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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1999
REGISTRATION NO. _____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MSC.SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2239450
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
815 COLORADO BOULEVARD
LOS ANGELES, CALIFORNIA 90041
(323) 258-9111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
-------------
LOUIS A. GRECO
CHIEF FINANCIAL OFFICER AND SECRETARY
MSC.SOFTWARE CORPORATION
815 COLORADO BOULEVARD
LOS ANGELES, CALIFORNIA 90041
(323) 258-9111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------
WITH COPIES TO:
D. STEPHEN ANTION, ESQ.
O'MELVENY & MYERS LLP
1999 AVENUE OF THE STARS
LOS ANGELES, CALIFORNIA 90067
(310) 553-6700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement, as
determined by the Registrant and Selling Holders in light of market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) AGGREGATE OFFERING REGISTRATION FEE
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<S> <C> <C> <C> <C>
7 7/8% CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2004............................. $9,915,000 84.5%(3) $8,378,175 $2,329
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COMMON STOCK $.01 PAR VALUE (2)...... 654,489 N/A N/A N/A
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Such number represents the number of shares of common stock of the
Registrant as may be initially issuable upon conversion of the debentures.
There are also being registered hereunder an additional indeterminate
number of shares of common stock of the Registrant as may become issuable
upon conversion of the debentures by reason of adjustments in the
conversion ratio. Includes rights (the "Rights") issuable pursuant to the
Rights Agreement dated as of October 5, 1998 between the Registrant and
ChaseMellon Shareholder Services, L.L.C., as right agent. One Right will be
issued with respect to each share of common stock of the Registrant issued
upon conversion of the debentures.
(3) Calculated based on the average of the high and low sales price of the
debentures on September 2, 1999 as reported on the New York Stock Exchange
in accordance with Rule 457(c) of the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 1999
[LOGO] MSC.SOFTWARE CORPORATION
$9,915,000
7 7/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
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THE COMPANY: TRADING FORMAT:
- - We engage in computer-aided engineering, including - Debentures: NYSE symbol: MNS7H04
the development and marketing of software for use - Common Stock: NYSE symbol: MNS
principally by engineers and designers in
industry, research laboratories and universities. THE DEBENTURES:
- - MSC.Software Corporation - Maturity: August 18, 2004.
815 Colorado Boulevard - Interest Payments: Semi-annually on March 15 and
Los Angeles, California 90041 September 15 of each year.
(323) 258-9111 - Conversion Price: $15.15 per share, subject to adjustment (equal to
an initial conversion ratio of 66.01 shares of common stock per
THE OFFERING: $1,000 principal amount of debentures).
- - Of the $9,915,000 aggregate principal amount of - Conversion Right: Any debenture in an amount of $1,000 or above may
debentures being offered under this prospectus, be converted at any time, in whole or in part; provided, however,
$7,915,000 are being offered by us, and $2,000,000 that no partial conversion may be made if as a result the unconverted
are being offered by selling holders (the "Selling portion of the debenture would be less than $1,000 principal amount.
Holders"). We will not receive any proceeds from - Redemption: We have the right to redeem the debentures, as a whole or
the sale of the debentures by the Selling in part, at any time, at the redemption prices stated herein.
Holders. See "Selling Holders." The specific - Ranking of debentures: Unsecured general obligations, subordinate in
price at which you can purchase these debentures right of payment to all Senior Indebtedness.
and the amount of proceeds we will receive, after - The debentures offered by us are expected to be issued, and the
paying the offering expenses from the sale of debentures offered by the Selling Holders previously were issued,
these debentures, will be provided in supplements with original issue discount for federal income tax purposes.
to this prospectus.
- - The debentures will be part of an existing series
of outstanding securities, and will have the same
interest rate, maturity date, conversion price and
other terms as the outstanding debentures.
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</TABLE>
The debentures offered by this prospectus may be sold directly by
us, the Selling Holders, or through one or more agents, underwriters or
dealers. If any agents, underwriters or dealers are used by us to sell the
debentures, their names, any applicable commission or discounts and the
nature of any underwriting arrangements will be set forth in supplements to
this prospectus.
-------------------------
INVESTING IN THE DEBENTURES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 9, 1999.
<PAGE>
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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TABLE OF CONTENTS
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PAGE
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About This Prospectus............................................................................................2
Where You Can Find More Information..............................................................................2
Prospectus Summary...............................................................................................4
Risk Factors.....................................................................................................7
Use Of Proceeds.................................................................................................10
Ratio of Earnings To Fixed Charges..............................................................................10
Description of Debentures.......................................................................................11
Description of Common Stock.....................................................................................16
Material Federal Income Tax Consequences........................................................................17
Plan of Distribution............................................................................................20
Selling Holders.................................................................................................22
Legal Matters...................................................................................................22
Experts ........................................................................................................23
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3
using a "shelf" registration process. Under this shelf process, the
debentures described in this prospectus may be sold in one or more offerings
in an aggregate principal amount of up to $9,915,000. This prospectus
provides you with a general description of the debentures. Each time we sell
debentures, a prospectus supplement containing specific information about the
terms of the offering will be provided. The prospectus supplement may also
add, update, or change information contained in this prospectus. You should
read this prospectus and the applicable prospectus supplement together with
the additional information about us that can be obtained as described under
the heading "Where You Can Find More Information."
As permitted by the rules and regulations of the Securities and
Exchange Commission, this prospectus omits certain information contained or
incorporated by reference in the registration statement. Statements made in
this prospectus as to the contents of any contract, agreement or other
document are not necessarily complete, and, in each instance, reference is
made to the copy of such document filed as an exhibit to the registration
statement or otherwise filed with the SEC.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with the Exchange Act, we
file reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information can be inspected and copied
at the public reference rooms maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's regional offices located at 7
World Trade Center, Suite 1300, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the SEC at 1-800-SEC-0330 for additional information on the public
reference rooms. Copies of such material can also be obtained from the SEC's
Internet web site at http://www.sec.gov. Our common stock and the outstanding
debentures are listed for trading on the New York Stock Exchange, and copies
of reports, proxy statements and other information about us can be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
The SEC allows us to "incorporate by reference" the information
contained in documents that we file with them, which means that we can
disclose important information to you by referring you to those documents.
The information incorporated by reference is an important part of this
prospectus and any prospectus supplement, and information that we file later
with the SEC will automatically update and supersede some or all of this
information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until the offering is completed.
- - Our Transition Report on Form 10-K for the fiscal year ended December
31, 1998;
- - Our Quarterly Reports on Form 10-Q for the periods ended March 31 and
June 30, 1999;
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- - Our Current Report on Form 8-K, event date June 18, 1999, as amended;
- - The description of common stock contained in Item 1 of our
Registration Statement on Form 8-A, filed with the SEC on
May 22, 1996; and
- - The description of the Rights issuable with respect to each
share of common stock issued upon conversion of the debentures
contained in Item 1 of our Registration Statement of Form 8-A
filed with the SEC on October 13, 1998.
We have also filed a registration statement on Form S-3 with the SEC
under the Securities Act for the debentures offered by this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement and you should read the registration statement for
further information about the debentures and us. The registration statement
can be found in the SEC's locations described above or the SEC's website. We
have filed or incorporated by reference exhibits with the registration
statement that include the indenture. You should read the exhibits carefully
for provisions that may be important to you.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the documents incorporated in this prospectus by
reference (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to MSC.Software Corporation, 815 Colorado
Boulevard, Los Angeles, California 90041 (telephone: (323) 258-9111). You can
find additional information by visiting our website at
http://www.mscsoftware.com.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THE
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE DEBENTURES. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
THE COMPANY
We develop, market and sell computer-aided engineering software and
provide related consulting services, principally for engineers and designers
in industry, research laboratories and universities. Our principal executive
office is at 815 Colorado Boulevard, Los Angeles, California 90041, and our
telephone number is (323) 258-9111. We are a Delaware corporation.
THE SELLING HOLDERS
The Selling Holders are Dendron Technology B.V., a Dutch
corporation, and Fronos Technology B.V., a Dutch corporation. The Selling
Holders received their debentures from us as partial consideration under a
stock purchase agreement executed in connection with our acquisition of MARC
Analysis Research Corporation in June 1999.
THE OFFERING
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<CAPTION>
Debentures offered by:
<S> <C>
The Company............................ $7,915,000 in principal amount.
The Selling Holders.................... $2,000,000 in principal amount.
Total Amount of Debentures
Offered............................... $9,915,000 in principal amount.
Debentures to be outstanding
after the offering.................... $66,500,000 in principal amount of debentures.
Maturity............................... August 18, 2004.
Interest............................... Annual rate: 7 7/8%.
Payment frequency: Every six months
on March 15 and September 15.
Record Date............................ The March 1 and September 1 preceding the applicable
interest payment date.
Conversion Rights...................... The debentures are convertible, at your option, at any time
before August 18, 2004, into our common stock, at a conversion price
of $15.15 per share of common stock, subject to adjustment (the
conversion ratio is 66.01 shares of common stock per $1,000 principal
amount of debentures).
Redemption............................. We may redeem some or all of the debentures at any time at the redemption
prices listed under "Description of Debentures--Redemption."
Ranking................................ The debentures are our unsecured general obligations which are subordinate
in right of payment to all Senior Indebtedness (see page 16 for a definition
of this term).
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<CAPTION>
<S> <C>
NYSE Symbol............................ MNS7H04
Use of Proceeds........................ We will use the net proceeds from the sale of the debentures
for general corporate purposes, unless we specify a different use in
the applicable prospectus supplement. We will not receive any
proceeds from the sale of debentures by the Selling Holders.
