same rights it would have if
it were not Trustee. Any Agent may do the same with like rights.
SECTION 7.04 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Convertible Subordinated
Notes. It shall not be accountable for the Company's use of the proceeds from
the Convertible Subordinated Notes or any money paid to the Company or upon the
Company's direction under any provision of this Indenture. It shall not be
responsible for the use or application of any money received by any Paying Agent
other than the Trustee, and it shall not be responsible for any statement or
recital herein or any statement in the Convertible Subordinated Notes or any
other document in connection with the sale of the Convertible Subordinated Notes
or pursuant to this Indenture other than its certificate of authentication.
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SECTION 7.05 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each holder of a Convertible
Subordinated Note a notice of the Default or Event of Default within 60 days
after it occurs. A Default or an Event of Default shall not be considered known
to the Trustee unless it is a Default or Event of Default in the payment of
principal or interest when due under Section 6.01(a) or (b) or the Trustee shall
have received notice thereof, in accordance with this Indenture, from the
Company or from the holders of a majority in principal amount of the outstanding
Convertible Subordinated Notes. Except in the case of a Default or Event of
Default in payment of principal of, premium, if any, or interest on any
Convertible Subordinated Note, the Trustee may withhold the notice if and so
long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of the holders of the Convertible
Subordinated Notes.
SECTION 7.06 REPORTS BY THE TRUSTEE TO HOLDERS.
Within 60 days after the reporting date stated in Section 10.10, the
Trustee shall mail to holders of Convertible Subordinated Notes a brief report
not the dated as of such reporting date that complies with TIA Section 313(a)
described in TIA Section 313(a) has occurred within twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
(but if no event with TIA Section 313(b)(2). The Trustee shall also transmit by
required by TIA Section 313(c).
A copy of each report at the time of its mailing to holders of Convertible
Subordinated Notes shall be filed, at the expense of the Company, by the Trustee
with the Commission and each stock exchange or securities market, if any, on
which the Convertible Subordinated Notes are listed. The Company shall timely
notify the Trustee when the Convertible Subordinated Notes are listed or quoted
on any stock exchange or securities market.
SECTION 7.07 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time and the Trustee
shall be entitled to reasonable compensation for its acceptance of this
Indenture and its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by or on behalf of it in
addition to the compensation for its services. Such expenses may include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
counsel and other persons not regularly in its employ.
The Company shall indemnify the Trustee against any loss, liability or
expense incurred by it arising out of or in connection with the acceptance or
administration of its
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duties under this Indenture and the trusts hereunder, including the costs and
expenses of defending itself against or investigating any claim of liability in
the premises, except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim with counsel
designated by the Company, who may be outside counsel to the Company but shall
in all events be reasonably satisfactory to the Trustee, and the Trustee shall
cooperate in the defense. In addition, the Trustee may retain one separate
counsel and, if deemed advisable by such counsel, local counsel, and the Company
shall pay the reasonable fees and expenses of such separate counsel and local
counsel. The indemnification herein extends to any settlement, PROVIDED that
the Company will not be liable for any settlement made without its consent,
provided, further, that such consent will not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss
or liability incurred by the Trustee through its own negligence or willful
misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Convertible Subordinated Notes on all
money or property held or collected by the Trustee, except that held in trust to
pay principal and interest on Convertible Subordinated Notes. Such Liens and
the Company's obligations under this Section 7.07 shall survive the satisfaction
and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.08 REPLACEMENT OF THE TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign at any time and be discharged from the trust hereby
created by so notifying the Company. The holders of a majority in principal
amount of the then outstanding Convertible Subordinated Notes may remove the
Trustee by so notifying the Trustee and the Company in writing and may appoint a
successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
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(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the holders
of a majority in principal amount of the then outstanding Convertible
Subordinated Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
holders of at least 10% in principal amount of the then outstanding Convertible
Subordinated Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee after written request by any holder of a Convertible
Subordinated Note who has been a holder for at least six months fails to comply
with Section 7.10, such holder may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
holders of Convertible Subordinated Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, PROVIDED
that all sums owing to the retiring Trustee hereunder have been paid and subject
to the lien provided for in Section 7.07. Notwithstanding the replacement of
the Trustee pursuant to this Section 7.08, the Company's obligations under
Section 7.07 shall continue for the benefit of the retiring Trustee.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
preceding paragraph.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another corporation
or national banking association, the resulting, surviving or transferee
corporation or national banking association without any further act shall be the
successor Trustee with the same effect as if the successor Trustee had been
named as the Trustee herein.
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SECTION 7.10 ELIGIBILITY, DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1). The Trustee shall always have a combined capital and
surplus as stated in Section 10.10. The Trustee is subject to TIA Section
310(b) regarding the disqualification of a trustee upon acquiring a conflicting
interest.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship set forth in TIA Section 311(b). A Trustee who has resigned or
been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01 DISCHARGE OF INDENTURE.
When (a) the Company delivers to the Trustee for cancellation all
Convertible Subordinated Notes theretofore authenticated (other than any other
Convertible Subordinated Notes which have been destroyed, lost or stolen and in
lieu of or in substitution for which other Convertible Subordinated Notes have
been authenticated and delivered) and not theretofore canceled, or (b) all the
Convertible Subordinated Notes not theretofore canceled or delivered to the
Trustee for cancellation have become due and payable, or are by their terms to
become due and payable within one year or are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption, and the Company deposits with the Trustee, in trust, cash and/or
U.S. Government Obligations sufficient to pay at maturity or upon redemption of
all of the Convertible Subordinated Notes (other than any Convertible
Subordinated Notes which have been mutilated, destroyed, lost or stolen and in
lieu of or in substitution for which other Convertible Subordinated Notes have
been authenticated and delivered) not theretofore canceled or delivered to the
Trustee for cancellation, including principal and premium, if any, and interest
due or to become due to such date of maturity or redemption date, as the case
may be, and if in either case the Company also pays, or causes to be paid, all
other sums payable hereunder by the Company, then this Indenture shall cease to
be of further effect (except as to (i) rights of registration of transfer,
substitution, replacement and exchange and conversion of Convertible
Subordinated Notes, (ii) rights hereunder of holders of Convertible Subordinated
Notes to receive payments of principal of and premium, if any, and interest on,
the Convertible Subordinated Notes (iii) the obligations under Sections 2.03 and
8.05 hereof and (iv) the rights, obligations and immunities of the Trustee
hereunder), and the Trustee, on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel as required by Section 10.04 and
at the Company's cost and expense,
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shall execute proper instruments acknowledging satisfaction of and discharging
this Indenture; the Company, however, hereby agrees to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred by the Trustee
and to compensate the Trustee for any services thereafter reasonably and
properly rendered by the Trustee in connection with this Indenture or the
Convertible Subordinated Notes.
SECTION 8.02 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.
Subject to Section 8.04, all monies deposited with the Trustee pursuant
to Section 8.01 shall be held in trust and applied by it to the payment,
notwithstanding the provisions of Article 11, either directly or through the
Paying Agent, to the holders of the particular Convertible Subordinated Notes
for the payment or redemption of which such monies have been deposited with
the Trustee, of all sums due and to become due thereon for principal and
interest and premium, if any.
SECTION 8.03 PAYING AGENT TO REPAY MONIES HELD.
Upon the satisfaction and discharge of this Indenture, all monies then
held by any Paying Agent (other than the Trustee) shall, upon the Company's
demand, be repaid to it or paid to the Trustee, and thereupon such Paying Agent
shall be released from all further liability with respect to such monies.
SECTION 8.04 RETURN OF UNCLAIMED MONIES.
Subject to the requirements of applicable law, any monies deposited with
or paid to the Trustee for payment of the principal of, premium, if any, or
interest on Convertible Subordinated Notes and not applied but remaining
unclaimed by the holders thereof for two years after the date upon which the
principal of, premium, if any, or interest on such Convertible Subordinated
Notes, as the case may be, have become due and payable, shall be repaid to the
Company by the Trustee on demand and all liability of the Trustee shall
thereupon cease with respect to such monies; and the holder of any of the
Convertible Subordinated Notes shall thereafter look only to the Company for any
payment which such holder may be entitled to collect unless an applicable
abandoned property law designates another person.
SECTION 8.05 REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 8.02 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Convertible
Subordinated Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.01 until such time as the Trustee or the Paying
Agent is permitted to apply all such money in accordance with Section 8.02;
PROVIDED, HOWEVER, that if the Company makes any payment of interest on or
principal of any
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Convertible Subordinated Note following the reinstatement of its obligations,
the Company shall be subrogated to the rights of the holders thereof to receive
such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01 WITHOUT THE CONSENT OF HOLDERS.
The Company and the Trustee may amend this Indenture or the Convertible
Subordinated Notes without notice to or the consent of any holder of a
Convertible Subordinated Note for the purposes of:
(a) curing any ambiguity or correcting or supplementing any
defective or inconsistent provision contained in this Indenture, or making
any other changes in the provisions of this Indenture which the Company
and the Trustee may deem necessary or desirable and which will not
adversely affect the legal rights under the Indenture of the holders of
Convertible Subordinated Notes.
(b) providing for uncertificated Convertible Subordinated Notes in
addition to or in place of certificated Convertible Subordinated Notes;
(c) evidencing the succession of another person to the Company and
the assumption by such successor of the covenants and obligations of the
Company thereunder and in the Convertible Subordinated Notes as permitted
by Section 5.01;
(d) providing for conversion rights of holders of Convertible
Subordinated Notes in the event of consolidation, merger or sale of all or
substantially all of the assets of the Company and to otherwise comply
with Section 5.01;
(e) reducing the Conversion Price;
(f) making any changes or adding to the covenants of the Company
for the benefit of the holders of Convertible Subordinated Notes;
(g) complying with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the TIA; or
(h) evidencing and providing for the acceptance of appointment
hereunder by a successor Trustee with respect to the Convertible
Subordinated Notes.
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SECTION 9.02 WITH THE CONSENT OF HOLDERS.
Subject to Section 6.07, the Company and the Trustee may amend this
Indenture or the Convertible Subordinated Notes with the written consent of the
holders of at least a majority in principal amount of the then outstanding
Convertible Subordinated Notes (including consents obtained in connection with a
tender offer or exchange offer for Convertible Subordinated Notes.
Subject to Sections 6.04 and 6.07, the holders of a majority in principal
amount of the Convertible Subordinated Notes then outstanding may also waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Convertible Subordinated Notes.
However, without the consent of each holder of a Convertible Subordinated
Note affected, an amendment or waiver under this Section may not:
(a) reduce the principal amount of Convertible Subordinated Notes
whose holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or premium on or change the fixed
maturity of any Convertible Subordinated Note or [except as permitted
pursuant to Section 9.01,] alter the redemption provisions with respect
thereto;
(c) reduce the rate of, or extend the time for payment of,
interest, including defaulted interest, on any Convertible Subordinated
Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Convertible
Subordinated Notes (except a rescission of acceleration of the Convertible
Subordinated Notes by the holders of at least a majority in aggregate
principal amount of the Convertible Subordinated Notes then outstanding
and a waiver of the payment default that resulted from such acceleration);
(e) make the principal of, or premium, if any, or interest on, any
Convertible Subordinated Note payable in money other than as provided for
herein and in the Convertible Subordinated Notes;
(f) waive a redemption payment with respect to any Convertible
Subordinated Notes;
(g) except as permitted herein, increase the Conversion Price
or [except as permitted pursuant to Section 9.01,] modify the provisions
contained herein relating to conversion of the Convertible Subordinated
Notes in a manner adverse to the holders thereof; or
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(h) make any change in provisions relating to waivers of defaults,
or the rights of holders of Convertible Subordinated Notes to receive
payments of principal of, premium, if any, or interest on the Convertible
Subordinated Notes or the abilities of holders of Convertible Subordinated
Notes to enforce their rights hereunder or the provisions of clauses (a)
through (h) of this Section 9.02.
To secure a consent of the holders of Convertible Subordinated Notes under
this Section, it shall not be necessary for such holders to approve the
particular form of any proposed amendment or waiver, but it shall be sufficient
if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to holders of Convertible Subordinated Notes a notice briefly
describing the amendment or waiver.
In order to amend any provisions of Article 11, holders of at least 75%
principal amount of Convertible Subordinated Notes then outstanding must consent
to such amendment if such amendment would adversely the rights of holders of
Convertible Subordinated Notes.
SECTION 9.03 COMPLIANCE WITH THE TRUST INDENTURE ACT.
Every amendment to this Indenture or the Convertible Subordinated Notes
shall be set forth in a supplemental indenture that complies with the TIA as
then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a
holder of a Convertible Subordinated Note is a continuing consent by the holder
and every subsequent holder of a Convertible Subordinated Note or portion of a
Convertible Subordinated Note that evidences the same debt as the consenting
holder's Convertible Subordinated Note, even if notation of the consent is not
made on any Convertible Subordinated Note. However, any such holder or
subsequent holder may revoke the consent as to his or her Convertible
Subordinated Note or portion of a Convertible Subordinated Note if the Trustee
receives the notice of revocation before the date on which the Trustee receives
an Officers' Certificate certifying that the holders of the requisite principal
amount of Convertible Subordinated Notes have consented to the amendment or
waiver.
The Company may, but shall not obligated to, fix a record date for the
purpose of determining the holders of Convertible Subordinated Notes entitled to
consent to any amendment or waiver. If a record date is fixed, then
notwithstanding the provisions of the immediately preceding paragraph, those
persons who were holders of Convertible Subordinated Notes at such record date
(or their duly designated proxies), and only those persons, shall be entitled to
consent to such amendment or waiver or to revoke any consent
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previously given, whether or not such persons continue to be holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from holders of the principal amount of
Convertible Subordinated Notes required hereunder for such amendment or waiver
to be effective shall have also been given and not revoked within such 90-day
period.
