<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MSC.SOFTWARE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 95-2239450
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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
--------------------------
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 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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING REGISTRATION FEE
<S> <C> <C> <C> <C>
8% Subordinated Promissory
Notes due 2001............ $3,236,012 100% $3,236,012 $900
8% Subordinated Promissory
Notes due 2009............ $11,000,000 100% $11,000,000 $3,058
Total................... $-- -- $-- $3,958
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
<PAGE>
Prospectus Subject to Completion, Dated October 19, 1999
<TABLE>
<S> <C> <C>
[LOGO]
</TABLE>
MSC.SOFTWARE CORPORATION
$3,236,012
8% SUBORDINATED PROMISSORY NOTES DUE 2004
$11,000,000
8% SUBORDINATED PROMISSORY NOTES DUE 2009
OFFERED BY SELLING HOLDERS
----------------------------------------------------------------------
THE COMPANY:
- We engage in computer-aided engineering, including the development and
marketing of software for use principally by engineers and designers in
industry, research laboratories and universities.
- MSC.Software Corporation
815 Colorado Boulevard
Los Angeles, California 90041
(323) 258-9111
THE OFFERING:
- The $3,236,012 aggregate principal amount of 8% subordinated promissory
notes due 2001 (the "Two Year Notes") and the $11,000,000 aggregate
principal amount of 8% subordinated promissory notes due 2009 (the "Ten
Year Notes") (collectively, the "Notes") are being offered by selling
holders (the "Selling Holders"). We will not receive any proceeds from the
sale of the Notes by the Selling Holders. See "Selling Holders."
TWO YEAR NOTES:
- Maturity: June 17, 2001.
- Interest Payments: Semi-annually on January 10 and July 10 of each year.
- Redemption: We may redeem some or all of the Notes, at any time, at par,
without premium, plus accrued but unpaid interest.
- Ranking of Notes: Unsecured general obligations, subordinate in right of
payment to all Senior Indebtedness.
TEN YEAR NOTES:
- Maturity: June 17, 2009.
- Interest Payments: Semi-annually on January 10 and July 10 of each year.
- Principal Payments Prior to Maturity: Equal to 10% of the principal amount
of the notes on each of June 17, 2007 and June 17, 2008.
- Redemption: We may redeem some or all of the Notes, at any time, at par,
without premium, plus accrued but unpaid interest.
- Ranking of Notes: Unsecured general obligations, subordinate in right of
payment to all Senior Indebtedness.
- --------------------------------------------------------------------------------
The Notes offered by this prospectus may be sold directly by the Selling
Holders, or through one or more agents, underwriters or dealers. If any agents,
underwriters or dealers are used to sell the Notes, 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 NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
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 OCTOBER 19, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
About This Prospectus...................................................................................... 2
Where You Can Find More Information........................................................................ 2
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 6
Use Of Proceeds............................................................................................ 9
Ratio of Earnings To Fixed Charges......................................................................... 9
Description of Notes....................................................................................... 10
Material Federal Income Tax Consequences................................................................... 14
Plan of Distribution....................................................................................... 17
Selling Holders............................................................................................ 18
Legal Matters.............................................................................................. 18
Experts.................................................................................................... 18
</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 Notes described in
this prospectus may be sold in one or more offerings. This prospectus provides
you with a general description of the Notes. Each time Notes are sold, 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 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
2
<PAGE>
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; and
- Our Current Report on Form 8-K, event date June 18, 1999, as amended.
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.
3
<PAGE>
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 NOTES. 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
Notes 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
<TABLE>
<S> <C>
Notes
Two Year Notes.................... $3,236,012 in principal amount.
Ten Year Notes.................... $11,000,000 in principal amount.
Total Amount of Notes Offered... $14,236,012 in principal amount.
Maturity
Two Year Notes.................... June 17, 2001.
Ten Year Notes.................... June 17, 2009.
Principal Payments Prior to Maturity
Two Year Notes.................... None.
Ten Year Notes.................... Two principal payments, each equal to 10% of the
principal amount of the notes on June 17, 2007 and
June 17, 2008.
Interest............................ Annual rate: 8%.
Payment frequency: Every six months on January 10 and
July 10.
Record Date......................... The January 1 and July 1 preceding the applicable
interest payment date.
Redemption.......................... We may redeem some or all of the Notes at any time at
par, without premium, plus accrued but unpaid
interest. See "Description of Notes--Redemption."