Federal Income Tax
Consequences...................... The debentures offered by us are expected to be issued, and
the debentures offered by the Selling Holders previously were issued,
with original issue discount for federal income tax purposes. See
"Material Federal Income Tax Consequences."
Risk Factors........................... Your investment in the debentures involves a high degree of
risk. Therefore, you should carefully consider the matters set forth
under "Risk Factors" which begins on page 7.
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements, including
statements concerning projections of our future results, operating profits
and earnings, that are based on current expectations and are subject to risks
and uncertainties that could cause actual results to differ materially from
those expressed or implied by those statements. The risks and uncertainties
include but are not limited to:
- - The timely development and market acceptance of new versions of our
software products;
- - Our dependence on certain industries;
- - The successful integration of our recent acquisitions of Knowledge
Revolution, MARC Analysis Research Corporation ("MARC") and
Universal Analytics, Inc.;
- - Timely development of computer-aided engineering technologies
which, among other things, must accommodate industry trends such
as increasing computing power and increased usage of workstations;
- - Fluctuations of the U.S. dollar versus foreign currencies;
- - Economic conditions in Asia-Pacific, Europe and the U.S.;
- - Our ability to reduce costs without adversely impacting revenues;
- - Successful involvement of international and domestic business partners
in creating mechanical engineering solutions;
- - Our adoption of some anti-takeover provisions;
- - Our ability to attract, motivate and retain salespeople, programmers
and other key personnel;
- - The allocation of the purchase price for the MARC acquisition is
based on a preliminary valuation, which is subject to change,
although management does not believe the final valuation will be
materially different;
- - Continued demand for our products, including MSC.NASTRAN,
MSC.PATRAN, MSC.DYTRAN, MSC.MVISION, MSC.NASTRAN for Windows,
MSC.InCheck, MSC.Working Model, and MARC's products; and
- - Year 2000 issues.
5
<PAGE>
Our risks are more specifically described in "Risk Factors" and in our
Transition Report on Form 10-K for the year ended December 31, 1998 incorporated
by reference in this prospectus. If one or more of these risks or uncertainties
materializes, or if underlying assumptions prove incorrect, our actual results
may vary materially from those expected, estimated or projected.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER
INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN THE DEBENTURES.
HISTORICAL RESULTS OF OUR OPERATIONS AND FINANCIAL POSITION ARE NOT NECESSARILY
INDICATIVE OF FUTURE FINANCIAL PERFORMANCE.
We derive most of our revenue from selling software products and
services to high end users of the product design markets. Our revenue growth and
our ability to match spending levels with revenue growth rates will directly
impact our future operating results. Historically, a significant portion of our
revenue has been generated from shipments in the last month of a quarter. In
addition, higher volumes of orders have been experienced in the month of
January. The concentration of orders makes projections of quarterly financial
results difficult. In addition, over 50% of our revenues are derived from
international markets and are denominated in foreign currencies. As a result,
our financial results and cash flow could be impacted by weakened general
economic conditions in various parts of the world, differing technological
advances or preferences, volatile foreign exchange rates, and government trade
restrictions in any country in which we do business.
RISK ASSOCIATED WITH EXPENSE MANAGEMENT.
We plan our operating expense levels, in part, on expected revenue
levels. Our expense levels, however, are generally committed in advance and, in
the near term, we are able to change only a relatively small portion of our
expenses. As a result, our ability to convert operating outlays into expected
revenue growth at profitable margins will impact our future operating results.
If our future revenues are less than expected, our net income may be
disproportionately affected since expenses are relatively fixed.
RISKS OF COMPETITION.
The computer-aided engineering software industry is highly competitive.
The entire industry may experience pricing and margin pressure which could
adversely affect our operating results, cash flow and financial position. Our
success depends on our ability to continue to develop, enhance and market new
products to meet our customers' sophisticated needs within competitive pricing
structures and in a timely manner. Shortened product development cycles may
impact product quality, performance, reliability, ease of use, functionality,
breadth and integration. Our success also depends, in part, on our ability to
(1) attract and retain technical and other key employees who are in great
demand, (2) protect the intellectual property rights of our products, and (3)
continue key relationships with product development partners.
Some of our current and possible future competitors have greater
financial, technical, marketing and other resources than we do, and some have
well-established relationships with our current and potential customers. It is
also possible that alliances among competitors may emerge and rapidly acquire
significant market share or that competition will increase as a result of
software industry consolidation. Increased competition may result in price
reductions, reduced profitability and loss of market share, any of which could
have a material adverse effect on our business, financial condition and results
of operations.
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT
US FROM FULFILLING OUR OBLIGATIONS UNDER THESE DEBENTURES.
We are, and after the completion of this offering will be, highly
leveraged (which means that the amount of our outstanding debt will be large
compared to the net book value of our assets) and we will have substantial
repayment obligations and interest expense. If this offering had occurred on
June 30, 1999, we would have had:
- Total consolidated debt of $77.9 million; and
- Shareholders' equity of $16.4 million.
Based upon our current level of operations, we believe that our cash
flow from operations, together with proceeds from this offering and amounts we
are able to borrow under our credit facilities, will be adequate to meet our
7
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anticipated requirements for working capital, capital expenditures, research and
development expenditures, discretionary investments, interest payments and
scheduled principal payments. Our ability to make scheduled payments of
principal and interest on our indebtedness and to refinance our indebtedness
depends on our future performance. We do not have complete control over our
future performance because it is subject to economic, financial, competitive,
regulatory, and other factors beyond our control. It is possible that in the
future our business may not generate sufficient cash flow from operations to
allow us to service our debt and make necessary capital expenditures. If this
situation occurs, we may have to sell assets, restructure debt, obtain
additional equity capital, or reduce capital expenditures or research and
development expenses. We cannot be sure that we would be able to do so or do so
without incurring additional expense.
We may be able to incur substantial additional indebtedness in the
future. Our principal credit facility would permit additional borrowings of up
to $15 million after completion of this offering, which would be senior to the
debentures and which are secured by nearly all of our goods and equipment,
inventory, contract rights and intellectual property rights. If new debt is
added to our current debt levels, the related risks that we now face could
intensify.
Our level of debt and the limitations imposed on us by our debt
agreements could have other important consequences to you, including the
following:
- We will have less ability to satisfy our obligations with respect
to the debentures;
- We may not be able to obtain additional debt financing for future
working capital, capital expenditures, research and development
costs and other general corporate purposes;
- We could be less able to take advantage of significant business
opportunities, such as acquisition opportunities or research and
development efforts, and react to changes in market or industry
conditions;
- We will be more vulnerable to general adverse economic and
industry conditions; and
- We will be disadvantaged compared to competitors with less
leverage.
SUBORDINATION OF DEBENTURES TO SENIOR INDEBTEDNESS.
The debentures are subordinate in right of payment to the prior payment
in full of all our Senior Indebtedness (see page 16 for a definition of this
term), including our principal credit facility. The indenture does not restrict
our incurrence of any additional indebtedness. By reason of the subordination of
the debentures, in the event of any distribution to our creditors in a total or
partial liquidation or dissolution of our business, or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to our
business or property, the holders of Senior Indebtedness will be entitled to
receive payment in full before the holders of debentures will be entitled to
receive any payment. See "Description of Debentures--Subordination."
RISKS RELATED TO STOCK MARKET VOLATILITY.
The trading price of our stock, like other software and technology
stocks, is subject to significant volatility. If our revenues or earnings fail
to meet securities analysts' expectations, there could be an immediate and
significant adverse impact on the trading price of our stock and, as a result,
the debentures. In addition, broader market factors unrelated to our performance
may affect our stock price.
RISKS RELATED TO DEPENDENCE ON CORE PRODUCTS.
We currently earn a significant portion of our revenues from sales and
maintenance of a core group of analysis and design software derived primarily
from our MSC.NASTRAN and MSC.PATRAN products. As a result, any factor adversely
affecting sales of these core products could have a material adverse effect on
our business. Our future performance will depend upon successful development,
introduction and customer acceptance of new products or enhanced versions of our
existing products. We can give no assurance that we will continue to be
successful in marketing our current products or any new or enhanced products
that we may develop in the future. In addition, competitive pressures or other
factors may result in price erosion that could have a material adverse effect on
our business, financial condition, results of operations and cash flow.
8
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RISKS RELATED TO DEPENDENCE ON CERTAIN INDUSTRIES.
We primarily market our products to aerospace, automotive and other
industrial customers. For the year ended December 31, 1998, aerospace clients
accounted for 39% and automotive clients accounted for 24% of our revenues,
respectively. Changes in capital spending by, and cyclical trends affecting,
these customers may adversely affect our offerings to these industries. In
addition, these types of customers tend to adhere to a technology choice for
long periods (i.e., an entire development cycle). As a result, a lost
opportunity with a given customer may not again become a new opportunity for
several years.
RISKS RELATED TO INTERNATIONAL ACTIVITIES.
Revenues from foreign export sales represented approximately 57% of our
gross revenue in 1998. Risks inherent in our international business activities
include the following:
- imposition of government controls;
- foreign exchange fluctuations, as many of our agreements
originating with our German and Japanese subsidiaries are stated
in foreign currencies;
- export license requirements;
- restrictions on the export of critical technology or other trade
restrictions;
- foreign political and economic instability;
- ineffective copyright and trade secret protection under foreign
law;
- changes in regulatory practices, tariffs and taxes;
- difficulties in staffing and managing international operations;
- longer accounts receivable payment cycles; and
- burdens of complying with a wide variety of foreign laws and
regulations.