After an amendment or waiver becomes effective it shall bind every holder
of a Convertible Subordinated Note, unless it is of the type described in
clauses (a) - (h) of Section 9.02. In such case, the amendment or waiver shall
bind each holder of a Convertible Subordinated Note who has consented to it.
SECTION 9.05 NOTATION ON OR EXCHANGE OF CONVERTIBLE SUBORDINATED NOTES.
Convertible Subordinated Notes authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article 9 may, and
shall if required by the Trustee, bear a notation in the form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Convertible Subordinated Notes so modified as to
conform, in the opinion of the Company and the Trustee, to any such supplemental
indenture may be prepared and executed by the Company and authenticated and
delivered by the Trustee in exchange for outstanding Convertible Subordinated
Notes.
SECTION 9.06 TRUSTEE PROTECTED.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if such amendment or supplemental indenture does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, sign it. In signing such amendment
or supplemental indenture, the Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that such amendment or supplemental indenture is
authorized or permitted by this Indenture, that it is not inconsistent herewith,
and that it will be valid and binding upon the Company in accordance with its
terms.
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.01 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), such imposed duties shall control. If
any provision of this Indenture expressly modifies or excludes any provision
of the TIA that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the
case may be.
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SECTION 10.02 NOTICES.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by first-class mail,
with postage prepaid (registered or certified, return receipt requested),
facsimile or overnight air couriers guaranteeing next day delivery, to the
other's address stated in Section 10.10. The Company or the Trustee by notice
to the other may designate additional or different addresses for subsequent
notices or communications.
All notices and communications (other than those sent to holders of
Convertible Subordinated Notes) shall be deemed to have been duly given at the
time delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when transmission confirmed,
if transmitted by facsimile; and the next business day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a holder of a Convertible Subordinated Note
shall be mailed by first-class mail, with postage prepaid, to his or her address
shown on the register kept by the Registrar. Failure to mail a notice or
communication to a holder or any defect in it shall not affect its sufficiency
with respect to other holders.
If a notice or communication is sent in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company sends a notice or communication to holders of Convertible
Subordinated Notes, it shall send a copy to the Trustee and each Agent at the
same time.
All other notices or communications shall be in writing.
SECTION 10.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b)
respect to their rights under this Indenture or the Convertible Subordinated
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 10.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05) stating that, in the opinion of such person, all
conditions precedent and covenants, if any,
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provided for in this Indenture relating to the proposed action have been
complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 10.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she has
made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any Officers' Certificate may be based, insofar as it relates to legal
matters, upon an Opinion of Counsel, unless such Officer knows that the opinion
with respect to the matters upon which his or her certificate may be based as
aforesaid is erroneous. Any Opinion of Counsel may be based, insofar as it
relates to factual matters, upon certificates, statements or opinions of, or
representations by an officer or officers of the Company, or other persons or
firms deemed appropriate by such counsel, unless such counsel knows that the
certificates, statements or opinions or representations with respect to the
matters upon which his or her certificate, statement or opinion may be based as
aforesaid are erroneous.
Any Officers' Certificate, statement or Opinion of Counsel may be based,
insofar as it relates to accounting matters, upon a certificate or opinion of or
representation by an accountant (who may be an employee of the Company), or firm
of accountants, unless such Officer or counsel, as the case may be, knows that
the certificate or opinion or representation with respect to the accounting
matters upon which his certificate, statement or opinion may be based as
aforesaid is erroneous.
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SECTION 10.06 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or a meeting of
holders of Convertible Subordinated Notes. The Registrar or Paying Agent may
make reasonable rules and set reasonable requirements for its functions.
SECTION 10.07 LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in the City of New York or the City of San Jose, California are
not required to be open, and a "business day" is any day that is not a Legal
Holiday. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period. If any
date specified in this Indenture, including, without limitation, a redemption
date under Paragraph 5 of Convertible Subordinated Notes, is a Legal Holiday,
then such date shall be the next succeeding business day.
SECTION 10.08 NO RECOURSE AGAINST OTHERS.
No director, officer, employee or stockholder, as such, of the Company
from time to time shall have any liability for any obligations of the Company
under the Convertible Subordinated Notes or this Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each holder by accepting a Convertible Subordinated Note waives and releases all
such liability. This waiver and release are part of the consideration for the
Convertible Subordinated Notes. Each of such directors, officers, employees and
stockholders is a third party beneficiary of this Section 10.08.
SECTION 10.09 COUNTERPARTS.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
SECTION 10.10 OTHER PROVISIONS.
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The reporting date for Section 7.06 is April 15 of each year. The first
reporting date is the first April 15 following the issuance of Convertible
Subordinated Notes hereunder.
The Trustee shall always have, or shall be a subsidiary of a bank or bank
holding company which has, a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition.
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The Company's address is:
VLSI Technology, Inc.
1109 McKay Drive
San Jose, CA 95131
Attention: General Counsel's Office
Facsimile: (408) 434-3181
Telephone: (408) 434-3000
The Trustee's address is:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, IL 60606
Attention: Dan Donovan/Indenture Trust Division
Facsimile: (312) 461-3525
Telephone: (312) 461-2908
SECTION 10.11 GOVERNING LAW.
The internal laws of the State of New York shall govern this Indenture and
the Convertible Subordinated Notes, without regard to the conflict of laws
provisions thereof.
SECTION 10.12 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a subsidiary. Any such other indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 10.13 SUCCESSORS.
All agreements of the Company in this Indenture and the Convertible
Subordinated Notes shall bind its successor. All agreements of the Trustee in
this Indenture shall bind its successor.
SECTION 10.14 SEVERABILITY.
In case any provision in this Indenture or in the Convertible Subordinated
Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
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SECTION 10.15 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or
restrict any of the terms or provisions hereof.
ARTICLE 11
SUBORDINATION
SECTION 11.01 AGREEMENT TO SUBORDINATE.
The Company agrees, and each holder of Convertible Subordinated
Notes by accepting a Convertible Subordinated Note agrees, that the indebtedness
evidenced by the Convertible Subordinated Note is subordinated in right of
payment, to the extent and in the manner provided in this Article 11, to the
prior payment in full of all Senior Debt (whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
SECTION 11.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) in cash or U.S. Government
Obligations or other payment satisfactory to the holders of the Senior
Debt before holders of Convertible Subordinated Notes shall be entitled to
receive any payment with respect to the Convertible Subordinated Notes
(except that the holders of Convertible Subordinated Notes may receive
(i) securities that are subordinated to at least the same extent as the
Convertible Subordinated Notes to (a) Senior Debt and (b) any securities
issued in exchange for Senior Debt and (ii) payments and other
distributions made from any trust created pursuant to Section 8.01
hereof); and
(2) until all Senior Debt is paid in full in cash or U.S.
Government Obligations or other payment satisfactory to the holders
of the Senior Debt, any distribution to which holders of Convertible
Subordinated Notes would be entitled but for this Article 11 shall be
made to holders of Senior Debt (except that holders of Convertible
Subordinated Notes may receive securities that are subordinated to at
least the same extent as the
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Convertible Subordinated Notes to (a) Senior Debt and (b) any securities
issued in exchange for Senior Debt), as their interests may appear.
SECTION 11.03 DEFAULT ON SENIOR DEBT AND/OR DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution to the Trustee
or any holder of Convertible Subordinated Notes in respect of Obligations with
respect to the Convertible Subordinated Notes and may not acquire from the
Trustee or any holder of Convertible Subordinated Notes any Convertible
Subordinated Notes (other than, in each case, (i) securities that are
subordinated to at least the same extent as the Convertible Subordinated Notes
to (a) Senior Debt and (b) any securities issued in exchange for Senior Debt and
(ii) payments and other distributions made from any trust created pursuant to
Section 8.01 hereof) until all Senior Debt has been paid in full in cash or
U.S. Government Obligations or other payment satisfactory to the holders of
Senior Debt if:
(i) a default in the payment of any principal of, premium, if any,
interest, rent or other Obligations in respect of Senior Debt occurs and
is continuing beyond any applicable grace period in the agreement,
indenture or other document governing such Senior Debt; or
(ii) a default, other than a payment default, on Designated Senior
Debt occurs and is continuing that then permits holders of such Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice
of the default (a "Payment Blockage Notice") from a person who may give it
pursuant to Section 11.11 hereof.
If the Trustee receives any Payment Blockage Notice
pursuant to Section 11.03 (ii) hereof, no subsequent Payment Blockage
Notice shall be effective for purposes of such Section unless and until
(i) at least 365 days shall have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, and interest on the Convertible
Subordinated Notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Convertible Subordinated Notes and may acquire them upon the
earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 11.03(ii)
hereof, 179 days pass after notice is received if the maturity of such
Designated Senior Debt has not been accelerated,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
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SECTION 11.04 ACCELERATION OF CONVERTIBLE SUBORDINATED NOTES
In the event of the acceleration of the Convertible Subordinated
Notes because of an Event of Default, the Company may not make any payment or
distribution to the Trustee or any holder of Convertible Subordinated Notes
in respect of Obligations with respect to Convertible Subordinated Notes and
may not acquire or purchase from the Trustee or any holder of any Convertible
Subordinated Notes (other than, in each case, (i) securities that are
subordinated to at least the same extent as the Convertible Subordinated
Notes to (a) Senior Debt and (b) any securities issued in exchange for Senior
Debt, and (ii) payments and other distributions made from any trust created
pursuant to Section 8.01 until all Senior Debt has been paid in full in cash
or U.S. Government Obligations or other payment satisfactory to the holders
of the Senior Debt or such acceleration is rescinded in accordance with the
terms of this Indenture. If payment of the Convertible Subordinated Notes is
accelerated because of an Event of Default, the Company shall promptly notify
holders of Senior Debt of the acceleration.
SECTION 11.05 WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any holder of Convertible
Subordinated Notes receives any payment or any distributions of assets of
the Company of any kind with respect to the Convertible Subordinated Notes,
whether in cash, property or securities, including without limitation by way
of set-off or otherwise, at a time when payment or distribution is prohibited
by this Indenture, such payment shall be held by the Trustee or such holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
to the extent necessary to make payment in full of any Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Debt; provided that the foregoing shall apply
to the Trustee only if the Trustee has actual knowledge (as determined in
accordance with Section 11.11) that such payment or distribution is
prohibited by this Indenture.
With respect to the holders of Senior Debt, the Trustee undertakes
to perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 11, and no implied covenants or obligations with
respect to the holders of Senior Debt shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of holders of Convertible
Subordinated Notes or the Company or any other person money or assets to which
any holders of Senior Debt shall be entitled by virtue of this Article 11,
except if such payment is made as a result of the willful misconduct or gross
negligence of the Trustee.
SECTION 11.06 NOTICE BY COMPANY.
The Company shall promptly notify the Trustee of any facts known
to the Company that would cause a payment of any Obligations with respect to
the Convertible Subordinated Notes or to the purchase of any Convertible
Subordinated Notes by the Company to violate this Article, but failure to
give such notice shall not affect the subordination of the Convertible
Subordinated Notes to the Senior Debt as provided in this Article.
SECTION 11.07 SUBROGATION.
After all Senior Debt is paid in full and until the Convertible
Subordinated Notes are paid in full, holders of Convertible Subordinated Notes
shall be subrogated (equally and ratably with all other indebtedness pari passu
with the Convertible Subordinated Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the holders of Convertible Subordinated Notes
have been applied to the payment of Senior Debt. A distribution made under this
Article to holders of Senior Debt that otherwise would have been made to holders
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of Convertible Subordinated Notes is not, as between the Company and holders of
Convertible Subordinated Notes, a payment by the Company on the Convertible
Subordinated Notes.
SECTION 11.08 RELATIVE RIGHTS.
This Article defines the relative rights of holders of Convertible
Subordinated Notes and holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and holders of Convertible
Subordinated Notes, the obligation of the Company, which is absolute and
unconditional, to pay principal of and interest on the Convertible
Subordinated Notes in accordance with their terms;
(2) affect the relative rights of holders of Convertible
Subordinated Notes and creditors (other than with respect to Senior
Debt) of the Company other than their rights in relation to holders of
Senior Debt; or
(3) prevent the Trustee or any holder of Convertible Subordinated
Notes from exercising its available remedies upon a Default or Event of
Default, subject to the rights of holders and owners of Senior Debt to
receive distributions and payments otherwise payable to holders of
Convertible Subordinated Notes.
If the Company fails because of this Article to pay principal of or
interest on a Convertible Subordinated Note on the due date, the failure is
still a Default or Event of Default.
SECTION 11.09 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Convertible Subordinated Notes shall be
impaired by any act or failure to act by the Company or any holder of
Convertible Subordinated Notes or by the failure of the Company or any such
holder to comply with this Indenture.
SECTION 11.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders
of Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred
to in this Article 11, the Trustee and the holders of Convertible Subordinated
Notes shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any distribution to the
Trustee or to the holders of Convertible Subordinated Notes
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for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 11.
SECTION 11.11 RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 11 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge
of the existence of any facts that would prohibit the making of any payment
or distribution by the Trustee (other than pursuant to Section 11.04), and
the Trustee may continue to make payments on the Convertible Subordinated
Notes, unless the Trustee shall have received at least two business days
prior to the date of such payment or distribution written notice of facts
that would cause such payment or distribution with respect to the Convertible
Subordinated Notes to violate this Article. Only the Company or a
Representative may give the notice.
Nothing in this Article 11 shall impair the claims of, or
payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights.
SECTION 11.12 AUTHORIZATION TO EFFECT SUBORDINATION.
Each holder of a Convertible Subordinated Note by the holder's
acceptance thereof authorizes and directs the Trustee on the holder's behalf to
take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article 11, and appoints the Trustee to act as
the holder's attorney-in-fact for any and all such purposes. If the Trustee
does not file a proper proof of claim or proof of debt in the form required in
any proceeding referred to in Section 6.09 hereof at least 30 days before the
expiration of the time to file such claim, the holders of any Senior Debt or
their Representatives are hereby authorized to file an appropriate claim for and
on behalf of the holders of the Convertible Subordinated Notes.