Ranking............................. The Notes are our unsecured general obligations which
are subordinate in right of payment to all Senior
Indebtedness (see page 14 for a definition of this
term).
Use of Proceeds..................... We will not receive any proceeds from the sale of the
Notes by the Selling Holders.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Federal Income Tax Consequences..... The Notes offered by the Selling Holders may be
subject to the "market discount" provisions of the
Internal Revenue Code. See "Material Federal Income
Tax Consequences."
Risk Factors........................ Your investment in the Notes involves a high degree
of risk. Therefore, you should carefully consider the
matters set forth under "Risk Factors" which begins
on page 6.
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements, including statements
concerning 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 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.
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.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE INVESTING IN THE NOTES.
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.
6
<PAGE>
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT
US FROM FULFILLING OUR OBLIGATIONS UNDER THESE NOTES.
We are 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. As of June 30, 1999, we
had:
- Total consolidated debt of $70.0 million; and
- Shareholders' equity of $16.4 million.
Based upon our current level of operations, we believe that our cash flow
from operations and amounts we are able to borrow under our credit facilities,
will be adequate to meet our 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 Notes
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
Notes;
- 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 NOTES TO SENIOR INDEBTEDNESS.
The Notes are subordinate in right of payment to the prior payment in full
of all our Senior Indebtedness (see page 14 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
Notes, 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 Notes will be entitled to receive any payment. See
"Description of Notes--Subordination."
7
<PAGE>
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THESE NOTES.
There is no established trading market for these Notes, and we do not expect
that a market for the Notes will develop in the future. If such a market were to
develop, the Notes could trade at prices that are higher or lower than the
initial offering price depending on many factors, including the number of
holders of the Notes, the overall market for similar securities, our financial
performance and prospects, and prospects for companies in our industry
generally. In addition, we do not intend to apply (and are not obligated to
apply) for listing of the Notes on any securities exchange or any automated
quotation system.
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.
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.
8
<PAGE>
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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Notes 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,
------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
- --------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
-- 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.
9
<PAGE>
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of June 17, 1999, between
us and Chase Manhattan Bank & Trust Company, National Association, 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
Notes, 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 13 to define the capitalized words used in
discussing the Notes.
GENERAL
The maximum aggregate principal amount of subordinated promissory notes that
may be issued under the indenture is $50,000,000. The notes may be issued from
time to time in one or more series. Each series shall be created by an
authorizing resolution or a supplemental indenture that establishes the terms of
the series. As of this date, the following two series have been designated under
the indenture pursuant to authorizing resolutions: (1) the 8% subordinated
promissory notes due 2001 (the "Two Year Notes"), and (2) the 8% subordinated
promissory notes due 2009 (the "Ten Year Notes") (collectively, the "Notes").
The $3,236,012 aggregate principal amount of Two Year Notes and the $11,000,000
aggregate principal amount of Ten Year Notes issued to the Selling Holders on
June 17, 1999 are the only subordinated promissory notes that have been issued
under the indenture. The Notes are our unsecured, general obligations,
subordinate in right of payment to all our Senior Indebtedness as described
under "--Subordination." All notes under the indenture are to be issued in fully
registered form, without coupons, in denominations of $1,000 and above.
The Two Year Notes will mature on June 17, 2001, and the Ten Year Notes will
mature on June 17, 2009. The Notes bear interest at the rate of 8% per year.
Interest on the Notes is payable semi-annually on each January 10 and July 10 to
the persons in whose names the Notes are registered at the close of business on
the preceding January 1 or July 1, respectively. The Notes 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).
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 notes.
The indenture does not contain any financial operating covenants, any
restrictions on the repurchase of our securities or the incurrence of any
additional indebtedness, or, so long as an Event of Default (as defined below)
has not occurred, any restrictions on the payment of dividends, nor does it
require us to maintain any sinking fund or other reserves for repayment of the
Notes.
The registered holders of notes 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 notes 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 notes. At our option,
payment of interest may be made by check mailed to each registered holder of
notes. (SECTIONS 2.03, 4.01 AND 4.02). The notes 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).
SUBORDINATION
The notes 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
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indebtedness. (SECTION 13.01). 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 notes 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 notes would be
entitled will be made to holders of Senior Indebtedness. (SECTION 13.03). If a
distribution is made to holders of notes that should not have been made to them
under the terms of the indenture, the payment to the holders of notes must be
paid over to the holders of Senior Indebtedness. (SECTION 13.06). 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 notes:
- 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 notes mature on any date prior to their maturity dates;
- 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 note would result in a
default. (SECTION 13.04).