Unfavorable economic and political conditions in the Asian markets have
recently impacted our international results. The decrease in reported revenues
from our Asia-Pacific region is due primarily to the economic turmoil the region
experienced during the past year. 16% of our total revenue for 1998 is directly
related to the Japanese market, while 6% is from the Asia-Pacific region outside
of Japan. In light of the continued economic turmoil in the region, we remain
cautious about our Asia-Pacific prospects. We can give no assurance that the
economic crisis and currency issues currently being experienced in the Asian
markets will not have a material adverse effect on our future international
sales and, consequently, on our business, financial condition and results of
operations.
RISKS RELATED TO CERTAIN ANTI-TAKEOVER PROVISIONS.
Certain provisions of our Certificate of Incorporation and Restated
Bylaws could make it more difficult for a third party to acquire control of us,
even if the change in control would be beneficial to stockholders.
These provisions include the following:
- division of our board of directors into three classes, with each
class serving a staggered three-year term;
- vesting of exclusive authority in the board, the Chairman of the
Board and the president (except as otherwise required by law) to
call special meetings of stockholders;
- elimination of stockholder voting by consent;
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- removal of directors for cause only;
- ability of the board to authorize the issuance of preferred stock
in series;
- vesting of exclusive authority in the board to determine the size
of the board (subject to certain limited exceptions) and to fill
vacancies thereon; and
- advance notice requirements for stockholder proposals and
nominations for election to the board.
In addition to the above provisions, we have recently adopted a new
stockholder rights plan. The plan entitles our stockholders, if an entity
acquires more than 20% of our stock or in the event of a squeeze-out merger,(1)
to purchase either our common stock or the common stock of the merged entity at
one-half of the stock's market value. Until ten days after the announcement of
the acquisition of a 20% interest, we may redeem the rights for a nominal
amount.
USE OF PROCEEDS
Except as otherwise specified in a prospectus supplement, we will use
the net proceeds from the sale of the debentures for general corporate purposes
including working capital, capital expenditures, repayment and refinancing of
debt and acquisitions. We may invest funds not required immediately for such
purposes in marketable securities and short-term investments. We will not
receive any proceeds from the sale of debentures by the Selling Holders.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods
indicated below is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
-- 4.1 3.3 3.4 -- 3.4 0.6
</TABLE>
For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before provision (benefit) for income taxes and
fixed charges. "Fixed charges" consist of interest expense and amortization of
discounts related to indebtedness, plus a portion of rent expense representing
interest. For the years ended December 31, 1994 and 1998, the Company's earnings
were inadequate to cover fixed charges. The coverage deficiency was $32,166,000
and $13,175,000 for the years ended December 31, 1994 and 1998, respectively.
For the six months ended June 30, 1999, the Company's earnings were inadequate
to cover fixed charges. The coverage deficiency was $1,368,000 for the six
months ended June 30, 1999.
- ---------------
(1) A "squeeze-out" merger is a merger transaction in which a minority
interest in a corporation is intentionally eliminated or reduced. This is
often accomplished by setting up the merger transaction to provide the
holders of minority interests with effectively no choice but to accept cash
(as opposed to interests in the continuing entity) in exchange for their
shares.
10
<PAGE>
DESCRIPTION OF DEBENTURES
The debentures will be issued under an indenture dated as of August 18,
1994, as supplemented as of September 22, 1994 and as of December 14, 1994,
between us and Chase Manhattan Bank & Trust Company, National Association (as
successor to Chemical Trust Company of California), as trustee. This prospectus
briefly outlines the material provisions of the indenture. The indenture has
been incorporated by reference as an exhibit to the registration statement.
Although this prospectus and the applicable prospectus supplement provide all
the information that we believe is material with respect to the debentures, you
should read the indenture for provisions that may be important to you. In the
summary below, we have included references to section numbers of the indenture
(italicized) so that you can easily locate these provisions. We have also
provided a glossary on page 15 to define the capitalized words used in
discussing the debentures.
GENERAL
The maximum aggregate principal amount of the debentures that may be
issued under the indenture is $66,500,000. $56,585,000 aggregate principal
amount of debentures were issued in 1994 and $2,000,000 aggregate principal
amount were issued in 1999 to the Selling Holders. The debentures are listed on
the New York Stock Exchange under the symbol "MNS7H04". References to
"debentures" in the following discussion include both the debentures offered by
this prospectus and accompanying prospectus supplement and the $58,576,000
aggregate principal amount of debentures currently outstanding. The debentures
will be our unsecured, general obligations, subordinate in right of payment to
all our Senior Indebtedness as described under "--Subordination" and convertible
into common stock as described under "--Conversion Rights." The debentures will
be issued in fully registered form, without coupons, in denominations of $1,000
and above.
The debentures will mature on August 18, 2004. The debentures bear
interest at the rate of 7 7/8% per year. Interest on the debentures is payable
semi-annually on each March 15 and September 15 to the persons in whose names
the debentures are registered at the close of business on the preceding March 1
or September 1, respectively. The debentures will bear interest from their date
of issuance or the most recent interest payment date to which interest has been
paid. Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months. (SECTIONS 2.01 AND 2.03).
We will apply to list the debentures offered by us on the New York
Stock Exchange on a "when-issued" basis, and trading in the offered debentures
is expected to take place initially on the New York Stock Exchange. The
debentures offered by the Selling Holders are currently listed on the NYSE. No
assurance can be given, however, as to the liquidity of or trading markets for
the offered debentures.
There are no material restrictions, contractual or otherwise, on our
receipt of dividends or other distributions from our subsidiaries to aid us in
meeting our interest payment obligations to holders of debentures.
The indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of our securities or
the incurrence of any additional indebtedness, nor does it require us to
maintain any sinking fund or other reserves for repayment of the debentures.
Other than as described under "--Conversion Rights," there are no covenants or
provisions in the indenture that may afford holders of debentures protections in
the event of a highly leveraged transaction, leveraged buyout, reorganization,
restructuring, merger or similar transaction.
The registered holders of debentures will be treated as the owners
thereof for all purposes, including the payment of principal, premium, if any,
and interest. Principal of and interest on the debentures will be payable at the
office or agency maintained by the trustee on our behalf in Los Angeles,
California, or at another location we shall select upon notice to holders of
debentures. At our option, payment of interest may be made by check mailed to
each registered holder of debentures. (SECTIONS 4.01 AND 4.02). The debentures
will be transferable at the offices of the trustee (or any other office we
designate), without charge therefor, except for any tax or other governmental
charge connected therewith. (SECTION 2.05).
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<PAGE>
CONVERSION RIGHTS
The registered holder of any debenture will have the right at any time
before the close of business on August 18, 2004, unless previously redeemed, at
the option of the holder, to convert any portion of the principal amount thereof
that is $1,000 or above (provided that no partial conversion may be made if as a
result thereof the unconverted portion of the debenture would be less than
$1,000 principal amount) into shares of our common stock (calculated to the
nearest 1/100th of a share) at $15.15 per share (subject to adjustment as
described below). We will not be required to issue fractional shares of our
common stock but will pay a cash adjustment for any fractional shares. The right
to convert a debenture or portion thereof called for redemption will terminate
at the close of business on the Redemption Date for the debenture, unless we
default in the payment of the Redemption Price and accrued interest thereon to
the Redemption Date, if any. (SECTION 13.01 AND 13.03).
On conversion, no payment or adjustment will be made for accrued
interest or dividends. If any debenture not called for redemption is converted
between a record date and the next interest payment date, the debenture must be
accompanied by funds equal to the interest payable on the interest payment date
on the principal amount so converted. Conversion of the debentures may be
effected by surrendering them to us at the office or agency that we maintain in
accordance with the indenture. (SECTIONS 13.02 AND 13.03).
The Conversion Price will be subject to adjustment in certain events,
including the following:
- payment of a dividend, or distribution on our common stock, in
shares of our capital stock (whether in shares of our common stock
or of capital stock of any other authorized class);
- subdivision of the outstanding shares of our common stock into a
greater number of shares;
- combination of the outstanding shares of our common stock into a
smaller number of shares;
- issuance of certain rights or warrants to all holders of our
common stock entitling them to acquire shares of our common stock
at less than the current market price per share of the common
stock; and
- distribution of assets, debt securities, rights or warrants (other
than those referred to above) to all holders of our common stock.
We are not required to make any adjustment of the Conversion Price
unless the adjustment would effect an increase or decrease of at least 1% in the
Conversion Price, but any adjustment that would otherwise be required to be made
must be taken into account in the computation of any subsequent adjustment.
(SECTION 13.04).
Upon the transfer or lease of all or substantially all our property to
any other corporation, or upon a merger or consolidation in which we are not the
surviving corporation, we or the successor purchasing corporation must enter
into a supplemental indenture providing that the holder of a debenture may
convert it into the kind and amount of securities, cash or other property that
the holder would have owned immediately after the transfer, lease, merger or
consolidation if he had converted it immediately before the effective date of
the transaction. (SECTION 11.01).
SUBORDINATION
The debentures are subordinate in right of payment to the prior payment
in full of all our Senior Indebtedness and rank PARI PASSU (ratably, without
preference) with our other subordinated indebtedness. (SECTION 14.01). Upon any
distribution to our creditors in a total or partial liquidation or dissolution,
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or our property, the holders of Senior Indebtedness
will be entitled to receive payment in full before the holders of debentures
will be entitled to receive any payment or distribution and until all
obligations with respect to Senior Indebtedness are paid in full, any payment or
distribution to which holders of debentures would be entitled will be made to
holders of Senior Indebtedness. (SECTION 14.03). If a distribution is made to
holders of debentures that should not have been made to them under the terms of
the indenture, the payment to the holders of debentures must be paid over to the
holders of Senior Indebtedness. (SECTION 14.06). In addition, no direct or
indirect payment or distribution may be made by or on our behalf for or on
account of the obligations with respect to the debentures:
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<PAGE>
- if a default in the payment of any obligation with respect to any
Senior Indebtedness occurs and is continuing;
- if any judicial proceedings are pending with respect to any
default under any Senior Indebtedness;
- if the debentures mature on any date before August 18, 2004;
- upon the maturity of all or any part of any Senior Indebtedness
by lapse of time, acceleration or otherwise; or
- upon our receipt and the trustee's receipt of written notice of
any default under any Senior Indebtedness, other than a Payment
Default, or that a payment or distribution with respect to any
debenture would result in a default. (SECTION 14.04).