SECTION 11.13 ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying
Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; PROVIDED, HOWEVER, that the second and third paragraphs of Section
11.11 shall not apply to the Company or any Affiliate of the Company if it or
such Affiliate acts as Paying Agent.
SECTION 11.14 SENIOR DEBT ENTITLED TO RELY.
The holders of Senior Debt shall have the right to rely upon this
Article 11, and no amendment or modification of the provisions contained
herein shall diminish the rights of such holders unless such holders shall
have agreed in writing thereto.
ARTICLE 12
CONVERSION OF CONVERTIBLE SUBORDINATED NOTES
SECTION 12.01 RIGHT TO CONVERT.
Subject to and upon compliance with the provisions of this Indenture,
each holder of Convertible Subordinated Notes shall have the right, at his or
her option, at any time prior to the close of business on the last trading
day prior to the Maturity Date (except that, with respect to any Convertible
Subordinated Note or portion of a Convertible Subordinated
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Note which is called for redemption, such right shall terminate, except as
provided in the fourth paragraph of Section 12.02, at the close of business
on the last trading day prior to the date fixed for redemption of such
Convertible Subordinated Note or portion of a Convertible Subordinated Note
unless the Company defaults in the payment due upon redemption thereof and
such right shall terminate with respect to any Convertible Subordinated Note
or portion thereof subject to a duly completed election for repurchase unless
the Company defaults in the payment due upon repurchase or such holder elects
to withdraw the submission of such election to repurchase on or prior to the
close of business on the Designated Event Offer Termination Date) to convert
the principal amount of any Convertible Subordinated Note held by such
holder, or any portion of such principal amount which is $1,000 or an
integral multiple thereof, into that number of fully paid and non-assessable
shares of Common Stock (as such shares shall then be constituted) obtained by
dividing the principal amount of the Convertible Subordinated Note or portion
thereof surrendered for conversion by the Conversion Price in effect at such
time, by surrender of the Convertible Subordinated Note so to be converted in
whole or in part in the manner provided in Section 12.02. A holder of
Convertible Subordinated Notes is not entitled to any rights of a holder of
Common Stock until such holder of Convertible Subordinated Notes has
converted his or her Convertible Subordinated Notes to Common Stock, and only
to the extent such Convertible Subordinated Notes are deemed to have been
converted to Common Stock under this Article 12.
SECTION 12.02 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF
COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR
INTEREST OR DIVIDENDS.
To exercise, in whole or in part, the conversion privilege with respect to
any Convertible Subordinated Note, the holder of such Convertible Subordinated
Note shall surrender such Convertible Subordinated Note, duly endorsed, at an
office or agency maintained by the Company pursuant to Section 4.04, accompanied
by the funds, if any, required by the penultimate paragraph of this Section
12.02, and shall give written notice of conversion in the form provided on the
Convertible Subordinated Notes (or such other notice which is acceptable to the
Company) to the office or agency that the holder of Convertible Subordinated
Notes elects to convert such Convertible Subordinated Note or such portion
thereof specified in said notice. Such notice shall also state the name or
names (with address or addresses) in which the certificate or certificates for
shares of Common Stock which are issuable on such conversion shall be issued,
and shall be accompanied by transfer taxes, if required pursuant to Section
12.07. Each such Convertible Subordinated Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Convertible Subordinated Note, be duly endorsed
by, or be accompanied by instruments of transfer in form satisfactory to the
Company duly executed by, the holder of Convertible Subordinated Notes or his or
her duly authorized attorney.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above
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the Company shall issue and shall deliver to such holder at the office or
agency maintained by the Company for such purpose pursuant to Section 4.04, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Convertible Subordinated Note or portion
thereof in accordance with the provisions of this Article 12 and a check or
cash in respect of any fractional interest in respect of a share of Common
Stock arising upon such conversion, as provided in Section 12.03 (which
payment, if any, shall be paid no later than five business days after
satisfaction of the requirements for conversion set forth above). In case
any Convertible Subordinated Note of a denomination of an integral multiple
greater than $1,000 is surrendered for partial conversion, and subject to
Section 2.02, the Company shall execute, and the Trustee shall authenticate
and deliver to the holder of the Convertible Subordinated Note so
surrendered, without charge to him or her, a new Convertible Subordinated
Note or Convertible Subordinated Notes in authorized denominations in an
aggregate principal amount equal to the unconverted portion of the
surrendered Convertible Subordinated Note.
Each conversion shall be deemed to have been effected as to any such
Convertible Subordinated Note (or portion thereof) on the date on which the
requirements set forth above in this Section 12.02 have been satisfied as to
such Convertible Subordinated Note (or portion thereof), and the person in whose
name any certificate or certificates for shares of Common Stock are issuable
upon such conversion shall be deemed to have become on said date the holder of
record of the shares represented thereby; PROVIDED, HOWEVER, that any such
surrender on any date when the Company's stock transfer books are closed shall
constitute the person in whose name the certificates are to be issued as the
record holder thereof for all purposes on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the Conversion
Price in effect on the date upon which such Convertible Subordinated Note is
surrendered.
Any Convertible Subordinated Note or portion thereof surrendered for
conversion during the period from the close of business on the record date for
any interest payment through the close of business on the trading day next
preceding such interest payment date shall (unless such Convertible Subordinated
Note or portion thereof being converted has been called for redemption on a date
in such period) be accompanied by payment, in funds acceptable to the Company,
of an amount equal to the interest otherwise payable on such interest payment
date on the principal amount being converted; PROVIDED HOWEVER, that no such
payment need be made if there exists at the time of conversion a default in the
payment of interest on the Convertible Subordinated Notes. An amount equal to
such payment shall be paid by the Company on such interest payment date to the
holder of such Convertible Subordinated Note at the close of business on such
record date; PROVIDED, HOWEVER, that if the Company defaults in the payment of
interest on such interest payment date, such amount shall be paid to the person
who made such required payment. Except as provided above in this Section 12.02,
no adjustment shall be made for interest accrued on any Convertible Subordinated
Note converted or for dividends on any shares issued upon the conversion of such
Convertible Subordinated Note as provided in this Article 12.
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SECTION 12.03 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES.
No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of Convertible Subordinated Notes. If
more than one Convertible Subordinated Note shall be surrendered for conversion
at one time by the same holder, the number of full shares which shall be
issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Convertible Subordinated Notes (or specified portions
thereof to the extent permitted hereby) so surrendered for conversion. If any
fractional share of stock otherwise would be issuable upon the conversion of any
Convertible Subordinated Note or Convertible Subordinated Notes, the Company
shall make an adjustment therefor in cash based upon the Current Market Price
of the Common Stock on the last trading day of conversion.
SECTION 12.04 CONVERSION PRICE.
The conversion price shall be as specified in the form of Convertible
Subordinated Note attached as Exhibit A hereto, subject to adjustment as
provided in this Article 12.
SECTION 12.05 ADJUSTMENT OF CONVERSION PRICE.
The Conversion Price shall be adjusted from time to time by the Company as
follows:
(a) If the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of
Common Stock, the Conversion Price in effect at the opening of business on
the date following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be reduced
by multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the Record Date (as defined in Section 12.05(g)) fixed for
such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the
opening of business on the day following the Record Date. If any dividend
or distribution of the type described in this Section 12.05(a) is declared
but not so paid or made, the Conversion Price shall again be adjusted to
the Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(b) If the Company shall issue rights or warrants to all holders
of its outstanding shares of Common Stock entitling them to subscribe for
or purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined in Section 12.05(g)) on the Record Date
fixed for the determination of
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stockholders entitled to receive such rights or warrants, the Conversion
Price shall be adjusted so that the same shall equal the price determined
by multiplying the Conversion Price in effect at the opening of business
on the date after such Record Date plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Current Market Price, and of which the denominator shall
be the number of shares of Common Stock outstanding on the close of
business on the Record Date by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close of
business on the Record Date plus the total number of additional shares of
Common Stock so offered for subscription or purchase. Such adjustment
shall become effective immediately after the opening of business on the
day following the Record Date fixed for determination of stockholders
entitled to receive such rights or warrants. To the extent that shares of
Common Stock are not delivered pursuant to such rights or warrants, upon
the expiration or termination of such rights or warrants the Conversion
Price shall be readjusted to the Conversion Price shall again be adjusted
to be the Conversion Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made on
the basis of delivery of only the number of shares of Common Stock
actually delivered. If such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such date fixed for the determination of
stockholders entitled to receive such rights or warrants had not been
fixed. In determining whether any rights or warrants entitle the holders
to subscribe for or purchase shares of Common Stock at less than such
Current Market Price, and in determining the aggregate offering price of
such shares of Common Stock, there shall be taken into account any
consideration received for such rights or warrants, with the value of such
consideration, if other than cash, to be determined by the Board of
Directors.
(c) If the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, if the outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon which
such combination becomes effective shall be proportionately increased,
such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(d) If the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any class of capital stock of
the Company (other than any dividends or distributions to which Section
12.05(a) applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or warrants of a type
referred to in Section 12.05(b) and dividends and distributions paid
exclusively in cash and excluding any
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capital stock, evidences of indebtedness, cash or assets distributed upon
a merger or consolidation to which Section 12.06 applies) (the foregoing
hereinafter in this Section 12.05(d) called the "Securities")), then, in
each such case, the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the Conversion Price
in effect immediately prior to the close of business on the Record Date
(as defined in Section 12.05(g)) with respect to such distribution by a
fraction of which the numerator shall be the Current Market Price
(determined as provided in Section 12.05(g)) on such date less the fair
market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of
Directors) on such date of the portion of the Securities so distributed
applicable to one share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective immediately prior
to the opening of business on the day following the Record Date;
PROVIDED, HOWEVER, that in the event the then fair market value (as so
determined) of the portion of the Securities so distributed applicable to
one share of Common Stock is equal to or greater than the Current Market
Price on the Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of Convertible Subordinated
Notes shall have the right to receive upon conversion of a Convertible
Subordinated Note (or any portion thereof) the amount of Securities such
holder would have received had such holder converted such Convertible
Subordinated Note (or portion thereof) immediately prior to such Record
Date. If such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value of
any distribution for purposes of this Section 12.05(d) by reference to the
actual or when issued trading market for any securities comprising all or
part of such distribution, it must in doing so consider the prices in such
market over the same period used in computing the Current Market Price
pursuant to Section 12.05(g) to the extent possible.
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Rights or warrants distributed by the Company to all holders of
Common Stock entitling the holders thereof to subscribe for or purchase
shares of the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a specified
event or events ("Trigger Event"): (i) are deemed to be transferred with such
shares of Common Stock; (ii) are not exercisable; and (iii) are also issued
in respect of future issuances of Common Stock, shall be deemed not to have
been distributed for purposes of this Section 12.05(d) (and no adjustment to
the Conversion Price under this Section 12.05(d) shall be required) until the
occurrence of the earliest Trigger Event, whereupon such rights and warrants
shall be deemed to have been distributed and an appropriate adjustment to the
Conversion Price under this Section 12.05(d) shall be made. If any such
rights (including the Rights), or warrants, including any such existing
rights or warrants distributed prior to the date of this Indenture (including
the Rights), are subject to subsequent events, upon the occurrence of each of
which such rights or warrants shall become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the occurrence of
each such event shall be deemed to be such date of issuance and record date
with respect to new rights or warrants (and a termination or expiration of
the existing rights or warrants without exercise by the holder thereof). In
addition, in the event of any distribution (or deemed distribution) of rights
or warrants (including the Rights), or any Trigger Event with respect
thereto, that was counted for purposes of calculating a distribution amount
for which an adjustment to the Conversion Price under this Section 12.05 was
made, (1) in the case of any such rights (including the Rights) or warrants
which shall all have been redeemed or repurchased without exercise by any
holders thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger
Event, as the case may be, as though it were a cash distribution, equal to
the per share redemption or repurchase price received by a holder or holders
of Common Stock with respect to such rights or warrants (assuming such holder
had retained such rights or warrants), made to all holders of Common Stock as
of the date of such redemption or repurchase, and (2) in the case of such
rights or warrants (including the Rights) which shall have expired or been
terminated without exercise by any holders thereof, the Conversion Price
shall be readjusted as if such rights and warrants had not been issued. In
lieu of any adjustment to the Conversion Price otherwise required by this
Section 12.05(d) as a result of a Trigger Event affecting rights (the
"Rights") distributed pursuant to the Company's First Amended and Restated
Stockholder Rights Plan, as amended (the "Rights Plan"), the Company may
amend such Rights Plan to provide that upon conversion of the Convertible
Subordinated Notes the holder thereof will receive, in addition to the Common
Stock issuable upon such conversion, the Rights which attached to such shares
of Common Stock or would have attached to such shares if the Rights had not
become separated from the Common Stock pursuant to the provisions of the
Rights Plan.
Notwithstanding any other provision of this Section 12.05(d) to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash
or other assets (including, without limitation, any rights distributed
pursuant to any stockholder rights plan) shall be deemed not to have been
distributed for purposes of this Section 12.05(d) if the Company makes proper
provision so that each holder of Convertible Subordinated Notes who converts
a Convertible Subordinated Note or any portion thereof) after the date fixed
for determination of stockholders entitled to receive such distribution shall
be entitled to receive upon such conversion, in addition to the shares of
Common Stock issuable upon such conversion, the amount and kind of such
distributions that such holder would have been entitled to receive if such
holder had, immediately prior to such determination date, converted such
Convertible Subordinated Note into Common Stock.