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 notes. We may, at our election, redeem notes, 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 notes to be redeemed, at par without premium, together
with accrued but unpaid interest to the Redemption Date. We may redeem any
series of notes individually or jointly with one or more other series. (SECTION
3.01).
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed, pro rata, by lot or by another method that
complies with applicable legal requirements. If a note 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 note 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 notes to
be redeemed, at his address appearing in the note register. The notice of
redemption will state the following:
- the Redemption Date;
- the Redemption Price;
- the name and address of the paying agent;
- that notes called for redemption must be surrendered to the paying agent
to collect the Redemption Price;
- if less than all outstanding notes are to be redeemed, the identification
(and, in the case of partial redemption, the principal amounts) of the
particular notes to be redeemed; and
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- that on the Redemption Date the Redemption Price will become due and
payable upon each note to be redeemed and that interest on that note will
cease to accrue on and after the Redemption Date. (SECTION 3.03).
Upon surrender of a certificate representing notes that are redeemed in
part, a new certificate representing notes in any authorized principal amount
equal to the unredeemed portion will be issued to the surrendering holder, but,
if the unredeemed portion of a note would be less than $1,000 principal amount,
the entire note will be redeemed at the applicable Redemption Price. (SECTIONS
3.02 AND 3.06).
THE TRUSTEE
Chase Manhattan Bank & Trust Company, National Association, is the trustee
under the indenture. The holders of a majority in aggregate principal amount of
all outstanding notes will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee. (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
notes 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 August 18, 1994, as supplemented as of
September 22, 1994 and as of December 14, 1994, under which $58,585,000
aggregate principal amount of subordinated debentures are currently outstanding.
These subordinated debentures rank PARI PASSU with the Notes. The subordinated
debentures are due in August 2004.
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 notes 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 notes
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 notes 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 $10,000,000, 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).
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The trustee will give notice to the holders of notes 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 notes, the trustee
may withhold the notice if it determines in good faith that the withholding of
the notice is in the interests of the holders of notes. (SECTION 6.08).
If an Event of Default exists, the trustee or the holders of at least 25% in
aggregate principal amount of the notes then outstanding may declare the
principal of, and unpaid accrued interest on, all the notes 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 notes
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
notes 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 notes;
- 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 notes; 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 notes
then outstanding. The following is a summary of the changes that cannot be made
without the approval of each holder of notes affected by the change:
- reduce the rate of or extend the time for payment of interest on any
notes;
- reduce the principal of or change the maturity of any note;
- make the principal amount or interest or premium on the note payable in
any coin or currency other than that provided in the notes;
- reduce the Redemption Prices;
- reduce the percentage of notes whose holders must consent to a
supplemental indenture;
- modify the provisions of the indenture related to direction of proceeds or
waiver of default by a majority of holders of the note;
- impair in any manner the right to convert any notes into common stock;
- modify the subordination provisions of the indenture in a manner adverse
to the holders of notes; or
- impair the rights of holders of notes to institute proceedings for the
enforcement of their payment rights under the indenture in any material
way. (SECTION 10.02).
GLOSSARY
"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.
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"REDEMPTION DATE", when used with respect to any Note to be redeemed, means
the date fixed for redemption by or pursuant to the indenture.
"REDEMPTION PRICE", when used with respect to any Note 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 notes. (SECTION 14.02).
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 NOTES, AND DOES NOT PURPORT TO ADDRESS ANY STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES TO A HOLDER OF A NOTE. 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 NOTES 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 NOTES 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 NOTES, 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 NOTES
PAYMENTS OF INTEREST. Interest on the Notes generally will be taxable to a
holder of a Note as ordinary interest income at the time it is accrued or
received, depending on the holder's method of accounting for tax purposes.
MARKET DISCOUNT. The "market discount" provisions of the Internal Revenue
Code may apply to the purchasers of the Notes offered by the Selling Holders.
These rules generally provide that if a Note 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 Note may be treated as ordinary income. "Market discount" with respect to a
Note is, subject to a DE MINIMIS exception, the excess of (1) the stated
redemption price at maturity of the Note over (2) the purchaser's tax basis in
the Note. Upon any subsequent disposition (including a gift or payment at
maturity) of the Note (other than in connection with certain nonrecognition
transactions), the lesser of any gain on the disposition
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(or appreciation, in the case of a gift) or the portion of the market discount
that accrued while the Note was held by the holder will be treated as ordinary
interest income at the time of the disposition. The amount of market discount
treated as having accrued will be determined either on a ratable basis, or, if
the holder of the Note so elects, on a constant interest method. In lieu of
including accrued market discount in income at the time of disposition, a holder
of a Note may elect to include accrued market discount in income currently.
