As filed with the Securities and Exchange Commission on March 18, 1997
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 West Warren Avenue
Fremont, California 94538
(510) 623-8300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael L. Hackworth
President and Chief Executive Officer
CIRRUS LOGIC, INC.
3100 West Warren Avenue
Fremont, California 94538
(510) 623-8300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Arthur Schneiderman
Michael Danaher
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
(415) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
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 Proposed Proposed
maximum maximum maximum
offering offering aggregate Amount of Amount of
Title of each class of amount to be price per offering offering registration
securities to be registered registered unit price (1) price fee
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6% Convertible Subordinated $ 280,725,000 100% $ 280,725,00 $ 280,725,000 $ 85,068.1
Notes due December 15, 2003 . .
- --------------------------------------------------------------------------------------------------------------
Common Stock, no par 11,591,219
value . . . . . . . . . . . . . shares (2) - - - -
===============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) of the Securities Act of 1933, as amended.
(2) Such number represents the number of shares of Common Stock as are
initially issuable upon conversion of the 6% Convertible Subordinated
Notes due December 15, 2003 registered hereby and, pursuant to Rule 416
under the Securities Act of 1933, as amended, such indeterminate number
of shares of Common Stock as shall be required for issuance upon
conversion of the Notes being registered hereunder. Pursuant to
Rule 457(i), no registration fee is required.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
PROSPECTUS
Subject to Completion, Dated March 18, 1997
Cirrus Logic, Inc.
U.S. $280,725,000
6% Convertible Subordinated Notes due December 15, 2003
and
Shares of Common Stock
Issuable Upon Conversion Thereof
------------------------------------
This Prospectus relates to $280,725,000 aggregate principal amount of
6% Convertible Subordinated Notes due December 15, 2003 (the "Notes") of
Cirrus Logic, Inc. (the "Company") sold otherwise than in reliance on
Regulation S (the "Registrable Notes") under the Securities Act of 1933, as
amended (the "Securities Act"), and the shares of Common Stock, no par value
of the Company, ("Common Stock") issuable upon the conversion of the
Registrable Notes (the "Conversion Shares"). The Registrable Notes
registered hereby were issued and sold on December 12, 1996 (the "Original
Offering") in transactions exempt from the registration requirements of the
Securities Act, to persons reasonably believed by Goldman, Sachs & Co.,
Salomon Brothers Inc, J.P. Morgan Securities Inc., and Robertson, Stevens &
Company LLC, as the initial purchasers (the "Initial Purchasers") of the
Registrable Notes, to be "qualified institutional buyers" (as defined by
Rule 144A under the Securities Act) or other institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under Regulation D
of the Securities Act). An additional $19,275,000 aggregate amount of Notes
were issued by the Company in the Original Offering and sold by the Initial
Purchasers in compliance with the provisions of Regulation S under the
Securities Act. The Registrable Notes and the Common Stock issuable upon
conversion thereof may be offered and sold from time to time by the holders
named herein or by their transferees, pledgees, donees or their successors
(collectively, the "Selling Securityholders") pursuant to this Prospectus.
The Registration Statement of which this Prospectus is a part has been filed
with the Securities and Exchange Commission pursuant to a registration
rights agreement dated as of December 12, 1996 (the "Registration
Agreement") between the Company and the Initial Purchasers, entered into in
connection with the Original Offering.
The Registrable Notes are convertible at the option of the holder
into shares of Common Stock of the Company (at any time on or after March
18, 1997 and prior to redemption or maturity, at a conversion rate of
41.2903 shares per $1,000 principal amount of Registrable Notes), subject to
adjustment under certain circumstances. Interest on the Registrable Notes
is payable semi-annually in arrears on June 15 and December 15 of each year,
commencing on June 15, 1997. On March 14, 1997, the closing price of the
Common Stock, which is quoted on the Nasdaq National Market under the symbol
"CRUS," was $12.3125 per share.
---------------------------
THE NOTES AND THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK.
SEE "RISK FACTORS."
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ____________, 1997
The Registrable Notes are unsecured general obligations of the
Company and are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture). See "Description of the
Notes--Subordination." The Registrable Notes will mature on December 15,
2003, and may be redeemed, at the option of the Company, in whole or in
part, at any time on or after December 16, 1999 at the redemption prices set
forth herein plus accrued interest. Each holder of Registrable Notes will
have the right to cause the Company to repurchase all of such holder's
Registrable Notes, payable in cash or, at the Company's option, in Common
Stock, in the event the Common Stock is no longer publicly traded or in
certain circumstances involving a Change of Control (as defined in the
Indenture).
The Registrable Notes and the Conversion Shares may be offered by the
Selling Securityholders from time to time in transactions (which may include
block transactions in the case of the Conversion Shares) on any exchange or
market on which such securities are listed or quoted, as applicable, in
negotiated transactions, through a combination of such methods of sale, or
otherwise, at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices related to prevailing market prices or at
negotiated prices. The Selling Securityholders may effect such transactions
by selling the Registrable Notes or Conversion Shares directly or to or
through broker-dealers, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders
and/or the purchasers of the Registrable Notes or Conversion Shares for whom
such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). The Company will not receive
any of the proceeds from the sale of the Registrable Notes or Conversion
Shares by the Selling Securityholders. The Company has agreed to pay all
expenses incident to the offer and sale of the Registrable Notes and
Conversion Shares offered by the Selling Securityholders hereby, except that
the Selling Securityholders will pay all underwriting discounts and selling
commissions, if any. See "Plan of Distribution."
The Registrable Notes have been designated for trading on the PORTAL
Market. Registrable Notes sold pursuant to this Prospectus are not eligible
for trading on the PORTAL Market.
The Selling Securityholders will receive all of the net proceeds from
the sale of the Registrable Notes and the Common Stock issuable upon
conversion of the Registrable Notes and will pay all underwriting discounts
and selling commissions, if any, applicable to the sale of the Registrable
Notes and the Common Stock issuable upon conversion of the Registrable
Notes. The Company is responsible for payment of all other expenses
incident to the offer and sale of the Registrable Notes and the Common
Stock issuable upon conversion of the Registrable Notes.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy and information statements, and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such reports, proxy statements and other
information can also be inspected at the offices of the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Commission maintains a World Wide Web site that contains reports, proxy
and information statements, and other information that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. This
Web site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the
Registrable Notes and Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company, the Registrable Notes and the
Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. Copies of
the Registration Statement, including all exhibits thereto, may be obtained
from the Commission's principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission, or may be examined without charge at
the offices of the Commission described above.
Cirrus Logic(R) and the Cirrus Logic logo are registered trademarks
of the Company. Crystal Semiconductor(TM) and
SmartAnalog(TM) are trademarks of Crystal Semiconductor Corporation. This
Prospectus also uses trademarks of companies other than the Company and its
subsidiaries.
SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial information incorporated by reference
herein appearing elsewhere in this Prospectus. This Prospectus contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. When used in this
Prospectus, the words "believes," "intends," "anticipates" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Such risks and
uncertainties include the timing and acceptance of new product
introductions, the actions of the Company's competitors and business
partners, and those discussed under the caption "Risk Factors."
THE COMPANY
Cirrus Logic, Inc., ("Cirrus Logic" or the "Company") is a leading
manufacturer of integrated circuits for the personal computer,
telecommunications and consumer electronics markets. The Company has
developed a broad portfolio of products and technologies for multimedia,
including graphics, video and audio, mass storage, including magnetic hard
disk and CD-ROM, communications and data acquisition.
Cirrus Logic targets large existing markets that are undergoing major
product or technology transitions as well as emerging markets that forecast
high growth. The Company applies its analog, digital and mixed-signal
design capabilities, software and systems-level engineering expertise to
create highly integrated solutions that enable its customers to
differentiate their products and reduce their time to market. These
solutions are implemented in products that include advanced integrated
circuits ("ICs") and related software and subsystem modules.
Cirrus Logic was incorporated under the laws of California on
February 3, 1984, as the successor to a research corporation which had been
incorporated in Utah in 1981. The Company's principal executive offices are
located at 3100 West Warren Avenue, Fremont, California 94538 and its
telephone number is (510) 623-8300.
THE OFFERING
Securities Offered . . . . . $280,725,000 aggregate principal amount
of 6% Convertible Subordinated Notes
due December 15, 2003, issued under an
indenture (the "Indenture") between the
Company and State Street Bank and Trust
Company as Trustee ("Trustee") and
Common Stock issuable upon conversion
thereof.
Issuer . . . . . . . . . . . Cirrus Logic, Inc., a California
corporation.
Interest Payment Date. . . . Interest on the Registrable Notes is
payable semiannually on June 15 and
December 15 of each year, commencing
June 15, 1997.
Conversion Rate. . . . . . . 41.2903 shares per U.S. $1,000
principal amount of Registrable Notes
(equivalent to a conversion price of
approximately U.S. $24.219 per share),
subject to adjustment.
Conversion Rights. . . . . . The Registrable Notes are convertible
at any time on or after March 18, 1997
and prior to the close of business on
the maturity date, unless previously
redeemed or repurchased, at the
conversion rate set forth above.
Holders of Registrable Notes called for
redemption or repurchase will be
entitled to convert the Registrable
Notes up to, but not including or
after, the date fixed for redemption or
repurchase, as the case may be. See
"Description of Registrable Notes --
Conversion Rights."
Subordination. . . . . . . . The Registrable Notes are subordinated
in right of payment to all existing and
future Senior Indebtedness (as defined)
of the Company and effectively
subordinated to all liabilities of the
Company's subsidiaries. As of December
28, 1996, the Company had approximately
$141 million of indebtedness and other
liabilities that constituted Senior
Indebtedness including approximately
$41 million of letters of credit. As
of December 28, 1996, the Company's
subsidiaries had approximately $316
million of indebtedness and other
liabilities (including trade payables
and indebtedness and other liabilities
of the Company's manufacturing joint
ventures and excluding intercompany
liabilities) as to which the
Registrable Notes have been effectively
subordinated. Approximately $52
million of this amount is also included
in the amount of the Company's
outstanding Senior Indebtedness as of
December 28, 1996, as set forth above.
The Indenture does not restrict the
incurrence of additional Senior
Indebtedness or other indebtedness by
the Company or any subsidiary. The
Company anticipates incurring
significant additional obligations,
which may include Senior Indebtedness,
for its manufacturing program. See
"Business -- Manufacturing" and "Risk
Factors -- Liquidity and Capital
Requirements" and "-- Leverage and
Subordination."
Optional Redemption. . . . . The Registrable Notes are redeemable at
the option of the Company, in whole or
in part, at any time on or after
December 16, 1999 at the redemption
prices set forth herein plus accrued
interest to the redemption date. See
"Description of Registrable Notes --
Redemption."
Repurchase at Option . . . . Upon a Change in Control (as defined),
of Holders Upon a holders of the Registrable Notes will
Change in Control have the right, subject to certain
conditions and restrictions, to require
the Company to purchase all or part of
their Registrable Notes at 100% of the
principal amount thereof, plus accrued
interest to the repurchase date. The
repurchase price is payable in cash or,
at the option of the Company but
subject to the satisfaction of certain
conditions on the part of the Company,
in shares of Common Stock (valued at
95% of the average closing bid prices
of the Common Stock for the five
trading days preceding the second
trading day prior to the repurchase
date). See "Description of Registrable
Notes -- Repurchase at Option of
Holders Upon a Change in Control."
Use of Proceeds. . . . . . . The Company will not receive any of the
proceeds from the sale of any of the
Registrable Notes or the Common Stock
issuable upon conversion thereof.
Events of Default. . . . . . Events of default include: (a) failure
to pay principal of or premium, if any,
on any Note when due, whether or not
such payment is prohibited by the
subordination provisions of the Notes
and the Indenture; (b) failure to pay
any interest on any Note when due,
continuing for 30 days, whether or not
such payment is prohibited by the
subordination provisions of the Notes
and the Indenture; (c) default in the
Company's obligation to provide notice
of a Change in Control (as defined);
(d) failure to perform any other
covenant of the Company in the
Indenture, continuing for 60 days after
written notice as provided in the
Indenture (except that if such failure
is capable of being cured and the
Company commences efforts to cure such
failure within such 60 day period, such
failure shall not be considered an
event of default for an additional 60
days so long as the Company is
diligently pursuing the cure); (e) any
indebtedness for money borrowed by the
Company in an outstanding principal
amount in excess of $20,000,000 is not
paid at final maturity or upon
acceleration thereof and such default
in payment or acceleration is not cured
or rescinded within 30 days after
written notice as provided in the
Indenture; and (f) certain events of
bankruptcy, insolvency or
reorganization. See "Description of
Registrable Notes -- Events of
Default."
Registration Rights. . . . . Upon any failure by the Company to
comply with certain of its obligations
under the Registration Agreement,
additional interest will be payable on
the Registrable Notes.
RISK FACTORS
In addition to the other information included in this Prospectus, the
following risk factors should be carefully considered in evaluating an
investment in the Registrable Notes offered hereby and the shares of Common
Stock issuable upon conversion thereof. This Prospectus contains certain
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, which involve risks and
uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements as a result of
various risks and uncertainties, including those summarized below.
Recent Operating Losses
The Company's quarterly revenue and operating results have varied
significantly in the past and are likely to vary substantially from quarter
to quarter in the future. The Company's quarterly operating results are
affected by a wide variety of factors, many of which are outside of the
Company's control, including, but not limited to, economic conditions and
overall market demand in the United States and worldwide, the Company's
ability to introduce new products and technologies on a timely basis, the
ability of the Company to utilize fully the capacity of its
manufacturing joint ventures and the ability of such joint ventures to
produce wafers on a timely and competitive basis, changes in product mix,
pricing decisions, fluctuations in manufacturing costs which affect the
Company's gross margins, declines in market demand for the Company's and
customers' products, sales timing, the level of orders which are received
and can be shipped in a quarter, the cyclical nature of both the
semiconductor industry and the markets addressed by the Company's products,
product obsolescence, price erosion and competitive factors. Any
unfavorable changes in the above or other factors could adversely affect
the Company's operating results. In addition, as a result of the Company's
decision to expand its wafer supply sources by, among other things, taking
direct ownership interests in wafer manufacturing ventures, the Company's
operating results will be more sensitive to fluctuations in revenues.
As is common in the semiconductor industry, the Company frequently
ships more product in the third month of each quarter than in either of the
first two months of the quarter, and shipments in the third month are higher
at the end of that month. This pattern is likely to continue. The
concentration of sales in the last month of the quarter may cause the
Company's quarterly results of operations to be more difficult to predict.
Moreover, a disruption in the Company's production or shipping near the end
of a quarter could materially reduce the Company's revenues for that
quarter.
The Company experienced operating losses in the last half of fiscal
1996 and the first half of fiscal 1997. The Company took a number of
actions in response to these losses. The Company instituted a program to
streamline operations and reduce costs, part of which involved a ten
percent reduction in force in the fourth quarter of fiscal 1996. The
Company also made a strategic decision to focus on the Company's
core competencies in the multimedia, mass storage and communications
markets, to increase the engineering and marketing resources devoted to
product development in these areas, and to divest or shut-down divisions
and programs which do not fit within these core competencies. Nevertheless,
there is no assurance that the Company will regain the levels of
profitability that it has achieved in the past or that losses will not occur
in the future.
Liquidity and Capital Requirements
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company believes it must continue to invest in advanced
wafer manufacturing and in test equipment. Investments will be made in the
various external manufacturing arrangements and its own facilities. The
Company intends to obtain most of the necessary capital through direct or
guaranteed equipment lease financing and the balance through debt and/or
equity financing, and cash generated from operations.
There can be no assurance that financing will be available or, if
available, will be on satisfactory terms. Failure to obtain adequate
financing would restrict the Company's ability to expand its manufacturing
infrastructure, to make other investments in capital equipment, and to
pursue other initiatives.
There can be no assurance that the Company will be able to generate
net cash from operations in future periods and its ability to do so is
subject to a number of risks and uncertainties, including those summarized
herein under "Risk Factors."
Leverage and Subordination
The Company is highly leveraged. In connection with the Original
Offering, the Company incurred $300 million of indebtedness, increasing the
Company's total debt to approximately $392 million and resulting in a ratio
of total debt to equity (expressed as a percentage) of approximately 86
percent, as of December 28, 1996. In addition, as of December 28, 1996, the
Company has (i) guaranteed or is directly liable for payments under
operating leases payable over lease terms ranging from five to seven years
and aggregating approximately $777 million and (ii) guaranteed
approximately $7 million of capitalized leases. Moreover, the Company
expects to incur substantial additional direct or guaranteed lease
obligations in connection with its manufacturing joint ventures. See
"Liquidity and Capital Requirements."
For fiscal 1996 the Company's earnings were insufficient to cover
fixed charges by approximately $47.1 million. Fixed charges exclude the
interest factor associated with operating leases of the Company's MiCRUS and
Cirent Semiconductor joint ventures and the interest associated with
capitalized leases of the Company's MiCRUS joint venture. On a pro forma
basis, had the amount of such interest factor been included in such fixed
charges, the Company's earnings would have been insufficient to cover fixed
charges for fiscal 1996 and the three quarters ended December 28, 1996 by
approximately $66.5 million and $7.1 million, respectively (assuming the
Cirent Semiconductor leases were entered into at the beginning of each such
period).
The degree to which the Company is leveraged could (i) adversely
affect its ability to obtain additional financing for itself or its joint
ventures, (ii) make it more vulnerable to general economic and market
conditions, industry downturns and competitive pressures, (iii) impair its
ability to respond to technological changes, and (iv) result in the
dedication of a significant amount of any cash generated from operating
activities to the payment of debt service and other financing obligations,
thereby reducing funds available for operations, its existing manufacturing
joint ventures and future business opportunities, including those described
under "Business -- Company Strategy." The Company's ability to meet its
debt service and other obligations will be dependent on the Company's future
performance which will be subject to financial, business and other factors
affecting operations of the Company, many of which are beyond its control.
The Registrable Notes are unsecured and subordinated in right of
payment in full to all existing and future Senior Indebtedness of the
Company. As a result of such subordination, in the event of the Company's
liquidation or insolvency, payment default with respect to Senior
Indebtedness, a covenant default with respect to Designated Senior
Indebtedness (as defined), or upon acceleration of the Registrable Notes due
to an event of default, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Registrable Notes then outstanding.
The Registrable Notes are obligations exclusively of the Company.
Since the operations of the Company are partially conducted through
subsidiaries, the cash flow and the consequent ability to service debt,
including the Registrable Notes, of the Company, are partially dependent
upon the earnings of its subsidiaries and the distribution of those earnings
to, or upon loans or other payments of funds by those subsidiaries to, the
Company. The payment of dividends and the making of loans and advances to
the Company by its subsidiaries may be subject to statutory or contractual
restrictions, are dependent upon the earnings of those subsidiaries and are
subject to various business considerations. Any right of the Company to
receive assets of any of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of the Registrable
Notes to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors),
except to the extent that the Company is itself recognized as a creditor of
such subsidiary, in which case the claims of the Company would still be
subordinate to any security interests in the assets of such subsidiary and
any indebtedness of such subsidiary senior to that held by the Company.
The Indenture does not prohibit or limit the incurrence of Senior
Indebtedness or the incurrence of other indebtedness and other liabilities
by the Company or its subsidiaries. The incurrence of additional
indebtedness and other liabilities by the Company or its subsidiaries could
adversely affect the Company's ability to pay its obligations on the Notes.
The Company expects from time to time to incur additional indebtedness and
other liabilities, including Senior Indebtedness, and also expects that its
subsidiaries will from time to time incur additional indebtedness and other
liabilities. In particular, the Company anticipates incurring significant
obligations, which may include additional Senior Indebtedness, in connection
with its manufacturing program. See "-- Leverage and Subordination,"
"Business -- Manufacturing" and "Description of Registrable Notes --
Subordination."
Risks Associated with Manufacturing and Supply Arrangements
In recent years the Company has pursued a strategy to increase its
committed wafer supplies through direct ownership interests in manufacturing
ventures and committed wafer supply agreements. See "Business --
Manufacturing." Although these arrangements increase the Company's sources
of wafer supply, they also have the effect of reducing the Company's
flexibility to reduce the amount of wafers it is committed to purchase and
increasing the Company's fixed manufacturing costs as a percentage of
overall costs of sales. As a result, the operating results of the Company
are becoming more sensitive to fluctuations in revenues. In the case of the
Company's joint ventures, overcapacity or underutilization results in
underabsorbed fixed cost, which adversely affects gross margins and
earnings. The Company incurred such charges at its MiCRUS facility for
failing to purchase sufficient wafers in the last two quarters of fiscal
1996 and the second quarter of fiscal 1997. In the case of the Company's
contracts with semiconductor foundries, the Company must pay contractual
penalties if it fails to purchase its minimum commitments.
Moreover, the Company will benefit from the MiCRUS and Cirent
Semiconductor joint ventures only if they are able to produce wafers at or
below prices generally prevalent in the market. If, however, either of
these ventures is not able to produce wafers at competitive prices, the
Company's results of operations will be materially adversely affected.
The process of beginning production at and increasing volume with the
joint ventures inevitably involves risks, and there can be no assurance that
the manufacturing costs of such ventures will be competitive. Additional
risks include the ability of the Company to forecast demand for a mix of
products that fully utilize facility capacity, the timely development of
products, unexpected disruptions to the manufacturing process, the
difficulty of maintaining quality and consistency, particularly at the
smaller submicron levels, dependence on equipment suppliers and
technological obsolescence.
As a participant in manufacturing joint ventures, the Company also
will share in the risks encountered by wafer manufacturers generally,
including being subject to a variety of foreign, federal, state and local
governmental regulations related to the discharge and disposal of toxic,
volatile or otherwise hazardous materials used in the manufacturing process.
Any failure by a manufacturing venture to control the use of, or to restrict
adequately the discharge of, hazardous materials by the venture under
present or future regulations could subject it to substantial liability or
could cause the manufacturing operations to be suspended. In addition, the
Company could be held financially responsible for remedial measures if any
of the joint venture manufacturing facilities were found to be contaminated
whether or not the Company or the joint venture was responsible for such
contamination.
The Company will not be in direct control of the joint ventures or of
the wafer manufacturing companies in which it invests. The Company is
dependent on the joint venture management and/or its joint venture partners
for the operation of the new manufacturing facilities, including the hiring
of qualified personnel. In addition, the manufacturing processes and
policies undertaken by each manufacturing joint venture may not be optimized
to meet the Company's specific needs and products. If the joint ventures
are unable to manage the operations effectively, their ability to implement
state-of-the-art manufacturing processes, to produce wafers at competitive
costs, and to produce sufficient output could be adversely affected. Also,
the Company's joint venture partners may enter into contractual or licensing
agreements with third parties, or may be subject to injunctions arising from
alleged violations of third party intellectual property rights, which could
restrict the joint venture from using particular manufacturing processes or
producing certain products.
Certain of the Company's wafer supply arrangements involve facilities
outside the United States and therefore entail the risks associated with
foreign operations. See "Risk Factors -- Foreign Operations; Currency
Fluctuations."
The increase in the Company's wafer supply arrangements could strain
the Company's management and engineering resources. This strain on
resources could be exacerbated by the geographic distances between the
Company's facilities and the various wafer production facilities. There can
be no assurance that the Company will be able to hire additional management,
engineering and other personnel as needed to manage its expansion programs
effectively and to implement new production capacity in a timely manner and
within budget.
The Company believes other manufacturers are also expanding or
planning to expand their fabrication capacity over the next several years.
There can be no assurance that the industry's expansion of wafer production
will not lead to additional overcapacity. If this were to occur, the market
price for wafers sold by third party foundries could further decline, and
the wafers produced by the Company's joint ventures could become more costly
relative to prevailing market prices.
As part of its strategy to expand its sources of wafer supply, the
Company entered into volume purchase agreements with Taiwan Semiconductor
Manufacturing Co. Ltd. ("TSMC") under which the Company is committed to
purchase a fixed minimum number of wafers at market prices and TSMC
guaranteed to supply certain quantities. Under one of these agreements, the
Company has agreed to make advance payments to TSMC of approximately $118
million. The parties have been reevaluating these arrangements, and,
although no written agreement has been concluded, the Company believes that
the requirement for advance payments may be replaced by long-term purchase
commitments. Under the agreements, if the Company does not purchase the
committed amounts, it may be required to pay penalties. In addition, in the
fall of 1995, the Company entered into agreements with United
Microelectronics Corporation ("UMC"), a Taiwanese company, that provide
that UMC will form a new corporation to be called United Silicon, Inc. to
build a wafer fabrication facility and to manufacture and sell wafers, wafer
die and packaged integrated circuits. The agreements contemplated that the
Company's total investment would be approximately $88 million, in exchange
for which the Company would receive 15% of the equity of United Silicon,
Inc. as well as the right (but not the obligation) to purchase up to 18.75%
of the wafer output of the new facility at fair market prices. The Company
made $20.6 million of this investment in the fourth quarter of fiscal 1996.
The Company does not expect to make additional scheduled investments. Should
the Company not make any additional investments, the Company's ultimate
equity holding would be substantially less than 15% and the Company would
not retain rights to guaranteed capacity. In such case, it is possible that
the venture could be restructured which potentially could adversely affect
the value of the Company's investment.
Dependence on Vendors for Wafer Supply and Assembly
Most of the Company's wafers are currently manufactured to the
Company's specifications by outside merchant wafer suppliers. Although the
Company has increased its future wafer supplies from manufacturing joint
ventures, the Company expects to purchase a substantial portion of its
wafers from, and to be reliant upon, outside merchant wafer suppliers for at
least the next two years although the number of suppliers it uses may
diminish. A decrease in the volume of wafers ordered or the number of
suppliers used by the Company could adversely affect the Company's ability
to obtain wafers from third party suppliers in the event the Company faces
unanticipated shortfalls in supply.
The Company also uses other outside vendors to package the wafer die
into ICs. The Company's reliance on these outside suppliers involves
several risks, including the absence of adequate availability of certain
packaging technologies, and less control over delivery schedules,
manufacturing yields and costs. There is no assurance that the Company will
not encounter difficulties with its outside vendors that affect the
Company's results of operations in the future.
Although wafer and packaging supplies in general are expected to be
sufficient to meet expected demand in the near future, the Company's results
of operations could be adversely affected if particular suppliers are unable
to provide a sufficient and timely supply of product, whether because of raw
materials shortages, capacity constraints, unexpected disruptions at the
plants, delays in qualifying other suppliers or other reasons, or if the
Company is forced to purchase wafers from higher cost suppliers or to pay
expediting charges to obtain additional supply, or if the Company's test
facilities are disrupted for an extended period of time. The Company's
results of operations also could be adversely affected if the Company's
suppliers are subject to injunctions arising from alleged violations of
third party intellectual property rights. The enforcement of such an
injunction could impede a supplier's ability to provide wafers, components
or packaging services to the Company. In addition, the Company's
flexibility to move production of any particular product from one wafer
manufacturing facility to another can be limited in that such a move can
require significant re-engineering, which may take several quarters. These
efforts also dilute the engineering resources assigned to new product
development and adversely affect new product development schedules.
Accordingly, production may be constrained even though capacity is available
at one or more wafer manufacturing facilities. In addition, the Company
could encounter supply shortages if sales grow substantially. Any supply
shortage could adversely affect sales and operating profit. Net sales and
gross margin also could be adversely affected if the Company receives orders
for large volumes of products to be shipped within short periods and if the
Company's product testing capacity is not adequate to process such volumes.
Dependence on PC Market and PC Manufacturers
Sales of most of the Company's products depend largely on sales of
personal computers ("PCs"). Reduced growth in the PC market could affect the
financial health of the Company as well as its customers. Moreover, as a
component supplier to PC original equipment manufacturers ("OEMs") and to
peripheral device manufacturers, the Company is likely to experience a
greater magnitude of fluctuations in demand than the Company's customers
themselves experience. In addition, many of the Company's products are used
in PCs for the consumer market, and the consumer PC market is more volatile
than other segments of the PC market.
Other integrated circuit ("IC") makers, including Intel Corporation,
have expressed their interest in integrating through hardware functions,
adding through special software functions, or kitting components to provide
some multimedia or communications features into or with the central
microprocessor or in mediaprocessor products. Successful integration of
these functions could substantially reduce the Company's opportunities for
IC sales in these areas.
A number of PC OEMs buy products directly from the Company and also
buy motherboards, add-in boards or modules from suppliers who in turn buy
products from the Company. Accordingly, a significant portion of the
Company's sales may depend directly or indirectly on the sales to a
particular PC OEM. Since the Company cannot track sales by motherboard,
add-in board or module manufacturers, the Company may not be fully informed
as to the extent or even the fact of its indirect dependence on any
particular PC OEM, and, therefore, may be unable to assess the risk of such
indirect dependence.
The PC market is intensely price competitive. The PC manufacturers in
turn put pressure on the price of all PC components, and this pricing
pressure is expected to continue.
Rapid Technological Change; Dependence on New Products
Most of the markets in which the Company operates are characterized
by rapid technological change and frequent introduction of new technology
leading to more complex and powerful products. The result is a cyclical
environment with short product life cycles, price erosion and high
sensitivity to overall business conditions. In addition, substantial
capital and research and development investment is required for products and
processes to keep up with the rapid pace of technological change.
The Company's products are in various stages of their product life
cycles. The Company's success is highly dependent upon its ability to
develop complex new products, to introduce them to the marketplace ahead of
the competition, and to have them selected for design into products of
leading system manufacturers. These factors have become increasingly
important to the Company's results of operations because the rate of change
in the markets served by the Company continues to accelerate. Since product
life cycles are continually becoming shorter, market shares and revenues
may be affected quickly if new product introductions are delayed, if the
Company's products are not designed into successive generations of products
of the Company's customers or if the customer's products are not successful
in the market. The Company's gross margins also will depend on the
Company's success at introducing and ramping production of new products
quickly and effectively because the gross margins of semiconductor products
decline as competitive products are introduced. In fiscal 1996, for
example, gross margins for certain graphics and audio products and certain
older fax/data/modem products declined in response to the announcement and
introduction of newer products by the Company and its competitors. Also,
the Company must deliver products to customers according to customer
schedules. Delays in new product introductions could affect revenues and
gross margins for current and follow-on products if customers shift to
competitors to meet their requirements.
Risks Associated with Display Graphics Market
The Company continues to experience intense competition in the sale
of graphics products. Several competitors have introduced products and
adopted pricing strategies that have increased competition in the desktop
graphics market, and new competitors continue to enter the market. These
competitive factors affected the Company's market share, gross margins, and
earnings in the third quarter of fiscal 1997 and are likely to affect
revenues and gross margins for graphics accelerator products in the future.
The PC graphics market today consists primarily of two-dimensional
("2D") graphics accelerators, and 2D graphics accelerators with video
features. Three-dimensional ("3D") graphics acceleration is expected to
become an important capability in late fiscal 1997 and fiscal 1998,
primarily in PC products for the consumer marketplace. Several competitors
are already in production of 3D accelerators.
During the second quarter of fiscal 1997, the Company introduced and
began shipping its first RAMBUS DRAM ("RDRAM")-based 3D accelerator for the
mainstream PC market. The Company is striving to bring additional products
with 3D acceleration to market, but there is no assurance that it will
succeed in doing so in a timely manner. If these additional products
are not brought to market in a timely manner or do not address the market
needs or cost or performance requirements, then the Company's graphics
market share and sales will be adversely affected. Revenues from the
sale of graphics products in fiscal 1998 are also likely to be significantly
dependent on the success of the Company's current DRAM-based 2D
graphics/video accelerators and the Company's SGRAM-based 2D graphics/video
accelerators.
Risks Associated with Multimedia Audio Market
Most of the Company's revenues in the multimedia audio market derive
from the sales of 16-bit audio Codecs and integrated 16-bit Codec plus
controller solutions for the consumer PC market. Pricing pressures have
forced a transition from multi-chip solutions to products that integrate the
Codec, controller and synthesis into a single IC. The Company's revenues
from the sale of audio products in fiscal 1998 are likely to be
significantly affected by the success of its recently introduced fully-
integrated, single-chip audio ICs. Moreover, aggressive competitive pricing
pressures have adversely affected and may continue to adversely affect the
Company's revenues and gross margins from the sale of single-chip audio ICs.
In addition, the introduction of new audio products from the Company's
competitors, the introduction of mediaprocessors and the introduction of MMX
processors with multimedia features by Intel Corporation could adversely
affect revenues and gross margins from the sale of the Company's audio
products.
Three-dimensional spatial effects audio is expected to become an
important feature in late fiscal 1997 and in fiscal 1998, primarily in
products for the consumer marketplace. The Company has begun shipping such
products. If the Company's spatial effects audio products do not meet the
cost or performance requirements of the market, revenues from the sale of
audio products would be adversely affected.
Risks Associated with Mass Storage Market
The disk drive market has historically been characterized by a small
number of disk drive manufacturers and by periods of rapid growth followed
by periods of oversupply and contraction. Growth in the mass storage market
is directly affected by growth in the PC market. Disk drive manufacturers
often build inventories during periods of anticipated growth, which results
in excess inventories when growth slows. As a result, suppliers to the disk
drive industry have experienced large and sudden fluctuations in product
demand. Furthermore, the price competitive nature of the disk drive
industry continues to put pressure on the price of all disk drive
components. In addition, consolidation in the disk drive industry has
reduced the number of customers for the Company's mass storage products and
increased the risk of large fluctuations in demand.
The Company believes that excess inventories of CD-ROMs held by its
customers limited sales of the Company's mass storage products in the second
quarter of fiscal 1997 and limited sales of the Company's optical disk drive
products in the third quarter of fiscal 1997. Revenues from mass storage
products in the fourth quarter of fiscal 1997 and fiscal 1998 are likely to
depend heavily on the success of certain 3.5-inch disk drive products
selected for use by various customers, which in turn depends upon obtaining
timely customer qualification of the new products and upon bringing the
products into volume production timely and cost-effectively.
The Company's revenues from mass storage products are dependent on
the successful introduction by its customers of new disk drive products.
Recent efforts by certain of the Company's customers to develop their own
ICs for mass storage products could in the future reduce demand for the
Company's mass storage products, which could have an adverse effect on the
Company's revenues and gross margins from such products. In addition, in
response to the current market trend towards integrating hard disk
controllers with microcontrollers, the Company's revenues and
gross margins from its mass storage products will be dependent on the
Company's ability to introduce such integrated products in a commercially
competitive manner.
Risks Associated with Communications Market
Most of the Company's revenues from communications products are
expected to derive from sales of voice/data/fax modem chip sets. The market
for these products is intensely competitive, and competitive pricing
pressures have affected and are likely to continue to affect the average
selling prices and gross margins from this product line. The success of the
Company's products will depend not only on the products themselves but also
on the degree and timing of market acceptance of new performance levels
developed by U.S. Robotics, which will be supported by the Company's new
products, and the development of standards with regard to these new
performance levels. Moreover, as a relatively new entrant to this market,
the Company may be at a competitive disadvantage to suppliers who have long-
term customer relationships, have greater market share or have greater
financial resources. In addition, the introduction of new modem products
from the Company's competitors, the introduction of mediaprocessors and the
introduction of MMX processors with multimedia features by Intel Corporation
could adversely affect revenues and gross margins from the sale of the
Company's modem products.
Product Performance Risks
The greater integration of functions and complexity of operation of
the Company's products increase the risk that latent defects or subtle
faults could be discovered by customers or end users after volumes of
product have been shipped. If such defects were significant, the Company
could incur material recall and replacement costs for product warranty.
Inventory Risk; Shortened Customer Lead Times
The Company must order wafers and build inventory well in advance of
product shipments. Because the Company's markets are volatile and subject
to rapid technology and price changes, there is a risk that the Company will
forecast incorrectly and produce excess or insufficient inventories of
particular products. This inventory risk is heightened because many of the
Company's customers place orders with short lead times and because sales to
these customers have increased as a percentage of total sales, particularly
for certain graphics and audio products. In the third quarter of fiscal
1996, these factors caused the Company to produce excess inventories of
particular products, and the Company's revenues and earnings were adversely
affected. In addition, the Company's minimum commitments under its joint
ventures may result in the Company producing inventory in excess of current
and short-term demand in order to avoid incurring charges for
underutilization. These factors increase not only the inventory risk but
also the difficulty of forecasting quarterly operating results. Moreover,
as is common in the semiconductor industry, the Company frequently ships
more product in the third month of each quarter than in either of the first
two months of the quarter, and shipments in the third month are higher at
the end of that month. The concentration of sales in the last month of the
quarter contributes to the difficulty in predicting the Company's quarterly
revenues and results of operations.
Competition
The Company's business is intensely competitive and is characterized
by new product cycles, price erosion and rapid technological change.
Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because of shortened product life cycles and even shorter design-in cycles,
the Company's competitors have increasingly frequent opportunities to
achieve design wins in next generation systems. In the event that
competitors succeed in supplanting the Company's products, the Company's
market share may not be sustainable and net sales, gross margin, and
earnings would be adversely affected. Competitors include major domestic
and international companies, many of which have substantially greater
financial and other resources than the Company with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Emerging companies are also increasing their participation in the market, as
well as customers who develop their own integrated circuit products.
Competitors include manufacturers of standard semiconductors, application
specific integrated circuits and fully customized integrated circuits,
including both chip and board-level products. The ability of the Company to
compete successfully in the rapidly evolving area of high-performance
integrated circuit technology depends significantly on factors both within
and outside of its control, including, but not limited to, success in
designing, manufacturing and marketing new products, wafer supply,
protection of Company products by effective utilization of intellectual
property laws, product quality, reliability, ease of use, price, diversity
of product line, efficiency of production, the pace at which customers
incorporate the Company's integrated circuits into their products, success
of the customers' products and general economic conditions. Also the
Company's future success depends, in part, upon the continued service of its
key engineering, marketing, sales, manufacturing, support and executive
personnel, and on its ability to continue to attract, retain and motivate
qualified personnel. The competition for such employees is intense, and the
loss of the services of one or more of these key personnel could adversely
affect the Company. Because of this and other factors, past results may not
be a useful predictor of future results. See "-- Dependence on PC Market and
PC Manufacturers."
Intellectual Property Risks
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The Company and
certain of its customers from time to time have been notified that they may
be infringing certain patents and other intellectual property rights of
others. In addition, customers have been named in suits alleging
infringement of patents by customer products. Certain components of these
products have been purchased from the Company and may be subject to
indemnification provisions made by the Company to its customers. Although
licenses are generally offered in situations where the Company or its
customers are named in suits alleging infringement of patents or other
intellectual property rights, there can be no assurance that litigation will
not be commenced in the future regarding patents, mask works, copyrights,
trademarks, trade secrets, or indemnification liability, or that any
licenses or other rights can be obtained on acceptable terms. Because
successive generations of the Company's products tend to offer an increasing
number of functions, there is a likelihood that more of these claims will
occur as the products become more highly integrated. The Company cannot
accurately predict the eventual outcome of any suit or other alleged
infringement of intellectual property. An unfavorable outcome occurring in
any such suit could have an adverse effect on the Company's future
operations and/or liquidity. Furthermore, efforts of defending the Company
against such lawsuits could divert a significant portion of the Company's
financial and management resources.
Managing Change
The Company has experienced rapid change involving acquisitions and
divestitures, changes in the number of employees, growth in the scope and
geographic area of its operations, and involvement in manufacturing joint
ventures. These changes have resulted in new and increased responsibilities
for management personnel and have placed added pressures on the Company's
operating and financial systems. In the fourth quarter of fiscal 1996, the
Company began implementing a program to streamline operations and improve
its internal management systems. The Company must continue to improve its
operational, financial and management systems and must continue to integrate
new employees and new operations, such as the Cirent Semiconductor joint
venture. If the Company is unable to manage change effectively or hire or
retain qualified personnel, the Company's business and results of
operations could be materially adversely affected. See "Business --
Employees."
Foreign Operations; Currency Fluctuations
Because many of the Company's subcontractors and several of the
Company's key customers, which customers collectively account for a
significant percentage of the Company's revenues, are located in Japan and
other Asian countries, the Company's business is subject to risks associated
with many factors beyond its control. International operations and sales
may be subject to political and economic risks, including political
instability, currency controls, exchange rate fluctuations, and changes in
import/export regulations, tariff and freight rates. Although the Company
buys hedging instruments to reduce its exposure to currency exchange rate
fluctuations, the Company's competitive position can be affected by the
exchange rate of the U.S. dollar against other currencies, particularly the
Japanese yen. In addition, various forms of protectionist trade legislation
have been proposed in the United States and certain other countries. Any
resulting change in current tariff structures or other trade and monetary
policies could adversely affect the Company's international operations.
There can be no assurance that the political and economic risks to which the
Company is subject will not result in customers of the Company defaulting
on payments due to the Company or in the reduction of potential purchases of
the Company's products.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the
continued service of its key engineering, marketing, sales, manufacturing,
support and executive personnel, and on its ability to continue to attract,
retain and motivate qualified personnel. The competition for such employees
is intense, and the loss of the services of one or more of these key
personnel could adversely affect the Company. See "Business -- Employees."
Limitations on Repurchase of Registrable Notes
The Company's ability to repurchase Registrable Notes upon the
occurrence of a Change in Control is subject to limitations. There can be
no assurance that the Company would have the financial resources, or would
be able to arrange financing, to pay the repurchase price for all the
Registrable Notes that might be delivered by Holders of Registrable Notes
seeking to exercise the repurchase right. Moreover, although under the
Indenture the Company may elect, subject to satisfaction of certain
conditions, to pay the repurchase price for the Registrable Notes using
shares of Common Stock, the terms of the Company's existing revolving credit
facility prohibit the repurchase of Notes by the Company or its subsidiaries
in cash or any other form of payment including shares of Common Stock, and
the Company's ability to purchase Registrable Notes may be limited or
prohibited by the terms of any future borrowing arrangements, including
Senior Indebtedness existing at the time of a Change in Control. The
Company's ability to repurchase Notes with cash may also be limited by the
terms of its subsidiaries, borrowing arrangements due to dividend
restrictions. Any failure by the Company to repurchase the Registrable
Notes when required following a Change in Control would result in an Event
of Default under the Indenture whether or not such repurchase is permitted
by the subordination provisions of the Indenture. Any such default may, in
turn, cause a default under Senior Indebtedness of the Company. Moreover,
the occurrence of a Change in Control would result in an Event of Default
under the Company's existing revolving credit facility and may cause an
event of default under the terms of other Senior Indebtedness of the
Company. As a result, in each case, any repurchase of the Registrable Notes
would, absent a waiver, be prohibited under the subordination provisions of
the Indenture until the Senior Indebtedness is paid in full. In addition,
the Company's repurchase of Registrable Notes as a result of the occurrence
of a Change in Control may be prohibited or limited by, or create an event
of default under, the terms of agreements related to borrowings which the
Company may enter into from time to time, including agreements relating to
Senior Indebtedness. See "Description of Registrable Notes -- Repurchase at
Option of Holders Upon a Change in Control."
Absence of Public Market for the Registrable Notes
The Registrable Notes were issued in December 1996 to a small number
of institutional buyers. The Registrable Notes issued in reliance on 144A
have been designated for trading on the PORTAL Market. Registrable Notes
sold pursuant to the Registration Statement of which this Prospectus forms a
part are no longer eligible for trading on the PORTAL Market. The
Registration Statement of which this Prospectus forms a part is filed
pursuant to the Registration Agreement, which does not obligate the Company
to keep the Registration Statement effective after the third anniversary of
the date when the Registration Statement is declared effective or, if
earlier, the date when all the Registrable Notes and the Common Stock
issuable on conversion thereof covered by the Registration Statement have
been sold pursuant to the Registration Statement or may be resold without
registration by persons that are not affiliates of the Company pursuant to
Rule 144(k) under the Securities Act. The Company does not intend to apply
for listing of the Registrable Notes on any securities exchange or to seek
approval for quotation through any automated quotation system. The Initial
Purchasers have advised the Company that they intend to make a market in the
Registrable Notes. The Initial Purchasers are not obligated, however, to
make a market in the Registrable Notes and any such market making may be
discontinued at any time in the sole discretion of the Initial Purchasers
without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Registrable Notes.
Possible Volatility of Registrable Notes and Stock Price
The Company anticipates that its quarterly revenues and operating
results will fluctuate substantially from quarter to quarter as a result of
a wide variety of factors, many of which are outside of the Company's
control, including, but not limited to, economic conditions and overall
market demand in the United States and worldwide, the Company's ability to
introduce new products and technologies on a timely basis, the ability of
the Company to utilize fully the capacity of its manufacturing joint
ventures and the ability of such joint ventures to produce wafers on a
timely and competitive basis, changes in product mix, pricing decisions,
fluctuations in manufacturing costs which affect the Company's gross
margins, declines in market demand for the Company's and its customers'
products, sales timing, the level of orders which are received and can be
shipped in a quarter, the cyclical nature of both the semiconductor industry
and the markets addressed by the Company's products, product obsolescence,
price erosion, and competitive factors, which may have a significant impact
on the market price of Registrable Notes and the Common Stock into which
they are convertible. The trading price of the Common Stock has been, and
the trading price of the Registrable Notes and the Common Stock into which
they are convertible may continue to be, subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, changes in
earnings estimates by analysts, announcements concerning new products,
strategic relationships or technological innovations by the Company or its
competitors, general conditions in the computer industry and other events or
facts. In recent years the stock market in general, and the shares of
technology companies in particular, have experienced extreme price
fluctuations. This volatility has had a substantial effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance. These broad market fluctuations may adversely affect
the market price of the Registrable Notes and Common Stock.
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Registrable Notes or the Common Stock issuable upon conversion thereof by
the Selling Securityholders.
MARKET PRICES AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "CRUS." The following table shows for the
periods indicated the high and low sales prices for the Common
Stock.
High Low
------ ------
Fiscal year ended April 1, 1995
First quarter $19.07 $14.00
Second quarter 17.35 12.69
Third quarter 15.57 10.63
Fourth quarter 19.13 11.50
Fiscal year ended March 30, 1996
First quarter 33.69 17.06
Second quarter 59.63 31.00
Third quarter 55.50 19.75
Fourth quarter 26.38 17.13
Fiscal year ended March 31, 1997
First quarter 25.13 16.88
Second quarter 21.88 13.38
Third quarter 24.13 15.75
Fourth quarter (through March 14, 1997) 17.11 12.31
At March 13, 1997, there were approximately 2,456 holders of record
of the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock and
presently intends to continue a policy of retaining any earnings for
reinvestment in its business.
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company as of December 28, 1996.
December 28, 1996
(in thousands)
------------------
Obligations under equipment loans and capital leases
(including current portion of $28,540) $ 91,760
Convertible subordinated notes 300,000
Shareholders' equity:
Convertible preferred stock, no par value;
5,000,000,000 shares authorized, none issued -
Common stock, no par value, 140,000,000 shares
authorized, 65,649,776 shares issued and
outstanding(1) 349,165
Retained earnings 104,795
------------------
Total shareholders' equity 453,960
------------------
Total capitalization $ 845,720
==================
(1) Does not include (i) 12,387,090 shares of Common Stock issuable upon
conversion of the Notes; (ii) 15,399,553 shares of Common Stock reserved
for issuance under the Company's stock option plans, under which options
to purchase 13,793,288 shares were outstanding as of December 28, 1996, at
a weighted average exercise price of $17.3951 per share, and (iii) 610,161
shares reserved for issuance under the Company's 1989 Employee Stock
Purchase Plan.
Summary Consolidated Financial Data
<TABLE>
(Amounts in thousands, except per share data and ratios)
<CAPTION> Three Quarters Ended
Fiscal Year (1) ---------------------
------------------------------------------------------- Dec. 30, Dec. 28,
1992 1993 1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales $217,574 $356,478 $557,299 $889,022 $1,146,945 $913,872 $704,237
Cost of sales 110,599 193,759 298,582 512,509 774,350 551,456 434,890
---------- ---------- ---------- ---------- ----------- ---------- ----------
Gross profit 106,975 162,719 258,717 376,513 372,595 362,416 269,347
Operating expenses:
Research and development 41,833 73,447 126,632 165,622 238,791 168,576 179,537
Selling, general and administrative 39,459 54,924 91,887 126,666 165,267 119,476 92,977
Gain on sale of assets - - - - - - (18,922)
Restructuring costs - - - - 11,566 - -
Non-recurring costs - - - 3,856 1,195 1,195 -
Merger costs 2,455 3,400 - 2,418 - - -
---------- ---------- ---------- ---------- ----------- ---------- ----------
Operating income (loss) 23,228 30,948 40,198 77,951 (44,224) 73,169 15,755
Gain on sale of equity investment - - 13,682 - - - -
Foreign currency transaction gains - - - 4,999 - - -
Interest and other income, net 3,700 3,207 4,280 9,129 7,652 5,230 3,784
Interest expense (1,842) (1,610) (2,196) (2,441) (5,151) (2,236) (11,562)
---------- ---------- ---------- ---------- ----------- ---------- ----------
Income (loss) before provision for income taxes
and cumulative effect of accounting change 25,086 32,545 55,964 89,638 (41,723) 76,163 7,977
Provision (benefit) for income taxes 8,801 12,321 18,146 28,236 (5,540) 23,990 2,274
---------- ---------- ---------- ---------- ----------- ---------- ----------
Income (loss) before effect of accounting change 16,285 20,224 37,818 61,402 (36,183) 52,173 5,703
Cumulative effect as of March 31, 1993, of change
in method of accounting for income taxes - - 7,550 - - - -
---------- ---------- ---------- ---------- ----------- ---------- ----------
Net income (loss) $16,285 $20,224 $45,368 $61,402 ($36,183) $52,173 $5,703
========== ========== ========== ========== =========== ========== ==========
Income (loss) per common and common
equivalent share before cumulative
effect of accounting change $0.33 $0.39 $0.67 $0.96 ($0.58) $0.75 $0.09
Cumulative effect of accounting change per
common and common equivalent share - - .13 - - - -
---------- ---------- ---------- ---------- ----------- ---------- ----------
Net income (loss) per common and common
equivalent share $0.33 $0.39 $0.80 $0.96 ($0.58) $0.75 $0.09
========== ========== ========== ========== =========== ========== ==========
Weighted average common and common
equivalent shares outstanding 49,180 52,424 56,402 63,680 62,761 69,437 66,382
Ratio of earnings to fixed charges (2) 9.5x 12.1x 14.7x 17.3x N/A 13.3x 2.1x
</TABLE>
<TABLE>
<CAPTION>
At Fiscal Year End (1) As of
------------------------------------------------------- Dec. 28,
1992 1993 1994 1995 1996 1996
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $76,291 $98,500 $273,527 $251,619 $182,643 $465,088
Total assets 172,070 258,292 517,931 673,534 917,577 1,133,721
Obligations under equipment loans and
capital leases, including current portion 13,560 18,094 19,145 26,205 71,829 91,760
Convertible debt - - - - - 300,000
Shareholders' equity 108,928 143,416 344,315 419,016 428,666 453,960
<FN>
(1) Before fiscal 1994, the Company's fiscal year end was March 31. During the first quarter of
fiscal 1994, the Company changed its reporting period from a 12 month year ending March 31 to a
fiscal year of 52 or 53 weeks ending on the Saturday closest to March 31. Fiscal 1994 ended on
April 2, 1994, fiscal 1995 ended on April 1, 1995 and fiscal 1996 ended on March 29, 1996.
(2) For the purposes of calculating the ratio of earnings to fixed
charges, (i) earnings consist of consolidated income (loss) before provision
for income taxes and cumulative effect of accounting change plus fixed
charges and (ii) fixed charges consist of interest expense incurred,
including capital leases, amortization of interest costs and the portion of
rental expense under leases deemed by the Company to be representative of
the interest factor. Earnings were not sufficient to cover fixed charges
for fiscal 1996 by approximately $41.7 million. Fixed charges exclude
interest on capitalized leases and the interest factor associated with
operating leases of the Company's MiCRUS joint venture, estimated at $1.8
million, $8.9 million, $5.2 million and $11.0 million for fiscal 1995 and
1996, and the three quarters ended December 30, 1995 and December 28, 1996,
respectively, which are guaranteed by the Company or as to which the Company
is otherwise liable. Had such charges been included, the ratio of earnings
to fixed charges for fiscal 1995 and the three quarters ended December 30,
1995 and December 28, 1996 would have been 13.1x, 7.1x, and 1.2x,
respectively. In addition, the deficiency of earnings to cover fixed
charges for fiscal 1996 would have been $50.6 million. During the third
quarter of fiscal 1997, the Company's Cirent joint venture entered into
leases to finance $253 million of equipment, under which the Company is a
co-lessee and guarantor. On a pro forma basis to include the Cirent leases
as if they were outstanding from the beginning of fiscal 1996, the ratio of
earnings to fixed charges for the three quarters ended December 30, 1995
would have been 3.4x and the deficiency of earnings to cover fixed charges
for fiscal 1996 and the three quarters ended December 28, 1996 would have
been approximately $66.5 million and $7.1 million, respectively.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA
(Amounts in thousands except per share amounts)
(Unaudited)
<CAPTION>
Fiscal years by quarter
-----------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------------ ------------------------------------ ---------------------------
1st 2nd 3rd 4th 1st 2nd 3rd * 4th ** 1st 2nd + 3rd ++
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating summary:
Net sales $184,997 $202,211 $228,599 $273,215 $300,269 $317,820 $295,783 $233,073 $214,898 $236,030 $253,309
Cost of sales 96,627 113,715 135,658 166,509 177,689 176,494 197,273 222,894 132,407 145,870 156,613
Gain on sale of assets - - - - - - - - - (6,913) (12,009)
Restructuring costs - - - - - - - 11,566 - - -
Non-recurring costs - 3,856 - - - - 1,195 - - - -
Merger costs - 2,418 - - - - - - - - -
Operating (loss) income 21,426 15,788 19,725 21,012 30,566 48,421 (5,818)(117,393) (9,295) 7,690 17,360
Income (loss) before
income taxes 22,850 18,045 21,142 27,601 33,192 48,228 (5,257)(117,886) (10,636) 4,194 14,419
Net (loss) income $15,575 $12,438 $14,482 $18,907 $22,737 $33,037 ($3,601)($88,356) ($7,605) $2,998 $10,310
Net (loss) income per
common and common
equivalent share $0.24 $0.20 $0.23 $0.29 $0.34 $0.47 ($0.06) ($1.38) ($0.12) $0.05 $0.16
Weighted average common
and common equivalent
shares outstanding 63,740 63,206 63,300 64,472 67,775 70,997 63,273 63,813 64,159 64,776 66,460
<FN>
* In the third quarter of fiscal 1996, cost of sales increased as a result of a charge of approximately $33 million for
inventory written down for lower-than-anticipated shipments of and demand for graphics, core logic and other products
and a $5 million charge for anticipated payments for underutilization of capacity at its MiCRUS joint venture.
** In the fourth quarter of fiscal 1996, cost of sales increased as a result of charge for general market conditions and
the transition to new product releases. Also, there is a restructuring charge related to the streamlining of
operations.
= During August 1996, the Company completed the sale of the PicoPower product line to National Semiconductor,
Inc. The Company received approximately $17.6 million in cash for the PicoPower product line. In connection with
the transaction, the Company recorded a gain of approximately $6.9 million.
++ During December 1996, the Company completed the sale to ADC Telecommunications Inc. of the PCSI product group
that produced CDPD (Cellular Digital Packet Data) base station equipment for wireless service providers, and
developed pACT (personal Air Communications Technology) base stations for AT&T Wireless Services Inc. The Company
received approximately $20.8 million in cash for the group. In connection with the transaction, the Company
recorded a gain of approximately $12.0 million.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Discussion and Analysis contains forward-looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed below and in Risk Factors, that could cause actual results to differ
materially from the Company's expectations. Readers are cautioned not to place
undue reliance on any forward-looking statements, as they reflect management's
analysis only as of the date hereof.
On June 1, 1995, the Board of Directors approved a two-for-one split
of the Company's Common Stock. Shareholders of record as of June 19, 1995
received certificates reflecting the additional shares on July 17, 1995.
All references to the number of shares of Common Stock, warrants and
options to purchase shares of Common Stock, weighted average common and
common equivalent shares outstanding, and share prices have been restated
to reflect the two-for-one split.
During the first quarter of fiscal 1994, the Company changed its
reporting period from a 12 month year ending March 31 to a fiscal year of
52 or 53 weeks ending on the Saturday closest to March 31. Accordingly,
fiscal years 1996, 1995 and 1994 ended on March 30, 1996, April 1, 1995
and April 2, 1994, respectively.
Quarterly Results of Operations
During fiscal 1997, the Company implemented a strategy of focusing on
the markets for multimedia (graphics, video and audio), mass storage and
communications. As part of this strategy, the Company divested
non-core business units and eliminated projects that did not fit within
its core markets. At the same time, the Company also implemented a
program to manage costs and streamline operations. Nevertheless, there is
no assurance that the Company will regain the levels of profitably that it
has achieved in the past or that losses will not occur in the future.
The following table discloses the percentages that income statement
items are to net sales and the percentage change in the dollar amounts for the
same items compared to the similar period in the prior fiscal year.
<TABLE>
<CAPTION>
Percentage of Net Sales
Three Quarters Ended
-------------------
Dec. 28, Dec. 30, Percent
1996 1995 change
--------- --------- ---------
<S> <C> <C> <C>
Net sales 100% 100% -23%
Gross margin 38% 40% -26%
Research and development 25% 18% 7%
Selling, general and administrative 13% 13% -22%
Gain on sale of assets -3% 0% N/A
Non-recurring costs 0% 0% -100%
Income from operations 2% 8% -78%
Income before income taxes 1% 8% -90%
Provision for income taxes 0% 3% -91%
Net income 1% 6% -89%
</TABLE>
Net Sales
Net sales for the first three quarters of fiscal 1997 were $704.2
million, a decrease of 23% from the $913.9 million reported for the
comparable period of fiscal 1996. Sales of graphics, audio, mass storage
and fax/modem products decreased in the first three quarters of fiscal 1997
over the comparable periods in fiscal 1996.
For the first three quarters of fiscal 1997, export sales (including
sales to U.S.-based customers with manufacturing plants overseas) were 62%
of total sales compared to 58% for the corresponding period in fiscal 1996.
The Company's sales are currently denominated primarily in U.S.
dollars. The Company may enter into foreign currency forward exchange and
option contracts to hedge certain of its foreign currency exposures.
Sales to one customer were approximately 10% of net sales during the
first three quarters of fiscal 1997. No other customers accounted for 10%
or more of sales during the first three quarters of fiscal 1997 or fiscal
1996.
Gross Margin
The gross margin was 38% in the first three quarters of fiscal 1997,
compared to 40% for the first three quarters of fiscal 1996. The gross
margin decline for the first three quarters in fiscal 1997 was the result,
in part, of sales of older products with prices lower relative to prices
for those same parts in the first three quarters of fiscal 1996. The gross
margin was also reduced by under-loading charges in the second quarter of
fiscal 1997 from the MiCRUS facility.
Research and Development
The expenditures in the first three quarters of fiscal 1997 were
approximately 25% of net sales compared to 18% in the comparable period of
fiscal 1996. As a result of the Company concentrating new product
development on projects in its core markets, expenses primarily related to
reduced headcount reduced the absolute amount compared to the comparable
period of fiscal 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented
approximately 13% of net sales in the first three quarters of fiscal 1997
compared 13% in the corresponding period in fiscal 1996. The dollar amount
of such expenses decreased as a result of reductions in compensation
expenses, marketing expenses for promotions and advertising, and
administrative expenses.
Gain on Sale of Assets
During August 1996, the Company completed the sale of the PicoPower
product line to National Semiconductor, Inc. The Company received
approximately $17.6 million in cash for the PicoPower product line. In
connection with the transaction, the Company recorded a gain of
approximately $6.9 million.
During December 1996, the Company completed the sale to ADC
Telecommunications Inc. of the PCSI product group that produced CDPD
(Cellular Digital Packet Data) base station equipment for wireless service
providers, and developed pACT (personal Air Communications Technology) base
stations for AT&T Wireless Services Inc. The Company received
approximately $20.8 million in cash for the group. In connection with the
transaction, the Company recorded a gain of approximately $12.0 million.
During January 1997, the Company completed the sale of PCSI's
Wireless Semiconductor Products group's assets to Rockwell International
for $18.1 million cash. This group provided digital cordless chip
solutions for PHS (Personal Handyphone System) and DECT (Digital European
Cordless Telecommunications) as well two-way messaging chip solutions for
pACT (personal Air Communications Technology).
Income Taxes
The Company's effective tax rate was 28.5% for first three quarters
of fiscal 1997, as against 31.5% for the comparable period of fiscal 1996.
The 28.5% estimated annual effective tax rate is less than the U.S.
federal statutory rate of 35%, and less than the effective tax rate of
31.5% for the first three quarters of fiscal 1996, primarily because of
foreign operating results which are taxed at rates other than the U.S.
statutory rate, federal and state research tax credits, and state
investment tax credits.
Annual Operating Results
Results of operations for fiscal 1996 were materially adversely
affected by several factors that occurred during the third and fourth
quarters.