We will provide information about the aggregate amount of our
outstanding Senior Indebtedness as of a recent date in the applicable prospectus
supplement.
REDEMPTION
There are no sinking fund or mandatory redemption provisions that apply
to the debentures. We may, at our election, redeem debentures, as a whole or
from time to time in part, at any time and from time to time, upon 30 to 60
days' prior notice to each holder of debentures to be redeemed, at the following
Redemption Prices (expressed as percentages of the principal amount) indicated
below, in each case together with accrued but unpaid interest to the Redemption
Date:
<TABLE>
<CAPTION>
<S> <C>
PERIOD PERCENTAGE
------ ----------
August 18, 1999 through August 17, 2000 102.95%
August 18, 2000 through August 17, 2001 101.97%
August 18, 2001 through August 17, 2002 100.98%
August 18, 2002 and thereafter 100.00%
</TABLE>
(SECTION 3.01).
If less than all of the outstanding debentures are to be redeemed, the
trustee will select the debentures to be redeemed, PRO RATA, by lot or by
another method that complies with applicable legal and stock exchange
requirements. If a debenture selected for partial redemption by the trustee
would, as a result of the redemption, have a remaining principal amount of less
than $1,000, then the entire debenture will be redeemed at the applicable
Redemption Price. (SECTION 3.02).
Notice of any redemption will be sent, by first-class mail, at least 30
days and not more than 60 days before the Redemption Date, to each holder of
debentures to be redeemed, at his address appearing in the debenture register.
The notice of redemption will state the following:
- the Redemption Date;
- the Redemption Price;
- the name and address of the paying agent;
- that debentures called for redemption must be surrendered to the
paying agent to collect the Redemption Price;
- if less than all outstanding debentures are to be redeemed, the
identification (and, in the case of partial redemption, the
principal amounts) of the particular debentures to be redeemed;
and
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<PAGE>
- that on the Redemption Date the Redemption Price will become due
and payable upon each debenture to be redeemed and that interest
on that debenture will cease to accrue on and after the Redemption
Date. (SECTION 3.03).
Upon surrender of a certificate representing debentures that are
redeemed in part, a new certificate representing debentures in any authorized
principal amount equal to the unredeemed portion will be issued to the
surrendering holder, but, if the unredeemed portion of a debenture would be less
than $1,000 principal amount, the entire debenture will be redeemed at the
applicable Redemption Price. (SECTIONS 3.02 AND 3.06).
THE TRUSTEE
Chase Manhattan Bank & Trust Company, National Association (as
successor to Chemical Trust Company of California), is the trustee under the
indenture. The holders of a majority in aggregate principal amount of all
outstanding debentures will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee. (SECTION 6.07).
Upon the occurrence of an Event of Default (as defined below) or an
event which, after notice or lapse of time or both, would become an Event of
Default, the trustee may be deemed to have a conflicting interest with respect
to the debentures for purposes of the Trust Indenture Act. In that event, unless
the trustee is able to eliminate the conflicting interest, the trustee may be
required to resign as trustee under the indenture. If the trustee resigns, we
will be required to appoint a successor trustee for the indenture.
If an Event of Default (as defined below) occurs and is not cured, the
trustee will be required, in the exercise of its powers, to use the degree of
care of a prudent person in the conduct of its own affairs. (SECTION 7.01). The
trustee will be under no obligation to exercise any of its rights or powers
under the indenture unless it receives indemnity against liabilities arising
from its actions. (SECTION 7.02).
Chase Manhattan Bank & Trust Company, National Association, is also the
trustee under an indenture dated as of June 17, 1999 under which $14,300,000
aggregate principal amount of subordinated notes are currently outstanding.
These subordinated notes rank PARI PASSU with the debentures. $3,300,000 of
these subordinated notes are due in June 2001 and the remaining $11,000,000 are
due by June 2009.
EVENTS OF DEFAULT AND NOTICE THEREOF
Each of the following events is an "Event of Default" under the
indenture:
(1) failure to pay interest on any of the debentures when due and
payable, and the failure continues for 30 days;
(2) failure to pay the principal of and premium, if any, on any of the
debentures when due and payable either at maturity, upon redemption, by
declaration or otherwise;
(3) failure on our part to observe or perform any other of the
covenants or agreements on our part in the debentures or in the indenture
continued for 60 days after written notice as provided under the indenture;
(4) failure to pay any other mortgage, indenture or instrument
evidencing our indebtedness in an amount of at least $3,000,000, that has been
declared due and payable, but if the indebtedness has been discharged by us or
any declaration of acceleration has been rescinded within 30 days after the
failure occurs, the failure will not be an Event of Default;
(5) events in bankruptcy, insolvency or reorganization and similar
events as described in the indenture. (SECTION 6.01).
The trustee will give notice to the holders of debentures of all
uncured defaults known to it within 90 days after the occurrence of a default.
However, in the case of default in any payment obligation with respect to the
debentures, the trustee may withhold the notice if it determines in good faith
that the withholding of the notice is in
14
<PAGE>
the interests of the holders of debentures. (SECTION 6.08).
If an Event of Default exists, the trustee or the holders of at least
25% in aggregate principal amount of the debentures then outstanding may declare
the principal of, and unpaid accrued interest on, all the debentures to be due
and payable immediately. The acceleration and its consequences may be rescinded
by the holders of at least a majority in aggregate principal amount of the
debentures then outstanding. (SECTION 6.01).
COMPLIANCE CERTIFICATE
We will deliver annually to the trustee a certificate signed by our
officer, stating whether or not to the best knowledge of the signer of the
certificate we have fulfilled our obligations or are in default under the
indenture. (SECTION 4.05).
SUPPLEMENTAL INDENTURES
We and the trustee may, without the consent of the holders of any of
the debentures then outstanding, enter into supplemental indentures for one or
more of the following reasons:
- evidencing the assumption of obligations under the indenture by a
successor corporation;
- adding to the covenants for the protection of the holders of
debentures;
- adding additional Events of Default;
- curing any ambiguity or correcting or supplementing any provision
inconsistent with any other provision in the indenture without
adversely affecting the interests of holders of debentures; or
- transferring, assigning or pledging any of our property to or
with the trustee. (SECTION 10.01).
We and the trustee may enter into supplemental indentures with the
consent of the holders of at least a majority in aggregate principal amount of
the debentures then outstanding. The following is a summary of the changes that
cannot be made without the approval of each holder of debentures affected by the
change:
- reduce the amount of debentures whose holders must consent to a
supplemental indenture;
- reduce the rate of or extend the time for payment of interest on
any debentures;
- reduce the principal of or change the maturity of any debenture;
- reduce the Redemption Prices;
- modify the provisions of the indenture related to direction of
proceeds or waiver of default by a majority of holders of the
debenture;
- impair in any manner the right to convert any debentures into
common stock;
- modify the subordination provisions of the indenture in a manner
adverse to the holders of debentures; or
- impair the rights of holders of debentures to institute
proceedings for the enforcement of their payment rights under the
indenture in any material way. (SECTION 10.02).
GLOSSARY
"CONVERSION PRICE" means $15.15 per share, subject to adjustment (equal
to an initial conversion ratio of 66.01 shares of common stock per $1,000
principal amount of debentures).
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<PAGE>
"PAYMENT DEFAULT" means the occurrence and continuation any default in
the payment of any obligation with respect to any Senior Indebtedness, whether
at maturity, upon redemption or otherwise.
"REDEMPTION DATE", when used with respect to any debenture to be
redeemed, means the date fixed for redemption by or pursuant to the indenture.
"REDEMPTION PRICE", when used with respect to any debenture to be
redeemed, means the price at which it is to be redeemed pursuant to the
indenture.
"SENIOR INDEBTEDNESS" means the principal of and premium, if any, and
accrued and unpaid interest on the following, whether outstanding on the date of
execution of the indenture or thereafter created, incurred or assumed:
(1) our indebtedness for money borrowed or in respect of letters of
credit issued for our account;
(2) purchase money obligations evidenced by notes, lease-purchase
agreements, purchase contracts or agreements, mortgages or similar
instruments for the payment of which we are liable or responsible;
(3) our obligations under any lease of any real or personal property,
which are required to be capitalized in accordance with generally
accepted accounting principles;
(4) guarantees by us of indebtedness for money borrowed by any other
person and guarantees of obligations of others of the kinds
referred to in clauses (2) and (3) above; and
(5) modifications, renewals, extensions and refundings of any such
indebtedness, liabilities or obligations; unless, in each case, by
its terms, it is not superior in right of payment to the
debentures. (SECTION 14.02).
DESCRIPTION OF COMMON STOCK
If you choose to convert the debentures as described under "Description
of Debentures--Conversion Rights" , you will receive shares of our common stock.
This Prospectus briefly describes the common stock issuable upon conversion of
the debentures.
Holders of common stock are entitled to receive, subject to the rights
of any preferred stock issued and then outstanding, dividends when and as
declared by the Board of Directors out of funds legally available therefor.
Holders of common stock have no preemptive right to purchase additional shares.