Unless a holder of a Note 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 Note until the
holder disposes of the Note.
ACQUISITION PREMIUM. If a holder of a Note is treated as acquiring the Note
at a premium (generally, the holder's tax basis over the remaining principal
amount of the Notes), and holds the Notes 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 Notes, rather than a
separate interest deduction. Premium allocable to the Notes for which an
amortization election is not made should be allocated among the payments on the
notes representing stated redemption price and be allowed as an ordinary
deduction as the payments are made (or for a holder of a Note using the accrual
method of accounting, when the payments become due).
DISPOSITION OF NOTES. A holder of a Note will recognize gain or loss upon
the sale, redemption, retirement or other disposition of the Note. Any gain or
loss recognized on the sale, redemption, retirement or other disposition of the
Note 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 Note and reduced by any previous payments with respect to the
Note) in the Note. Subject to the market discount rules discussed above, gain or
loss recognized will be capital gain or loss, if the Note is held as a capital
asset by the holder of the Note.
BACKUP WITHHOLDING. Under the backup withholding rules, a holder of a Note
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 Note 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 NOTES
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 Notes to
any holder of a Note who is not a United States Person will not be subject
to United States withholding tax, if in the case of interest (1) the
holder of the Note 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 Note is not a controlled foreign corporation
for United States tax purposes that is related to us through stock
ownership, (3) the holder of the Note 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 Note and
stating, among other things, that the holder of the Note 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
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tax treaty or that the interest on the Notes 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 Note 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 Note unless (1) the gain is
effectively connected with the conduct by the holder of the Note of a
trade or business in the United States, or (2) in the case of gain
realized by an individual holder of a Note, 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 Note 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 Note 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 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 Note 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 Note or to payments of the proceeds of the sale of a Note
made outside the United States if neither our paying agent nor we have actual
knowledge that the beneficial owner of the note is a United States Person and if
the beneficial owner of the note 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 Note 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 Note, 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 Note, or the proceeds of a sale of the
Note, 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 Note 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.
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PLAN OF DISTRIBUTION
We are registering $3,236,012 aggregate principal amount of Two Year Notes
and $11,000,000 aggregate principal amount of Ten Year Notes on behalf of the
Selling Holders. As used in this prospectus, "Selling Holders" includes donees,
pledgees, transferees or other successors-in-interest selling Notes 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 Notes. The Selling Holders will pay
any brokerage commissions and similar selling expenses attributable to the sale
of these Notes. Sales of Notes may be effected by Selling Holders from time to
time in one or more types of transactions in the over-the-counter market, in
negotiated transactions, through put or call options transactions relating to
the Notes, 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
Notes, nor is there an underwriter or coordinating broker acting in connection
with the proposed sale of Notes by the Selling Holders. We are required to
register the Notes 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 Notes offered by the Selling Holders does not
necessarily mean that the Selling Holders will offer or sell any of these Notes.
The Selling Holders may effect these transactions by selling Notes 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 Notes for 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 the Notes 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 Notes 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 Notes
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 Notes 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 Notes 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 Notes involved,
- the price at which the Notes were sold,
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- 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
$1,618,006 aggregate principal amount of the Two Year Notes and $5,500,000
aggregate principal amount of the Ten Year Notes, respectively. Each of the
Selling Holders received their Notes 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 the stock purchase agreement. The Notes
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 Notes. Because each
Selling Holder may offer all, some or none of the Notes they own, and because
the offering contemplated by this offering may not be underwritten, no estimate
can be given as to the amount of Notes 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 Notes 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 Notes by their own legal counsel.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our transition report of 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.
PricewaterhouseCoopers LLP, independent auditors, have audited the financial
statements included in our Current Report on Form 8-K, event date June 18, 1999,
as amended, with respect to the acquisition of MARC Analysis Research
Corporation, as set forth in their report, which is incorporated by reference in
this prospectus. These financial statements are incorporated by reference in
reliance on PricewaterhouseCoopers, LLP's report, given on their authority as
experts in accounting and auditing.