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For purposes of this Section 12.05(d) and Sections 12.05(a) and (b), any
dividend or distribution to which this Section 12.05(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock to which Section 12.05(b) applies (or both),
shall be deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 12.05(b)
applies (and any Conversion Price reduction required by this Section 12.05(d)
with respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (and any further Conversion Price reduction required by
Sections 12.05(a) and [(b) with respect to such dividend or distribution shall
then be made, except that (a) the Record Date of such dividend or distribution
shall be substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution", "Record Date fixed for
such determination" and "Record Date" within the meaning of Section 12.05(a) and
as "the date fixed for the determination of stockholders entitled to receive
such rights or warrants", "the Record Date fixed for the determination of the
stockholders entitled to receive such rights or warrants" and "such Record Date"
within the meaning of Section 12.05(b)] and (b) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the date fixed for such determination" within the
meaning of Section 12.05(a).
(e) If the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any cash that is distributed upon a
merger or consolidation to which Section 12.06 applies or as part of a
distribution referred to in Section 12.05(d)) in an aggregate amount that,
combined together with (1) the aggregate amount of any other such distributions
to all holders of its Common Stock made exclusively in cash within the 12 months
preceding the date of payment of such distribution, and in respect of which no
adjustment pursuant to this Section 12.05(e) has been made, and (2) the
aggregate of any cash plus the fair market value as determined by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors) of consideration payable in respect of any tender
offer by the Company or any of its subsidiaries for all or any portion of the
Common Stock concluded within the 12 months preceding the date of payment of
such distribution, and in respect of which no adjustment pursuant to Section
12.05(f) has ben made, exceeds 15% of the product of the Current Market Price
(determined as provided in Section 12.05(g)) on the Record Date with respect to
such distribution times the number of shares of Common Stock outstanding on such
date, then, and in each such case, immediately after the close of business on
such date, the Conversion Price shall be reduced so that the same shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior to the close of business on such Record Date by a fraction (i) the
numerator of which shall be equal to the Current Market Price on the Record Date
less an amount equal to the quotient of (x) the excess of such combined amount
over such 15% and (y) the number of shares of Common Stock outstanding on the
Record Date and (ii) the denominator of which shall be equal to the Current
Market Price on such Record Date; PROVIDED, HOWEVER, that if the portion of
the cash so distributed applicable to
55
<PAGE>
one share of Common Stock is equal to or greater than the Current Market Price
of the Common Stock on the Record Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of Convertible Subordinated
Notes shall have the right to receive upon conversion of a Convertible
Subordinated Note (or any portion thereof) the amount of cash such holder would
have received had such holder converted such Convertible Subordinated Note (or
portion thereof) immediately prior to such Record Date. If such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. Any cash distribution to all
holders of Common Stock as to which the Company makes the election permitted by
Section 12.05(m) and as to which the Company has complied with the requirements
of such Section shall be treated as not having been made for all purposes of
this Section 12.05(e).
(f) If a tender offer made by the Company or any of its subsidiaries for
all or any portion of the Common Stock expires and such tender offer (as amended
upon the expiration thereof) requires the payment to stockholders (based on the
acceptance (up to any maximum specified in the terms of the tender offer) of
Purchased Shares (as defined below)) of an aggregate consideration having a fair
market value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a resolution of the Board of Directors) that,
combined together with (1) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors), as of the
expiration of such tender offer, of consideration payable in respect of any
other tender offers, by the Company or any of its subsidiaries for all or any
portion of the Common Stock expiring within the 12 months preceding the
expiration of such tender offer and in respect of which no adjustment pursuant
to this Section 12.05(f) has been made and (2) the aggregate amount of any
distributions to all holders of the Common Stock made exclusively in cash within
12 months preceding the expiration of such tender offer and in respect of which
no adjustment pursuant to Section 12.05(e) has been made, exceeds 15% of the
product of the Current Market Price (determined as provided in Section 12.05(g))
as of the last time (the "Expiration Time") tenders could have been made
pursuant to such tender offer (as it may be amended) times the number of shares
of Common Stock outstanding (including any tendered shares) on the Expiration
Time, then, and in each such case, immediately prior to the opening of business
on the day after the date of the Expiration Time, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to close of business on the date of
the Expiration Time by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered shares) on the
Expiration Time multiplied by the Current Market Price of the Common Stock on
the trading day next succeeding the Expiration Time and the denominator shall be
the sum of (x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly tendered and
not withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock
56
<PAGE>
outstanding (less any Purchased Shares) on the Expiration Time and the Current
Market Price of the Common Stock on the Trading Day next succeeding the
Expiration Time, such reduction (if any) to become effective immediately prior
to the opening of business on the day following the Expiration Time. If the
Company is obligated to purchase shares pursuant to any such tender offer, but
the Company is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if such
tender offer had not been made. If the application of this Section 12.05(f) to
any tender offer would result in an increase in the Conversion Price, no
adjustment shall be made for such tender offer under this Section 12.05(f).
(g) For purposes of this Section 12.05, the following terms shall have
the meaning indicated:
(1) "closing price" with respect to any securities on any day
means the closing price on such day or, if no such sale takes place on
such day, or, if no such sale takes place on such day, the average of the
reported high and low prices on such day, in each case on The Nasdaq Stock
Market or New York Stock Exchange, as applicable, or, if such security is
not listed or admitted to trading on such national market or exchange, on
the principal national securities exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities
exchange or quotation system, the average of the high and low prices of
such security on the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or, if not so available, in such
manner as furnished by any New York Stock Exchange member firm selected
from time to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of
Directors.
(2) "Current Market Price" means the average of the daily closing
prices per share of Common Stock for the 10 consecutive trading days
immediately prior to the date in question; PROVIDED, HOWEVER, that (1)
if the "ex" date (as hereinafter defined) for any event (other than the
issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Sections 12.05(a), (b),
(c), (d), (e) or (f) occurs during such 10 consecutive trading days, the
closing price for each trading day prior to the "ex" date for such other
event shall be adjusted by multiplying such closing price by the same
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event, (2) if the "ex" date for any event (other than
the issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 12.05(a), (b), (c),
(d), (e) or (f) occurs on or after the "ex" date for the issuance or
distribution requiring such computation and prior to the day in question,
the closing price for each trading day on and after the "ex" date for such
other event shall be
57
<PAGE>
adjusted by multiplying such closing price by the reciprocal of the
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event, and (3) if the "ex" date for the issuance or
distribution requiring such computation is prior to the day in question,
after taking into account any adjustment required pursuant to clause (1)
or (2) of this proviso, the closing price for each trading day on or after
such "ex" date shall be adjusted by adding thereto the amount of any cash
and the fair market value (as determined by the Board of Directors in a
manner consistent with any determination of such value for purposes of
Sections 12.05(d) or (f), whose determination shall be conclusive and
described in a resolution of the Board of Directors) of the evidences of
indebtedness, shares of capital stock or assets being distributed
applicable to one share of Common Stock as of the close of business on the
day before such "ex" date. For purposes of any computation under Section
12.05(f), the Current Market Price on any date shall be deemed to be the
average of the daily closing prices per share of Common Stock for such day
and the next two succeeding trading days; PROVIDED, HOWEVER, that if the
"ex" date for any event (other than the tender offer requiring such
computation) that requires an adjustment to the Conversion Price pursuant
to Section 12.05(a), (b), (c), (d), (e) or (f) occurs on or after the
Expiration Time for the tender or exchange offer requiring such
computation and prior to the day in question, the closing price for each
trading day on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal of the
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event. For purposes of this paragraph, the term "ex"
date, (1) when used with respect to any issuance or distribution, means
the first date on which the Common Stock trades regular way on the
relevant exchange or in the relevant market from which the closing price
was obtained without the right to receive such issuance or distribution,
(2) when used with respect to any subdivision or combination of shares of
Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective, and (3) when used with
respect to any tender or exchange offer means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the Expiration Time of such offer. Notwithstanding the foregoing,
whenever successive adjustments to the Conversion Price are called for
pursuant to this Section 12.05, such adjustments shall be made to the
Current Market Price as may be necessary or appropriate to effectuate the
intent of this Section 12.05 and to avoid unjust or inequitable results as
determined in good faith by the Board of Directors.
(3) "fair market value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for
or converted into any combination of cash,
58
<PAGE>
securities or other property, the date fixed for determination of
stockholders entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
(5) "trading day" shall mean (x) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or another
national securities exchange, a day on which the New York Stock Exchange
or another national securities exchange is open for business or (y) if the
applicable security is quoted on The Nasdaq Stock Market, a day on which
trades may be made thereon or (z) if the applicable security is not so
listed, admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(h) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 12.05(a), (b), (c), (d), (e) and (f), as
the Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to time
may reduce the Conversion Price by any amount for any period of time if the
period is at least 20 days, the reduction is irrevocable during the period and
the Board of Directors has made a determination that such reduction would be in
the Company's best interests, which determination shall be conclusive and
described in a resolution of the Board of Directors. Whenever the Conversion
Price is reduced pursuant to the preceding sentence, the Company shall mail to
the holders of Convertible Subordinated Note at his or her last address
appearing on the register of holders maintained for that purpose a notice of the
reduction at least 15 days prior to the date the reduced Conversion Price takes
effect, and such notice shall state the reduced Conversion Price and the period
during which it will be in effect.
(i) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
PROVIDED, HOWEVER, that any adjustments which by reason of this Section
12.05(i) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Article 12
shall be made by the Company and shall be made to the nearest cent or to the
nearest one hundredth of a share, as the case may be.
No adjustment need be made for a change in the par value or no par value
of the Common Stock.
(j) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Trustee and any Conversion Agent other than
the Trustee an Officers' Certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such
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<PAGE>
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to each holder of Convertible Subordinated
Notes at his or her last address appearing on the register of holders maintained
for that purpose within 20 days of the effective date of such adjustment.
Failure to deliver such notice shall not affect the legality or validity of any
such adjustment.
(k) In any case in which this Section 12.05 provides that an adjustment
shall become effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event issuing to the holder of any
Convertible Subordinated Note converted after such Record Date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving effect to
such adjustment.
(l) For purposes of this Section 12.05, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company shall not
pay any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(m) In lieu of making any adjustment to the Conversion Price pursuant to
Section 12.05(e), the Company may elect to reserve an amount of cash for
distribution to the holders of Convertible Subordinated Notes upon the
conversion of the Convertible Subordinated Notes so that any such holder
converting Convertible Subordinated Notes will receive upon such conversion, in
addition to the shares of Common Stock and other items to which such holder is
entitled, the full amount of cash which such holder would have received if such
holder had, immediately prior to the Record Date for such distribution of cash,
converted its Convertible Subordinated Notes into Common Stock, together with
any interest accrued with respect to such amount, in accordance with this
Section 12.05(m). The Company may make such election by providing an Officers'
Certificate to the Trustee to such effect on or prior to the payment date for
any such distribution and depositing with the Trustee on or prior to such date
an amount of cash equal to the aggregate amount that the holders of Convertible
Subordinated Notes would have received if such holders had, immediately prior to
the Record Date for such distribution, converted all of the Convertible
Subordinated Notes into Common Stock. Any such funds so deposited by the
Company with the Trustee shall be invested by the Trustee in U.S. Government
Obligations with a maturity not more than three (3) months from the date of
issuance. Upon conversion of Convertible Subordinated Notes by a holder
thereof, such holder shall be entitled to receive, in addition to the Common
Stock issuable upon conversion, an amount of cash equal to the amount such
holder would have received if such holder had, immediately prior to the Record
Date for such distribution, converted its Convertible Subordinated Note into
Common Stock, along with such holder's pro-rata share of any accrued interest
earned as a consequence of the investment of such
60
<PAGE>
funds. Promptly after making an election pursuant to this Section 12.05(m), the
Company shall give or shall cause to be given notice to all holders of
Convertible Subordinated Notes of such election, which notice shall state the
amount of cash per $1,000 principal amount of Convertible Subordinated Notes
such holders shall be entitled to receive (excluding interest) upon conversion
of the Convertible Subordinated Notes as a consequence of the Company having
made such election.
SECTION 12.06 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any of the following events occur: (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (iii) any sale or conveyance of the properties and assets of the Company as,
or substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the TIA as in force at the date of execution of such
supplemental indenture if such supplemental indenture is then required to so
comply) providing that the Convertible Subordinated Notes shall be convertible
into the kind and amount of shares of stock and other securities or property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of the Convertible
Subordinated Notes (assuming, for such purposes, a sufficient number of
authorized shares of Common Stock available to convert all such Convertible
Subordinated Notes) immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance assuming such holder of
Common Stock did not exercise his or her rights of election, if any, as to the
kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance (provided that, if
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the same
for each share of Common Stock in respect of which such rights of election have
not been exercised ("non-electing share"), then, for the purposes of this
Section 12.06, the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
12. If, in the case of any such reclassification, change, consolidation,
merger, combination, sale or conveyance, the stock or other securities and
assets receivable thereupon by a holder of shares of Common Stock includes
shares of stock or other securities and assets of a corporation other than the
61
<PAGE>
successor or purchasing corporation, as the case may be, in such
reclassification, change, consolidation, merger, combination, sale or
conveyance, then such supplemental indenture shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the holders of the Convertible Subordinated Notes as the Board of
Directors shall reasonably consider necessary by reason of the foregoing.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Convertible Subordinated Notes at his
or her address appearing on the register of holders for that purpose within 20
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.
The above provisions of this Section 12.06 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 12.06 applies to any event or occurrence, Section 12.05
shall not apply.
SECTION 12.07 TAXES ON SHARES ISSUED.
The issue of stock certificates on conversions of Convertible Subordinated
Notes shall be made without charge to the converting holder for any tax in
respect of the issue thereof. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of stock in any name other than that of the holder of any
Convertible Subordinated Note converted, and the Company shall not be required
to issue or deliver any such stock certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
SECTION 12.08 RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
LISTING OF COMMON STOCK.