Holders of common stock are entitled to share on a pro rata basis, subject to
the rights of any preferred stock then outstanding, in the assets legally
available for distribution to stockholders in the event of our liquidation,
dissolution or winding up.
Holders of common stock are entitled to one vote per share for all
matters voted upon by stockholders, including the election of members of the
Board of Directors. Holders of common stock do not have cumulative voting
rights. The outstanding shares of common stock are validly issued, fully paid
and nonassessable. All authorized, unissued shares of common stock are issuable
by the Board of Directors without stockholder approval, including issuance to
acquire another business.
Our Board of Directors presently consists of three classes elected for
staggered three-year terms.
Our Certificate of Incorporation also authorizes the issuance of
10,000,000 shares of preferred stock, par value $0.01 per share, and authorizes
the Board of Directors to fix the rights, preferences, privileges and
restrictions of one or more series out of such authorized shares of preferred
stock, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, without further vote or action by the
stockholders. Although the Board of Directors has no present intention of doing
so, issuance of the authorized preferred stock within terms giving it
substantial power, conversion or other rights could have the effect of (i)
delaying, deferring or preventing a change in control of the Company or (ii)
otherwise affecting the rights of holders of the common stock.
16
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS WITH RESPECT TO THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE DEBENTURES, AND DOES NOT PURPORT TO ADDRESS ANY STATE, LOCAL
OR FOREIGN TAX CONSEQUENCES TO A HOLDER OF A DEBENTURE. THE DISCUSSION IS BASED
ON THE LAW AS IT CURRENTLY EXISTS IN THE INTERNAL REVENUE CODE OF 1986,
CURRENTLY APPLICABLE TREASURY REGULATIONS PROMULGATED THEREUNDER, AND JUDICIAL
AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL OF WHICH ARE SUBJECT TO CHANGE,
AND POSSIBLY RETROACTIVELY. THE PARTIES DO NOT INTEND TO SEEK A RULING FROM THE
INTERNAL REVENUE SERVICE ON ANY OF THE ISSUES DISCUSSED BELOW, AND NO ASSURANCE
CAN BE MADE THAT THE INTERNAL REVENUE SERVICE WILL NOT TAKE A CONTRARY VIEW. IN
ADDITION, THE DISCUSSION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF TAXATION
THAT MAY BE RELEVANT TO HOLDERS OF THE DEBENTURES IN LIGHT OF THEIR PARTICULAR
INVESTMENT OR TAX CIRCUMSTANCES, SUCH AS INSURANCE COMPANIES, BANKS, INVESTORS
SUBJECT TO THE ALTERNATIVE MINIMUM TAX, TAX-EXEMPT ORGANIZATIONS, OR INVESTORS
HOLDING THE DEBENTURES AS OTHER THAN CAPITAL ASSETS. WE WILL DISCUSS ANY FURTHER
MATERIAL TAX CONSEQUENCES IN A RELATED PROSPECTUS SUPPLEMENT.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE DEBENTURES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
UNITED STATES TAXATION OF DOMESTIC HOLDERS OF DEBENTURES
PAYMENTS OF INTEREST. Interest on the debentures generally will be
taxable to a holder of a debenture as ordinary interest income at the time it is
accrued or received, depending on the holder's method of accounting for tax
purposes.
ORIGINAL ISSUE DISCOUNT. The debentures offered by us will be issued,
and the debentures offered by the Selling Holders previously were issued, with
"original issue discount" within the meaning of Internal Revenue Code Section
1273(a). Holders of a debenture having original issue discount generally must
include original issue discount in ordinary income for federal income tax
purposes as it accrues, in accordance with the constant yield method that takes
into account the compounding of interest, in advance of receipt of the cash
attributable to the income. The total amount of original issue discount on a
debenture is the excess of the "stated redemption price at maturity" of the
debenture over its "issue price." The issue price of the debentures offered by
us generally is the first price at which a substantial amount of the debentures
is sold (excluding sales to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). The issue price of the debentures offered by the Selling Holders
is 85% (expressed as a percentage of principal amount), which equals the fair
market value of those debentures as of June 18, 1999, the date they were
originally issued. The issue price of a debenture also includes the amount paid
for accrued interest that relates to a period prior to the issue date of the
debenture, unless the holder of the debenture elects on its federal income tax
return to exclude the amount from the issue price and to recover it on the first
interest payment date. The stated redemption price at maturity of a debenture
will include the original principal amount of the debenture, but generally will
not include payments of interest if the interest payments constitute "qualified
stated interest." Under the applicable Treasury regulations, qualified stated
interest generally means interest payable at a single fixed rate or a qualified
variable rate provided that the interest payments are unconditionally payable at
intervals of one year or less during the entire term of the debentures. Because
the debentures bear interest at a fixed rate of 7 7/8%, payable semiannually,
all interest payments on the debentures should constitute qualified stated
interest.
Under a DE MINIMIS rule, original issue discount on a debenture will be
considered to be zero if the original issue discount is less than 0.25% of the
stated redemption price at maturity of the debenture multiplied by the number of
complete years to maturity from the issue date of the debenture. Holders of a
debenture generally must report DE MINIMIS original issue discount PRO RATA as
principal payments are received, and recognize income as capital gain if the
debenture is held as a capital asset. However, under the applicable Treasury
regulations, holders of a debenture may elect to accrue all DE MINIMIS original
issue discount (as well as market discount and market premium) under a constant
yield method.
A holder of a debenture generally must include in gross income an
amount equal to the sum of the daily portions of original issue discount for
each day during an accrual period in which it holds the debenture, including the
date of purchase but excluding the date of disposition. The daily portion is
determined by allocating to each day in any accrual period a PRO RATA portion of
the original issue discount allocable to that accrual period. The original
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<PAGE>
issue discount accruing in a full accrual period would be the excess, if any,
of (1) the sum of (a) the present value of all of the remaining payments to
be made on the debenture as of the end of that accrual period that are
included in the debenture's stated redemption price at maturity (calculated
at a constant yield over the term of the debenture) and (b) the payments made
on the debenture during the accrual period that are included in the
debenture's stated redemption price at maturity, over (2) the adjusted issue
price of the debenture at the beginning of the accrual period. We will treat
the semi-annual period ending on the day before each interest payment date as
the accrual period. For these purposes, the adjusted issue price of a
debenture at the beginning of any accrual period equals the issue price of
the debenture, increased by the aggregate amount of original issue discount
with respect to the debenture that accrued in all prior accrual periods and
reduced by the amount of payments included in the debenture's stated
redemption price at maturity that were made on the debenture in the prior
periods. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of original issue discount must be
determined according to an appropriate allocation under any reasonable method.
OPTIONAL REDEMPTION. We, at our option, may redeem the debentures, in
whole or in part, at any time. Under the Treasury regulations, solely for
purposes of the accrual of original issue discount, if the issuer of a debt
instrument may, at its option, redeem the debt instrument on one or more dates
during the term of the debt instrument, it will be assumed that the option will
be exercised only if the exercise of that option will reduce the yield on the
debt instrument. We believe that our redemption option will not be assumed to be
exercised, because any exercise will not lower the yield to maturity of the
debentures.
MARKET DISCOUNT. The "market discount" provisions of the Internal
Revenue Code may apply to the purchasers of the debentures offered by the
Selling Holders, as well as to any subsequent purchasers of the debentures being
offered by us. These rules generally provide that if a debenture is acquired by
a subsequent purchaser at a "market discount," some or all of any gain realized
upon a disposition (including a sale or a taxable exchange) or payment at
maturity of the debenture may be treated as ordinary income. "Market discount"
with respect to a debenture is, subject to a DE MINIMIS exception, the excess of
(1) the revised issue price of the debenture over (2) the purchaser's tax basis
in the debenture. Generally, the "revised issue price" equals the issue price
plus the original issue discount includable in income of all holders for periods
before the purchaser's acquisition of the debenture (disregarding any reduction
on account of acquisition premium), less all payments (other than qualified
stated interest payments) received by those previous holders. The amount of
market discount treated as having accrued will be determined either on a ratable
basis, or, if the holder of the debenture so elects, on a constant interest
method. Upon any subsequent disposition (including a gift or payment at
maturity) of the debenture (other than in connection with certain nonrecognition
transactions), the lesser of any gain on the disposition (or appreciation, in
the case of a gift) or the portion of the market discount that accrued while the
debenture was held by the holder will be treated as ordinary interest income at
the time of the disposition. In lieu of including accrued market discount in
income at the time of disposition, a holder of a debenture may elect to include
market discount in income currently. Unless a holder of a debenture so elects,
the holder may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry the debenture until the holder disposes of the debenture.
ACQUISITION PREMIUM. If a holder of a debenture is treated as acquiring
debentures at a premium (generally, the holder's tax basis over the remaining
principal amount of the debentures), and holds the debentures as a capital asset
under Internal Revenue Code Section 1221, the holder may elect under Internal
Revenue Code Section 171 to amortize the premium using a constant yield method.
Amortizable premium is treated as an offset to interest income on the
debentures, rather than a separate interest deduction. Premium allocable to the
debentures for which an amortization election is not made should be allocated
among the payments on the debentures representing stated redemption price and be
allowed as an ordinary deduction as the payments are made (or for a holder of a
debenture using the accrual method of accounting, when the payments become due).
DISPOSITION OF DEBENTURES. A holder of a debenture will recognize gain
or loss upon the sale, redemption, retirement or other disposition of the
debenture. Any gain or loss recognized on the sale, redemption, retirement or
other disposition of the debenture will generally be equal to the difference
between (1) the amount of cash and the fair market value of property received
and (2) the holder's adjusted tax basis (including any accrued market discount
previously included in income by the holder of the debenture and reduced by any
previous payments with respect to the debenture) in the debenture. Subject to
the market discount rules discussed above, gain or loss recognized will be
capital gain or loss, if the debenture is held as a capital asset by the holder
of the debenture.