First, revenues from the sale of graphics and audio products declined
in the third and fourth quarters of fiscal 1996 from the levels in the
second quarter of fiscal 1996. This decline was caused by slower than
expected growth in the home PC market, by dramatically reduced demand from
customers for certain graphics, audio, and PicoPower Pentium VL-bus core
logic products and for certain other products, and by softer than expected
business conditions in Taiwan.
Second, the slower than expected sales resulted in substantial
amounts of excess inventory of graphics and audio products. This in turn
caused the Company to record inventory write-offs and write-downs during
both the third and fourth quarters of fiscal 1996. Also, the Company
provided additional amounts for underutilization of capacity at its MiCRUS
joint venture.
Third, because new graphics, audio and fax/modem products were being
introduced, the value of the older products declined substantially. The
Company liquidated some of the older inventory during the fourth quarter
of fiscal 1996.
Fourth, the Company incurred a restructuring charge in the fourth
quarter of fiscal 1996 as a result of streamlining its operations.
Net Sales
Net sales for fiscal 1996 were $1,146.9 million, an increase of 29%
over the $889.0 million for fiscal 1995 and 106% over the $557.3 million
for fiscal 1994.
The net sales increase in fiscal 1996 compared to fiscal 1995 was
the result of growth in sales during the first three quarters of fiscal
1996 offset somewhat by a decline during the fourth quarter of fiscal
1996. Sales of mass storage and wireless communication products increased
in each of the first three quarters of fiscal 1996 but declined in the
fourth quarter of fiscal 1996 against the third quarter of fiscal 1996.
Net sales of graphics and audio products for the first three quarters of
fiscal 1996 increased over the comparable period of fiscal 1995, but
declined in the third and fourth quarters of fiscal 1996 against the
second quarter of fiscal 1996. Net sales of graphics and wireless
communication products declined in the fourth quarter of fiscal 1996 over
the fourth quarter of fiscal 1995.
The net sales increase in fiscal 1995 compared to 1994 was largely
due to an increase in sales of graphics, audio, mass storage and wireless
communications products. Graphics and mass storage product revenue grew
as a result of an increase in unit sales to the desktop personal computer
market segment. Audio product sales grew as a result of an increase in
sales of 16-bit audio codec products. Wireless communications product
sales grew primarily because of Cellular Digital Packet Data (CDPD) base
station installations, beginning in the second quarter of fiscal 1995.
Export sales, principally in Asia, including sales to overseas
operations of domestic corporations, were approximately $647 million in
fiscal 1996 compared to approximately $497 million in fiscal 1995 and
approximately $323 million in fiscal 1994. The Company's sales are
currently denominated in U.S. dollars and Japanese yen. The Company may
purchase hedging instruments to reduce short-term foreign currency
exposure related to certain cash and trade receivables denominated in
Japanese yen.
In fiscal 1996 and 1995, no single customer accounted for 10% or more
of net sales. Sales to International Business Machines Corporation (IBM)
were approximately 10% of net sales in fiscal 1994.
Gross Margin
The gross margin percentage was 32.5% in fiscal 1996, compared to
42.4% and 46.4% in fiscal 1995 and 1994, respectively.
During fiscal 1996, the gross margin percentage declined from 40.8%
in the first quarter to a low of 4.4% in the fourth fiscal quarter. The
gross margin percentage decreased as a result of charges for inventory
written down for lower-than-anticipated shipments of and demand for
graphics, audio, core logic and other products and charges for
underutilization of capacity at the MiCRUS joint venture. The decline in
the gross margin percentage was also the result of higher wafer costs
caused by an increase in wafer prices for merchant wafers, an insufficient
supply of 0.6 micron wafers which made necessary the use of less cost
effective 0.8 micron wafers to meet expanded unit shipments, expediting
expenses related to premiums paid to suppliers to increase production of
the Company's products, lower yields on new products ramping into
production, and lower selling prices on certain graphics, audio and
fax/modem products.
During fiscal 1995, the gross margin percentage declined from a high
of 47.8% in the first fiscal quarter to a low of 39.1% in the fourth
fiscal quarter. During fiscal 1994, the gross margin percentage increased
from a low of 38.0% in the first fiscal quarter to 48.5% in the fourth
fiscal quarter. The decline in the gross margin percentage for fiscal
1995 compared to fiscal 1994 was mostly the result of expediting expenses
related to premiums paid to suppliers to increase production of the
Company's products, higher wafer costs caused by the increased use of more
expensive suppliers, low yield on several new products ramping into
production, and lower selling prices on certain graphics and audio parts.
Exacerbating the gross margin decline was the insufficient supply of 0.6
micron wafers which made necessary the use of less cost-effective 0.8
micron wafers to meet expanded unit shipments. The decrease in the gross
margin percentage for fiscal 1995 compared to fiscal 1994 was tempered by
a $10 million charge to cost of sales in the first quarter of fiscal 1994
as a result of decreased demand for certain of the Company's low-end mass
storage products. One-time royalty revenue of approximately $3 million
was included in net sales in the first quarter of fiscal 1995. But,
offsetting this royalty revenue was an increased inventory reserve as a
result of decreased forecasted demand for certain of the Company's 16-bit
audio codecs.
Research and Development Expenses
Research and development expenses expressed as a percentage of net
sales were 20.8%, 18.6% and 22.7% in fiscal 1996, 1995 and 1994,
respectively. Such expenses increased in absolute dollars in all of the
fiscal years, as the Company continues to invest in new product
development. During fiscal 1994, research and development expenses
increased at a greater rate than net sales. Therefore, the amount as a
percentage of net sales declined in fiscal 1995. The Company intends to
continue making substantial investments in research and development and
expects these expenditures will continue to increase in absolute amounts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented
approximately 14.4%, 14.2% and 16.5% in fiscal 1996, 1995 and 1994,
respectively. In fiscal 1994, such expenses increased at a rate greater
than sales. Therefore, the amount as a percentage of net sales declined
in fiscal 1995. The absolute spending increase in fiscal 1996 and 1995
reflects increased direct expenses for the expanding sales force,
increased marketing expenses for promotions and advertising, and increased
administrative and legal expenses. The Company expects these expenses to
increase in absolute terms during fiscal 1997.
Restructuring Costs
In the fourth quarter of fiscal 1996, as a result of decreased demand
for the Company's products for use in personal computers, which accounts
for more than 80% of the Company's revenue, management reviewed the
various operating areas of the business and took certain steps to bring
operating expenses and capacity in line with demand. These actions
resulted in a pre-tax restructuring charge of approximately $11.6 million.
The principal actions in the restructuring involved the consolidation of
support infrastructure and the withdrawal from an unprofitable product
line and reduction of planned production capacity. This resulted in the
elimination of approximately 320 positions from the manufacturing,
research and development, sales and marketing and administrative
departments. The Company estimates the annual savings from reduced
salaries, benefits, and other expenses will be approximately $17 million.
The major components of the restructuring charges were $7.6 million
of employee separation costs and $4.0 million of costs primarily
associated with the scaling back of certain capacity commitments. The
implementation of this plan commenced during the fourth quarter of fiscal
1996 and the cash outlays occurred mainly in the first half of fiscal
1997.
Non-recurring and Merger Costs
In the third quarter of fiscal 1996, non-recurring costs were
approximately $1.2 million associated with the planned formation of the
new joint venture (Cirent Semiconductor) with Lucent Technologies
(formerly AT&T Microelectronics).
In the second quarter of fiscal 1995, non-recurring and merger costs
were approximately $6.3 million. Non-recurring costs of $3.9 million were
primarily associated with the acquisition of technology and marketing
rights and the remaining minority interest in a subsidiary, and the
formation of the MiCRUS joint venture with IBM. Merger costs of
approximately $2.4 million for the August 1994 combination of Cirrus Logic
and PicoPower included one-time costs for charges related to the
combination of the two companies, financial advisory services, and legal
and accounting fees.
Interest Income
Interest income and other, net in fiscal 1996 was $7.7 million
compared to $9.1 million in fiscal 1995 and $4.3 million in fiscal 1994.
The decrease in fiscal 1996 over fiscal 1995 was primarily the result of a
decrease in the amount of short-term investments. The increase in fiscal
1995 over fiscal 1994 was primarily the result of increased cash and cash
equivalents and short-term investments principally resulting from the
stock offering in February 1994.
Foreign Currency Transaction Gains
During the fourth quarter of fiscal 1995, the Company recorded
foreign currency transaction gains of approximately $5.0 million. These
gains occurred because of a decline in the U.S. dollar against the
Japanese yen and the impact of this decline on certain yen denominated
assets. Transaction gains and losses were not material in fiscal 1996 and
1994.
Gain on Sale of Investment
During fiscal 1991 and 1992, the Company invested approximately $1.7
million in Media Vision Technology, Inc. (Media Vision) stock. The
investment was accounted for by the cost method and represented an
approximate six percent interest in Media Vision. In April 1993, the
Company sold approximately 16% of its original investment in Media Vision
in an underwritten public offering. In October 1993, the Company sold
approximately 60% of its original investment in Media Vision in the open
market. In connection with the sales, the Company recorded gains of $2.5
million and $11.2 million in the first and third quarters of fiscal 1994,
respectively.
Income Taxes
The benefit for income taxes was 13.3% in fiscal 1996 compared to a
provision for income taxes of 31.5% and 32.4% in fiscal 1995 and 1994,
respectively. The fiscal 1996 benefit rate of 13.3% is different from the
fiscal 1995 rate and from the U.S. statutory rate primarily because of
foreign operating results which are taxed at rates other than the U.S.
statutory rate. The fiscal 1995 rate declined from the fiscal 1994 rate
primarily because of a decrease in state income taxes due to benefits from
investment tax credits. The fiscal 1995 31.5% effective tax rate is less
than the U.S. statutory rate primarily because of the research and
development tax credit and certain foreign earnings taxed at lower rates.
The fiscal 1994 effective tax rate is comprised of a 33.3% annual
effective tax rate and a $500,000 non-recurring benefit in the quarter
ended October 2, 1993. This benefit is caused by increased deferred tax
assets and a larger prior year research and development tax credit as a
result of federal tax legislation in August 1993.
Cumulative Effect of Change in Accounting for Income Taxes
Effective April 1, 1993, the Company changed its method of accounting
for income taxes to the liability method required by Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." As permitted by SFAS No. 109, prior period's financial statements
have not been restated. The change had no material effect on income
before provision for income taxes for the fiscal year ended April 2, 1994.
However, the cumulative effect as of March 31, 1993 of adopting SFAS No.
109 increased net income by approximately $7.6 million.
The Company has considered available evidence supporting the
realizability of net deferred tax assets including carrybacks, future
reversal of temporary differences, and future taxable income exclusive of
temporary differences in the carryforward period of loss and credit
carryforwards. Based on these factors and the Company's prior earnings
history, the Company has determined that it is more likely than not that
the deferred tax assets will be realized. The realizability of the
deferred tax asset will be evaluated on a quarterly basis.
Liquidity and Capital Resources
During December 1996, the Company completed an offering of $300 million
of convertible subordinated notes. The notes bear interest at six percent,
mature in December 2003, and are convertible into shares of the Company's
common stock at $24.2188 per share. In addition during the third quarter
of fiscal 1997, a $250 million lease package was completed, with Cirrus
Logic as guarantor, to finance the advanced fab equipment for the Cirent
Semiconductor manufacturing joint venture.
The Company generated approximately $13.7 million of cash and cash
equivalents in its operating activities during the first three quarters of
fiscal 1997 as compared to generating approximately $53.3 million during
the first three quarters of fiscal 1996. The decrease in cash generated
from operations was primarily caused by the reduction in net income and
the non-cash effect of the gain on sale of assets offset somewhat by an
increase in the non-cash effect of depreciation and amortization and the
net change in operating assets and liabilities.
The Company used $166.6 million in cash in investing activities during
the first three quarters of fiscal 1997, and $103.5 million during the
comparable period of fiscal 1996. The Company reduced short-term
investment activities and additions to property and equipment and
increased investing in joint venture manufacturing agreements and joint
ventures in fiscal 1997 over fiscal 1996. The cash used in fiscal 1997
was reduced somewhat by the proceeds from sale of assets.
Financing activities provided $210.7 million in cash during the first
three quarters of fiscal 1997 and $80.7 million during the comparable
period of fiscal 1996. The increase was primarily the result of the
proceeds from the convertible subordinated notes issued in December 1996,
offset by the repayment of short-term debt.
As of December 28, 1996, the Company has a commitment for a bank line
of credit for borrowings up to a maximum of $150 million expiring on
October 31, 1999, at the banks' prime rate plus one-half percent. As of
December 28, 1996, no borrowings were outstanding under the line.
Borrowings are secured by cash, accounts receivable, inventory,
intellectual property, and stock in the Company's subsidiaries. Use of
the line is limited to the borrowing base as defined by accounts
receivable. Terms of the agreement include satisfaction of certain
financial ratios, minimum tangible net worth, cash flow, and leverage
requirements as well as a prohibition against the payment of a cash
dividend without prior bank approval.
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company believes it must continue to invest in advanced
wafer manufacturing and in test equipment. Investments will be made in
the various external manufacturing arrangements and its own facilities.
The Company intends to obtain most of the necessary capital through direct
or guaranteed equipment lease financing and the balance through debt
and/or equity financing, and cash generated from operations.
There can be no assurance that financing will be available or, if
available, will be on satisfactory terms. Failure to obtain adequate
financing would restrict the Company's ability to expand its manufacturing
infrastructure, to make other investments in capital equipment, and to
pursue other initiatives.
Factors Affecting Future Operating Results
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from
quarter to quarter in the future. The Company's operating results are
affected by a wide variety of factors, many of which are outside of the
Company's control, including but not limited to, economic conditions and
overall market demand in the United States and worldwide, the Company's
ability to introduce new products and technologies on a timely basis,
changes in product mix, fluctuations in manufacturing costs which affect
the Company's gross margins, declines in market demand for the Company's
and its customers' products, sales timing, the level of orders which are
received and can be shipped in a quarter, the cyclical nature of both the
semiconductor industry and the markets addressed by the Company's
products, product obsolescence, price erosion, and competitive factors.
The Company's operating results in the rest of fiscal 1997 and 1998 are
likely to be affected by these factors as well as others.
The Company must order wafers and build inventory well in advance of
product shipments. Because the Company's markets are volatile and subject
to rapid technology and price changes, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories
of particular products. This inventory risk is heightened because many of
the Company's customers place orders with short lead times. Such
inventory imbalances have occurred in the past and in fact contributed
significantly to the Company's operating losses in fiscal 1996. These
factors increase not only the inventory risk but also the difficulty of
forecasting quarterly operating results. Moreover, as is common in the
semiconductor industry, the Company frequently ships more product in the
third month of each quarter than in either of the first two months of the
quarter, and shipments in the third month are higher at the end of that
month. The concentration of sales in the last month of the quarter
contributes to difficulty in predicting the Company's quarterly revenues
and results of operations.
The Company's success is highly dependent upon its ability to develop
complex new products, to introduce them to the marketplace ahead of the
competition, and to have them selected for design into products of leading
system manufacturers. Both revenues and margins may be affected quickly
if new product introductions are delayed or if the Company's products are
not designed into successive generations of products of the Company's
customers. These factors have become increasingly important to the
Company's results of operations because the rate of change in the markets
served by the Company continues to accelerate.
Issues Relating to Manufacturing and Manufacturing Investment
In the first three quarters of fiscal 1997, manufacturing supply
exceeded demand for certain of the Company's products. One consequence was
the Company incurred charges at its MiCRUS facility for failing to purchase
sufficient wafers, negatively impacting gross margins.
Although the Company believes that its efforts to increase its source
of wafer supply through joint ventures (MiCRUS with IBM and Cirent
Semiconductor with Lucent Technologies) and other arrangements have
significant potential benefits to the Company, there are also risks, some
of which materialized in the third and fourth quarter of fiscal 1996 and
the second quarter of fiscal 1997. These arrangements reduce the
Company's flexibility to reduce the amount of wafers it is committed to
purchase and increase the Company's fixed manufacturing costs as a
percentage of overall costs of sales. As a result, the operating results
of the Company are becoming more sensitive to fluctuations in revenues.
In the case of the Company's joint ventures, overcapacity results in
underabsorbed fixed cost, which adversely affects gross margins and
earnings. In the case of the Company's "take or pay" contracts with
foundries, the Company must pay contractual penalties if it fails to
purchase its minimum commitments.
Moreover, the Company will benefit from the MiCRUS and Cirent
Semiconductor joint ventures only if they are able to produce wafers at or
below prices generally prevalent in the market. If, however, either of
these ventures is not able to produce wafers at competitive prices, the
Company's results of operations will be materially adversely affected.
The process of beginning production and increasing volume with the joint
ventures inevitably involves risks, and there can be no assurance that the
manufacturing costs of such ventures will be competitive.
Certain provisions of the MiCRUS and Cirent Semiconductor agreements
may cause the termination of the joint venture in the event of a change in
control of the Company. Such provisions could have the effect of
delaying, deferring or preventing a change of control of the Company.
In connection with the financing of its operations, the Company has
borrowed money and entered into substantial equipment lease obligations
and is likely to expand such commitments in the future. Such indebtedness
could cause the Company's principal and interest obligations to increase
substantially. The degree to which the Company is leveraged could
adversely affect the Company's ability to obtain additional financing for
working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service and other obligations will be dependent
upon the Company's future performance, which will be subject to financial,
business and other factors affecting the operations of the Company, many
of which are beyond its control. An inability to obtain financing to meet
these obligations could cause the Company to default on such obligations.
Although the Company has increased its future wafer supplies from the
MiCRUS and Cirent Semiconductor joint ventures, the Company expects to
continue to purchase portions of its wafers from, and to be reliant upon,
outside merchant wafer suppliers for at least the next two years. The
Company also uses other outside vendors to package the wafer die into
integrated circuits.
The Company's results of operations could be adversely affected in the
future, and has been in the past, if particular suppliers are unable to
provide a sufficient and timely supply of product, whether because of raw
material shortages, capacity constraints, unexpected disruptions at the
plants, delays in qualifying new suppliers or other reasons, or if the
Company is forced to purchase wafers or packaging from higher cost
suppliers or to pay expediting charges to obtain additional supply, or if
the Company's test facilities are disrupted for an extended period of
time. Because of the concentration of sales at the end of each quarter, a
disruption in the Company's production or shipping near the end of a
quarter could materially reduce the Company's revenues for that quarter.
Production may be constrained even though capacity is available at one or
more wafer manufacturing facilities because of the difficulty of moving
production from one facility to another. Any supply shortage could
adversely affect sales and operating profits.
The greater integration of functions and complexity of operations of
the Company's products also increase the risk that latent defects or subtle
faults could be discovered by customers or end users after volumes of
product have been shipped. If such defects were significant, the Company
could incur material recall and replacement costs for product warranty.
Dependence on PC Market
Sales of most of the Company's products depend largely on sales of
personal computers (PCs). Reduced growth in the PC market could affect
the financial health of the Company as well as its customers. Moreover,
as a component supplier to PC OEMs and to peripheral device manufacturers,
the Company is likely to experience a greater magnitude of fluctuations in
demand than the Company's customers themselves experience. In addition,
many of the Company's products are used in PCs for the consumer market,
and the consumer PC market is more volatile than other segments of the PC
market.
Other IC makers, including Intel Corporation, have expressed their
interest in integrating through hardware functions, adding through special
software functions, or kitting components to provide some multimedia or
communications features into or with their microprocessor products.
Successful integration of these functions could substantially reduce the
Company's opportunities for IC sales in these areas.
A number of PC OEMs buy products directly from the Company and also
buy motherboards, add-in boards or modules from suppliers who in turn buy
products from the Company. Accordingly, a significant portion of the
Company's sales may depend directly or indirectly on the sales to a
particular PC OEM. Since the Company cannot track sales by motherboard,
add-in board or module manufacturers, the Company may not be fully
informed as to the extent or even the fact of its indirect dependence on
any particular PC OEM, and, therefore, may be unable to assess the risk of
such indirect dependence.
The PC market is intensely price competitive. The PC manufacturers
in turn put pressure on the price of all PC components, and this pricing
pressure is expected to continue.
Issues Relating to Graphics Products
The Company continues to experience intense competition in the sale
of graphics products. Several competitors introduced products and adopted
pricing strategies that have increased competition in the desktop graphics
market, and new competitors continue to enter the market. These
competitive factors affected the Company's market share, gross margins,
and earnings in the third quarter of fiscal 1997 and are likely to affect
revenues and gross margins for graphics accelerator products in the
future.
The PC graphics market today consists primarily of two-dimensional
("2D") graphics accelerators, and 2D graphics accelerators with video
features. Market demand for three-dimensional ("3D") graphics acceleration
began to grow in the third quarter of fiscal 1997 and is expected to grow
stronger in the fourth quarter of fiscal 1997 and fiscal 1998, primarily in
PC products for the consumer marketplace. Several competitors are already
in production of 3D accelerators.
During the second quarter of fiscal 1997, the Company introduced and
began shipping its first RAMBUS DRAM ("RDRAM")-based 3D accelerator for the
mainstream PC market. The Company is striving to bring additional
products with 3D acceleration to market, but there is no assurance that it
will succeed in doing so in a timely manner. If these additional products,
which were available for sampling during the fourth quarter of fiscal 1997,
are not brought to market in a timely manner or do not address the market
needs or cost or performance requirements, then the Company's graphics
market share and sales will be adversely affected. Revenues from the sale
of graphics products in fiscal 1998 are also likely to be significantly
dependent on the success of the Company's current DRAM-based 2D
graphics/video accelerators and the Company's newly introduced SGRAM-based
2D graphics/video accelerators.
Issues Relating to Audio Products
Most of the Company's revenues in the multimedia audio market derive
from the sales of 16-bit audio Codecs and integrated 16-bit Codec plus
controller solutions for the consumer PC market. Pricing pressures have
forced a transition from multi-chip solutions to products that integrate
the Codec, controller and synthesis into a single IC. The Company's
revenues from the sale of audio products in the fourth quarter of fiscal
1997 are likely to be significantly affected by the success of its
recently introduced fully-integrated, single-chip audio ICs. Moreover,
aggressive competitive pricing pressures have adversely affected and may
continue to adversely affect the Company's revenues and gross margins from
the sale of single-chip audio ICs. In addition, the introduction of new
audio products from the Company's competitors, the introduction of
mediaprocessors and the introduction of MMX processors with multimedia
features by Intel Corporation could adversely affect revenues and gross
margins from the sale of the Company's audio products.
Three-dimensional spatial effects audio is expected to become an
important feature in the fourth quarter of fiscal 1997 and in fiscal 1998,
primarily in products for the consumer marketplace. The Company has begun
shipping such products. If the Company's spatial effects audio products do
not meet the cost or performance requirements of the market, revenues from
the sale of audio products would be adversely affected.
Issues Relating to Mass Storage Market
The disk drive market has historically been characterized by a
relatively small number of disk drive manufacturers and by periods of rapid
growth followed by periods of oversupply and contraction. Growth in the
mass storage market is directly affected by growth in the PC market.
Furthermore, the price competitive nature of the disk drive industry
continues to put pressure on the price of all disk drive components. In
addition, consolidation in the disk drive industry has reduced the number
of customers for the Company's mass storage products and increased the
risk of large fluctuations in demand.
The Company believes that excess inventories held by its customers
limited sales of the Company's mass storage products in the second quarter
of fiscal 1997 and limited sales of the Company's optical disk drive
products in the third quarter of fiscal 1997. Revenues from mass storage
products in the fourth quarter of fiscal 1997 and fiscal 1998 are likely to
depend heavily on the success of certain 3.5 inch disk drive products
selected for use by various customers, which in turn depends upon obtaining
timely customer qualification of the new products and upon bringing the
products into volume production timely and cost-effectively.
The Company's revenues from mass storage products are dependent on
the successful introduction by its customers of new disk drive products.
Recent efforts by certain of the Company's customers to develop their own
ICs for mass storage products could in the future reduce demand for the
Company's mass storage products, which could have an adverse effect on the
Company's revenues and gross margins from such products. In addition, in
response to the current market trend towards integrating hard disk
controllers with microcontrollers, the Company's revenues and gross
margins from its mass storage products will be dependent on the Company's
ability to introduce such integrated products in a commercially
competitive manner.
Issues Relating to Communications Market
Most of the Company's revenues from communications products are
expected to derive from sales of voice/data/fax modem chip sets. The market
for these products is intensely competitive, and competitive pricing
pressures have affected and are likely to continue to affect the average
selling prices and gross margins from this product line. The success of the
Company's products will depend not only on the products themselves but
also on the degree and timing of market acceptance of new performance
levels developed by U.S. Robotics, which will be supported by the
Company's new products, and the development of standards with regard to
these new performance levels. Moreover, as a relatively new entrant to
this market, the Company may be at a competitive disadvantage to suppliers
who have long-term customer relationships, have greater market share or
have greater financial resources. In addition, the introduction of new
modem products from the Company's competitors, the introduction of
media processors and the introduction of MMX processors with multimedia
features by Intel Corporation could adversely affect revenues and gross
margins from the sale of the Company's modem products.
Intellectual Property Matters
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The Company and
certain of its customers from time to time have been notified that they
may be infringing certain patents and other intellectual property rights
of others. In addition, customers have been named in suits alleging
infringement of patents or other intellectual property rights by customer
products. Certain components of these products have been purchased from
the Company and may be subject to indemnification provisions made by the
Company to its customers. Although licenses are generally offered in
situations where the Company or its customers are named in suits alleging
infringement of patents or other intellectual property rights, there can
be no assurance that any licenses or other rights can be obtained on
acceptable terms. Because successive generations of the Company's
products tend to offer an increasing number of functions, there is a
likelihood that more of these claims will occur as the products become
more highly integrated. The Company cannot accurately predict the
eventual outcome of any suit or other alleged infringement of intellectual
property. An unfavorable outcome occurring in any such suit could have an
adverse effect on the Company's future operations and/or liquidity.
Foreign Operations and Markets
Because many of the Company's subcontractors and several of the
Company's key customers, which customers collectively account for a
significant percentage of the Company's revenues, are located in Japan and
other Asian countries, the Company's business is subject to risks associated
with many factors beyond its control. International operations and sales
may be subject to political and economic risks, including political
instability, currency controls, exchange rate fluctuations, and changes in
import/export regulations, tariff and freight rates. Although the Company
buys hedging instruments to reduce its exposure to currency exchange rate
fluctuations, the Company's competitive position can be affected by the
exchange rate of the U.S. dollar against other currencies, particularly
the Japanese yen.
Competition
The Company's business is intensely competitive and is characterized
by new product cycles, price erosion and rapid technological change.
Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because of shortened product life cycles and even shorter design-in
cycles, the Company's competitors have increasingly frequent opportunities
to achieve design wins in next generation systems. In the event that
competitors succeed in supplanting the Company's products, the Company's
market share may not be sustainable and net sales, gross margin, and
earnings would be adversely affected. Competitors include major domestic
and international companies, many of which have substantially greater
financial and other resources than the Company with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Emerging companies are also increasing their participation in the market,
as well as customers who develop their own integrated circuit products.
Competitors include manufacturers of standard semiconductors, application
specific integrated circuits and fully customized integrated circuits,
including both chip and board-level products. The ability of the Company
to compete successfully in the rapidly evolving area of high-performance
integrated circuit technology depends significantly on factors both within
and outside of its control, including, but not limited to, success in
designing, manufacturing and marketing new products, wafer supply,
protection of Company products by effective utilization of intellectual
property laws, product quality, reliability, ease of use, price, diversity
of product line, efficiency of production, the pace at which customers
incorporate the Company's integrated circuits into their products, success
of the customers' products and general economic conditions. Also the
Company's future success depends, in part, upon the continued service of
its key engineering, marketing, sales, manufacturing, support and
executive personnel, and on its ability to continue to attract, retain and
motivate qualified personnel. The competition for such employees is
intense, and the loss of the services of one or more of these key
personnel could adversely affect the Company. Because of this and other
factors, past results may not be a useful predictor of future results.
BUSINESS
This Prospectus contains forward-looking statements within the
meaning of the Private Securities Reform Litigation Act of 1995. Such
forward-looking statements are subject to risks and uncertainties which
could cause actual results to differ materially from those projected. Such
risks and uncertainties include the timing and acceptance of new product
introductions, the actions of the Company's competitors and business
partners, and those discussed below in Management's Discussion & Analysis.
Cirrus Logic is a leading manufacturer of integrated circuits for the
personal computer, telecommunications and consumer electronics markets. The
Company has developed a broad portfolio of products and technologies for
multimedia, including graphics, video and audio, mass storage, including
magnetic hard disk and CD-ROM, communications and data acquisition.
Cirrus Logic targets large existing markets that are undergoing major
product or technology transitions as well as emerging markets. The Company
applies its analog, digital and mixed-signal design capabilities, software
and systems-level engineering expertise to create highly integrated
solutions that enable its customers to differentiate their products and
reduce their time to market. These solutions are implemented in products
that include advanced ICs and related software and subsystem modules.
The Company's customers include most of the top manufacturers of
personal computers ("PCs") and PC-related equipment, including Acer, Apple,
Compaq, Hewlett-Packard, IBM, NEC, Packard Bell and Toshiba. The Company
also serves most of the major disk drive manufacturers, including Fujitsu,
Quantum, Seagate and Western Digital. The Company believes that, in the PC
multimedia market, it is a leading supplier of graphics accelerators and
16-bit audio Codecs, and that, in the mass storage market, it is a leading
supplier of disk drive controllers, disk drive read channel ICs and CD-ROM
controllers. The Company also is a leading supplier of PC CardBus host
adaptors for portable computers, and the Company has recently introduced
advanced ICs for V.34 bis voice/fax/data modems and LAN controllers for PC
applications.
During fiscal 1997, the Company has introduced a number of new
products in its core markets. Within the multimedia segment, in September
1996 the Company introduced its first Laguna RDRAM-based 3D graphics
accelerator ICs, and in the second quarter of fiscal 1997 the Company began
production of single-chip audio solutions that integrate audio Codec,
controller and FM music synthesis and provide 3D spatial sound effects.
Within the mass storage segment, the Company began production of a new
generation of its single-chip digital PRML read-channel chips. These
products have been designed into systems by Seagate, Quantum and Western
Digital. The Company also introduced its first controller for
recordable/erasable CD drives, with increased playback speeds (up to 18x)
and increased record speeds (up to 8x).
Historically, the Company relied for its wafer manufacturing needs
upon "merchant wafers" manufactured by outside suppliers. The Company is
currently one of the world's largest purchasers of merchant wafers. In
response to its rapid growth, and in an effort to gain more control over its
wafer supply, the Company has also been pursuing a strategy to expand its
wafer supply sources by taking direct ownership interests in wafer
manufacturing joint ventures. The Company believes such joint ventures
provide important competitive advantages, including: (i) assured wafer
capacity, (ii) wafer costs potentially lower than the cost of merchant
wafers, particularly during periods in which the industry is capacity
constrained, and (iii) early access to advanced process technology from
industry leaders. In 1994, the Company and IBM formed MiCRUS, a
manufacturing joint venture that produces wafers for both companies. MiCRUS
began operations in 1995 and is now engaged in a second expansion. In
addition, in July 1996, the Company and Lucent Technologies (formerly AT&T
Microelectronics) formed Cirent Semiconductor, a manufacturing joint venture
that will produce wafers for both companies. Cirent Semiconductor is
scheduled to begin operations in calendar 1997. Both the MiCRUS and the
Cirent Semiconductor joint ventures require the Company to provide or
guarantee substantial equipment financing. In November 1996, the Company
completed a lease financing of approximately $253 million of equipment for
its Cirent Semiconductor joint venture. Of this amount, approximately $127
million has been released to reimburse the Company for equipment which had
already been purchased and the remainder has been committed for future
equipment purchases. In addition, the Company has long-term volume purchase
agreements with Taiwan Semiconductor Manufacturing Co., Ltd. The Company
believes that it will continue to rely on merchant wafer suppliers for a
substantial portion of its wafer requirements for at least the next two
years.
From fiscal 1992 through fiscal 1996 the Company grew rapidly, with
revenues increasing from $218 million to $1.15 billion as a result of
internal growth and acquisitions. During this period, the Company launched
programs to pursue a variety of market opportunities within the PC,
communications and consumer electronics markets. In early 1996, however, the
Company determined that the breadth of its programs was diverting
engineering and management resources from products for the Company's core
markets. Accordingly, the Company adopted and began implementing a strategy
of focusing on the markets for multimedia (graphics, video and audio), mass
storage and communications. As part of this strategy, the Company has been
divesting non-core business units and eliminating projects that do not fit
within its core markets. At the same time, the Company has been implementing
an aggressive program to manage costs and streamline operations. During the
second quarter of fiscal 1997, the Company sold its PicoPower core business
unit to National Semiconductor Corporation and sold its solid state flash
memory controller product line to Lexar Microsystems, Inc. In November 1996,
the Company sold the Wireless Infrastructure Group of its PCSI subsidiary to
ADC Telecommunications, Inc. for approximately $23 million.
Background
Integrated circuits have become pervasive and are found in products
ranging from consumer electronics to automobiles. The PC industry is the largest
source of demand for IC's. PC unit shipments for 1995 were estimated at 58
million and are continuing to grow, although the rate of growth in 1996
declined from that experienced in 1994 and 1995. The market also has expanded to
include a broad array of portable products from notebook computers to pocket
organizers and hand-held personal computing and communications devices. In
addition, the average IC content per machine has increased as CD-ROM drives,
16-bit stereo sound, 64-bit graphics accelerators, network access and
fax/modem/voicemail/speakerphones have become increasingly standard.
The vast majority of personal computers shipped today rely on
microprocessors from a single source. With the same processor technology
available across the spectrum of PC products, the primary distinguishing
characteristics of today's leading PCs have become the graphics, video, audio,
mass storage, and communications capabilities and, in portable computers,
weight, form factor (size), screen quality and battery life. PC functionality
is controlled by increasingly complex subsystems, or "computers within the
computer," whose features, performance and cost characteristics are largely
determined by their semiconductor components. Cirrus Logic has developed one of
the industry's broadest portfolios of products and technology to address the
multimedia, communications, and mass storage applications that are among the
primary features used by PC manufacturers to differentiate their products.
Semiconductor vendors to the PC market must provide high levels of innovation
and must contend with increasingly short product lives and extreme cost
pressures. The first product to market that provides a desired new
functionality may earn attractive margins, but prices fall rapidly once
comparable competitive products are available.
These trends create substantial opportunity for semiconductor suppliers
but demand that a broad set of skills be brought together within a single
entity. The cost pressures, the performance requirements and the drive to
smaller form factors have led to higher levels of integration, as circuit
boards containing many chips are replaced by one- or two-chip solutions.
Higher integration in turn requires designers to combine analog and digital
functions into mixed-signal circuits, to combine disparate functions into
single ICs, and to apply increasing levels of systems and software expertise.
As the capabilities of the PC continue to evolve, the core technologies
of the computing, communications, and consumer electronics markets have begun
to converge. For example, consumer audio and video electronics markets,
traditionally based on analog components, are now transitioning to digital
technologies similar to those developed for multimedia audio and video in the
PC. This convergence of technologies provides the opportunity for companies
developing advanced products for PCs to leverage their research and development
investments to serve the communications and consumer electronics markets. In
addition, the transition of these markets from analog to digital technologies
also may create significant additional demand for IC capacity, since digital
designs require larger semiconductors and, consequently, more wafer capacity.
ICs produced with newer, smaller physical dimensions for the circuitry
are substantially smaller and less expensive and provide higher performance
than ICs with the same functionality produced with older generation technology.
For this reason, the demand for lower cost and higher performance ICs has
forced the semiconductor industry to adopt increasingly advanced manufacturing
processes. Most ICs for the markets served by the Company are now manufactured
using 0.8, 0.6 and 0.5 micron processes. The Company believes that the next
generation PCs are likely to require that ICs be manufactured with processes of
0.35 micron or smaller. Historically, wafers produced with the most advanced
process technology have often been in short supply, and the Company anticipates
demand may exceed the supply of 0.35 micron and smaller wafers for the first
two to three years after those technologies become widely used in the Company's
markets.
Company Strategy
The Company's goal is to reinforce its position as a leading supplier of
ICs and related products to the personal computer market, and to leverage its
technology and product positions to expand beyond the personal computer arena
into communications and consumer electronics markets. Key elements of the
Company's strategy include the following:
Focus on Multimedia, Mass Storage and Communications
The Company made a strategic decision in early 1996 to focus product
development and marketing resources on product lines and market segments in
the areas of multimedia (graphics, video and audio), mass storage and
communications. The Company has found its greatest successes in these markets
and the Company believes that these markets will hold important opportunities
both within and beyond the personal computer market. In addition, the Company
continues to support its development activities in data acquisition products,
which serves as a technology driver for mixed-signal capabilities that are
used across all of the Company's product lines. The Company has been
divesting or closing down units and product activities that do not fit within
these areas of focus and increasing engineering resources devoted to product
development within its core markets.
Develop Opportunities for Integration
Within its areas of focus the Company's products often span multiple
functions. For example, in the multimedia market, Cirrus Logic is the only
semiconductor company which currently has significant product offerings and
market share in both graphics/video and audio. Similarly, in the mass storage
market the Company is the only vendor with significant product offerings and
market share in both hard-disk controllers and read-channels. The Company
believes that its breadth of technology within each market area will
facilitate the Company's effort to seek higher levels of integration and
feature and performance enhancements.
Leverage Ownership of Wafer Supply Sources
The Company expects to continue making significant investments in wafer
manufacturing joint ventures, including the MiCRUS joint venture with IBM and
the Cirent Semiconductor joint venture with Lucent Technologies, with the goal
of obtaining more than one-half of its total wafer supply from such sources.
The Company believes such joint ventures can provide important competitive
advantages, including: (i) assured wafer capacity, (ii) wafer costs
potentially lower than the cost of merchant wafers, particularly during
periods in which the industry is capacity constrained, and (iii) early access
to advanced process technology from industry leaders. For example, MiCRUS is
producing wafers using a dense 0.5 micron process technology, and Cirent
Semiconductor is scheduled to begin with 0.35 micron and migrate to 0.25
micron process technology.
Capitalize on Convergence of Existing Technologies
The communications and consumer electronics markets have been
transitioning from analog to digital electronics. As this transition
continues, the Company believes that the technological capabilities it has
developed for the personal computer market are becoming increasingly
applicable to these other markets. The Company seeks opportunities which are
characterized by the convergence of technologies it already has in place or
in development. The Company has recently introduced central processor
products with integrated peripheral functions for Internet appliances and
hand-held computing and communications devices. The Company will seek to
continue increasing its participation in the communications and consumer
electronics markets.
Markets and Products
Cirrus Logic targets large existing markets that are undergoing major
product or technology transitions, as well as emerging markets that have
forecasts of high growth. The Company applies its analog, digital, and mixed-
signal design capabilities, systems-level engineering and software expertise
to create highly integrated solutions that enable its customers to
differentiate their products and reduce their time to market. These solutions
are implemented primarily in ICs and related software, but may also include
subsystem modules and system equipment.
Within the major growth markets represented by personal computers,
communications and consumer electronics, the Company's products address key
system-level applications including multimedia (graphic, video, and audio),
magnetic and optical mass storage, communications, and hand-held and portable
computing and communication devices. The Company's data acquisition products,
which target a variety of industrial and other applications, serve as a
technology driver for mixed-signal capabilities that are used across all of
the Company's product lines.
Multimedia
The Company offers a broad range of multimedia products, comprising
primarily graphics, video, and audio integrated circuits and software. These
products bring TV-quality video and CD-quality stereo audio to multimedia
applications for PCs, workstations, video conferencing and consumer electronics.
The Company's customers in the multimedia market are predominantly PC
OEMs, as well as some of the leading add-in board makers. For the first three
quarters of fiscal 1997, major OEM customers included Acer, Compaq,
Hewlett-Packard, IBM, NEC, Packard Bell and Toshiba, and add-in board customers
included Aztech Systems, Creative Labs, and STB Systems.
PC Graphics and Video
The Company is a leading supplier of graphics accelerators and
integrated graphics/video accelerators for desktop and portable PCs.
Significant revenues come from the Company's families of 64-bit DRAM-based
desktop graphics accelerators for cost-sensitive and mainstream PCs. These
products are implemented in several pin-compatible families which offer a range
of price/performance solutions for OEMs and graphics board makers. The Company
expects the following to be the most important of its graphics and video
products in calendar 1997.
<TABLE>
<CAPTION>
Description Key Features Status
----------- ------------ ------
<S> <C> <C>
64-bit DRAM-based Economical 2D graphics, high quality In production.
VisualMedia quality video, video port, single
Accelerators single video window.
64-bit SGRAM-based High performance 2D graphics, Sampling.
VisualMedia two video windows.
Accelerators
64-bit RDRAM-based High performance 2D and 3D Multiple products In
VisualMedia graphics, multiple video windows. production. AGP (Advanced
Accelerators Graphics Port) versions
expected to sample in first
quarter of calendar 1997.
64-bit DRAM-based Economical 2D graphics, single In production.
VisualMedia video window, high resolution LCD
Accelerators for panel support, low power operation.
Notebook PCS
</TABLE>
In the desktop PC markets, Cirrus Logic was the first vendor to introduce
a cost-effective, single-chip integrated graphics/video product for mainstream
PCS. These products are sold primarily to PC OEMs to be placed directly on the
PC motherboard. The Company has recently introduced the new family of
VisualMedia Accelerators which provide high performance 64-bit graphics using
RDRAM technology, with multiple simultaneous windows of video on screen. The
Company has also recently begun shipping its first 3D graphics product intended
for the mainstream PC market.
Cirrus Logic is also among the leading suppliers of graphics chips for
portable PCS. The Company's products include high performance graphics
controllers using 64-bit EDO DRAM accelerator architectures, as well as cost-
effective 32-bit controllers for sub-notebook PCS. The Company has developed
proprietary techniques for achieving high-quality images on various resolution
LCD panels, for simultaneous display on LCDs and CRT monitors, and for low-
voltage and mixed-voltage design for power sensitive applications.
Audio
The Company offers a wide array of audio products for multimedia
computers. These highly integrated chips and software bring CD-quality sound
and studio quality composition and mixing capabilities to PCS and workstations.
The Company is a leading supplier of 16-bit stereo Codecs for PCS. These
mixed-signal devices use the Company's delta sigma technology to provide high
quality audio input and output functions for PC audio products including those
that offer SoundBlaster, AdLib and Microsoft Sound compatibility. The Company
also offers chips that provide PCS with audio decompression and FM and
wavetable sound/music synthesis. The Company's leading audio product is now a
highly integrated single-chip audio product that integrates Codec,
SoundBlaster and FM synthesis emulation functions. The Company has recently
begun production of products which provide special effects audio technology,
allowing PC games players to perceive sound as coming from various points
around them in a 3-D space.
The following are expected to be the most important of the Company's PC
audio products in calendar 1997.
<TABLE>
<CAPTION>
Description Key Features Status
----------- ------------ ------
<S> <C> <C>
Integrated audio Single chip audio Codec, controller In production.
solution and FM music synthesis. Highest
audio quality.
Integrated audio Single-chip with SRS or Qsound spatial In production.
with 3D sound effects audio. Two products.
</TABLE>
Consumer Products
The Company currently offers over 60 products for the consumer high-
fidelity audio market. Product features include analog/digital and
digital/analog conversion and MPEG audio decompression. The products provide
digital high-fidelity audio record and playback for high end professional
recordings audiophile quality stereo systems, set-top audio decoders, digital
audio tape ("DAT"), CD players, Compact Disk Interactive ("CDI") and
automotive stereo systems. Customers include Philips, Nokia and Sony.
The Company also currently offers PC graphics controller ICs which can
output to standard televisions. These products are being used by customers to
develop products which are hybrids between conventional PCS and TVs, including
Internet appliances.
Mass Storage
The Company supplies chips that perform the key electronics functions
contained in advanced magnetic and optical disk drives. Since pioneering the
IDE (integrated drive electronics) standard for embedded disk drive
controllers in 1986, the Company has helped facilitate the development of
higher capacity 3.5-inch disk drives for desktop computers and workstations
and 2.5-inch, 1.8-inch and 1.3-inch form factor drives for portable computers.
The Company continues to be a leading supplier of controllers to the disk
drive market. In fiscal 1996, the Company continued its strategy of expanding
its opportunity in the disk drive electronics market by offering solutions in
the areas of read channel and motion control electronics. The Company's mass
storage customers include Fujitsu, Quantum, Seagate, Sony, Toshiba and Western
Digital. The following mass storage products are expected to be the most
important in the near term horizon:
<TABLE>
<CAPTION>
Descriptions Key Features Status
------------ ------------ ------
<S> <C> <C>
Advanced Architecture Advanced data handling and error-detection/ In production.
PC AT and SSI Disk correction capabilities for data integrity
Controllers in high performance hard disk drives.
Multiple products.
Digital PRML Read Single-chip digital read/write channel In production.
Channels solutions. Proprietary algorithms allow
more data per disk. Multiple products.
Single-chip ATAPI CD-ROM High data rates (up to 20x speeds), and In production.
Controllers hardware error detection/correction
capabilities for simplified firmware
development. Multiple products.
SCSI and ATAPI CD-R High integration and performance (up to 18x Sampling.
(Recordable CD) read and 8x recording).Handles both CD-R
Controllers and CD-Erasable formats. Advanced
automation for simplified firmware
developments. Two products.
</TABLE>
The Company offers a broad family of magnetic storage controller products
for the AT IDE, PC-Card, Small Computer System Interface ("SCSI") and high-speed
SCSI-2 interface standards. To achieve the high recording densities required by
smaller disk drives, the Company has pioneered a number of controller
innovations, including 88-bit Reed-Solomon error correction, zone-bit recording
and split-data fields.
The Company began volume shipments of its magnetic storage read channel
products in fiscal 1995, and was the first merchant supplier to provide key
data-detection technology known as partial-response, maximum-likelihood
("PRML") for 3.5-inch and small form factor drives. Based on the Company's
CMOS mixed-signal technology and its proprietary SofTarget approach to PRML,
these devices substantially increase the amount of data that can be stored on
a disk platter using existing industry-standard head and media technology.
In fiscal 1995, Cirrus Logic began production of its first CD-ROM
controller product, with Sony Corporation as a development partner and major
customer. The Company has since introduced a second and, recently, a third
generation of CD-ROM controller products. In the first quarter of fiscal 1997
the Company's CD-ROM controllers were used by Optics Storage Pte. Ltd. in the
industry's first 12X speed CD-ROM drive, and more recent products support CD-ROM
speeds of up to 20X. In the second quarter of fiscal 1997 the Company introduced
its first controller products for recordable/erasable CD drives.
Communications
The Company has expanded its offerings of communications products, which
now include modem, local area network and Internet products. The following
communications products are expected to be the most important in calendar 1997:
<TABLE>
<CAPTION>
Description Key Features Status
------------ ------------ ------
<S> <C> <C>
V.34+ FastPath modem Highly integrated voice/data/fax In production.
modem chip sets offering 33.6 Kbps
performance. Multiple products.
V.70, V.80, 56Kbps and Further developments within family V.70 and V.80 sampling.
ISDN FastPath modems roadmap to support voice and data, 56Kbps and ISDN in
video conferencing, and high-speed development.
lines. Multiple products.
Multi-line Serial I/O Extensive family of intelligent In production.
Controllers multi-line input/output devices,
reducing processor overhead burden
in communications equipment.
Multiple products.
PC-Card, Card Bus Host Market-leading product line for In production.
Adapters expansion card slots in notebook
computers. Multiple products.
Local Area Network Highest level of integration for In production.
Controllers simplified design of local area
network controllers for motherboards
and interface cards. Two products.
</TABLE>
The Company introduced the industry's first two-chip intelligent
fax/data/voice modem in 1992. The Company subsequently introduced several high-
performance chip sets with enhanced features for error correction and data
compression, speakerphone capability, and portable computer PC-CardBus
applications. The high level of integration made these products particularly
popular for small form factor PCMCIA cards. The Company believes that during
calendar year 1995 it was one of the top three vendors of fax/data/modem chips
worldwide.
The Company also offers host-adapter products for the PC market. The
Company believes it is the leading supplier of host adapter chips for the
PC-Card (formerly called PCMCIA) standard and for Card Bus. These controllers
allow for credit card sized modules to be plugged into the computer to expand
its functionality in areas such as solid-state memory, hard disks, fax/modems,
networks, and, most recently multimedia audio.
The Company also provides serial and parallel I/O devices that allow
multi-channel, multi-protocol communications. These devices are used in remote
access equipment and terminal servers, communications servers, routers, single
board computers, laser printers and workstations. Customers include Cisco,
Compaq, Motorola, Xylogics and Xyplex.
The Company is a leading supplier of monolithic T-1 line interface
transceivers for telecommunications equipment, with more than 40 part types in
production, and CMOS Ethernet local area network line interface circuits. The
Company produces the industry's most highly integrated mixed-signal Ethernet
controller IC. Customers for these products include Acer, Alcatel, Cisco,
Compaq, IBM, Motorola, Northern Telecom and Samsung.
During fiscal 1996, the Company began producing wireless infra-red ("IR")
communications components which combine the functions of a serial communications
with an IR port for PC, portable and pocket computer, and hand-held remote
controller applications.
Data Acquisition
Through its subsidiary, Crystal Semiconductor, Cirrus Logic has
established a broad line of analog-to-digital converters consisting of general-
purpose and low-frequency measurement devices. These circuits use a combination
of self-calibrating digital correction and delta sigma architectures to improve
accuracy and eliminate expensive discrete analog components. The product family
includes more than 100 products used in industrial automation, instrumentation,
medical, military and geophysical applications. The technology developed for the
Company's data acquisition products is the foundation of the mixed-signal
technology used throughout Cirrus Logic.
Emerging Product Opportunities
The Company is also engaged in developing and is producing high-
integration system-on-a-chip solutions for dedicated Internet appliances and
Network Computers, and for hand-held and ultra-portable computing and
communications appliances such as Personal Digital Assistants and Personal
Communicators. The Company is currently manufacturing two mixed signal products
for the hand held market. Among other features, they integrate touch screen,
audio, temperature and battery measurement and modem Codec capabilities.
The Company provides an integrated CPU/Peripheral IC for Internet
appliances such as Oracle's "Network Computer." The Company has developed highly
integrated products for hand-held computing and communications devices, and is
working with Apple Computer and others for their next generations of such
products. The Company's products in this market incorporate a CPU core licensed
from Advanced RISC Machines (ARM) Limited.
Manufacturing
Historically, the Company relied for its wafer manufacturing needs upon
merchant wafers manufactured by outside suppliers. The Company believes it is
currently one of the world's largest purchasers of merchant wafers. The Company
has also been pursuing a strategy to expand its wafer supply sources by taking
direct ownership interests in wafer manufacturing ventures. In much of 1994 and
1995, the merchant market was unable to meet demand, and the Company's merchant
wafer suppliers sought to limit the proportion of wafers they sold to any
single customer, which further restricted the Company's ability to buy wafers.
Wafer shortages increased the Company's supply costs and at times prevented
the Company from meeting the market demand for its own products. In response
to its rapid growth, and to historical and anticipated supply shortages, the
Company has been pursuing a strategy to expand its wafer supply sources by
taking direct ownership interests in wafer manufacturing joint ventures.
In 1994, the Company and IBM formed MiCRUS, a manufacturing joint venture
that produces wafers for both companies. MiCRUS began operations in 1995 and is
now engaging in a second expansion. In addition, in July 1996, the Company and
Lucent Technologies (formerly AT&T Microelectronics) formed Cirent
Semiconductor, a manufacturing joint venture that will produce wafers for both
companies. Cirent Semiconductor began operations in the fourth quarter of
fiscal 1997. The Company believes that it will continue to rely on merchant
wafer suppliers for a substantial portion of its wafer requirements for at
least the next two years.
The Company's manufacturing strategy is intended to provide the following
benefits:
Assured Capacity. The first goal is to secure a capacity base to
provide improved control over wafer supplies, particularly during
periods of heightened industry-wide demand.
Advantageous Cost Structure. Wafers produced by joint ventures
such as MiCRUS are potentially less expensive than merchant wafers.
Increasing its supply of wafers from such joint ventures may help
the Company achieve lower manufacturing costs than its competitors.
Access to Leading Process Technologies. By partnering with world class
manufacturers such as IBM and Lucent Technologies, the Company can
access leading process technologies which allows it to reduce product
cost, increase performance and increase functionality.
In addition to its wafer supply arrangements, the Company currently
contracts with third party assembly vendors to package the wafer die into
finished products. The Company qualifies and monitors assembly vendors using
procedures similar in scope to those used for wafer procurement. Assembly
vendors provide fixed-cost-per-unit pricing, as is common in the semiconductor
industry.
The Company maintains its own staff for production, engineering and
testing. The Company's manufacturing division currently employs approximately
800 persons. This division qualifies and monitors suppliers' production
processes, participates in process development, package development and process
and product characterization, tests finished wafers and packaged units and
maintains quality standards.
MiCRUS
MiCRUS, which was established in 1994, produces wafers using IBM's wafer
processing technology, and is currently focusing on CMOS wafers with 0.5 micron
process technology. MiCRUS leases an existing IBM facility in East Fishkill,
New York. IBM and Cirrus Logic own 52% and 48%, respectively, of MiCRUS. The
terms of the joint venture initially entitle each Company to purchase 50% of
the MiCRUS output. If one company fails to purchase its full entitlement, the
shortfall may be purchased by the other company or, under limited
circumstances, offered to third parties. However, if the wafers cannot be sold
elsewhere, the company that failed to purchase its full entitlement will be
required to reimburse the joint venture for costs associated with underutilized
capacity. In addition, to the extent that the facility fails to produce wafers
at scheduled capacity, each company will be required to bear its proportionate
share of the underabsorbed fixed costs. The joint venture has a remaining term
of seven years. MiCRUS is managed by a six-member governing board of whom
three are appointed by IBM, two are appointed by Cirrus Logic and one is the
chief executive officer of MiCRUS.
A $120 million expansion was completed in fiscal 1996. A second
expansion, with a currently budgeted cost of $198 million, was agreed to in
1995 and is expected to be completed in 1998. The Company is providing all of
the capital for the second expansion and, accordingly, will be entitled to all
of the additional wafers produced and will be required to reimburse the joint
venture for all of the additional costs associated with any underutilization of
the capacity resulting from such expansion.
In connection with the formation and expansion of the MiCRUS joint
venture, the Company has incurred obligations to make equity contributions to
MiCRUS, to pay MiCRUS for a manufacturing agreement and to guarantee equipment
lease obligations incurred by MiCRUS. To date, the Company has made equity
investments totaling $23.8 million. No additional equity investments are
scheduled. However, the expansion of the MiCRUS production could require
additional equity contributions by the Company.
The manufacturing agreement payments total $71 million, of which $56
million has been paid, $7.5 million is due before the end of fiscal 1998 and
$7.5 million is due to be paid in fiscal 1999. The manufacturing agreement
payments are being charged to the Company's cost of sales over the original
eight-year life of the venture based upon the ratio of current units of
production to current and anticipated future units of production. MiCRUS will
make payments to IBM in amounts equal to the manufacturing agreement payments
made by the Company to MiCRUS.
The equipment financings which have been completed or are committed
total $381 million, of which $145 million was completed in fiscal 1995 and is
guaranteed jointly and severally by IBM and the Company, $176 million has been
completed in fiscal 1996 and fiscal 1997 and is guaranteed by the Company, and
$60 million is scheduled to be completed before the end of fiscal 1997 and will
be guaranteed by the Company. In addition, the Company currently intends to add
an additional $60 million in equipment in fiscal 1998 and an additional $30
million in fiscal 1999 to expand MiCRUS production. The additional amounts
would be financed by an equipment lease guaranteed by the Company. However,
these additional expenditures have not been committed and could be
reconsidered.
Cirent Semiconductor
Cirent Semiconductor will operate two wafer fabs in Orlando, Florida,
both located in the same complex, which is leased from Lucent Technologies.
Cirent Semiconductor is already operating the first fab, from which Lucent
Technologies purchases all of the output at a price that covers all costs
associated with that fab. The second fab has been built by Lucent Technologies
and is expected to begin operations in calendar 1997. The second fab is
scheduled to begin producing CMOS wafers using 0.35 micron processes licensed
from Lucent Technologies, and to migrate to a 0.25 micron process. Lucent
Technologies and Cirrus Logic each will be entitled to purchase one-half of
the output of the second fab. If one company fails to purchase its full
entitlement, the shortfall may be purchased by the other company or offered to
third parties. However, if the wafers cannot be sold elsewhere, the company
that failed to purchase its full entitlement will be required to reimburse
Cirent Semiconductor for costs associated with underutilized capacity. In
addition, to the extent that the facility fails to produce wafers at scheduled
capacity, each company will be required to bear its proportionate share of the
underabsorbed fixed costs. Cirent Semiconductor is owned 60% by Lucent
Technologies and 40% by Cirrus Logic and is managed by a Board of Governors,
of whom three are appointed by Lucent Technologies and two are appointed by
Cirrus Logic. The joint venture has a term of ten years.
In connection with the Cirent joint venture, the Company has committed
to make equity contributions to Cirent Semiconductor, to make payments to
Cirent Semiconductor for a manufacturing agreement and to guarantee and/or
become a co-lessee under equipment lease obligations incurred by Cirent
Semiconductor.
The commitment for equity investment totals $34 million, of which $2
million has been paid, $3 million is due in the fourth quarter of fiscal 1997
and $29 million is due in fiscal 1998. The Company will account for these
payments under the equity method.
The manufacturing agreement payments total $105 million, of which $60
million has been paid, $25 million is due in the first quarter of fiscal
1998 and $20 million is due in fiscal 2000. These payments will be charged
to the Company's cost of sales over the life of the venture based upon the
ratio of current units of production to current and anticipated future units
of production. Cirent Semiconductor will make payments to Lucent
Technologies in amounts equal to the payments made by the Company to Cirent
Semiconductor pursuant to the manufacturing agreement.
The Company has committed to guarantee and/or become a co-lessee of
leases covering up to $280 million of equipment for the Cirent Semiconductor
joint venture. In November 1996, the Company guaranteed and became a co-lessee
under a lease financing arrangement for up to $253 million of equipment of
which $127 million has been used. The Company currently intends to enter into
or guarantee an additional $20 million in lease financings sometime after
fiscal 1998.
Other Wafer Supply Arrangements
Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC"). In 1993 and
1995, the Company entered into volume purchase agreements with TSMC. Under
each agreement, the Company committed to purchase a fixed minimum number of
wafers at market prices and TSMC guaranteed to supply certain quantities. The
agreements expire in March 1997 and December 2001, respectively. Under the
agreement entered into in 1995, the Company has agreed to make advance
payments to TSMC of approximately $118 million, one-half in fiscal 1998 and
one-half in fiscal 1999. The parties have been reevaluating these
arrangements, and, although no written agreement has been concluded, the
Company believes that the requirement for advance payments may be eliminated,
to be replaced by long-term purchase commitments. Under both the 1993 and 1995
agreements, if the Company does not purchase the committed amounts, it may be
required to pay a per wafer penalty for any shortfall not sold by TSMC to
other customers. The Company estimates that under the remaining term of the
1993 agreement, it is obliged to purchase approximately $19 million of
product. Over the term of the 1995 agreement, the Company estimates it must
purchase approximately $790 million of product in order to receive full credit
for the advance payments or avoid penalties if the requirement for advance
payments is eliminated.
United Microelectronics Corporation ("UMC"). In the fall of 1995, the
Company entered into a foundry agreement and a foundry capacity agreement with
UMC, a Taiwanese company. The agreements provide that UMC will form a new
corporation under the laws of Taiwan, to be called United Silicon, Inc., and
that United Silicon, Inc. will build a wafer fabrication facility and
manufacture and sell wafers, wafer die and packaged integrated circuits. The
agreements provide that United Silicon, Inc. will be funded in part with debt
and equipment lease financing from UMC and in part with equity contributions
from the Company and two other U.S. semiconductor companies. The agreements
contemplated that the Company's total investment would be approximately $88
million, in exchange for which the Company would receive 15% of the equity of
United Silicon, Inc. as well as the right (but not the obligation) to purchase
up to 18.75% of the wafer output of the new facility at fair market prices.
The Company paid $20.6 million in the fourth quarter of fiscal 1996. The
Company does not expect to make the additional scheduled investment. Should
the Company not make any additional investments, the Company's ultimate equity
holding would be substantially less than 15% and the Company would not retain
rights to guaranteed capacity. In such case, it is possible that the venture
could be restructured which potentially could affect the value of the
Company's investment.
Patents, Licenses and Trademarks
To protect its products, the Company relies heavily on trade secret,
patent, copyright, mask work and trademark laws. The Company applies for
patents and copyrights arising from its research and development activities
and intends to continue this practice in the future to protect its products
and technologies. The Company presently holds more than 220 registered U.S.
patents, and in several instances holds corresponding international patents,
and has applications pending for more than 475 U.S. patents. The Company has
also licensed a variety of technologies from outside parties to complement its
own research and development efforts.