The Company shall provide, free from preemptive rights, out of its
authorized by unissued shares or sharers held in treasury, sufficient shares to
provide for the conversion of the Convertible Subordinated Notes from time to
time as such Convertible Subordinated Notes are presented for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Convertible Subordinated Notes, the Company
shall take all corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue shares of such
Common Stock at such adjusted Conversion Price.
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<PAGE>
The Company covenants that all shares of Common Stock issued upon
conversion of Convertible Subordinated Notes will be fully paid and
non-assessable by the Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company further covenants that as long as the Common Stock is quoted
on the Nasdaq National market, or its successor, or all Common Stock issuable
upon conversion of the Convertible Subordinated Notes shall be eligible for such
quotation and if at any time the Common Stock is listed on the New York Stock
Exchange or any other national securities exchange, list and keep listed, all
Common Stock issuable upon conversion of the Convertible Subordinated Notes.
SECTION 12.09 RESPONSIBILITY OF TRUSTEE.
The Trustee shall not at any time be under any duty of responsibility to
any holders of Convertible Subordinated Notes to determine whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Convertible Subordinated Note;
and the Trustee makes no representations with respect thereto. Subject to the
provisions of Section 7.01, the Trustee shall not be responsible for any failure
of the Company to issue, transfer or deliver any shares of Common Stock or stock
certificates or other securities or property or cash upon the surrender of any
Convertible Subordinated Note for the purpose of conversion or to comply with
any of the duties, responsibilities or covenants of the Company contained in
this Article 12. Without limiting the generality of the foregoing, the Trustee
shall not have any responsibility to determine the correctness of any provisions
contained in any supplemental indenture entered into pursuant to Section 12.06
relating either to the kind or amount of shares of stock or securities or
property (including cash) receivable by holders of Convertible Subordinated
Notes upon the conversion of their Convertible Subordinated Notes after any
event referred to in such Section 12.06 or to any adjustment to be made with
respect thereto, but, subject to the provisions of Section 7.01, may accept as
conclusive evidence of the correctness of any such provisions, and shall be
protected in relying upon, the Officers' Certificate (which the Company shall be
obligated to file with the Trustee prior to the execution of any such
supplemental indenture) with respect thereto.
SECTION 12.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS.
If
(a) the Company declares a dividend (or any other distribution) on
its Common Stock (other than in cash out of retained earnings or other
than a dividend
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that results in an adjustment in the Conversion Price pursuant to Section
12.05 as to which the Company has made an election in accordance with
Section 12.05(m)); or
(b) the Company authorizes the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any share
of any class of Common Stock or any other rights or warrants; or
(c) there is any reclassification of the Common Stock (other than
a subdivision or combination of outstanding Common Stock, or a change in
par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or
of the sale or transfer of all or substantially all of the assets of the
Company; or
(d) there is any voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then the Company shall cause to be filed with the Trustee and to be mailed to
each holder of Convertible Subordinated Notes at his or her address appearing on
the register maintained for that purpose as promptly as possible but in any
event at least 15 days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
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IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed and attested, all as of the date first above written, signifying their
agreements contained in this Indenture.
VLSI TECHNOLOGY, INC.
By
-----------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Attest:
- ---------------------------
HARRIS TRUST AND SAVINGS BANK
By
-----------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Attest:
- ---------------------------
65
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EXHIBIT A
(Face of Security)
No. $
------------ --------------------
CUSIP
--------
VLSI TECHNOLOGY, INC.
___% CONVERTIBLE SUBORDINATED NOTE DUE 2005
promises to pay to
or registered assigns,
the principal sum of Dollars on October 1, 2005
Interest Payment Dates: April 1 and October 1
Regular Record Dates: March 15 and September 15
Certificate of Authentication
This is one of the Convertible Subordinated Notes
described in the within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK, VLSI TECHNOLOGY, INC.
as Trustee
By By
------------------------------- ------------------------------------
Authorized Signatory President and Chief Executive Officer
Dated:
By
----------------------------------
Secretary
(SEAL)
A-1
<PAGE>
(Back of Security)
VLSI TECHNOLOGY, INC.
___% CONVERTIBLE SUBORDINATED NOTE DUE 2005
1. INTEREST. VLSI Technology, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this
Convertible Subordinated Note at the rate per annum shown above. The Company
will pay interest semiannually on April 1 and October 1 of each year.
Interest on the Convertible Subordinated Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from September __, 1995. Interest will be computed on the basis of a 360-day
year composed of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Convertible Subordinated Notes (except defaulted interest) to the person in
whose name each Convertible Subordinated Note is registered at the close of
business on the March 15 or September 15 immediately preceding the relevant
interest payment date (each a "Regular Record Date") (other than with respect
to a Convertible Subordinated Note or portion thereof called for redemption
on a redemption date, or repurchased in connection with a Designated Event on
a repurchase date, during the period from the close of business on a Regular
Record Date to (but excluding) the next succeeding interest payment date (in
which case accrued interest shall be payable (unless such Convertible
Subordinated Note is converted) to the holder of the Convertible Subordinated
Note or portion thereof redeemed or repurchased in accordance with the
applicable redemption or repurchase provisions of the Indenture). Holder must
surrender Convertible Subordinated Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and
interest by check payable in such money, and may mail such check to the
holder's registered address.
3. PAYING AGENT AND REGISTRAR. Harris Trust and Savings Bank
(together with any successor Trustee under the Indenture referred to below,
the "Trustee"), will act as Paying Agent and Registrar. The Company may
change the Paying Agent, Registrar or co-registrar without prior notice.
Subject to certain limitations in the Indenture, the Company or any of its
subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Convertible Subordinated Notes
under an Indenture dated as of September ___, 1995 (the "Indenture") between
the Company and the Trustee. The terms of the Convertible Subordinated Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb as in effect on the date of the Indenture (the "TIA"). The
Convertible Subordinated Notes are subject to, and qualified by, all such
terms, certain of which are summarized hereon, and holders are referred to
the Indenture and the TIA for a
A-2
<PAGE>
statement of such terms. The Convertible Subordinated Notes are unsecured
general obligations of the Company limited to (except as otherwise provided in
the Indenture) up to $150,000,000 in aggregate principal amount, unless an
election has been made as set forth in Article 2 of the Indenture to increase
such aggregate principal amount by an amount not to exceed $22,500,000.
Capitalized terms not defined below have the same meaning as is given to them in
the Indenture.
5. OPTIONAL REDEMPTION. The Company shall not have the option to
redeem the Convertible Subordinated Notes prior to October 3, 1997.
Thereafter, the Company shall have the option to redeem the Convertible
Subordinated Notes, in whole or from time to time in part, at the following
redemption prices (expressed as percentages of principal amount), plus
accrued and unpaid interest to, but excluding, the date fixed for redemption
if redeemed during the 12-month period beginning October 1 of each year
indicated (October 3 with respect to 1997); provided, however, that the
Company shall not have the option to redeem the Convertible Subordinated
Notes prior to October 3, 1999 unless the closing price of the Common Stock
on the principal stock exchange or market on which the Common Stock is then
listed or admitted to trading equals or exceeds 125% of the Conversion Price
for at least 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date the notice of redemption is
first mailed to the holders of the Convertible Subordinated Notes:
Redemption
Year Price
---- -----
1997 ..................................... %
1998 ..................................... %
1999 ..................................... %
2000 ..................................... %
2001 ..................................... %
2002 ..................................... %
2003 ..................................... %
2004 ..................................... %
2005 ..................................... 100%
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 15 days but not more than 60 days before the date fixed for redemption
to each holder of Convertible Subordinated Notes to be redeemed at his or her
registered address. Convertible Subordinated Notes in denominations larger
than $1,000 may be redeemed in part but only in integral multiples of $1,000.
In the event of a redemption of less than all of the Convertible
Subordinated Notes, the Convertible Subordinated Notes will be chosen for
redemption by the Trustee by lot or pro rata or, if required, in compliance
with the requirements of the
A-3
<PAGE>
principal national securities exchange, if any, on which the Convertible
Subordinated Notes are listed. On and after the redemption date interest ceases
to accrue on Convertible Subordinated Notes or portions of them called for
redemption (unless the Company defaults in the payment of the redemption price).
If this Convertible Subordinated Note is redeemed on a date which is also an
Interest Payment Date, the interest payment due on such date will be paid to the
person in whose name this Convertible Subordinated Note is registered at the
close of business on such record date.
7. DESIGNATED EVENT. Upon a Designated Event, the Company shall
make a Designated Event Offer to repurchase all outstanding securities at a
price equal to 101% of the aggregate principal amount of the Convertible
Subordinated Notes, plus accrued and unpaid interest to, but excluding, the
date of repurchase, such offer to be made as provided in the Indenture. To
accept the Designated Event Offer, the holder hereof must comply with the
terms thereof, including surrendering this Convertible Subordinated Note,
with the "Option of Holder to Elect Repurchase" portion hereof completed, to
the Company, a depositary, if appointed by the Company, or a Paying Agent, at
the address specified in the notice of the Designated Event Offer mailed to
holders as provided in the Indenture, prior to termination of the Designated
Event Offer.
8. SUBORDINATION. The Company's payment of the principal of,
premium, if any, and interest on the Convertible Subordinated Notes
(including, without limitation, any amounts paid by the Company to purchase
or repurchase any Convertible Subordinated Notes) is subordinated to the
prior payment in full of the Company's Senior Debt as set forth in the
Indenture. Each holder of Convertible Subordinated Notes by his or her
acceptance hereof covenants and agrees that all payments of the principal of,
premium, if any, and interest on the Convertible Subordinated Notes
(including, without limitation, any amounts paid by the Company to purchase
or repurchase any Convertible Subordinated Notes) by the Company shall be
subordinated in accordance with the provisions of Article 11 of the
Indenture, and each holder of Convertible Subordinated Notes accepts and
agrees to be bound by such provisions.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Convertible Subordinated
Notes are in registered form without coupons in denominations of $1,000 and
integral multiples of $1,000. The transfer of Convertible Subordinated Notes
may be registered and Convertible Subordinated Notes may be exchanged as
provided in the Indenture. As a condition of transfer, the Registrar may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a holder to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
exchange or register the transfer of any Convertible Subordinated Note or
portion of a Convertible Subordinated Note selected for redemption or
submitted for repurchase. Also, it need not exchange or register the
transfer of any Convertible Subordinated Note for a period of 15 days before
a selection of Convertible Subordinated Notes to be redeemed.
10. PERSONS DEEMED OWNERS. The registered holder of a Convertible
Subordinated Note may be treated as its owner for all purposes.
A-4
<PAGE>
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Convertible Subordinated Notes may be amended with the consent
of the holders of at least a majority in principal amount of the then
outstanding Convertible Subordinated Notes and any existing default may be
waived with the consent of the holders of a majority in principal amount of the
then outstanding Convertible Subordinated Notes.
Without the consent of any holder, the Indenture or the Convertible
Subordinated Notes may be amended to: (a) cure any ambiguity, defect or
inconsistency; (b) provide for uncertificated Convertible Subordinated Notes
in addition to or in place of certificated Convertible Subordinated Notes;
(c) provide for the assumption of the Company's obligations to holders of
Convertible Subordinated Notes in the event of consolidation, merger or sale
of all or substantially all of the assets of the Company; (d) provide for
conversion rights of holders of Notes in certain events such as a
consolidation, merger or sale of all or substantially all of the assets of
the Company; (e) reduce the Conversion Price; (f) make any change that would
provide any additional rights or benefits to the holders of Convertible
Subordinated Notes or that does not adversely affect the legal rights under
the Indenture of any such holder; or (g) comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the TIA.
Without the consent of each holder affected, amendment or waiver may
not (with respect to any Convertible Subordinated Notes held by a
non-consenting holder): (a) reduce the principal amount of Convertible
Subordinated Notes whose holders must consent to an amendment, supplement or
waiver; (b) reduce the principal or change the fixed maturity of any
Convertible Subordinated Note or [except as permitted pursuant to the
immediately preceding paragraph] alter the provisions with respect to the
redemption of the Convertible Subordinated Notes; (c) reduce the rate of
or change the time for payment of interest on any Convertible Subordinated
Notes; (d) waive a Default or Event of Default in the payment of principal or
premium, if any, or interest on the Convertible Subordinated Notes (except a
rescission of acceleration of the Convertible Subordinated Notes by the holders
of at least a majority in aggregate principal amount of the Convertible
Subordinated Notes and a waiver of the payment default that resulted from such
acceleration); (e) make any Convertible Subordinated Note payable in money
other than that stated in the Convertible Subordinated Notes; (f) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Convertible Subordinated Notes to receive payments
of principal of, premium, if any, or interest on the Convertible Subordinated
Notes; (g) waive a redemption payment with respect to any Convertible
Subordinated Note; (h) make any change in the foregoing amendment and waiver
provisions or; (i) except as permitted by the Indenture, increase the
Conversion Price or [except as permitted pursuant to the immediately preceding
paragraph] modify the provisions of the Indenture relating to the conversion
of the Convertible Subordinated Notes in a manner adverse to the holders
thereof. In addition, any amendment to the provisions of Article 11 of the
Indenture (which relate to subordination) will require the consent of the
holders of at least 75% in aggregate principal amount of the Convertible
Subordinated Notes then outstanding if such amendment would adversely affect
the rights of holders of Convertible Subordinated Notes.