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EFFECT OF CONVERSION. A holder's conversion of a debenture into common
stock is generally not a taxable event. The holder's obligation, if any, to
include in gross income the daily portions of original issue discount with
respect to a debenture will terminate on the conversion date. The holder's basis
in the common stock received on conversion of a debenture will be the same as
the holder's basis in the debenture at the time of conversion (reduced by any
amount allocable to a fractional share interest as described below), and the
holding period for the common stock received on conversion will include the
holding period of the debenture converted (assuming each is held as a capital
asset), except that the holding period of common stock allocable to accrued
original issue discount may commence on the conversion date. Gain or loss upon a
sale or other disposition of the common stock received on conversion of a
debenture will be capital gain or loss if the common stock is a capital asset in
the hands of the holder.
Cash received in lieu of a fractional share of common stock upon
conversion of a debenture should be treated as a payment in exchange for the
fractional share interest in the common stock. Accordingly, if the common stock
is a capital asset in the hands of the holder, the receipt of cash in lieu of a
fractional share of common stock should generally result in capital gain or
loss, if any, measured by the difference between the cash received for the
fractional share interest and the holder's tax basis in the fractional share
interest.
BACKUP WITHHOLDING. Under the backup withholding rules, a holder of a
debenture may be subject to a 31% backup withholding tax unless the holder (a)
is a corporation or comes within certain other exempt categories and when
required demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholdings, and
otherwise complies with applicable requirements of the backup withholding rules.
A holder of a debenture that does not provide us with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against a holder's income
tax liability.
UNITED STATES TAXATION OF FOREIGN HOLDERS OF DEBENTURES
Under present United States federal income and estate tax law, and
subject to the discussion below concerning information reporting and backup
withholding:
- payments of principal of, premium, if any, and interest on the
debentures to any holder of a debenture who is not a United States
Person will not be subject to United States withholding tax, if in the
case of interest and original issue discount (1) the holder of the
debenture does not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to
vote, (2) the holder of the debenture is not a controlled foreign
corporation for United States tax purposes that is related to us
through stock ownership, (3) the holder of the debenture is not a bank
extending credit pursuant to a loan agreement entered into in the
ordinary course of its trade or business, and (4) we, or the person who
would otherwise be required to withhold tax from the payments, are
provided with a statement, signed under penalties of perjury,
identifying the holder of the debenture and stating, among other
things, that the holder of the debenture is not a United States Person.
If any of those requirements are not satisfied, 30% withholding will
apply, unless the holder provides documentation to us, or the person
who would otherwise be required to withhold tax from the payments,
sufficient to establish that the tax is reduced or eliminated pursuant
to an applicable tax treaty or that the interest on the debentures is
income that is effectively connected with a trade or business conducted
within the United States by a non-United States Person. In the latter
case, a non-United States Person will be subject to United States
federal income tax at regular rates and will be required to file a
United States income tax return;
- a holder of a debenture who is not a United States Person will not
be subject to United States federal income tax on any gain realized on
the sale, exchange, conversion or redemption of a debenture unless (1)
the gain is effectively connected with the conduct by the holder of
the debenture of a trade or business in the United States, or (2) in
the case of gain realized by an individual holder of a debenture, the
holder is present in the United States for 183 days or more in the year
of the sale, and certain other conditions are met, or the holder of the
debenture ceased to be a United States citizen or a long-term resident
of the United States within the prior ten-year period with a principal
purpose of avoiding United States taxation; and
- a debenture held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to United
States federal estate tax as a result of the individual's death, if at
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the time of death the individual did not actually or constructively
own 10% or more of the total combined voting power of all classes of
our stock entitled to vote, unless the individual held the debenture
in connection with a United States trade or business.
Certain payments to noncorporate persons of interest on and principal
of obligations, and of the proceeds from the sale of obligations, are subject to
information reporting and may be subject to a 31% backup withholding tax. Under
current United States federal income tax law and regulations, neither
information reporting nor backup withholding will apply to payments of interest
on and principal of a debenture or to payments of the proceeds of the sale of a
debenture made outside the United States if neither our paying agent nor we have
actual knowledge that the beneficial owner of the debenture is a United States
Person and if the beneficial owner of the debenture certifies under penalty of
perjury that it is not a United States Person. However, if payments of interest
on or principal of, or the proceeds of a sale of, a debenture are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of the beneficial owner of a debenture, and, if the
custodian, nominee or agent is (1) a United States Person, (2) a controlled
foreign corporation for United States tax purposes, (3) a foreign person 50% or
more of whose gross income is from a United States trade or business, or (4) for
payments made after December 31, 2000, a foreign partnership with certain
connections to the United States, payments of interest and principal of the
debenture, or the proceeds of a sale of the debenture, made by the custodian,
nominee or agent to the beneficial owner may be subject to information reporting
unless the custodian, nominee or agent has sufficient documentary evidence in
its records that the beneficial owner is not a United States Person or the
beneficial owner otherwise establishes an exemption. Currently, the payments are
not subject to backup withholding. If payments of interest, principal, premium,
if any, or the proceeds of the sale of a debenture are collected by the United
States office of a custodian, agent or nominee acting on behalf of the
beneficial owner, information reporting and backup withholding will apply to
payments made by the custodian, agent or nominee to the beneficial owner unless
the owner certifies under penalty of perjury that it is not a United States
Person or otherwise establishes an exemption.
As used in this section, "United States" means the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction, and "United States
Person" means any citizen or resident of the United States, a corporation,
partnership or other entity organized in or under the laws of the United States
or any State, any estate the income of which is subject to United States federal
income taxation regardless of its source, and any trust that (1) a United States
court is able to exercise primary supervision over its administration, and (2)
one or more United States Persons have the authority to control all substantial
decisions of the trust.
PLAN OF DISTRIBUTION
BY MSC.SOFTWARE:
We may sell the debentures offered by us from time to time in one or
more transactions. We may sell the debentures (a) through underwriters or
dealers; (b) through agents; or (c) directly to one or more purchasers.
SALE THROUGH UNDERWRITERS
If we use underwriters in the sale, the underwriters will acquire the
debentures for their own account. The underwriters may resell the debentures in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the debentures will be subject to
conditions. The underwriters will be obligated to purchase all the debentures of
a series offered by a prospectus supplement if any of the debentures are
purchased. The underwriters may sell the debentures to or through dealers, and
the dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters. The underwriters may change from time to time
any initial public offering price and any discounts, concessions or commissions
allowed or re-allowed or paid to dealers.
SALE THROUGH AGENTS
We may sell the debentures through agents designated by us. Unless
indicated in the prospectus supplement, the agents have agreed to use their
reasonable best efforts to solicit purchases for the period of their
appointment.
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DIRECT SALES
We also may sell the debentures directly to purchasers without the
involvement of underwriters or agents.
GENERAL INFORMATION
We may authorize agents, underwriters or dealers to solicit offers by
institutional investors to purchase the debentures providing for payment and
delivery on a future date specified in the prospectus supplement. Institutional
investors to which the offers may be made, when authorized, include commercial
and savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and other institutions that are approved
by us. The obligations of any purchasers under delayed delivery and payment
arrangements will not be subject to any conditions except that (1) the purchase
by an institution of the debentures will not at delivery be prohibited under the
laws of any jurisdiction in the United States to which the institution is
subject and (2) if the debentures are being sold to underwriters, we will sell
to the underwriters the total principal amount of the debentures less the
principal amount covered by the delayed delivery and payment arrangement.
Underwriters, dealers and agents that participate in the distribution
of the offered securities may be underwriters as defined in the Securities Act
of 1933, and any discounts or commissions received by them from us and any
profit on the resale of the debentures by them may be treated as underwriting
discounts and commissions under the Securities Act of 1933. We will identify any
underwriters or agents, and describe their compensation, in a prospectus
supplement.
Any underwriters or agents to or through whom we sell the debentures
for public offering and sale may make a market in the debentures. However, the
underwriters and agents will not be obligated to make a market in the debentures
and may discontinue their market-making activities at any time without notice.
We cannot provide any assurance with respect to the liquidity of the trading
market for any of the debentures.
We may have agreements with the underwriters, dealers and agents to
indemnify them against civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments which the underwriters,
dealers or agents may be required to make.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our subsidiaries in the ordinary course of their
businesses.
BY THE SELLING HOLDERS:
We are registering $2,000,000 aggregate principal amount of debentures
on behalf of the Selling Holders. As used in this prospectus, "Selling Holders"
includes donees, pledgees, transferees or other successors-in-interest selling
debentures or shares received from a Selling Holder as a gift, pledge,
partnership distribution or other non-sale related transfer. We will bear all
costs, expenses and fees in connection with the registration of these
debentures. The Selling Holders will pay any brokerage commissions and similar
selling expenses attributable to the sale of these debentures. Sales of
debentures may be effected by Selling Holders from time to time in one or more
types of transactions (which may include block transactions) on the NYSE, in the
over-the-counter market, in negotiated transactions, through put or call options
transactions relating to the debentures, through short sales, or a combination
of these methods, at market prices prevailing at the time of sale, or at
negotiated prices. These transactions may or may not involve brokers or dealers.
The Selling Holders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their debentures, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of debentures by the Selling Holders. We are required to register the debentures
offered by the Selling Holders under the terms of the registration rights
agreement dated June 18, 1999 between us and the Selling Holders. The
registration of the debentures offered by the Selling Holders does not
necessarily mean that the Selling Holders will offer or sell any of these
debentures.