Research and Development
Research and development efforts concentrate on the design and
development of new products for each market and on the continued enhancement
of the Company's design automation tools. The Company also funds certain
advanced process technology development. Expenditures for research and
development in fiscal 1996, 1995, and 1994 were $238.8 million, $165.6
million, and $126.6 million, respectively. The Company expects that it will
continue substantial research and development spending for the foreseeable
future. At September 28, 1996, the Company had 45% of its employees engaged in
research and development activities. The Company's future success is highly
dependent upon its ability to develop complex new products, to transfer new
products to production in a timely fashion, to introduce them to the
marketplace ahead of the competition and to have them selected for design into
products of leading systems manufacturers.
Competition
Markets for the Company's products are highly competitive, and the
Company expects that competition will increase. The Company competes with
other semiconductor suppliers who offer standard semiconductors, application
specific integrated circuits and fully customized integrated circuits,
including both chip and board-level products. A few customers also develop
integrated circuits that compete with the Company's products. The Company's
competitive strategy has been to provide lower cost versions of existing
products and new, more advanced products for customers' new designs.
While no single company competes with the Company in all of the
Company's product lines, the Company faces significant competition in each of
its product lines. The Company expects to face additional competition from new
entrants in each of its markets, which may include both large domestic and
international semiconductor manufacturers and smaller, emerging companies.
The principal competitive factors in the Company's markets include time
to market; quality of hardware/software design and end-market systems
expertise; price; product benefits that are characterized by performance,
features, quality and compatibility with standards; access to advanced process
and packaging technologies at competitive prices; and sales and technical
support.
Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because its products have not been available from second sources, the Company
generally does not face direct competition in selling its products to a
customer once its integrated circuits have been designed into that customer's
system. Nevertheless, because of shortened product life cycles and even
shorter design-in cycles, the Company's competitors have increasingly frequent
opportunities to achieve design wins in next generation systems. In the event
that competitors succeed in supplanting the Company's products, the Company's
market share may not be sustainable and net sales, gross margin, and earnings
would be adversely affected.
Sales, Marketing and Technical Support
The Company's products are sold worldwide, and historically 50-65% of
revenues have come from shipments to overseas destinations. The Company
maintains an extensive sales force with a matrixed organization, which is
intended to provide centralized coordination of worldwide strategic accounts,
territory-based local support and coverage of smaller customers, and
specialized selling of product lines with unique customer bases.
The Company maintains a major account team and a direct domestic
and international sales force for its PC-related products. The major
account team services the top PC and disk drive manufacturers. The
domestic sales force includes a network of regional direct sales
offices located in California and in Colorado, Florida, Illinois,
Massachusetts, North Carolina, Oregon, Pennsylvania, and Texas.
International sales offices and organizations are located in Taiwan,
Japan, Singapore, Korea, Hong Kong, the United Kingdom, Germany,
Italy, France and Barbados. The Company supplements its direct sales
force with sales representative organizations and distributors.
Technical support staff are located at the sales offices and also at
the Company's facilities in Fremont, California; Broomfield, Colorado;
San Diego, California; Austin and Plano, Texas; Greenville, South
Carolina; Raleigh, North Carolina; and Tucson, Arizona.
The Company's Crystal subsidiary maintains a separate,
smaller sales force for products sold to the industrial, and consumer
electronics.
In fiscal 1996 and 1995, no customer represented 10% or more of
net sales. IBM accounted for approximately 10% of net sales in fiscal
1994. No other customer represented 10% or more of net sales in
fiscal 1994. However, the loss of a significant customer or a
significant reduction in such a customer's orders could have an
adverse effect on the Company's sales.
Export sales information is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II hereof.
The Company believes that the organization of its sales force has
contributed to its level of success in attracting and maintaining major
worldwide customers. A number of major customers together account for a
significant portion of the Company's sales, although no single customer has
represented 10% or more of net sales in either of the two most recent fiscal
years.
Backlog
Sales are made primarily pursuant to standard short-term purchase
orders for delivery of standard products. The quantity actually
ordered by the customer, as well as the shipment schedules, are
frequently revised to reflect changes in the customer's needs.
Accordingly, the Company believes that its backlog at any given time
is not a meaningful indicator of future revenues.
Employees
As of September 28, 1996, the Company had approximately 2,900 full-time
equivalent employees, of whom 45% were engaged in research and product
development, 29% in sales, marketing, general and administrative and 26% in
manufacturing. The Company instituted a ten percent reduction in force in the
fourth quarter of fiscal 1996. The Company's future success will depend, in
part, on its ability to continue to attract, retain and motivate highly
qualified technical, marketing, engineering and management personnel. None of
the Company's employees is represented by any collective bargaining
agreements, although Cirent Semiconductor is staffed by Lucent Technologies'
employees who are represented by a union. The Company believes that its
employee relations are good.
Description of Properties
The Company's principal facilities, located in Fremont, California,
consist of approximately 480,000 square feet of office space leased
pursuant to agreements which expire in 2006 through 2008 plus renewal
options. This space is used for manufacturing, product development, sales,
marketing and administration. Approximately 90,000 square feet of
office space is subleased for the term of the lease, expiring in 2008.
The Company's Austin, Texas facilities consist of approximately
350,000 square feet. Certain leases expire in July 1997 with two three-year
options that could extend the term to July 2003. The other leases expire in
2005 and 2007. The Company's San Diego, California facility consists of
approximately 153,000 square feet of office space leased pursuant to a lease
that expires in 2006.
The Company also has facilities located in Tucson, Arizona;
Broomfield, Colorado; Nashua, New Hampshire; Raleigh, North Carolina;
Greenville, South Carolina; King of Prussia, Pennsylvania; Fort Worth and
Plano, Texas; Seattle, Washington; Pune, India; and Tokyo, Japan. The
Company also leases sales and sales support offices in the United States
in California, Colorado, Florida, Illinois, Massachusetts, Oregon,
Pennsylvania and Texas and internationally in Taiwan, Japan, Singapore,
Korea, Hong Kong, the United Kingdom, Germany, Italy, France and Barbados.
The Company plans to add additional manufacturing and sales offices to
support its growth.
MANAGEMENT
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND
DIRECTORS
NAME AGE POSITION WITH THE COMPANY SINCE
- -------- --- ------------------------- -----
<S> <C> <C> <C>
Michael L. Hackworth (1)(4) .... 56 President, Chief Executive Officer 1985
and Director
Suhas S. Patil (1)(4) .......... 52 Chairman of the Board, Executive Vice 1984
President, Products and Technology,
and Director
Thomas F. Kelly................. 44 Executive Vice President, Finance and 1996
Administration, Chief Financial
Officer and Treasurer
George N. Alexy................. 48 Senior Vice President, Marketing 1987
Patrick V. Boudreau............. 55 Vice President, Human Resources 1996
Michael L. Canning.............. 55 President, Mass Storage Products Company 1985
William D. Caparelli............ 53 Senior Vice President, Worldwide Sales 1988
William W.Y. Chu................ 46 Office of the President, Product and 1992
and Customer Development, Graphics
Company
James H. Clardy................. 62 President, Crystal Semiconductor 1991
Robert V. Dickinson............. 55 Office of the President, Business 1992
Strategy and Operations, Graphics
Company
Robert F. Donohue............... 54 Vice President, Chief Legal Officer, 1996
General Counsel and Secretary
Kenyon Mei...................... 51 Senior Vice President and General 1993
Manager, Personal Systems Division
Edward C. Ross.................. 55 President, Worldwide Manufacturing Group 1995
Ronald K. Shelton............... 35 Vice President, Finance and Corporate 1996
Controller
C. Gordon Bell (4).............. 62 Director 1990
D. James Guzy (1)(3)(4)......... 61 Director 1984
C. Woodrow Rea, Jr. (2)(3)(4)... 48 Director 1985
Walden C. Rhines (1)(3)......... 50 Director 1995
Robert H. Smith (2)(3).......... 60 Director 1990
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating Committee
Michael L. Hackworth (age 56), a founder of the Company, has served
as President, Chief Executive Officer and a director since January 1985.
He is also a director of Read-Rite Corporation.
Suhas S. Patil (age 52), a founder of the Company, has served as
Chairman of the Board and director since Cirrus Logic was founded in 1984.
He served as Vice President, Research and Development until March
1990 when he became Executive Vice President, Products and
Technology. He is also a director of Cybermedia, Inc.
Thomas F. Kelly (age 44) joined the Company in March 1996 as Executive
Vice President, Finance and Administration, Chief Financial Officer and
Treasurer. He was Executive Vice President and Chief Financial Officer of
Frame Technology Corporation from September 1993 to December 1995. Prior to
Frame, he was Vice President and Chief Financial Officer of Analog Design
Tools from September 1984 to July 1989, when it was acquired by Valid Logic,
Vice President and Chief Financial Officer of Valid Logic through December
1991 and following the acquisition of Valid Logic by Cadence Design
Systems, Inc., Senior Vice President of Cadence Design Systems, Inc.
until July 1993.
George N. Alexy (age 48) joined the Company in 1987 as Vice
President, Marketing. In May 1993, he was promoted to Senior Vice
President, Marketing. Previously, he was employed by Intel
Corporation, most recently as Product Marketing Manager, High
Performance Microprocessors.
Patrick V. Boudreau (age 55) joined the Company in October 1996 as Vice
President, Human Resources. He was Vice President, Human Resources for Fujitsu
Microelectronics from 1995 to 1996. Prior to that, from 1989 to 1995, he was
President of P.V.B. Associates, a management consulting and executive search
firm, as well as Senior Vice President of Lazer-Tron Corporation.
Michael L. Canning (age 55) joined the Company in 1985 as Vice
President, Manufacturing and from 1990 to 1993 he was Executive
Vice President, Operations. He is currently President, Mass
Storage Products. Previously, he was employed by Teledyne
Semiconductor as President and General Manager.
William D. Caparelli (age 53) joined the Company in 1988 as Vice
President, Worldwide Sales. In May 1993 he was promoted to Senior
Vice President, Worldwide Sales. From 1985 to 1988, he served as
Vice President, North American Sales, of VLSI Technology, Inc.
William W. Y. Chu (age 46) was appointed President, Product and
Customer Development of the Graphics Company, a division of the Company,
in April 1996. He joined the Company as Vice President, Desktop
Display Products in 1992 as a result of the merger with Acumos
Incorporated where he was Vice President of Engineering from
November 1991. Prior to that, he was Vice President of Engineering
at Western Digital Imaging.
James H. Clardy (age 62) is President of Crystal Semiconductor
Corporation (Crystal) which merged with the Company in October
1991. In July 1993, he was appointed a corporate officer of the
Company. Previously, he was Vice President of Sector Operations
with Harris Semiconductor.
Robert V. Dickinson (age 55) was appointed President, Business Strategy
and Operations of the Graphics Company, a division of the Company, in
April 1996. He joined the Company as Vice President, Japan Business
Development in December 1992. Prior to that he was Vice President
of Marketing and Business Planning, Micro Computer Products for
Western Digital Corporation.
Robert F. Donohue (age 54) joined the Company in May 1996 as Vice
President, Chief Legal Officer, General Counsel and Secretary. He was Vice
President, General Counsel and Secretary of Frame Technology Corporation from
1993 to 1996 and Vice President, General Counsel and Secretary of Cadence
Design Systems, Inc. from 1989 through 1993.
Kenyon Mei (age 51) joined the Company in 1985 as Vice President,
Engineering. In May 1993, he was promoted to Senior Vice President,
Engineering and General Manager, Personal Systems Business Unit.
Edward C. Ross (age 55) joined the Company in September 1995 as
President, Worldwide Manufacturing Group. He was President of Power
Integrations from January 1989 to January 1995.
Ronald K. Shelton (age 35) joined the Company in September 1996 as Vice
President, Finance and Corporate Controller. From April 1992 to August 1996,
he was Vice President, Finance and Administration and Chief Financial Officer
of Alliance Semiconductor Corporation. He was Manager, Special Studies for
Etec Systems, Inc. from April 1991 to March 1992. Prior to that, he was Audit
Manager at Deloitte & Touche.
C. Gordon Bell (age 62) has been a Senior Researcher with Microsoft
Corporation since August 1995. He was a computer consultant from November
1991 until August 1995 and Chief Scientist for Stardent Computer, a
manufacturer of high-performance graphic super-computers, from November 1987
until November 1991.
D. James Guzy (age 61) has been President of Arbor Company, a Nevada
limited partnership engaged in the electronics and computer industry, since
1969. He is also a director of Intel Corporation, Micro Component Technology,
Inc., Novellus Systems, Inc., Davis Selected Advisors Group of Mutual Funds
and Alliance Capital Management Technology Fund.
C. Woodrow Rea (age 48) is a private investor. He was President and
Chief Executive Officer and a director of Spectrian, a communications
electronics company, from January 1992 until April 1996. From April 1984 to
January 1992, he was a general partner of the New Enterprise Associates group
of venture capital partnerships. He is also a director of Molecular Dynamics,
Inc.
Walden C. Rhines (age 50) has been President and Chief Executive Officer
and a director of Mentor Graphics Corporation, a maker of electronic design
automation products, since October 1993. Previously, he was Executive Vice
President, Semiconductor Group at Texas Instruments, Inc., from May 1987 to
October 1993. He is also a director of TriQuint Semiconductor.
Robert H. Smith (age 60) has been Executive Vice President, Finance and
Administration and Chief Financial Officer of Novellus Systems since October
1996. From June 1994 to September 1994, he was Chairman of the Board of Micro
Component Technology, Inc., an equipment manufacturer. He was President of
Maxwell Communication Corporation North America, a printing, publishing,
telecommunications and information management company, from August 1988 to July
1990.
There are no family relationships between any directors or executive
officers of the Company.
COMPENSATION OF DIRECTORS
Non-employee directors are compensated as follows: a retainer of $4,000
shall be paid each quarter; a fee of $2,000 per day shall be paid for each
regular or special meeting of the Board of Directors or committee meetings
attended in person; a fee of $2,000 per day shall be paid for consulting
services; and travel expenses will be reimbursed for any director who travels
more than 50 miles to attend a meeting. During the Last Fiscal Year, consulting
fees in the amounts of $250 and $1,000 were paid to directors Guzy and Bell,
respectively, for Board of Directors related services performed at the request
of the Board or the President.
In addition, in January 1990 the Company adopted a Directors' Stock
Option Plan (the "Directors' Plan"), which was approved by the shareholders in
July 1990. Under the terms of the Directors' Plan, each non-employee director
is automatically granted, on the date he or she first becomes a director, an
initial option to purchase 20,000 shares and, on the date of his or her annual
reelection to the Board, an additional option to purchase 5,000 shares. The
exercise price of the automatic options is the fair market value of the Common
Stock as determined by the closing price reported by the Nasdaq National Market
on the date of grant. Options granted under the Directors' Plan have a
five-year term and vest over four years; one quarter (1/4) of the shares vest
one year from the date of grant and one forty-eighth (1/48th) of the total
shares vest each month thereafter.
On August 1, 1995, automatic options were granted to C. Gordon Bell,
D. James Guzy, C. Woodrow Rea, Walden C. Rhines and Robert H. Smith to purchase
5,000 shares of Common Stock at an exercise price of $44.50 per share, the fair
market value on the date of grant.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation earned during the fiscal
years ended March 30, 1996, April 1, 1995 and April 2, 1994, by the Company's
Chief Executive Officer, the four highest-paid executive officers and the
former Senior Vice President, Finance and Administration.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- ------------
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) OPTIONS (#) ($)(2)(3)
--------------------------- ---- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael L. Hackworth 1996 397,488 -- -- 313,078
President and Chief 1995 375,000 1,073,980 300,000 1,000
Executive Officer 1994 313,721 570,604 400,000 1,000
Sam S. Srinivasan (4) 1996 235,956 -- 60,000 274,458(5)
Senior Vice President, 1995 222,600 461,496 108,000 1,000
Finance and Administration, 1994 201,048 278,959 97,250 1,000
Chief Financial Officer,
Treasurer and Secretary
Suhas S. Patil 1996 270,504 -- 70,000 213,383
Chairman, Executive Vice 1995 255,200 713,186 70,000 1,000
President, Products and 1994 213,885 390,532 200,000 1,000
Technology
Douglas J. Bartek (4) 1996 269,325 -- 50,000 160,258
President, Visual and Systems 1995 249,400 494,771 50,000 1,000
Interface 1994 210,132 388,612 148,000 1,000
William D. Caparelli 1996 223,418 -- 36,000 167,556(6)
Senior Vice President, 1995 205,062 415,511 36,000 1,000
Worldwide Sales 1994 182,044 224,790 63,750 1,000
George N. Alexy 1996 231,504 -- 50,000 133,093
Senior Vice President, 1995 218,400 439,878 50,000 1,000
Marketing 1994 199,298 250,772 89,750 1,000
</TABLE>
- --------
(1) Amounts shown are before salary reductions resulting from employee
contributions to the Cirrus Logic, Inc. 401(k) Profit Sharing Plan.
(2) Under the terms of the Senior Executive Variable Compensation Plan
("SEVCP"), in the first and second quarters of fiscal 1996, partial
payment of the performance bonus based on each quarter's performance was
made to Mr. Hackworth, Mr. Srinivasan, Dr. Patil, Mr. Bartek, Mr.
Caparelli and Mr. Alexy in the amounts of $312,078, $139,759, $212,383,
$159,258, $106,556 and $132,093, respectively. Such amounts have been
reported in the "All Other Compensation" column. At year end, no bonuses
were payable for fiscal 1996 due to the loss in the third and fourth
quarters. Consequently, the amounts advanced to participants in the SEVCP
in the first and second quarters of fiscal 1996 are being treated as
short-term loans and such amounts shall be withheld from any future
payment under the SEVCP to the Named Executive Officers and all other
participants in the SEVCP. See "Employment Agreements and Certain
Transactions." Employees who are no longer with the Company, including Mr.
Srinivasan and Mr. Bartek, will not be required to repay amounts paid to
them under the SEVCP.
(3) Additional amounts included in the "All Other Compensation" column for the
Last Fiscal Year are matching contributions by the Company of $1,000 with
respect to each Named Executive Officer under the 401(k) plan.
(4) See "Employment Agreements and Certain Transactions" for further
information regarding agreements with Mr. Srinivasan and Mr. Bartek.
(5) Also includes $100,000 forgiven on an outstanding loan and $33,699 for tax
gross-up on the related interest.
(6) Includes a special commission payment of $60,000 related to fiscal 1995
sales.
Option Grants in Last Fiscal Year
The following table provides information with respect to options granted
in the Last Fiscal Year to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED (1) YEAR (2) ($/SH) DATE 5% ($)(3) 10% ($)(3)
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael L.
Hackworth.... -- -- -- -- -- --
Sam S.
Srinivasan... 60,000 1.96% $35.125 07/18/05 $1,325,395 $3,358,812
Suhas S.
Patil........ 70,000 2.29% $35.125 07/18/05 $1,546,295 $3,918,614
Douglas J.
Bartek....... 50,000 1.63% $35.125 07/18/05 $1,104,496 $2,799,010
William D.
Caparelli.... 36,000 1.18% $35.125 07/18/05 $ 795,237 $2,015,287
George N.
Alexy........ 50,000 1.63% $35.125 07/18/05 $1,104,496 $2,799,010
</TABLE>
- --------
(1) All options were granted under the 1987 Stock Option Plan and have
exercise prices equal to the fair market value of the Company's Common
Stock on the date of grant. All options vest on July 18, 1999. The
Compensation Committee has the discretion and authority to amend and
reprice the outstanding options. To date, the Company has not repriced any
options.
(2) Based on 3,061,175 options granted under all option plans to employees
during the Last Fiscal Year.
(3) Potential realizable value is based on an assumption that the market price
of the stock appreciates at the stated rate, compounded annually, from the
date of grant until the end of the 10-year term of the option. These
values are calculated based on requirements promulgated by the Securities
and Exchange Commission and do not reflect the Company's estimate or
projection of future stock price. Actual gains, if any, on stock option
exercises will be dependent on the future performance of the Common Stock.
Aggregate Option Exercises in Last Fiscal Year
And Fiscal Year End Option Values
The following table provides information with respect to option
exercises in the Last Fiscal Year by the Named Executive Officers and the
value of their unexercised options at Fiscal Year End.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
VALUE OF VALUE OF
UNEXERCISED UNEXERCISED UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED FISCAL YEAR AT FISCAL YEAR
ON VALUE END (#)(2) END ($)(2)(3)
EXERCISE REALIZED ---------------- ---------------------
NAME (#) ($)(1) VESTED UNVESTED VESTED UNVESTED
- ---- -------- ---------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael L.
Hackworth.... -- -- 494,169 145,831 $4,183,307 $1,024,193
Sam S.
Srinivasan... 87,753 $3,030,822 16,667 161,250 $ 165,628 $1,041,359
Suhas S.
Patil........ -- -- 217,508 192,492 $1,985,302 $1,182,511
Douglas J.
Bartek....... 37,400 $1,561,451 22,600 138,000 $ 152,900 $ 925,750
William D.
Caparelli.... 69,524 $2,657,328 37,353 82,873 $ 371,195 $ 609,581
George N.
Alexy........ 5,000 $ 123,750 215,502 119,248 $2,612,649 $ 889,089
</TABLE>
- --------
(1) Market value of the shares on date of exercise, less the exercise price.
(2) All options are immediately exercisable, but shares issued upon exercise
are subject to vesting restrictions. Accordingly, there were no
unexercisable options outstanding at fiscal year end.
(3) Value is based on fair market value of the Company's common stock of
$18.625 per share on March 29, 1996 (the last trading day of the Last
Fiscal Year), less the exercise price.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Articles of Incorporation, as amended (the
"Articles"), of the Company limits the liability of a director to the Company
or its shareholders for monetary damages to the fullest extent permissible
under California law, and authorizes the Company to provide indemnification to
its agents (including officers and directors), subject to the limitations of
the California Corporations Code set forth below. The Company's Bylaws, as
amended further provide for indemnification of corporate agents to the maximum
extent permitted by the California Corporations Code.
Section 317 of the California Corporations Code authorizes a
court to award, or a corporation's Board of Directors to grant, indemnity to
directors and officers who are parties or are threatened to be made parties
to any proceeding (with certain exceptions) by reason of the fact that the
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with the proceeding if that person acted in good faith and in a
manner the person reasonably believed to be in the best interests of the
corporation. The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision has no effect
on claims arising under federal or state securities laws and does not affect
the availability of injunctions and other equitable remedies available to
the Company's shareholders for any violation of a director's fiduciary duty
to the Company or its shareholders. Although the validity and scope of the
legislation underlying the provision have not yet been interpreted to any
significant extent by the California courts, the provision may relieve
directors of monetary liability to the Company for grossly negligent
conduct, including conduct in situations involving attempted takeovers of
the Company.
The Company has entered into indemnification agreements with each of
its officers and directors. These agreements indemnify them against certain
potential liabilities that may arise as a result of their service to the
Company, and provide for certain other protection. The Company also maintains
insurance policies which insure its officers and directors against certain
liabilities.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Sam S. Srinivasan retired from the Company in April 1996. The Company
entered into a Retirement Agreement with Mr. Srinivasan in connection
therewith. Under the retirement agreement, Mr. Srinivasan received a lump-sum
payment equal to one year's salary, $235,956, plus forgiveness of an
outstanding loan and tax reimbursement therefore totaling $410,281. Mr.
Srinivasan's stock options vested through September 30, 1996. In addition, Mr.
Srinivasan had a consulting agreement to provide services to the Company for a
transition period of three months.
The Company has entered into an agreement with Douglas J. Bartek who
resigned from his position of President, Visual and Systems Interface Company
on April 19, 1996 to assume the CEO position of a divested operation. Under the
agreement, Mr. Bartek received a lump-sum payment equal to one year's salary,
$264,368. He has agreed to provide consulting services to the Company for a
period of up to one year. During the consulting period, certain stock
options held by Mr. Bartek vest based on the attainment of specific goals as
stated in the consulting agreement and he may receive relocation benefits in
connection with the divested operation.
STOCK OPTION PLANS
The 1990 Directors' Stock Option Plan
The 1990 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors in January 1990 and approved by the
shareholders in July 1990. A total of 185,000 shares of Common Stock are
reserved for issuance thereunder. The Directors' Plan is administered by
non-employee Directors of the Board of Directors. Each Outside Director is
automatically granted an initial option to purchase 10,000 shares of Common
Stock upon the date such person first becomes a Director, and, upon his or her
annual reelection to the Board, an additional option to purchase 2,500 shares
of Common Stock. Grants of Special Options are made at the discretion of
the Board. All options granted under the Directors' Plan are nonstatutory
stock options.
Options granted under the Directors' Plan have a term of five years
and are exercisable only while the Outside Director remains an Outside
Director of the Company or within seven (7) months of the date the Outside
Director ceases to serve as a Director. The exercise price of Automatic
Options is 100% of the fair market value per share on the date of grant of
the option. The exercise price of the Special Option is determined by the
Board. Automatic Options are immediately exercisable and subject to
repurchase by the Company as to any unvested shares upon cessation of status
as an Outside Director. Special Options are subject to vesting as
determined by the Board of Directors and approved by the shareholders.
In the event of a liquidation or dissolution of the Company, all options
will terminate immediately before consummation of such event. In the event of a
proposed sale of all or substantially all of the assets of the Company, or
merger of the Company with or into another corporation, all options shall be
assumed or equivalent options shall be substituted, by such successor
corporation or a parent or subsidiary of such successor corporation. The Board
of Directors may amend, alter, suspend or discontinue the Directors' Plan;
provided, however, that the terms of Automatic Options may not be amended more
than once in any six-month period. The grant of options under the Directors'
Plan is determined by the Directors' Plan with respect to Automatic Options and
is subject to the individual director's election, appointment or reelection to
the Board. The grant of Special Options is at the discretion of the Board of
Directors and the approval of the shareholders of the Company.
1996 Stock Plan
The Company's 1996 Stock Plan (the "Stock Plan") provides for the
granting of employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, and for the granting to
employees, directors and consultants of nonstatutory stock options and stock
purchase rights ("SPRs"). The Stock Plan was approved by the Board of
Directors in May 1996 and the stockholders in August 1996. Unless terminated
sooner, the Stock Plan will automatically terminate ten years from approval
date. A total of 2,500,000 shares are currently authorized for issuance under
the Stock Plan. The Stock Plan may generally be administered by the Board of
Directors or by a committee appointed by the Board of Directors (" the
Committee"). Options and SPRs granted under the Stock Plan are generally not
transferable by the optionee. Options granted under the Stock Plan must
generally vest and become exercisable over four years. In the case of SPRs,
unless the Board or the Committee determines otherwise, the Company's grant
shall be subject to a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment. The purchase price for
shares repurchased pursuant to the Restricted Stock Purchase Agreement is the
original price paid by the purchaser and may be repaid by cancellation of any
indebtedness of the purchaser to the Company.
The exercise price of all incentive stock options granted under the
Stock Plan must be at least equal to the fair market value of the Common Stock
on the date of grant. The exercise price of nonstatutory stock options and
SPR's granted to under the Stock Plan is determined by the Board or the
Committee. In order to preserve the Company's ability to deduct the
compensation income associated with options granted to certain executive
officers of the Company and comply with the limitations imposed on such grants
by Section 162(m) of the Internal Revenue Code, the Stock Plan provides that no
employee may be granted, in any fiscal year of the Company, options to purchase
more than 400,000 shares of Common Stock. In connection with an employee's
initial employment, however, such employee may be granted options to purchase
to up to an additional 800,000 shares of Common Stock under the Stock Plan.
Options granted under the Stock Plan must generally be exercised within 30 days
of the end of the optionee's status as an employee or consultant of the
Company, or in no event later than the ten years from the date of grant of such
option.
Participation in the Stock Plan is voluntary and dependent on each
eligible employee's election to participate. The Stock Plan provides that, in
the event of a merger of the Company with or into another corporation or a sale
of substantially all the Company's assets, each option or SPR shall be assumed
or an equivalent option substituted by the successor corporation. If the
outstanding options or SPRs are not assumed or substituted with an equivalent
option of the successor corporation, the optionee shall fully vest in and have
the right to exercise the option or SPR as to all of the optioned stock,
including the shares as to which it would not otherwise have been vested and be
exercisable. In the event an option or SPR becomes exercisable in full in the
event of a merger or sale of assets, the Committee shall notify the optionee
that the option or SPR shall be fully vested and exercisable for a period of
fifteen (15) days from the date of such notice, and the option or SPR will
terminate upon the expiration of such.
EMPLOYEE STOCK PURCHASE PLAN
1989 Employee Stock Purchase Plan
The Company's 1989 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors in March 1989 and approved by the
stockholders in August 1996. A total of 3,400,000 shares of Common Stock has
been reserved for issuance under the Purchase Plan, which is intended to
qualify under Section 423 of the Internal Revenue Code. The Purchase Plan is
implemented by consecutive and non-overlapping offering periods that begin
every six months. The first offering period commenced on June 8, 1989, and
terminated on December 31, 1989. Subsequent offering periods were every six
month period thereafter. Since the Compensation Committee has the power to
change the duration of the future offering periods, on May 24, 1994 the
offering periods were amended to coincide with the accounting and payroll
schedules and include thirteen pay periods per offering. Accordingly, the
changed offering period ended on June 29, 1996. The next offering period
commenced on June 30, 1996 and terminated on January 14, 1997. The
Purchase Plan is administered by the Compensation Committee of the Board of
Directors. The Purchase Plan permits eligible employees to Purchase Common
Stock through payroll deductions; provided, however that immediately after
the grant of such option, the employee would not own more than five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company or its subsidiaries (including stock issuable upon
exercise of options held by him or her) and such grant would not exceed more
than $25,000 of stock (determined at the fair market value of the shares at
the time the option is granted) in any calendar year. The price of the of
stock purchased under the Purchase Plan is 85% of the lower of the fair
market value of the Common stock at the beginning of the offering period or
at the end of the relevant purchase period. Employees may end their
participation at any time with at least fifteen (15) days notice prior to
the end of an offering period, and they will be paid their payroll
deductions to date. Participation ends automatically upon the termination of
employment with the Company.
Participation in the Purchase Plan is voluntary and dependent on each
eligible employee's election to participate. The Purchase Plan provides that,
in the event of a merger of the Company with or into another corporation or a
sale of substantially all the Company's assets, the Board of Directors shall
shorten the offering period then in progress such that the employees' rights
to purchase stock under the Purchase Plan are exercised prior to the merger or
sale of assets. The Purchase Plan will terminate in March 2009, unless
terminated earlier by the Board.
EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have adopted 401(k) Profit Sharing
Plans (the "Plans") covering substantially all of their qualifying domestic
employees. Under the Plans, employees may elect to reduce their current
compensation by up to 15% subject to annual limitations, and have the amount
of such reduction contributed to the Plans. The Plans permit, but do not
require, additional discretionary contributions by the Company on behalf of
all participants. During fiscal 1996, 1995 and 1994, the Company and its
subsidiaries matched employee contributions up to various maximums per plan
for a total of approximately $2,111,000, $1,849,000 and $1,290,000,
respectively. The Company intends to continue the contributions in fiscal
1997 and 1998.
THE EXECUTIVE VARIABLE COMPENSATION PLAN
The Company established the Executive Variable Compensation Plan (the
"EVCP")in 1990. In August 1995, the Company shareholders approved the EVCP in
order to qualify payments under the terms of the plan as performance-based
compensation under Section 162(m) of the Internal Revenue Code, which
permits a Company to deduct more than $1 million of compensation paid to the
executive officers named in the summary compensation table in the proxy
statement (the "Covered Employees") under certain performance-based
compensation plans that are approved by shareholders.
The plan is administered by the Compensation Committee of the Board
of Directors (the "Committee"), subject to ratification by the Board of
Directors. The individuals who are eligible to participate in the EVCP are the
executive officers and other key employees of Cirrus Logic who are or who may
become Covered Employees. Under the EVCP, participants are eligible to receive
bonus payments based upon the attainment and certification of performance
measures pre-established by the Committee. EVCP payments are generally made in
cash as soon as is practicable following determination of the amount of the
bonus payment. The primary performance measures for the plan are corporate
profitability and growth as measured by certain performance measures and
financial ratios. The impact of any acquisitions or mergers during the plan
year will be excluded from the performance measures. Participants who have
primary responsibility for a business unit of the Company may be measured on
business unit performance measures, in place of some or all of the corporate
performance measures.
The Committee may terminate, suspend or amend the EVCP, so long as
shareholder approval has been obtained if required in order for awards to
qualify as "performance-based compensation" under Section 162(m) of the Code.
Under present federal income tax law, participants will realize ordinary
income equal to the amount of the award received in the year of receipt, and
the Company will receive a corresponding deduction for the amount constituting
ordinary income to the participant at the same time the participant recognizes
that ordinary income, provided that the EVCP satisfies the requirements of
Section 162(m) of the Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 30, 1996, the Compensation
Committee of the Board of Directors consisted of directors Rea, Rhines and
Smith. No executive officer of the Company served on the compensation
committee of another entity or on any other committee of the board of
directors of another entity performing similar functions during the Last
Fiscal Year.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of March
30, 1996 by (i) each shareholder known to the Company to be a beneficial owner
of more than 5% of the Company's Common Stock; (ii) each director; (iii) each
of the Named Executive Officers and (iv) all current executive officers and
directors of the Company as a group. Unless otherwise indicated in the
footnotes, the beneficial owner has sole voting and investment power with
respect to the securities beneficially owned, subject only to community
property laws, if applicable.
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIAL OWNER SHARES (1) PERCENT
---------------- ---------- -------
<S> <C> <C>
Merrill Lynch Asset Management, L. P. (2)(3) ............. 6,317,000 9.88%
P.O. Box 9011
Princeton, NJ 08543
Suhas S. Patil (4)........................................ 1,301,657 2.04
Michael L. Hackworth (5).................................. 1,213,784 1.90
George N. Alexy (6)....................................... 520,259 *
David L. Lyon (7)......................................... 338,568 *
Douglas J. Bartek (8)..................................... 247,953 *
William D. Caparelli (9).................................. 205,566 *
D. James Guzy (10)........................................ 182,782 *
Sam S. Srinivasan (11).................................... 93,398 *
C. Gordon Bell (12)....................................... 45,000 *
C. Woodrow Rea, Jr. (13).................................. 26,000 *
Walden C. Rhines (14)..................................... 25,000 *
Robert H. Smith (15)...................................... 12,500 *
All current executive officers and directors as a group
(19 Persons) (16)........................................ 5,583,437 8.73%
</TABLE>
- --------
* Less than 1%
(1) All options are immediately exercisable, but shares issued upon exercise
of unvested options are subject to vesting restrictions. Accordingly, all
outstanding options are exercisable within sixty (60) days of the
Date. See "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year
End Option Values" table for vested and unvested shares.
(2) As reported in the most recent filings with the Securities and Exchange
Commission.
(3) Merrill Lynch & Co., Inc. shares voting and dispositive power with respect
to 6,317,000 shares with Merrill Lynch Group, Inc., Princeton Services,
Inc., Merrill Lynch Asset Management, L.P. and Merrill Lynch Growth Fund
for Investment and Retirement.
(4) Includes (i) 480,000 shares issuable upon exercise of options held by Dr.
Patil exercisable within sixty (60) days of March 30, 1996 and (ii) 73,400
shares held by family members and trusts for the benefit of family
members, with respect to which Dr. Patil disclaims beneficial ownership.
(5) Includes 940,000 shares issuable upon exercise of options held by Mr.
Hackworth exercisable within sixty (60) days of March 30, 1996.
(6) Includes 384,750 shares issuable upon exercise of options held by Mr.
Alexy exercisable within sixty (60) days of March 30, 1996.
(7) Includes 199,372 shares issuable upon exercise of options held by Dr. Lyon
exercisable within sixty (60) days of March 30, 1996.
(8) Includes 73,266 shares issuable upon exercise of options held by Mr.
Bartek exercisable within sixty (60) days of March 30, 1996.
(9) Includes 156,226 shares issuable upon exercise of options held by Mr.
Caparelli exercisable within sixty (60) days of March 30, 1996.
(10) Includes 25,000 shares issuable upon exercise of options held by Mr. Guzy
exercisable within sixty (60) days of March 30, 1996. Also includes
132,782 shares held by Arbor Company, of which Mr. Guzy is President and
may therefore be deemed to be the beneficial owner.
(11) Includes 66,667 shares issuable upon exercise of options held by Mr.
Srinivasan exercisable within sixty (60) days of March 30, 1996.
(12) Includes 20,000 shares issuable upon exercise of options held by Dr. Bell
exercisable within sixty (60) days of March 30, 1996.
(13) Includes 25,000 shares issuable upon exercise of options held by Mr. Rea
exercisable within sixty (60) days of March 30, 1996.
(14) Includes 25,000 shares issuable upon exercise of options held by Mr.
Rhines exercisable within sixty (60) days of March 30, 1996.
(15) Includes 12,500 shares issuable upon exercise of options held by Mr.
Smith exercisable within sixty (60) days of March 30, 1996.
(16) Includes 3,342,766 shares issuable upon exercise of options held by
executive officers and directors exercisable within sixty (60) days of
March 30, 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sam S. Srinivasan retired from the Company in April 1996. The Company
entered into a Retirement Agreement with Mr. Srinivasan in connection
therewith. Under the retirement agreement, Mr. Srinivasan received a lump-
sum payment equal to one year's salary, $235,956, plus forgiveness of an
outstanding loan and tax reimbursement therefor totaling $410,281. Mr.
Srinivasan's stock options vested through September 30, 1996. In addition,
Mr. Srinivasan has a consulting agreement to provide services to the Company
for a transition period of three months.
The Company has entered into an agreement with Douglas J. Bartek who
resigned from his position of President, Visual and Systems Interface Company
on April 19, 1996 to assume the CEO position of a divested operation. Under
the agreement, Mr. Bartek received a lump-sum payment equal to one year's
salary, $264,368. He has agreed to provide consulting services to the Company
for a period of up to one year. During the consulting period, certain stock
options held by Mr. Bartek will vest based on the attainment of specific
goals as stated in the consulting agreement and he may receive relocation
benefits in connection with the divested operation.
Under the terms of the Senior Executive Variable Compensation Plan
("SEVCP"), in the first and second quarters of fiscal 1996, partial payment of
the performance bonus based on each quarter's performance was made to Mr.
Hackworth, Mr. Srinivasan, Dr. Patil, Mr. Bartek, Mr. Caparelli and Mr. Alexy in
the amounts of $312,078, $139,759, $212,383, $159,258, $106,556 and $132,093,
respectively. At year end, no bonuses were payable for fiscal 1996 due to the
loss in the third and fourth quarters. Consequently, the amounts advanced to
participants in the SEVCP in the first and second quarters of fiscal 1996 are
being treated as short-term loans and such amounts shall be withheld from any
future payment under the SEVCP to the Named Executive Officers and all other
participants in the SEVCP. No interest will be charged on these loans.
However, imputed interest will be added to each participant's income.
Employees who are no longer with the Company will not be required to repay the
amounts advanced to them under the SEVCP.
LEGAL PROCEEDINGS
On May 7, 1993, the Company was served with two shareholder class
action lawsuits filed in the United States District Court for the Northern
District of California. The lawsuits, which name the Company and several of
its officers and directors as defendants, allege violations of the federal
securities laws in connection with the announcement by Cirrus Logic of its
financial results for the quarter ended March 31, 1993. The complaints do
not specify the amounts of damages sought. The Company believes that the
allegations of the complaint are without merit.
Between November 7 and November 21, 1995, five shareholder class
action lawsuits were filed in the United States District Court for the
Northern District of California against the Company and several of its
officers and directors. A consolidated amended complaint was filed on
February 20, 1996 and an amended consolidated supplemental complaint was
filed on May 3, 1996. This complaint alleges that certain statements made
by defendants during the period from July 23, 1995 through December 21, 1995
were false and misleading and in violation of the federal securities laws.
The complaint does not specify the amounts of damages sought. The Company
believes that the allegations of the complaint are without merit.
On February 21, 1996, a shareholder class action lawsuit was filed in
the Superior Court of California in and for the County of Alameda against
the Company and numerous fictitiously named defendants alleged to be
officers or agents of the Company. An amended complaint, which added
certain of the Company's officers and directors as defendants, was filed on
April 18, 1996. On October 28, 1996, an identical class action lawsuit was
filed in the same court by the same plaintiffs' lawyers on behalf of an
additional plaintiff. These lawsuits allege that certain statements made by
the Company and the individual defendants during the period from October 1,
1995 through February 14, 1996 were false and misleading and violated
California state common and statutory law. The complaints do not specify the
amounts of damages sought. The Company believes that the allegations of the
complaints are without merit.
On September 16, 1996, a shareholder derivative lawsuit was filed in
the United States District Court for the Northern District of California
against the Company and several of its officers and directors. The
complaint alleges the individual defendants breached their fiduciary duties
to the Company between July 26, 1995 and February 13, 1996. The complaint
does not specify the amounts of damages sought. The Company believes the
allegations in the complaint are without merit, and the Company intends to
defend itself vigorously.
On December 12, 1996, the Company signed a Memorandum of
Understanding of Settlement with plaintiffs' counsel in the federal class
action lawsuits. If approved, the agreement would settle all pending
securities claims against the Company for an aggregate sum of $31.3 million,
exclusive of interest, $2.3 million of which would be contributed by the
Company with the remainder being contributed by the Company's insurers. The
proposed settlement is expected to include amendment of the federal class
action filed in 1995 to include claims pending in state court with the
intent that the settlement would have the effect of extinguishing the state
court claims. The proposed settlement is subject to a number of
contingencies, including the agreement to reach and execute a definitive
agreement and court approval.
If for any reason the settlement is not approved, or if for any
reason the extinction of the state claims is not approved, the Company
intends to defend itself vigorously. Based on its assessment of the cases
and the availability of insurance, the Company believes that, even if the
settlement is not approved, the likelihood is remote that the ultimate
resolution of these matters will have a material adverse effect on its
financial position, results of operations or cash flows. However, there can
be no certainty or assurance as to the outcome of any litigation process.
The foregoing forward-looking statements with respect to the
proposed settlement are dependent on certain risks and uncertainties
including such factors, among others, as the ability to reach and execute a
definitive agreement, the securing of court approval, the running of all
relevant periods for objection of appeals, and the state court's recognition
of the order on the settlement.
DESCRIPTION OF CAPITAL STOCK
As of December 28, 1996, the authorized capital stock of the Company
consisted of 140,000,000 shares of Common Stock, no par value, and 5,000,000
shares of Preferred Stock, no par value.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders, except that upon giving the
legally required notice, shareholders may cumulate their votes in the election
of directors. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior liquidation rights of Preferred Stock,
if any, then outstanding. The Common Stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable.
Preferred Stock
The Preferred Stock is authorized but unissued. The Board of Directors
has the authority to issue the undesignated Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued shares of undesignated Preferred Stock
and to fix the number of shares constituting any series and the designations of
such series, without any further vote or action by the shareholders. Although
it has no intention to do so, the Board of Directors, without shareholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company.
DESCRIPTION OF THE REGISTRABLE NOTES
The Registrable Notes have been issued under an indenture, dated as
of December 15, 1996, between the Company and State Street Bank and Trust
Company, as Trustee (the "Indenture"). The following summaries of certain
provisions of the Registrable Notes and the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the Registrable Notes and the Indenture,
including the definitions therein of certain terms that are not otherwise
defined in this Prospectus. Wherever particular provisions or defined terms
of the Indenture (or of the form of Registrable Note that is a part thereof)
are referred to, such provisions or defined terms are incorporated herein by
reference.
General
The Registrable Notes are unsecured general obligations of the
Company subordinate in right of payment to certain other obligations of the
Company as described under "--Subordination," and convertible into Common
Stock as described under "--Conversion Rights." The Registrable Notes will
mature on December 15, 2003, unless earlier redeemed at the option of the
Company or repurchased by the Company at the option of the holder upon the
occurrence of a Change in Control (as defined).
The Registrable Notes bear interest from the most recent date that
interest has been paid, or if no interest has been paid, from December 18,
1996, at 6% per annum. Interest is payable semi-annually on June 15 and
December 15, commencing on June 15, 1997, to holders of record at the close
of business on the preceding June 1 and December 1, respectively. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal will be payable, and the Registrable Notes may be presented
for conversion, registration of transfer and exchange, without service
charge, at the office of the Company maintained by the Company for such
purposes in New York, New York, which shall initially be the office or
agency of the Trustee in New York, New York.
The Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities of
the Company or the incurrence of Senior Indebtedness or other indebtedness.
The Indenture contains no covenants or other provisions to afford protection
to holders of Notes in the event of a highly leveraged transaction or a
change in control of the Company except to the extent described under "--
Repurchase at Option of Holders Upon a Change in Control" below.
Conversion Rights
The Holder of any Registrable Note will have the right at the Holders
option, to convert any portion of the principal amount of any Registrable
Note that is an integral multiple of $1,000 into shares of Common Stock at
any time on or after March 18, 1997 and prior to the close of business on
the maturity date, unless previously redeemed or repurchased, at a
conversion rate of 41.2903 shares of Common Stock per $1,000 principal
amount of Notes (the "Conversion Rate") (equivalent to a conversion price of
approximately $24.219 per share of Common Stock), subject to adjustment as
described below. The right to convert a Registrable Note called for
redemption or submitted for repurchase will terminate at the close of
business on the last Business Day prior to the Redemption Date or Repurchase
Date for such Registrable Note, as the case may be. (Section 12.1)
The right of conversion attaching to any Registrable Note may be
exercised by the Holder by delivering the Registrable Note at the office or
agency of the Trustee in the Borough of Manhattan, The City of New York,
accompanied by a duly signed and completed notice of conversion. Such
notice of conversion can be obtained from the Trustee. Beneficial owners of
interests in a Registered Global Note may exercise their right of conversion
by delivering to The Depository Trust Company ("DTC") the appropriate
instruction form for conversion pursuant to DTC's conversion program. Such
notice of conversion can be obtained at the office of any Conversion Agent.
The conversion date will be the date on which the Registrable Note and the
duly signed and completed notice of conversion are so delivered. As
promptly as practicable on or after the conversion date, the Company will
issue and deliver to the Trustee a certificate or certificates for the
number of full shares of Common Stock issuable upon conversion, together
with payment in lieu of any fraction of a share; such certificate will be
sent by the Trustee to the Conversion Agent for delivery to the Holder.
Such shares of Common Stock issuable upon conversion of the Registrable
Notes, in accordance with the provisions of the Indenture, will be fully
paid and nonassessable and will rank pari passu with the other shares of
Common Stock of the Company outstanding from time to time. Any Registrable
Note surrendered for conversion during the period from the close of business
on any Regular Record Date to the opening of business on the next
succeeding Interest Payment Date (except Registrable Notes (or portions
thereof) called for redemption on a Redemption Date or repurchaseable on a
Repurchase Date occurring, in either case, within such period (including any
Registrable Notes (or portions thereof) called for redemption on a
Redemption Date or submitted for repurchase on a Repurchase Date that is a
Regular Record Date or Interest Payment Date, as the case may be)) must be
accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of Registrable Notes being
surrendered for conversion. The interest payable on such Interest Payment
Date with respect to any Registrable Note (or portion thereof, if
applicable) which has been called for redemption on a Redemption Date, or is
repurchaseable on a Repurchase Date, occurring, in either case, during the
period from the close of business on any Regular Record Date next preceding
any Interest Payment Date to the opening of business on such Interest
Payment Date (including any Notes (or portions thereof) called for
redemption on a Redemption Date or submitted for repurchase on a Repurchase
Date that is a Regular Record Date or Interest Payment Date, as the case may
be), which Note (or portion thereof, if applicable) is surrendered for
conversion during such period (or on the last Business Day prior to the
Regular Record Date or Interest Payment Date in the case of a Registrable
Note (or portions thereof) called for redemption or submitted for repurchase
on a Regular Record Date or Interest Payment Date, as the case may be),
shall be paid to the Holder of such Registrable Note being converted in an
amount equal to the interest that would have been payable on such
Registrable Note if such Registrable Note had been converted as of the close
of business on such Interest Payment Date. The interest payable on such
Interest Payment Date in respect of any Registrable Note (or portion
thereof, as the case may be) which has not been called for redemption on a
Redemption Date, or is not eligible for repurchase on a Repurchase Date,
occurring, in either case, during the period from the close of business on
any Regular Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date, which Registrable Note
(or portion thereof, as the case may be) is surrendered for conversion
during such period, shall be paid to the Holder of such Registrable Note as
of such Regular Record Date. Interest payable in respect of any Registrable
Note surrendered for conversion on or after an Interest Payment Date shall
be paid to the Holder of such Registrable Note as of the next preceding
Regular Record Date, notwithstanding the exercise of the right of
conversion. As a result of the foregoing provisions, Holders that surrender
Registrable Notes for conversion on a date that is not an Interest Payment
Date will not receive any interest for the period from the Interest Payment
Date next preceding the date of conversion to the date of conversion or for
any later period, even if the Registrable Notes are surrendered after a
notice of redemption (except for the payment of interest on Registrable
Notes called for redemption on a Redemption Date or submitted for repurchase
on a Repurchase Date between a Regular Record Date and the Interest Payment
Date to which it relates (including any Registrable Notes (or portions
thereof) called for redemption on a Redemption Date or submitted for
repurchase on a Repurchase Date that is a Regular Record Date or Interest
Payment Date, as the case may be), as provided above). No other payment or
adjustment for interest, or for any dividends in respect of Common Stock,
will be made upon conversion. Holders of Common Stock issued upon conversion
will not be entitled to receive any dividends payable to holders of Common
Stock as of any record time or date before the close of business on the
conversion date. No fractional shares will be issued upon conversion but, in
lieu thereof, an appropriate amount will be paid in cash by the Company
based on the market bid price of Common Stock at the close of business on
the day of conversion. (Sections 2.2, 3.7, 12.2 and 12.3)
A Holder delivering a Registrable Note for conversion will not be
required to pay any taxes or duties in respect of the issue or delivery of
Common Stock on conversion but will be required to pay any tax or duty which
may be payable in respect of any transfer involved in the issue or delivery
of the Common Stock in a name other than that of the Holder of the
Registrable Note. Certificates representing shares of Common Stock will not
be issued or delivered unless all taxes and duties, if any, payable by the
Holder have been paid.
The Conversion Rate is subject to adjustment in certain events,
including, without duplication: (a) dividends (and other distributions)
payable in Common Stock on shares of Common Stock of the Company, (b) the
issuance to all holders of Common Stock of rights, options or warrants
entitling them to subscribe for or purchase Common Stock at less than the
then Current Market Price of such Common Stock (determined as provided in
the Indenture) as of the record date for shareholders entitled to receive
such rights, options or warrants (provided that the Conversion Rate will be
readjusted to the extent any such rights, options or warrants are not
exercised prior to the expiration thereof), (c) subdivisions, combinations
and reclassifications of Common Stock, (d) distributions to all holders of
Common Stock of evidences of indebtedness of the Company, shares of capital
stock, cash or assets (including securities, but excluding those dividends,
rights, options, warrants and distributions referred to above or dividends
and distributions paid exclusively in cash), (e) distributions consisting
exclusively of cash (excluding any cash portion of distributions referred to
in (d) above) to all holders of Common Stock in an aggregate amount that,
combined together with (i) other such all-cash distributions made within the
preceding 12 months in respect of which no adjustment has been made and (ii)
any cash and the fair market value of other consideration payable in respect
of any tender offer by the Company or any of its subsidiaries for Common
Stock concluded within the preceding 12 months in respect of which no
adjustment has been made exceeds 12.5% of the Company's market
capitalization (for this purpose being the product of the Current Market
Price per share of the Common Stock on the record date for such
distribution times the number of shares of Common Stock outstanding) on such
date, and (f) the successful completion of a tender offer made by the
Company or any of its subsidiaries for Common Stock which involves an
aggregate consideration that, together with (i) any cash and other
consideration payable in a tender offer by the Company or any of its
subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender offer in respect of which no adjustment has been
made and (ii) the aggregate amount of any such all-cash distributions
referred to in (e) above to all holders of Common Stock within the 12 months
preceding the expiration of such tender offer in respect of which no
adjustments have been made, exceeds 12.5% of the Company's market
capitalization on the expiration of such tender offer. The Company reserves
the right to make such reductions in the Conversion Rate in addition to
those required in the foregoing provisions as it considers to be advisable
in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. No adjustment of the Conversion Rate will be required to be made
until the cumulative adjustments amount to 1.0% or more of the Conversion
Rate. (Section 12.4) The Company will compute any adjustments to the
Conversion Rate pursuant to this paragraph and will give notice by mail to
Holders of the Registrable Notes of any adjustments. (Section 12.5)
In case of any consolidation or merger of the Company with or into
another Person or any merger of another Person into the Company (other than
a merger which does not result in any reclassification, conversion, exchange
or cancellation of the Common Stock), or in case of any sale, transfer or
lease of all or substantially all of the assets of the Company, each
Registrable Note then outstanding will, without the consent of the Holder of
any Registrable Note, become convertible only into the kind and amount of
securities, cash and other property receivable upon such consolidation,
merger, sale, transfer or lease by a holder of the number of shares of
Common Stock into which such Registrable Note was convertible immediately
prior thereto (assuming such holder of Common Stock failed to exercise any
rights of election and that such Note was then convertible). (Section 12.11)
The Company from time to time may increase the Conversion Rate by
any amount for any period of at least 20 days, in which case the Company
shall give at least 15 days' notice of such increase, if the Board of
Directors has made a determination that such increase would be in the best
interests of the Company, which determination shall be conclusive. No such
increase shall be taken into account for purposes of determining whether the
closing price of the Common Stock exceeds the Conversion Price by 105% in
connection with an event which otherwise would be a Change in Control.
(Section 12.4)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (e.g., distributions of evidences
of indebtedness or assets of the Company, but generally not stock dividends
on common stock or rights to subscribe for common stock) and, pursuant to
the anti-dilution provisions of the Indenture, the number of shares into
which Registrable Notes are convertible is increased, such increase may be
deemed for federal income tax purposes to be the payment of a taxable
dividend to Holders of Registrable Notes. See "United States Taxation --
United States Holders -- Dividends."
Subordination
The payment of the principal of, premium, if any, and interest on
the Registrable Notes (including any Liquidated Damages (as defined)) and
any amounts payable upon the redemption or the repurchase of the Registrable
Notes will be subordinated in right of payment to the extent set forth in
the Indenture to the prior payment in full of the principal of, premium, if
any, interest and other amounts in respect of all Senior Indebtedness of the
Company.
"Senior Indebtedness" is defined in the Indenture to mean: the
principal of (and premium, if any) and interest (including all interest
accruing subsequent to the commencement of any bankruptcy or similar
proceeding, whether or not a claim for post-petition interest is allowable
as a claim in any such proceeding) on, and all fees and other amounts
payable in connection with, the following, whether absolute or contingent,
secured or unsecured, due or to become due, outstanding on the date of the
Indenture or thereafter created, incurred or assumed: (a) indebtedness of
the Company evidenced by credit or loan agreements, notes, bonds,
debentures, or other written obligations, (b) all obligations of the Company
for money borrowed, (c) all obligations of the Company evidenced by a note
or similar instrument given in connection with the acquisition of any
businesses, properties or assets of any kind, (d) obligations of the Company
as lessee (i) under leases required to be capitalized on the balance sheet
of the lessee under generally accepted accounting principles and (ii) under
other leases for facilities, equipment or related assets, whether or not
capitalized, entered into or leased after the date of the Indenture for
financing purposes (as determined by the Company), (e) obligations of the
Company under interest rate and currency swaps, caps, floors, collars, hedge
agreements, forward contracts, or similar agreements or arrangements, (f)
all obligations of the Company with respect to letters of credit, bankers'
acceptances or similar facilities, (g) all obligations of the Company issued
or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable arising in the ordinary course of
business), (h) all obligations of the type referred to in clauses (a)
through (g) above of another Person and all dividends of another Person, the
payment of which, in either case, the Company has assumed or guaranteed, or
for which the Company is responsible or liable, directly or indirectly,
jointly or severally, as obligor, guarantor or otherwise, or which is
secured by a lien on property of the Company, and (i) renewals, extensions,
modifications, replacements, restatements and refundings of, or any
indebtedness or obligation issued in exchange for, any such indebtedness or
obligation described in clauses (a) through (h) of this paragraph; provided,
however, that Senior Indebtedness shall not include the Registrable Notes or
any such indebtedness or obligation if the terms of such indebtedness or
obligation (or the terms of the instrument under which, or pursuant to which
it is issued) expressly provided that such indebtedness or obligation is
not superior in right of payment to the Registrable Notes.
No payment on account of principal of, premium, if any, or interest
on (including any Liquidated Damages), or the redemption or the repurchase
of, the Registrable Notes may be made by the Company if (i) a default in the
payment of principal, premium, if any, or interest (including a default
under any repurchase or redemption obligation) or other amounts with respect
to any Senior Indebtedness occurs and is continuing beyond the applicable
grace period or (ii) any other event of default occurs and is continuing
with respect to Designated Senior Indebtedness (as defined below) that
permits the holders thereof to accelerate the maturity thereof, and the
Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company, a holder of such Designated Senior Indebtedness or other
person permitted to give such notice under the Indenture. Payments on the
Registrable Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in
the case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received. No new period of
payment blockage may be commenced unless and until (i) 365 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice and
(ii) all scheduled payments of principal, premium, if any, and interest on
the Registrable Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice. "Designated Senior Indebtedness"
means the Company's obligations under the Credit Agreement (as defined) and
any particular Senior Indebtedness in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or related
agreements or documents to which the Company is a party) expressly provides
that such Indebtedness shall be "Designated Senior Indebtedness" for
purposes of the Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of such Senior
Indebtedness to exercise the rights of Designated Senior Indebtedness).
(Sections 1.1 and 13.2) In addition, upon any acceleration of the principal
due on the Registrable Notes as a result of an Event of Default or payment
or distribution of assets of the Company to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or involuntary,
marshaling of assets, assignment for the benefit of creditors, or in
bankruptcy, insolvency, receivership or other similar proceedings of the
Company, all principal, premium, if any, and interest or other amounts due
on all Senior Indebtedness must be paid in full before the Holders of the
Registrable Notes are entitled to receive any payment. (Sections 13.2 and
13.3) By reason of such subordination, in the event of insolvency, creditors
of the Company who are holders of Senior Indebtedness may recover more,
ratably, than the Holders of the Registrable Notes, and such subordination
may result in a reduction or elimination of payments to the Holders of the
Registrable Notes.
In addition, the Registrable Notes will be structurally subordinated
to all indebtedness and other liabilities (including trade payables and
lease obligations) of the Company's subsidiaries, as any right of the
Company to receive any assets of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the Holders of the Registrable
Notes to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors and
lessors), except to the extent that the Company itself is recognized as a
creditor of such subsidiary, in which case the claims of the Company would
still be subordinate to any security interest in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
As of December 28, 1996, the Company had approximately $141 million
of indebtedness and other liabilities that constituted Senior Indebtedness,
including approximately $41 million of letters of credit. As of December
28, 1996, the Company's subsidiaries had approximately $316 million of
indebtedness and other liabilities (including trade payables and
indebtedness and other liabilities of the Company's manufacturing joint
ventures and excluding intercompany liabilities) as to which the Registrable
Notes have been effectively subordinated. Approximately $45 million of this
amount is also included in the amount of the Company's outstanding Senior
Indebtedness as of December 28, 1996, as set forth above. The Indenture
does not limit the Company's or its subsidiaries' ability to incur Senior
Indebtedness or any other indebtedness or liabilities. The Company expects
from time to time to incur additional indebtedness and other liabilities,
including Senior Indebtedness, and also expects that its subsidiaries will
from time to time incur additional indebtedness and other liabilities. In
particular, the Company anticipates incurring significant obligations, which
may include additional Senior Indebtedness, in connection with its
manufacturing program. See "Risk Factors -- Leverage and Subordination" and
Business -- Manufacturing."
Redemption
The Registrable Notes may not be redeemed at the option of the
Company prior to December 16, 1999. On and after December 16, 1999, the
Registrable Notes may be redeemed, in whole or in part, at the option of the
Company, at the redemption prices specified below, upon not less than 20 nor
more than 60 days' prior notice as provided under "-- Notices" below.
The redemption price (expressed as a percentage of principal amount)
is as follows for the 12-month periods beginning on December 15 of the
following years (or December 16, in the case of 1999):
Year Redemption Price
------- -----------------
1999 . . . . . . . . . . . . . . . 103.429%
2000 . . . . . . . . . . . . . . . 102.571
2001 . . . . . . . . . . . . . . . 101.714
2002 . . . . . . . . . . . . . . . 100.857
and thereafter is equal to 100% of the principal amount, in each case
together with accrued interest to the date of redemption. (Sections 2.2,
11.1, 11.5, 11.7)
No sinking fund is provided for the Registrable Notes.