12. DEFAULTS AND REMEDIES. An Event of Default is: (a) default in
payment of the principal of, or premium, if any, on the Convertible
Subordinated Notes, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (b) default for 30 days in payment
of any installment of interest on the Convertible Subordinated Notes, whether
or not such payment is prohibited by the subordination provisions of the
Indenture; (c) default by the Company for 60 days after notice in the
observance or performance of any other covenants in the Indenture; (d)
default in the payment of the Designated Event Payment in respect of the
Convertible Subordinated Note on the date therefor, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (e)
failure to provide timely notice of a Designated Event; (f) failure of the
Company or any Material Subsidiary to make any payment at maturity, including
any applicable grace period, in respect of indebtedness for borrowed money
of, or guaranteed or assumed by, the Company or any Material Subsidiary which
payment is in an amount in excess of $25,000,000 and continuance of such
failure for 30 days after notice; (g) default by the Company or any Material
Subsidiary with respect to any such indebtedness, which default results in
the acceleration of such indebtedness in an amount in excess of $25,000,000
without such indebtedness having been discharged or such acceleration having
been cured, waived, rescinded, or annulled for 30 days after notice; or (h)
certain events involving bankruptcy, insolvency or reorganization of the
Company or any Material Subsidiary. If an Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Convertible Subordinated Notes may declare all the
Convertible Subordinated Notes to be due and payable immediately, except that
in the case of an Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Convertible Subordinated Notes become due and
payable without further action or notice. Holders of Convertible
Subordinated Notes may not enforce the Indenture or the Convertible
Subordinated Notes except as provided in the Indenture. The
A-5
<PAGE>
Trustee may require an indemnity satisfactory to it before it enforces the
Indenture or the Convertible Subordinated Notes. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Convertible Subordinated Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from holders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Company must furnish annual
compliance certificates to the Trustee.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee or any of its
Affiliates, in their individual or any other capacities, may make or continue
loans to or guaranteed by, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee or
stockholder, as such, of the Company shall have any liability for any
obligations of the Company under the Convertible Subordinated Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each holder by accepting a Convertible
Subordinated Note waives and releases all such liability. The waiver and
release are part of the consideration for the Convertible Subordinated Notes.
15. AUTHENTICATION. This Convertible Subordinated Note shall not be
valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
holder or an assignee, such as: TEN CO = tenants in common, TEN ENT = tenants by
the entireties, JT TEN = joint tenants with right of survivorship and not as
tenants in common, CUST = Custodian and U/G/M/A = Uniform Gifts to Minors Act.
17. CONVERSIONS. Subject to and upon compliance with the provisions
of the Indenture, the registered holder of this Convertible Subordinated Note
has the right at any time prior to the close of business on the last trading
day prior to October 1, 2005 (or in case this Convertible Subordinated Note
or any portion hereof shall be called for redemption prior to such date, then
on or prior to the close of business on the last trading day preceding the
date fixed for redemption), to convert the principal amount hereof, or any
portion of such principal amount which is $1,000 or an integral multiple
thereof, into that number of fully paid and nonassessable whole shares of
common stock of the Company ("Common Stock") obtained by dividing the
principal amount of the Convertible Subordinated Note or portion thereof to
be converted by the conversion price of $__.__ per share, as adjusted from
time to time as provided in the Indenture (the "Conversion Price"), upon
surrender of this Convertible Subordinated Note to the Company at the office
or agency maintained for such purpose (and at such other offices or agencies
designated for such purpose by the Company), accompanied by written notice of
conversion duly executed (and if the shares of Common Stock to be issued on
conversion are to be issued in any name other than that of the registered
holder of this Convertible
A-6
<PAGE>
Subordinated Note) by instruments of transfer, in form satisfactory to the
Company, duly executed by the registered holder or its duly authorized
attorney) and, in case such surrender shall be made during the period
starting after the close of business on the Regular Record Date immediately
preceding any Interest Payment Date through the close of business on the last
trading day preceding such Interest Payment Date (unless this Convertible
Subordinated Note or the portion thereof being converted is subject to
redemption on a redemption date in that period), also accompanied by payment
in funds acceptable to the Company of an amount equal to the interest
otherwise payable on such Interest Payment Date on the principal amount of
this Convertible Subordinated Note then being converted. Subject to the
aforesaid requirement for a payment in the event of conversion after the
close of business on a Regular Record Date immediately preceding an Interest
Payment Date, no payment or adjustment shall be made on conversion for
interest accrued hereon or for dividends on Common Stock delivered on
conversion. The right to convert this Convertible Subordinated Note is
subject to the provisions of the Indenture relating to conversion rights in
the case of certain consolidations, mergers, or sales or transfers of
substantially all the Company's assets.
The Company shall not issue fractional shares or scrip representing
fractions of shares of Common Stock upon any such conversion, but shall make an
adjustment therefor in cash on the basis of the then current market value of
such fractional interest as provided in the Indenture.
The Company will furnish to any holder upon written request and without
charge a copy of the Indenture. Requests may be made to: General Counsel,
VLSI Technology, Inc., 1190 McKay Drive, San Jose, CA 95131.
A-7
<PAGE>
FORM OF CONVERSION NOTICE
To: VLSI TECHNOLOGY, INC.
The undersigned registered owner of the Convertible Subordinated Note
hereby irrevocably exercises the option to convert this Convertible Subordinated
Note, or portion hereof (which is $1,000 or an integral multiple thereof) below
designated, into shares of Common Stock of VLSI Technology, Inc. in accordance
with the terms of the Indenture referred to in this Convertible Subordinated
Note, and directs that the shares issuable and deliverable upon the conversion,
together with any check in payment for fractional shares and Convertible
Subordinated Notes representing any unconverted principal amount hereof, be
issued and delivered to the registered holder hereof unless a different name has
been indicated below. If shares or any portion of this Convertible Subordinated
Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest and taxes accompanies this Convertible Subordinated Note.
Dated:
-----------------------------------
Fill in for registration of shares
if to be delivered, and Convertible -----------------------------------
Subordinated Notes if to be issued,
other than to and in the name of the -----------------------------------
registered holder Signature(s)
(Please Print):
Principal amount to be converted
- ----------------------------------- (if less than all):
(Name) $___,000
- ----------------------------------- -----------------------------------
(Street Address) Social Security or other Taxpayer
Identification Number
- -----------------------------------
(City, State and zip code)
Signature Guarantee:
- -----------------------------------
A-8
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Convertible Subordinated Note, fill
in the form below and have your signature guaranteed:
I or we assign and transfer this Convertible Subordinated Note to
---------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
agent to transfer this Convertible Subordinated Note on the books of the
Company. The agent may substitute another to act for him.
Date: Your Signature:
---------------- -------------------------------------
(Sign exactly as your name appears on
the other side of this Convertible
Subordinated Note)
Signature Guarantee:
------------------------------------------------------------
A-9
<PAGE>
OPTION OF HOLDER TO ELECT REPURCHASE
If you wish to have this Convertible Subordinated Note repurchased by
the Company pursuant to Section 4.06 of the Indenture, check the Box:
/ /
If you wish to have a portion of this Convertible Subordinated Note
purchased by the Company pursuant to Section 4.06 of the Indenture, state
the amount (in multiples of $1,000): $
--------------
Date: Your Signature:
-------------- ---------------------------------------
(Sign exactly as your name appears on the
other side of this Convertible
Subordinated Note)
Signature Guarantee:
------------------------------------------------------------
A-10
<PAGE>
September 6, 1995
VLSI Technology, Inc.
1109 McKay Drive
San Jose, CA 95131
Re: VLSI Technology, Inc.
Registration Statement on Form S-3
-----------------------------------
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
(File No. 33-62161) (the "Registration Statement") filed by VLSI
Technology, Inc. (the "Company") with the Securities and Exchange
Commission (the "Commission") on August 28, 1995 together with Amendment
No. 1 thereto in the form in which it is proposed to be filed with the
Commission on or about September 7, 1995 (the "Amendment") in connection
with the registration under the Securities Act of 1933, as amended (the
"Act"), of the Company's $172,500,000 aggregate principal amount of ___%
Convertible Subordinated Notes due 2005 (the "Notes") (including
$22,500,000 in aggregate principal amount subject to an over-allotment option
to be granted to the Underwriters) and the Company's Common Stock, $0.01 par
value, into which the Notes may be converted (the "Common Stock") pursuant
to the proposed form of Indenture to be filed as an exhibit to the Amendment
(the "Indenture"), between the Company and Harris Trust and Savings Bank,
as Trustee. The Notes are to be issued pursuant to the Indenture and sold
pursuant to an Underwriting Agreement (the "Underwriting Agreement") in
substantially the form filed as an exhibit to the Amendment. The Notes and
the Common Stock are to be issued from time to time as set forth in the
Registration Statement, as amended by the Amendment, the Prospectus contained
therein (the "Prospectus") and the supplements to the Prospectus (the
"Prospectus Supplements"), if any.
We have examined instruments, documents and records that we deemed
relevant and necessary for the basis of our opinion hereinafter expressed.
In such examination, we have assumed the following: (a) the authenticity of
original documents and the genuineness of all signatures; (b) the conformity
to the originals of all documents submitted to us as copies; and (c) the
truth, accuracy and completeness of the information, representations and
warranties contained in the records, documents, instruments and certificates
we have reviewed.
We are advised by the Company that its Common Stock is quoted on the
Nasdaq National Market, and we have relied on that fact in rendering our
opinions set forth below. In addition, we express no opinion as to the
enforceability of the Notes and the Indenture at any future date if on such
date the Company no longer has any security quoted on the Nasdaq National
Market or if the Nasdaq
<PAGE>
National Market ceases to be certified by the California Commissioner of
Corporations pursuant to subdivision (o) of Section 25100 of the California
Corporations Code.
Based on such examination, we are of the opinion that:
1. When the issuance of the Notes has been duly authorized by
appropriate corporate action of the Company and the Notes, in the form filed
as an exhibit to the Registration Statement, have been duly completed,
executed, authenticated and delivered in accordance with the Indenture and
sold pursuant to the Underwriting Agreement and as described in the
Registration Statement, any amendment thereto, the Prospectus and any
Prospectus Supplement relating thereto, the Notes will be valid and binding
obligations of the Company, entitled to the benefits of such Indenture.
2. When the issuance of the Common Stock has been duly authorized by
appropriate corporate action of the Company and the Common Stock has been
duly issued, sold and delivered in accordance with the Indenture and as
described in the Registration Statement, any amendment thereto, the
Prospectus and any Prospectus Supplement relating thereto, the Common Stock
will be legally and validly issued, fully paid and nonassessable.
Our opinion that any document is valid and binding is qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium or other laws relating to or
affecting the rights of creditors generally; and
(b) general principles of equity, including without limitation concepts
of materiality, reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance or injunctive relief, regardless of
whether such enforceability is considered in a proceeding in equity or at law.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and Amendment and to the use of our
name wherever it appears in the Registration Statement, the Prospectus,
Prospectus Supplement and in any amendment or supplement thereto. In giving
such consent, we do not believe that we are "experts" within the meaning of
such terms as used in the Act or the rules and regulations of the Securities
and Exchange Commission issued thereunder with respect to any part of the
Registration Statement, including this opinion as an exhibit or otherwise.
Very truly yours,
/s/ WILSON, SONSINI, GOODRICH & ROSATI
-----------------------------------------
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
-2-
<PAGE>
SECOND AMENDMENT AND WAIVER
TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT AND WAIVER dated as of September , 1995 (the
"Amendment") is entered into by and among VLSI Technology, Inc., a Delaware
corporation (the "Borrower"), the lenders who are party to the Credit Agreement
referred to below (the "Lenders") and Bank of America Illinois, an Illinois
banking corporation (as successor to Continental Bank N.A.), as Agent for the
Lenders (herein, in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties to a certain
Credit Agreement dated as of June 6, 1994 (herein, as heretofore amended, called
the "Credit Agreement");
WHEREAS, Section 10.1 of the Credit Agreement permits the Borrower to incur
Subordinated Debt that (i) is subordinated to the Liabilities pursuant to
subordinated terms acceptable to the Required Lenders and (ii) has payment terms
acceptable to the Required Lenders;
WHEREAS, Section 10.12(a) of the Credit Agreement provided, INTER ALIA, that
the Borrower shall not enter into any agreement containing any provision that
would be violated or breached by the performance of the Borrower's obligations
under the Credit Agreement; and
WHEREAS, the Borrower desires to incur new subordinated indebtedness.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Borrower, the Agent and the Lenders hereby agree as
follows:
SECTION 1. AMENDMENTS.
In reliance on the Borrower's warranties set forth in Section 3 below, as of
the date hereof the Credit Agreement shall be hereby amended as follows:
(a) the following definition set forth in Section 1.1 of the Credit
Agreement is amended in its entirety to read as follows:
"Convertible Subordinated Debt" shall mean Indebtedness issued by the
Borrower pursuant to documentation containing substantially identical
payment terms and subordinated provisions as those set forth in the form
of Indenture between the Borrower and Harris Trust and Savings Bank, as
trustee, a copy of which was filed with the Securities and Exchange
Commission on or about September 7, 1995."
(b) Clause (e) of Section 10.1 of the Credit Agreement is amended to
read in its entirety as follows:
"(e) The Convertible Subordinated Debt and other Subordinated Debt of
the Borrower which is subordinated to the Liabilities pursuant to
subordination terms acceptable to the Required Lenders and having payment
terms acceptable to the Required Lenders;"
(c) Section 10.7 of the Credit Agreement is amended to read in its
entirety as follows:
"SECTION 10.7 Change of Control/Designated Events. Not permit (a) a
change of 30% or more of the Borrower's Board of Directors resulting from
(i) a tender offer for 30% or more of the Borrower's common stock not
previously approved by the Borrower's Board of Directors or (ii) a proxy
fight or (b) the occurrence of a "Designated Event" (as such term is
defined in that certain Indenture between the Borrower and Harris Trust
and Savings Bank pursuant to which the Convertible Subordinated Debt was
issued)."
