<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>
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
beginning 60 days after the date of this Prospectus and on or before 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 August 25, 1995, the last reported sale
price of the Common Stock on Nasdaq was $33.375 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 "VLSIX."
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 (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, subject to certain conditions. 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>
- ----------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note...................................... % % %
Total(3)...................................... $ $ $
- ----------------------------------------------------------------------------------------------------
<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 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
beginning 60 days after the date of this Prospectus and
on or before the last trading day prior to maturity,
unless previously redeemed, at a conversion price of
$ per share, subject to adjustment in certain events.
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.
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 certain events.
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.
Use of Proceeds................... For expansion of manufacturing capacity and for general
corporate purposes, including working capital.
Listing........................... The Company intends to apply for approval for quotation
of the Notes on the Nasdaq Stock Market under the symbol
"VLSIX." 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.................................................................. 644,179 642,201 795,951
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 $1.3 million and $18.9 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. The Company intends to
contest the verdict. However, the Company recorded a charge to earnings of $19.4
million in the second quarter of 1995. Based on the jury's finding that the
alleged infringement was intentional, TI has requested that the judge award
enhanced damages, pre-judgment interest and attorneys' fees. In the event that
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.
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
9
<PAGE>
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 bankruptcy, liquidation or
reorganization of the Company, or upon the acceleration of any Senior Debt,
10
<PAGE>
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 (each as defined below), 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, 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 borrowings which the Company may enter into from
time to time, including agreements relating to Senior Debt. See "Description of
Notes -- Repurchase 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 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
11
<PAGE>
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."
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 August 25, 1995 as
reported by the Nasdaq National Market is set forth on the cover page of this
Prospectus. At August 11, 1995, the Company had 1,529 holders of record of its
Common Stock and 44,074,537 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 August 25, 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.
12
<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>
13
<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>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<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) 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. EBTIDA 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 $1.3 million and $18.9 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.
</TABLE>
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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 in and 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.
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- 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.
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<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>
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.
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<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.
43,716,764. A trial for this matter was held in April 1995, which resulted in a
May 1995 verdict against VLSI for $19.4 million. The Company intends to contest
the verdict. However, the Company recorded a charge to earnings of $19.4 million
in the second quarter of 1995. Based on the jury's finding that the alleged
infringement was intentional, TI has requested that the judge award enhanced
damages, pre-judgment interest and attorneys' fees. In the event that 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.
19
<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 after 60 days following
the original issuance thereof through 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
20
<PAGE>
price of the Common Stock on the last 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
upon submission of written notice of exercise of such repurchase right together
with the Notes as to which such right is being exercised. 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.
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<PAGE>
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 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.
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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 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
23
<PAGE>
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.
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.
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<PAGE>
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.
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 repurchase feature of the Notes may in certain circumstances make more
difficult or discourage a takeover of the Company and the removal of incumbent
management. 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.
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 certain 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 as well as certain financial
covenants. 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 will 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 as
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.
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
25
<PAGE>
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.
"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.
The definition of Change of Control includes a phrase relating to the,
lease, transfer, 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.
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.
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.
26
<PAGE>
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 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 (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 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
27
<PAGE>
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 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 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 waiver provisions
or (i) except as permitted by the Indenture, increase the Conversion Price or
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 10 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.
28
<PAGE>
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, (e) 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 (f) 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. 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.
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 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.
29
<PAGE>
"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 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 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 generally accepted accounting principles as then in effect.
"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.
30
<PAGE>
"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).
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<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
32
<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.
33
<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."
34
<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.
35
<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................................... 12
Price Range of Common Stock and Dividend Policy... 12
Capitalization.................................... 13
Selected Consolidated Financial Data.............. 14
Business.......................................... 16
Description of Notes.............................. 20
Certain Federal Income Tax Considerations......... 32
Underwriting...................................... 34
Legal Matters..................................... 35
Experts........................................... 35
</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