Payment and Conversion
The principal of Registrable Notes will be payable in U.S. dollars,
against surrender thereof at the office or agency of the Trustee in the
Borough of Manhattan, The City of New York, by dollar check drawn on, or by
transfer to a dollar account (such transfer to be made only to Holders of an
aggregate principal amount of Registrable Notes in excess of U.S.
$2,000,000). Payment of any installment of interest on Registrable Notes
will be made to the Person in whose name such Registrable Notes (or any
predecessor Registrable Note) is registered at the close of business on the
June 1 or the December 1 (whether or not a Business Day) immediately
preceding the relevant Interest Payment Date (a "Regular Record Date").
Payments of such interest will be made by a dollar check mailed to the
Holder at such Holder's registered address or, upon application by the
Holder thereof to the Trustee not later than the applicable Regular Record
Date, by transfer to a dollar account (such transfer to be made only to
Holders of an aggregate principal amount of Notes in excess of U.S.
$2,000,000). No transfer to a dollar account will be made unless the Trustee
has received written wire instructions not less than 15 days prior to the
relevant payment date. (Section 2.2)
Any payment on the Registrable Notes due on any day which is not a
Business Day need not be made on such day, but may be made on the next
succeeding Business Day with the same force and effect as if made on such
due date, and no interest shall accrue on such payment for the period from
and after such date. "Business Day", when used with respect to any place of
payment, place of conversion or any other place, as the case may be, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in such place of payment, place of conversion or
other place, as the case may be, are generally authorized or obligated by
law or executive order to close; provided, however, that a day on which
banking institutions in San Jose, California, Boston, Massachusetts, New
York, New York or London, England are generally authorized or obligated by
law or executive order to close shall not be a Business Day for certain
purposes. (Sections 1.1 and 2.2)
Registrable Notes may be surrendered for conversion at the office or
agency of the Trustee in the Borough of Manhattan, The City of New York.
Registrable Notes surrendered for conversion must be accompanied by
appropriate notices and any payments in respect of interest or taxes, as
applicable, as described above under "-- Conversion Rights". (Sections 2.2
and 12.2)
The Company has initially appointed the Trustee as Paying Agent and
Conversion Agent. The Company may at any time terminate the appointment of
any Paying Agent or Conversion Agent and appoint additional or other Paying
Agents and Conversion Agents, provided that until the Registrable Notes have
been delivered to the Trustee for cancellation, or moneys sufficient to pay
the principal of, premium, if any, and interest on the Registrable Notes
have been made available for payment and either paid or returned to the
Company as provided in the Indenture, it will maintain an office or agency
in the Borough of Manhattan, The City of New York for surrender of
Registrable Notes for conversion, which shall initially be an office or
agency of the Trustee as provided in the Indenture. Notice of any such
termination or appointment and of any change in the office through which any
Paying Agent or Conversion Agent will act will be given in accordance with
"-- Notices" below. (Section 10.2)
All moneys deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of principal of, premium, if
any, or interest on any Registrable Notes which remain unclaimed at the end
of two years after such payment has become due and payable will be repaid to
the Company, and the Holder of such Registrable Note will thereafter look
only to the Company for payment thereof. (Section 10.3).
Repurchase at Option of Holders Upon a Change in Control
If a Change in Control (as defined) occurs, each Holder of
Registrable Notes shall have the right, at the Holder's option, to require
the Company to repurchase all of such Holder's Registrable Notes not
theretofore called for redemption, or any portion of the principal amount
thereof that is $1,000 or an integral multiple of $1,000 in excess thereof,
on the date (the "Repurchase Date") that is 45 days after the date of the
Company Notice (as defined), at a price equal to 100% of the principal
amount of the Registrable Notes to be repurchased, together with interest
accrued to the Repurchase Date (the "Repurchase Price"). (Section 14.1)
The Company may, at its option, in lieu of paying the Repurchase
Price in cash, pay the Repurchase Price in Common Stock valued at 95% of the
average of the closing bid prices of the Common Stock for the five trading
days immediately preceding the second trading day prior to the Repurchase
Date; provided that payment may not be made in Common Stock unless the
Company satisfies certain conditions with respect to such payment prior to
the Repurchase Date as provided in the Indenture. (Sections 14.1 and 14.2)
Within 30 days after the occurrence of a Change in Control, the
Company is obligated to give to all Holders of the Registrable Notes notice,
as provided in the Indenture (the "Company Notice"), of the occurrence of
such Change in Control and of the repurchase right arising as a result
thereof, or, at the request of the Company on or before the 15th day after
the occurrence, the Trustee shall give the Company Notice. The Company must
also deliver a copy of the Company Notice to the Trustee. To exercise the
repurchase right, a Holder of Registrable Notes must deliver on or before
the 30th day after the date of the Company Notice irrevocable written notice
to the Trustee of the Holder's exercise of such right, together with the
Registrable Notes with respect to which the right is being exercised.
(Section 14.3)
A "Change in Control" shall be deemed to have occurred at such time
after the original issuance of the Registrable Notes as there shall occur:
(i) the acquisition by any Person (including any syndicate or
group deemed to be a "person" under Section 13(d)(3) of the Exchange Act)
of beneficial ownership, directly or indirectly, through a purchase, merger
or other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors, other than any such
acquisition by the Company, any subsidiary of the Company or any employee
benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of all or substantially all of the assets
(other than to a wholly-owned Subsidiary of the Company) of the Company to
any other Person (other than (a) any such transaction pursuant to which the
holders of 50% or more of the total voting power of all shares of capital
stock of the Company entitled to vote generally in elections of directors
immediately prior to such transaction have, directly or indirectly, at least
50% or more of the total voting power of all shares of capital stock of the
continuing or surviving corporation entitled to vote generally in elections
of directors of the continuing or surviving corporation immediately after
such transaction and (b) a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares
of capital stock of the Company or (y) which is effected solely to change
the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock into solely shares of common stock); provided, however, that a Change
in Control shall not be deemed to have occurred if either (a) the closing
price per share of the Common Stock for any five trading days within the
period of 10 consecutive trading days ending immediately after the later of
the Change in Control or the public announcement of the Change in Control
(in the case of a Change in Control under clause (i) above) or the period of
10 consecutive trading days ending immediately before the Change in Control
(in the case of a Change in Control under clause (ii) above) shall equal or
exceed 105% of the Conversion Price of the Registrable Notes in effect on
each such trading day, or (b) all of the consideration (excluding cash
payments for fractional shares and cash payments made pursuant to
dissenters' appraisal rights) in a merger or consolidation constituting the
Change in Control described in clause (i) and/or clause (ii) above consists
of shares of common stock traded on a national securities exchange or quoted
on the Nasdaq National Market (or will be so traded or quoted immediately
following the Change in Control) and as a result of such transaction or
transactions the Notes become convertible solely into such common stock. The
"Conversion Price" is equal to $1,000 divided by the Conversion Rate.
"Beneficial Owner" shall be determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act, as in effect on the
date of execution of the Indenture. "Person" includes any syndicate or group
which would be deemed to be a "person" under section 13(d)(3) of the
Exchange Act. (Section 14.4)
Rule 13e-4 under the Exchange Act requires the dissemination of
certain information to security holders in the event of an issuer tender
offer and may apply in the event that the repurchase option becomes
available to Holders of the Registrable Notes. The Company will comply with
this rule to the extent applicable at that time.
The Company may, to the extent permitted by applicable law, at any
time purchase Registrable Notes in the open market or by tender at any price
or by private agreement. Any Registrable Note so purchased by the Company
may, to the extent permitted by applicable law and subject to restrictions
contained in the Purchase Agreement, be reissued or resold or may, at the
Company's option, be surrendered to the Trustee for cancellation. Any
Registrable Notes surrendered as aforesaid may not be reissued or resold and
will be canceled promptly.
The foregoing provisions would not necessarily afford Holders of the
Registrable Notes protection in the event of highly leveraged or other
transactions involving the Company that may adversely affect Holders.
The Company's ability to repurchase Notes upon the occurrence of a
Change in Control is subject to limitations. There can be no assurance that
the Company would have the financial resources, or would be able to arrange
financing, to pay the Repurchase Price for all the Notes that might be
delivered by Holders of Notes seeking to exercise the repurchase right.
Moreover, although under the Indenture the Company may elect, subject to
satisfaction of certain conditions, to pay the repurchase price for the
Notes using shares of Common Stock, [the terms of the existing Company's
Credit Agreement prohibit the repurchase of Notes by the Company or its
subsidiaries in cash or any other form of payment including shares of Common
Stock], and the Company's ability to repurchase Notes may be limited or
prohibited by the terms of any future borrowing arrangements, including
Senior Indebtedness existing at the time of a Change in Control. The
Company's ability to repurchase Notes with cash may also be limited by the
terms of its subsidiaries' borrowing arrangements due to dividend
restrictions. Any failure by the Company to repurchase the Notes when
required following a Change in Control would result in an Event of Default
under the Indenture whether or not such repurchase is permitted by the
subordination provisions of the Indenture. (Section 5.1) Any such default
may, in turn, cause a default under Senior Indebtedness of the Company.
Moreover, the occurrence of a Change in Control would result in an event of
default under the Company's Credit Agreement and may cause an event of
default under terms of other Senior Indebtedness of the Company. As a
result, in each case, any repurchase of the Notes would, absent a waiver, be
prohibited under the subordination provisions of the Indenture until the
Senior Indebtedness is paid in full. In addition, the Company's repurchase
of Notes as a result of the occurrence of a Change in Control may be
prohibited or limited by, or create an event of default under, the terms of
agreements related to borrowings which the Company may enter into from time
to time, including agreements relating to Senior Indebtedness. See "--
Subordination" and "Risk Factors -- Leverage and Subordination."
Mergers and Sales of Assets by the Company
The Company may not consolidate with or merge into any other Person
(in a transaction in which the Company is not the surviving corporation) or
convey, transfer, sell or lease its properties and assets substantially as
an entirety to any Person, unless (a) the Person formed by such
consolidation or into or with which the Company is merged or the Person to
which the properties and assets of the Company are so conveyed, transferred,
sold or leased shall be a corporation, limited liability company,
partnership or trust organized and existing under the laws of the United
States, any State thereof or the District of Columbia and, if other than the
Company, shall expressly assume the payment of the principal of, premium, if
any, and interest on the Notes and the performance of the other covenants of
the Company under the Indenture, and (b) immediately after giving effect to
such transaction, no Event of Default, and no event that after notice or
lapse of time or both, would become an Event of Default, shall have occurred
and be continuing. (Section 7.1)
Events of Default
The following will be Events of Default under the Indenture: (a)
failure to pay principal of or premium, if any, on any Note when due,
whether or not such payment is prohibited by the subordination provisions of
the Notes and the Indenture; (b) failure to pay any interest (including any
Liquidated Damages) on any Note when due, continuing for 30 days, whether
or not such payment is prohibited by the subordination provisions of the
Notes and the Indenture; (c) failure to provide a Company Notice in the
event of a Change in Control, whether or not the payment of the Repurchase
Price is prohibited by the subordination provisions of the Notes and the
Indenture; (d) failure to perform any other covenant of the Company in the
Indenture, continuing for 60 days (plus an additional 60 days in the case of
defaults subject to cure, provided the Company commences such cure within
the initial 60 days and is diligently pursuing such cure) after written
notice as provided in the Indenture; (e) any indebtedness for money borrowed
by the Company in an outstanding principal amount in excess of $20,000,000
is not paid at final maturity or upon acceleration thereof and such default
in payment or acceleration is not cured or rescinded within 30 days after
written notice as provided in the Indenture; and (f) certain events of
bankruptcy, insolvency or reorganization. (Section 5.1) Subject to the
provisions of the Indenture relating to the duties of the Trustee in case an
Event of Default shall occur and be continuing, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable indemnity. (Section 6.3) Subject to
compliance with all rules or laws and the Indenture, the Holders of a
majority in aggregate principal amount of the 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 5.12)
If an Event of Default (other than as specified in clause (f) above)
shall occur and be continuing, either the Trustee or the Holders of at least
25% in principal amount of the Outstanding Notes may accelerate the maturity
of all Notes; provided, however, that after such acceleration but before a
judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of principal of the Notes which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in the Indenture. If an Event of Default as specified in clause (f)
above occurs and is continuing, then the principal of, and accrued interest
on, all the Notes shall ipso facto become immediately due and payable
without any declaration or other act on the part of the Holders of the Notes
or the Trustee. (Section 5.2) For information as to waiver of defaults, see
"-- Meetings, Modification and Waiver."
No Holder of any Registrable Note will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice
of a continuing Event of Default and the Holders of at least 25% in
aggregate principal amount of the Outstanding Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the
Holders of a majority in aggregate principal amount of the Outstanding Notes
a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. (Section 5.7) However, such
limitations do not apply to a suit instituted by a Holder of a Registrable
Note for the enforcement of payment of the principal of, premium, if any, or
interest on such Registrable Note (including Liquidated Damages, if any) on
or after the respective due dates expressed in such Registrable Note or of
the right to convert such Registrable Note in accordance with the Indenture.
(Section 5.8)
The Company will be required to furnish to the Trustee annually a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in such performance. (Section
10.9)
Meetings, Modification and Waiver
The Indenture contains provision for convening meetings of the
Holders of Notes to consider matters affecting their interests. (Article
IX)
Certain limited modifications of the Indenture may be made without
the necessity of obtaining the consent of the Holders of the Notes. Other
modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, either (i) with the written consent
of the Holders of not less than a majority in aggregate principal amount of
the Notes at the time Outstanding or (ii) by the adoption of a resolution,
at a meeting of Holders of the Notes at which a quorum is present, by the
Holders of the lesser of (a) not less than a majority in aggregate principal
amount of the Notes at the time Outstanding and (b) at least 66 2/3% in
aggregate principal amount of the Notes represented at such meeting.
However, no such modification or amendment may, without the consent of the
Holder of each Outstanding Note affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of interest on, any Note,
(b) reduce the principal amount of, or the premium, if any, or interest on,
any Note, (c) reduce the amount payable upon a redemption or mandatory
repurchase, (d) modify the provisions with respect to the repurchase right
of the Holders in a manner adverse to the Holders, (e) change the place or
currency of payment of principal of, premium, if any, or interest on, any
Note (including any payment of Liquidated Damages or the Redemption Price or
the Repurchase Price in respect of such Note), (f) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (g) modify the obligation of the Company to maintain an office or
agency in New York City, (h) except as otherwise permitted or contemplated
by provisions concerning consolidation, merger, conveyance, transfer, sale
or lease of all or substantially all of the property and assets of the
Company, adversely affect the right of Holders to convert any of the Notes
other than as provided in the Indenture, (i) modify the subordination
provisions in a manner adverse to the Holders of the Notes, (j) reduce the
above-stated percentage of Outstanding Notes necessary to modify or amend
the Indenture, (k) reduce the percentage of aggregate principal amount of
Outstanding Notes necessary for waiver of compliance with certain provisions
of the Indenture or for waiver of certain defaults, (l) reduce the
percentage in aggregate principal amount of Outstanding Notes required for
the adoption of a resolution or the quorum required at any meeting of
Holders of Notes at which a resolution is adopted, (m) modify the obligation
of the Company to deliver information required under Rule 144A to permit
resales of Notes and Common Stock issuable upon conversion thereof in the
event the Company ceases to be subject to certain reporting requirements
under the United States securities laws or (n) modify the obligations of the
Company not to resell the Notes and to use its reasonable efforts to prevent
its affiliates from reselling the Notes. (Sections 8.2 and 5.13). The
quorum at any meeting called to adopt a resolution will be Persons holding
or representing a majority in aggregate principal amount of the Notes at the
time Outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of such aggregate principal amount. (Section 9.4)
The Holders of a majority in aggregate principal amount of the
Outstanding Notes may waive compliance by the Company with certain
restrictive provisions of the Indenture by written consent or by the
adoption of a resolution at a meeting. (Section 10.13) The Holders of a
majority in aggregate principal amount of the Outstanding Notes also may
waive any past default under the Indenture, except a default in the payment
of principal, premium, if any, or interest, by written consent.
(Section 5.13)
Registration Rights
In connection with the Original Offering, the Company entered into a
registration rights agreement with the Initial Purchasers (the
"Registration Agreement") pursuant to which the Company agreed to, at the
Company's expense for the benefit of the Holders of the Registrable Notes
and the shares of Common Stock issuable upon conversion thereof (together,
the "Registrable Securities"), (i) file with the Commission within 90 days
after the date of original issuance of the Registrable Notes, a registration
statement (the "Shelf Registration Statement") covering resales of the
Registrable Securities, (ii) use reasonable efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act
within 180 days after the date of original issuance of the Registrable Notes
and (iii) use reasonable efforts to keep effective the Shelf Registration
Statement until three years after the date of the original issuance of the
Registrable Notes or such earlier date as all Registrable Securities shall
have been disposed of or on which all Registrable Securities held by persons
that are not affiliates of the Company may be resold without registration
pursuant to Rule 144(k) under the Securities Act (the "Effectiveness
Period"). The Company will be permitted to suspend the use of this
Prospectus which is part of this Shelf Registration Statement in connection
with the sales of the Registrable Securities during certain periods of time
under certain circumstances relating to pending corporate developments,
public filing with the Commission and other events. The Company will
provide to each holder of Registrable Securities copies of this Prospectus
that is a part of this Shelf Registration Statement, notify each holder
when this Shelf Registration Statement has become effective and take certain
other actions as are required to permit public resales of the Registrable
Securities. A holder of Registrable Securities that sells such Registrable
Securities pursuant to this Shelf Registration Statement will be required to
be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Registration Agreement, including
certain indemnification obligations.
In the event that this Shelf Registration Statement ceases to be
effective for more than 90 days or the Company suspends the use of this
Prospectus which is a part hereof for more than 90 days, whether or not
consecutive, during any 12-month period then the interest rate borne by
Registrable Notes will increase by an additional one-half of one percent
(0.50%) per annum from the 91st day of the applicable 12-month period this
Shelf Registration Statement ceases to be effective or the Company suspends
the use of this Prospectus which is a part thereof, as the case may be,
until the earlier of such time as (i) this Shelf Registration Statement or
another Shelf Registration Statement again becomes effective, (ii) the use
of the related Prospectus ceases to be suspended or (iii) the Effectiveness
Period expires. Registrable Securities that have been sold pursuant to this
Shelf Registration Statement or Rule 144 prior to the occurrence of a
Registration Default will not be entitled to Liquidated Damages.
Book-Entry; Delivery and Form; Global Certificates
The Registrable Notes may be represented by one or more fully
registered global notes (the "Global Note") as well as Registrable Notes in
definitive form registered in the name of individual purchasers or their
nominees. Each such Global Note will be deposited upon issuance with, or
on behalf of, DTC and registered in the name of DTC or its nominee (the
"Global Note Registered Owner") or will remain in the custody of the Trustee
pursuant to a FAST Balance Certificate Agreement between DTC and the
Trustee. Except as set forth below, the Global Note may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee.
DTC is a limited purpose trust company organized under the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities for its participant
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC
only through the Participants or the Indirect Participants. The ownership
interest and transfer of ownership interest of each actual purchaser of each
security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
Pursuant to procedures established by DTC, (i) upon deposit of the
Global Note, DTC will credit the accounts of Participants with portions of
the principal amount of the Global Note and (ii) ownership of such interests
in the Global Note will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to
the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Note). The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer Registrable Notes will be limited to that extent.
Except as described below, owners of interests in the Global Note
will not have Registrable Notes registered in their names, will not receive
physical delivery of Registrable Notes in definitive form and will not be
considered the registered owners thereof under the Indenture for any
purpose.
None of the Company, the Trustee, nor any agent of the Company or
the Trustee will have any responsibility or liability for (i) any aspect of
DTC's records or any Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Note, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's records relating to the beneficial ownership interests in the
Global Note or (ii) any other matter relating to the actions and practices
of DTC's or any of its Participants.
Payments in respect of the principal of, premium, if any, and
interest on any Registrable Notes registered in the name of the Global Note
Registered Owner on any relevant record date will be payable by the Trustee
to the Global Note Registered Owner in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the person in whose names the Registrable Notes,
including the Global Note, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company, the Trustee, nor any agent
of the Company or the Trustee has nor will have any responsibility or
liability for the payment of such amounts to beneficial owners of the
Registrable Notes or for any other matter relating to actions or practices
of DTC or any of its Participants. The Company understands that DTC's
current practice, upon receipt of any payment in respect of securities such
as the Registrable Notes (including principal and interest), is to credit
the accounts of the relevant Participants with the payment on the payment
date, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the
records of DTC (unless DTC has reason to believe it will not receive payment
on such payment date). Payments by the Participants and the Indirect
Participants to the beneficial owners of Registrable Notes will be governed
by standing instructions and customary practices and will be the
responsibility of Participants or the Indirect Participant, and the
beneficial owners and not the responsibility of the DTC, the Trustee or the
Company. Neither the Company nor the Trustee will be liable for any delay
by DTC or any of its Participants in identifying the beneficial owners of
the Registrable Notes, and the Company and the Trustee may conclusively rely
on and will be protected in relying on instructions from the Global Note
Registered Owner for all purposes.
So long as DTC, or its nominee, is the registered owner or holder of
a Global Note, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Registrable Notes represented by such Global
Note for all purposes under the Indenture and the Registrable Notes. No
beneficial owner of an interest in a Global Note will be able to transfer
the interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Indenture. Transfers between
Participants in DTC will be effected in the ordinary way in accordance with
DTC rules.
The Company expects that DTC will take any action permitted to be
taken by a holder of Registrable Notes (including the presentation of
Registrable Notes for exchange as described below) only at the direction of
one or more Participants to whose account the DTC interests in a Global Note
is credited and only in respect of such portion of the aggregate principal
amount of the Registrable Notes as to which such Participant or Participants
has or have given such direction.
Although the Company expects that DTC will agree to the foregoing
procedures in order to facilitate transfers of interests in a Global Note
among Participants of DTC, it is under no obligation to perform or continue
to perform such procedures, and such procedures may be discontinued at any
time. Neither the Company nor the Trustee will have any responsibility for
the performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary
for a Global Note and a successor depositary is not obtained, the Company
will issue definitive certificated Registrable Notes in exchange for a
Global Note. Such definitive certificated Registrable Notes shall be
registered in names of the owners of the beneficial interests in the Global
Note as provided by the Participants. Notes issued in definitive
certificated form will be fully registered, without coupons, in minimum
denominations of $1,000 and integral multiples of $1,000 above that amount.
Upon issuance of Registrable Notes in definitive certificated form, the
Trustee is required to register the Registrable Notes in the name of, and
cause the Registrable Notes to be delivered to, the person or persons (or
the nominee thereof) identified as the beneficial owner as DTC shall
direct.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
Transfer and Exchange
A holder may transfer or exchange Registrable Notes in accordance
with the Indenture. The Registrar and the Trustee may require a holder,
among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required
to transfer or exchange any Registrable Note selected for redemption. Also,
the Company is not required to transfer or exchange any Registrable Note for
a period of 15 days before a selection of Registrable Notes to be redeemed.
The registered holder of a Registrable Note will be treated as the
owner of it for all purposes.
Title
The Company, the Trustee, any Paying Agent and any Conversion Agent
may treat the registered owner (as reflected in the Security Register) of
any Registrable Note as the absolute owner thereof (whether or not such Note
shall be overdue) for the purpose of making payment and for all other
purposes. (Section 2.2)
Notices
Notice to Holders of the Registrable Notes will be given by mail to
the addresses of such Holders as they appear in the Security Register. Such
notices will be deemed to have been given on the date of such mailing.
(Sections 1.1 and 1.6)
Notice of a redemption of Registrable Notes will be given at least
once not less than 20 nor more than 60 days prior to the redemption date
(which notice shall be irrevocable) and will specify the redemption date.
Replacement of Notes
Registrable Notes that become mutilated, destroyed, stolen or lost
will be replaced by the Company at the expense of the Holder upon delivery
to the Trustee of the Registrable mutilated Notes or evidence of the loss,
theft or destruction thereof satisfactory to the Company and the Trustee. In
the case of a lost, stolen or destroyed Registrable Note, indemnity
satisfactory to the Trustee and the Company may be required at the expense
of the Holder of such Registrable Note before a replacement Note will be
issued. (Section 3.6)
Governing Law
The Indenture and the Notes will be governed by and construed in
accordance with the laws of the State of New York, United States of
America. (Section 1.11)
The Trustee
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in
the conduct of his own affairs in the exercise of its powers. Subject to
such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any of the
Holders of Registrable Notes, unless they shall have offered to the Trustee
reasonable security or indemnity. (Sections 6.1 and 6.3)
Notes Issued in Reliance upon Regulation S
The Notes issued in the Original Offering in reliance upon Regulation
S (the "Regulation S Notes") are not being registered pursuant to the
Registration Statement of which this Prospectus forms a part. The
Regulation S Notes issued under the Indenture are governed by substantially
similar terms as the Registrable Notes, except with respect to certain
mechanical provisions relating to form and denomination, payment and
conversion, redemption for taxation reasons and payments of additional
amounts. For a complete description of the terms and conditions of the
Regulation S Notes, see the detailed provisions of the Indenture.
UNITED STATES TAXATION
The following is a summary of certain material United States federal
income and estate tax considerations relating to the purchase, ownership and
disposition of the Notes and of Common Stock into which Notes may be
converted, but does not purport to be a complete analysis of all the
potential tax considerations relating thereto. This summary is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
the applicable Treasury Regulations promulgated or proposed thereunder
("Treasury Regulations"), judicial authority and current administrative
rulings and practice, all of which are subject to change, possibly on a
retroactive basis. This summary deals only with holders that will hold
Registrable Notes and Common Stock into which Registrable Notes may be
converted as "capital assets" (within the meaning of Section 1221) and does
not address tax considerations applicable to investors that may be subject
to special tax rules, such as banks, tax-exempt organizations, insurance
companies, dealers in securities or currencies, persons that will hold
Registrable Notes as a position in a hedging transaction, "straddle" or
"conversion transaction" for tax purposes, or persons that have a
"functional currency" other than the U.S. dollar. This summary discusses
the tax considerations applicable to the initial purchasers of the
Registrable Notes who purchase the Registrable Notes at their "issue price"
as defined in Section 1273 of the Code and does not discuss the tax
considerations applicable to subsequent purchasers of the Registrable Notes.
The Company has not sought any ruling from the Internal Revenue Service
("IRS") with respect to the statements made and the conclusions reached in
the following summary, and there can be no assurance that the IRS will agree
with such statements and conclusions. INVESTORS CONSIDERING THE PURCHASE OF
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION
OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
United States Holders
As used herein, the term "United States Holder" means the beneficial
owner of a Note or Common Stock that for United States federal income tax
purposes is (i) a citizen or resident of the United States, (ii) treated as
a domestic corporation or domestic partnership, or (iii) an estate or trust
that is subject to United States federal income taxation on a net income
basis in respect of the Registrable Notes or Common Stock.
Payment of Interest
Interest on a Note generally will be includable in the income of a
United States Holder as ordinary income at the time such interest is
received or accrued, in accordance with such Holder's method of accounting
for United States federal income tax purposes. The Registrable Notes will
not have original issue discount.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange or redemption of a Registrable Note, a United
States Holder generally will recognize capital gain or loss equal to the
difference between (i) the amount of cash proceeds and the fair market value
of any property received on the sale, exchange or redemption (except to the
extent such amount is attributable to accrued interest income, which is
taxable as ordinary income) and (ii) such Holder's adjusted tax basis in the
Registrable Note. A United States Holder's adjusted tax basis in a
Registrable Note generally will equal the cost of the Registrable Note to
such Holder, less any principal payments received by such Holder. Such
capital gain or loss will be long-term capital gain or loss if the United
States Holder's holding period in the Registrable Note is more than one year
at the time of sale, exchange or redemption.
Conversion of the Notes
A United States Holder generally will not recognize any income, gain
or loss upon conversion of a Registrable Note into Common Stock, except with
respect to cash received in lieu of a fractional share of Common Stock.
Such Holder's tax basis in the Common Stock received on conversion of a
Registrable Note will be the same as such Holder's adjusted tax basis in the
Registrable Note at the time of conversion (reduced by any basis allocable
to a fractional share interest), and the holding period for the Common Stock
received on conversion will generally include the holding period of the
Registrable Note converted.
Cash received in lieu of a fractional share of Common Stock upon
conversion will be treated as a payment in exchange for the fractional share
of Common Stock. Accordingly, the receipt of cash in lieu of a fractional
share of Common Stock generally will result in capital gain or loss
(measured by the difference between the cash received for the fractional
share and the United States Holder's adjusted tax basis in the fractional
share).
Dividends
The amount of any distribution by the Company in respect of the
Common Stock will be equal to the amount of cash and the fair market value,
on the date of distribution, of any property distributed. Generally,
distributions will be treated as a dividend, subject to tax as ordinary
income, to the extent of the Company's current or accumulated earnings and
profits, then as a tax-free return of capital to the extent of the Holder's
tax basis in the Common Stock and thereafter as gain from the sale of
exchange of such stock.
In general, a dividend distribution to a corporate United States
Holder will qualify for the 70% dividends received deduction if the Holder
owns less than 20% of the voting power and value of the Company's stock
(other than any non-voting, non-convertible, non-participating preferred
stock). A corporate United States Holder that owns 20% or more of the
voting power and value of the Company's stock (other than any non-voting,
non-convertible, non-participating preferred stock) generally will qualify
for an 80% dividends received deduction. The dividends received deduction
is subject, however, to certain holding period, taxable income and other
limitations.
If at any time (i) the Company makes a distribution of cash or
property to its stockholders or purchases Common Stock and such distribution
or purchase would be taxable to such stockholders as a dividend for United
States federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the Conversion Rate of the Registrable Notes is
increased, or (ii) the Conversion Rate of the Registrable Notes is increased
at the discretion of the Company, such increase in Conversion Rate may be
deemed to be the payment of a taxable dividend to United States Holders of
Registrable Notes (pursuant to Section 305 of the Code). Such Holders of
Registrable Notes could therefore have taxable income as a result of an
event pursuant to which they received no cash or property.
Sale of Common Stock
Upon the sale or exchange of Common Stock, a United States Holder
generally will recognize capital gain or loss equal to the difference
between (i) the amount of cash and the fair market value of any property
received upon the sale or exchange and (ii) such Holder's adjusted tax basis
in the Common Stock. Such capital gain or loss will be long-term if the
United States Holder's holding period in the Common Stock is more than one
year at the time of the sale or exchange. A United States Holder's basis and
holding period in Common Stock received upon conversion of a Registrable Note
are determined as discussed above under "-- Conversion Rights".
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments
of principal, premium, if any, and interest on a Registrable Note, payments
of dividends on Common Stock, payments of the proceeds of the sale of a
Registrable Note and payments of the proceeds of the sale of Common Stock to
certain noncorporate United States Holders. The payor will be required to
withhold backup withholding tax at the rate of 31% if (a) the payee fails to
furnish a taxpayer identification number ("TIN") to the payor or establish
an exemption from backup withholding, (b) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (c) there has been a notified
payee underreporting with respect to interest, dividends or original issue
discount described in Section 3406(c)of the Code or (d) there has been a
failure of the payee to certify under the penalty of perjury that the payee
is not subject to backup withholding under the Code. Any amounts withheld
under the backup withholding rules from a payment to a United States Holder
will be allowed as a credit against such Holder's United States federal
income tax and may entitle the Holder to a refund, provided that the
required information is furnished to the IRS.
SELLING SECURITYHOLDERS
The Registrable Notes offered hereby were originally issued by the
Company and sold by the Initial Purchasers, in a transaction exempt from
the registration requirements of the Securities Act, to persons reasonably
believed by such initial purchaser to be "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act), or other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act. An additional $19,275,000 aggregate principal
amount of Notes were issued in the Original Offering by the Company and
sold by the Initial Purchasers in compliance with the provisions of
Regulation S under the Securities Act. The Selling Securityholders (which
term includes their transferees, pledgees, donees or their successors) may
from time to time offer and sell pursuant to this Prospectus any or all of
the Registrable Notes and Common Stock issued upon conversion of the
Registrable Notes.
The following table sets forth information with respect to the
Selling Securityholders and the respective principal amounts of Registrable
Notes beneficially owned by each Selling Securityholder that may be offered
pursuant to this Prospectus. Such information has been obtained from the
Selling Securityholders. None of the Selling Securityholders has, or within
the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or affiliates,
except as noted below. Because the Selling Securityholders may offer all or
some portion of the Registrable Notes or the Common Stock issuable upon
conversion thereof pursuant to this Prospectus, no estimate can be given as
to the amount of the Registrable Notes or the Common Stock issuable upon
conversion thereof that will be held by the Selling Holders upon termination
of any such sales. In addition, the Selling Securityholders identified
below may have sold, transferred or otherwise disposed of all or a portion
of their Registrable Notes since the date on which they provided the
information regarding their Registrable Notes in transactions exempt from
the registration requirements of the Securities Act.
From time to time, Goldman, Sachs & Co. or its affiliate provided,
and they continue to provide, investment banking services to the Company,
for which they received or will receive customer fees. None of the other
Selling Securityholders has had any position, office or other materials
relationship with the Company or its affiliates within the last three
years.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NUMBER OF SHARES OF COMMON STOCK
REGISTRABLE NOTES ----------------------------------
BENEFICIALLY OFFERED SELLING
OWNED AND BENEFICIALLY SECURITYHOLDER
NAME OFFERED HEREBY OWNED (1) (2) HEREBY (2)
- ---- ---------------- -------------- ---------------
<S> <C> <C> <C>
[TO BE ADDED BY AMENDMENT]
Any other holder of Registrable Notes or future transferee
from any such holder (3)(4). . . .
---------------- -------------- ---------------
Total . . . . . . . . . . . .
================ ============== ===============
- --------------
</TABLE>
* Less than 1%.
(1) Includes shares of Common Stock issuable upon conversion of the
Registrable Notes.
(2) Assumes a conversion price of $24.219 per share, and a cash payment in
lieu of any fractional share interest; such conversion price is subject
to adjustment as described under "Description of the Notes - -
Conversion." Accordingly the number of shares of Common Stock issuable
upon conversion of the Registrable Notes may increase or decrease from
time to time. Under the terms of Indenture, fractional shares will not
be issued upon conversion of the Registrable Notes; cash will be paid
in lieu of fractional shares, if any.
(3) Information concerning other Registrable Note Selling Securityholders
will be set forth in Prospectus Supplements from time to time, if
required.
(4) Assumes that any other holders of Registrable Notes or any future
transferee from any such holder does not beneficially own any Common
Stock other than the Common Stock issuable upon conversion of the Notes
at the initial conversion rate.
The preceding table has been prepared based upon the information
furnished to the Company by State Street Bank and Trust Company of
California, as trustee (the "Trustee") for the Notes, and by The Depository
Trust Company ("DTC").
The Selling Securityholders identified above may have sold,
transferred or otherwise disposed of, in transactions exempt from the
registration requirements of the Securities Act, all or a portion of their
Notes since the date on which the information in the preceding table is
presented. Information concerning the Selling Securityholders may change
from time to time and any such changed information will be set forth in
supplements to this Prospectus if and when necessary. Because the Selling
Securityholders may offer all or some of the Notes that they hold and/or
Conversion Shares pursuant to the offering contemplated by this Prospectus,
no estimate can be given as to the amount of the Notes or Conversion Shares
that will be held by the Selling Securityholders upon the termination of
this offering. See "Plan of Distribution."
Information concerning the Selling Securityholders may change from
time to time and any such changed information will be set forth in
supplements to this Prospectus if and when necessary. In addition, the per
share conversion price, and therefore the number of shares issuable upon
conversion of the Registrable Notes, is subject to adjustment under certain
circumstances. Accordingly, the aggregate principal amount of Registrable
Notes and the number of shares of Common Stock issuable upon conversion
thereof offered hereby may increase or decrease.
PLAN OF DISTRIBUTION
The Registrable Notes and Common Stock offered hereby may be sold
from time to time to purchasers directly by the Selling Securityholders.
Alternatively, the Selling Securityholders may from time to time offer the
Registrable Notes and Common Stock to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Securityholders or the purchasers of Registrable Notes and Common Stock for
whom they may act as agents. The Selling Securityholders and any
underwriters, broker/dealers or agents that participate in the distribution
of Registrable Notes and Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act and any profit on the sale of
Registrable Notes and Common Stock by them and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Registrable Notes and Common Stock offered hereby may be sold
from time to time in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, any varying prices determined at the time
of sale or at negotiated prices. The sale of the Registrable Notes and the
Common Stock issuable upon conversion thereof may be effected in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service on which the Registrable
Notes or the Common Stock may be listed or quoted at the time of sale, (ii)
in the over-the-counter market, (iii) in transactions otherwise than on
such exchanges or in the over-the-counter market or (iv) through the writing
of options. At the time a particular offering of the Registrable Notes and
the Common Stock is made, a Prospectus Supplement, if required, will be
distributed which will set forth the aggregate amount and type of
Registrable Notes and Common Stock being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Registrable Notes and Common Stock will be offered or sold
in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions the Registrable Notes and
Common Stock may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or any exemption from registration
or qualification is available and is complied with.
The Selling Securityholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the
Registrable Notes and Common Stock by the Selling Securityholders. The
foregoing may affect the marketability of the Registrable Notes and the
Common Stock.
Pursuant to the Registration Agreement, all expenses of the
registration of the Registrable Notes and Common Stock will be paid by the
Company, including, without limitation, Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however,
that the Selling Securityholders will pay all underwriting discounts and
selling commissions, if any. The Selling Securityholders will be
indemnified by the Company against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
LEGAL MATTERS
The validity of the Registrable Notes and the Common Stock being
offered hereby will be passed upon for the Company by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements and schedule of Cirrus Logic,
Inc. at March 30, 1996 and April 1, 1995 and for each of the three years in
the period ended March 30, 1996, appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
<PAGE>
______________________________
CIRRUS LOGIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
ANNUAL FINANCIAL STATEMENTS
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
QUARTERLY FINANCIAL STATEMENTS
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cirrus Logic, Inc.
We have audited the accompanying consolidated balance sheets of Cirrus
Logic, Inc. as of March 30, 1996 and April 1, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended March 30, 1996. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cirrus Logic,
Inc. at March 30, 1996 and April 1, 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 30, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in fiscal 1994
the Company changed its method of accounting for income taxes.
/s/Ernst & Young LLP
San Jose, California
April 24, 1996, except for the
second paragraph of Note 8, as
to which the date is April 30, 1996;
and the third paragraph of Note 14, as
to which the date is June 27, 1996.
ANNUAL FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share amounts)
<CAPTION>
Fiscal years ended
---------------------------------
March 30, April 1, April 2,
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $1,146,945 $889,022 $557,299
Operating costs and expenses:
Cost of sales 774,350 512,509 298,582
Research and development 238,791 165,622 126,632
Selling, general and administrative 165,267 126,666 91,887
Restructuring costs 11,566 - -
Non-recurring costs 1,195 3,856 -
Merger costs - 2,418 -
----------- ---------- ----------
Total operating costs and expenses 1,191,169 811,071 517,101
----------- ---------- ----------
Operating (loss) income (44,224) 77,951 40,198
Foreign currency transaction gains - 4,999 -
Gain on sale of equity investment - - 13,682
Interest income and other, net 7,652 9,129 4,280
Interest expense (5,151) (2,441) (2,196)
----------- ---------- ----------
(Loss) income before income taxes and cumulative
effect of accounting change (41,723) 89,638 55,964
(Benefit) provision for income taxes (5,540) 28,236 18,146
----------- ---------- ----------
(Loss) income before cumulative effect of
accounting change (36,183) 61,402 37,818
Cumulative effect as of March 31, 1993, of change
in method of accounting for income taxes - - 7,550
----------- ---------- ----------
Net (loss) income ($36,183) $61,402 $45,368
=========== ========== ==========
(Loss) income per common and common equivalent share
before cumulative effect of accounting change ($0.58) $0.96 $0.67
Cumulative effect of accounting change per
common and common equivalent share - - 0.13
----------- ---------- ----------
Net (loss) income per common and common
equivalent share ($0.58) $0.96 $0.80
=========== ========== ==========
Weighted average common and common equivalent
shares outstanding 62,761 63,680 56,402
=========== ========== ==========
<FN>
See accompanying notes.
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Thousands)
<CAPTION>
March 30, April 1,
1996 1995
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $155,979 $ 66,718
Short-term investments 19,279 120,308
Accounts receivable, less allowance for doubtful
accounts of $13,174 in 1996 and $9,439 in 1995 133,718 161,333
Inventories 134,502 103,642
Deferred tax assets 52,662 20,767
Payments for joint venture equipment to be leased 94,683 -
Other current assets 4,004 7,164
--------- ---------
Total current assets 594,827 479,932
--------- ---------
Property and equipment, at cost:
Machinery and equipment 247,390 148,753
Furniture and fixtures 15,293 12,825
Leasehold improvements 21,044 11,757
--------- ---------
283,727 173,335
Less accumulated depreciation and amortization (113,479) (73,091)
--------- ---------
Property and equipment, net 170,248 100,244
Manufacturing agreements, net of accumulated
amortization of $3,921 in 1996 and $65 in 1995
and investment in joint ventures 104,463 63,735
Deposits and other assets 48,039 29,623
--------- ---------
$917,577 $673,534
========= =========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities:
Short-term borrowing $80,000 $ -
Accounts payable 214,299 140,445
Accrued salaries and benefits 41,845 32,508
Current maturities of long-term debt and
capital lease obligations 26,575 11,481
Income taxes payable 20,863 22,322
Other accrued liabilities 28,602 21,557
--------- ---------
Total current liabilities 412,184 228,313
--------- ---------
Capital lease obligations 6,258 9,602
Long-term debt 65,571 16,603
Other long-term 4,898 -
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, no par value; 5,000
shares authorized, none issued - -
Common stock, no par value, 140,000 shares
authorized, 63,951 shares issued and
outstanding in 1996 and 60,594 in 1995 329,574 283,741
Retained earnings 99,092 135,275
--------- ---------
Total shareholders' equity 428,666 419,016
--------- ---------
$917,577 $673,534
========= =========
<FN>
See accompanying notes.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
<CAPTION>
Fiscal Years Ended
--------------------------------
March 30, April 1, April 2,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ($36,183) $61,402 $45,368
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 64,301 34,329 26,315
Compensation related to the issuance of
certain employee stock options 820 3,109 641
Gain on sale of equity investment - - (13,682)
Cumulative effect of accounting change - - (7,550)
Changes in operating assets and liabilities:
Accounts receivable 27,615 (76,448) (20,163)
Inventories (30,860) (24,837) (28,850)
Payments for joint venture equipment to be leased (94,683) - -
Deferred tax and other current assets (28,735) (3,650) (6,751)
Accounts payable 73,854 51,494 25,531
Accrued salaries and benefits 9,337 8,351 11,401
Income taxes payable 15,209 3,262 10,058
Other accrued liabilities 7,045 8,093 7,535
---------- ---------- ----------
Net cash provided by operating activities 7,720 65,105 49,853
---------- ---------- ----------
Cash flows from investing activities:
Purchase of available-for-sale investments (175,139) (234,065) (211,367)
Proceeds from available-for-sale investments 228,092 187,900 200,332
Purchase of held-to-maturity investments (10,444) (158,748) -
Proceeds from held-to-maturity investments 57,144 133,688 -
Proceeds from sale of equity investment - - 14,753
Manufacturing agreements and investment in joint ventures (44,604) (63,800) -
Additions to property and equipment (127,802) (47,313) (35,677)
Increase in deposits and other assets (32,140) (19,429) (7,725)
---------- ---------- ----------
Net cash used by investing activities (104,893) (201,767) (39,684)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings on long-term debt 74,973 13,292 6,673
Payments on long-term debt (10,798) (8,688) (6,726)
Payments on capital lease obligations (4,051) (3,919) (3,330)
Borrowings on short-term debt 121,000 - 10,000
Payments on short-term debt (41,000) - (10,000)
Issuance of common stock in public offering, net of
issuance costs - - 136,025
Proceeds from sale and leaseback of property and equipment 13,067 - -
Increase in other long-term 4,898 - -
Issuance of common stock, net of issuance costs and
repurchases 28,345 8,870 15,428
---------- ---------- ----------
Net cash provided by financing activities 186,434 9,555 148,070
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 89,261 (127,107) 158,239
Cash and cash equivalents at beginning of year 66,718 193,825 35,586
---------- ---------- ----------
Cash and cash equivalents at end of year $155,979 $66,718 $193,825
========== ========== ==========
Non-cash investing and financing activities:
Equipment purchased under capital leases $594 $6,849 $6,158
Tax benefit of stock option exercises 16,668 1,320 3,437
Cash payments for:
Interest 4,358 2,464 2,181
Income taxes 17,612 24,974 12,750
<FN>
See accompanying notes.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended March 30, 1996
(Thousands)
<CAPTION>
Common Stock
--------------------- Retained
Shares Amount Earnings Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, March 31, 1993 49,966 $114,911 $28,505 $143,416
Issuance of stock in public
offering (net of issuance costs of $7,362) 6,940 136,025 --- 136,025
Issuance of stock by PicoPower 506 5,028 --- 5,028
Issuance of stock under stock plans
and other, net of repurchases 1,810 10,400 --- 10,400
Compensation related to the
issuance of certain employee options --- 641 --- 641
Net income --- --- 45,368 45,368
Tax benefit of stock option exercises --- 3,437 --- 3,437
---------- ---------- ---------- ----------
Balance, April 2, 1994 59,222 270,442 73,873 344,315
Issuance of stock under stock plans
and other, net of repurchases 1,372 8,870 --- 8,870
Compensation related to the
issuance of certain employee options --- 3,109 --- 3,109
Net income --- --- 61,402 61,402
Tax benefit of stock option exercises --- 1,320 --- 1,320
---------- ---------- ---------- ----------
Balance, April 1, 1995 60,594 283,741 135,275 419,016
Issuance of stock under stock plans
and other, net of repurchases 3,357 28,345 --- 28,345
Compensation related to the
issuance of certain employee options --- 820 --- 820
Net loss --- --- (36,183) (36,183)
Tax benefit of stock option exercises --- 16,668 --- 16,668
---------- ---------- ---------- ----------
Balance, March 30, 1996 63,951 $329,574 $99,092 $428,666
========== ========== ========== ==========
<FN>
See accompanying notes.
</TABLE>
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Major Customer Information
Cirrus Logic, Inc. (the "Company") operates principally in a
single industry segment. The Company is a leading manufacturer of
advanced integrated circuits for the desktop and portable computing,
telecommunications, industrial, and consumer electronics markets.
The Company applies its system-level expertise in analog and digital
design to innovate highly integrated, software-rich solutions.
Cirrus Logic offers a broad portfolio of products including highly
integrated chips, software, evaluation boards, manufacturing kits,
subsystem modules and telecommunications system equipment. The
Company performs its own wafer and product testing, engineering
support and quality and reliability assurance, and uses joint
ventures and subcontractors to manufacture wafers and assemble
products. The Company also sells Cellular Digital Packet Data (CDPD)
base stations to cellular telephone companies. This equipment
enables the wireless communications technologies necessary to develop
the markets for advanced integrated circuits.
In fiscal 1996 and 1995, no customer accounted for 10% or more
of net sales. In fiscal 1994, one customer comprised 10% of net
sales. No other customer represented 10% or more of the Company's
net sales during these periods.
Export sales, principally in Asia, including sales to
overseas operations of domestic corporations, represented 56%, 56%
and 58% of net revenues in fiscal 1996, 1995 and 1994,
respectively. There are no restrictions on the transfer of funds
in international markets.
Basis of Presentation
On June 1, 1995, the Board of Directors approved a two-for-
one split of the Company's Common Stock. Shareholders of record
as of June 19, 1995 received certificates reflecting the
additional shares on July 17, 1995. All references to the number
of shares of Common Stock, warrants and options to purchase shares
of Common Stock, weighted average common and common equivalent
shares outstanding, and share prices have been restated to reflect
the two-for-one split.
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
Accounts denominated in foreign currencies have been remeasured in
accordance with Statement of Financial Accounting Standards (SFAS)
No. 52, "Foreign Currency Translation," using the U.S. dollar as
the functional currency. Translation adjustments relating to
Cirrus Logic K.K., whose functional currency is the Japanese yen,
have not been material.
During the first quarter of fiscal 1994, the Company changed
its reporting period from a 12 month year ending March 31 to a
fiscal year of 52 or 53 weeks ending on the Saturday closest to
March 31.
Cash Equivalents and Investments
Cash equivalents consist primarily of over-night deposits,
commercial paper, U.S. Government Treasury instruments, and money
market funds with original maturities of three months or less at
date of purchase. Short-term investments have original maturities
greater than three months and consist of U.S. Government Treasury
instruments, money market preferred stock, auction preferred stock,
municipal bonds, certificates of deposit and commercial paper.
Securities Held-to-Maturity and Available-for-Sale
Management determines the appropriate classification of
certain debt and equity securities at the time of purchase as
either held-to-maturity, trading or available-for-sale and
reevaluates such designation as of each balance sheet date.
Held-to-maturity securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization, as well as any interest on the securities, is
included in interest income and other, net. Held-to-maturity
securities include only those securities the Company has the
positive intent and ability to hold to maturity.
Securities not classified as held-to-maturity are classified
as available-for-sale. Available-for-sale securities are carried
at fair value, with unrealized gains and losses, net of tax,
reported as a separate component of shareholders' equity, if
material. Realized gains and losses, declines in value judged to
be other than temporary, and interest on available-for-sale
securities are included in interest income and other, net.
Foreign Exchange Contracts
The Company may enter into foreign currency forward exchange
and option contracts to hedge certain of its foreign currency
exposures. The Company's accounting policies for these
instruments are based on the Company's designation of such
instruments as hedging transactions. The criteria the Company
uses for designating an instrument as a hedge include its
effectiveness in exposure reduction and one-to-one matching of the
derivative financial instrument to the underlying transaction
being hedged. Gains and losses on foreign currency exchange and
option contracts that are designated and effective as hedges of
existing transactions are recognized in income in the same period
as losses and gains on the underlying transactions are recognized
and generally offset. Gains and losses on currency option
contracts that are designated and effective as hedges of
transactions, for which a firm commitment has been attained, are
deferred and recognized in income in the same period that the
underlying transactions are settled. The Company generally does
not require collateral from counterparties.
During fiscal 1996, the Company purchased foreign currency
forward exchange contracts to hedge certain yen denominated inventory
purchases. In addition, during fiscal 1996, the Company purchased
foreign currency option contracts to hedge certain yen denominated
net balance sheet accounts and sales. As of March 30, 1996, the
Company had five foreign currency option contracts outstanding
denominated in Japanese yen for approximately $76,022,000. The
contracts expire through June 1996.
While the contract amounts provide one measure of the volume
of the transactions outstanding at March 30, 1996, they do not
represent the amount of the Company's exposure to credit risk.
The Company's exposure to credit risk (arising from the possible
inability of the counterparties to meet the terms of their contracts)
is generally limited to the amount, if any, by which the
counterparties' obligations exceed the obligations of the Company.
During fiscal 1995, the Company recorded approximately $4,999,000
of foreign currency transaction gains pertaining to the remeasurement
of certain unhedged balance sheet accounts denominated in Japanese
yen. Transaction gains and losses were not material in fiscal
1996 and 1994.
Inventories
The Company applies the lower of standard cost, which
approximates actual cost on a first-in, first-out basis, or
market principle to value its inventories. One of the factors
the Company consistently evaluates in application of this
principle is the extent to which products are accepted into the
marketplace. By policy, the Company evaluates market
acceptance based on known business factors and conditions by
comparing forecasted customer unit demand for the Company's
products over a specific future period or demand horizon to
quantities on hand at the end of each accounting period.
On a quarterly and annual basis, inventories are analyzed on
a part-by-part basis. Inventory quantities on hand in excess of
forecasted demand, as adjusted by management, are considered to
have reduced market value and, therefore, the cost basis is
adjusted from standard cost to the lower of cost or market.
Typically, market value for excess or obsolete inventories is
considered to be zero. The short product life cycles and the
competitive nature of the industry are factors considered in the
estimation of customer unit demand at the end of each quarterly
accounting period.
Inventories are comprised of the following (in thousands):
March 30, April 1,
1996 1995
--------- ---------
Work-in-process $ 69,244 $ 84,920
Finished goods 65,258 18,722
--------- ---------
$ 134,502 $ 103,642
========= =========
Property and Equipment
Property and equipment is recorded at cost. Depreciation and
amortization is provided on a straight-line basis over estimated
useful lives ranging from three to five years, or over the life of
the lease for equipment under capitalized leases, if shorter.
Leasehold improvements are amortized over the term of the lease or
their estimated useful life, whichever is shorter.
Concentration of Credit Risk
Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of cash
equivalents, short-term investments and trade accounts receivable.
By policy, the Company places its investments only with high
credit quality financial institutions and, other than U.S.
Government Treasury instruments, limits the amounts invested in
any one institution or in any type of instrument. Almost all of
the Company's trade accounts receivable are derived from sales to
manufacturers of computer systems and subsystems. The Company
performs ongoing credit evaluations of its customers' financial
condition and limits its exposure to accounting losses by limiting
the amount of credit extended whenever deemed necessary and
generally does not require collateral.
Revenue Recognition
Revenue from product sales direct to customers is recognized
upon shipment. Certain of the Company's sales are made to
distributors under agreements allowing certain rights of return
and price protection on products unsold by distributors.
Accordingly, the Company defers revenue and gross profit on such
sales until the product is sold by the distributors.
Non-recurring and Merger Costs
In the third quarter of fiscal 1996, non-recurring costs were
approximately $1.2 million associated with the planned formation of
the new joint venture with Lucent Technologies.
In the quarter ended October 1, 1994, non-recurring and
merger costs were approximately $6.3 million. Non-recurring costs
of $3.9 million were primarily associated with the acquisition of
certain technology and marketing rights and the remaining minority
interest in a subsidiary, and the formation of the MiCRUS joint
venture with International Business Machines Corporation (IBM).
Merger costs of approximately $2.4 million for the August 1994,
combination of Cirrus Logic and PicoPower included one-time costs
for charges related to the combination of the two companies,
financial advisory services, and legal and accounting fees.
Income Taxes
During fiscal 1994, the Company implemented SFAS No. 109,
"Accounting for Income Taxes," effective as of the beginning of
the year. The cumulative effect of this accounting change, a
result of recognizing tax benefits which had been unrecognized
prior to April 1, 1993, increased net income for fiscal 1994 by
$7,550,000, or $0.13 per share. There was no effect on income
before income taxes from the adoption of SFAS No. 109.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising
costs were not significant in fiscal 1996, 1995, and 1994.
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on
the weighted average common shares outstanding and dilutive common
equivalent shares (using the treasury stock or modified treasury
stock method, as required). Common equivalent shares include
dilutive stock options and warrants when appropriate. Dual
presentation of primary and fully diluted income per share is not
shown on the face of the statements of operations because the
differences are insignificant.
Impact of Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board released
the Statement of Financial Accounting Standard No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS 121 requires
recognition of impairment of long-lived assets in the event the
net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Adoption of SFAS
121 is not expected to have a material impact on the Company's
financial position or results of operations.
The Company accounts for its stock option plans and its
employee stock purchase plan in accordance with provisions of the
Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." In October 1995, the Financial
Accounting Standards Board released the Statement of Financial
Accounting Standard No. 123 (SFAS 123), "Accounting for Stock
Based Compensation." SFAS 123 provides an alternative to APB 25
and is effective for fiscal years beginning after December 15,
1995. The Company expects to continue to account for its employee
stock plans in accordance with the provisions of APB 25.
Accordingly, SFAS 123 is not expected to have any material impact
on the Company's financial position or results of operations.
Financial Presentation
Certain prior year amounts on the Consolidated Financial
Statements have been reclassified to conform to the fiscal 1996
presentation.
2. FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amount reported in
the balance sheet for cash and cash equivalents approximates
its fair value.
Investment securities and other non-current marketable
equity securities: The fair values for marketable debt and
equity securities are based on quoted market prices.
Commercial and standby letters of credit: The fair values of
commercial and standby letters of credit are based on quoted
market prices.
Foreign currency exchange and option contracts: The fair
values of the Company's foreign currency exchange forward and
option contracts are estimated based on quoted market prices
of comparable contracts, adjusted through interpolation where
necessary for maturity differences.
Short-term debt: The fair value of short-term debt
approximates cost because of the short period of time to
maturity.
Long-term debt: The fair value of long-term debt is
estimated based on current interest rates available to the
Company for debt instruments with similar terms and remaining
maturities.
The carrying amounts and fair values of the Company's
financial instruments at March 30, 1996 are as follows (in
thousands):
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 155,979 $ 155,979
Investment securities:
U.S. Government Treasury
instruments 12,085 12,024
U.S. Government Agency
instruments 4,256 4,257
Municipal bonds 4,314 4,325
Short-term debt (80,000) (80,000)
Long-term debt (current portion) (22,460) (22,090)
Long-term debt (65,571) (63,023)
Currency options - 48
Letters of credit 44,431 44,431
The carrying amounts and fair values of the Company's
financial instruments at April 1, 1995 are as follows (in
thousands):
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 66,718 $ 66,718
Investment securities:
U.S. Government Treasury
instruments 56,723 56,729
U.S. Government Agency
instruments 7,868 7,866
Municipal auction preferred stock 11,000 11,000
Auction preferred stock 18,000 18,000
Commercial paper 5,904 5,904
Certificates of deposit 1,997 1,997
Municipal bonds 18,816 18,743
Long-term debt (23,856) (23,856)
Investments
The following is a summary of available-for-sale and held-
to-maturity securities at March 30, 1996 (in thousands):
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------ ------ --------
Available-for-Sale:
U.S. Government
Treasury instruments $ 8,190 $ - $ 60 $ 8,130
U.S. Government
Agency instruments 4,022 - - 4,022
Commercial paper 4,263 4,263
-------- ------ ------ --------
Total $ 16,475 $ - $ 60 $ 16,415
======== ====== ====== ========
Held-to-Maturity:
U.S. Government
Treasury instruments $ 3,895 $ - $ 1 $ 3,894
U.S. Government
Agency instruments 2,235 1 - 2,236
Municipal bonds 4,314 11 - 4,325
-------- ------ ------ --------
Total $ 10,444 $ 12 $ 1 $ 10,455
======== ====== ====== ========
Available-for-sale and held-to-maturity securities have the
following contracted maturities at March 30, 1996 (in thousands):
Available-for-sale Held-to-maturity
------------------ ----------------
Less than one year $ 8,285 $ 9,068
One to two years 8,190 1,376
------------------ ----------------
Total $ 16,475 $ 10,444
================== ================
The following is a summary of available-for-sales and held-
to-maturity securities at April 1, 1995 (in thousands):
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------ ------ --------
Available-for-Sale:
Municipal auction
preferred stock $ 11,000 $ - $ - $ 11,000
U.S. Government
Treasury instruments 13,395 35 - 13,430
U.S. Government
Agency instruments 8,858 2 - 8,860
Commercial paper 13,301 - - 13,301
Municipal bonds 9,966 - 4 9,962
Auction preferred stock 18,000 - - 18,000
-------- ------ ------ --------
Total $ 74,520 $ 37 $ 4 $ 74,553
======== ====== ====== ========
Held-to-Maturity:
U.S. Government
Treasury instruments $ 47,273 $ 16 $ 4 $ 47,285
U.S. Government
Agency instruments 1,000 - 4 996
Commercial paper 10,874 42 - 10,916
Certificates of deposit 1,997 - - 1,997
Municipal bonds 8,850 - 69 8,781
-------- ------ ------ --------
Total $ 69,994 $ 58 $ 77 $ 69,975
======== ====== ====== ========
Held-to-maturity securities have contracted maturities of less
than one year at April 1, 1995. Available-for-sale securities have
the following contracted maturities at April 1, 1995 (in thousands):
Less than one year $ 65,668
One to two years 8,852
---------
Total $ 74,520
=========
The following is a reconciliation of the investment
categories to the balance sheet classification at March 30, 1996
(in thousands):
Cash and Cash Short-term Long-term
Equivalents Investment Investment Total
----------- ----------- ---------- ---------
Cash $ 149,715 $ - $ - $ 149,715
Available-for-sale
securities 6,264 10,211 - 16,475
Held-to-maturity securities - 9,068 1,376 10,444
----------- ----------- ---------- ---------
Total $ 155,979 $ 19,279 $ 1,376 $ 176,634
=========== =========== ========== =========
The following is a reconciliation of the investment
categories to the balance sheet classification at April 1, 1995
(in thousands):
Cash and Cash Short-term
Equivalents Investment Total
----------- ----------- ---------
Cash $ 42,512 $ - $ 42,512
Available-for-sale
securities 11,356 63,164 74,520
Held-to-maturity
securities 12,850 57,144 69,994
----------- ----------- ---------
Total $ 66,718 $ 120,308 $ 187,026
=========== =========== =========
3. USE OF ESTIMATES AND CONCENTRATIONS OF OTHER RISKS
The Company's financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of
management estimates. These estimates are impacted, in part, by the
following risks and uncertainties:
Inventories. The Company produces inventory based on orders
received and forecasted demand. The Company must order wafers and
build inventory well in advance of product shipments. Because the
Company's markets are volatile and subject to rapid technology and
price changes, there is a risk that the Company will forecast
incorrectly and produce excess or insufficient inventories of
particular products. This inventory risk is heightened because
many of the Company's customers place orders with short lead
times. Demand will differ from forecasts and such difference may
have a material effect on actual results of operations.