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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>
<S> <C>
SEC registration fee....................................................... $ 3,958
Printing expenses.......................................................... $ 5,000
Accounting fees and expenses............................................... $ 5,000
Legal fees and expenses.................................................... $ 20,000
Blue Sky fees and expenses (including legal fees).......................... $ 3,000
Transfer Agent's fees and expenses......................................... --
Miscellaneous expenses..................................................... $ 3,042
Total...................................................................... $ 40,000
---------
</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
II-1
<PAGE>
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 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.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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).
4.1 Form of 8% Subordinated Promissory Note due June 17, 2001.
4.2 Form of 8% Subordinated Promissory Note due June 17, 2009.
4.3 Indenture, dated as of June 17, 1999, between us and Chase Manhattan Bank & Trust Company, National
Association, as trustee (filed as Exhibit 4.1 to our report on Form 8-K, event date June 18, 1999, as
amended, and incorporated herein by reference).
5.1 Opinion of O'Melveny & Myers LLP regarding legality of the Notes.
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).
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;
II-2
<PAGE>
(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.
(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.
II-3
<PAGE>
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 October 15,
1999.
<TABLE>
<S> <C> <C>
MSC. SOFTWARE CORPORATION
By: /s/ FRANK PERNA, JR.
------------------------------------------
Frank Perna, Jr.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
</TABLE>
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
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ FRANK PERNA, JR.
- ------------------------------ Chairman of the Board and October 15, 1999
Frank Perna, Jr. Chief Executive Officer
/s/ LOUIS A. GRECO Chief Financial Officer
- ------------------------------ (Principal Financial and October 15, 1999
Louis A. Greco Accounting Officer)
- ------------------------------ Director
Larry S. Barels
/s/ DONALD GLICKMAN
- ------------------------------ Director October 15, 1999
Donald Glickman
/s/ WILLIAM F. GRUN
- ------------------------------ Director October 15, 1999
William F. Grun
/s/ GEORGE N. RIORDAN
- ------------------------------ Director October 15, 1999
George N. Riordan
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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).
4.1 Form of 8% Subordinated Promissory Note due June 17, 2001.
4.2 Form of 8% Subordinated Promissory Note due June 17, 2009.
4.3 Indenture, dated as of June 17, 1999, between us and Chase Manhattan Bank & Trust Company, National
Association, as trustee (filed as Exhibit 4.1 to our report on Form 8-K, event date June 18, 1999, as
amended, and incorporated herein by reference).
5.1 Opinion of O'Melveny & Myers LLP regarding legality of the Notes.
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).
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>
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAW, AND MAY
NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL IT IS REGISTERED UNDER THE ACT OR SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
No. ___ $1,618,006
THE MACNEAL-SCHWENDLER CORPORATION
8% SUBORDINATED PROMISSORY NOTE DUE 2001
THE MACNEAL-SCHWENDLER CORPORATION, a Delaware corporation
(the "Company"), for value received, hereby promises to pay to or
registered assigns, the principal sum of One Million Six Hundred Eighteen
Thousand and Six Dollars ($1,618,006) on June 17, 2001 and to pay the registered
holder hereof interest semiannually on January 10 and July 10 of each year
(each, an "Interest Payment Date"), commencing January 10, 2000, at the rate per
annum specified above. The interest payable will, subject to certain exceptions
provided in the Indenture (as defined on the reverse hereof), be paid by check
to the persons in whose name this Note was registered at the close of business
on January 1 or July 1 (each, a "Record Date") preceding such Interest Payment
Date, whether or not such Record Date is a business day.
Reference is made to the provisions set forth on the back of
this Note. Such provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication shall have been signed by the
Trustee under the Indenture. This Note shall be deemed to be a contract made and
to be performed under the laws of the State of California, and for all purposes
shall be construed in accordance with and governed by the laws of said state.
IN WITNESS WHEREOF, THE MACNEAL-SCHWENDLER CORPORATION has
caused this Note to be duly executed.
Dated:
THE MACNEAL-SCHWENDLER CORPORATION
By
-----------------------------------
Chairman
Attest:
- -----------------------------
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-mentioned Indenture.