The Selling Holders may effect these transactions by selling debentures
directly to purchasers or to or through broker-dealers, who may act as agents or
principals. The broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Holders and/or the
purchasers of debentures for
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whom such broker-dealers may act as agents or to whom they sell as principal,
or both (which compensation as to a particular broker-dealer might be in
excess of customary commissions).
The Selling Holders and any broker-dealers that act in connection with
the sale of debentures might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the debentures sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. We have agreed to indemnify each Selling Holder
against certain liabilities, including liabilities arising under the Securities
Act. The Selling Holders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the
debentures against certain liabilities, including liabilities arising under the
Securities Act.
Because Selling Holders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Holders will be
subject to the prospectus delivery requirements of the Securities Act, which may
include delivery through the facilities of the NYSE pursuant to Rule 153 under
the Securities Act. We have informed the Selling Holders that the
anti-manipulative provisions of Regulation M promulgated under the Exchange Act
may apply to their sales in the market.
Selling Holders also may resell all or a portion of the debentures in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
When a Selling Holder notifies us that any material arrangement has
been entered into with a broker-dealer for the sale of debentures through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Act, disclosing:
- the name of each Selling Holder and of the participating
broker-dealer(s),
- the amount of debentures involved,
- the price at which the debentures were sold,
- the commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable,
- that the broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus, and
- other facts material to the transaction.
SELLING HOLDERS
On the date of this prospectus, Dendron Technology B.V., a Dutch
corporation, and Fronos Technology B.V., a Dutch corporation, each owned
$1,000,000 principal amount of debentures. Each of the Selling Holders
received their debentures from us as partial consideration under a stock
purchase agreement executed in connection with our acquisition of MARC
Analysis Research Corporation in June 1999. The Selling Holders also each
received other subordinated debt securities and warrants for the purchase of
700,000 shares of our common stock under that stock purchase agreement. The
debentures were sold to the Selling Holders in a private transaction, exempt
from the registration requirements under the Securities Act. We agreed with
the Selling Holders to file a registration statement to register the
debentures and the shares into which they are convertible. Because each
Selling Holder may offer all, some or none of the debentures they own, and
because the offering contemplated by this offering may not be underwritten,
no estimate can be given as to the amount of debentures that will be held by
each Selling Holder upon or prior to termination of this offering. The sole
relationship that each Selling Holder has had with us within the past three
years is through its ownership of debentures and other subordinated debt
securities and warrants.
LEGAL MATTERS
O'Melveny & Myers LLP will pass on legal matters relating to this
offering for us. Any underwriters will be advised about other issues relating
to any offering of the debentures by their own legal counsel.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our transition report on Form 10-K
for the transition period from January 1, 1998 to December 31, 1998, as set
forth in their report, which is incorporated by reference in this prospectus and
elsewhere in the registration statement. Our financial statements and schedule
are incorporated by reference in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
The audited financial statements of MARC Analysis Research
Corporation incorporated in this prospectus and the registration statement by
reference to our Current Report on Form 8-K/A dated July 1, 1999 for event
date June 18, 1999 with respect to the acquisition of MARC Analysis Research
Corporation have been so included in reliance on the report (which report has
an explanatory paragraph relating to the company's adoption of Statement of
Position 91-1 "Software Revenue Recognition" (SOP 91-1), Statement of
Position 97-2, "Software Revenue Recognition" (SOP 97-2) and for Statement of
Position 98-4 "Deferral of Effective Date of Certain Provision" of SOP 97-2
(SOP 98-4) as described in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given as the authority
of said firm as experts in auditing and accounting.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses in connection with
the offering described in this Registration Statement:
<TABLE>
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SEC registration fee $ 2,224
NASD filing fee $ 1,338
Printing expenses $ 5,000
Accounting fees and expenses $10,000
Legal fees and expenses $20,000
NYSE listing fee $ 2,500
Blue Sky fees and expenses (including legal fees) $ 3,000
Transfer Agent's fees and expenses -
Miscellaneous expenses $ 2,938
Total $47,000
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</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons who are, or are threatened to
be made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that the
person was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with the
action, suit or proceeding, provided the person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware corporation
may indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that the person was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection with the defense or
settlement of the action or suit, provided the person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the corporation's
best interests except that no indemnification is permitted without judicial
approval if the director or officer is adjudged to be liable to the corporation.
Where a director or officer is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which he has actually and reasonably incurred.
Our Bylaws provide for the indemnification of our directors and
officers to the fullest extent permitted by Delaware law.
In that regard, our Bylaws provide that we shall indemnify any person
who is or was a party or is threatened to be made a party or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was our director or
officer or is or was serving at our request as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, against all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to the person under applicable law, the Bylaws or any
agreement with us) reasonably incurred or suffered by the person in connection
with the proceeding. The right to indemnification includes the right that we pay
the expenses incurred in defending any proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that if the Delaware General Corporation Law so
requires, the payment of the expenses incurred by a director or officer (in his
or her capacity as a director or officer) in advance of the final disposition of
a proceeding shall be made only upon delivery to us of an
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undertaking, by or on behalf of the director or officer, to repay all amounts
so advanced if it shall ultimately be determined that the director or officer
is not entitled to be indemnified. We may, by action of the Board, provide
indemnification to our employees and agents with the same scope and effect as
the indemnification of directors and officers.
We have in effect insurance policies covering all of our directors and
officers in certain instances where by law we may not indemnify them.
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ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation, as amended (filed as Exhibit
3.1 to our report on Form 10-Q filed on August 16, 1999, and
incorporated herein by reference).
3.2 Restated Bylaws (filed as Exhibit 3.2 to our report on Form
10-K filed for the fiscal year ended January 31, 1996, and
incorporated herein by reference).
3.3 Certificate of Designations of Junior Participating
Preferred Stock (filed as Exhibit 2.2 to our Registration
Statement on Form 8-A filed October 13, 1998 and incorporated
herein by reference).
4.1 Form of 7 7/8% Convertible Subordinated Debenture due August
18, 2004 (filed as part of our Registration Statement on Form
S-3 (No. 33-83174), and incorporated herein by reference).
4.2 Indenture, dated as of August 18, 1994, between us and Chase
Manhattan Bank & Trust Company, National Association (as
successor to Chemical Trust Company of California), as trustee
(filed as part of our Registration Statement on Form S-3 (No.
33-83174), and incorporated herein by reference).
4.3 First Supplemental Indenture, dated as of September 22, 1994,
between us and Chase Manhattan Bank & Trust Company, National
Association (as successor to Chemical Trust Company of
California), as trustee (filed as Exhibit 4.2 to our report on
Form 10-Q for the quarterly period ended October 31, 1994, and
incorporated herein by reference).
4.4 Second Supplemental Indenture, dated as of December 14, 1994,
between us and Chase Manhattan Bank & Trust Company, National
Association (as successor to Chemical Trust Company of
California), as trustee (filed as Exhibit 4.3 to our report
on Form 10-Q for the quarterly period ended October 31, 1994,
and incorporated herein by reference).
4.5 Rights Agreement dated as of October 5, 1998 between us and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent
(filed as Exhibit 2.1 to our Registration Statement on Form
8-A filed October 13, 1998 and incorporated herein by
reference).
5.1 Opinion of O'Melveny & Myers LLP regarding legality of the
debentures.*
8.1 Opinion of O'Melveny & Myers LLP regarding certain tax matters.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of O'Melveny & Myers LLP (included in Exhibits 5.1
and 8.1).
</TABLE>
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* To be filed by amendment.
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24.1 Power of Attorney (included on page II-5).
25.1 Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, with respect
to Trustee.
</TABLE>
ITEM 17. UNDERTAKINGS
A. UNDERTAKING PURSUANT TO RULE 415.
We hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
B. UNDERTAKINGS REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT
DOCUMENTS BY REFERENCE.
We hereby undertake that, for purposes of determining any liability
under the Securities Act, each filing of our annual report pursuant to Section
13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
D. UNDERTAKING REGARDING RULE 430A UNDER THE SECURITIES ACT.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
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(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California,
on September 8, 1999.
MSC.SOFTWARE CORPORATION
By: /s/ FRANK PERNA, JR.
---------------------------
Frank Perna, Jr.
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned directors and officers of MSC.Software Corporation,
and each of us, constitute and appoint Frank Perna, Jr. and Louis A. Greco and
each or either of them, as our true and lawful attorney-in-fact and agent, with
full power of substitution, to do any and all acts and things in our name and on
our behalf in our capacities, to sign any or all amendments or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ FRANK PERNA, JR. Chairman of the Board September 8, 1999
- ------------------------------ and Chief Executive Officer
Frank Perna, Jr.
/s/ LOUIS A. GRECO Chief Financial Officer September 8, 1999
- ------------------------------ (Principal Financial
Louis A. Greco and Accounting Officer)
/s/ LARRY S. BARELS Director September 7, 1999
- ------------------------------
Larry S. Barels
/s/ DONALD GLICKMAN Director September 8, 1999
- ------------------------------
Donald Glickman
/s/ WILLIAM F. GRUN Director September 8, 1999
- ------------------------------
William F. Grun
/s/ GEORGE N. RIORDAN Director September 8, 1999
- ------------------------------
George N. Riordan
</TABLE>
II-5
<PAGE>
EXHIBIT 8.1
OPINION REGARDING TAX MATTERS
September 8, 1999
MSC.Software Corporation
815 Colorado Boulevard
Los Angeles, CA 90041
RE: REGISTRATION STATEMENT OF MSC.SOFTWARE CORPORATION
Dear Sir or Madam:
This opinion is delivered to you in connection with the
preparation of the Registration Statement on Form S-3 (the "Registration
Statement") to be filed with the Securities and Exchange Commission by
MSC.Software Corporation, a Delaware corporation ("MSC"), in connection with the
proposed offering and sale by MSC and certain selling holders of $9,915,000
aggregate principal amount of 7-7/8% Convertible Subordinated Debentures due
2004 (the "Debentures"). In connection therewith, we have reviewed the
Registration Statement and examined such additional documents and matters of law
and fact as we deemed necessary and appropriate.