Dependence on PC Market. Sales of most of the Company's products
depend largely on sales of personal computers (PCS). Increasing
dominance of the PC motherboard or PC market by any one customer
increases the risks that the Company could experience intensified
pressure on product pricing and unexpected changes in customer
orders as a result of changes in the customers' market share.
Moreover, the Company's production schedules are based not only on
customer orders, but also on forecasted demand. These issues may
contribute to increasing volatility in the Company's PC-related
products, and thus may increase the risk of rapid changes in
revenues, margins, and earnings. Furthermore, the intense price
competition in the PC industry is expected to continue to put
pressure on the price of all PC components. Other IC makers,
including Intel, have expressed their interest in integrating some
multimedia or communications functions into their microprocessor
products. Successful integration of these functions could reduce
the Company's opportunities for IC sales in these areas. As a
component supplier to PC OEMs and to peripheral device
manufacturers, the Company is likely to experience a greater
magnitude of fluctuations in demand than the Company's customers
themselves experience. In addition, many of the Company's
products are used in PCS for the consumer market, and the consumer
PC market is more volatile than other segments of the PC market.
4. JOINT VENTURES AND MANUFACTURING SUPPLY AGREEMENTS
MiCRUS During September 1994, the Company and IBM completed a
series of agreements pertaining to joint manufacturing. In
January 1995, under the terms of the agreements, a new joint
venture called MiCRUS, began manufacturing semiconductor wafers
for each parent company using IBM's submicron wafer processing
technology. MiCRUS leased an existing 175,000 square-foot IBM
facility located at the Hudson Valley Research Park in East
Fishkill, New York. Focusing initially on manufacturing CMOS
wafers with line widths in the 0.6 to 0.5 micron range,
MiCRUS was in volume production of both IBM and Cirrus
Logic products by the end of fiscal 1996. IBM and Cirrus
Logic own 52% and 48% of MiCRUS, respectively. The term of the
joint venture, set for nine years, may be extended by mutual
accord. Activities of the joint venture are focused on the
manufacture of semiconductor wafers, and do not encompass direct
product licensing or product exchanges between the Company and IBM.
The Company has a commitment to use 50% of the manufacturing capacity
of MiCRUS. To the extent the Company does not use its share of the
manufacturing capacity, it must pay a charge to MiCRUS for the cost
of such underutilized capacity. During fiscal 1996, the Company
recorded charges to cost of sales of approximately $14 million for
the underutilization of capacity.
In January 1995, MiCRUS leased approximately $145 million of
wafer fabrication and infrastructure equipment pursuant to an
operating lease with a third party and guaranteed jointly and
severally by the Company and IBM. The Company believes that any
risk of loss from this guarantee is remote. As part of the
initial agreement, the Company committed to $36 million as an
equity contribution. In addition, Cirrus Logic and IBM each agreed
to provide MiCRUS with approximately $100 million of additional
capital equipment, through lease financing.
In fiscal 1995 and 1996, Cirrus Logic paid $63.8 million and
$14.0 million, respectively for the joint venture investment and
the manufacturing agreement. Manufacturing agreement payments of
$56 million are being charged to the cost of production over the
life of the venture based upon the ratio of current units of
production to current and anticipated future units of production.
In fiscal 1996, the Company amortized approximately $3.9 million of
the manufacturing agreement payments. The joint venture is
accounted for on the equity method. During fiscal 1996, the
Company purchased $77.1 million of manufactured wafers from MiCRUS.
As of March 30, 1996, the Company had $7.4 million of accounts
payable related to wafers purchased from MiCRUS.
In March 1995, the Company and IBM agreed to a $120 million
expansion of MiCRUS, of which Cirrus Logic is committed to provide
$60 million in financing. The Company expects to use lease
financing to fulfill its commitment. This expansion is expected
to be in full production in fiscal 1997.
In October 1995, the Company committed to fund a second
expansion of MiCRUS. The cost of this expansion is anticipated to
be approximately $198 million of which the Company expects to
spend $33 million in cash for facilities. The remaining
commitment is expected to be funded with lease financing, all of
which will be guaranteed by the Company.
As of March 30, 1996, the Company has purchased approximately
$94.7 million of manufacturing equipment for MiCRUS that the Company
expects to sell to a leasing company that will in turn lease the
equipment to MiCRUS. As of March 30, 1996, the Company is
contingently liable for MiCRUS equipment leases which have remaining
payments of approximately $229 million, payable through fiscal 2002.
Lucent Technologies In October 1995, the Company entered an
agreement with Lucent Technologies to form a joint venture (Cirent
Semiconductor) to build additional wafer production capacity in an
existing Orlando, Florida facility owned by Lucent Technologies.
The formation of the joint venture is pending completion of
equipment lease financing to be provided by the Company and
formation of the joint venture partnership. The facility will
manufacture wafers using submicron wafer process technology licensed
from Lucent Technologies. Cirent Semiconductor, which will have a
term of 10 years, will be owned 60% by Lucent Technologies and 40%
by Cirrus Logic and will be managed by a Board of Governors, of whom
three will be appointed by Lucent Technologies and two will be
appointed by Cirrus Logic.
The joint venture will operate two wafer fabs, both located
in the same complex, which will be leased from Lucent Technologies.
One of these fabs is already in operation and the other will be
built by Lucent Technologies. The new fab is expected to begin
operations in fiscal 1998. Lucent Technologies will purchase all
of the output from the existing fab at a price that covers all
costs associated with that fab. Lucent Technologies and Cirrus
Logic each will be entitled to purchase one-half of the output of
the new fab. If one company fails to purchase its full
entitlement, the shortfall may be purchased by the other company
or offered to third parties. However, if the wafers cannot be
sold elsewhere, the company that failed to purchase its full
entitlement will be required to reimburse Cirent Semiconductor for
costs associated with underutilized capacity.
The agreement with Lucent Technologies obligates the Company to
provide $420 million in financing. The Company expects to finance
$280 million of this amount through leasing equipment and
subleasing it to the joint venture or by guaranteeing leases
entered into by the joint venture. Of the $140 million balance,
the Company will contribute $35 million in equity in installments over a
three-year period and pay $105 million for a manufacturing agreement
in installments over a four-year period. The manufacturing
agreement payments of $105 million, of which $10 million was paid
in fiscal 1996, will be charged to the Company's cost of sales over
the life of the venture based upon the ratio of current units of
production to current and anticipated future units of production.
The Company will account for Cirent Semiconductor under the equity
method.
United Microelectronics Corporation ("UMC") In October 1995,
the Company entered into a foundry agreement and a foundry
capacity agreement with UMC, a Taiwanese company. Under terms of
the agreements, a new corporation, United Silicon, Inc., will be
formed under the laws of Taiwan for the purpose of manufacturing
and selling integrated circuits in wafer, die, and packaged form.
United Silicon, Inc. will build a wafer fabrication facility which
will be funded in part with equity investments from the Company
and two other U.S. semiconductor companies and in part with debt
and equipment lease financing from UMC. The Company's investment,
which is denominated in New Taiwanese dollars, will total
approximately $88 million and will represent a 15% equity interest
in United Silicon, Inc. In the fourth quarter of fiscal 1996, the
Company paid $20.6 million. The remaining equity investment will
be made in fiscal 1997.
In exchange for the Company's investment, the Company will
have the right, but not the obligation, to purchase a portion of
the capacity of the new manufacturing facility at fair market
prices. In addition, each party will have the right of first
refusal regarding capacity not fully utilized by other investors.
United Silicon, Inc. is expected to begin production in fiscal 1998.
Under terms of the agreements, the board of directors of
United Silicon, Inc. will consist of seven members. UMC will
appoint a majority of the directors and the Company will appoint
one director. The obligations of the Company are conditional upon
approval of United Silicon, Inc. by governmental authorities. In
addition, the Company has initiated discussions with UMC regarding
rescheduling or postponing the Company's remaining commitments
under the agreements.
Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") In fiscal
1993 and fiscal 1996, the Company entered into volume purchase
agreements with TSMC. Under each agreement, the Company
committed to purchase a fixed minimum number of wafers at market
prices and TSMC guaranteed to supply certain quantities. The
agreements expire in March 1997 and December 2001, respectively.
Under the agreement entered into in fiscal 1996, the Company has
agreed to make advance payments to TSMC of approximately $118
million, one-half in fiscal 1998 and one-half in fiscal 1999.
Under both the fiscal 1993 and 1996 agreements, if the Company does
not purchase the committed amount, it may be required to pay a per
wafer penalty for any shortfall not sold by TSMC to other
customers. The Company estimates that under the remaining term of
the fiscal 1993 agreement, it is obliged to purchase approximately
$37 million of product. Over the term of the fiscal 1996
agreement, the Company estimates it must purchase approximately
$790 million of product in order to fully realize the advance
payments required. During fiscal 1996 and 1995, the Company
purchased approximately $37.2 million and $17.4 million,
respectively, of product under the 1993 supply agreement and none
under the 1996 agreement.
5. INVESTMENTS
During fiscal years 1991 and 1992, the Company invested
approximately $1,660,000 in Media Vision, Inc. (Media Vision)
Preferred Stock. The investment was accounted for by the cost
method and represented an approximate six percent interest in
Media Vision. In fiscal 1994, the Company sold approximately 76%
of its original investment in Media Vision in an initial public
offering in April 1993 and in October 1993 in the open market.
The Company realized a gain of $13,682,000 on these sales in
fiscal year 1994.
6. OBLIGATIONS UNDER CAPITAL LEASES
The Company has capital lease agreements for machinery and
equipment as follows (in thousands):
March 30, April 1,
1996 1995
---------- ----------
Capitalized cost $ 20,076 $ 18,798
Accumulated amortization (11,385) ( 8,482)
---------- ----------
Total $ 8,691 $ 10,316
========== ==========
Amortization expense on assets capitalized under capital
lease obligations is included in depreciation and amortization.
The lease agreements are secured by the leased property.
Future minimum lease payments under capital leases for the
following fiscal years, together with the present value of the net
minimum lease payments as of March 30, 1996, are (in thousands):
1997 $ 5,103
1998 3,406
1999 2,294
2000 672
---------
Total minimum lease payments 11,475
Less amount representing interest ( 1,102)
---------
Present value of net lease payments 10,373
Less current maturities ( 4,115)
---------
Capital lease obligations $ 6,258
=========
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
March 30, April 1,
1996 1995
--------- ---------
Installment notes with interest
rates ranging from 6.18% to 9.08% $ 87,531 $ 23,356
Installment purchase contract with
officer of subsidiary 500 500
Less current maturities (22,460) (7,253)
--------- ---------
Long-term debt $ 65,571 $ 16,603
========= =========
Principal payments for the following fiscal years are (in
thousands):
1997 $ 22,460
1998 21,384
1999 19,748
2000 16,989
2001 6,615
Thereafter 835
--------
Total $ 88,031
========
At March 30, 1996, installment notes are secured by machinery
and equipment with a net book value of $79,211,000 ($18,940,000 at
April 1, 1995).
8. BANK ARRANGEMENTS
As of March 30, 1996, the Company had a commitment for a bank
line of credit up to a maximum of $135,000,000, expiring on April 30,
1996, at the bank's prime rate (8.25% at March 30, 1996). The Company
had $80,000,000 outstanding under the line at March 30, 1996. Terms
of the arrangement require compliance with certain covenants
including the maintenance of certain financial ratios, minimum
tangible net worth and profitable operations on a quarterly basis as
well as a prohibition against the payment of cash dividends without
prior bank approval. The Company was not in compliance with certain
financial ratios and the profitability covenant as of March 30, 1996.
In April 1996, the Company secured financing under a new commitment
and paid all amounts outstanding under this line.
In April 1996, the Company completed a new commitment for a
bank line of credit for borrowings up to a maximum of $200,000,000
expiring on July 31, 1997, at the banks' prime rate plus one-half
percent. The borrowings are secured by cash, accounts receivable,
inventory, certain purchased equipment, intellectual property, and
stock in the Company's subsidiaries. Use of the line is limited to
the borrowing base as defined by a combination of accounts receivable
and certain purchased equipment. As of March 30, 1996, the Company's
borrowing base, as defined, under this line would have been limited
to approximately $100 million, net of certain outstanding letters of
credit. Terms of the agreement include satisfaction of certain
financial ratios, minimum tangible net worth, cash flow, and leverage
requirements as well as a prohibition against the payment of a cash
dividend without prior bank approval.
The Company has outstanding letters of credit with banks which
are denominated in Japanese yen totaling approximately $431,000 at
March 30, 1996. Such letters of credit secure inventory purchases.
The Company has separate standby letters of credit of
approximately $15,600,000 with wafer vendors to secure inventory
purchases. In addition, the Company has a separate standby letter of
credit of approximately $28,400,000 with a leasing company to secure
lease payments under equipment leases the leasing company has with
MiCRUS (see note 4) which are guaranteed by the Company.
9. COMMITMENTS
Facilities and Equipment Under Operating Lease Agreements
The Company leases its facilities and certain equipment under
operating lease agreements, some of which have renewal options.
Certain of these arrangements provide for lease payment
increases based upon future fair market rates. The aggregate
minimum future rental commitments under all operating leases for
the following fiscal years are (in thousands):
1997 $ 10,192
1998 9,572
1999 9,231
2000 9,348
2001 9,046
Thereafter 48,187
---------
Total minimum lease payments $ 95,576
=========
Total rent expense was approximately $11,177,000, $10,242,000
and $6,264,000 for fiscal 1996, 1995 and 1994, respectively.
10. Restructuring Charges
In the fourth quarter of fiscal 1996, as a result of decreased
demand for the Company's products for use in personal computers,
which accounts for more than 80% of the Company's revenue,
management reviewed the various operating areas of the business
and took certain steps to bring operating expenses and capacity in
line with demand. These actions resulted in a pre-tax
restructuring charge of approximately $11.6 million. The principal
actions in the restructuring involved the consolidation of support
infrastructure and the withdrawal from an unprofitable product line
and reduction of planned production capacity. This resulted in the
termination of approximately 320 positions from the manufacturing,
research and development, sales and marketing and administrative
departments. The Company estimates the annual savings from
reduced salaries, benefits and other expenses will be approximately
$17 million.
The following sets forth the Company's restructuring accrual
as of March 30, 1996 (in thousands):
Severance and Capacity scale back
related benefits and other costs Total
---------------- ------------------- --------
Restructuring cost $ 7,536 $ 4,030 $ 11,566
No payments were made for the restructuring during fiscal
1996. The Company expects that the restructuring accrual as of
March 30, 1996 will result in cash payments, all of which will be
made in fiscal 1997.
11. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have adopted 401(k) Profit
Sharing Plans ("the Plans") covering substantially all of their
qualifying domestic employees. Under the Plans, employees may
elect to reduce their current compensation by up to 15%, subject to
annual limitations, and have the amount of such reduction
contributed to the Plans. The Plans permit, but do not require,
additional discretionary contributions by the Company on behalf of
all participants. During fiscal 1996, 1995 and 1994, the Company
and its subsidiaries matched employee contributions up to various
maximums per plan for a total of approximately $2,111,000, $1,849,000
and $1,290,000, respectively. The Company intends to continue the
contributions in fiscal 1997.
12. SHAREHOLDERS' EQUITY
Employee Stock Purchase Plan
In March 1989, the Company adopted the 1989 Employee Stock
Purchase Plan. As of March 30, 1996, 628,330 shares of Common
Stock are reserved for future issuance. During fiscal 1996, 1995
and 1994, 593,820, 461,252 and 409,234 shares, respectively, were
issued under the Employee Stock Purchase Plan.
Stock Option Plans
The Company has various stock option plans (the "Option
Plans") under which officers, key employees, non-employee
directors and consultants may be granted qualified and non-
qualified options to purchase shares of the Company's authorized
but unissued Common Stock. Options are generally priced at the
fair market value of the stock on the date of grant. Options are
exercisable immediately but unvested shares are held in escrow and
are subject to repurchase at the original issuance price. Options
currently expire no later than ten years from date of grant.
In previous years, the Company also has issued non-qualified
stock options to purchase a total of 664,156 shares at prices
ranging from $0.06 to $6.50 per share, subject to a vesting
schedule of three and one-half or four years and 23,000 shares as
stock grants to employees at no cost which vest over five years.
The Company recognizes as compensation expense the excess of the
fair market value at the date of grant over the exercise price of
such options and grants. The compensation expense is amortized
ratably over the vesting period of the options.
Additional information relative to stock option activity is
as follows (in thousands):
Outstanding Options
Options --------------------
Available for Number of Aggregate
Grant Shares Price
----------- ------- ----------
Balance, March 31, 1993 384 7,854 $ 55,369
Shares authorized for issuance 4,170 - -
Options granted (4,200) 4,200 47,075
Options exercised - (1,360) (7,355)
Options cancelled 292 (322) (3,125)
----------- ------- ----------
Balance, April 2, 1994 646 10,372 91,964
Shares authorized for issuance 4,796 - -
Options granted (4,228) 4,228 57,574
Options exercised - (898) (3,337)
Options cancelled 272 (314) (4,407)
----------- ------- ----------
Balance, April 1, 1995 1,486 13,388 141,794
Shares authorized for issuance 1,880 - -
Options granted (3,086) 3,086 108,828
Options exercised - (2,704) (20,399)
Options cancelled 529 (575) (9,900)
----------- ------- ----------
Balance, March 30, 1996 809 13,195 $ 220,323
=========== ======= ==========
As of March 30, 1996, approximately 14,004,000 shares of
Common Stock were reserved for issuance under the Option Plans.
13. INCOME TAXES
(Loss) income before income taxes and cumulative effect of
accounting change consists of (in thousands):
1996 1995 1994
---------- --------- ---------
United States $ (40,938) $ 57,541 $ 40,196
Foreign (785) 32,097 15,768
---------- --------- ---------
Total $ (41,723) $ 89,638 $ 55,964
========== ========= =========
The (benefit) provision for income taxes consists of (in thousands):
1996 1995 1994
---------- ---------- ----------
Federal
Current $ 25,303 $ 27,829 $ 20,245
Prepaid (28,182) (2,180) (5,910)
---------- ---------- ----------
(2,879) 25,649 14,335
State
Current 3,402 2,936 4,911
Prepaid (10,110) (1,308) (1,820)
---------- ---------- ----------
(6,708) 1,628 3,091
Foreign
Current 4,047 959 720
---------- ---------- ----------
Total $ ( 5,540) $ 28,236 $ 18,146
========== ========== ==========
The (benefit) provision for income taxes differs from the amount
computed by applying the statutory federal rate to pretax income
as follows:
1996 1995 1994
------- ------- -------
Expected income tax (benefit) provision at
the U.S. federal statutory rate (35.0%) 35.0% 35.0%
(Benefit) provision for state income taxes,
net of federal effect (10.5%) 1.4% 3.6%
Foreign operating results taxed at rates
other than the U.S. statutory rate 35.9% (3.0%) (3.4%)
Research and development credits
(flow-through method) (3.1%) (4.6%) (4.7%)
Other (0.6%) 2.7% 1.9%
------- ------- -------
(Benefit) provision for income taxes (13.3%) 31.5% 32.4%
======= ======= =======
Under SFAS No. 109, deferred income tax assets and
liabilities reflect the net tax effects of tax carryforwards and
temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for
income tax purposes.
Significant components of the Company's deferred tax assets
and liabilities are (in thousands):
March 30, April 1,
1996 1995
-------- --------
Deferred tax assets:
Inventory valuation $ 25,817 $ 9,443
Accrued expenses and allowances 35,447 13,853
Net operating loss carryforwards 3,051 3,051
Research and development credit
carryforwards 4,507 2,190
State investment tax credit
carryforwards 4,042 -
Other 2,690 2,077
-------- --------
Total deferred tax assets 75,554 30,614
-------- --------
Deferred tax liabilities:
Depreciation 8,124 5,057
Other 4,501 920
-------- --------
Total deferred tax liabilities 12,625 5,977
-------- --------
Total net deferred tax assets $ 62,929 $ 24,637
======== ========
The Company has research and development tax credit carryforwards
for federal and state tax purposes of approximately $4.5 million,
expiring from 2006 through 2011. The Company also has state investment
tax credit carryforwards of approximately $4 million expiring in 2003.
As a result of the 1993 PCSI merger, the Company has net
operating loss carryforwards for federal tax purposes of
approximately $8.5 million, expiring from 2002 through 2008.
These net operating loss carryforwards are available to offset
future consolidated taxable income only to the extent contributed
by PCSI and are subject to an annual limitation of approximately
$2.6 million because of the "change in ownership" rules under
Section 382 of the Internal Revenue Code.
14. LEGAL MATTERS
The Company and certain of its customers from time to time have been
notified that they may be infringing certain patents and other intellectual
property rights of others. Further, customers have been named in suits
alleging infringement of patents by the customer products. Certain
components of these products have been purchased from the Company and may
be subject to indemnification provisions made by the Company to the
customers. The Company has not been named in any such suits. Although
licenses are generally offered in such situations, there can be no
assurance that litigation will not be commenced in the future regarding
patents, mask works, copyrights, trademarks, trade secrets, or
indemnification liability, or that any licenses or other rights can be
obtained on acceptable terms. While the Company cannot accurately
predict the eventual outcome of these or any other such infringement
matters, management believes that the likelihood of an outcome resulting in
a material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows is remote.
On May 7, 1993, the Company was served with two shareholder
class action lawsuits filed in the United States District Court
for the Northern District of California. The lawsuits, which name
the Company and several of its officers and directors as
defendants, allege violations of the federal securities laws in
connection with the announcement by Cirrus Logic of its financial
results for the quarter ended March 31, 1993. The complaints do
not specify the amounts of damages sought. The defendants' motions
for summary judgment are currently scheduled for hearing on July
25, 1996. The Company believes the likelihood is remote that the
ultimate resolution of this matter will have a material adverse
effect on its financial position, results of operations or cash
flows.
Between November 7 and November 21, 1995, five shareholder
class actions lawsuits were filed in the United States District
Court for the Northern District of California against the Company
and several of its officers and directors. A consolidated amended
complaint was filed on February 20, 1996 and an amended
consolidated supplemental complaint was filed on May 3, 1996.
This complaint alleges that certain statements made by defendants
during the period from July 23, 1995 through December 21, 1995 were
false and misleading and in violation of the federal securities
laws. The defendants' motion to dismiss the complaint are
currently scheduled for hearing on August 30, 1996. The complaint
does not specify the amounts of damages sought. The Company
believes that the allegations of the complaint are without merit,
and the Company intends to defend itself vigorously. The Company
believes the likelihood is remote that the ultimate resolution of
this matter will have a material adverse effect on its financial
position, results of operations or cash flows.
On February 21, 1996 a shareholder class action lawsuit was
filed in the Superior Court of California in and for the County of
Alameda against the Company and numerous fictitiously named
defendants alleged to be officers or agents of the Company. An
amended complaint, which added certain of the Company's officers
and directors as defendants was filed on April 18, 1996. The
lawsuit alleges that certain statements made by the Company and
the fictitiously named defendants during the period from October
1, 1995 through February 14, 1996 were false and misleading and
that the defendants breached their fiduciary duties in making such
statements in violation of California State Common and Statutory
law. The complaint does not specify the amounts of damages
sought. The Company believes that the allegations of the
complaint are without merit, and the Company intends to defend
itself vigorously. The Company believes the likelihood is remote
that the ultimate resolution of this matter will have a material
adverse effect on its financial position, results of operations or
cash flows.
15. SUBSEQUENT EVENT (unaudited)
Subsequent to fiscal year end, the Company signed a memorandum
of understanding with National Semiconductor, Inc. (National) for
the sale of certain assets and obligations and all the intellectual
property of the PicoPower product line for $18 million. In addition,
related inventory will be purchased by National at a yet to be agreed
to value. The transaction is subject to completion of due diligence
procedures to be performed by National; the outcome of which may
affect the ultimate proceeds and the gain from the sale, and/or the
ultimate consummation of the sale transaction.
QUARTERLY FINANCIAL STATEMENTS
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
-------------------- --------------------
Dec. 28, Dec. 30, Dec. 28, Dec. 30,
1996 1995 1996 1995
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $253,309 $295,783 $704,237 $913,872
Costs and expenses and gain on sale of assets:
Cost of sales 156,613 197,273 434,890 551,456
Research and development 59,828 60,086 179,537 168,576
Selling, general and administrative 31,517 43,047 92,977 119,476
Gain on sale of assets (12,009) - (18,922) -
Non-recurring costs - 1,195 - 1,195
---------- --------- ---------- ---------
Total costs and expenses and gain on sale of assets 235,949 301,601 688,482 840,703
---------- --------- ---------- ---------
Income (loss) from operations 17,360 (5,818) 15,755 73,169
Interest and other (expense) income, net (2,941) 561 (7,778) 2,994
---------- --------- ---------- ---------
Income (loss) before provision (benefit) for income taxes 14,419 (5,257) 7,977 76,163
Provision (benefit) for income taxes 4,109 (1,656) 2,274 23,990
---------- --------- ---------- ---------
Net income (loss) $10,310 ($3,601) $5,703 $52,173
========== ========= ========== =========
Net income (loss) per common and common equivalent share $0.16 ($0.06) $0.09 $0.75
========== ========= ========== =========
Weighted average common and common
equivalent shares outstanding 66,460 63,273 66,382 69,437
========== ========= ========== =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
Dec. 28, March 30,
1996 1996
----------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 213,767 $155,979
Short-term investments 140,103 19,279
Accounts receivable, net 152,384 133,718
Inventories 128,034 134,502
Deferred tax assets 52,662 52,662
Payments for joint venture equipment to be leased 76,180 94,683
Other current assets 13,421 4,004
----------- ---------
Total current assets 776,551 594,827
Property and equipment, net 152,698 170,248
Manufacturing agreements, net
and investments in joint ventures 154,095 104,463
Deposits and other assets 50,377 48,039
----------- ---------
$1,133,721 $917,577
=========== =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Short-term borrowing $ - $ 80,000
Accounts payable and accrued liabilities 219,047 242,901
Accrued salaries and benefits 23,879 41,845
Obligations under equipment loans and
capital leases, current portion 28,540 26,575
Income taxes payable 39,997 20,863
----------- ---------
Total current liabilities 311,463 412,184
Obligations under equipment loans and
capital leases, non-current 63,220 71,829
Other long-term 5,078 4,898
Convertible subordinated notes 300,000 -
Commitments and contingencies
Shareholders' equity:
Capital stock 349,165 329,574
Retained earnings 104,795 99,092
----------- ---------
Total shareholders' equity 453,960 428,666
----------- ---------
$1,133,721 $917,577
=========== =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Three Quarters Ended
---------------------
Dec. 28, Dec. 30,
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operations:
Net income $5,703 $52,173
Adjustments to reconcile net income to net
cash flows from operations:
Gain on sale of assets (18,922) -
Depreciation and amortization 65,649 43,793
Net change in operating assets and liabilities (38,770) (42,622)
----------- ---------
Net cash flows provided by operations 13,660 53,344
----------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 38,426 -
Purchase of short-term investments (133,256) (260,944)
Proceeds from sale of short-term investments 12,432 299,888
Additions to property and equipment (21,067) (106,215)
Joint venture manufacturing agreements and
investment in joint ventures (54,000) (16,000)
Increase in deposits and other assets (9,138) (20,228)
----------- ---------
Net cash flows used by investing activities (166,603) (103,499)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of convertible notes 290,640 -
Proceeds from issuance of common stock 16,867 27,883
Borrowings on short-term debt 172,000 41,000
Borrowings on long-term debt 4,342 62,081
Payments on long-term debt and capital lease obligations (21,542) (9,269)
Payments on short-term debt (252,000) (41,000)
Increase in other long-term liabilities 424 -
----------- ---------
Net cash flows provided by financing activities 210,731 80,695
----------- ---------
Increase in cash and cash equivalents 57,788 30,540
Cash and cash equivalents - beginning of period 155,979 66,718
----------- ---------
Cash and cash equivalents - end of period $213,767 $97,258
=========== =========
Supplemental disclosure of cash flow information:
Interest paid $8,925 $2,569
Income taxes (refunded) paid ($19,148) $16,667
Equipment purchased under capitalized leases $10,556 $594
Tax benefit of stock option exercises $2,352 $15,463
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
CIRRUS LOGIC, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated condensed financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position, operating results and cash flows
for those periods presented except for the $2.3 million charge to other
expense during the quarter ended December 28, 1996, related to the agreement
in principle to settle all securities claims against the Company (see Note
8). These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements, and notes thereto for
the year ended March 30, 1996, included in the Company's 1996 Annual Report
on Form 10-K. The results of operations for the interim periods presented
are not necessarily indicative of the results that may be expected for the
entire year.
2. Inventories
Inventories are comprised of the following:
December 28, March 30,
1996 1996
--------- ---------
(In thousands)
Work-in-process $ 78,545 $ 69,244
Finished goods 49,489 65,258
--------- ---------
Total $ 128,034 $ 134,502
========= =========
3. Gain on Sale of Assets
During August 1996, the Company completed the sale of the PicoPower product
line to National Semiconductor, Inc. The Company received approximately
$17.6 million in cash for the PicoPower product line. In connection with
the transaction, the Company recorded a gain of approximately $6.9 million.
During December 1996, the Company completed the sale to ADC
Telecommunications Inc. of the PCSI product group that produced CDPD
(Cellular Digital Packet Data) base station equipment for wireless service
providers, and developed pACT (personal Air Communications Technology) base
stations for AT&T Wireless Services Inc. The Company received approximately
$20.8 million in cash for the group. In connection with the transaction,
the Company recorded a gain of approximately $12.0 million.
During January 1997, the Company completed the sale of PCSI's Wireless
Semiconductor Products assets to Rockwell International for $18.1 million
in cash. This group provided digital cordless chip solutions for PHS
(Personal Handyphone System) and DECT (Digital European Cordless
Telecommunications) as well two-way messaging chip solutions for pACT
(personal Air Communications Technology).
4. Bank Arrangements
As of December 28, 1996, the Company has a commitment for a bank line of
credit for borrowings up to a maximum of $150 million expiring on
October 31, 1999, at the banks' prime rate plus one-half percent. As of
December 28, 1996, no borrowings were outstanding under the line.
Borrowings are secured by cash, accounts receivable, inventory,
intellectual property, and stock in the Company's subsidiaries. Use of
the line is limited to the borrowing base as defined by accounts
receivable. Terms of the agreement include satisfaction of certain
financial ratios, minimum tangible net worth, cash flow, and leverage
requirements as well as a prohibition against the payment of a cash
dividend without prior bank approval.
5. Income Taxes
The Company provides for income taxes during interim reporting periods based
upon an estimate of the annual effective tax rate. Such estimate reflects an
effective tax rate lower than the federal statutory rate primarily because of
foreign operating results which are taxed at rates other than the U.S.
statutory rate, federal and state research tax credits, and state investment
tax credits.
6. Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based on the
weighted average common shares outstanding and dilutive common equivalent
shares (using the treasury stock or modified treasury stock method, whichever
applies). Common equivalent shares include stock options and warrants when
appropriate. During December 1996, the Company issued convertible subordinated
notes. These securities are included in fully diluted earnings per share
computations for the period outstanding under the "if converted" method.
Dual presentation of primary and fully diluted earnings per share is not
shown on the face of the income statement because the differences are
insignificant.
7. Convertible Subordinated Notes
During December 1996, the Company completed an offering of $300 million
of convertible subordinated notes. The notes bear interest at six
percent, mature in December 2003, and are convertible into shares of the
Company's common stock at $24.219 per share. Expenses associated with the
offering of approximately $9.3 million are deferred and included in deposits
and other assets. Such expenses are being amortized to interest expense over
the term of the notes.
8. Commitments and Contingencies
As of December 28, 1996, the Company is contingently liable for MiCRUS and
Cirent equipment leases which have remaining payments of approximately
$625 million, payable through fiscal 2002.
During December 1996, the Company and certain of its current and former
directors and officers, reached an agreement in principle which, if approved,
would settle all pending securities claims against the Company for an
aggregate sum of $31.3 million, exclusive of interest, $2.3 million of which
will be paid by the Company with the remainder being paid by the Company's
insurers. The Company recorded the $2.3 million as "other expense" in the
quarter ended December 28, 1996.
The proposed settlement would include the amendment of the federal class
action filed in 1995 to include claims pending in the State court with the
intent that the settlement would have the effect of extinguishing the State
court claims. The proposed settlement is subject to a number of
contingencies, including the agreement to and execution of a definitive
agreement and court approval.
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
N/A
===================================== ==================================
No dealer, salesman or any
other person has been authorized to
give any information or to make any U.S. $280,750,000
representations other than those
contained in this prospectus, in
connection with the offer made by this CIRRUS LOGIC, INC.
prospectus, and, if given or made,
such information or representations
must not be relied upon as having
been authorized by the corporation. 6% Convertible Subordinated
Neither the delivery of this prospectus Notes Due December 15, 2003
nor any sale made hereunder shall,
under any circumstances, create an
implication that there has been no
change in the affairs of the corporation
since the date hereof. This prospectus
does not constitute an offer or
solicitation by anyone in any
jurisdiction in which such offer or
solicitation is not authorized or in
which the person making such offer or
solicitation is not authorized to do so
or to anyone to whom it is unlawful to
make such offer or solicitation in such
jurisdiction.
-------------------- --------------------
TABLE OF CONTENTS PROSPECTUS
-------------------- --------------------
Page
-----
Available Information
Documents Incorporated by Reference
Summary
The Company
The Offering
Risk Factors
Ratio of Earnings to Fixed Charges
Use of Proceeds
Description of Registrable Notes
United States Taxation
Selling Securityholders
Plan of Distribution
Legal Matters
Experts
Glossary
Index to Consolidated Financial
Statements F-1
____________, 1997
===================================== ==================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Stockholders. All amounts are estimated except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
SEC registration fee . . . . . . . . . . . . $ 85,068.00
Accounting fees and expenses . . . . . . . . 45,000.00
Legal fees and expenses . . . . . . . . . . 60,000.00
Printing expenses . . . . . . . . . . . . . 10,000.00
Trustee's Fees and Expenses . . . . . . . . . 10,000.00
Miscellaneous fees and expenses . . . . . . 19,932.00
-------------
Total . . . . . . . . . . . . . . . $ 230,000.00
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law authorizes a
court to award, or a corporation's Board of Directors to grant, indemnity to
directors and officers who are parties or are threatened to be made parties
to any proceeding (with certain exceptions) by reason of the fact that the
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with the proceeding if that person acted in good faith and in a
manner the person reasonably believed to be in the best interests of the
corporation. This limitation on liability has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the corporation or
its shareholders or that involve the absence of good faith on the part of
the director, (iii) relating to any transaction from which a director
derived an improper personal benefit, (iv) for acts or omissions that show a
reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should
have been aware, in the ordinary course of performing a director's duties,
of a risk of a serious injury to the corporation or its shareholders, (v)
for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation or
its shareholders, (vi) under Section 310 of the California General
Corporation Law (concerning contracts or transactions between the
corporation and a director) or (vii) under Section 316 of the California
General Corporation Law (directors' liability for improper dividends, loans
and guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision has no effect
on claims arising under federal or state securities laws and does not affect
the availability of injunctions and other equitable remedies available to
the Company's shareholders for any violation of a director's fiduciary duty
to the Company or its shareholders. Although the validity and scope of the
legislation underlying the provision have not yet been interpreted to any
significant extent by the California courts, the provision may relieve
directors of monetary liability to the Company for grossly negligent
conduct, including conduct in situations involving attempted takeovers of
the Company.
In accordance with Section 317, the Restated Articles of
Incorporation, as amended (the "Articles"), of the Company limits the
liability of a director to the Company or its shareholders for monetary
damages to the fullest extent permissible under California law, and
authorizes the Company to provide indemnification to its agents (including
officers and directors), subject to the limitations set forth above. The
Company's By-Laws further provide for indemnification of corporate agents
to the maximum extent permitted by the California General Corporation Law.
Pursuant to the authority provided in the Articles, the Company has
entered into indemnification agreements with each of its officers and
directors, indemnifying them against certain potential liabilities that may
arise as a result of their service to the Company, and providing for certain
other protection.
The Company also maintains insurance policies which insure its
officers and directors against certain liabilities.
The foregoing summaries are necessarily subject to the complete text
of the statute, the Articles, the By-Laws and the agreements referred to
above and are qualified in their entirety by reference thereto.
Reference is made to the Underwriting Agreements included herein as
exhibits to the Registration Statement for provisions regarding
indemnification of the Company's officers, directors and controlling
persons against liabilities, including liabilities under the Securities
Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During December 1996, the Company completed an offering of $300
million of convertible subordinated notes. The notes bear interest at six
percent, mature in December 2003, and are convertible into shares of the
Company's common stock at $24.219 per share. The notes were sold by the
Company to Goldman, Sachs & Co., Salomon Brothers, Inc., J.P. Morgan & Co.,
and Robertson, Stephens & Company (the "Initial Purchasers"). The Initial
Purchasers resold $280,725,000 of the Notes, in a transaction exempt from the
registration requirements of the Securities Act, to persons reasonably
believed by such initial purchaser to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act), or other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act. An additional $19,275,000 aggregate principal amount of
Notes were issued in the Original Offering by the Company and sold by the
Initial Purchasers in compliance with the provisions of Regulation S under
the Securities Act. Aggregate discounts to the Initial Purchasers totalled
$9,375,000. The net proceeds of the Offering to the Company, after deducting
the discounts and offering expenses, were $289,700,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) Exhibits
Number Description of Document
- ------ --------------------------------------------------------------
<S> <C>
The following exhibits are filed as part of or incorporated by
reference into this Form S-1:
3.1(8) Restated Articles of Incorporation of Registrant, as amended.
3.2(1) Form of Articles of Incorporation of Registrant.
3.3(1) Bylaws of Registrant, as amended.
4.1(1) Article III of Restated Articles of Incorporation of
Registrant (See Exhibits 3.1 and 3.2).
4.2(11) Indenture dated as of December 15, 1996
6% Convertible Subordinated Notes.
4.3 Specimen Certificate of Common Stock of the Company (included in
Exhibit 4.1).
4.4 Registration Rights Agreement, dated as of December 15, 1996,
among the Registrant, Goldman, Sachs & Co., Salomon Brothers Inc.,
J.P. Morgan & Co., and Robertson, Stephens & Company.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1(10) Amended 1987 Stock Option Plan.
10.2(10) Amended 1989 Employee Stock Purchase Plan.
10.3(1) Description of Executive Bonus Plan.
10.4(1) Fourth Amendment to Preferred Shares Purchase
Agreements, Founders Registration Rights Agreements, and
Warrant Agreements and Consent between the Registrant
and certain shareholders of the Registrant dated May 15,
1987, as amended April 28, 1989.
10.5(1) Form of Indemnification Agreement.
10.6(1) License Agreement between Registrant and Massachusetts
Institute of Technology dated December 16, 1987.
10.7(1) Lease between Prudential Insurance Company of America
and Registrant dated June 1, 1986.
10.8(1) Lease between McCandless Technology Park, Milpitas, and
Registrant dated March 31, 1989.
10.9(1) Agreement for Foreign Exchange Contract Facility between
Bank of America National Trust and Savings Association
and Registrant, dated April 24, 1989.
10.10(2) 1990 Directors Stock Option Plan and forms of Stock
Option Agreement.
10.11(2) Lease between Renco Investment Company and Registrant
dated December 29, 1989.
10.12(3) Loan agreement between First Interstate Bank of
California and Silicon Valley Bank and Registrant, dated
September 29, 1990.
10.13(2) Loan agreement between Orix USA Corporation and the
Registrant dated April 23, 1990.
10.14(2) Loan agreement between USX Credit Corporation and
Registrant dated December 28, 1989.
10.15(3) Loan agreement between Household Bank and Registrant
dated September 24, 1990.
10.16(3) Loan agreement between Bank of America and Registrant
dated March 29, 1991.
10.17(4) Equipment lease agreement between AT&T Systems Leasing
Corporation and Registrant dated December 2, 1991.
10.18(4) Lease between Renco Investment Company and Registrant
dated May 21, 1992.
10.19(5) Loan agreement between Deutsche Credit Corporation and
Registrant dated March 30, 1993.
10.20(5) Lease between Renco Investment Company and Registrant
dated February 28, 1993.
10.21(6) Lease between Renco Investment Company and Registrant
dated May 4, 1994.
10.22(7) Participation Agreement dated as of September 1, 1994
among Registrant, International Business Machines
Corporation, Cirel Inc. and MiCRUS Holdings Inc.
10.23(7) Partnership Agreement dated as of September 30, 1994
between Cirel Inc. and MiCRUS Holdings Inc.
10.24(8) Amended and Restated Credit Agreement between Registrant
and Bank of America dated January 31, 1995.
10.25(9) General Partnership Agreement dated as of October 23, 1995
between the Company and AT&T.
10.26(9) Joint Venture Formation Agreement dated as of October 23, 1995
between the Company and AT&T.
10.27(9) Foundry Venture Agreement dated as of September 29, 1995
between the Company and United Microelectronics Corporation ("UMC").
10.28(9) Written Assurances Re Foundry Venture Agreement dated as of
September 29, 1995 between the Company and UMC.
10.29(9) Foundry Capacity Agreement dated as of September 29, 1995
between the Company and UMC.
10.30(10) Multicurrency Credit Agreement dated April 30, 1996 between
the Company and the Bank of America and Other Banks.
10.31(11) Indenture dated as of December 15, 1996
6% Convertible Subrdinated Notes.
11.1 Statement Regarding Computation of Per Share Earnings.
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.
19.1(10) Proxy Statement to the 1996 Annual Meeting of
Shareholders.
21.1(10) Subsidiaries of the Registrant
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional.
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors (See page II-___).
23.3 Consent of <persons> to be named in Registration Statement.
24.1 Power of Attorney (See page II-___).
25.1 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation Designated to Act as
Trustee on Form T-1.
_______
* To be provided by amendment.
(1) Incorporated by reference to Registration Statement
No. 33-28583.
(2) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1990.
(3) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1991.
(4) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1992.
(5) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1993.
(6) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended April 2, 1994.
(7) Incorporated by reference to Registrant's Report on Form 10-Q/A
for the quarterly period ended October 1, 1994.
(8) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended April 1, 1995.
(9) Incorporated by reference to Registrant's Report on Form 10-Q/A
for the quarterly period ended September 30, 1995.
(10) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 30, 1996.
(11) Incorporated by reference to Registrant's Report on Form 10-Q/A
for the quarterly period ended December 28, 1996.
</TABLE>
* Filed herewith.
(b) Financial Statement Schedules
The following consolidated financial statement schedule is filed as
part of this registration statement and should be read in conjunction with
the consolidated financial statements.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance Charged to Balance
at Beginning Costs and at Close
Item of Period Expenses Deductions (1) of Period
- ----------------------- ------------- ----------- ------------ ------------
(Amounts in thousands)
1994
Allowance for doubtful
accounts $ 4,627 $ 3,688 ($ 78) $ 8,237
1995
Allowance for doubtful
accounts $ 8,237 $ 4,631 ($3,429) $ 9,439
1996
Allowance for doubtful
accounts $ 9,439 $ 4,094 ($ 359) $ 13,174
(1) Uncollectible accounts written off, net of recoveries
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient to
require submission of the schedule or because the information
required is included in the consolidated financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in
the maximum aggregate offering price, set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Act, each such 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.
(3) To remove from registration by means of a post-offering
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that such a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in Act and will be governed by the final
adjudication of such issue.
<PAGE>
CIRRUS LOGIC, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIRRUS LOGIC, INC.
(Registrant)
/s/ Michael L. Hackworth
Michael L. Hackworth
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Robert Donohue and Thomas
Kelly, his or her true and lawful attorney-in-fact and agent, with full
power of each to act alone, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, with full power of each to act alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully for all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or his or her substitute or substitutes,
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.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ MICHAEL L. HACKWORTH President, Chief Executive Officer March 18, 1997
Michael L. Hackworth and Director (Principal Executive
Officer
/s/ SUHAS S. PATIL Chairman of the Board, Executive March 18, 1997
Suhas S. Patil Vice President, Products and
Technology and Director
/s/ THOMAS F. KELLY Executive Vice President, Chief March 18, 1997
Thomas F. Kelly Financial Officer and Treasurer
(Principal Financial Officer)
/s/ C. GORDON BELL Director March 18, 1997
C. Gordon Bell
/s/ D. JAMES GUZY Director March 18, 1997
D. James Guzy
/s/ C. WOODROW REA JR. Director March 18, 1997
C. Woodrow Rea Jr.
/s/ WALDEN C. RHINES Director March 18, 1997
Walden C. Rhines
/s/ ROBERT H. SMITH Director March 18, 1997
Robert H. Smith
CIRRUS LOGIC, INC.
REGISTRATION STATEMENT ON FORM S-1
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ --------------------------------------------------------------
<S> <C>
4.1* Indenture, dated as of December 15, 1996, between the Company and
State Street Bank and Trust Company, as Trustee, including the
form of Note.
4.2* Specimen Certificate of Common Stock of the Company. (Incorporated
by reference to _______________________________________.
4.3* Registration Rights Agreement, dated as of December 15, 1996,
among the Company, Goldman, Sachs & Co., Salomon Brothers Inc.,
J.P. Morgan & Co., and Robertson, Stephens & Company.
4.4 Restated Articles of Incorporation, filed with the Secretary of
State of the State of California on ________, 19__. (Incorporated
by reference to Exhibit ____ to the Company's Registration
Statement on Form S-__ (file No. 33-______) filed _______,
19___.)
4.5 Bylaws of the Company, as amended and restated as of __________,
19____. (Incorporated by reference to Exhibit _____ to the
Company's Form _____ for the ___________, 19______.)
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
12.1* Statement re computation of ratios.
21.1* Subsidiaries of Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2* Consent of Ernst & Young LLP, independent auditors.
24.1* Power of Attorney (contained in II-5)
25.1* Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation Designated to Act as
Trustee on Form T-1.
</TABLE>
* Filed herewith.
________________________________________________
CIRRUS LOGIC, INC.
ISSUER
TO
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
________________
INDENTURE
Dated as of December 15, 1996
________________
6% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 15, 2003
________________________________________________
TABLE OF CONTENTS Page
RECITALS OF THE COMPANY 1
ARTICLE I - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 1
SECTION 1.1 Definitions. 1
SECTION 1.2 Compliance Certificates and Opinions 10
SECTION 1.3 Form of Documents Delivered to the Trustee 10
SECTION 1.4 Acts of Holders of Securities 11
SECTION 1.5 Notices, Etc., to Trustee and Company 12
SECTION 1.6 Notice to Holders of Securities; Waiver 13
SECTION 1.7 Effect of Headings and Table of Contents 13
SECTION 1.8 Successors and Assigns 13
SECTION 1.9 Separability Clause 13
SECTION 1.10 Benefits of Indenture 14
SECTION 1.11 Governing Law 14
SECTION 1.12 Legal Holidays 14
SECTION 1.13 Conflict with Trust Indenture Act 14
ARTICLE II - SECURITY FORMS 15
SECTION 2.1 Form Generally 15
SECTION 2.2 Form of Security 16
SECTION 2.3 Form of Certificate of Authentication 29
SECTION 2.4 Form of Conversion Notice 29
ARTICLE III - THE SECURITIES 31
SECTION 3.1 Title and Terms 31
SECTION 3.2 Denominations 31
SECTION 3.3 Execution, Authentication, Delivery and Dating 31
SECTION 3.4 Global Securities; Non-Global Securities 32
SECTION 3.5 Registration, Registration of Transfer and Exchange;
Restrictions on Transfer 34
SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities 37
SECTION 3.7 Payment of Interest; Interest Rights Preserved 38
SECTION 3.8 Persons Deemed Owners 39
SECTION 3.9 Cancellation 39
SECTION 3.10 Computation of Interest 39
SECTION 3.11 [Reserved] 39
SECTION 3.12 CUSIP Numbers 39
ARTICLE IV - SATISFACTION AND DISCHARGE 39
SECTION 4.1 Satisfaction and Discharge of Indenture 39
SECTION 4.2 Application of Trust Money 40
ARTICLE V - REMEDIES 41
SECTION 5.1 Events of Default 41
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment 42
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee 43
SECTION 5.4 Trustee May File Proofs of Claim 43
SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities 44
SECTION 5.6 Application of Money Collected 44
SECTION 5.7 Limitation on Suits 45
SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest and to Convert 45
SECTION 5.9 Restoration of Rights and Remedies 45
SECTION 5.10 Rights and Remedies Cumulative 46
SECTION 5.11 Delay or Omission Not Waiver 46
SECTION 5.12 Control by Holders of Securities 46
SECTION 5.13 Waiver of Past Defaults 46
SECTION 5.14 Undertaking for Costs 46
SECTION 5.15 Waiver of Stay, Usury or Extension Laws 47
ARTICLE VI - THE TRUSTEE 47
SECTION 6.1 Certain Duties and Responsibilities 47
SECTION 6.2 Notice of Defaults 48
SECTION 6.3 Certain Rights of Trustee 48
SECTION 6.4 Not Responsible for Recitals or Issuance of Securities 49
SECTION 6.5 May Hold Securities, Act as Trustee Under Other Indentures 49
SECTION 6.6 Money Held in Trust 49
SECTION 6.7 Compensation and Reimbursement 50
SECTION 6.8 Corporate Trustee Required; Eligibility 50
SECTION 6.9 Resignation and Removal; Appointment of Successor 50
SECTION 6.10 Acceptance of Appointment by Successor 51
SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business 52
SECTION 6.12 Authenticating Agents 52
SECTION 6.13 Disqualification; Conflicting Interests 53
SECTION 6.14 Preferential Collection of Claims Against Company 53
ARTICLE VII - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE 54
SECTION 7.1 Company May Consolidate, Etc., Only on Certain Terms 54
SECTION 7.2 Successor Substituted 54
ARTICLE VIII - SUPPLEMENTAL INDENTURES 55
SECTION 8.1 Supplemental Indentures Without Consent of Holders of
Securities 55
SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities 56
SECTION 8.3 Execution of Supplemental Indentures 57
SECTION 8.4 Effect of Supplemental Indentures 57
SECTION 8.5 Reference in Securities to Supplemental Indentures 57
SECTION 8.6 Notice of Supplemental Indentures 57
ARTICLE IX - MEETINGS OF HOLDERS OF SECURITIES 57
SECTION 9.1 Purposes for Which Meetings May Be Called 57
SECTION 9.2 Call, Notice and Place of Meetings 58
SECTION 9.3 Persons Entitled to Vote at Meetings 58
SECTION 9.4 Quorum; Action 58
SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of
Meetings 59
SECTION 9.6 Counting Votes and Recording Action of Meetings 59
ARTICLE X - COVENANTS 60
SECTION 10.1 Payment of Principal, Premium and Interest 60
SECTION 10.2 Maintenance of Offices or Agencies 60
SECTION 10.3 Money for Security Payments To Be Held in Trust 61
SECTION 10.4 [Reserved] 62
SECTION 10.5 Existence 62
SECTION 10.6 Maintenance of Properties 62
SECTION 10.7 Payment of Taxes and Other Claims 62
SECTION 10.8 Registration and Listing 62
SECTION 10.9 Statement by Officers as to Default 63
SECTION 10.10 Delivery of Certain Information 63
SECTION 10.11 Resale of Certain Securities 63
SECTION 10.12 Registration Rights 64
SECTION 10.13 Waiver of Certain Covenants 65
ARTICLE XI - REDEMPTION OF SECURITIES 65
SECTION 11.1 Right of Redemption 65
SECTION 11.2 Applicability of Article 65
SECTION 11.3 Election to Redeem; Notice to Trustee 66
SECTION 11.4 Selection by Trustee of Securities To Be Redeemed 66
SECTION 11.5 Notice of Redemption 66
SECTION 11.6 Deposit of Redemption Price 67
SECTION 11.7 Securities Payable on Redemption Date 67
SECTION 11.8 Securities Redeemed in Part 68
SECTION 11.9 Conversion Arrangement on Call for Redemption 68
ARTICLE XII - CONVERSION OF SECURITIES 68
SECTION 12.1 Conversion Privilege and Conversion Rate 68
SECTION 12.2 Exercise of Conversion Privilege 69
SECTION 12.3 Fractions of Shares 70
SECTION 12.4 Adjustment of Conversion Rate 71
SECTION 12.5 Notice of Adjustments of Conversion Rate 74
SECTION 12.6 Notice of Certain Corporate Action 75
SECTION 12.7 Company to Reserve Common Stock 75
SECTION 12.8 Taxes on Conversions 76
SECTION 12.9 Covenant as to Common Stock 76
SECTION 12.10 Cancellation of Converted Securities 76
SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets 76
SECTION 12.12 Responsibility of Trustee for Conversion Provisions 77
ARTICLE XIII - SUBORDINATION OF SECURITIES 77
SECTION 13.1 Securities Subordinate to Senior Indebtedness 77
SECTION 13.2 No Payment in Certain Circumstances; Payment Over of Proceeds
Upon Dissolution, Etc. 78
SECTION 13.3 Prior Payment to Senior Indebtedness Upon Acceleration of
Securities 79
SECTION 13.4 Payment Permitted If No Default 80
SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness 80
SECTION 13.6 Provisions Solely to Define Relative Rights 80
SECTION 13.7 Trustee to Effectuate Subordination 81
SECTION 13.8 No Waiver of Subordination Provisions 81
SECTION 13.9 Notice to Trustee 81
SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating
Agent 82
SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Indebtedness 82
SECTION 13.12 Reliance by Holders of Senior Indebtedness on Subordination
Provisions 82
SECTION 13.13 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights 82
SECTION 13.14 Article Applicable to Paying Agents 83
SECTION 13.15 Certain Conversions and Repurchases Deemed Payment 83
ARTICLE XIV - REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A
CHANGE IN CONTROL 83
SECTION 14.1 Right to Require Repurchase 83
SECTION 14.2 Conditions to the Company's Election to Pay the 84
SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc. 84
SECTION 14.4 Certain Definitions 87
SECTION 14.5 Consolidation, Merger, etc 88
ARTICLE XV - HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE 89
SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders 89
SECTION 15.2 Preservation of Information 89
SECTION 15.3 No Recourse Against Others 89
SECTION 15.4 Reports by Trustee 89
SECTION 15.5 Reports by Company 90
ARTICLE XVI - IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
DIRECTORS 90
SECTION 16.1 Indenture and Securities Solely Corporate Obligations 90
INDENTURE, dated as of December 15, 1996, between Cirrus Logic, Inc., a
corporation duly organized and existing under the laws of the State of
California, having its principal office at 3100 West Warren Avenue,
Fremont, California 94538 (herein called the "Company"), and State
Street Bank and Trust Company, a trust company duly organized and
existing under the laws of The Commonwealth of Massachusetts, as Trustee
hereunder (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
its 6% Convertible Subordinated Notes due December 15, 2003
(herein called the "Securities") of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when the
Securities are executed by the Company and authenticated and
delivered hereunder, the valid obligations of the Company, and to
make this Indenture a valid agreement of the Company, in accordance
with their and its terms, have been done. Further, all things necessary
to duly authorize the issuance of the Common Stock of the Company
issuable upon the conversion of the Securities, and to duly reserve for
issuance the number of shares of Common Stock issuable upon such
conversion, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION I.1 Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally
accepted accounting principles in the United States, and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation; and
(3) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder of a Security,
has the meaning specified in Section 1.4.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the
purposes of this definition, "control", when used with respect to any
specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the
Depositary.
"Applicable Procedures" means, with respect to any transfer
or transaction involving a Global Security or beneficial interest
therein, the rules and procedures of Euroclear and CEDEL, and of the
Depositary for such Security, in each case to the extent applicable to
such transaction and as in effect from time to time.
"Authorized Newspaper" means a newspaper in the English
language, customarily published on each Monday, Tuesday,
Wednesday, Thursday and Friday, whether or not published on
Saturdays, Sundays or holidays, and of general circulation in a Place
of Payment.
"Authenticating Agent" means any Person authorized
pursuant to Section 6.12 to act on behalf of the Trustee to
authenticate Securities.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the
Board of Directors, a copy of which, certified by the Secretary or an
Assistant Secretary of the Company to have been duly adopted by the
Board of Directors and to be in full force and effect on the date of
such certification, shall have been delivered to the Trustee.
"Business Day", when used with respect to any Place of
Payment, Place of Conversion or any other place, as the case may be,
means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in such Place of
Payment, Place of Conversion or other place, as the case may be, are
authorized or obligated by law or executive order to close; provided,
however, that a day on which banking institutions in San Jose,
California, Boston, Massachusetts or New York, New York are
authorized or obligated by law or executive order to close shall not be
a Business Day for purposes of Section 13.9.
"CEDEL" means Cedel Bank, S.A. (or any successor
securities clearing agency).
"Change in Control" has the meaning specified in
Section 14.4(2).
"Closing Price Per Share" means, with respect to the
Common Stock of the Company, for any day, (i) the closing bid price
regular way on the Nasdaq National Market or, (ii) if the Common
Stock is not quoted on the Nasdaq National Market, the reported last
sales price regular way per share or, in case no such reported sale
takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case, on the principal national
securities exchange on which the Common Stock is listed or admitted
to trading, or (iii) if the Common Stock is not quoted on the Nasdaq
National Market or listed or admitted to trading on any national
securities exchange, the average of the closing bid prices in the over-
the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Company for that
purpose.
"Code" has the meaning specified in Section 2.1.
"Commission" means the United States Securities and
Exchange Commission, as from time to time constituted, created
under the Exchange Act, or, if at any time after the execution of this
instrument such Commission is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" means the Common Stock, no par value
per share, of the Company authorized at the date of this instrument as
originally executed. Subject to the provisions of Section 12.11, shares
issuable on conversion or repurchase of Securities shall include only
shares of Common Stock or shares of any class or classes of common
stock resulting from any reclassification or reclassifications thereof;
provided, however, that if at any time there shall be more than one
such resulting class, the shares so issuable on conversion of Securities
shall include shares of all such classes, and the shares of each such
class then so issuable shall be substantially in the proportion which
the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"common stock" includes any stock of any class of capital
stock which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the issuer thereof and which is not
subject to redemption by the issuer thereof.
"Company" means the Person named as the "Company" in
the first paragraph of this instrument until a successor Person shall
have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor
Person.
"Company Notice" has the meaning specified in Section
14.3.
"Company Request" or "Company Order" means a written
request or order signed in the name of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its Chief Executive
Officer, its President or a Vice President, and by its principal
financial officer, Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Constituent Person" has the meaning specified in Section
12.11.
"Conversion Agent" means any Person authorized by the
Company to convert Securities in accordance with Article XII. The
Company has initially appointed the Trustee as its Conversion Agent
pursuant to Section 10.2 hereof.
"Conversion Price" has the meaning specified in
Section 14.4(3).
"Conversion Rate" has the meaning specified in Section 12.1.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be
principally administered (which at the date of this Indenture is located
at 2 International Place, 4th Floor, Boston, Massachusetts 02110,
Attention: Corporate Trust Division (Cirrus Logic, Inc. 6%
Convertible Subordinated Notes due December 15, 2003).
"corporation" means a corporation, company, association,
joint-stock company or business trust.
"Credit Agreement " means that certain Amended and
Restated Multicurrency Credit Agreement, dated as of October 31,
1996, by and among the Company, certain of the Company's
subsidiaries, Bank of America National Trust and Savings
Association, as Agent and Letter of Credit Issuing Bank, Morgan
Guaranty Trust Company of New York and The Bank of Nova Scotia,
as Co-Agents, and the other financial institutions party thereto, as
arranged by BA Securities, Inc., as amended through the date hereof,
as further amended, amended and restated, supplemented or
otherwise modified from time to time.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, with respect to any Registered
Securities, a clearing agency that is registered as such under the
Exchange Act and is designated by the Company to act as Depositary
for such Registered Securities (or any successor securities clearing
agency so registered).
"Designated Senior Indebtedness" means the Company's
obligations under the Credit Agreement and any particular Senior
Indebtedness in which the instrument creating or evidencing the same
or the assumption or guarantee thereof (or related agreements or
documents to which the Company is a party) expressly provides that
such Senior Indebtedness shall be "Designated Senior Indebtedness"
for purposes of the Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness).
"Dollar" or "U.S. $" means a dollar or other equivalent unit
in such coin or currency of the United States as at the time shall be
legal tender for the payment of public and private debts.
"DTC" means The Depository Trust Company, a New York
corporation.
"Euroclear" means the Euroclear Clearance System (or any
successor securities clearing agency).
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the United States Securities
Exchange Act of 1934 (or any successor statute), as amended from
time to time.