CHASE MANHATTAN BANK & TRUST COMPANY N.A., as Trustee
By _______________________________
Authorized Officer
<PAGE>
REVERSE OF NOTE
THE MACNEAL-SCHWENDLER CORPORATION
8% SUBORDINATED PROMISSORY NOTE DUE 2001
This Note is one of a Series of duly authorized issue of Notes
of the Company designated as its 8% Subordinated Promissory Note due 2001 (the
"Notes") in aggregate principal amount of up to $3,236,012 issued under an
Indenture dated as of June 17, 1999 (the "Indenture") between the Company and
Chase Manhattan Bank & Trust Company N.A., as trustee (the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
supplemental indentures thereto reference is made for a statement of the
respective rights, limitations of rights, duties and immunities of the Company,
the Trustee and the holders of the Notes thereunder and of the terms upon which
the Notes are, and are to be, authenticated and delivered.
Interest on the Notes shall accrue at the per annum rate shown
above from the most recent date to which interest has been paid or duly provided
for, or, if no interest has been paid on the Notes, from the date hereof, until
payment of said principal sum has been made or duly provided for. Interest on
this Note shall be computed on the basis of a 360-day year of twelve 30-day
months.
All payments of principal and interest shall be in money of
the United States that at the time of payment is legal tender for the payment of
public and private debts. Principal and interest on this Note will be payable at
the office or agency maintained by the Trustee on behalf of the Company in the
City of Los Angeles or such other location as the Company shall elect from time
to time, provided that payment of interest may be made at the option of the
Company by check mailed by first-class mail to the address of the person
entitled thereto at such address as shall appear on the registry books of the
Company.
This Note may be redeemed at par without premium or penalty at
the option of the Company, in whole or in part, on any date prior to maturity,
upon mailing by first-class mail a notice of such redemption not less than 30
nor more than 60 days prior to the date fixed for redemption to the holder
hereof at the address appearing for such holder upon the registry books of the
Company, as provided in the Indenture. Any such notice which is mailed in the
manner provided above shall be conclusively presumed to have been duly given,
whether or not the holder actually receives such notice.
In the event of a partial redemption of this Note, a new Note
for the remaining amount will be issued by the Company to the holder hereof upon
surrender and cancellation of this Note. If the remaining principal amount is
less than $1,000, then the Company shall redeem this entire Note at the
Redemption Price.
The indebtedness evidenced by this Note is, to the extent and
in the manner provided in the Indenture, subordinate and junior in right of
payment to the prior payment in full of all Senior Indebtedness of the Company,
and this Note is issued subject to such provisions of the Indenture, and each
holder of this Note, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee on his behalf to take
such action
<PAGE>
as may be necessary or appropriate to assure the effectiveness of the
subordination effected by the Indenture and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the
principal of and accrued interest on all the Notes may be declared due and
payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the holders of the Notes under the Indenture at any time by the
Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the Notes at the time Outstanding
(determined by counting all Series of as a single class). The Indenture also
contains provisions permitting the holders of not less than a majority in
aggregate principal amount of Notes at the time Outstanding (determined by
counting all Series of as a single class), on behalf of the holders of all the
Notes, to consent to the waiver or other modification of, or to waive compliance
by the Company with, certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the holder of this Note shall be conclusive and binding upon such holder and
upon all future holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place and rate, and in the coin or currency, herein
prescribed.
In the event of the merger or consolidation of the obligor on
the Notes into, or of the transfer of its assets substantially as an entirety
to, a successor corporation, such successor corporation shall assume payment of
the Notes and performance of every covenant of the Indenture on the part of the
predecessor corporation to be performed, and shall be substituted for the
predecessor corporation under the Indenture; and in the event of any such
transfer, such predecessor corporation shall be discharged from all obligations
and covenants under the Indenture and the Notes and may be dissolved and
liquidated, all as more fully set forth in the Indenture.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and above. As provided in the Indenture and subject
to certain limitations therein set forth, the transfer of this Note is
registrable in the Note register, upon surrender of this Note for registration
of transfer at the office or agency of the Company, and in the manner and
subject to the limitations provided in the Indenture, Notes may be exchanged for
a like aggregate principal amount of Notes of other authorized denominations.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer to the
Company, the Trustee and any agent of the Company or the Trustee may treat the
person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent
<PAGE>
shall be affected by notice to the contrary.
No director, officer, employee or shareholder, as such, of the
Company from time to time shall have any liability for any obligations of the
Company under this Note or the Indenture, or for any claim based on, in respect
of, or by reason of such obligations or their creation. By accepting this Note,
the holder hereof waives and releases all such persons from all such liability.
The waiver and releases are part of the consideration for the issuance by the
Company of this Note.