Based on the foregoing, and subject to the qualifications and
assumptions contained therein, we are of the opinion that the description of the
material federal income tax considerations contained in the Registration
Statement under the heading "Material Federal Income Tax Consequences" is
accurate.
This opinion is based on our review of the Internal Revenue
Code of 1986, as amended, legislative history with respect thereto, rules and
regulations (including proposed regulations) promulgated thereunder, published
rulings and court decisions, all as in effect as of the date of this opinion.
There can be no assurance that legislative or administrative changes or court
decisions will not be forthcoming that would significantly modify the authority
upon which this opinion is based. Any such changes may or may not be retroactive
with respect to transactions prior to the date of such changes. This opinion has
no binding effect or official status, so that no assurance can be given that the
position set forth herein will be sustained by a court, if contested. No ruling
will be obtained from the Internal Revenue Service with respect to the
Debentures.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Registration Statement.
Respectfully submitted,
/s/ O'MELVENY & MYERS LLP
-------------------------
<PAGE>
EXHIBIT 12.1
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended Six Months Ended
--------------------------------------------------------------- -------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 6/30/98 6/30/99
-------- -------- -------- -------- -------- ------- -------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-Tax Income (Loss) $ (32,166) $ 18,661 $ 14,386 $ 14,981 $ (13,175) $ 7,505 $ (1,368)
Add Back - Fixed Charges 2,908 6,009 6,219 6,314 6,756 3,171 3,599
--------- --------- --------- --------- ---------- --------- ---------
Total Earnings $ (29,258) $ 24,670 $ 20,605 $ 21,295 $ (6,419) $ 10,676 $ 2,231
--------- --------- --------- --------- ---------- --------- ---------
--------- --------- --------- --------- ---------- --------- ---------
Fixed Charges:
Interest Expense $ 1,595 $ 4,456 $ 4,456 $ 4,456 $ 4,456 $ 2,233 $ 2,589
Amortized Discounts Related
to Indebtedness -- -- -- -- -- -- 13
Estimated Interest Within
Rental Expense 1,313 1,553 1,763 1,858 2,300 938 997
--------- --------- --------- --------- ---------- --------- ---------
Total Fixed Charges $ 2,908 $ 6,009 $ 6,219 $ 6,314 $ 6,756 $ 3,171 $ 3,599
--------- --------- --------- --------- ---------- --------- ---------
--------- --------- --------- --------- ---------- --------- ---------
Ratio of Earnings to
Fixed Charges -- 4.1 3.3 3.4 -- 3.4 0.6
--------- --------- --------- --------- ---------- --------- ---------
Dollar Amount of
Deficiency Below 1.0 $ 32,166 N/A N/A N/A $ 13,175 N/A $ 1,368
--------- --------- --------- --------- ---------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 dated September 9, 1999 and related
Prospectus of MSC.Software Corporation for the registration of $9,915,000
principal amount of the debentures and to the incorporation by reference therein
of our report dated March 18, 1999, with respect to the consolidated financial
statements of MSC.Software Corporation (formerly The MacNeal-Schwendler
Corporation) included in its Transition Report on Form 10-K for the transition
period from January 1, 1998 to December 31, 1998, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Los Angeles, California
September 3, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 dated September 9, 1999, and related
prospectus of MSC.Software Corporation for the registration of $9,915,000
principal amount of the debentures and the incorporation by reference in the
Registration Statement on Form S-3 of our report dated April 2, 1999, except
for Note 13, for which the date is June 18, 1999 (which report has an
explanatory paragraph relating to the company's adoption of Statement of
Position 91-1 "Software Revenue Recognition" (SOP 91-1), Statement of
Position 97-2, "Software Revenue Recognition" (SOP 97-2) and for Statement of
Position 98-4 "Deferral of Effective Date of Certain Provision" of SOP 97-2
(SOP 98-4) as described in Note 2 to the financial statements), relating to
the consolidated financial statements of MARC Analysis Research Corporation
which appears in the Current Report on Form 8-K of MSC.Software Corporation
dated July 1, 1999, as amended and filed with the Securities and Exchange
Commission.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------------
PricewaterhouseCoopers LLP
San Jose, California
September 9, 1999
<PAGE>
EXHIBIT 25.1
STATEMENT OF ELIGIBILITY OF TRUSTEE
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
-----------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(B)(2)
--------
-----------------------------
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4655078
(I.R.S. Employer Identification No.)
101 California Street Suite #2725
San Francisco, California
(Address of principal executive offices)
94111
(Zip Code)
---------------------
MSC.SOFTWARE CORPORATION
(Exact name of Obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
95-2239450
(I.R.S. Employer Identification No.)
815 Colorado Boulevard
Los Angeles, California
(Address of principal executive offices)
90041
(Zip Code)
---------------------
Subordinated Debt Securities
(Title of Indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C. Board of
Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1. Articles of Association of the Trustee as Now in
Effect (see Exhibit 1 to Form T-1 filed in connection
with Registration Statement No. 333-41329, which is
incorporated by reference).
Exhibit 2. Certificate of Authority of the Trustee to
Commence Business (see Exhibit 2 to Form T-1 filed in
connection with Registration Statement No. 333-41329,
which is incorporated by reference).
Exhibit 3. Authorization of the Trustee to Exercise Corporate
Trust Powers (contained in Exhibit 2).
Exhibit 4. Existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration
Statement No. 333-41329, which is incorporated by
reference).
Exhibit 5. Not Applicable
Exhibit 6. The consent of the Trustee required by Section 321
(b) of the Act (see Exhibit 6 to Form T-1 filed in
connection with Registration Statement No. 333-41329,
which is incorporated by reference).
Exhibit 7. A copy of the latest report of condition of the
Trustee, published pursuant to law or the
requirements of its supervising or examining
authority.
Exhibit 8. Not Applicable
Exhibit 9. Not Applicable
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of San
Francisco, and State of California, on the 8th day of September, 1999.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ HANS H. HELLEY
---------------------
Hans H. Helley
Assistant Vice President
<PAGE>
EXHIBIT 7. Report of Condition of the Trustee.
================================================================================
CONSOLIDATED REPORT OF CONDITION OF CHASE MANHATTAN BANK AND TRUST COMPANY, N.A.
--------------------------------------------
(Legal Title)
LOCATED AT 1800 CENTURY PARK EAST, STE. 400 LOS ANGELES, CA 94111
---------------------------------------------------------------------
(Street) (City) (State) (Zip)
AS OF CLOSE OF BUSINESS ON JUNE 30, 1999
-----------------------------------
================================================================================
================================================================================
ASSETS DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
<S> <C>
1. Cash and balances due from
a. Noninterest-bearing balances and currency and coin (1,2) 1,910
b. Interest-bearing balances (3) 0
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 0
b. Available-for-sale securities (from Schedule RC-B, column D) 1,266
3. Federal Funds sold (4) and securities purchased agreements to resell 60,200
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) 50
b. LESS: Allowance for loan and lease losses 0
c. LESS: Allocated transfer risk reserve 0
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) 50
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 233
7. Other real estate owned (from Schedule RC-M) 0
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 0
9. Customers liability to this bank on acceptances outstanding 0
10. Intangible assets (from Schedule RC-M) 1,203
11. Other assets (from Schedule RC-F) 2,064
12a. TOTAL ASSETS 66,926
</TABLE>
(1) INCLUDES CASH ITEMS IN PROCESS OF COLLECTION AND UNPOSTED DEBITS.
(2) THE AMOUNT REPORTED IN THIS ITEM MUST BE GREATER THAN OR EQUAL TO THE SUM
OF SCHEDULE RC-M, ITEMS 3.A AND 3.B
(3) INCLUDES TIME CERTIFICATES OF DEPOSIT NOT HELD FOR TRADING.
(4) REPORT "TERM FEDERAL FUNDS SOLD" IN SCHEDULE RC, ITEM 4.A "LOANS AND LEASES,
NET OF UNEARNED "INCOME" AND IN SCHEDULE RC-C, PART 1.
5
<PAGE>
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E) 37,379
(1) Noninterest-bearing 5,680
(2) Interest-bearing 31,699
b. In foreign offices, Edge and Agreement subsidiaries, and IBF
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased (2) and securities sold under agreements to
repurchase 0
15. a. Demand notes issued to the U.S. Treasury 0
b. Trading liabilities 0
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less 0
b. With a remaining maturity of more than one year through three years 0
c. With a remaining maturity of more than three years 0
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 0
19. Subordinated notes and Debentures (3) 0
20. Other liabilities (from Schedule RC-G) 4,218
21. Total liabilities (sum of items 13 through 20) 41,597
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 0
24. Common stock 600
25. Surplus (exclude all surplus related to preferred stock) 12,590
26. a. Undivided profits and capital reserves 12,139
b. Net unrealized holding gains (losses) on available-for-sale securities 0
27. Cumulative foreign currency translation adjustments
28. Total equity capital (sum of items 23 through 27) 25,329
29. Total liabilities, equity capital, and losses deferred pursuant to 12 U.S.C.
1823 (j) (sum of items 21 and 28) 66,926
</TABLE>