"Exchange Date" means the date and day on which the
Restricted Period expires.
"Global Security" means a Registered Security that is
registered in the Security Register in the name of a Depositary or a
nominee thereof.
"Holder" means the Person in whose name the Security is
registered in the Security Register.
"Indenture" means this instrument as originally executed or
as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof, including, for all purposes of this
instrument and any such supplemental indenture, the provisions of the
Trust Indenture Act that are deemed to be a part of and govern this
instrument and any such supplemental indenture, respectively.
"Initial Purchasers" means Goldman, Sachs & Co., Salomon
Brothers Inc, J.P. Morgan Securities Inc. and Robertson, Stephens &
Company LLC.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Liquidated Damages" has the meaning specified in
Section 10.12.
"Maturity", when used with respect to any Security, means
the date on which the principal of such Security becomes due and
payable as therein or herein provided, whether at the Stated Maturity
or by declaration of acceleration, call for redemption, exercise of the
repurchase right set forth in Article XIV or otherwise.
"Non-electing Share" has the meaning specified in
Section 12.11.
"Notice of Default" has the meaning specified in Section 5.1.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the Chief
Executive Officer, the President or a Vice President and by the
principal financial officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to
the Trustee.
"Opinion of Counsel" means a written opinion of counsel,
who may be counsel for the Company and who shall be acceptable to
the Trustee.
"Outstanding", when used with respect to Securities, means,
as of the date of determination, all Securities theretofore authenticated
and delivered under this Indenture, except:
(i) Securities theretofore canceled by the
Trustee or delivered to the Trustee for cancellation;
(ii) Securities for the payment or redemption of
which money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such
Securities, provided that if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to
Section 3.6 or in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture,
other than any such Securities in respect of which there shall have
been presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company; and
(iv) Securities converted into Common Stock
pursuant to Article XII;
provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Securities are present at a
meeting of Holders of Securities for quorum purposes or have given
any request, demand, authorization, direction, notice, consent or
waiver hereunder, Securities owned by the Company or any other
obligor upon the Securities or any Affiliate of the Company or such
other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in
relying upon any such determination as to the presence of a quorum
or upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the
Trustee actually knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such
other obligor.
"Paying Agent" means any Person authorized by the
Company to pay the principal of or interest on any Securities on
behalf of the Company and, except as otherwise specifically set forth
herein, such term shall include the Company if it shall act as its own
Paying Agent. The Company has initially appointed the Trustee as its
Paying Agent pursuant to Section 10.2 hereof.
"Payment Blockage Notice" has the meaning specified in
Section 13.2.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, estate, unincorporated
organization or government or any agency or political subdivision
thereof.
"Place of Conversion" has the meaning specified in
Section 3.1.
"Place of Payment" has the meaning specified in Section 3.1.
"Predecessor Security" of any particular Security means
every previous Security evidencing all or a portion of the same debt
as that evidenced by such particular Security; and, for the purposes of
this definition, any Security authenticated and delivered under
Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.
"Purchase Agreement" means the Purchase Agreement, dated
as of December 12, 1996, between the Company and the Initial
Purchasers, as such agreement may be amended from time to time.
"Record Date" means any Regular Record Date or Special
Record Date.
"Record Date Period" means the period from the close of
business of any Regular Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment
Date.
"Redemption Date", when used with respect to any Security
to be redeemed, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security
to be redeemed, means the price at which it is to be redeemed
pursuant to this Indenture.
"Registered Security" means any Security issued in
substantially the form set forth in Section 2.2 and registered in the
Security Register. A Global Security is a Registered Security.
"Registration Rights Agreement" has the meaning specified
in Section 2.2.
"Regular Record Date" for interest payable in respect of any
Registered Security on any Interest Payment Date means the June 1 or
December 1 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date.
"Regulation D Securities" means the Securities sold by the
Initial Purchasers in the initial offering contemplated by the Purchase
Agreement in reliance on an exemption from the registration
requirements of the Securities Act other than Rule 144A and
Regulation S.
"Regulation S" means Regulation S under the Securities Act
(or any successor provision), as it may be amended from time to time.
"Regulation S Certificate" means a certificate substantially in
the form set forth in Annex A.
"Regulation S Global Security" has the meaning specified in
Section 2.1.
"Regulation S Legend" means a legend substantially in the
form of the legend required in the form of Security set forth in
Section 2.2 to be placed upon a Regulation S Global Security.
"Regulation S Securities" means all Securities required
pursuant to Section 3.5(3) to bear a Regulation S Legend. Such term
includes the Regulation S Global Security.
"Representative" means the (a) indenture trustee or other
trustee, agent or representative for any Senior Indebtedness or (b)
with respect to any Senior Indebtedness that does not have any such
trustee, agent or other representative, (i) in the case of such Senior
Indebtedness issued pursuant to an agreement providing for voting
arrangements as among the holders or owners of such Senior
Indebtedness, any holder or owner of such Senior Indebtedness acting
with the consent of the required persons necessary to bind such
holders or owners of such Senior Indebtedness and (ii) in the case of
all other such Senior Indebtedness, the holder or owner of such
Senior Indebtedness.
"Repurchase Date" has the meaning specified in Section
14.1.
"Repurchase Price" has the meaning specified in
Section 14.1.
"Responsible Officer", when used with respect to the Trustee,
means any officer within the Corporate Trust Office of the Trustee
and also means, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of his
knowledge and familiarity with the particular subject.
"Restricted Global Security" has the meaning specified in
Section 2.1.
"Restricted Period" means the period of 41 consecutive days
beginning on and including the later of (i) the day on which Securities
are first offered to persons other than distributors (as defined in
Regulation S) in reliance on Regulation S and (ii) the last original
issuance date of the Securities.
"Restricted Securities" means all Securities required pursuant
to Section 3.5(3) to bear any Restricted Securities Legend. Such term
includes the Restricted Global Security.
"Restricted Securities Certificate" means a certificate
substantially in the form set forth in Annex B.
"Restricted Securities Legend" means, collectively, the
legends substantially in the forms of the legends required in the form
of Security set forth in Section 2.2 to be placed upon each Restricted
Security.
"Rule 144A" means Rule 144A under the Securities Act (or
any successor provision), as it may be amended from time to time.
"Rule 144A Information" has the meaning specified in
Section 10.10.
"Rule 144A Securities" means the Securities purchased by
the Initial Purchasers from the Company pursuant to the Purchase
Agreement and resold by the Initial Purchasers, other than the
Regulation D Securities and the Regulation S Securities.
"Securities" has the meaning ascribed to it in the first
paragraph under the caption "Recitals of the Company".
"Securities Act" means the United States Securities Act of
1933 (or any successor statute), as amended from time to time.
"Securities Act Legend" means a Restricted Securities
Legend or a Regulation S Legend.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 3.5.
"Senior Indebtedness" means the principal of (and premium,
if any) and interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or
not a claim for post-petition interest is allowable as a claim in any
such proceeding) on, and all fees and other amounts payable in
connection with, the following, whether absolute or contingent,
secured or unsecured, due or to become due, outstanding on the date
of the Indenture or thereafter created, incurred or assumed:
(a) indebtedness of the Company evidenced by credit or loan
agreements, notes, bonds, debentures, or other written obligations,
(b) all obligations of the Company for money borrowed, (c) all
obligations of the Company evidenced by a note or similar instrument
given in connection with the acquisition of any businesses, properties
or assets of any kind, (d) obligations of the Company as lessee (i)
under leases required to be capitalized on the balance sheet of the
lessee under generally accepted accounting principles and (ii) under
other leases for facilities, capital equipment and related operating
assets, whether or not capitalized, entered into or leased after the date
of this Indenture for financing purposes (as determined by the
Company), (e) obligations of the Company under interest rate and
currency swaps, caps, floors, collars, hedge agreements, forward
contracts, or similar agreements or arrangements, (f) all
reimbursement obligations of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of the Company, (g) all obligations of the Company issued or
assumed as the deferred purchase price of property or services (but
excluding trade accounts payable arising in the ordinary course of
business), (h) all obligations of the type referred to in clauses (a)
through (g) above of another Person and all dividends of another
Person, the payment of which, in either case, the Company has
assumed or guaranteed, or for which the Company is responsible or
liable, directly or indirectly, jointly or severally, as obligor, guarantor
or otherwise, or which is secured by a lien on property of the
Company, and (i) renewals, extensions, modifications, replacements,
restatements and refundings of, or any indebtedness or obligation
issued in exchange for, any such indebtedness or obligation described
in clauses (a) through (h) of this paragraph; provided, however, that
Senior Indebtedness shall not include the Securities or any such
indebtedness or obligation if the terms of such indebtedness or
obligation (or the terms of the instrument under which, or pursuant to
which it is issued) expressly provides that such indebtedness or
obligation is not superior in right of payment to the Securities.
"Shelf Registration Statement" has the meaning specified in
Section 10.12.
"Significant Subsidiary" means, with respect to any Person, a
Subsidiary of such Person that would constitute a "significant
subsidiary" as such term is defined under Rule 1-02 of
Regulation S-X of the Commission.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Company pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Security or
any installment of interest thereon, means the date specified in such
Security as the fixed date on which the principal of such Security or
such installment of interest is due and payable.
"Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries. For the purposes of
this definition, "voting stock" means stock or other similar interests in
the corporation which ordinarily has or have voting power for the
election of directors, or persons performing similar functions, whether
at all times or only so long as no senior class of stock or other
interests has or have such voting power by reason of any contingency.
"Successor Security" of any particular Security means every
Security issued after, and evidencing all or a portion of the same debt
as that evidenced by, such particular Security; and, for the purposes
of this definition, any Security authenticated and delivered under
Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.
"Surrender Certificate" means a certificate substantially in
the form set forth in Annex D.
"Trading Days" means (i) if the Common Stock is quoted on
the Nasdaq National Market or any other system of automated
dissemination of quotations of securities prices, days on which trades
may be effected through such system; (ii) if the Common Stock is
listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business;
or (iii) if the Common Stock is not listed or admitted for trading on
any national securities exchange or quoted on the Nasdaq National
Market or any other system of automated dissemination of quotation
of securities prices, days on which the Common Stock is traded
regular way in the over-the-counter market and for which a closing
bid and a closing asked price for the Common Stock are available.
"Trust Indenture Act" means the Trust Indenture Act of 1939
as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939
is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of
1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the
first paragraph of this instrument until a successor Trustee shall have
become such pursuant to the applicable provisions of this Indenture,
and thereafter "Trustee" shall mean such successor Trustee.
"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 (its
"possessions" including Puerto Rico, the U.S. Virgin Islands, Guam,
American Samoa, Wake Island and the Northern Mariana Islands).
"Unrestricted Securities Certificate" means a certificate
substantially in the form set forth in Annex C.
"Vice President", when used with respect to the Company,
means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION I.2 Compliance Certificates and Opinions.
Upon any application or request by the Company to the
Trustee to take any action under any provision of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating
that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the
furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (including
certificates provided for in Section 10.9) shall include:
(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been complied
with.
SECTION I.3 Form of Documents Delivered to the Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the
opinion of, only one such Person, or that they be so certified or
covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may
be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows,
or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which
such certificate or opinion is based are erroneous. Any such
certificate or opinion of counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by,
an officer or officers of the Company or any other Person stating that
the information with respect to such factual matters is in the
possession of the Company or such other Person, unless such counsel
knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters
are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements,
opinions or other instruments under this Indenture, they may, but
need not, be consolidated and form one instrument.
SECTION I.4 Acts of Holders of Securities.
(1) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided or permitted by this
Indenture to be given or taken by Holders of Securities may be
embodied in and evidenced by (A) one or more instruments of
substantially similar tenor signed by such Holders in person or by an
agent or proxy duly appointed in writing by such Holders or (B) the
record of Holders of Securities voting in favor thereof, either in
person or by proxies duly appointed in writing, at any meeting of
Holders of Securities duly called and held in accordance with the
provisions of Article IX. Such action shall become effective when
such instrument or instruments or record is delivered to the Trustee
and, where it is hereby expressly required, to the Company. The
Trustee shall promptly deliver to the Company copies of all such
instruments and records delivered to the Trustee. Such instrument or
instruments and record (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of
the Holders of Securities signing such instrument or instruments and
so voting at such meeting. Proof of execution of any such instrument
or of a writing appointing any such agent or proxy, or of the holding
by any Person of a Security, shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the
Trustee and the Company if made in the manner provided in this
Section. The record of any meeting of Holders of Securities shall be
proved in the manner provided in Section 9.6.
(2) The fact and date of the execution by any Person of
any such instrument or writing may be proved by the affidavit of a
witness of such execution or by a certificate of a notary public or
other officer authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument or writing
acknowledged to him the execution thereof. Where such execution is
by a signer acting in a capacity other than his individual capacity,
such certificate or affidavit shall also constitute sufficient proof of his
authority.
(3) The principal amount and serial number of any
Registered Security held by any Person, and the date of his holding
the same, shall be proved by the Security Register.
(4) The fact and date of execution of any such
instrument or writing and the authority of the Person executing the
same may also be proved in any other manner which the Trustee
deems sufficient; and the Trustee may in any instance require further
proof with respect to any of the matters referred to in this Section 1.4.
(5) The Company may set any day as the record date for
the purpose of determining the Holders entitled to give or take any
request, demand, authorization, direction, notice, consent, waiver or
other action, or to vote on any action, authorized or permitted by this
Indenture to be given or taken by Holders. Promptly and in any case
not later than ten days after setting a record date, the Company shall
notify the Trustee and the Holders of such record date. If not set by
the Company prior to the first solicitation of a Holder made by any
Person in respect of any such action, or, in the case of any such vote,
prior to such vote, the record date for any such action or vote shall be
the 30th day (or, if later, the date of the most recent list of Holders
required to be provided pursuant to Section 15.1) prior to such first
solicitation or vote, as the case may be. With regard to any record
date, the Holders on such date (or their duly appointed agents or
proxies), and only such Persons, shall be entitled to give or take, or
vote on, the relevant action, whether or not such Holders remain
Holders after such record date. Notwithstanding the foregoing, the
Company shall not set a record date for, and the provisions of this
paragraph shall not apply with respect to, any notice, declaration or
direction referred to in the next paragraph.
Upon receipt by the Trustee from any Holder of (i) any notice
of default or breach referred to in Section 5.1(4), if such default or
breach has occurred and is continuing and the Trustee shall not have
given such a notice to the Company, (ii) any declaration of
acceleration referred to in Section 5.2, if an Event of Default has
occurred and is continuing and the Trustee shall not have given such
a declaration to the Company, or (iii) any direction referred to in
Section 5.12, if the Trustee shall not have taken the action specified
in such direction, then, with respect to clauses (ii) and (iii), a record
date shall automatically and without any action by the Company or
the Trustee be set for determining the Holders entitled to join in such
declaration or direction, which record date shall be the close of
business on the tenth day (or, if such day is not a Business Day, the
first Business Day thereafter) following the day on which the Trustee
receives such declaration or direction, and, with respect to clause (i),
the Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in such notice of default.
Promptly after such receipt by the Trustee of any such declaration or
direction referred to in clause (ii) or (iii), and promptly after setting
any record date with respect to clause (i), and as soon as practicable
thereafter, the Trustee shall notify the Company and the Holders of
any such record date so fixed. The Holders on such record date (or
their duly appointed agents or proxies), and only such Persons, shall
be entitled to join in such notice, declaration or direction, whether or
not such Holders remain Holders after such record date; provided
that, unless such notice, declaration or direction shall have become
effective by virtue of Holders of the requisite principal amount of
Securities on such record date (or their duly appointed agents or
proxies) having joined therein on or prior to the 90th day after such
record date, such notice, declaration or direction shall automatically
and without any action by any Person be canceled and of no further
effect. Nothing in this paragraph shall be construed to prevent a
Holder (or a duly appointed agent or proxy thereof) from giving,
before or after the expiration of such 90-day period, a notice,
declaration or direction contrary to or different from, or, after the
expiration of such period, identical to, the notice, declaration or
direction to which such record date relates, in which event a new
record date in respect thereof shall be set pursuant to this paragraph.
In addition, nothing in this paragraph shall be construed to render
ineffective any notice, declaration or direction of the type referred to
in this paragraph given at any time to the Trustee and the Company
by Holders (or their duly appointed agents or proxies) of the requisite
principal amount of Securities on the date such notice, declaration or
direction is so given.
(6) Except as provided in Sections 5.12 and 5.13, any
request, demand, authorization, direction, notice, consent, election,
waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security
issued upon the registration of transfer thereof or in exchange therefor
or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
(7) The provisions of this Section 1.4 are subject to the
provisions of Section 9.5.
SECTION I.5 Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, election, waiver or other Act of Holders of Securities or
other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(1) the Trustee by any Holder of Securities or by the
Company shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing to or with the Trustee and received
at its Corporate Trust Office, Attention: Corporate Trust
Department. (Cirrus Logic, Inc. 6% Convertible Subordinated Notes
due December 15, 2003).
(2) the Company by the Trustee or by any Holder of
Securities shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing, mailed, first-class
postage prepaid, or telecopied and confirmed by mail, first-class
postage prepaid, or delivered by hand or overnight courier, addressed
to the Company at 3100 West Warren Avenue, Fremont, California,
94538, Attention: Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by the Company.
Any request, demand, authorization, direction, notice,
consent, election or waiver required or permitted under this Indenture
shall be in the English language, except that any published notice
may be in an official language of the country of publication.
SECTION I.6 Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided herein, where this
Indenture provides for notice to Holders of Securities of any event,
such notice shall be sufficiently given to Holders if in writing and
mailed, first-class postage prepaid, to each Holder of a Security
affected by such event, at the address of such Holder as it appears in
the Security Register, not earlier than the earliest date and not later
than the latest date prescribed for the giving of such notice.
Neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder of a Registered Security
shall affect the sufficiency of such notice with respect to other
Holders of Registered Securities. In case by reason of the suspension
of regular mail service or by reason of any other cause it shall be
impracticable to give such notice by mail, then such notification to
Holders of Registered Securities as shall be made with the approval
of the Trustee, which approval shall not be unreasonably withheld,
shall constitute a sufficient notification to such Holders for every
purpose hereunder.
Such notice shall be deemed to have been given when such
notice is mailed.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders of Securities
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such
waiver.
SECTION I.7 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the
construction hereof.
SECTION I.8 Successors and Assigns.
All covenants and agreements in this Indenture by the
Company shall bind its successors and assigns, whether so expressed
or not.
SECTION I.9 Separability Clause.
In case any provision in this Indenture or the Securities shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION I.10 Benefits of Indenture.
Except as provided in the next sentence, nothing in this
Indenture or in the Securities, express or implied, shall give to any
Person, other than the parties hereto and their successors and assigns
hereunder and the Holders of Securities, any benefit or legal or
equitable right, remedy or claim under this Indenture. The provisions
of Article XIII are intended to be for the benefit of, and shall be
enforceable directly by, the holders of Senior Indebtedness.
SECTION I.11 Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, THE
UNITED STATES OF AMERICA.
SECTION I.12 Legal Holidays.
In any case where any Interest Payment Date, Redemption
Date, Repurchase Date or Stated Maturity of any Security or the last
day on which a Holder of a Security has a right to convert his Security
shall not be a Business Day at a Place of Payment or Place of
Conversion, as the case may be, then (notwithstanding any other
provision of this Indenture or of the Securities) payment of principal
of, premium, if any, or interest on, or the payment of the Repurchase
Price (whether the same is payable in cash or in shares of Common
Stock) with respect to, or delivery for conversion of, such Security
need not be made at such Place of Payment or Place of Conversion, as
the case may be, on or by such day, but may be made on or by the
next succeeding Business Day at such Place of Payment or Place of
Conversion, as the case may be, with the same force and effect as if
made on the Interest Payment Date, Redemption Date or Repurchase
Date, or at the Stated Maturity or by such last day for conversion;
provided, however, that in the case that payment is made on such
succeeding Business Day, no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date,
Redemption Date, Repurchase Date, Stated Maturity or last day for
conversion, as the case may be.
SECTION I.13 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to
be a part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this
Indenture as so modified or to be excluded, as the case may be. Until
such time as this Indenture shall be qualified under the Trust
Indenture Act, this Indenture, the Company and the Trustee shall be
deemed for all purposes hereof to be subject to and governed by the
Trust Indenture Act to the same extent as would be the case if this
Indenture were so qualified on the date hereof.
ARTICLE II
SECURITY FORMS
SECTION II.1 Form Generally.
The Securities shall be in substantially the form set forth in
this Article, with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture,
and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required
to comply with the rules of any securities exchange, the Internal
Revenue Code of 1986, as amended, and regulations thereunder (the
"Code"), or as may, consistent herewith, be determined by the
officers executing such Securities, as evidenced by their execution
thereof. All Securities shall be Registered Securities.
The Trustee's certificates of authentication shall be in
substantially the form set forth in Section 2.3.
Conversion notices shall be in substantially the form set forth
in Section 2.4.
Repurchase notices shall be substantially in the form set forth
in Section 2.2.
The Securities shall be printed, lithographed, typewritten or
engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any
automated quotation system or securities exchange (including on steel
engraved borders if so required by any securities exchange upon
which the Securities may be listed) on which the Securities may be
quoted or listed, as the case may be, all as determined by the officers
executing such Securities, as evidenced by their execution thereof.
Upon their original issuance, Rule 144A Securities shall be
issued in the form of one or more Global Securities without interest
coupons and shall be registered in the name of DTC, as Depositary,
or its nominee and deposited with the Trustee, as custodian for DTC,
for credit by DTC to the respective accounts of beneficial owners of
the Securities represented thereby (or such other accounts as they may
direct). Such Global Security, together with its Successor Securities
which are Global Securities other than the Regulation S Global
Security, are collectively herein called the "Restricted Global
Security".
Upon their original issuance, Regulation S Securities shall be
issued in the form of one or more Global Securities without interest
coupons and shall be registered in the name of DTC, as Depositary,
or its nominee and deposited with the Trustee, as custodian for DTC
for credit to the respective accounts at DTC of the depositaries for
Morgan Guaranty Trust Company of New York, Brussels office, as
operator of Euroclear, or CEDEL. Such Global Security, together
with its Successor Securities which are Global Securities other than
the Restricted Global Security, are collectively herein called the
"Regulation S Global Security".
Upon their original issuance, Regulation D Securities shall be
issued as Registered Securities but not in the form of a Global
Security or in any other form intended to facilitate book-entry trading
in beneficial interests in such Securities.
SECTION II.2 Form of Security.
[FORM OF FACE]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE
FACE OF EACH RESTRICTED SECURITY OTHER THAN
ANY RESTRICTED GLOBAL SECURITY:
THIS SECURITY HAS NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), AND THIS SECURITY AND
ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS
CONVERSION MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE
INITIAL INVESTOR (I) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE
PROVISIONS OF RULE 903 OR 904 OF REGULATION S
UNDER THE SECURITIES ACT, (III) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER
(IF AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, AND (B) BY SUBSEQUENT INVESTORS AS SET
FORTH IN (A) ABOVE OR TO AN INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" WITHIN THE MEANING
OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, AND IN EACH OF CASES (A) OR (B) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF THE STATES AND OTHER JURISDICTIONS OF
THE UNITED STATES.]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE
FACE OF EACH RESTRICTED GLOBAL SECURITY:
THE SECURITIES EVIDENCED BY THIS GLOBAL
SECURITY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND SUCH SECURITIES AND ANY
SHARES OF COMMON STOCK ISSUABLE UPON THEIR
CONVERSION MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE
INITIAL INVESTOR (I) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH THE
PROVISIONS OF RULE 903 OR 904 OF REGULATION S
UNDER THE SECURITIES ACT, (III) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER
(IF AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, AND (B) BY SUBSEQUENT INVESTORS AS SET
FORTH IN (A) ABOVE OR TO AN INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" WITHIN THE MEANING
OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, AND IN EACH OF CASES (A) OR (B) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF THE STATES AND OTHER JURISDICTIONS OF
THE UNITED STATES.]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE
FACE OF EACH GLOBAL SECURITY:
THIS SECURITY IS A GLOBAL SECURITY WITHIN
THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY,
WHICH MAY BE TREATED BY THE COMPANY, THE
TRUSTEE AND ANY AGENT THEREOF AS OWNER AND
HOLDER OF THIS SECURITY FOR ALL PURPOSES.]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE
FACE OF EACH GLOBAL SECURITY FOR WHICH THE
DEPOSITORY TRUST COMPANY IS TO BE THE
DEPOSITARY:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OR TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE
OR IN PART FOR REGISTERED SECURITIES IN
DEFINITIVE REGISTERED FORM IN THE LIMITED
CIRCUMSTANCES REFERRED TO IN THE INDENTURE,
THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE
FACE OF EACH REGULATION S GLOBAL SECURITY:
THE SECURITIES EVIDENCED BY THIS GLOBAL
SECURITY (OR ITS PREDECESSOR) WERE ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, ANY U.S. PERSON EXCEPT PURSUANT TO
AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ALL
APPLICABLE STATE SECURITIES LAWS. TERMS USED
ABOVE HAVE THE MEANINGS GIVEN THEM IN
REGULATION S UNDER THE SECURITIES ACT.]
CIRRUS LOGIC, INC.
6% CONVERTIBLE SUBORDINATED NOTE
DUE DECEMBER 15, 2003
No. _____________ U.S. $ _____
[IF RESTRICTED GLOBAL SECURITY - CUSIP NO.
172755AA8]
[IF REGULATION S GLOBAL SECURITY - CUSIP NO.
U1717DAA8]
[IF REGULATION D SECURITY - CUSIP NO. 172755AB6]
CIRRUS LOGIC, INC., a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company", which term includes any successor Person under the
Indenture referred to on the reverse hereof), for value received,
hereby promises to pay to _______________, or registered assigns,
the principal sum of _____________ United States Dollars (U.S.$
_____) [if this Security is a Global Security, then insert -- (which
principal amount may from time to time be increased or decreased to
such other principal amounts (which, taken together with the
principal amounts of all other Outstanding Securities, shall not
exceed $300,000,000 in the aggregate at any time) by adjustments
made on the records of the Trustee hereinafter referred to in
accordance with the Indenture)] on December 15, 2003 and to pay
interest thereon, from December 18, 1996, or from the most recent
Interest Payment Date (as defined below) to which interest has been
paid or duly provided for, semi-annually in arrears on June 15 and
December 15 in each year (each, an "Interest Payment Date"),
commencing June 15, 1997, at the rate of 6% per annum, until the
principal hereof is due, and at the rate of 6% per annum on any
overdue principal and premium, if any, and, to the extent permitted
by law, on any overdue interest. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date
will, as provided in the Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for
such interest, which shall be the June 1 or December 1 (whether or
not a Business Day), as the case may be, next preceding such Interest
Payment Date. Except as otherwise provided in the Indenture, any
such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record
Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Company, notice whereof shall
be given to Holders of Registered Securities not less than 10 days
prior to the Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any
automated quotation system or securities exchange on which the
Securities may be quoted or listed, and upon such notice as may be
required by such exchange, all as more fully provided in the
Indenture. Payments of principal shall be made upon the surrender of
this Security at the option of the Holder at the Corporate Trust Office
of the Trustee, or at such other office or agency of the Company as
may be designated by it for such purpose in the Borough of
Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, or at such other
offices or agencies as the Company may designate, by United States
Dollar check drawn on, or transfer to, a United States Dollar account
(such a transfer to be made only to a Holder of an aggregate principal
amount of Registered Securities in excess of U.S.$2,000,000, and
only if such Holder shall have furnished wire instructions in writing
to the Trustee no later than 15 days prior to the relevant payment
date). Payment of interest on this Security may be made by United
States Dollar check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register, or, upon
written application by the Holder to the Security Registrar setting
forth wire instructions not later than the relevant Record Date, by
transfer to a United States Dollar account (such a transfer to be made
only to a Holder of an aggregate principal amount of Registered
Securities in excess of U.S.$2,000,000 and only if such Holder shall
have furnished wire instructions in writing to the Trustee no later than
15 days prior to the relevant payment date).
Except as specifically provided herein and in the Indenture,
the Company shall not be required to make any payment with respect
to any tax, assessment or other governmental charge imposed by any
government or any political subdivision or taxing authority thereof or
therein.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall
for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof or an
Authenticating Agent by the manual signature of one of their
respective authorized signatories, this Security shall not be entitled to
any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this
Security to be duly executed under its corporate seal.
Dated: [Date of Authentication] CIRRUS
LOGIC, INC.
[Corporate Seal]
By:
Name:
Title:
Attest:
Name:
Title:
[FORM OF REVERSE]
This Security is one of a duly authorized issue of securities of
the Company designated as its "6% Convertible Subordinated Notes
due December 15, 2003" (herein called the "Securities"), limited in
aggregate principal amount to U.S. $300,000,000, issued and to be
issued under an Indenture, dated as of December 15, 1996 (herein
called the "Indenture"), between the Company and State Street Bank
and Trust Company, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Indebtedness and the Holders of the Securities and
of the terms upon which the Securities are, and are to be,
authenticated and delivered. As provided in the Indenture and subject
to certain limitations therein set forth, Registered Securities are
exchangeable for a like aggregate principal amount of Registered
Securities of any authorized denominations as requested by the
Holder surrendering the same upon surrender of the Registered
Security or Registered Securities to be exchanged, at the Corporate
Trust Office of the Trustee. The Trustee upon such surrender by the
Holder will issue the new Registered Securities in the requested
denominations.
No sinking fund is provided for the Securities. The
Securities are subject to redemption at the option of the Company at
any time on or after December 16, 1999, in whole or in part, upon not
less than 20 nor more than 60 days' notice to the Holders prior to the
Redemption Date at the following Redemption Prices (expressed as
percentages of the principal amount) for the twelve-month period
beginning on December 15 of the following years (or December 16,
in the case of 1999):
Year Redemption Price
1999 103.429 %
2000 102.571
2001 101.714
2002 100.857
and thereafter at a Redemption Price equal to 100% of the principal
amount, together, in each case, with accrued interest to the
Redemption Date; provided, however, that interest installments on
Registered Securities whose Stated Maturity is on or prior to such
Redemption Date will be payable to the Holders of such Securities, or
one or more Predecessor Securities, of record at the close of business
on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.
In the event of a redemption of the Securities, the Company
will not be required (a) to register the transfer or exchange of
Registered Securities for a period of 15 days immediately preceding
the date notice is given identifying the serial numbers of the
Securities called for such redemption or (b) to register the transfer or
exchange of any Registered Security, or portion thereof, called for
redemption.
Notice to the Holders will be given not less than 20 nor more
than 60 days prior to the Redemption Date as provided in the
Indenture.
In any case where the due date for the payment of the
principal of, premium, if any, interest, or Liquidated Damages on any
Security or the last day on which a Holder of a Security has a right to
convert his Security shall be, at any Place of Payment or Place of
Conversion, as the case may be, a day on which banking institutions
at such Place of Payment or Place of Conversion are authorized or
obligated by law or executive order to close, then payment of
principal, premium, if any, interest, or Liquidated Damages, or
delivery for conversion of such Security need not be made on or by
such date at such place but may be made on or by the next succeeding
day at such place which is not a day on which banking institutions are
authorized or obligated by law or executive order to close, with the
same force and effect as if made on the date for such payment or the
date fixed for redemption or repurchase, or by such last day for
conversion, and no interest shall accrue on the amount so payable for
the period after such date.
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Security is entitled, at his option, at any
time on or after the 90th day following the last original issue date of
the Securities and on or before the close of business on December 15,
2003, or in case this Security or a portion hereof is called for
redemption or the Holder hereof has exercised his right to require the
Company to repurchase this Security or such portion hereof, then in
respect of this Security until and including, but (unless the Company
defaults in making the payment due upon redemption or repurchase,
as the case may be) not after, the close of business on the Business
Day prior to the Redemption Date or the Repurchase Date, as the case
may be, to convert this Security (or any portion of the principal
amount hereof that is an integral multiple of U.S.$1,000, provided
that the unconverted portion of such principal amount is U.S.$1,000
or any integral multiple of U.S.$1,000 in excess thereof) into fully
paid and nonassessable shares of Common Stock of the Company at
an initial Conversion Rate of 41.2903 shares of Common Stock for
each U.S. $1,000 principal amount of Securities (or at the current
adjusted Conversion Rate if an adjustment has been made as provided
in the Indenture) by surrender of this Security, duly endorsed or
assigned to the Company or in blank and, in case such surrender shall
be made during the period from the close of business on any Regular
Record Date next preceding any Interest Payment Date to the opening
of business on such Interest Payment Date (except if this Security or
portion thereof has been called for redemption on a Redemption Date
or is repurchasable on a Repurchase Date occurring, in either case,
during such period and is surrendered for such conversion during
such period (including any Securities or portions thereof called for
redemption on a Redemption Date or submitted for repurchase on a
Repurchase Date that is a Regular Record Date or an Interest Payment
Date, as the case may be)), also accompanied by payment in New
York Clearing House or other funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date
on the principal amount of this Security then being converted, and
also the conversion notice hereon duly executed, to the Company at
the Corporate Trust Office of the Trustee, or at such other office or
agency of the Company, subject to any laws or regulations applicable
thereto and subject to the right of the Company to terminate the
appointment of any Conversion Agent (as defined below) as may be
designated by it for such purpose in the Borough of Manhattan, The
City of New York, or at such other offices or agencies as the
Company may designate (each a "Conversion Agent"), provided,
further, that if this Security or portion hereof has been called for
redemption on a Redemption Date or is repurchasable on a
Repurchase Date occurring, in either case, during the period from the
close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such succeeding
Interest Payment Date (including any Securities or portions thereof
called for redemption on a Redemption Date or submitted for
repurchase on a Repurchase Date that is a Regular Record Date or an
Interest Payment Date, as the case may be) and is surrendered for
conversion during such period (or on the last Business Day prior to
the Regular Record Date or Interest Payment Date in case of any
Security (or portion thereof) called for redemption on a Redemption
Date or submitted for repurchase on a Repurchase Date on a Regular
Record Date or Interest Payment Date, as the case may be), then the
Holder of this Security who converts this Security or a portion hereof
during such period will be entitled to receive the interest accruing
hereon from the Interest Payment Date next preceding the date of
such conversion to such succeeding Interest Payment Date and shall
not be required to pay such interest upon surrender of this Security for
conversion. Subject to the provisions of the preceding sentence and,
in the case of a conversion after the close of business on the Regular
Record Date next preceding any Interest Payment Date and on or
before the close of business on such Interest Payment Date, to the
right of the Holder of this Security (or any Predecessor Security of
record as of such Regular Record Date) to receive the related
installment of interest to the extent and under the circumstances
provided in the Indenture, no cash payment or adjustment is to be
made on conversion for interest accrued hereon from the Interest
Payment Date next preceding the day of conversion, or for dividends
on the Common Stock issued on conversion hereof. The Company
shall thereafter deliver to the Holder the fixed number of shares of
Common Stock (together with any cash adjustment, as provided in
the Indenture) into which this Security is convertible and such
delivery will be deemed to satisfy the Company's obligation to pay
the principal amount of this Security. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but
instead of any fractional interest (calculated to the nearest 1/100th of
a share) the Company shall pay a cash adjustment as provided in the
Indenture. The Conversion Rate is subject to adjustment as provided
in the Indenture. In addition, the Indenture provides that in case of
certain consolidations or mergers to which the Company is a party
(other than a consolidation or merger that does not result in any
reclassification, conversion, exchange or cancellation of the Common
Stock) or the conveyance, transfer, sale or lease of all or substantially
all of the property and assets of the Company, the Indenture shall be
amended, without the consent of any Holders of Securities, so that
this Security, if then Outstanding, will be convertible thereafter,
during the period this Security shall be convertible as specified above,
only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, transfer,
sale or lease by a holder of the number of shares of Common Stock of
the Company into which this Security could have been converted
immediately prior to such consolidation, merger, conveyance,
transfer, sale or lease (assuming such holder of Common Stock is not
a Constituent Person, failed to exercise any rights of election and
received per share the kind and amount received per share by a
plurality of Non-electing Shares and further assuming, if such
consolidation, merger, conveyance, transfer, sale or lease occurs prior
to 90 days following the last original issue date of the Securities, that
the Security was convertible at the time of such occurrence at the
Conversion Rate specified above as adjusted from the issue date of
such Security to such time as provided in the Indenture). No
adjustment in the Conversion Rate will be made until such adjustment
would require an increase or decrease of at least one percent of such
rate, provided that any adjustment that would otherwise be made will
be carried forward and taken into account in the computation of any
subsequent adjustment.
Subject to certain limitations in the Indenture, at any time
when the Company is not subject to Section 13 or 15(d) of the United
States Securities Exchange Act of 1934, as amended, upon the
request of a Holder of a Restricted Security or the holder of shares of
Common Stock issued upon conversion thereof, the Company will
promptly furnish or cause to be furnished Rule 144A Information (as
defined below) to such Holder of Restricted Securities or such holder
of shares of Common Stock issued upon conversion of Restricted
Securities, or to a prospective purchaser of any such security
designated by any such Holder or holder, as the case may be, to the
extent required to permit compliance by such Holder or holder with
Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the resale of any such security.
"Rule 144A Information" shall be such information as is specified
pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto).
If this Security is a Registrable Security, then the Holder of
this Security [if this Security is a Global Security, then insert --
(including any Person that has a beneficial interest in this Security)]
and the Common Stock of the Company issuable upon conversion
hereof is entitled to the benefits of a Registration Rights Agreement
(subject to the provisions thereof), dated as of December 18, 1996,
executed by the Company (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company has
agreed for the benefit of the Holders from time to time of the
Registrable Securities (as defined in the Indenture) that it will, at its
expense, (a) within 90 days after December 18, 1996 (the "Issue
Date") of the Securities, file a shelf registration statement (the "Shelf
Registration Statement") with the Commission with respect to resales
of the Registerable Securities, (b) use its reasonable efforts to cause
such Shelf Registration Statement to be declared effective by the
Commission within 180 days after the Issue Date of the Securities,
and (c) use its reasonable efforts to maintain such Shelf Registration
Statement effective under the Securities Act of 1933, as amended,
until the third annual anniversary of the Issue Date or such earlier
date as is provided in the Registration Rights Agreement (the
"Effectiveness Period"). The Company will be permitted to suspend
the use of the prospectus which is part of the Shelf Registration
Statement during certain periods of time as provided in the
Registration Rights Agreement.
If (i) on or prior to 90 days following the Issue Date of the
Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 180th day following the Issue
Date of the Securities, such Shelf Registration Statement is not
declared effective (each, a "Registration Default"), additional interest
("Liquidated Damages") will accrue on this Restricted Security from
and including the day following such Registration Default to but
excluding the day on which such Registration Default has been cured.
Liquidated Damages will be paid semi-annually in arrears, with the
first semi-annual payment due on the first Interest Payment Date in
respect of the Restricted Securities following the date on which such
Liquidated Damages begin to accrue, and will accrue at a rate per
annum equal to an additional one-quarter of one percent (0.25%) of
the principal amount of the Restricted Securities to and including the
90th day following such Registration Default and at a rate per annum
equal to one-half of one percent (0.50%) thereof from and after the
91st day following such Registration Default. Pursuant to the
Registration Rights Agreement, in the event that the Shelf
Registration Statement ceases to be effective during the Effectiveness
Period for more than 90 days or the Company suspends the use of the
prospectus which is a part thereof for more than 90 days, whether or
not consecutive, during any 12-month period, then the interest rate
borne by the Restricted Securities shall increase by an additional one-
half of one percent (0.50%) per annum from the 91st day of the
applicable 12-month period such Shelf Registration Statement ceases
to be effective or such prospectus continues to be suspended to but
excluding the day on which (i) the Shelf Registration Statement again
becomes effective, (ii) the use of the related prospectus ceases to be
suspended or (iii) the Effectiveness Period expires.
Whenever in this Security there is a reference, in any context,
to the payment of the principal of, premium, if any, or interest on, or
in respect of, any Security, such mention shall be deemed to include
mention of the payment of Liquidated Damages payable as described
in the preceding paragraph to the extent that, in such context,
Liquidated Damages are, were or would be payable in respect of such
Security and express mention of the payment of Liquidated Damages
(if applicable) in any provisions of this Security shall not be construed
as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
[If this Security is a Registrable Security and the Holder of
this Security [if this Security is a Global Security, then insert--
(including any Person that has a beneficial interest in this Security)]
elects to sell this Security pursuant to the Shelf Registration
Statement then, by its acceptance hereof, such Holder of this Security
agrees to be bound by the terms of the Registration Rights Agreement
relating to the Registrable Securities which are the subject of such
election.]
If a Change in Control occurs, the Holder of this Security, at
the Holder's option, shall have the right, in accordance with the
provisions of the Indenture, to require the Company to repurchase this
Security (or any portion of the principal amount hereof that is an
integral multiple of $1,000, provided that the portion of the principal
amount of this Security to be Outstanding after such repurchase is at
least equal to U.S.$1,000) for cash at a Repurchase Price equal to
100% of the principal amount thereof plus interest accrued to the
Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, subject to the conditions provided in the
Indenture, by delivery of shares of Common Stock having a fair
market value equal to the Repurchase Price. For purposes of this
paragraph, the fair market value of shares of Common Stock shall be
determined by the Company and shall be equal to 95% of the average
of the Closing Prices Per Share for the five consecutive Trading Days
immediately preceding the second Trading Day prior to the
Repurchase Date. Whenever in this Security there is a reference, in
any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Repurchase
Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and
express mention of the Repurchase Price in any provision of this
Security shall not be construed as excluding the Repurchase Price so
payable in those provisions of this Security when such express
mention is not made; provided, however, that, for the purposes of the
second succeeding paragraph, such reference shall be deemed to
include reference to the Repurchase Price only to the extent the
Repurchase Price is payable in cash.
[The following paragraph shall appear in each Registered
Security that is not a Global Security:
In the event of redemption, repurchase or conversion of this
Security in part only, a new Registered Security or Registered
Securities for the unredeemed, unrepurchased or unconverted portion
hereof will be issued in the name of the Holder hereof.]
[The following paragraph shall appear in each Global
Security:
In the event of a deposit or withdrawal of an interest in this
Security, including an exchange, transfer, redemption, repurchase or
conversion of this Security in part only, the Trustee, as custodian of
the Depositary, shall make an adjustment on its records to reflect such
deposit or withdrawal in accordance with the Applicable Procedures.]
The indebtedness evidenced by this Security is, to the extent
and in the manner provided in the Indenture, subordinate and subject
in right of payment to the prior payment in full of all Senior
Indebtedness of the Company, and this Security is issued subject to
such provisions of the Indenture with respect thereto. Each Holder of
this Security, 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
effectuate the subordination so provided 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 all the Securities, together with accrued interest to the
date of declaration, may be declared due and payable in the manner
and with the effect provided in the Indenture. Upon payment (i) of
the amount of principal so declared due and payable, together with
accrued interest to the date of declaration, and (ii) of interest on any
overdue principal and, to the extent permitted by applicable law,
overdue interest, all of the Company's obligations in respect of the
payment of the principal of and interest on the Securities shall
terminate.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the
Securities under the Indenture at any time by the Company and the
Trustee with either (a) the written consent of the Holders of a
majority in principal amount of the Securities at the time Outstanding,
or (b) by the adoption of a resolution, at a meeting of Holders of the
Outstanding Securities at which a quorum is present, by the lesser of
(i) the Holders of not less than a majority in principal amount of
Outstanding Securities and (ii) the Holders of 66-2/3% in principal
amount of the Outstanding Securities represented and entitled to vote
at such meeting. The Indenture also contains provisions permitting
the Holders of specified percentages in principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all the
Securities, 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 Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any
Security issued in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security or such
other Security.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any
proceeding with respect to the Indenture or for the appointment of a
receiver or trustee or for any other remedy thereunder, unless such
Holder shall have previously given the Trustee written notice of a
continuing Event of Default, the Holders of not less than 25% in
principal amount of the Outstanding Securities shall have made
written request to the Trustee to institute proceedings in respect of
such Event of Default as Trustee and offered the Trustee reasonable
indemnity and the Trustee shall not have received from the Holders of
a majority in principal amount of the Securities Outstanding a
direction inconsistent with such request, and shall have failed to
institute any such proceeding, for 60 days after receipt of such notice,
request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of
any payment of principal hereof, premium, if any, or interest
(including Liquidated Damages) or additional interest hereon on or
after the respective due dates expressed herein or for the enforcement
of the right to convert this Security as provided in the Indenture.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal
of, premium, if any, and interest (including Liquidated Damages) and
additional interest on this Security at the times, places and rate, and in
the coin or currency, herein prescribed or to convert this Security as
provided in the Indenture.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of Registered Securities is
registrable on the Security Register upon surrender of a Registered
Security for registration of transfer at the Corporate Trust Office of
the Trustee or at such other office or agency of the Company as may
be designated by it for such purpose in the Borough of Manhattan,
The City of New York (which shall initially be an office or agency of
the Trustee), or at such other offices or agencies as the Company may
designate, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing, and thereupon one or more new Registered
Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or
transferees by the Registrar. 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 recover any tax or other
governmental charge payable in connection therewith.
Prior to due presentation of a Registered Security for
registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name such
Registered Security is registered, as the owner thereof for all
purposes, whether or not such Security be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice
to the contrary.
No recourse for the payment of the principal (and premium, if
any) or interest on this Security and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture or
any indenture supplemental thereto or in any Security, or because of
the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer or
director or subsidiary, as such, past, present or future, of the
Company or of any successor corporation, either directly or through
the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of consideration for the issue hereof,
expressly waived and released.
The Indenture and this Security shall be governed by and
construed in accordance with the laws of the State of New York,
United States of America.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
ABBREVIATIONS
The following abbreviations, when used in the inscription of
the face of this Security, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties
(Cust)
JT TEN - as joint tenants with right of Custodian ____ under Uniform
survivorship and not as tenants (Minor)
in common Gifts to Minors Act ________
(State)
Additional abbreviations may also be used though not in the above list.
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(1) Pursuant to Section 14.1 of the Indenture, the
undersigned hereby elects to have this Security repurchased by the
Company.
(2) The undersigned hereby directs the Trustee or the
Company to pay it or __________________ an amount in cash or, at
the Company's election, Common Stock valued as set forth in the
Indenture, equal to 100% of the principal amount to be repurchased
(as set forth below), plus interest accrued to the Repurchase Date, as
provided in the Indenture.
Dated:
Signature(s)
Signature(s) must
be guaranteed by an
Eligible Guarantor
Institution with
membership in an
approved signature
guarantee program
pursuant to Rule
17Ad-15 under the
Securities Exchange
Act of 1943.
Signature
Guaranteed
Principal amount to be repurchased
(an integral multiple of U.S. $1,000):
Remaining principal amount following such repurchase
(not less than U.S. $1,000):
NOTICE: The signature to the foregoing Election must correspond to
the Name as written upon the face of this Security in every particular,
without alteration or any change whatsoever.
SECTION II.3 Form of Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities referred to in the within-
mentioned Indenture.
STATE STREET
BANK AND TRUST COMPANY
as Trustee
By:
Authorized
Signatory
SECTION II.4 Form of Conversion Notice.
CONVERSION NOTICE
The undersigned Holder of this Security hereby irrevocably
exercises the option to convert this Security, or any portion of the
principal amount hereof (which is an integral multiple of U.S. $1,000,
provided that the unconverted portion of such principal amount is
U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof)
below designated, into shares of Common Stock in accordance with
the terms of the Indenture referred to in this Security, and directs that
such shares, together with a check in payment for any fractional share
and any Securities representing any unconverted principal amount
hereof, be delivered to and be registered in the name of the
undersigned unless a different name has been indicated below. If
shares of Common Stock or Securities are to be registered in the
name of a Person other than the undersigned, (a) the undersigned will
pay all transfer taxes payable with respect thereto and (b) signature(s)
must be guaranteed by an Eligible Guarantor Institution with
membership in an approved signature guarantee program pursuant to
Rule 17Ad-15 under the Securities Exchange Act of 1934. Any
amount required to be paid by the undersigned on account of interest
accompanies this Security.
Dated:
Signature(s)
If shares or
Registered
Securities
are to be
registered
in the
name of a
Person
other than
the Holder,
please print
such
Person's
name and
address:
Name
Address
Social
Security or
other
Taxpayer
Identificati
on
Number, if
any
If only a
portion of
the
Securities
is to be
converted,
please
indicate:
1.
Principal amount to be converted:
U.S. $___________
2.
Principal amount and denomination of Registered Securities
representing unconverted principal amount to be issued:
Amount: U.S. $
Denominat
ions:
U.S. $
(any
integral
multiple of
U.S.
$1,000,
provided
that the
unconverte
d portion
of such
principal
amount is
U.S.
$1,000 or
any
integral
multiple of
U.S.
$1,000 in
excess
thereof)
[Signature Guaranteed]
SECTION 2.5 Form of Assignment.
For value received
hereby sell(s), assign(s) and transfer(s) unto
(Please insert social security or
other identifying number of assignee) the within Security, and hereby
irrevocably constitutes and appoints
as attorney to transfer the said Security on the books of the
Company, with full power of substitution in the premises.
Dated:
Signature(s)
Signature(s)
must be
guaranteed
by an
Eligible
Guarantor
Institution
with
membership
in an
approved
signature
guarantee
program
pursuant to
Rule 17Ad-
15 under
the
Securities
Exchange
Act of
1934.
ARTICLE III
THE SECURITIES
SECTION III.1 Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to U.S.
$300,000,000, except for Securities authenticated and delivered in
exchange for, or in lieu of, other Securities pursuant to Section 3.4,
3.5, 3.6, 8.5, 11.8, 12.2 or 14.3(6).
The Securities shall be known and designated as the "6%
Convertible Subordinated Notes due December 15, 2003" of the
Company. Their Stated Maturity shall be December 15, 2003 and
they shall bear interest on their principal amount from December 18,
1996, payable semi-annually in arrears on June 15 and December 15
in each year, commencing June 15, 1997, at the rate of 6% per annum
until the principal thereof is due and at the rate of 6% per annum on
any overdue principal and, to the extent permitted by law, on any
overdue interest; provided, however, that payments shall only be
made on a Business Day as provided in Section 1.12.
The principal of, premium, if any, and interest on the
Securities shall be payable as provided in the form of Securities set
forth in Section 2.2, and the Repurchase Price, whether payable in
cash or in shares of Common Stock, shall be payable at such places as
are identified in the Company Notice given pursuant to Section 14.3
(any city in which any Paying Agent is located being herein called a
"Place of Payment").
The Registrable Securities are entitled to the benefits of a
Registration Rights Agreement as provided by Sections 2.2 and
10.12. The Securities are entitled to the payment of Liquidated
Damages and additional interest as provided by Section 10.12.
The Securities shall be redeemable at the option of the
Company at any time on or after December 16, 1999, in whole or in
part, as provided in Article XI and in the form of Securities set forth
in Section 2.2.
The Securities shall be convertible as provided in Article XII
(any city in which any Conversion Agent is located being herein
called a "Place of Conversion").
The Securities shall be subordinated in right of payment to
Senior Indebtedness of the Company as provided in Article XIII.
The Securities shall be subject to repurchase by the Company
at the option of the Holders as provided in Article XIV.
SECTION III.2 Denominations.
The Securities shall be issuable only in registered form,
without coupons, in denominations of U.S. $1,000 and integral
multiples of U.S. $1,000 in excess thereof.
SECTION III.3 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company
by its Chairman of the Board, its Vice Chairman of the Board, its
Chief Executive Officer, its President or one of its Vice Presidents,
under a facsimile of its corporate seal reproduced thereon attested by
its Chief Financial Officer, Secretary or one of its Assistant
Secretaries. Any such signature may be manual or facsimile.
Securities bearing the manual or facsimile signature of
individuals who were at any time the proper officers of the Company
shall bind the Company, notwithstanding that such individuals or any
of them have ceased to hold such offices prior to the authentication
and delivery of such Securities or did not hold such offices at the date
of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities
executed by the Company to the Trustee or to its order for
authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with
such Company Order shall authenticate and make available for
delivery such Securities as in this Indenture provided and not
otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there
appears on such Security a certificate of authentication substantially
in the form provided for herein executed by the Trustee by manual
signature of an authorized signatory, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that
such Security has been duly authenticated and delivered hereunder.
SECTION III.4 Global Securities; Non-Global Securities.
(1) Global Securities
(i) Each Global Security authenticated under this
Indenture shall be registered in the name of the Depositary designated
by the Company for such Global Security or a nominee thereof and
delivered to such Depositary or a nominee thereof or custodian
therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(ii) Subject to the provisions of Sections 3.4 and
3.5, no Global Security may be exchanged in whole or in part for
Securities registered, and no transfer of a Global Security in whole or
in part may be registered, in the name of any Person other than the
Depositary for such Global Security or a nominee thereof unless
(A) such Depositary (i) has notified the Company that it is unwilling
or unable to continue as Depositary for such Global Security or
(ii) has ceased to be a clearing agency registered as such under the
Exchange Act or announces an intention permanently to cease
business or does in fact do so or (B) there shall have occurred and be
continuing an Event of Default with respect to such Global Security.
(iii) If any Global Security is to be exchanged for
other Securities or canceled in whole, it shall be surrendered by or on
behalf of the Depositary or its nominee to the Trustee, as Security
Registrar, for exchange or cancellation, as provided in this Article III.
If any Global Security is to be exchanged for other Securities or
canceled in part, or if another Security is to be exchanged in whole or
in part for a beneficial interest in any Global Security, in each case, as
provided in Section 3.5, then either (A) such Global Security shall be
so surrendered for exchange or cancellation, as provided in this
Article III, or (B) the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the principal amount of such other
Security to be so exchanged for a beneficial interest therein, as the
case may be, by means of an appropriate adjustment made on the
records of the Trustee, as Security Registrar, whereupon the Trustee,
in accordance with the Applicable Procedures, shall instruct the
Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a
Global Security, the Trustee shall, subject to Section 3.5(3) and as
otherwise provided in this Article III, authenticate and deliver any
Securities issuable in exchange for such Global Security (or any
portion thereof) to or upon the order of, and registered in such names
as may be directed by, the Depositary or its authorized representative.
Upon the request of the Trustee in connection with the occurrence of
any of the events specified in the preceding paragraph, the Company
shall promptly make available to the Trustee a reasonable supply of
Securities that are not in the form of Global Securities. The Trustee
shall be entitled to rely upon any order, direction or request of the
Depositary or its authorized representative which is given or made
pursuant to this Article III if such order, direction or request is given
or made in accordance with the Applicable Procedures.
(iv) Every Security authenticated and delivered
upon registration of transfer of, or in exchange for or in lieu of, a
Global Security or any portion thereof, whether pursuant to this
Article III or otherwise, shall be authenticated and delivered in the
form of, and shall be, a registered Global Security, unless such
Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof, in which
case such Registered Security shall be authenticated and delivered in
definitive, fully registered form, without interest coupons.
(v) The Depositary or its nominee, as registered
owner of a Global Security, shall be the Holder of such Global
Security for all purposes under the Indenture and the Registered
Securities, and owners of beneficial interests in a Global Security
shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security
will be shown only on, and the transfer of such interest shall be
effected only through, records maintained by the Depositary or its
nominee or its Agent Members and such owners of beneficial
interests in a Global Security will not be considered the owners or
holders thereof.
(2) Non-Global Securities
Regulation D Securities shall be initially issued as Registered
Securities in definitive, fully registered form, without interest
coupons, shall initially be registered in such names and be in such
authorized denominations as the Initial Purchasers shall designate and
shall bear the legends required hereunder. The Company will make
available to the Trustee a reasonable supply of Registered Securities
in definitive form.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate
and make available for delivery, temporary Securities which are
printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor
of the definitive Registered Securities in lieu of which they are issued
and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Registered Securities
may determine, as evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After
the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the
temporary Securities at any office or agency of the Company
designated pursuant to Section 10.2, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor a
like principal amount of definitive Securities of authorized
denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as
definitive Securities.
SECTION III.5 Registration, Registration of Transfer and Exchange;
Restrictions on Transfer.
(1) The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register (the register maintained in such
office referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide
for the registration of Registered Securities and of transfers of
Registered Securities. The Trustee is hereby appointed "Security
Registrar" for the purpose of registering Registered Securities and
transfers and exchanges of Registered Securities as herein provided.
Upon surrender for registration of transfer of any Security at
an office or agency of the Company designated pursuant to Section
10.2 for such purpose, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any
authorized denominations and of a like aggregate principal amount
and bearing such restrictive legends as may be required by this
Indenture.
At the option of the Holder, and subject to the other
provisions of this Section 3.5, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at
any such office or agency. Whenever any Securities are so
surrendered for exchange, and subject to the other provisions of this
Section 3.5, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the
exchange is entitled to receive. Every Security presented or
surrendered for registration of transfer or for exchange shall (if so
required by the Company or the Security Registrar) be duly endorsed,
or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed,
by the Holder thereof or his attorney duly authorized in writing.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company,
evidencing the same debt, and subject to the other provisions of this
Section 3.5, entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
No service charge shall be made to a Holder for any
registration of transfer or exchange of Securities except as provided in
Section 3.6, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange
of Securities, other than exchanges pursuant to Section 3.4, 8.5, 11.8,
12.2 or 14.3 (other than where the shares of Common Stock are to be
issued or delivered in a name other than that of the Holder of the
Security) not involving any transfer and other than any stamp and
other duties, if any, which may be imposed in connection with any
such transfer or exchange by the United States or any political
subdivision thereof or therein, which shall be paid by the Company.
In the event of a redemption of the Securities, the Company
will not be required (a) to register the transfer of or exchange
Securities for a period of 15 days immediately preceding the date
notice is given identifying the serial numbers of the Securities called
for such redemption or (b) to register the transfer of or exchange any
Security, or portion thereof, called for redemption.
(2) Certain Transfers and Exchanges. Notwithstanding
any other provision of this Indenture or the Securities, transfers and
exchanges of Securities and beneficial interests in a Global Security
of the kinds specified in this Section 3.5(2) shall be made only in
accordance with this Section 3.5(2).
(i) Restricted Global Security to Regulation S
Global Security. If the owner of a beneficial interest in the Restricted
Global Security wishes at any time to transfer such interest to a
Person who wishes to acquire the same in the form of a beneficial
interest in the Regulation S Global Security, such transfer may be
effected only in accordance with the provisions of this Clause (2)(i)
and Clause (2)(v) below and subject to the Applicable Procedures.
Upon receipt by the Trustee, as Security Registrar, of (A) an order
given by the Depositary or its authorized representative directing that
a beneficial interest in the Regulation S Global Security in a specified
principal amount be credited to a specified Agent Member's account
and that a beneficial interest in the Restricted Global Security in an
equal principal amount be debited from another specified Agent
Member's account and (B) a Regulation S Certificate, satisfactory to
the Trustee and duly executed by the owner of such beneficial interest
in the Restricted Global Security or his attorney duly authorized in
writing, then the Trustee, as Security Registrar but subject to Clause
(2)(v) below, shall reduce the principal amount of the Restricted
Global Security and increase the principal amount of the Regulation S
Global Security by such specified principal amount as provided in
Section 3.4(1)(iii).
(ii) Regulation S Global Security to Restricted
Global Security. If the owner of a beneficial interest in the
Regulation S Global Security wishes at any time to transfer such
interest to a Person who wishes to acquire the same in the form of a
beneficial interest in the Restricted Global Security, such transfer may
be effected only in accordance with this Clause (2)(ii) and subject to
the Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) an order given by the Depositary or its authorized
representative directing that a beneficial interest in the Restricted
Global Security in a specified principal amount be credited to a
specified Agent Member's account and that a beneficial interest in the
Regulation S Global Security in an equal principal amount be debited
from another specified Agent Member's account and (B) if such
transfer is to occur during the Restricted Period, a Restricted
Securities Certificate, satisfactory to the Trustee and duly executed by
the owner of such beneficial interest in the Regulation S Global
Security or his attorney duly authorized in writing, then the Trustee,
as Security Registrar, shall reduce the principal amount of the
Regulation S Global Security and increase the principal amount of the
Restricted Global Security by such specified principal amount as
provided in Section 3.4(1)(iii).
(iii) Restricted Non-Global Security to Restricted
Global Security or Regulation S Global Security. If the Holder of a
Restricted Security (other than a Global Security) wishes at any time
to transfer all or any portion of such Restricted Security to a Person
who wishes to take delivery thereof in the form of a beneficial interest
in the Restricted Global Security or the Regulation S Global Security,
such transfer may be effected only in accordance with the provisions
of this Clause (2)(iii) and Clause (2)(v) below and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) such Restricted Security as provided in
Section 3.5(1) and instructions satisfactory to the Trustee directing
that a beneficial interest in the Restricted Global Security or
Regulation S Global Security in a specified principal amount not
greater than the principal amount of such Security be credited to a
specified Agent Member's account and (B) a Restricted Securities
Certificate, if the specified account is to be credited with a beneficial
interest in the Restricted Global Security, or a Regulation S
Certificate, if the specified account is to be credited with a beneficial
interest in the Regulation S Global Security, in either case satisfactory
to the Trustee and duly executed by such Holder or his attorney duly
authorized in writing, then the Trustee, as Security Registrar but
subject to Clause (2)(v) below, shall cancel such Restricted Security
(and issue a new Restricted Security in respect of any untransferred
portion thereof) as provided in Section 3.5(1) and increase the
principal amount of the Restricted Global Security or the Regulation
S Global Security, as the case may be, by the specified principal
amount as provided in Section 3.4(1)(iii).