(d) Section 10.8 of the Credit Agreement is amended to read in its
entirety as follows:
"Section 10.8 SUBORDINATED DEBT. Not, and not permit of its
Subsidiaries to:
<PAGE>
(a) make any payment (whether of principal, interest or
otherwise) on any Subordinated Debt on any day other than the stated,
scheduled date for such payment set forth in the documents and
instruments evidencing such Subordinated Debt; or
(b) make any payment on any Subordinated Debt in contravention or
violation of the subordination provisions thereof; or
(c) prepay, redeem, purchase or defease any Subordinated Debt, or
make any deposit for any of the foregoing purposes; PROVIDED that,
with respect to the Convertible Subordinated Debt the Borrower may
call such Convertible Subordinated Debt in accordance with the terms
of its existing indenture if (i) at the time such call is announced
the market price of the Borrower's common stock has exceeded for ten
consecutive Business Days the conversion price and (ii) both before
and after giving effect thereto no Default or Event of Default shall
exist; or
(d) enter into any amendment or modification of any Subordinated
Debt."
(e) Section 16 of the Credit Agreement is amended by adding at the end
thereof a new Section 16.12 which shall read in its entirety as follows:
"SECTION 16.12 Designated Senior Debt. The company, the Lenders, the
Issuing Lender and the Agent agree that all of the Liabilities shall
constitute "Designated Senior Debt" (as such term is defined in that
certain Indenture between the Borrower and Harris Trust and Savings Bank
pursuant to which the Convertible Subordinated Debt was issued)."
SECTION 2. WAIVER.
In reliance on the Borrower's warranties set forth in Section 3 below, as of
the date hereof, the Required Lenders hereby waive any Default or Event of
Default which otherwise might arise under Section 10.12(a) of the Credit
Agreement as a result of the Borrower's incurrence of the Convertible
Subordinated Debt (as such term is defined in the Credit Agreement as hereby
amended).
SECTION 3. WARRANTIES.
To induce the Agent and the Lenders to enter into this Consent and Waiver,
the Borrower warrants to the Agent and the Lenders as of the date hereof that:
(a) The representations and warranties contained in Section 8 of the
Credit Agreement (except for the representations and warranties set forth in
Section 8.6, 8.7, 8.8 and 8.10) are true and correct as of the date hereof;
and
(b) No Default or Event of Default has occurred and is continuing.
SECTION 4. GENERAL.
(a) This Amendment shall become effective upon receipt by the Agent of
counterpart signature pages duly executed by the Borrower and the Required
Lenders.
(b) Terms used but not otherwise defined herein are used herein as
defined in the Credit Agreement.
(c) As hereby amended or modified, the Credit Agreement shall remain in
full force and effect and is hereby ratified, approved and confirmed in all
respects.
(d) After the date hereof, all references in the Credit Agreement and
the Loan Documents to "Credit Agreement," "Agreement," "hereof" or the like
shall refer to the Credit Agreement as hereby amended or modified.
(e) This Amendment shall be binding upon the Borrower, the Agent and the
Lenders and shall inure to the benefit of the Borrower, the Lenders and the
Agent and the respective successors and assigns of the Lenders and the
Agent.
(f) This Amendment may be executed in any number of counterparts and by
the different parties on separate counterparts, and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one an the same Amendment.
<PAGE>
IN WITNESS WHEREOF, this Second Amendment and Waiver has been executed by
the Borrower and the Required Lenders as of the date first written above.
VLSI TECHNOLOGY, INC.
By:
--------------------------------------
Title:
--------------------------------------
BANK OF AMERICA ILLINOIS, as Agent
By:
--------------------------------------
Title:
--------------------------------------
BANK OF AMERICA ILLINOIS, as Lender
By:
--------------------------------------
Title:
--------------------------------------
COMERICA BANK -- CALIFORNIA
By:
--------------------------------------
Title:
--------------------------------------
THE BANK OF CALIFORNIA, N.A.
By:
--------------------------------------
Title:
--------------------------------------
CHEMICAL BANK
By:
--------------------------------------
Title:
--------------------------------------
<PAGE>
EXHIBIT 12.1
VLSI TECHNOLOGY, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Fiscal Year Six Months Ended
----------------------------------------------------------------------- ---------------------------
1990 1991 1992 1993 1994 July 1, 1994 June 30,1995
----------------------------------------------------------------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
provision for taxes on
income ($12,740) $12,778 ($31,617) $20,531 $41,707 $19,478 $16,495
Add - Fixed charges net of
capitalized interest 11,397 12,345 12,687 11,897 11,411 5,480 4,977
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before taxes and
fixed charges (net of
capitalized interest) (1,343) 25,123 (18,930) 32,428 53,118 24,938 21,472
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest (1) 9,163 9,279 9,121 8,131 8,411 4,082 3,351
Capitalized Interest 0 0 0 0 422 0 1,397
Estimated interest component
of rental expense 2,234 3,066 3,566 3,766 2,999 1,378 1,626
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 11,397 12,345 12,687 11,897 11,832 5,480 6,374
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of earnings before
taxes and fixed charges,
to fixed charges --(2) 2.04x --(2) 2.73x 4.49x 4.57x 3.37x
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
______________
<FN>
(1) Interest expense includes the amortization of underwriting fees for the
relevant periods outstanding.
(2) As a result of the loss incurred for the years 1990 and 1992, the
Company was unable to fully cover fixed charges. The amount of such
deficiencies in 1990 and 1992 were $12.7 million and $31.6 million,
respectively.
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as
Trustee
Check if an Application to Determine
Eligibility of a Trustee Pursuant to Section
305(b)(2) _______________
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Daniel G. Donovan, Harris Trust and Savings Bank,
111 West Monroe Street, Chicago, Illinois, 60603
312-461-2908
(Name, address and telephone number for agent for service)
VLSI TECHNOLOGY, INC.
(Name of obligor)
Delaware 94-2597282
(State of Incorporation) (I.R.S. Employer Identification No.)
1109 McKay Drive
San Jose, CA 95131
(Address of principal executive offices)
____% CONVERTIBLE SUBORDINATED NOTES
(Title of indenture securities)
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate trust
powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee is now in effect which
includes the authority of the trustee to commence business and to exercise
corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between
Harris Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in effect
and includes the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection with the
Registration Statement of Louisville Gas and Electric Company, File
No. 2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
(included as Exhibit C to this statement)
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published pursuant
to law or the requirements of its supervising or examining authority.
(included as Exhibit B on page 3 of this statement)
1
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all
in the City of Chicago, and State of Illinois, on the 24th day of August,
1995.
HARRIS TRUST AND SAVINGS BANK
By: /s/ D. G. DONOVAN
----------------------------------------
D. G. Donovan
Assistant Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents
that reports of examinations of said trustee by Federal and State authorities
may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ D. G. DONOVAN
------------------------------------------
D. G. Donovan
Assistant Vice President
2
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of March 31, 1995, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on March 31, 1995, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner
of Banks and Trust Companies of the State of Illinois and by the Federal
Reserve Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
ASSETS THOUSANDS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin . . . . . . $1,005,442
Interest bearing balances . . . . . . . . . . . . . . . . . . . $625,600
Securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
a. Held-to-maturity securities $679,653
b. Available-for-sale securities $1,399,848
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement
subsidiaries, and in IBF's:
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . $334,413
Securities purchased under agreements to resell . . . . . . . . . . . $216,275
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . . . . . . . $6,510,418
LESS: Allowance for loan and lease losses . . . . . . . . . . . . . . $92,572
-----------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b). . . . . . . . . . . . . . . . . . . . . . . . . . $6,417,846
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . $414,465
Premises and fixed assets (including capitalized leases) . . . . . . . . . . $137,331
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,087
Investments in unconsolidated subsidiaries and associated companies . . . . . $190
Customer's liability to this bank on acceptances outstanding . . . . . . . . $108,888
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,281
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $324,142
-----------
TOTAL ASSETS $11,689,461
-----------
-----------
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,130,806
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . $2,349,310
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,781,496
In foreign offices, Edge and Agreement subsidiaries, and IBF's . . . . . . $2,666,956
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . $64,487
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,602,469
3
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBF's:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . $754,641
Securities sold under agreements to repurchase . . . . . . . . . . . . . . $1,544,138
Trading Liabilities $457,361
Other borrowed money: . . . . . . . . . . . . . . . . . . . . . . . . . . . .
a. With original maturity of one year or less $850,855
b. With original maturity of more than one year $14,177
Bank's liability on acceptances executed and outstanding $108,888
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . $235,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $167,882
-----------
TOTAL LIABILITIES $10,930,704
-----------
-----------
EQUITY CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $275,000
a. Undivided profits and capital reserves . . . . . . . . . . . . . . . . . . . . . $389,937
b. Net unrealized holding gains (losses) on available-for-sale securities . . . . . ($6,180)
-----------
TOTAL EQUITY CAPITAL $758,757
-----------
-----------
Total liabilities, limited-life preferred stock, and equity capital . . . . . . . . $11,689,461
-----------
-----------
</TABLE>
I, Steve Neudecker, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with
the instructions issued by the Board of Governors of the Federal Reserve
System and is true to the best of my knowledge and belief.
STEVE NEUDECKER
4/30/95
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and, to the best of
our knowledge and belief, has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System
and the Commissioner of Banks and Trust Companies of the State of Illinois
and is true and correct.
ALAN G. McNALLY,
DONALD S. HUNT,
JAMES J. GLASSER,
Directors.
4
<PAGE>
Harris Trust and
Savings Bank
Bylaws
July, 1995
<PAGE>
ARTICLE I: MEETINGS OF STOCKHOLDERS
SECTION 1. TIME AND NOTICE. The annual meeting of stockholders shall be
held on the third Wednesday of April as soon as practicable after the
adjournment of the annual meeting of the stockholders of Harris Bankcorp,
Inc. for the election of directors and for such other business as may
properly come before the meeting.
Notice of the place, day and time of the annual meeting shall be given by
mailing not less than ten nor more than forty days previous to such meeting,
a notice addressed to each stockholder entitled to vote, at his address as
the same shall appear on the stock books of the Bank.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the Board of Directors or by the Chairman of the Board, a Vice
Chair of the Board or the President or by a majority of the directors without
a meeting. It shall be the duty of the Chairman of the Board to call such
meetings whenever requested in writing so to do by stockholders owning a
majority of the capital stock. Notice of such special meetings stating the
purpose thereof shall be given in the same manner as for the annual meeting,
unless the purpose of the meeting is to change the Bank's charter, in which
event such notice shall be given within the time and published as provided
for in the following Section 3.
SECTION 3. CHARTER AMENDMENT. If any special meeting is called to effect a
change in the Bank's charter as provided for in Section 17 of the Illinois
Banking Act, the Board of Directors shall adopt a resolution setting forth
the proposed amendment and directing that it be submitted to vote at the
special meeting; and notice of the purpose, place, day and hour of the
special meeting shall be given by publication thereof at least once in each
week for three successive weeks immediately preceding the week during which
the meeting is to be held in a newspaper published in the city of Chicago and
by mailing such notice not less than thirty days previous to such meeting to
each stockholder entitled to vote at his address as the same shall appear on
the stock books of the Bank.
SECTION 4. LOCATION. The Board of Directors may designate any place in the
State of Illinois as the place of meeting for any annual or special meeting.
SECTION 5. RECORD DATE. In lieu of closing the stock transfer books for the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may fix in advance a date as the
record date for any such determination. In the absence of specific action by
the Board closing the stock transfer books or fixing a different record date
for each annual and each special meeting of the stockholders, the date on
which notice of such meeting is mailed shall be the record date for such
determination of stockholders entitled to vote.
SECTION 6. QUORUM. A majority of the outstanding shares of the capital
stock of the Bank, represented either by the holders thereof or by duly
authenticated proxies, shall constitute a quorum for the transaction of
business at any meeting of the stockholders, but in the absence of a quorum a
meeting may be adjourned from time to time without notice to the stockholders.
<PAGE>
ARTICLE II: DIRECTORS
SECTION 1. POWERS. The business and affairs of the Bank shall be managed by
the Board of Directors. The Board of Directors may adopt such rules and
regulations for the conduct of its meetings and the management of the affairs
of the Bank as it may deem proper, not inconsistent with the laws of the
United States, of the State of Illinois, or these bylaws; and all officers
and employees shall strictly adhere to and be bound by such rules and
regulations. Directors need not be stockholders of the Bank or of any
company which has control over the Bank within the meaning of Section 2 of
the Illinois Bank Holding Company Act, as now or hereafter amended.
SECTION 2. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by majority of the whole Board, designate an Executive
Committee and such other committees as it may deem necessary, and from time
to time suspend or continue the powers and duties of any committee. The
Chairman of the Board, a Vice Chair of the Board, the President or the member
or members of any Board committee present at any duly called meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may designate another member or other members of the Board of
Directors to act at such meeting, and any director or directors so designated
shall have the same powers, duties and compensation as regular members. The
presence at the meeting of any director or directors so designated shall be
considered in determining whether a quorum is present.
SECTION 3. VACANCIES. Vacancies in the Board of Directors may be filled for
the unexpired term at a special meeting of the stockholders called for that
purpose. Additionally, the Board of Directors pursuant to paragraph (5) of
Section 16 of the Illinois Banking Act, by the affirmative vote of a majority
of the Board of Directors at any regular or special meeting of the Board, may
during the interval between annual meetings of stockholders elect not more
than a total of three persons as directors to fill vacancies arising during
such interval.