All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAW, AND MAY
NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL IT IS REGISTERED UNDER THE ACT OR SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
No. ___ $5,500,000
THE MACNEAL-SCHWENDLER CORPORATION
8% SUBORDINATED PROMISSORY NOTE DUE 2009
THE MACNEAL-SCHWENDLER CORPORATION, a Delaware corporation
(the "Company"), for value received, hereby promises to pay to or
registered assigns, the principal sum of Five Million Five Hundred Thousand
Dollars ($5,500,000) on June 17, 2009 and to pay the registered holder hereof
interest semiannually on January 10 and July 10 of each year (each, an "Interest
Payment Date"), commencing January 10, 2000, at the rate per annum specified
above. The interest payable will, subject to certain exceptions provided in the
Indenture (as defined on the reverse hereof), be paid by check to the persons in
whose name this Note was registered at the close of business on January 1 or
July 1 (each, a "Record Date") preceding such Interest Payment Date, whether or
not such Record Date is a business day.
Reference is made to the provisions set forth on the back of
this Note. Such provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication shall have been signed by the
Trustee under the Indenture. This Note shall be deemed to be a contract made and
to be performed under the laws of the State of California, and for all purposes
shall be construed in accordance with and governed by the laws of said state.
IN WITNESS WHEREOF, THE MACNEAL-SCHWENDLER CORPORATION has
caused this Note to be duly executed.
Dated:
THE MACNEAL-SCHWENDLER CORPORATION
By
------------------------------------
Chairman
Attest:
- -----------------------------
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-mentioned Indenture.
CHASE MANHATTAN BANK & TRUST COMPANY N.A., as Trustee
By _______________________________
Authorized Officer
<PAGE>
REVERSE OF NOTE
THE MACNEAL-SCHWENDLER CORPORATION
8% SUBORDINATED PROMISSORY NOTE DUE 2009
This Note is one of a Series of duly authorized issue of
Notes of the Company designated as its 8% Subordinated Promissory Note due
2009 (the "Notes") in aggregate principal amount of up to $11,000,000 issued
under an Indenture dated as of June 17, 1999 (the "Indenture") between the
Company and Chase Manhattan Bank & Trust Company N.A., as trustee (the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all supplemental indentures thereto reference is made for
a statement of the respective rights, limitations of rights, duties and
immunities of the Company, the Trustee and the holders of the Notes
thereunder and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Company shall make two principal payments, each equal
to 10% of the principal amount of this Note on June 17, 2007 and June 17,
2008, to the holder hereof.
Interest on the Notes shall accrue at the per annum rate
shown above from the most recent date to which interest has been paid or duly
provided for, or, if no interest has been paid on the Notes, from the date
hereof, until payment of said principal sum has been made or duly provided
for. Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-day months.
All payments of principal and interest shall be in money of
the United States that at the time of payment is legal tender for the payment
of public and private debts. Principal and interest on this Note will be
payable at the office or agency maintained by the Trustee on behalf of the
Company in the City of Los Angeles or such other location as the Company
shall elect from time to time, provided that payment of interest may be made
at the option of the Company by check mailed by first-class mail to the
address of the person entitled thereto at such address as shall appear on the
registry books of the Company.
This Note may be redeemed at par without premium or penalty
at the option of the Company, in whole or in part, on any date prior to
maturity, upon mailing by first-class mail a notice of such redemption not
less than 30 nor more than 60 days prior to the date fixed for redemption to
the holder hereof at the address appearing for such holder upon the registry
books of the Company, as provided in the Indenture. Any such notice which is
mailed in the manner provided above shall be conclusively presumed to have
been duly given, whether or not the holder actually receives such notice.
In the event of a partial redemption of this Note, a new
Note for the remaining amount will be issued by the Company to the holder
hereof upon surrender and cancellation of this Note. If the remaining
principal amount is less than $1,000, then the Company shall redeem this
entire Note at the Redemption Price.
The indebtedness evidenced by this Note is, to the extent
and in the manner provided in the Indenture, subordinate and junior in right
of payment to the prior payment in full
<PAGE>
of all Senior Indebtedness of the Company, and this Note is issued subject to
such provisions of the Indenture, and each holder of this Note, by accepting
the same, (a) agrees to and shall be bound by such provisions, (b) authorizes
and directs the Trustee on his behalf to take such action as may be necessary
or appropriate to assure the effectiveness of the subordination effected by
the Indenture and (c) appoints the Trustee his attorney-in-fact for any and
all such purposes.