(iv) Exchanges between Global Security and Non-
Global Security. A beneficial interest in a Global Security may be
exchanged for a Security that is not a Global Security as provided in
Section 3.4, provided that, if such interest is a beneficial interest in
the Restricted Global Security, or if such interest is a beneficial
interest in the Regulation S Global Security and such exchange is to
occur during the Restricted Period, then such interest shall be
exchanged for a Restricted Security (subject in each case to Section
3.5(3)). A Security that is not a Global Security may be exchanged
for a beneficial interest in a Global Security only if such exchange
occurs in connection with a transfer effected in accordance with
Clause (2)(iii) above.
(v) Regulation S Global Security to be Held
Through Euroclear or CEDEL during Restricted Period. The
Company shall use its best efforts to cause the Depositary to ensure
that, until the expiration of the Restricted Period, beneficial interests
in the Regulation S Global Security may be held only in or through
accounts maintained at the Depositary by Euroclear or CEDEL (or by
Agent Members acting for the account thereof), and no person shall
be entitled to effect any transfer or exchange that would result in any
such interest being held otherwise than in or through such an account;
provided that this Clause (2)(v) shall not prohibit any transfer or
exchange of such an interest in accordance with Clause (2)(ii) or (iv)
above.
(3) Securities Act Legends. Rule 144A Securities,
Regulation D Securities and their respective Successor Securities
shall bear the applicable Restricted Securities Legend, and the
Regulation S Securities and their Successor Securities shall bear a
Regulation S Legend, subject to the following:
(i) subject to the following Clauses of this
Section 3.5(3), a Security or any portion thereof which is exchanged,
upon transfer or otherwise, for a Global Security or any portion
thereof shall bear the Securities Act Legend borne by such Global
Security while represented thereby;
(ii) subject to the following Clauses of this Section
3.5(3), a new Security which is not a Global Security and is issued in
exchange for another Security (including a Global Security) or any
portion thereof, upon transfer or otherwise, shall bear the Securities
Act Legend borne by such other Security, provided that, if such new
Security is required pursuant to Section 3.5(2)(iv) to be issued in the
form of a Restricted Security, it shall bear a Restricted Securities
Legend and, if such new Security is so required to be issued in the
form of a Regulation S Security, it shall bear a Regulation S Legend;
(iii) any Securities which are sold or otherwise
disposed of pursuant to an effective registration statement under the
Securities Act (including the Shelf Registration Statement), together
with their Successor Securities shall not bear a Securities Act Legend;
the Company shall inform the Trustee in writing of the effective date
of any such registration statement registering the Securities under the
Securities Act and shall notify the Trustee at any time when
prospectuses need not be delivered with respect to Securities to be
sold pursuant to such registration statement. The Trustee shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the aforementioned registration statement;
(iv) at any time after the Securities may be freely
transferred without registration under the Securities Act or without
being subject to transfer restrictions pursuant to the Securities Act, a
new Security which does not bear a Securities Act Legend may be
issued in exchange for or in lieu of a Security (other than a Global
Security) or any portion thereof which bears such a legend if the
Trustee has received an Unrestricted Securities Certificate,
satisfactory to the Trustee and duly executed by the Holder of such
Security bearing a Securities Act Legend or his attorney duly
authorized in writing, and after such date and receipt of such
certificate, the Trustee shall authenticate and deliver such new
Security in exchange for or in lieu of such other Security as provided
in this Article III;
(v) a new Security which does not bear a Securities
Act Legend may be issued in exchange for or in lieu of a Security
(other than a Global Security) or any portion thereof which bears such
a legend if, in the Company's judgment, placing such a legend upon
such new Security is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at the
direction of the Company, shall authenticate and deliver such a new
Security as provided in this Article III; and
(vi) notwithstanding the foregoing provisions of this
Section 3.5(3), a Successor Security of a Security that does not bear a
particular form of Securities Act Legend shall not bear such form of
legend unless the Company has reasonable cause to believe that such
Successor Security is a "restricted security" within the meaning of
Rule 144, in which case the Trustee, at the direction of the Company,
shall authenticate and deliver a new Security bearing a Restricted
Securities Legend in exchange for such Successor Security as
provided in this Article III.
(4) Neither the Trustee, the Paying Agent nor any of
their agents shall (i) have any duty to monitor compliance with or
with respect to any federal or state or other securities or tax laws or
(ii) have any duty to obtain documentation on any transfers or
exchanges other than as specifically required hereunder.
SECTION III.6 Mutilated, Destroyed, Lost or Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
If there be delivered to the Company and to the Trustee:
(1) evidence to their satisfaction of the destruction, loss
or theft of any Security, and
(2) such security or indemnity as may be satisfactory to
the Company and the Trustee to save each of them and any agent of
either of them harmless, then, in the absence of actual notice to the
Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in
its discretion, but subject to any conversion rights, may, instead of
issuing a new Security, pay such Security, upon satisfaction of the
conditions set forth in the preceding paragraph.
Upon the issuance of any new Security under this Section
3.6, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
relation thereto (other than any stamp and other duties, if any, which
may be imposed in connection therewith by the United States or any
political subdivision thereof or therein, which shall be paid by the
Company) and any other expenses (including the fees and expenses
of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 3.6 in lieu
of any mutilated, destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Company, whether or
not the mutilated, destroyed, lost or stolen Security shall be at any
time enforceable by anyone, and such new Security shall be entitled
to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section 3.6 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies of any
Holder with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities.
SECTION III.7 Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue
of having been such Holder, and such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in Clause (1)
or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security, the date of the proposed
payment and the Special Record Date, and at the same time the
Company shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this Clause provided.
The Special Record Date for the payment of such Defaulted Interest
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at such Holder's address as it appears in the Security
Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may
be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this Clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and
Section 3.5, each Security delivered under this Indenture upon
registration of transfer of or in exchange for or in lieu of any other
Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
Interest on any Security which is converted in accordance
with Section 12.2 during a Record Date Period shall be payable in
accordance with the provisions of Section 12.2.
SECTION III.8 Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or
the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving
payment of principal of, premium, if any, and (subject to Section 3.7)
interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION III.9 Cancellation.
All Securities surrendered for payment, redemption,
repurchase, registration of transfer or exchange or conversion shall, if
surrendered to any Person other than the Trustee, be delivered to the
Trustee. All Securities so delivered to the Trustee shall be canceled
promptly by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this
Section 3.9. The Trustee shall dispose of all canceled Securities in
accordance with applicable law and its customary practices in effect
from time to time.
SECTION III.10 Computation of Interest.
Interest on the Securities (including any Liquidated Damages
and additional interest) shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION III.11 [Reserved].
SECTION III.12 CUSIP Numbers.
The Company in issuing Securities may use "CUSIP"
numbers (if then generally in use) in addition to serial numbers, if so,
the Trustee shall use such CUSIP numbers in addition to serial
numbers in notices of redemption and repurchase as a convenience to
Holders; provided that any such notice may state that no
representation is made as to the correctness of such CUSIP numbers
either as printed on the Securities or as contained in any notice of a
redemption or repurchase and that reliance may be placed only on the
serial or other identification numbers printed on the Securities, and
any such redemption or repurchase shall not be affected by any defect
in or omission of such CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION IV.1 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of
further effect (except as to any surviving rights of conversion, or
registration of transfer or exchange, or replacement of Securities
herein expressly provided for and any right to receive Liquidated
Damages as provided in the form of Securities set forth in Section 2.2
and the Company's obligations to the Trustee pursuant to Section
6.7), and the Trustee, at the expense of the Company, shall execute
proper instruments in form and substance satisfactory to the Trustee
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(i) all Securities theretofore authenticated and
delivered (other than (A) Securities which have been destroyed, lost
or stolen and which have been replaced or paid as provided in Section
3.6 and (B) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 10.3) have been delivered to the Trustee for
cancellation; or
(ii) all such Securities not theretofore delivered to
the Trustee or its agent for cancellation (other than Securities referred
to in clauses (A) and (B) of clause (1)(i) above)
(a) have become due and payable, or
(b) will have become due and payable at their
Stated Maturity within one year, or
(c) are to be called for redemption within one
year under arrangements satisfactory
to the Trustee for the giving of
notice of redemption by the Trustee
in the name, and at the expense, of
the Company,
and the Company, in the case of clause (a), (b) or (c) above, has
deposited or caused to be deposited with the Trustee as trust funds
(immediately available to the Holders in the case of clause (a)) in trust
for the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal, premium, if any, and interest
(including any Liquidated Damages) to the date of such deposit (in
the case of Securities which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(iii) the Company has paid or caused to be paid all
other sums payable hereunder by the Company; and
(iv) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under
Section 6.7, the obligations of the Company to any Authenticating
Agent under Section 6.12, the obligation of the Company to pay
Liquidated Damages, if money shall have been deposited with the
Trustee pursuant to clause (1)(ii) of this Section 4.1, the obligations
of the Trustee under Section 4.2 and the last paragraph of Section
10.3 and the obligations of the Company and the Trustee under
Section 3.5 and Article XII shall survive. Funds held in trust
pursuant to this Section are not subject to the provisions of Article
XIII.
SECTION IV.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section
10.3, all money deposited with the Trustee pursuant to Section 4.1
and in accordance with the provisions of Article XIII shall be held in
trust for the sole benefit of the Holders and not be subject to the
subordination provisions of Article XIII, and such monies shall be
applied by the Trustee, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or
through any Paying Agent, to the Persons entitled thereto, of the
principal, premium, if any, and interest for whose payment such
money has been deposited with the Trustee.
All moneys deposited with the Trustee pursuant to Section
4.1 (and held by it or any Paying Agent) for the payment of Securities
subsequently converted shall be returned to the Company upon
Company Request.
ARTICLE V
REMEDIES
SECTION V.1 Events of Default.
"Event of Default", wherever used herein, means any one of
the following events (whatever the reason for such Event of Default
and whether it shall be occasioned by the provisions of Article XIII or
be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(1) default in the payment of the principal of or
premium, if any, on any Security at its Maturity; or
(2) default in the payment of any interest (including any
Liquidated Damages) upon any Security when it becomes due and
payable, and continuance of such default for a period of 30 days; or
(3) failure by the Company to give the Company notice
in accordance with Section 14.3; or
(4) default in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other than a
covenant or warranty a default in the performance or breach of which
is specifically dealt with elsewhere in this Section), and continuance
of such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; provided,
however, that if such default or breach is capable of being cured and
the Company commences efforts to cure such default or breach within
such 60 day period, such default or breach shall not be considered an
"Event of Default" hereunder for an additional 60 days so long as the
Company is diligently pursuing the cure; or
(5) any indebtedness under any bond, debenture, note or
other evidence of indebtedness for money borrowed by the Company
or under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company (an "Instrument")
with a principal amount then outstanding in excess of U.S.
$20,000,000, whether such indebtedness now exists or shall hereafter
be created, is not paid at final maturity of any Instrument (either at its
stated maturity or upon acceleration thereof), and such indebtedness
is not discharged, or such acceleration is not rescinded or annulled,
within a period of 30 days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying such
default and requiring the Company to cause such indebtedness to be
discharged or cause such default to be cured or waived or such
acceleration to be rescinded or annulled and stating that such notice is
a "Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Company
in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or
(B) a decree or order adjudging the Company a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the
Company under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60
consecutive days; or
(7) the commencement by the Company of a voluntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent
by it to the entry of a decree or order for relief in respect of the
Company in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing by it of a petition or answer
or consent seeking reorganization or similar relief under any
applicable Federal or State law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action
by the Company in furtherance of any such action.
SECTION V.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default
specified in Section 5.1(6) or 5.1(7)) occurs and is continuing, then in
every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities may, subject to the
provisions of Article XIII, declare the principal of all the Securities to
be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the Holders), and upon any
such declaration such principal and all accrued interest thereon shall
become immediately due and payable. If an Event of Default
specified in Section 5.1(6) or 5.1(7) occurs, the principal of, and
accrued interest on, all the Securities shall, subject to the provisions
of Article XIII, ipso facto become immediately due and payable
without any declaration or other Act of the Holder or any act on the
part of the Trustee.
At any time after such declaration of acceleration has been
made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article V
provided, the Holders of a majority in principal amount of the
Outstanding Securities, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences
if
(1) the Company has paid or deposited with the Trustee
a sum sufficient to pay
(i) all overdue interest on all Securities,
(ii) the principal of and premium, if any, on any
Securities which have become due otherwise than by such declaration
of acceleration and any interest thereon at the rate borne by the
Securities,
(iii) to the extent permitted by applicable law,
interest upon overdue interest at a rate of 6% per annum, and
(iv) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the nonpayment of
the principal of, and any premium and interest on, Securities which
have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 5.13.
No rescission or annulment referred to above shall affect any
subsequent default or impair any right consequent thereon.
SECTION V.3 Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest
(including any Liquidated Damages) on any Security when it
becomes due and payable and such default continues for a period of
30 days, or
(2) default is made in the payment of the principal of or
premium, if any, on any Security at the Maturity thereof,
the Company will, upon demand of the Trustee but subject to the
provisions of Article XIII pay to it, for the benefit of the Holders of
such Securities the whole amount then due and payable on such
Securities for principal and interest (including any Liquidated
Damages) and interest on any overdue principal and premium, if any,
and, to the extent permitted by applicable law, on any overdue
interest (including any Liquidated Damages), at a rate of 6% per
annum, and in addition thereto, such further amount as shall be
sufficient to cover the reasonable costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an
express trust, may institute a judicial proceeding for the collection of
the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same against the
Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the
rights of the Holders of Securities by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of
any power granted herein, or to enforce any other proper remedy.
SECTION V.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Company or
any other obligor upon the Securities or the property of the Company
or of such other obligor or the creditors of either, the Trustee
(irrespective of whether the principal of, and any interest on, the
Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall
have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect
of the Securities and take such other actions, including participating
as a member, voting or otherwise, of any official committee of
creditors appointed in such matter, and to file such other papers or
documents, in each of the foregoing cases, as may be necessary or
advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders of
Securities allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claim and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby
authorized by each Holder of Securities to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making
of such payments directly to the Holders of Securities to pay to the
Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel and any other amounts due the Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Holder of a Security any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any
Holder thereof or to authorize the Trustee to vote in respect of the
claim of any Holder of a Security in any such proceeding; provided,
however, that the Trustee may, on behalf of such Holders, vote for the
election of a trustee in bankruptcy or similar official.
SECTION V.5 Trustee May Enforce Claims Without Possession of
Securities
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, be for the ratable
benefit of the Holders of the Securities in respect of which judgment
has been recovered.
SECTION V.6 Application of Money Collected.
Subject to Article XIII, any money collected by the Trustee
pursuant to this Article V shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution
of such money on account of principal, premium, if any, or interest,
upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully
paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.7;
SECOND: To the payment of the amounts then due and
unpaid for principal of, premium, if any, or interest on, the
Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and
payable on such Securities for principal, premium, if any, and
interest, respectively; and
THIRD: Any remaining amounts shall be repaid to the
Company.
SECTION V.7 Limitation on Suits.
No Holder of any Security shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount
of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the
Holders of a majority in principal amount of the Outstanding
Securities;
it being understood and intended that no one or more of such Holders
shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other of such Holders, or to obtain or seek
to obtain priority or preference over any other of such Holders or to
enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all such Holders.
SECTION V.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert.
Notwithstanding any other provision in this Indenture, but
subject to the provisions of Article XIII, the Holder of any Security
shall have the right, which is absolute and unconditional, to receive
payment of the principal of, premium, if any, and (subject to Section
3.7) interest (including Liquidated Damages, if any) on such Security
on the respective Stated Maturities expressed in such Security (or, in
the case of redemption or repurchase, on the Redemption Date or
Repurchase Date, as the case may be), and to convert such Security in
accordance with Article XII, and to institute suit for the enforcement
of any such payment and right to convert, and such rights shall not be
impaired without the consent of such Holder.
SECTION V.9 Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security has instituted any
proceeding to enforce any right or remedy under this Indenture and
such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder,
then and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders of Securities
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and
such Holders shall continue as though no such proceeding had been
instituted.
SECTION V.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 3.6, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders of Securities is intended to
be exclusive of any other right or remedy, and every right and remedy
shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or
remedy.
SECTION V.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver
of any such Event of Default or any acquiescence therein. Every right
and remedy given by this Article V or by law to the Trustee or to the
Holders of Securities may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or (subject to the
limitations contained in this Indenture) by the Holders of Securities as
the case may be.
SECTION V.12 Control by Holders of Securities.
The Holders of a majority in principal amount of the
Outstanding Securities shall 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,
provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.
SECTION V.13 Waiver of Past Defaults.
The Holders, either (i) through the written consent of not less
than a majority in principal amount of the Outstanding Securities or
(ii) by the adoption of a resolution at a meeting of Holders of the
Outstanding Securities at which a quorum is present, by the lesser of
(i) the Holders of not less than a majority in principal amount of
Outstanding Securities and (ii) the Holders of at least 66-2/3% in
principal amount of the Outstanding Securities represented at such
meeting, may on behalf of the Holders of all the Securities waive any
past default hereunder and its consequences, except a default (A) in
the payment of the principal of, premium, if any, or interest on any
Security, or (B) in respect of a covenant or provision hereof which
under Article VIII cannot be modified or amended without the
consent of the Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other default or impair any right
consequent thereon.
SECTION V.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken, suffered or omitted by it
as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 5.14 shall not apply to any
suit instituted by the Company, to any suit instituted by the Trustee,
to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding
Securities, or to any suit instituted by any Holder of any Security for
the enforcement of the payment of the principal of, premium, if any,
or interest on any Security on or after the respective Stated Maturity
or Maturities expressed in such Security (or, in the case of redemption
or repurchase, on or after the Redemption Date or Repurchase Date,
as the case may be) or for the enforcement of the right to convert any
Security in accordance with Article XII.
SECTION V.15 Waiver of Stay, Usury or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, usury
or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede by reason of such
law the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no
such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION VI.1 Certain Duties and Responsibilities.
(1) Except during the continuance of an Event of
Default,
(i) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture, and
no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the
requirements of this Indenture, but not to verify the contents thereof.
(2) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(3) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(i) this paragraph (3) shall not be construed to limit
the effect of paragraph (1) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall
be proved that the Trustee was negligent in ascertaining the pertinent
facts;
(iii) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in principal
amount of the Outstanding Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and
(iv) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or
in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it.
(4) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
SECTION VI.2 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder
as to which the Trustee has received written notice, the Trustee shall
give to all Holders of Securities, in the manner provided in
Section 1.6, notice of such default, unless such default shall have
been cured or waived; provided, however, that, except in the case of a
default in the payment of the principal of, premium, if any, or interest
on any Security the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Responsible Officers of
the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders; and provided, further, that in
the case of any default of the character specified in Section 5.1(4), no
such notice to Holders of Securities shall be given until at least
60 days after the occurrence thereof or, if applicable, the cure period
specified therein. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
SECTION VI.3 Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(1) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, Officers' Certificate,
other certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, coupon,
other evidence of indebtedness or other paper or document believed
by it to be genuine and to have been signed or presented by the proper
party or parties;
(2) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or
Company Order and any resolution of the Board of Directors shall be
sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(4) the Trustee may consult with counsel of its selection
and the advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(5) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders of Securities pursuant to this
Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such
request or direction;
(6) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, coupon, other
evidence of indebtedness or other paper or document, but the Trustee
may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by
agent or attorney; and
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION VI.4 Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities (except the
Trustee's certificates of authentication) shall be taken as the
statements of the Company, and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the
validity or sufficiency of this Indenture, of the Securities or of the
Common Stock issuable upon the conversion of the Securities. The
Trustee shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION VI.5 May Hold Securities, Act as Trustee Under Other
Indentures.
The Trustee, any Authenticating Agent, any Paying Agent,
any Conversion Agent or any other agent of the Company or the
Trustee, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with the
Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Conversion Agent or such other
agent.
The Trustee may become and act as trustee under other
indentures under which other securities, or certificates of interest or
participation in other securities, of the Company are outstanding in
the same manner as if it were not Trustee hereunder.
SECTION VI.6 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law.
The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with
the Company.
SECTION VI.7 Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time
agree in writing for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee (and its directors, officers,
employees and agents) for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or
administration of this trust, including the reasonable costs, expenses
and reasonable attorneys' fees of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.1(6) or
Section 5.1(7), the expenses (including the reasonable charges of its
counsel) and the compensation for the services are intended to
constitute expenses of the administration under any applicable
Federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of
this Indenture or the earlier resignation or removal of the Trustee.
SECTION VI.8 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
a Person that is eligible pursuant to the Trust Indenture Act to act as
such, having a combined capital and surplus of at least U.S.
$50,000,000, subject to supervision or examination by federal or state
authority, and in good standing. The Trustee or an Affiliate of the
Trustee shall maintain an established place of business in the
Borough of Manhattan, The City of New York. If such corporation
publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any
time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article and a
successor shall be appointed pursuant to Section 6.9.
SECTION VI.9 Resignation and Removal; Appointment of
Successor.
(1) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee in accordance with the applicable requirements of
Section 6.10.
(2) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a
successor Trustee required by Section 6.10 shall not have been
delivered to the Trustee within 30 days after the giving of such notice
of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(3) The Trustee may be removed at any time by Act of
the Holders of a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and the Company. If the
instrument of acceptance by a successor Trustee required by Section
6.10 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of removal, the removed Trustee may
petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(4) If at any time:
(i) the Trustee shall cease to be eligible under
Section 6.8 and shall fail to resign after written request therefor by the
Company or by any Holder of a Security who has been a bona fide
Holder of a Security for at least six months, or
(ii) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the Trustee
or of its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case (i) the Company by a Board Resolution may
remove the Trustee, or (ii) subject to Section 5.14, any Holder of a
Security who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee
for any cause, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee and shall comply with the applicable
requirements of this Section and Section 6.10. If, within one year
after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of
such appointment in accordance with the applicable requirements of
Section 6.10, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee
shall have been so appointed by the Company or the Holders of
Securities and accepted appointment in the manner required by this
Section and Section 6.10, any Holder of a Security who has been a
bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(6) The Company shall give notice of each resignation
and each removal of the Trustee and each appointment of a successor
Trustee to all Holders of Securities in the manner provided in Section
1.6. Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office.
SECTION VI.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee
an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective
and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on the request of the Company
or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee
hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be eligible
under this Article.
SECTION VI.11 Merger, Conversion, Consolidation or
Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee
(including the trust created by this Indenture), shall be the successor
of the Trustee hereunder, provided such corporation shall be
otherwise eligible under this Article, without the execution or filing
of any paper or any further act on the part of any of the parties hereto.
In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated
such Securities.
SECTION VI.12 Authenticating Agents.
The Trustee may, with the consent of the Company, appoint
an Authenticating Agent or Agents acceptable to the Company with
respect to the Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities issued upon exchange or
substitution pursuant to this Indenture.
Securities authenticated by an Authenticating Agent shall be
entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee
hereunder, and every reference in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication shall be deemed to include authentication and delivery
on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be subject to
acceptance by the Company and shall at all times be a corporation
organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent and subject to
supervision or examination by government or other fiscal authority.
If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section 6.12, such
Authenticating Agent shall resign immediately in the manner and
with the effect specified in this Section 6.12.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to
which such Authenticating Agent shall be a party, or any corporation
succeeding to the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent,
provided such corporation shall be otherwise eligible under this
Section 6.12, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The
Trustee may at any time terminate the agency of an Authenticating
Agent by giving written notice thereof to such Authenticating Agent
and to the Company. Upon receiving such a notice of resignation or
upon such a termination, or in case at any time such Authenticating
Agent shall cease to be eligible in accordance with the provisions of
this Section 6.12, the Trustee may appoint a successor Authenticating
Agent which shall be subject to acceptance by the Company. Any
successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as
an Authenticating Agent. No successor Authenticating Agent shall
be appointed unless eligible under the provisions of this Section 6.12.
The Company agrees to pay to each Authenticating Agent
from time to time reasonable compensation for its services under this
Section 6.12.
If an Authenticating Agent is appointed with respect to the
Securities pursuant to this Section 6.12, the Securities may have
endorsed thereon, in addition to or in lieu of the Trustee's
certification of authentication, an alternative certificate of
authentication in the following form:
This is one of the Securities referred to in the within-
mentioned Indenture.
STATE STREET
BANK AND TRUST COMPANY,
as Trustee
By:
As
Authenticating Agent
By:
Authorized
Signatory
SECTION VI.13 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act
and this Indenture.
SECTION VI.14 Preferential Collection of Claims Against
Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Securities), the Trustee shall
be subject to the provisions of the Trust Indenture Act regarding the
collection of claims against the Company (or any such other obligor).
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR
LEASE
SECTION VII.1 Company May Consolidate, Etc., Only on
Certain Terms.
The Company shall not consolidate with or merge into any
other Person or convey, transfer or lease all its properties and assets
substantially as an entirety to any Person unless:
(1) in case the Company shall consolidate with or
merge into another Person or convey, transfer or lease its properties
and assets substantially as an entirety to any Person, the Person
formed by such consolidation or into which the Company is merged,
or the Person which acquires by conveyance or transfer, or which
leases the properties and assets of the Company substantially as an
entirety, shall be a corporation, limited liability company, partnership
or trust, shall be organized and validly existing under the laws of the
United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of,
premium, if any, and interest (including Liquidated Damages, if any)
on all of the Securities as applicable, and the performance or
observance of every covenant of this Indenture on the part of the
Company to be performed or observed and shall have provided for
conversion rights in accordance with Article XII;
(2) immediately after giving effect to such
transaction, no Event of Default, and no event that after notice or
lapse of time or both, would become an Event of Default, shall have
happened and be continuing; and
(3) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating to such
transaction have been complied with, together with any documents
required under Section 8.3.
SECTION VII.2 Successor Substituted.
Upon any consolidation of the Company with, or merger of
the Company into any other Person or any conveyance, transfer or
lease of all or substantially all the properties and assets of the
Company in accordance with Section 7.1, the successor Person
formed by such consolidation or into or with which the Company is
merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor Person shall
be relieved of all obligations and covenants under this Indenture and
the Securities.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION VIII.1 Supplemental Indentures Without Consent of
Holders of Securities.
Without the consent of any Holders of Securities the
Company, when authorized by a Board Resolution, and the Trustee,
at any time and from time to time, may enter into one or more
indentures supplemental hereto for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants
and obligations of the Company herein and in the Securities as
permitted by this Indenture; or
(2) to add to the covenants of the Company for the
benefit of the Holders of Securities or to surrender any right or power
herein conferred upon the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion
rights of Holders of Securities pursuant to Section 12.11 or to make
provision with respect to the repurchase rights of Holders of
Securities pursuant to Section 14.5; or
(5) to make any changes or modifications to this
Indenture necessary in connection with the registration of any
Registrable Securities under the Securities Act as contemplated by
Section 10.12, provided, such action pursuant to this clause (5) shall
not adversely affect the interests of the Holders of Securities; or
(6) to comply with the requirements of the Trust
Indenture Act or the rules and regulations of the Commission
thereunder in order to effect or maintain the qualification of this
Indenture under the Trust Indenture Act, as contemplated by this
Indenture or otherwise; or
(7) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee; or
(8) subject to Section 13.12, to make any change in
Article XIII that would limit or terminate the benefits available to any
holder of Senior Indebtedness under such Article; or
(9) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein or which is otherwise defective, or to make any other
provisions with respect to matters or questions arising under this
Indenture as the Company and the Trustee may deem necessary or
desirable, provided such action pursuant to this clause (9) shall not
adversely affect the interests of the Holders of Securities in any
material respect.
Upon Company Request, accompanied by a Board
Resolution authorizing the execution of any such supplemental
indenture, and subject to and upon receipt by the Trustee of the
documents described in Section 8.3 hereof, the Trustee shall join with
the Company in the execution of any supplemental indenture
authorized or permitted by the terms of this Indenture and to make
any further appropriate agreements and stipulations which may be
therein contained.
SECTION VIII.2 Supplemental Indentures with Consent of
Holders of Securities.
With either (i) the written consent of the Holders of not less
than a majority in principal amount of the Outstanding Securities, by
the Act of said Holders delivered to the Company and the Trustee, or
(ii) by the adoption of a resolution, at a meeting of Holders of the
Outstanding Securities at which a quorum is present, by the lesser of
(i) the Holders of not less than a majority in principal amount of the
Outstanding Securities and (ii) the Holders of 66-2/3% in principal
amount of the Outstanding Securities represented at such meeting, the
Company, when authorized by a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in
any manner the rights of the Holders of Securities under this
Indenture; provided, however, that no such supplemental indenture
shall, without the consent or affirmative vote of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount of, or the premium, if any, or the rate of interest payable
thereon (including Liquidated Damages), or reduce the amount
payable upon a redemption or mandatory repurchase, or change the
place or currency of payment of the principal of, premium, if any, or
interest on any Security (including any payment of Liquidated
Damages or Redemption Price or Repurchase Price in respect of such
Security) or impair the right to institute suit for the enforcement of
any payment in respect of any Security on or after the Stated Maturity
thereof (or, in the case of redemption or any repurchase, on or after
the Redemption Date or Repurchase Date, as the case may be) or,
except as permitted by Section 12.11, adversely affect the right to
convert any Security as provided in Article XII, or modify the
provisions of this Indenture with respect to the subordination of the
Securities in a manner adverse to the Holders; or
(2) reduce the requirements of Section 9.4 for quorum or
voting, or reduce the percentage in principal amount of the
Outstanding Securities the consent of whose Holders is required for
any such supplemental indenture or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture; or
(3) modify the obligation of the Company to maintain an
office or agency in the Borough of Manhattan, The City of New
York, pursuant to Section 10.2; or
(4) modify any of the provisions of this Section or
Section 5.13 or 10.13, except to increase any percentage contained
herein or therein or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Security affected thereby; or
(5) modify the provisions of Article XIV in a manner
adverse to the Holders; or
(6) modify any of the provisions of Section 10.10 in a
manner adverse to the Holders or Section 10.11.
It shall not be necessary for any Act of Holders of Securities
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act shall
approve the substance thereof.
SECTION VIII.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be
entitled to receive, and (subject to Sections 6.1 and 6.3) shall be fully
protected in relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted
by this Indenture, and that such supplemental indenture has been duly
authorized, executed and delivered by the Company and constitutes a
valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms. The Trustee may,
but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise.
SECTION VIII.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and
such supplemental indenture shall form a part of this Indenture for all
purposes; and every Holder of Securities theretofore or thereafter
authenticated and delivered hereunder appertaining thereto shall be
bound thereby.
SECTION VIII.5 Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture.
If the Company shall so determine, new Securities so modified as to
conform, in the opinion of the Company and the Trustee, to any such
supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange
for Outstanding Securities.
SECTION VIII.6 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee
of any supplemental indenture pursuant to the provisions of Section
8.2, the Company shall give notice to all Holders of Securities of such
fact, setting forth in general terms the substance of such supplemental
indenture, in the manner provided in Section 1.6. Any failure of the
Company to give such notice, or any defect therein, shall not in any
way impair or affect the validity of any such supplemental indenture.
ARTICLE IX
MEETINGS OF HOLDERS OF SECURITIES
SECTION IX.1 Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities may be called at any time
and from time to time pursuant to this Article to make, give or take
any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be made, given or taken
by Holders of Securities.
SECTION IX.2 Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of
Holders of Securities for any purpose specified in Section 9.1, to be
held at such time and at such place in the Borough of Manhattan, The
City of New York, as the Trustee shall determine. Notice of every
meeting of Holders of Securities, setting forth the time and the place
of such meeting and in general terms the action proposed to be taken
at such meeting, shall be given, in the manner provided in Section 1.6,
not less than 21 nor more than 180 days prior to the date fixed for the
meeting.
(2) In case at any time the Company, pursuant to a Board
Resolution, or the Holders of at least 10% in principal amount of the
Outstanding Securities shall have requested the Trustee to call a
meeting of the Holders of Securities for any purpose specified in
Section 9.1, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not
have mailed the notice of such meeting within 21 days after receipt of
such request or shall not thereafter proceed to cause the meeting to be
held as provided herein, then the Company or the Holders of
Securities in the amount specified, as the case may be, may determine
the time and the place in the Borough of Manhattan, The City of New
York, for such meeting and may call such meeting for such purposes
by giving notice thereof as provided in paragraph (1) of this Section.
SECTION IX.3 Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities,
a Person shall be (i) a Holder of one or more Outstanding Securities,
or (ii) a Person appointed by an instrument in writing as proxy for a
Holder or Holders of one or more Outstanding Securities by such
Holder or Holders. The only Persons who shall be entitled to be
present or to speak at any meeting of Holders shall be the Persons
entitled to vote at such meeting and their counsel, any representatives
of the Trustee and its counsel and any representatives of the Company
and its counsel.
SECTION IX.4 Quorum; Action.
The Persons entitled to vote a majority in principal amount of
the Outstanding Securities shall constitute a quorum. In the absence
of a quorum within 30 minutes of the time appointed for any such
meeting, the meeting shall, if convened at the request of Holders of
Securities, be dissolved. In any other case, the meeting may be
adjourned for a period of not less than 10 days as determined by the
chairman of the meeting prior to the adjournment of such meeting. In
the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period not less than
10 days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting (subject to repeated
applications of this sentence). Notice of the reconvening of any
adjourned meeting shall be given as provided in Section 9.2(1), except
that such notice need be given only once not less than five days prior
to the date on which the meeting is scheduled to be reconvened.
Notice of the reconvening of an adjourned meeting shall state
expressly the percentage of the principal amount of the Outstanding
Securities which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting
adjourned for a lack of a quorum, the Persons entitled to vote 25% in
principal amount of the Outstanding Securities at the time shall
constitute a quorum for the taking of any action set forth in the notice
of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at
which a quorum is present as aforesaid, any resolution and all matters
(except as limited by the proviso to Section 8.2 and except to the
extent Section 10.13 requires a different vote) shall be effectively
passed and decided if passed or decided by the lesser of (i) the
Holders of not less than a majority in principal amount of Outstanding
Securities and (ii) the Persons entitled to vote not less than 66-2/3% in
principal amount of Outstanding Securities represented and entitled to
vote at such meeting.
Any resolution passed or decisions taken at any meeting of
Holders of Securities duly held in accordance with this Section shall be
binding on all the Holders of Securities whether or not present or
represented at the meeting. The Trustee shall, in the name and at the
expense of the Company, notify all the Holders of Securities of any
such resolutions or decisions pursuant to Section 1.6.
SECTION IX.5 Determination of Voting Rights; Conduct and
Adjournment of Meetings.
(1) Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it
may deem advisable for any meeting of Holders of Securities in regard
to proof of the holding of Securities and of the appointment of proxies
and in regard to the appointment and duties of inspectors of votes, the
submission and examination of proxies, certificates and other evidence
of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of
Securities shall be proved in the manner specified in Section 1.4 and
the appointment of any proxy shall be proved in the manner specified
in Section 1.4 or by having the signature of the Person executing the
proxy guaranteed by any bank, broker or other eligible institution
participating in a recognized medallion signature guarantee program.
(2) The Trustee shall, by an instrument in writing,
appoint a temporary chairman (which may be the Trustee) of the
meeting, unless the meeting shall have been called by the Company or
by Holders of Securities as provided in Section 9.2(1), in which case
the Company or the Holders of Securities calling the meeting, as the
case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall
be elected by vote of the Persons entitled to vote a majority in
principal amount of the Outstanding Securities represented at the
meeting.
(3) At any meeting, each Holder of a Security or proxy
shall be entitled to one vote for each U.S. $1,000 principal amount of
Securities held or represented by him; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Security
challenged as not Outstanding and ruled by the chairman of the
meeting to be not Outstanding. The chairman of the meeting shall
have no right to vote, except as a Holder of a Security or proxy.
(4) Any meeting of Holders of Securities duly called
pursuant to Section 9.2 at which a quorum is present may be
adjourned from time to time by Persons entitled to vote a majority in
principal amount of the Outstanding Securities represented at the
meeting, and the meeting may be held as so adjourned without further
notice.
SECTION IX.6 Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of
Holders of Securities shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities or of their
representatives by proxy and the principal amounts at Stated Maturity
and serial numbers of the Outstanding Securities held or represented
by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of
the meeting their verified written reports in duplicate of all votes cast at
the meeting. A record, at least in duplicate, of the proceedings of each
meeting of Holders of Securities shall be prepared by the secretary of
the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more Persons having knowledge of the facts
setting forth a copy of the notice of the meeting and showing that said
notice was given as provided in Section 9.2 and, if applicable,
Section 9.4. Each copy shall be signed and verified by the affidavits of
the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting. Any record so signed and verified shall
be conclusive evidence of the matters therein stated.
ARTICLE X
COVENANTS
SECTION X.1 Payment of Principal, Premium and Interest.
The Company covenants and agrees that it will duly and
punctually pay the principal of and premium, if any, and interest
(including Liquidated Damages, if any) on the Securities in accordance
with the terms of the Securities and this Indenture. The Company will
deposit or cause to be deposited with the Trustee, no later than the
opening of business on the date of the Stated Maturity of any Security
or no later than the opening of business on the due date for any
installment of interest, all payments so due, which payments shall be in
immediately available funds on the date of such Stated Maturity or due
date, as the case may be.
SECTION X.2 Maintenance of Offices or Agencies.
The Company will maintain in the Borough of Manhattan,
The City of New York, an office or agency where the Securities may
be surrendered for registration of transfer or exchange or for
presentation for payment or for conversion, redemption or repurchase
and where notices and demands to or upon the Company in respect of
the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency not designated or
appointed by the Trustee. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust
Office or the office or agency of the Trustee in the Borough of
Manhattan, The City of New York.
The Company may at any time and from time to time vary or
terminate the appointment of any such agent or appoint any additional
agents for any or all of such purposes; provided, however, that until
all of the Securities have been delivered to the Trustee for
cancellation, or moneys sufficient to pay the principal of, premium, if
any, and interest on the Securities have been made available for
payment and either paid or returned to the Company pursuant to the
provisions of Section 10.3, the Company will maintain in the
Borough of Manhattan, The City of New York, an office or agency
where Securities may be presented or surrendered for payment and
conversion, where Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be
served. The Company will give prompt written notice to the Trustee,
and notice to the Holders in accordance with Section 1.6, of the
appointment or termination of any such agents and of the location and
any change in the location of any such office or agency.
The Company hereby initially designates the Trustee as
Paying Agent, Security Registrar and Conversion Agent, and each of
the Corporate Trust Office of the Trustee and the office or agency of
the Trustee in the Borough of Manhattan, The City of New York
(which shall initially be State Street Bank and Trust Company, N.A.,
an Affiliate of the Trustee located at 61 Broadway, Concourse Level,
Corporate Trust Window, New York, New York 10006), one such
office or agency of the Company for each of the aforesaid purposes.
SECTION X.3 Money for Security Payments To Be Held in Trust.
If the Company shall act as its own Paying Agent, it will, on
or before each due date of the principal of, premium, if any, or
interest on any of the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the
principal, premium, if any, or interest so becoming due until such
sums shall be paid to such Persons or otherwise disposed of as herein
provided and the Company will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying
Agents, it will, no later than the opening of business on each due date
of the principal of, premium, if any, or interest on any Securities,
deposit with the Trustee a sum in funds immediately payable on the
payment date sufficient to pay the principal, premium, if any, or
interest so becoming due, such sum to be held for the benefit of the
Persons entitled to such principal, premium, if any, or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly
notify the Trustee of any failure so to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the
provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of, premium, if any, or interest on Securities for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the
Company (or any other obligor upon the Securities) in the making of
any payment of principal, premium, if any, or interest; and
(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held by such Paying Agent.
The Company may at any time, for the purpose of obtaining
the satisfaction and discharge of this Indenture or for any other
purpose, pay, or by Company Order direct any Paying Agent to pay,
to the Trustee all sums held in trust by the Company or such Paying
Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability
with respect to such money.
Any money deposited with the Trustee or any Paying Agent,
or then held by the Company, in trust for the payment of the principal
of, premium, if any, or interest on any Security and remaining
unclaimed for two years after such principal, premium, if any, or
interest has become due and payable shall be paid to the Company on
Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company
for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided,
however, that in the event that the Securities were not held in global
form at maturity, the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper in
each Place of Payment, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30
days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
SECTION X.4 [Reserved].
SECTION X.5 Existence.
Subject to Article VII, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect
its existence, rights (charter and statutory) and franchises; provided,
however, that the Company shall not be required to preserve any such
right or franchise if the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION X.6 Maintenance of Properties.
The Company will cause all properties used or useful in the
conduct of its business or the business of any Significant Subsidiary
to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be
necessary so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any Significant
Subsidiary and not disadvantageous in any material respect to the
Holders.
SECTION X.7 Payment of Taxes and Other Claims.
The Company will pay or discharge, or cause to be paid or
discharged, before the same may become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon the
Company or any Significant Subsidiary or upon the income, profits or
property of the Company or any Significant Subsidiary, (ii) all claims
for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon the property of the Company or any
Significant Subsidiary, and (iii) all stamps and other duties, if any,
which may be imposed by the United States or any political
subdivision thereof or therein in connection with the issuance,
transfer, exchange or conversion of any Securities or with respect to
this Indenture; provided, however, that, in the case of clauses (i) and
(ii), the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim (A) if
the failure to do so will not, in the aggregate, have a material adverse
impact on the Company, or (B) if the amount, applicability or validity
is being contested in good faith by appropriate proceedings.
SECTION X.8 Registration and Listing.
Prior to the Exchange Date, the Company (i) will effect all
registrations with, and obtain all approvals by, all governmental
authorities that may be necessary under any United States Federal or
state law (including the Securities Act, the Exchange Act and state
securities and Blue Sky laws) before the shares of Common Stock
issuable upon conversion of Securities may be lawfully issued and
delivered, and qualified or listed as contemplated by clause (ii) (it
being understood that the Company shall not be required to register
the Securities under the Securities Act, except pursuant to the
Registration Rights Agreement referred to in Section 10.12); and
(ii) will qualify the shares of Common Stock required to be issued
and delivered upon conversion of Securities, prior to such issuance or
delivery, for quotation on the Nasdaq National Market or, if the
Common Stock is not then quoted on the Nasdaq National Market,
list the Common Stock on each national securities exchange on which
outstanding Common Stock is listed or quoted at the time of such
delivery.
Nothing in this Section will limit the application of
Section 10.12.
SECTION X.9 Statement by Officers as to Default.
The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company ending after the date
hereof, an Officers' Certificate, stating whether or not to the best
knowledge of the signers thereof the Company is in default in the
performance and observance of any of the terms, provisions and
conditions of this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Company shall
be in default, specifying all such defaults and the nature and status
thereof of which they may have knowledge.
The Company will deliver to the Trustee, forthwith upon
becoming aware of any default in the performance or observance of
any covenant, agreement or condition contained in this Indenture, or
any Event of Default, an Officers' Certificate specifying with
particularity such default or Event of Default and further stating what
action the Company has taken, is taking or proposes to take with
respect thereto.
Any notice required to be given under this Section 10.9 shall
be delivered to the Trustee at its Corporate Trust Office.
SECTION X.10 Delivery of Certain Information.
At any time when the Company is not subject to Section 13
or 15(d) of the Exchange Act, upon the request of a Holder of a
Restricted Security or the holder of shares of Common Stock issued
upon conversion thereof, the Company will promptly furnish or cause
to be furnished Rule 144A Information (as defined below) to such
Holder of Restricted Securities or such holder of shares of Common
Stock issued upon conversion of Restricted Securities, or to a
prospective purchaser of any such security designated by any such
Holder or holder, as the case may be, to the extent required to permit
compliance by such Holder or holder with Rule 144A under the
Securities Act (or any successor provision thereto) in connection with
the resale of any such security; provided, however, that the Company
shall not be required to furnish such information in connection with
any request made on or after the date which is three years from the
later of (i) the date such a security (or any such predecessor security)
was last acquired from the Company or (ii) the date such a security
(or any such predecessor security) was last acquired from an
"affiliate" of the Company within the meaning of Rule 144 under the
Securities Act (or any successor provision thereto). "Rule 144A
Information" shall be such information as is specified pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto).
SECTION X.11 Resale of Certain Securities.
During the period beginning on the last date of original
issuance of the Securities and ending on the date that is three years
from such date (or such shortened period under Rule 144(K) under
the Securities Act or any successor rule), the Company will not, and
will use reasonable efforts not to permit any of its subsidiaries or
other "affiliates" (as defined under Rule 144 under the Securities Act
or any successor provision thereto) controlled by the Company to,
resell (i) any Securities which constitute "restricted securities" under
Rule 144 or (ii) any securities into which the Securities have been
converted under this Indenture which constitute "restricted securities"
under Rule 144, that in either case have been reacquired by any of
them. The Trustee shall have no responsibility in respect of the
Company's performance of its agreement in the preceding sentence.
SECTION X.12 Registration Rights.
The Company agrees that the Holders from time to time of
Registrable Securities (as defined below) are entitled to the benefits
of a Registration Rights Agreement, dated as of December 18, 1996
(the "Registration Rights Agreement"), executed by the Company.
Pursuant to the Registration Rights Agreement, the Company has
agreed for the benefit of the holders from time to time of the
Registrable Securities that it will, at its expense, (i) within 90 days
after the Issue Date (as defined below) of the Securities, file a shelf
registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Registrable Securities,
(ii) use its reasonable efforts to cause such Shelf Registration
Statement to be declared effective by the Commission within 180
days after Issue Date of the Securities and (iii) use its reasonable
efforts to maintain such Shelf Registration Statement effective under
the Securities Act until the third annual anniversary of the Issue Date
or such earlier date as is provided in the Registration Rights
Agreement (the "Effectiveness Period"). The Company will be
permitted to suspend the use of the prospectus which is a part of the
Shelf Registration Statement during certain periods of time as
provided in the Registration Rights Agreement.
If (i) on or prior to 90 days following the Issue Date of the
Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 180th day following the Issue
Date of the Securities, such Shelf Registration Statement is not
declared effective (each, a "Registration Default"), additional interest
("Liquidated Damages") will accrue on the Restricted Securities from
and including the day following such Registration Default to but
excluding the day on which such Registration Default has been cured.
Liquidated Damages will be paid semi-annually in arrears, with the
first semi-annual payment due on the first Interest Payment Date in
request of the Restricted Securities following the date on which such
Liquidated Damages begin to accrue, and will accrue at a rate per
annum equal to an additional one-quarter of one percent (0.25%) of
the principal amount of the Restricted Securities to and including the
90th day following such Registration Default and at a rate per annum
equal to one-half of one percent (0.50%) thereof from and after the
91st day following such Registration Default. Pursuant to the
Registration Rights Agreement, in the event that the Shelf
Registration Statement ceases to be effective during the Effectiveness
Period for more than 90 days or the Company suspends the use of the
prospectus which is a part thereof for more than 90 days, whether or
not consecutive, during any 12-month period, then the interest rate
borne by the Restricted Securities shall increase by an additional one-
half of one percent (0.50%) per annum on the 91st day of the
applicable 12-month period such Shelf Registration Statement ceases
to be effective or such prospectus continues to be suspended to but
excluding the day on which (i) the Shelf Registration Statement
becomes effective, (ii) the use of the related prospectus ceases to be
suspended or (iii) the Effectiveness Period expires.
Whenever in this Indenture there is mentioned, in any
context, the payment of the principal of, premium, if any, or interest
on, or in respect of, any Security, such mention shall be deemed to
include mention of the payment of Liquidated Damages provided for
in this Section to the extent that, in such context, Liquidated Damages
are, were or would be payable in respect thereof pursuant to the
provisions of this Section and express mention of the payment of
Liquidated Damages (if applicable) in any provisions hereof shall not
be construed as excluding Liquidated Damages in those provisions
hereof where such express mention is not made.
For the purposes of the Registration Rights Agreement:
"Registrable Securities" means all or any portion of the Restricted
Securities issued from time to time under this Indenture and the
shares of Common Stock issuable upon conversion of such Restricted
Securities except any such Restricted Security or share of Common
Stock issuable upon conversion thereof which (i) has been effectively
registered under the Securities Act and sold in a manner contemplated
by the Shelf Registration Statement, (ii) has been transferred in
compliance with Rule 144 under the Securities Act (or any successor
provision thereto) or is transferable pursuant to paragraph (k) of such
Rule 144 (or any successor provision thereto) or (iii) has been resold
in compliance with Regulation S under the Securities Act (or any
successor thereto) and does not constitute the unsold allotment of a
distributor within the meaning of Regulation S under the Securities
Act, or (iv) otherwise has been transferred and a new Security or
share of Common Stock not subject to transfer restrictions under the
Securities Act has been delivered by or on behalf of the Company in
accordance with Section 3.5(2); and "Issue Date" means
December 18, 1996.
If a Security, or the shares of Common Stock issuable upon
conversion of a Security, is a Registrable Security, and the Holder
thereof elects to sell such Registrable Security pursuant to the Shelf
Registration Statement then, by its acceptance thereof, the Holder of
such Registrable Security will have agreed to be bound by the terms
of the Registration Rights Agreement relating to the Registrable
Securities which are the subject of such election.
For the purposes of the Registration Rights Agreement, the
term "Holder" includes any Person that has a beneficial interest in any
Restricted Global Security or any beneficial interest in a global
security representing shares of Common Stock issuable upon
conversion of a Security.
SECTION X.13 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply
with any covenant or conditions set forth in Sections 10.5 to 10.7,
inclusive (other than a covenant or condition which under Article VIII
cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected), if before the time for such
compliance the Holders shall, through the written consent of, or the
adoption of a resolution at a meeting of Holders of the Outstanding
Securities at which a quorum is present by, not less than a majority in
principal amount of the Outstanding Securities, either waive such
compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect
such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee or any Paying or Conversion
Agent in respect of any such covenant or condition shall remain in
full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION XI.1 Right of Redemption.
The Securities may be redeemed in accordance with the
provisions of the form of Securities set forth in Section 2.2.
SECTION XI.2 Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of the Securities
or this Indenture, shall be made in accordance with such provision
and this Article XI.
SECTION XI.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall
be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of any of the Securities, the Company shall,
at least 30 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee in writing of such Redemption Date.
SECTION XI.4 Selection by Trustee of Securities To Be Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected by the Trustee
within five Business Days after it receives the notice described in
11.3, from the Outstanding Securities not previously called for
redemption, by such method as the Trustee may deem fair and
appropriate.
If any Registered Security selected for partial redemption is
converted in part before termination of the conversion right with
respect to the portion of the Security so selected, the converted
portion of such Security shall be deemed (so far as may be) to be the
portion selected for redemption. Securities which have been
converted during a selection of Securities to be redeemed may be
treated by the Trustee as Outstanding for the purpose of such
selection.
The Trustee shall promptly notify the Company and each
Security Registrar in writing of the securities selected for redemption
and, in the case of any Securities selected for partial redemption, the
principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Securities redeemed or to be
redeemed only in part, to the portion of the principal amount of such
Securities which has been or is to be redeemed.
SECTION XI.5 Notice of Redemption.
Notice of redemption shall be given in the manner provided
in Section 1.6 to the Holders of Securities to be redeemed not less
than 20 nor more than 60 days prior to the Redemption Date, and
such notice shall be irrevocable.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price, and accrued interest,
if any,
(3) if less than all Outstanding Securities are to
be redeemed, the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities which will
be outstanding after such partial redemption,
(4) that on the Redemption Date the Redemption
Price, and accrued interest, if any, will become due and payable upon
each such Security to be redeemed, and that interest thereon shall
cease to accrue on and after said date,
(5) the Conversion Rate, the date on which the
right to convert the Securities to be redeemed will terminate and the
places where such Securities, may be surrendered for conversion, and
(6) the place or places where such Securities, are
to be surrendered for payment of the Redemption Price and accrued
interest, if any.
In case of a partial redemption, the notice shall specify the
serial and CUSIP numbers (if any) and the portions thereof called for
redemption and that transfers and exchanges may occur on or prior to
the Redemption Date.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the
Company's written request, by the Trustee in the name of and at the
expense of the Company. Notice of redemption of Securities to be
redeemed at the election of the Company received by the Trustee
shall be given by the Trustee to each Paying Agent in the name of and
at the expense of the Company.
SECTION XI.6 Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall
deposit with the Trustee (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 10.3)
an amount of money (which shall be in immediately available funds
on such Redemption Date) sufficient to pay the Redemption Price of,
and (except if the Redemption Date shall be an Interest Payment
Date) accrued interest on, all the Securities which are to be redeemed
on that date other than any Securities called for redemption on that
date which have been converted prior to the date of such deposit.
If any Security called for redemption is converted, any money
deposited with the Trustee or so segregated and held in trust for the
redemption of such Security shall (subject to any right of the Holder
of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 3.7) be paid to the Company
on Company Request or, if then held by the Company, shall be
discharged from such trust.
SECTION XI.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become
due and payable at the Redemption Price therein specified and from
and after such date (unless the Company shall default in the payment
of the Redemption Price, including accrued interest) such Securities
shall cease to bear interest. Upon surrender of any Security for
redemption in accordance with said notice such Security shall be paid
by the Company at the Redemption Price together with accrued and
unpaid interest to the Redemption Date; provided, however, that
installments of interest on Securities whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such
on the relevant Record Date according to their terms and the
provisions of Section 3.7.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal amount of,
premium, if any, and, to the extent permitted by applicable law,
accrued interest on such Security shall, until paid, bear interest from
the Redemption Date at a rate of 6 % per annum and such Security
shall remain convertible until the Redemption Price of such Security
(or portion thereof, as the case may be) shall have been paid or duly
provided for.
SECTION XI.8 Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be
surrendered at the Corporate Trust Office or an office or agency of
the Company designated for that purpose pursuant to Section 10.2
(with, if the Company or the Trustee so requires, due endorsement by,
or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and make available for delivery to
the Holder of such Security without service charge, a new Registered
Security or Securities, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security
so surrendered.
SECTION 11.9 Conversion Arrangement on Call for Redemption.
In connection with any redemption of Securities, the
Company may arrange for the purchase and conversion of any
Securities by an agreement with one or more investment bankers or
other purchasers (the "Purchasers") to purchase such securities by
paying to the Trustee in trust for the Holders, on or before the
Redemption Date, an amount not less than the applicable Redemption
Price, together with interest accrued to the Redemption Date, of such
Securities. Notwithstanding anything to the contrary contained in this
Article XI, the obligation of the Company to pay the Redemption
Price, together with interest accrued to the Redemption Date, shall be
deemed to be satisfied and discharged to the extent such amount is so
paid by such Purchasers. If such an agreement is entered into (a copy
of which shall be filed with the Trustee prior to the close of business
on the Business Day immediately prior to the Redemption Date), any
Securities called for redemption that are not duly surrendered for
conversion by the Holders thereof may, at the option of the Company,
be deemed, to the fullest extent permitted by law, and consistent with
any agreement or agreements with such Purchasers, to be acquired by
such Purchasers from such Holders and (notwithstanding anything to
the contrary contained in Article XII) surrendered by such Purchasers
for conversion, all as of immediately prior to the close of business on
the Redemption Date (and the right to convert any such Securities
shall be extended though such time), subject to payment of the above
amount as aforesaid. At the direction of the Company, the Trustee
shall hold and dispose of any such amount paid to it to the Holders in
the same manner as it would monies deposited with it by the
Company for the redemption of Securities. Without the Trustee's
prior written consent, no arrangement between the Company and such
Purchasers for the purchase and conversion of any Securities shall
increase or otherwise affect any of the powers, duties, responsibilities
or obligations of the Trustee as set forth in this Indenture, and the
Company agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising out of or in connection
with any such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers, including the
costs and expenses, including reasonable legal fees, incurred by the
Trustee in the defense of any claim or liability arising out of or in
connection with the exercise or performance of any of its powers,
duties, responsibilities or obligations under this Indenture.
ARTICLE XII
CONVERSION OF SECURITIES
SECTION XII.1 Conversion Privilege and Conversion Rate.
Subject to and upon compliance with the provisions of this
Article, at the option of the Holder thereof, any Security may be
converted into fully paid and nonassessable shares (calculated as to
each conversion to the nearest 1/100th of a share) of Common Stock
of the Company at the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion. Such conversion right
shall commence on the 90th day after the last original issuance date of
the Securities and expire at the close of business on December 15,
2003, subject, in the case of conversion of any Global Security, to any
Applicable Procedures. In case a Security or portion thereof is called
for redemption at the election of the Company or the Holder thereof
exercises his right to require the Company to repurchase the Security,
such conversion right in respect of the Security, or portion thereof so
called, shall expire at the close of business on the Business Day prior
to the Redemption Date or the Repurchase Date, as the case may be,
unless the Company defaults in making the payment due upon
redemption or repurchase, as the case may be (in each case subject as
aforesaid to any Applicable Procedures with respect to any Global
Security).
The rate at which shares of Common Stock shall be delivered
upon conversion (herein called the "Conversion Rate") shall be
initially 41.2903 shares of Common Stock for each U.S. $1,000
principal amount of Securities. The Conversion Rate shall be
adjusted in certain instances as provided in this Article XII.
SECTION XII.2 Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of
any Security to be converted shall surrender such Security, duly
endorsed in blank, at any office or agency of the Company maintained
for that purpose pursuant to Section 10.2, accompanied by a duly
signed conversion notice substantially in the form set forth in Section
2.4 stating that the Holder elects to convert such Security or, if less
than the entire principal amount thereof is to be converted, the portion
thereof to be converted. Each Security surrendered for conversion (in
whole or in part) during the Record Date Period shall (except in the
case of any Security or portion thereof which has been called for
redemption on a Redemption Date, or is repurchasable on a
Repurchase Date, occurring, in either case, within such Record Date
Period (including any Securities or portions thereof called for
redemption on a Redemption Date or submitted for repurchase on a
Repurchase Date that is a Regular Record Date or an Interest Payment
Date, as the case may be)) be accompanied by payment in New York
Clearing House funds or other funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date
on the principal amount of such Security (or part thereof, as the case
may be) being surrendered for conversion. The interest so payable on
such Interest Payment Date with respect to any Security (or portion
thereof, if applicable) which has been called for redemption on a
Redemption Date, or is repurchasable on a Repurchase Date,
occurring, in either case, during the Record Date Period (including
any securities or portions thereof called for redemption on a
Redemption Date or submitted for repurchase on a Repurchase Date
that is a Regular Record Date or Interest Payment Date, as the case
may be), which Security (or portion thereof, if applicable) is
surrendered for conversion during the Record Date Period (or on the
last Business Day prior to the Regular Record Date or Interest
Payment Date in the case of any Security (or portion thereof, as the
case may be) called for redemption on a Redemption Date or
submitted for repurchase on a Repurchase Date on such Regular
Record Date or Interest Payment Date, as the case may be) shall be
paid to the Holder of such Security being converted in an amount
equal to the interest that would have been payable on such Security if
such Security had been converted as of the close of business on such
Interest Payment Date. The interest so payable on such Interest
Payment Date in respect of any Security (or portion thereof, as the
case may be) which has not been called for redemption on a
Redemption Date, or is not eligible for repurchase on a Repurchase
Date, occurring, in either case, during the Record Date Period, which
Security (or portion thereof, as the case may be) is surrendered for
conversion during the Record Date Period, shall be paid to the Holder
of such Security as of such Regular Record Date. Interest payable in
respect of any Security surrendered for conversion on or after an
Interest Payment Date shall be paid to the Holder of such Security as
of the next preceding Regular Record Date, notwithstanding the
exercise of the right of conversion. Except as provided in this
paragraph and subject to the last paragraph of Section 3.7, no cash
payment or adjustment shall be made upon any conversion on account
of any interest accrued from the Interest Payment Date next preceding
the conversion date, in respect of any Security (or part thereof, as the
case may be) surrendered for conversion, or on account of any
dividends on the Common Stock issued upon conversion. The
Company's delivery to the Holder of the number of shares of
Common Stock (and cash in lieu of fractions thereof, as provided in
this Indenture) into which a Security is convertible will be deemed to
satisfy the Company's obligation to pay the principal amount of the
Security.
Securities shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of
such Securities for conversion in accordance with the foregoing
provisions, and at such time the rights of the Holders of such
Securities as Holders shall cease, and the Person or Persons entitled to
receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common
Stock at such time. As promptly as practicable on or after the
conversion date, the Company shall issue and deliver to the Trustee,
for delivery to the Holder, a certificate or certificates for the number
of full shares of Common Stock issuable upon conversion, together
with payment in lieu of any fraction of a share, as provided in
Section 12.3.