SECTION 4. MEETINGS. Regular meetings of the Board of Directors shall be
held on the third Wednesday of each month at 11:00 o'clock a.m. (except for
the meeting in January, April, July and October which shall be held at 9:30
o'clock a.m.) unless such day be a legal holiday, in which case the regular
meeting shall be held at the same hour on the next business day, or at such
other time, which may be a legal holiday, as the Board of Directors may
determine. All such regular meetings shall be held at the offices of the
Bank, or such other place as the Chairman of the Board, a Vice Chair of the
Board or the President may at any time designate, and in the event of such
designation, notice of the alternate meeting place shall be given by mailing
the same to each director not later than five business days preceding the
date of the meeting, or by telegraphing the same to him or delivering the
same to him personally not later than the day previous to such meeting, but
save for any such notice of alternate meeting place, such regular meetings
shall be held without other notice than this bylaw. Special meetings may be
called by the Chairman of the Board, a Vice Chair of the Board or the
President or by or at a written request of any three directors. Except to
the extent the time or method of giving notice is regulated by statute,
notice of any such meeting shall be given by mailing the same to each
director not later than five business days preceding the date of the meeting,
or by telegraphing the same to him or by delivering the same to him
personally not later than the day previous to such meeting. Any director may
waive notice of any meeting by waiver signed either
<PAGE>
before or after such meeting. Except as otherwise required by statute or
these bylaws, neither the business to be transacted at nor the purpose of any
meeting need be specified in the notice or waiver.
SECTION 5. QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but less than a quorum shall have power to take a recess
or adjourn a meeting to another day or hour.
SECTION 6. SECRETARY OF THE BOARD. The Board of Directors may appoint a
Secretary of the Board other than the Secretary of the Bank as provided for
in Section 10 of Article III of the bylaws, who may nor may not be a member
of the Board and who shall keep the minutes of the meetings of the Board and
perform such other duties as the Board shall from time to time prescribe.
ARTICLE III: OFFICERS
SECTION 1. NUMBER AND TENURE. The officers of the Bank shall be chosen by
the Board of Directors and may consist of a Chairman of the Board, one or
more Vice Chairs of the Board and a President, each of whom shall be a member
of the Board, and one of whom shall be designated the Chief Executive
Officer, one or more Senior Executive Vice Presidents, one or more Executive
Vice Presidents, and one or more Executives (of any whose titles may be
accompanied by reference to the area of their respective responsibilities),
one or more Senior Vice Presidents, Vice President, Assistant Vice
Presidents, a Secretary, one or more Assistant Secretaries, a Cashier, a
Controller, an Auditor, one or more Trust Counsel, and such other officers as
the Chief Executive Officer may from time to time designate. Officer
directors shall be elected by the Board. Executives who are not also
directors shall be elected by the Directors Committee on Compensation. All
other officers shall be appointed by the Chief Executive Officer. Officers,
whether elected or appointed, shall hold their respective offices until the
next succeeding annual meeting of stockholders and their successors are
elected and qualified, or until their retirement, resignation, removal or
appointment to another office. Any officer may be removed by the Chief
Executive Officer or the Board at any time with or without cause.
SECTION 2. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
exercise general control and supervision of the business and affairs of the
Bank, shall see to it that all resolutions and orders of the Board of
Directors are effected and shall have such other powers and duties as the
directors may specify. He may appoint persons to hold office as Senior Vice
President or below. During any absence or disability to act of the Chief
Executive Officer, his powers and duties shall be exercised and performed by
a Vice Chair of the Board, the President, or by an officer designated by the
Board of Directors for that purpose. He shall be an ex-officio member of all
Board committees.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
at all meetings of the Board of Directors and of the stockholders. He shall
have general responsibility for all Board matters, including without
limitation, the development of corporate governance policies and processes,
committee assignments, and meeting agendas. He shall have such other powers
and duties as the Board of Directors may specify. He shall be an ex-officio
member of all Board committees.
<PAGE>
SECTION 4. PRESIDENT. The President shall have such powers and duties as
the Board of Directors or the Chief Executive Officer may specify. During
any absence or disability to act of the President, his powers and duties
shall be performed and exercised by an officer designated in writing by the
Chief Executive, or in the absence of such designation, by an officer
designated by the Board of Directors for that purpose.
SECTION 5. CHIEF OPERATING OFFICER. The Chief Operating Officer shall
manage or supervise the management of the day-to-day operations of the Bank
and shall have such powers and duties as the Chief Executive Officer or the
Board of Directors may specify.
SECTION 6. VICE CHAIR OF THE BOARD. A Vice Chair of the Board shall have
such powers and duties as the Board of Directors may specify. During any
absence or disability to act of Chairman of the Board, a Vice Chair of the
Board shall preside at all meetings of the Board of Directors and of the
stockholders and have and exercise his powers and duties.
SECTION 7. SENIOR EXECUTIVE VICE PRESIDENT, EXECUTIVE VICE PRESIDENT,
EXECUTIVES, SENIOR VICE PRESIDENTS, VICE PRESIDENTS. Each Senior Executive
Vice President, Executive Vice President, Executive, Senior Vice President,
and Vice President shall have and perform such duties as the Chairman of the
Board, a Vice Chair of the Board or the President may delegate and is
authorized to accept trusts, execute contracts and agreements in relation to
trusts and loans, sign authentication's and certificates in connection with
trusts and certificates of stock, and sign or countersign checks, drafts,
certificates of deposit and letters of credit and all similar instruments or
obligations issued by the Bank.
SECTION 8. ASSISTANT VICE PRESIDENTS. Each Assistant Vice President is
authorized, subject to the supervision and direction of the President or a
Vice President, to accept trusts, execute contracts and agreements in
relation to trusts and to sign authentication's and certificates in
connection with trusts and certificates of stock; also to sign or countersign
checks, drafts, certificates of deposit and letters of credit and all similar
instruments or obligations issued by the Bank.
SECTION 9. CASHIER. The Cashier shall have charge and superintendence of
the operations of the Bank touching the deposit of money and commercial and
savings accounts, subject to the supervision and direction of the Chairman of
the Board, a Vice Chair of the Board, the President or a Vice President, and
is authorized to sign or countersign checks, drafts, certificates of deposit
and letters of credit and, as provided in Article V hereof, to sign
certificates representing stock of the Bank.
SECTION 10. SECRETARY. The Secretary shall act as secretary of the Board
and as secretary at meetings of the stockholders and, in general, shall have
charge of all records of the Bank relating to its organization and corporate
action and shall have power to certify the contents thereof.
SECTION 11. ASSISTANT SECRETARIES. Each Assistant Secretary is authorized,
subject to the supervision and direction of the President, a Vice President
or the Secretary, to accept trusts, execute contracts and agreements in
relation to trusts, to sign authentication's and certificates in connection
with trusts and certificates of stock, and to certify the contents of all
records of the Bank, to the same extent as the Secretary; to sign or
countersign checks, drafts, certificates of deposit, letters of credit and,
as provided in Article V hereof, certificates representing the stock of the
Bank.
<PAGE>
SECTION 12. OTHER OFFICERS. All other officers shall perform such duties
and possess such powers as from time to time may be directed or delegated by
the Board of Directors, the Executive Committee, the Chairman of the Board, a
Vice Chair of the Board, the President or a Vice President.
SECTION 13. OTHER SIGNING AUTHORITY. In addition to the signing authorities
granted by or pursuant to the foregoing provisions of this Article III, the
Chairman of the Board, a Vice Chair of the Board, the President, any Senior
Executive Vice President, Executive Vice President, or Executive or any
Senior Vice President within the area of his assigned duties or
responsibilities, may designate from time to time in writing any officer or
employee, either by name or by title, to sign or execute any documents,
instruments or contracts to which the Bank is a party.
ARTICLE IV: SEAL
The Board shall provide a Seal for the Bank, which shall be in the charge of
the Secretary or any other officer designated by him or by the President or
the Executive Committee, such Seal or a facsimile thereof to be affixed to or
otherwise reproduced on certificates of stock and any other documents in
accordance with the directions of the Board, the Executive Committee, the
President, any Vice President or the Secretary.
ARTICLE V: CAPITAL STOCK
SECTION 1. TRANSFER. Transfers of shares of stock of the Bank shall be made
upon the books of the Bank by the registered holder in person, or by attorney
duly authorized, on surrender of the certificate or certificates representing
such shares. The person in whose name shares of stock stand on the books of
the Bank shall be deemed to be the owner thereof for all purposes as regards
the Bank. All transfers of shares of stock in the Bank to a fiduciary,
including an executor, administrator, trustee, guardian, committee,
conservator, curator, tutor, custodian or nominee, and any transfer of shares
of stock of the Bank upon assignment by such fiduciary, shall be made by the
Bank under, and the Bank shall have the protections and rights with respect
thereto provided for by, an Act of the General Assembly of the State of
Illinois entitled "An Act relating to the transfer of securities to and by
fiduciaries and to repeal a part of an Act therein named," approved May 23,
1957.
SECTION 2. CERTIFICATES. All certificates representing stock of the Bank
shall be signed manually by the Chairman of the Board or the President or a
Vice President or the Cashier, and by the Secretary or an Assistant Secretary.
<PAGE>
ARTICLE VI: LOANS ON STOCK OF THIS BANK
The Bank shall make no loans in whole or in part upon the stock of the Bank
as collateral.
ARTICLE VII: AUDITS
SECTION 1. SCOPE. The scope of and the procedures or tests to be followed
in the auditing division in examining the books, assets, liabilities and
affairs of the Bank and reporting thereon to the Board of Directors, and the
extent and manner of coordinating such examination and report into or with
any audit report by certified public accountants, shall be such as may be
from time to time prescribed by the Board of Directors or by an Examining
Committee appointed from time to time by the Board of Directors and
consisting of at least two directors who are not officers of the Bank.
SECTION 2. REPORTS. The Auditor, or the officer designated by the Board as
responsible for the supervision of the auditing division, shall report under
seal to the Examining Committee appointed by the Board of Directors and, if
none is appointed, to the Board of Directors, itself, on the audit program
and internal controls in each quarter of the year and shall appear at any
time at the request of the Board of Directors or the Executive Committee at
any regular or special meetings thereof and report on the results of
examinations, the soundness of condition of the Bank and any other pertinent
information in connection therewith. The Auditor, or officer designated by
the Board as responsible for the supervision of the auditing division, shall
have continuing responsibility to report promptly under seal to the Board of
Directors or the Executive Committee any material irregularities which in his
opinion are of sufficient importance to be brought to their attention before
his next quarterly report.
ARTICLE VIII: INDEMNIFICATION
SECTION 1. APPLICABILITY. Every person now or heretofore or hereafter
serving as a director, officer or employee of the Bank or of a wholly owned
subsidiary of the Bank, and every officer or employee of the Bank or of any
such wholly owned subsidiary now, heretofore or hereafter serving as director
or officer of one or more other corporations or organizations, or as trustee,
executor, administrator, guardian or conservator or in a similar fiduciary
capacity, at the request of the Bank as evidenced by action of the Executive
Committee or the Board designating the situation as one entitled to the
benefit of this bylaw or to the benefit of a similar indemnifying resolution
of the Board, shall be indemnified or reimbursed by the Bank from and for
expenses, liabilities, fines, penalties and costs that may be imposed upon or
incurred by him, including by way of settlement, in connection with any
action, suit, or proceeding, civil or criminal, in which he may be or become
a party by reason of his being or having been such director, officer,
trustee, executor, administrator, guardian, conservator or other
<PAGE>
such fiduciary; provided, however, that no such person shall be entitled to
such indemnity or reimbursement.
(a) in relation to matters as to which he shall be finally adjudged in
an action brought by the Bank directly or derivatively to be liable for
breach of a duty to or for nonpayment of a liability to the Bank; or
(b) in relation to matters included in an action, suit or proceeding of
the kind referred to in the foregoing subparagraph (a) but which is settled
or disposed of without final adjudication on the merits except and unless the
Board or, as the case may be, the stockholders, shall make the same findings
as are provided for in the following subparagraph (c) as a condition
precedent to such indemnity or reimbursement; or
(c) in relation to matters involved in an action, suit or proceeding
which is of a kind other than that referred to in the foregoing subparagraph
(a), unless such action, suit or proceeding is dismissed or otherwise
disposed of on the merits in favor of such person, or, if not so dismissed or
disposed of, unless the Board shall find that such person acted in good faith
for a purpose which he reasonably believed to be in the best interests of the
Bank, and in the case of criminal actions or proceedings, in addition had
good warrant to believe that his conduct was not unlawful.
SECTION 2. FINDINGS. The action by the Board called for in subparagraph (c)
of Section 1 hereof shall be at a meeting at which a quorum consisting of
directors who are not parties to such suit, action or proceeding is present;
and in taking such action no director involved shall be qualified to vote
thereon. In the absence of quorum, such finding shall nevertheless be
effective if made by resolution of the stockholders adopted at an annual
meeting or at a special meeting of the stockholders. The right of
indemnification or reimbursement provided for by this Article shall not be
exclusive and shall not affect any right to indemnification or reimbursement
which any director, officer or employee might otherwise have as a matter of
law.
The term "Bank" as used in this Article shall be deemed to include the Bank
and the predecessor bank of the same name, all with the same effect as if the
Bank and said predecessor had at all times been one and the same corporation.
SECTION 3. LEGAL EXPENSES. Expenses incurred by a director, officer or
employee in defending a civil or criminal action, suit or proceeding may be
paid by the Bank in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in a specific case upon
receipt of an undertaking by or on behalf of the director, officer or
employee to repay such amount unless it shall ultimately be determined that
he is entitled to indemnification as provided in this Article VIII.
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ARTICLE IX: MANAGEMENT SUCCESSION PROVISIONS
In the temporary absence of the Chairman of the Board, the Vice Chairs of the
Board and the President, certain Senior Executive Vice Presidents, Executive
Vice Presidents, Executives or Senior Vice Presidents shall have and exercise
all the powers and duties of the Chief Executive Officer until the Board of
Directors meets to provide for permanent succession, the order of precedence
having been set by the Board of Directors referring to this Article IX. The
provisions of this paragraph are, however, subject to the right of the
stockholder, the Board of Directors and of the Executive Committee to appoint
the presiding officer of their respective meetings.
ARTICLE X: AMENDMENT OR REPEAL
These bylaws, or any part hereof, may be amended, altered, changed, added to
or repealed, and others adopted in their place by the Board of Directors of
the Bank, at any regular or special meeting.
. . . . . . . . . . . . . . . .