If an Event of Default shall occur and be continuing, the
principal of and accrued interest on all the Notes may be declared due and
payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
Outstanding (determined by counting all Series of as a single class). The
Indenture also contains provisions permitting the holders of not less than a
majority in aggregate principal amount of Notes at the time Outstanding
(determined by counting all Series of as a single class), on behalf of the
holders of all the Notes, to consent to the waiver or other modification of,
or to waive compliance by the Company with, certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the holder of this Note shall be
conclusive and binding upon such holder and upon all future holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Note.
No reference herein to the Indenture and no provision of
this Note or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
In the event of the merger or consolidation of the obligor
on the Notes into, or of the transfer of its assets substantially as an
entirety to, a successor corporation, such successor corporation shall assume
payment of the Notes and performance of every covenant of the Indenture on
the part of the predecessor corporation to be performed, and shall be
substituted for the predecessor corporation under the Indenture; and in the
event of any such transfer, such predecessor corporation shall be discharged
from all obligations and covenants under the Indenture and the Notes and may
be dissolved and liquidated, all as more fully set forth in the Indenture.
The Notes are issuable only in registered form without
coupons in denominations of $1,000 and above. As provided in the Indenture
and subject to certain limitations therein set forth, the transfer of this
Note is registrable in the Note register, upon surrender of this Note for
registration of transfer at the office or agency of the Company, and in the
manner and subject to the limitations provided in the Indenture, Notes may be
exchanged for a like aggregate principal amount of Notes of other authorized
denominations.
No service charge shall be made for any such registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith. Prior to due presentment of this Note for
<PAGE>
registration of transfer to the Company, the Trustee and any agent of the
Company or the Trustee may treat the person in whose name this Note is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
No director, officer, employee or shareholder, as such, of the
Company from time to time shall have any liability for any obligations of the
Company under this Note or the Indenture, or for any claim based on, in respect
of, or by reason of such obligations or their creation. By accepting this Note,
the holder hereof waives and releases all such persons from all such liability.
The waiver and releases are part of the consideration for the issuance by the
Company of this Note.
All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
<PAGE>
EXHIBIT 5.1
OPINION REGARDING LEGALITY
October 18, 1999
MSC.Software Corporation
815 Colorado Boulevard
Los Angeles, California 90041
Re: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have acted as special counsel to MSC.Software Corporation, formerly
The MacNeal-Schwendler Corporation (the "Company"), a Delaware corporation, 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 Company in connection with the proposed offering and sale by
certain selling holders of $3,236,012 aggregate principal amount of 8%
Subordinated Promissory Notes due June 2001 and $11,000,000 aggregate principal
amount of 8% Subordinated Promissory Notes due June 2009 (the "Notes"). We are
familiar with the proceedings heretofore taken by the Company in connection with
the authorization, issuance and registration of the Notes.
Based upon the foregoing, we are of the opinion that the Notes are
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally (including, without limitation, fraudulent conveyance laws), and
general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunction relief, regardless of
whether such enforceability is considered in a proceeding in equity or at law.
We consent to the filing of this letter opinion as an exhibit to the
Registration Statement, without admitting that we are "experts" within the
meaning of the 1933 Act or the rules and regulations of the Securities and
Exchange Commission thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Respectfully submitted,
/s/ O'Melveny & Myers LLP
<PAGE>
EXHIBIT 8.1
OPINION REGARDING TAX MATTERS
October 18, 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 certain selling holders of $3,236,012 aggregate
principal amount of 8% Subordinated Promissory Notes due June 2001 and
$11,000,000 aggregate principal amount of 8% Subordinated Promissory Notes due
June 2009 (collectively, the "Notes"). 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 Notes.
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
"Material Federal Income Tax Consequences" 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 October 19, 1999 and related Prospectus
of MSC.Software Corporation for the registration of $3,236,012 aggregate
principal amount of subordinated promissory notes due 2001, and $11,000,000
aggregate principal amount of subordinated promissory notes due 2009, 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
Los Angeles, California
October 14, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 dated October 19, 1999 and the related
prospectus of MSC.Software Corporation for the registration of $3,236,012
aggregate principal amount of subordinated promissory notes due 2001, and
$11,000,000 aggregate principal amount of subordinated promissory notes due
2009, 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
October 19, 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)
California
(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 Promissory Notes
(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
11
<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 15th day of October, 1999.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ Hans H. Helley
---------------------------
Hans H. Helley
Assistant Vice President
12
<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>
<S> <C> <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.
13
<PAGE>
LIABILITIES
<TABLE>
<S> <C> <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>