All shares of Common Stock delivered upon such conversion
of Restricted Securities shall bear restrictive legends substantially in
the form of the legends required to be set forth on the Restricted
Securities pursuant to Section 3.5 and shall be subject to the
restrictions on transfer provided in such legends. Neither the Trustee
nor any agent maintained for the purpose of such conversion shall
have any responsibility for the inclusion or content of any such
restrictive legends on such Common Stock; provided, however, that
the Trustee or any agent maintained for the purpose of such
conversion shall have provided, to the Company or to the Company's
transfer agent for such Common Stock, prior to or concurrently with a
request to the Company to deliver such Common Stock, written
notice that the Securities delivered for conversion are Restricted
Securities.
In the case of any Security which is converted in part only,
upon such conversion the Company shall execute and the Trustee
shall authenticate and deliver to the Holder thereof, at the expense of
the Company, a new Registered Security or Securities of authorized
denominations in an aggregate principal amount equal to the
unconverted portion of the principal amount of such Security. A
Security may be converted in part, but only if the principal amount of
such Security to be converted is any integral multiple of U.S. $1,000
and the principal amount of such security to remain Outstanding after
such conversion is equal to U.S. $1,000 or any integral multiple of
$1,000 in excess thereof.
If shares of Common Stock to be issued upon conversion of a
Restricted Security, or Registered Securities to be issued upon
conversion of a Restricted Security in part only, are to be registered in
a name other than that of the beneficial owner of such Restricted
Security, then such Holder must deliver to the Conversion Agent a
Surrender Certificate, dated the date of surrender of such Restricted
Security and signed by such beneficial owner, as to compliance with
the restrictions on transfer applicable to such Restricted Security.
Neither the Trustee nor any Conversion Agent, Registrar or Transfer
Agent shall be required to register in a name other than that of the
beneficial owner, shares of Common Stock or Securities issued upon
conversion of any such Restricted Security not so accompanied by a
properly completed Surrender Certificate.
SECTION XII.3 Fractions of Shares.
No fractional shares of Common Stock shall be issued upon
conversion of any Security or Securities. If more than one Security
shall be surrendered for conversion at one time by the same Holder,
the number of full shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any Security or
Securities (or specified portions thereof), the Company shall calculate
and pay a cash adjustment in respect of such fraction (calculated to
the nearest 1/100th of a share) in an amount equal to the same
fraction of the Closing Price Per Share at the close of business on the
day of conversion.
SECTION XII.4 Adjustment of Conversion Rate.
The Conversion Rate shall be subject to adjustments from
time to time as follows:
(1) In case the Company shall pay or make a dividend or
other distribution on Common Stock payable in shares of Common
Stock, the Conversion Rate in effect at the opening of business on the
day following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be
increased by dividing such Conversion Rate by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number
of shares and the total number of shares constituting such dividend or
other distribution, such increase to become effective immediately
after the opening of business on the day following the date fixed for
such determination. If, after any such date fixed for determination,
any dividend or distribution is not in fact paid, the Conversion Rate
shall be immediately readjusted, effective as of the date the Board of
Directors determines not to pay such dividend or distribution, to the
Conversion Rate that would have been in effect if such determination
date had not been fixed. For the purposes of this paragraph (1), the
number of shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not pay any
dividend or make any distribution on shares of Common Stock held
in the treasury of the Company.
(2) In case the Company shall issue rights, options or
warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per
share less than the current market price per share (determined as
provided in paragraph (8) of this Section 12.4) of the Common Stock
on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants (other than any rights, options
or warrants that by their terms will also be issued to any Holder upon
conversion of a Security into shares of Common Stock without any
action required by the Company or any other Person), the Conversion
Rate in effect at the opening of business on the day following the date
fixed for such determination shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of
the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such current market price
and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered
for subscription or purchase, such increase to become effective
immediately after the opening of business on the day following the
date fixed for such determination. If, after any such date fixed for
determination, any such rights, options or warrants are not in fact
issued, or are not exercised prior to the expiration thereof, the
Conversion Rate shall be immediately readjusted, effective as of the
date such rights, options or warrants expire, or the date the Board of
Directors determines not to issue such rights, options or warrants, to
the Conversion Rate that would have been in effect if the unexercised
rights, options or warrants had never been granted or such
determination date had not been fixed, as the case may be. For the
purposes of this paragraph (2), the number of shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect
of scrip certificates issued in lieu of fractions of shares of Common
Stock. The Company will not issue any rights, options or warrants in
respect of shares of Common Stock held in the treasury of the
Company.
(3) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the day
following the day upon which such subdivision becomes effective
shall be proportionately increased, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a
smaller number of shares of Common Stock, the Conversion Rate in
effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately
reduced, such increase or reduction, as the case may be, to become
effective immediately after the opening of business on the day
following the day upon which such subdivision or combination
becomes effective.
(4) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness, shares of any class of capital stock, or other property
(including securities, but excluding (i) any rights, options or warrants
referred to in paragraph (2) of this Section, (ii) any dividend or
distribution paid exclusively in cash, (iii) any dividend or distribution
referred to in paragraph (1) of this Section) the Conversion Rate shall
be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close
of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the
numerator shall be the current market price per share (determined as
provided in paragraph (8) of this Section 12.4) of the Common Stock
on the date fixed for such determination less the then fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution filed with the
Trustee) of the portion of the assets, shares or evidences of
indebtedness so distributed applicable to one share of Common Stock
and the denominator shall be such current market price per share of
the Common Stock, such adjustment to become effective immediately
prior to the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such
distribution. If, after any such date fixed for determination, any such
distribution is not in fact made, the Conversion Rate shall be
immediately readjusted, effective as of the date the Board of Directors
determines not to make such distribution, to the Conversion Rate that
would have been in effect if such determination date had not been
fixed.
(5) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any
cash that is distributed as part of a distribution referred to in
paragraph (4) of this Section) in an aggregate amount that, combined
together with (I) the aggregate amount of any other cash distributions
to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and
in respect of which no adjustment pursuant to this paragraph (5) has
been made and (II) the aggregate of any cash plus the fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) of
consideration payable in respect of any tender offer by the Company
or any of its subsidiaries for all or any portion of the Common Stock
concluded within the 12 months preceding the date of payment of
such distribution and in respect of which no adjustment pursuant to
paragraph (6) of this Section 12.4 has been made (the "combined
cash and tender amount") exceeds 12.5% of the product of the current
market price per share (determined as provided in paragraph (8) of
this Section 12.4) of the Common Stock on the date for the
determination of holders of shares of Common Stock entitled to
receive such distribution times the number of shares of Common
Stock outstanding on such date (the "aggregate current market
price"), then, and in each such case, immediately after the close of
business on such date for determination, the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by dividing
the Conversion Rate in effect immediately prior to the close of
business on the date fixed for determination of the stockholders
entitled to receive such distribution by a fraction (i) the numerator of
which shall be equal to the current market price per share (determined
as provided in paragraph (8) of this Section) of the Common Stock on
the date fixed for such determination less an amount equal to the
quotient of (x) the excess of such combined cash and tender amount
over such aggregate current market price divided by (y) the number of
shares of Common Stock outstanding on such date for determination
and (ii) the denominator of which shall be equal to the current market
price per share (determined as provided in paragraph (8) of this
Section 12.4) of the Common Stock on such date for determination.
(6) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall expire
and such tender offer (as amended upon the expiration thereof) shall
require the payment to stockholders (based on the acceptance (up to
any maximum specified in the terms of the tender offer) of Purchased
Shares (as defined below)) of an aggregate consideration having a fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board
Resolution) that combined together with (I) the aggregate of the cash
plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender offer, of consideration
payable in respect of any other tender offer by the Company or any
Subsidiary for all or any portion of the Common Stock expiring
within the 12 months preceding the expiration of such tender offer
and in respect of which no adjustment pursuant to this paragraph (6)
has been made and (II) the aggregate amount of any cash distributions
to all holders of the Company's Common Stock within 12 months
preceding the expiration of such tender offer and in respect of which
no adjustment pursuant to paragraph (5) of this Section has been
made (the "combined tender and cash amount") exceeds 12.5% of the
product of the current market price per share of the Common Stock
(determined as provided in paragraph (8) of this Section 12.4) as of
the last time (the "Expiration Time") tenders could have been made
pursuant to such tender offer (as it may be amended) times the
number of shares of Common Stock outstanding (including any
tendered shares) as of the Expiration Time, then, and in each such
case, immediately prior to the opening of business on the day after the
date of the Expiration Time, the Conversion Rate shall be adjusted so
that the same shall equal the rate determined by dividing the
Conversion Rate immediately prior to close of business on the date of
the Expiration Time by a fraction (i) the numerator of which shall be
equal to (A) the product of (I) the current market price per share of
the Common Stock (determined as provided in paragraph (8) of this
Section 12.4) on the date of the Expiration Time multiplied by (II) the
number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time less (B) the combined tender
and cash amount, and (ii) the denominator of which shall be equal to
the product of (A) the current market price per share of the Common
Stock (determined as provided in paragraph (8) of this Section 12.4)
as of the Expiration Time multiplied by (B) the number of shares of
Common Stock outstanding (including any tendered shares) as of the
Expiration Time less the number of all shares validly tendered and
not withdrawn as of the Expiration Time (the shares deemed so
accepted up to any such maximum, being referred to as the
"Purchased Shares").
(7) The reclassification of Common Stock into securities
including other than Common Stock (other than any reclassification
upon a consolidation or merger to which Section 12.11 applies) shall
be deemed to involve (a) a distribution of such securities other than
Common Stock to all holders of Common Stock (and the effective
date of such reclassification shall be deemed to be "the date fixed for
the determination of stockholders entitled to receive such
distribution" and "the date fixed for such determination" within the
meaning of paragraph (4) of this Section), and (b) a subdivision or
combination, as the case may be, of the number of shares of Common
Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately
thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes
effective" or "the day upon which such combination becomes
effective", as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of
paragraph (3) of this Section 12.4).
(8) For the purpose of any computation under paragraphs
(2), (4), (5) or (6) of this Section 12.4, the current market price per
share of Common Stock on any date shall be calculated by the
Company and be deemed to be the average of the daily Closing Prices
Per Share for the five consecutive Trading Days selected by the
Company commencing not more than 10 Trading Days before, and
ending not later than, the earlier of the day in question and the day
before the "ex" date with respect to the issuance or distribution
requiring such computation. For purposes of this paragraph, the term
"'ex' date", when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades regular way
in the applicable securities market or on the applicable securities
exchange without the right to receive such issuance or distribution.
(9) No adjustment in the Conversion Rate shall be
required unless such adjustment (plus any adjustments not previously
made by reason of this paragraph (9)) would require an increase or
decrease of at least one percent in such rate; provided, however, that
any adjustments which by reason of this paragraph (9) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article shall
be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.
(10) The Company may make such increases in the
Conversion Rate, for the remaining term of the Securities or any
shorter term, in addition to those required by paragraphs (1), (2), (3),
(4), (5) and (6) of this Section 12.4, as it considers to be advisable in
order to avoid or diminish any income tax to any holders of shares of
Common Stock resulting from any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes. The
Company shall have the power to resolve any ambiguity or correct
any error in this paragraph (10) and its actions in so doing shall,
absent manifest error, be final and conclusive.
(11) Notwithstanding the foregoing provisions of this
Section, no adjustment of the Conversion Rate shall be required to be
made (a) upon the issuance of shares of Common Stock pursuant to
any present or future plan for the reinvestment of dividends or (b)
because of a tender or exchange offer of the character described in
Rule 13e-4(h)(5) under the Exchange Act or any successor rule
thereto.
(12) To the extent permitted by applicable law, the
Company from time to time may increase the Conversion Rate by any
amount for any period of time if the period is at least twenty (20)
days, the reduction is irrevocable during such period, and the Board
of Directors shall have made a determination that such reduction
would be in the best interests of the Company, which determination
shall be conclusive; provided, however, that no such reduction shall
be taken into account for purposes of determining whether the
Closing Price Per Share of the Common Stock exceeds the
Conversion Price by 105% in connection with an event which would
otherwise be a Change of Control pursuant to Section 14.4.
Whenever the Conversion Rate is increased pursuant to the preceding
sentence, the Company shall give notice of the reduction to the
Holders in the manner provided in Section 1.6 at least fifteen (15)
days prior to the date the increased Conversion Rate takes effect, and
such notice shall state the increased Conversion Rate and the period
during which it will be in effect.
SECTION XII.5 Notice of Adjustments of Conversion Rate.
Whenever the Conversion Rate is adjusted as herein
provided:
(1) the Company shall compute the adjusted Conversion
Rate in accordance with Section 12.4 and shall prepare a certificate
signed by the Chief Financial Officer of the Company setting forth
the adjusted Conversion Rate and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall
promptly be filed with the Trustee and with each Conversion Agent;
and
(2) upon each such adjustment, a notice stating that the
Conversion Rate has been adjusted and setting forth the adjusted
Conversion Rate shall be required, and as soon as practicable after it
is required, such notice shall be provided by the Company to all
Holders in accordance with Section 1.6.
Neither the Trustee nor any Conversion Agent shall be under any
duty or responsibility with respect to any such certificate or the
information and calculations contained therein, except to exhibit the
same to any Holder of Securities desiring inspection thereof at its
office during normal business hours.
SECTION XII.6 Notice of Certain Corporate Action.
In case:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that would
require any adjustment pursuant to Section 12.4; or
(2) the Company shall authorize the granting to all or
substantially all of the holders of its Common Stock of rights, options
or warrants to subscribe for or purchase any shares of capital stock of
any class or of any other rights; or
(3) of any reclassification of the Common Stock of the
Company, or of any consolidation, merger or share exchange to which
the Company is a party and for which approval of any stockholders of
the Company is required, or of the conveyance, sale, transfer or lease
of all or substantially all of the assets of the Company; or
(4) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Securities pursuant to
Section 10.2, and shall cause to be provided to all Holders in
accordance with Section 1.6, at least 20 days (or 10 days in any case
specified in clause (1) or (2) above) prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, rights, options or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution, rights, options or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, sale,
lease, dissolution, liquidation or winding up. Neither the failure to
give such notice or the notice referred to in the following paragraph
nor any defect therein shall affect the legality or validity of the
proceedings described in clauses (1) through (4) of this Section 12.6.
If at the time the Trustee shall not be the conversion agent, a copy of
such notice shall also forthwith be filed by the Company with the
Trustee.
The Company shall cause to be filed at the Corporate Trust
Office and each office or agency maintained for the purpose of
conversion of Securities pursuant to Section 10.2, and shall cause to
be provided to all Holders in accordance with Section 1.6, notice of
any tender offer by the Company or any Subsidiary for all or any
portion of the Common Stock at or about the time that such notice of
tender offer is provided to the public generally.
SECTION XII.7 Company to Reserve Common Stock.
The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of
Securities, the full number of shares of Common Stock then issuable
upon the conversion of all Outstanding Securities.
SECTION XII.8 Taxes on Conversions.
Except as provided in the next sentence, the Company will
pay any and all taxes and duties that may be payable in respect of the
issue or delivery of shares of Common Stock on conversion of
Securities pursuant hereto. The Company shall not, however, be
required to pay any tax or duty which may be payable in respect of
any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that of the Holder of the Security or
Securities to be converted, and no such issue or delivery shall be
made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax or duty, or has established to
the satisfaction of the Company that such tax or duty has been paid.
SECTION XII.9 Covenant as to Common Stock.
The Company agrees that all shares of Common Stock which
may be delivered upon conversion of Securities, upon such delivery,
will have been duly authorized and validly issued and will be fully
paid and nonassessable and, except as provided in Section 12.8, the
Company will pay all taxes, liens and charges with respect to the
issue thereof.
SECTION XII.10 Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to
the Trustee or its agent to be canceled by or at the direction of the
Trustee, which shall dispose of the same as provided in Section 3.9.
SECTION XII.11 Provision in Case of Consolidation, Merger or
Sale of Assets.
In case of any consolidation or merger of the Company with
or into any other Person, any merger of another Person with or into
the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the Company) or any conveyance, sale,
transfer or lease of all or substantially all of the assets of the
Company, the Person formed by such consolidation or resulting from
such merger or which acquires such assets, as the case may be, shall
execute and deliver to the Trustee a supplemental indenture providing
that the Holder of each Security then Outstanding shall have the right
thereafter, during the period such Security shall be convertible as
specified in Section 12.1, to convert such Security only into the kind
and amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance, sale, transfer or lease by a
holder of the number of shares of Common Stock of the Company
into which such Security might have been converted immediately
prior to such consolidation, merger, conveyance, sale, transfer or
lease, assuming such holder of Common Stock of the Company (i) is
not a Person with which the Company consolidated or merged with or
into or which merged into or with the Company or to which such
conveyance, sale, transfer or lease was made, as the case may be (a
"Constituent Person"), or an Affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease (provided
that if the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, sale,
transfer, or lease is not the same for each share of Common Stock of
the Company held immediately prior to such consolidation, merger,
conveyance, sale, transfer or lease by others than a Constituent Person
or an Affiliate thereof and in respect of which such rights of election
shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 12.11 the kind and amount of securities, cash
and other property receivable upon such consolidation, merger,
conveyance, sale, transfer or lease by the holders of each Non-
electing Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-electing Shares), and
further assuming, if such consolidation, merger, conveyance, transfer,
sale or lease occurs prior to the 90th day following the last original
issue date of the Securities, that the Security was convertible at the
time of such occurrence at the Conversion Rate specified in Section
12.1 as adjusted from the issue date of such Security to such time as
provided in this Article XII. Such supplemental indenture shall
provide for adjustments which, for events subsequent to the effective
date of such supplemental indenture, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article.
The above provisions of this Section 12.11 shall similarly apply to
successive consolidations, mergers, conveyances, sales, transfers or
leases. Notice of the execution of such a supplemental indenture
shall be given by the Company to the Holder of each Security as
provided in Section 1.6 promptly upon such execution.
Neither the Trustee nor any Conversion Agent shall be under
any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the
kind or amount of shares of stock or other securities or property or
cash receivable by Holders of Securities upon the conversion of their
Securities after any such consolidation, merger, conveyance, transfer,
sale or lease or to any such adjustment, but may accept as conclusive
evidence of the correctness of any such provisions, and shall be
protected in relying upon, an Opinion of Counsel with respect thereto,
which the Company shall cause to be furnished to the Trustee upon
request.
SECTION XII.12 Responsibility of Trustee for Conversion
Provisions.
The Trustee, subject to the provisions of Section 6.1, and any
Conversion Agent shall not at any time be under any duty or
responsibility to any Holder of Securities to determine whether any
facts exist which may require any adjustment of the Conversion Rate,
or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed, or herein or in any
supplemental indenture provided to be employed, in making the
same, or whether a supplemental indenture need be entered into.
Neither the Trustee, subject to the provisions of Section 6.1, nor any
Conversion Agent shall be accountable with respect to the validity or
value (or the kind or amount) of any Common Stock, or of any other
securities or property or cash, which may at any time be issued or
delivered upon the conversion of any Security; and it or they do not
make any representation with respect thereto. Neither the Trustee,
subject to the provisions of Section 6.1, nor any Conversion Agent
shall be responsible for any failure of the Company to make or
calculate any cash payment or to issue, transfer or deliver any shares
of Common Stock or share certificates or other securities or property
or cash upon the surrender of any Security for the purpose of
conversion; and the Trustee, subject to the provisions of Section 6.1,
and any Conversion Agent shall not be responsible for any failure of
the Company to comply with any of the covenants of the Company
contained in this Article.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION XIII.1 Securities Subordinate to Senior
Indebtedness.
The Company covenants and agrees, and each Holder of a
Security, by his acceptance thereof, likewise covenants and agrees,
that, to the extent and in the manner hereinafter set forth in this
Article (subject to the provisions of Article IV), the indebtedness
represented by the Securities and the payment of the principal of, or
premium, if any, or interest (including Liquidated Damages, if any)
on, each and all of the Securities (including, but not limited to, the
Redemption Price with respect to the Securities to be called for
redemption in accordance with Article XI or the Repurchase Price
with respect to Securities submitted for repurchase in accordance with
Article XIV, are hereby expressly made subordinate and subject in
right of payment to the prior payment in full of all Senior
Indebtedness.
SECTION XIII.2 No Payment in Certain Circumstances;
Payment Over of Proceeds Upon Dissolution, Etc.
No payment shall be made with respect to the principal of, or
premium, if any, or interest (including Liquidated Damages, if any)
on the Securities (including, but not limited to, the Redemption Price
with respect to the Securities to be called for redemption in
accordance with Article XI or the Repurchase Price with respect to
Securities submitted for repurchase in accordance with Article XIV),
except payments and distributions made by the Trustee as permitted
by Section 13.9, if:
(i) a default in the payment of principal,
premium, if any, or interest (including a default under any
repurchase or redemption obligation) or other amounts with
respect to any Senior Indebtedness occurs and is continuing
(or, in the case of Senior Indebtedness for which there is a
period of grace, in the event of such a default that continues
beyond the period of grace, if any, specified in the instrument
or lease evidencing such Senior Indebtedness) unless and
until such default shall have been cured or waived or shall
have ceased to exist; or
(ii) a default, other than a payment default, on
any Designated Senior Indebtedness occurs and is continuing
that then permits holders of such Designated Senior
Indebtedness to accelerate its maturity and the Trustee
receives a notice of the default (a "Payment Blockage
Notice") from a Representative of Designated Senior
Indebtedness or the Company.
If the Trustee receives any Payment Blockage Notice
pursuant to clause (ii) above, no subsequent Payment Blockage
Notice shall be effective for purposes of this Section unless and until
(A) at least 365 days shall have elapsed since the initial effectiveness
of the immediately prior Payment Blockage Notice, and (B) all
scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and
distributions in respect of the Notes upon the earlier of:
(1) the date upon which the default is cured or waived or
ceases to exist, or
(2) in the case of a default referred to in clause (ii)
above, 179 days pass after notice is received if the maturity of such
Designated Senior Indebtedness has not been accelerated,
unless this Article XIII otherwise prohibits the payment or
distribution at the time of such payment or distribution.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the
Company or to its creditors, as such, or to its assets, or (b) any
liquidation, dissolution or other winding up of the Company, whether
voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any
other marshaling of assets and liabilities of the Company, then and in
any such event the holders of Senior Indebtedness shall be entitled to
receive payment in full of all amounts due or to become due on or in
respect of all Senior Indebtedness in cash before the Holders of the
Securities are entitled to receive any payment on account of principal
of (or premium, if any) or interest (including any Liquidated
Damages) on the Securities or on account of the purchase, redemption
or other acquisition of Securities, and to that end the holders of Senior
Indebtedness shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or
deliverable in respect of the Securities in any such case, proceeding,
dissolution, liquidation or other winding up or event.
In the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall have
received any payment or distribution of assets of the Company of any
kind or character, whether in cash, securities or other property, before
all Senior Indebtedness is paid in full, and if such fact shall, at or
prior to the time of such payment or distribution, have been made
known to the Trustee or, as the case may be, such Holder, then and in
such event such payment or distribution shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary
to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior
Indebtedness.
For purposes of this Article only, the words "cash, securities
or other property" shall not be deemed to include shares of stock of
the Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of
reorganization or readjustment, which shares of stock or securities are
subordinated in right of payment to all then outstanding Senior
Indebtedness to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article.
The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the
Company following the conveyance or transfer of its properties and
assets substantially as an entirety to another Person upon the terms
and conditions set forth in Article VII shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshaling of assets and liabilities of the
Company for the purposes of this Section if the Person formed by
such consolidation or into which the Company is merged or which
acquires by conveyance or transfer such properties and assets
substantially as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the
conditions set forth in Article VII.
In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of any
Security prohibited by the foregoing provisions of this Section, and if
such fact shall, at or prior to the time of such payment, have been
made known to the Trustee or, as the case may be, such Holder, then
and in such event such payment shall be paid over and delivered
forthwith to the Company, in the case of the Trustee, or the Trustee,
in the case of such Holder.
SECTION XIII.3 Prior Payment to Senior Indebtedness Upon
Acceleration of Securities.
In the event of the acceleration of the Securities because of an
Event of Default, no payment or distribution shall be made to the
Trustee or any holder of Securities in respect of the principal of,
premium, if any, or interest (including Liquidated Damages, if any)
on the Securities (including, but not limited to, the Redemption Price
with respect to the Securities called for redemption in accordance
with Article XI or the Repurchase Price with respect to the Securities
submitted for repurchase in accordance with Article XIV), except
payments and distributions made by the Trustee as permitted by
Section 13.9, until all Senior Indebtedness has been paid in full in
cash or other payment satisfactory to the holders of Senior
Indebtedness or such acceleration is rescinded in accordance with the
terms of this Indenture. If payment of the Securities is accelerated
because of an Event of Default, the Company shall promptly notify
holders of Senior Indebtedness of the acceleration, and the Trustee
shall promptly notify the Bank of America National Trust and
Savings Association, as Agent under the Credit Agreement (or any
successor agent thereunder of which it has received prior written
notice) of such acceleration, in each case at the address set forth in the
notice from the Agent (or successor agent) to the Trustee as being the
address to which the Trustee should send its notice pursuant to this
Section 13.3, unless, in each case, there are no payment obligations of
the Company thereunder and all obligations thereunder to extend
credit have been terminated or expired; provided, however that if the
Trustee has not received such notice address from such Agent (or
successor Agent) it need not send such notice.
SECTION XIII.4 Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this
Indenture or in any of the Securities shall prevent (a) the Company, at
any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of the
Company referred to in Section 13.2, or during the circumstances
referred to in the first paragraph of Section 13.2, or under the
conditions described in Section 13.3, from making payments at any
time of principal of (and premium, if any) or interest on the
Securities, or (b) the application by the Trustee of any money
deposited with it hereunder to the payment of or on account of the
principal of (and premium, if any) or interest on the Securities or the
retention of such payment by the Holders, if, at the time of such
application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article.
SECTION XIII.5 Subrogation to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the
Holders of the Securities shall be subrogated to the extent of the
payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article to the rights of
the holders of such Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the Senior
Indebtedness until the principal of (and premium, if any) and interest
on the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders
of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the
provisions of this Article to the holders of Senior Indebtedness by
Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and
the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior
Indebtedness.
SECTION XIII.6 Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the Holders of the
Securities on the one hand and the holders of Senior Indebtedness on
the other hand. Nothing contained in this Article or elsewhere in this
Indenture or in the Securities is intended to or shall (i) impair, as
among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders
of the Securities the principal of (and premium, if any) and interest on
the Securities as and when the same shall become due and payable in
accordance with their terms; or (ii) affect the relative rights against
the Company of the Holders of the Securities and creditors of the
Company other than the holders of Senior Indebtedness; or
(iii) prevent the Trustee or the Holder of any Security from exercising
all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of
the holders of Senior Indebtedness to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such
Holder.
SECTION XIII.7 Trustee to Effectuate Subordination.
Each holder of a Security by his acceptance thereof
authorizes and directs the Trustee on his behalf to take such action as
may be necessary or appropriate to effectuate the subordination
provided in this Article and appoints the Trustee his attorney-in-fact
for any and all such purposes.
SECTION XIII.8 No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act
on the part of the Company or by any act or failure to act, in good
faith, by any such holder of any Senior Indebtedness, or by any non-
compliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the Trustee or
the Holders of the Securities, without incurring responsibility to the
Holders of the Securities and without impairing or releasing the
subordination provided in this Article or the obligations hereunder of
the Holders of the Securities to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or
terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness, or otherwise amend or supplement in any
manner Senior Indebtedness or any instrument evidencing the same
or any agreement under which Senior Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness;
(iii) release any Person liable in any manner for the collection of
Senior Indebtedness; and (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
SECTION XIII.9 Notice to Trustee.
The Company shall give prompt written notice to the Trustee
of any fact known to the Company which would prohibit the making
of any payment to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any
payment to or by the Trustee in respect of the Securities, unless and
until the Trustee shall have received written notice thereof from the
Company or a Representative or a holder of Senior Indebtedness
(including, without limitation, a holder of Designated Senior
Indebtedness) and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of Section 6.1, shall be entitled in
all respects to assume that no such facts exist; provided, however, that
if the Trustee shall not have received the notice provided for in this
Section 13.9 prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without
limitation, the payment of the principal of (and premium, if any) or
interest (including Liquidated Damages, if any) on any Security),
then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such money and
to apply the same to the purpose for which such money was received
and shall not be affected by any notice to the contrary which may be
received by it within one Business Day prior to such date.
Notwithstanding anything in this Article XIII to the contrary,
nothing shall prevent any payment by the Trustee to the Holders of
monies deposited with it pursuant to Section 4.1, and any such
payment shall not be subject to the provisions of Section 13.2 or 13.3.
Subject to the provisions of Section 6.1, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a Representative or a holder of Senior
Indebtedness (including, without limitation, a holder of Designated
Senior Indebtedness) to establish that such notice has been given by a
Representative or a holder of Senior Indebtedness (including, without
limitation, a holder of Designated Senior Indebtedness). In the event
that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence
to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and
any other facts pertinent to the rights of such Person under this
Article, and if such evidence is not furnished, the Trustee may defer
any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
SECTION XIII.10 Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee, subject to the provisions of
Section 6.1, and the Holders of the Securities shall be entitled to rely
upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding up or similar case or
proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of
creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article.
SECTION XIII.11 Trustee Not Fiduciary for Holders of Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such
holders if it shall in good faith mistakenly pay over or distribute to
Holders of Securities or to the Company or to any other Person cash,
property or securities to which any holders of Senior Indebtedness
shall be entitled by virtue of this Article or otherwise.
SECTION XIII.12 Reliance by Holders of Senior Indebtedness on
Subordination Provisions.
Each Holder by accepting a Security acknowledges and
agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of
any Senior Indebtedness, whether such Senior Indebtedness was
created or acquired before or after the issuance of the Securities, to
acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in
acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness, and no amendment or modification of the
provisions contained herein shall diminish the rights of such holders
of Senior Indebtedness unless such holders shall have agreed in
writing thereto.
SECTION XIII.13 Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all
the rights set forth in this Article with respect to any Senior
Indebtedness which may at any time be held by it, to the same extent
as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 6.7.
SECTION XIII.14 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting
hereunder, the term "Trustee" as used in this Article shall in such
case (unless the context otherwise requires) be construed as extending
to and including such Paying Agent within its meaning as fully for all
intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided, however,
that Section 13.13 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION XIII.15 Certain Conversions and Repurchases Deemed
Payment.
For the purposes of this Article only, (i) the issuance and
delivery of junior securities upon conversion of Securities in
accordance with Article XII or upon the repurchase of Securities in
accordance with Article XIV shall not be deemed to constitute a
payment or distribution on account of the principal of or premium or
interest (including Liquidated Damages, if any) on Securities or on
account of the purchase or other acquisition of Securities, and (ii) the
payment, issuance or delivery of cash (except in satisfaction of
fractional shares pursuant to Section 12.3), property or securities
(other than junior securities) upon conversion of a Security shall be
deemed to constitute payment on account of the principal of such
Security. For the purposes of this Section, the term "junior
securities" means (a) shares of any stock of any class of the Company
and securities into which the Securities are convertible pursuant to
Article XII and (b) securities of the Company which are subordinated
in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the
Securities are so subordinated as provided in this Article. Nothing
contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of
the Securities, the right, which is absolute and unconditional, of the
Holder of any Security to convert such Security in accordance with
Article XII or to exchange such Security for Common Stock in
accordance with Article XIV if the Company elects to satisfy the
obligations under Article XIV by the delivery of Common Stock.
ARTICLE XIV
REPURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDER UPON A CHANGE IN CONTROL
SECTION XIV.1 Right to Require Repurchase.
In the event that a Change in Control (as hereinafter defined)
shall occur, then each Holder shall have the right, at the Holder's
option, but subject to the provisions of Section 14.2, to require the
Company to repurchase, and upon the exercise of such right the
Company shall repurchase, all of such Holder's Securities not
theretofore called for redemption, or any portion of the principal
amount thereof that is equal to U.S. $1,000 or any integral multiple of
U.S. $1,000 in excess thereof (provided that no single Security may
be repurchased in part unless the portion of the principal amount of
such Security to be Outstanding after such repurchase is equal to U.S.
$1,000 or integral multiples of U.S. $1,000 in excess thereof), on the
date (the "Repurchase Date") that is 45 days after the date of the
Company Notice (as defined in Section 14.3) at a purchase price
equal to 100% of the principal amount of the Securities to be
repurchased plus interest accrued to the Repurchase Date (the
"Repurchase Price"); provided, however, that installments of interest
on Securities whose Stated Maturity is on or prior to the Repurchase
Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such on the relevant
Record Date according to their terms and the provisions of
Section 3.7. Such right to require the repurchase of the Securities
shall not continue after a discharge of the Company from its
obligations with respect to the Securities in accordance with Article
IV, unless a Change in Control shall have occurred prior to such
discharge. At the option of the Company, the Repurchase Price may
be paid in cash or, subject to the fulfillment by the Company of the
conditions set forth Section 14.2, by delivery of shares of Common
Stock having a fair market value equal to the Repurchase Price.
Whenever in this Indenture (including Sections 2.2, 3.1, 5.1(1) and
5.8) there is a reference, in any context, to the principal of any
Security as of any time, such reference shall be deemed to include
reference to the Repurchase Price payable in respect of such Security
to the extent that such Repurchase Price is, was or would be so
payable at such time, and express mention of the Repurchase Price in
any provision of this Indenture shall not be construed as excluding the
Repurchase Price in those provisions of this Indenture when such
express mention is not made; provided, however, that for the
purposes of Article XIII such reference shall be deemed to include
reference to the Repurchase Price only to the extent the Repurchase
Price is payable in cash.
SECTION XIV.2 Conditions to the Company's Election to Pay
the Repurchase Price in Common Stock.
The Company may elect to pay the Repurchase Price by
delivery of shares of Common Stock pursuant to Section 14.1 if and
only if the following conditions shall have been satisfied:
(1) The shares of Common Stock deliverable in payment
of the Repurchase Price shall have a fair market value as of the
Repurchase Date of not less than the Repurchase Price. For purposes
of Section 14.1 and this Section 14.2, the fair market value of shares
of Common Stock shall be determined by the Company and shall be
equal to 95% of the average of the Closing Prices Per Share for the
five consecutive Trading Days immediately preceding the second
Trading Day prior to the Repurchase Date;
(2) The Repurchase Price shall be paid only in cash in
the event any shares of Common Stock to be issued upon repurchase
of Securities hereunder (i) require registration under any federal
securities law before such shares may be freely transferrable without
being subject to any transfer restrictions under the Securities Act
upon repurchase and if such registration is not completed or does not
become effective prior to the Repurchase Date, and/or (ii) require
registration with or approval of any governmental authority under any
state law or any other federal law before such shares may be validly
issued or delivered upon repurchase and if such registration is not
completed or does not become effective or such approval is not
obtained prior to the Repurchase Date;
(3) Payment of the Repurchase Price may not be made in
Common Stock unless such stock is, or shall have been, approved for
quotation on the Nasdaq National Market or listed on a national
securities exchange, in either case, prior to the Repurchase Date; and
(4) All shares of Common Stock which may be issued
upon repurchase of Securities will be issued out of the Company's
authorized but unissued Common Stock and, will upon issue, be duly
and validly issued and fully paid and non-assessable and free of any
preemptive rights.
If all of the conditions set forth in this Section 14.2 are not
satisfied in accordance with the terms thereof, the Repurchase Price
shall be paid by the Company only in cash.
SECTION XIV.3 Notices; Method of Exercising Repurchase
Right, Etc.
(1) Unless the Company shall have theretofore called for
redemption all of the Outstanding Securities, on or before the 30th
day after the occurrence of a Change in Control, the Company or, at
the request and expense of the Company on or before the 15th day
after such occurrence, the Trustee, shall give to all Holders of
Securities, in the manner provided in Section 1.6, notice (the
"Company Notice") of the occurrence of the Change of Control and
of the repurchase right set forth herein arising as a result thereof. The
Company shall also deliver a copy of such notice of a repurchase right
to the Trustee.
Each notice of a repurchase right shall state:
(i) the Repurchase Date,
(ii) the date by which the repurchase right must
be exercised,
(iii) the Repurchase Price, and whether the
Repurchase Price shall be paid by the
Company in cash or by delivery of shares of
Common Stock,
(iv) a description of the procedure which a
Holder must follow to exercise a repurchase
right, and the place or places where such
Securities, are to be surrendered for payment
of the Repurchase Price and accrued interest,
if any,
(v) that on the Repurchase Date the Repurchase
Price, and accrued interest, if any, will
become due and payable upon each such
Security designated by the Holder to be
repurchased, and that interest thereon shall
cease to accrue on and after said date,
(vi) the Conversion Rate then in effect, the date
on which the right to convert the principal
amount of the Securities to be repurchased
will terminate and the place or places where
such Securities may be surrendered for
conversion, and
(vii) the place or places that the Security
certificate with the Election of Holder to
Require Repurchase as specified in Section
2.2 shall be delivered, and if the Security is a
Restricted Securities Certificate the place or
places that the Surrender Certificate required
by Section 14.3(9) shall be delivered.
No failure of the Company to give the foregoing notices or
defect therein shall limit any Holder's right to exercise a repurchase
right or affect the validity of the proceedings for the repurchase of
Securities.
If any of the foregoing provisions or other provisions of this
Article XIV are inconsistent with applicable law, such law shall
govern.
(2) To exercise a repurchase right, a Holder shall deliver
to the Trustee on or before the 30th day after the date of the Company
Notice (i) written notice of the Holder's exercise of such right, which
notice shall set forth the name of the Holder, the principal amount of
the Securities to be repurchased (and, if any Security is to
repurchased in part, the serial number thereof, the portion of the
principal amount thereof to be repurchased and the name of the
Person in which the portion thereof to remain Outstanding after such
repurchase is to be registered) and a statement that an election to
exercise the repurchase right is being made thereby, and, in the event
that the Repurchase Price shall be paid in shares of Common Stock,
the name or names (with addresses) in which the certificate or
certificates for shares of Common Stock shall be issued, and (ii) the
Securities with respect to which the repurchase right is being
exercised. Such written notice shall be irrevocable, except that the
right of the Holder to convert the Securities with respect to which the
repurchase right is being exercised shall continue until the close of
business on the Business Day prior to the Repurchase Date.
(3) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to
be paid to the Trustee the Repurchase Price in cash or shares of
Common Stock, as provided above, for payment to the Holder on the
Repurchase Date or, if shares of Common Stock are to be paid, as
promptly after the Repurchase Date as practicable, together with
accrued and unpaid interest to the Repurchase Date payable with
respect to the Securities as to which the purchase right has been
exercised; provided, however, that installments of interest that mature
on or prior to the Repurchase Date shall be payable in cash to the
Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Regular
Record Date.
(4) If any Security (or portion thereof) surrendered for
repurchase shall not be so paid on the Repurchase Date, the principal
amount of such Security (or portion thereof, as the case may be) shall,
until paid, bear interest to the extent permitted by applicable law from
the Repurchase Date at the rate of 6% per annum, and each Security
shall remain convertible into Common Stock until the principal of
such Security (or portion thereof, as the case may be) shall have been
paid or duly provided for.
(5) Any Security which is to be repurchased only in part
shall be surrendered to the Trustee (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall
authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized
denomination in aggregate principal amount equal to and in exchange
for the unrepurchased portion of the principal of the Security so
surrendered.
(6) Any issuance of shares of Common Stock in respect
of the Repurchase Price shall be deemed to have been effected
immediately prior to the close of business on the Repurchase Date
and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such
repurchase shall be deemed to have become on the Repurchase Date
the holder or holders of record of the shares represented thereby;
provided, however, that any surrender for repurchase on a date when
the stock transfer books of the Company shall be closed shall
constitute the Person or Persons in whose name or names the
certificate or certificates for such shares are to be issued as the record
holder or holders thereof for all purposes at the opening of business
on the next succeeding day on which such stock transfer books are
open. No payment or adjustment shall be made for dividends or
distributions on any Common Stock issued upon repurchase of any
Security declared prior to the Repurchase Date.
(7) No fractions of shares shall be issued upon
repurchase of Securities. If more than one Security shall be
repurchased from the same Holder and the Repurchase Price shall be
payable in shares of Common Stock, the number of full shares which
shall be issuable upon such repurchase shall be computed on the basis
of the aggregate principal amount of the Securities so repurchased.
Instead of any fractional share of Common Stock which would
otherwise be issuable on the repurchase of any Security or Securities,
the Company will deliver to the applicable Holder its check for the
current market value of such fractional share. The current market
value of a fraction of a share is determined by multiplying the current
market price of a full share by the fraction, and rounding the result to
the nearest cent. For purposes of this Section, the current market
price of a share of Common Stock is the Closing Price Per Share of
the Common Stock on the Trading Day immediately preceding the
Repurchase Date.
(8) Any issuance and delivery of certificates for shares of
Common Stock on repurchase of Securities shall be made without
charge to the Holder of Securities being repurchased for such
certificates or for any tax or duty in respect of the issuance or delivery
of such certificates or the securities represented thereby; provided,
however, that the Company shall not be required to pay any tax or
duty which may be payable in respect of (i) income of the Holder or
(ii) any transfer involved in the issuance or delivery of certificates for
shares of Common Stock in a name other than that of the Holder of
the Securities being repurchased, and no such issuance or delivery
shall be made unless and until the Person requesting such issuance or
delivery has paid to the Company the amount of any such tax or duty
or has established, to the satisfaction of the Company, that such tax or
duty has been paid.
(9) If shares of Common Stock to be delivered upon
repurchase of a Security are to be registered in a name other than that
of the beneficial owner of such Security, then such Holder must
deliver to the Trustee a Surrender Certificate, dated the date of
surrender of such Restricted Security and signed by such beneficial
owner, as to compliance with the restrictions on transfer applicable to
such Restricted Security. Neither the Trustee nor any Registrar or
Transfer Agent or other agents shall be required to register in a name
other than that of the beneficial owner shares of Common Stock
issued upon repurchase of any such Restricted Security not so
accompanied by a properly completed Surrender Certificate.
(10) All Securities delivered for repurchase shall be
delivered to the Trustee to be canceled at the direction of the Trustee,
which shall dispose of the same as provided in Section 3.9.
SECTION XIV.4 Certain Definitions.
For purposes of this Article XIV,
(1) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3, as in effect on the date of the original
execution of this Indenture, promulgated by the Commission pursuant
to the Exchange Act;
(2) a "Change in Control" shall be deemed to have
occurred at the time, after the original issuance of the Securities, of:
(i) the acquisition by any Person (including any
syndicate or group deemed to be a "person" under Section 13(d)(3) of
the Exchange Act) of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series
of transactions, of shares of capital stock of the Company entitling
such person to exercise 50% or more of the total voting power of all
shares of capital stock of the Company entitled to vote generally in
the elections of directors (any shares of voting stock of which such
person or group is the beneficial owner that are not then outstanding
being deemed outstanding for purposes of calculating such
percentage), other than any such acquisition by the Company, any
Subsidiary of the Company or any employee benefit plan of the
Company existing on the date of this Indenture; or
(ii) any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of another
Person into the Company, or any sale or transfer of all or substantially
all of the assets (other than to a wholly-owned subsidiary of the
Company) of the Company to any other Person (other than (a) any
such transaction pursuant to which the holders of 50% or more of the
total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors immediately prior to
such transaction have, directly or indirectly, at least 50% or more of
the total voting power of all shares of capital stock of the continuing
or surviving corporation entitled to vote generally in elections of
directors of the continuing or surviving corporation immediately after
such transaction and (b) a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of capital stock of the Company or (y) which is effected solely
to change the jurisdiction of incorporation of the Company and results
in a reclassification, conversion or exchange of outstanding shares of
Common Stock into solely shares of common stock);
provided, however, that a Change in Control shall not be deemed to
have occurred if either (a) the Closing Price Per Share of the
Common Stock for any five Trading Days within the period of 10
consecutive Trading Days ending immediately after the later of the
Change in Control or the public announcement of the Change in
Control (in the case of a Change in Control under clause 14.4(2)(i)
above) or the period of 10 consecutive Trading Days ending
immediately before the Change in Control (in the case of a Change in
Control under clause 14.4(2) (ii) above) shall equal or exceed 105%
of the Conversion Price of the Securities in effect on each such
Trading Day, or (b) all of the consideration (excluding cash payments
for fractional shares and cash payments made pursuant to dissenters'
appraisal rights) in a merger or consolidation constituting the Change
in Control described in clause 14.4(2)(i) and/or clause 14.4(2) (ii)
above consists of shares of common stock traded on a national
securities exchange or quoted on the Nasdaq National Market (or will
be so traded or quoted immediately following the Change in Control)
and as a result of such transaction or transactions the Securities
become convertible solely into such common stock.
(3) the term "Conversion Price" shall equal U.S. $1,000
divided by the Conversion Rate; and
(4) for purposes of Section 14.4(2)(i), the term "person"
shall include any syndicate or group which would be deemed to be a
"person" under Section 13(d)(3) of the Exchange Act, as in effect on
the date of the original execution of this Indenture.
SECTION XIV.5 Consolidation, Merger, etc. In the
case of any consolidation, conveyance, sale, transfer or lease of all or
substantially all of the assets of the Company to which Section 12.11
applies, in which the Common Stock of the Company is changed or
exchanged as a result into the right to receive shares of stock and
other securities or property or assets (including cash) which includes
shares of Common Stock of the Company or common stock of
another Person that are, or upon issuance will be, traded on a United
States national securities exchange or approved for trading on an
established automated over-the-counter trading market in the United
States and such shares constitute at the time such change or exchange
becomes effective in excess of 50% of the aggregate fair market value
of such shares of stock and other securities, property and assets
(including cash) (as determined by the Company, which
determination shall be conclusive and binding), then the Person
formed by such consolidation or resulting from such merger or
combination or which acquires the properties or assets (including
cash) of the Company, as the case may be, shall execute and deliver
to the Trustee a supplemental indenture (which shall comply with the
Trust Indenture Act as in force at the date of execution of such
supplemental indenture) modifying the provisions of this Indenture
relating to the right of Holders to cause the Company to repurchase
the Securities following a Change in Control, including without
limitation the applicable provisions of this Article XIV and the
definitions of the Common Stock and Change in Control, as
appropriate, and such other related definitions set forth herein as
determined in good faith by the Company (which determination shall
be conclusive and binding), to make such provisions apply in the
event of a subsequent Change of Control to the common stock and
the issuer thereof if different from the Company and Common Stock
of the Company (in lieu of the Company and the Common Stock of
the Company).
ARTICLE XV
HOLDERS LISTS AND REPORTS BY TRUSTEE AND
COMPANY; NON-RECOURSE
SECTION XV.1 Company to Furnish Trustee Names and
Addresses of Holders.
The Company will furnish or cause to be furnished to the
Trustee:
(1) semi-annually, not more than 15 days after the
Regular Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders of
Securities as of such Regular Record Date, and
(2) at such other times as the Trustee may reasonably
request in writing, within 30 days after the receipt by the Company of
any such request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished;
provided, however, that no such list need be furnished so long as the
Trustee is acting as Security Registrar.
SECTION XV.2 Preservation of Information.
(1) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained
in the most recent list furnished to the Trustee as provided in Section
15.1 and the names and addresses of Holders received by the Trustee
in its capacity as Security Registrar. The Trustee may destroy any
list, if any, furnished to it as provided in Section 15.1 upon receipt of
a new list so furnished.
(2) After this Indenture has been qualified under the
Trust Indenture Act, the rights of Holders to communicate with other
Holders with respect to their rights under this Indenture or under the
Securities, and the corresponding rights and duties of the Trustee,
shall be as provided by the Trust Indenture Act.
(3) Every Holder of Securities, by receiving and holding
the same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any agent of either of them shall be
held accountable by reason of any disclosure of information as to
names and addresses of Holders made pursuant to the Trust Indenture
Act.
SECTION XV.3 No Recourse Against Others.
An incorporator or any past, present or future director,
officer, employee or stockholder, as such, of the Company or any
subsidiary shall not have any liability for any obligations of the
Company under the Securities or this Indenture or for any claim based
on, in respect of or by reason of such obligations or their creation. By
accepting a Security, each Holder shall waive and release all such
liability. Such waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION XV.4 Reports by Trustee.
(1) After this Indenture has been qualified under the
Trust Indenture Act, the Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto.
(2) After this Indenture has been qualified under the
Trust Indenture Act, a copy of each such report shall, at the time of
such transmission to Holders, be filed by the Trustee with each stock
exchange upon which the Securities are listed, with the Commission
and with the Company. The Company will notify the Trustee when
the Securities are listed on any stock exchange.
SECTION XV.5 Reports by Company.
After this Indenture has been qualified under the Trust
Indenture Act, the Company shall file with the Trustee and the
Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act; provided that any such information,
documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 shall be filed with the Trustee within 15 days after the same is
so required to be filed with the Commission.
ARTICLE XVI
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 16.1 Indenture and Securities Solely Corporate
Obligations.
No recourse for the payment of the principal of or premium,
if any, or interest on any Security and no recourse under or upon any
obligation, covenant or agreement of the Company in this Indenture
or in any supplemental indenture or in any Security, or because of the
creation of any indebtedness represented thereby, shall be had against
any incorporator, stockholder, employee, agent, officer, or director or
subsidiary, as such, past, present or future, of the Company or of any
successor corporation, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is
hereby waived and released as a condition of, and as a consideration
for, the execution of this Indenture and the issue of the Securities.
_____________________
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and year
first above written.
CIRRUS LOGIC,
INC.
By
Name:
Title:
Attest:
______________________________
Name:
Title:
STATE STREET
BANK AND TRUST COMPANY,
as Trustee
By
Name:
Title:
Attest:
_______________________________
Name:
Title:
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to 3.5(2)(i), (iii) and (v)
of the Indenture)
State Street Bank and Trust Company
2 International Place
4th Floor
Boston, Massachusetts 02110
Re: 6% Convertible Subordinated Notes due
December 15, 2003 of Cirrus Logic, Inc. (the
"Securities")
Reference is made to the Indenture, dated as of December 15
, 1996 (the "Indenture"), from Cirrus Logic, Inc. (the "Company") to
State Street Bank and Trust Company, as Trustee. Terms used herein
and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to U.S. $____________ principal
amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial
owner of the Specified Securities or (ii) it is acting on behalf of all the
beneficial owners of the Specified Securities and is duly authorized
by them to do so. Such beneficial owner or owners are referred to
herein collectively as the "Owner". If the Specified Securities are
represented by a Global Security, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as
or on behalf of the Owner. If the Specified Securities are not
represented by a Global Security, they are registered in the name of
the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in
the form of a Regulation S Security. In connection with such transfer,
the Owner hereby certifies that, unless such transfer is being effected
pursuant to an effective registration statement under the Securities
Act, it is being effected in accordance with Rule 904 or Rule 144
under the Securities Act and with all applicable securities laws of the
states of the United States and other jurisdictions. Accordingly, the
Owner hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected
in accordance with Rule 904:
(A) the Owner is not a distributor of the
Securities, an affiliate of the Company or any such distributor or a
person acting on behalf of any of the foregoing;
(B) the offer of the Specified Securities was not
made to a person in the United States;
(C) either:
(i) at the time the buy order was
originated, the Transferee was outside the United States or the Owner
and any person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in,
on or through the facilities of the Eurobond market, as regulated by
the Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been prearranged
with a buyer in the United States;
(D) no directed selling efforts have been made in
the United States by or on behalf of the Owner or any affiliate
thereof;
(E) if the Owner is a dealer in securities or has
received a selling concession, fee or other remuneration in respect of
the Specified Securities, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(c)(1) have been
satisfied; and
(F) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected
pursuant to Rule 144:
(A) the transfer is occurring after a holding
period of at least two years (computed in accordance with paragraph
(d) of Rule 144) has elapsed since the date the Specified Securities
were acquired from the Company or from an affiliate (as such term is
defined in Rule 144) of the Company, whichever is later, and is being
effected in accordance with the applicable amount, manner of sale
and notice requirements of paragraphs (e), (f) and (h) of Rule 144; or
(B) the transfer is occurring after a period of at
least three years has elapsed since the date the Specified Securities
were acquired from the Company or from an affiliate (as such term is
defined in Rule 144) of the Company, whichever is later, and the
Owner is not, and during the preceding three months has not been, an
affiliate of the Company.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial
Purchasers.
Dated:
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the
person signing on behalf of
the Undersigned must be
stated.)
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to 3.5(2)(ii), (iii), (iv) and (v)
of the Indenture)
State Street Bank and Trust Company
2 International Place
4th Floor
Boston, Massachusetts 02110
Re: 6% Convertible Subordinated Notes due
December 15, 2003 of Cirrus Logic, Inc. (the
"Securities")
Reference is made to the Indenture, dated as of December 15,
1996 (the "Indenture"), from Cirrus Logic, Inc. (the "Company") to
State Street Bank and Trust Company, as Trustee. Terms used herein
and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to U.S. $_____________ principal
amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial
owner of the Specified Securities or (ii) it is acting on behalf of all the
beneficial owners of the Specified Securities and is duly authorized
by them to do so. Such beneficial owner or owners are referred to
herein collectively as the "Owner". If the Specified Securities are
represented by a Global Security, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as
or on behalf of the Owner. If the Specified Securities are not
represented by a Global Security, they are registered in the name of
the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in
the form of a Restricted Security. In connection with such transfer,
the Owner hereby certifies that, unless such transfer is being effected
pursuant to an effective registration statement under the Securities
Act, it is being effected in accordance with Rule 144A or Rule 144
under the Securities Act and all applicable securities laws of the states
of the United States and other jurisdictions. Accordingly, the Owner
hereby further certifies as:
(1) Rule 144A Transfers. If the transfer is being
effected in accordance with Rule 144A:
(A) the Specified Securities are being
transferred to a person that the Owner and any person acting on its
behalf reasonably believe is a "qualified institutional buyer" within
the meaning of Rule 144A, acquiring for its own account or for the
account of a qualified institutional buyer; and
(B) the Owner and any person acting on
its behalf have taken reasonable steps to ensure that the Transferee is
aware that the Owner may be relying on Rule 144A in connection
with the transfer; and
(2) Rule 144 Transfers. If the transfer is being
effected pursuant to Rule 144:
(A) the transfer is occurring after a
holding period of at least two years (computed in accordance with
paragraph (d) of Rule 144) has elapsed since the date the Specified
Securities were acquired from the Company or from an affiliate (as
such term is defined in Rule 144) of the Company, whichever is later,
and is being effected in accordance with the applicable amount,
manner of sale and notice requirements of paragraphs (e), (f) and (h)
of Rule 144; or
(B) the transfer is occurring after a
period of at least three years has elapsed since the date the Specified
Securities were acquired from the Company or from an affiliate (as
such term is defined in Rule 144) of the Company, whichever is later,
and the Owner is not, and during the preceding three months has not
been, an affiliate of the Company.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial
Purchasers.
Dated:
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
ANNEX C -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to 3.5(3))
State Street Bank and Trust Company
2 International Place
4th Floor
Boston, Massachusetts 02110
Re: 6% Convertible Subordinated Notes due
December 15, 2003 of Cirrus Logic, Inc. (the
"Securities")
Reference is made to the Indenture, dated as of December 15
, 1996 (the "Indenture"), from Cirrus Logic, Inc. (the "Company") to
State Street Bank and Trust Company, as Trustee. Terms used herein
and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to U.S. $_____________ principal
amount of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial
owner of the Specified Securities or (ii) it is acting on behalf of all the
beneficial owners of the Specified Securities and is duly authorized by
them to do so. Such beneficial owner or owners are referred to herein
collectively as the "Owner". If the Specified Securities are represented
by a Global Security, they are held through the Depositary or an Agent
Member in the name of the Undersigned, as or on behalf of the
Owner. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
exchanged for Securities bearing no Securities Act Legend pursuant to
Section 3.5(3) of the Indenture. In connection with such exchange,
the Owner hereby certifies that the exchange is occurring after a
period of at least three years has elapsed since the date the Specified
Securities were acquired from the Company or from an affiliate (as
such term is defined in Rule 144) of the Company, whichever is later,
and the Owner is not, and during the preceding three months has not
been, an affiliate of the Company. The Owner also acknowledges that
any future transfers of the Specified Securities must comply with all
applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial
Purchasers.
Dated:
(Print the name of the Undersigned, as such term is defined in
the second paragraph of this certificate.)
By:
Name:
Title:
(If the Undersigned is a corporation, partnership or fiduciary,
the title of the person signing on behalf of the Undersigned
must be stated.)
ANNEX D -- Form of
Surrender Certificate
In connection with the certification contemplated by Section
12.2 or 14.3(9) relating to compliance with certain restrictions relating
to transfers of Restricted Securities, such certification shall be provided
substantially in the form of the following certificate, with only such
changes thereto as shall be approved by the Company and Goldman,
Sachs & Co.:
"CERTIFICATE
CIRRUS LOGIC, INC.
6% CONVERTIBLE NOTES DUE DECEMBER 15, 2003
This is to certify that as of the date hereof with respect to U.S.
$________ principal amount (as defined in the Indenture) of the
above-captioned securities surrendered on the date hereof (the
"Surrendered Securities") for registration of transfer, or for conversion
or repurchase where the securities issuable upon such conversion or
repurchase are to be registered in a name other than that of the
undersigned Holder (each such transaction being a "transfer"), the
undersigned Holder (as defined in the Indenture) certifies that the
transfer of Surrendered Securities associated with such transfer
complies with the restrictive legend set forth on the face of the
Surrendered Securities for the reason checked below:
_______ The transfer of the Surrendered Securities complies
with Rule 144 under the United States Securities Act
of 1933, as amended (the "Securities Act"); or
_______ The transfer of the Surrendered Securities complies
with Rule 144A under the Securities Act; or
_______ The transfer of the Surrendered Securities complies
with Rule 904 under the Securities Act.
_______ The transfer of the Surrendered Securities has been
made to an institution that is an "accredited investor"
within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act in a transaction exempt from
the registration requirements of the Securities Act.
[Name of Holder]
____________________
Dated: ____________, ____*"
*To be dated the date
of surrender
Cirrus Logic, Inc.
6% Convertible Subordinated Notes due December 15, 2003
Registration Rights Agreement
Dated as of
December 18, 1996
Goldman, Sachs & Co.,
Salomon Brothers Inc,
J.P. Morgan Securities Inc.,
Robertson, Stephens & Company LLC,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Cirrus Logic, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Goldman, Sachs & Co.,
Salomon Brothers Inc, J.P. Morgan Securities Inc. and Robertson
Stephens & Company LLC (the "Purchasers") upon the terms set
forth in a purchase agreement dated December 12, 1996 (the
"Purchase Agreement") between the Purchasers and the Company,
its 6% Convertible Subordinated Notes due December 15, 2003. As
an inducement to the Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations
of the Purchasers thereunder, the Company agrees with the
Purchasers, (i) for the benefit of the Purchasers and (ii) for
the benefit of the Holders (as defined below) from time to time
of the Registrable Securities (as defined below), including the
Purchasers, as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in or
pursuant to the Purchase Agreement or the Offering Circular,
dated December 12, 1996, in respect of the Securities. As used
in this Agreement, the following capitalized defined terms shall
have the following meanings:
"Affiliate" of any specified Person means any other Person
which, directly or indirectly, is in control of, is controlled
by, or is under common control with such specified Person. For
purposes of this definition, control of a Person means the
power, direct or indirect, to direct or cause the direction of
the management and policies of such Person whether by contract
or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" shall mean this Registration Rights Agreement
as the same may be amended, supplemented or modified from time
to time in accordance with the terms hereof.
"Commission" means the United States Securities and
Exchange Commission.
"Common Stock" means the Common Stock, no par value, of
the Company and any other shares of common stock as may
constitute "Common Stock" for purposes of the Indenture.
"DTC" means The Depository Trust Company.
"Effectiveness Period" has the meaning set forth in
Section 2(b) hereof.
"Electing Holder" shall mean, with respect to any Shelf
Registration Statement, a Holder electing to sell Registrable
Securities thereunder.
"Exchange Act" means the United States Securities Exchange
Act of 1934, as amended and the rules and regulations
promulgated thereunder.
"Holder" shall mean any person that is the record owner of
Registrable Securities (and includes any person that has a
beneficial interest in any Registrable Security in book-entry
form).
"Indenture" the Indenture, dated as of December 15, 1996,
between the Company and the Trustee thereunder, pursuant to
which the Securities are being issued, as amended, modified or
supplemented from time to time in accordance with the terms
thereof.
"Issue Date" means December 23, 1996.
"Liquidated Damages" has the meaning set forth in
Section 2(c).
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer
an underwritten offering, if any, as set forth in Section 6
hereof.
"Person" shall mean an individual, partnership,
corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
"Prospectus" means the prospectus included in any Shelf
Registration Statement (including, without limitation, a
prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement
in reliance upon Rule 430A under the Securities Act), as amended
or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable
Securities.
"Registration Default" has the meaning set forth in
Section 2(c) hereof.
"Rule 144" shall mean Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be
amended from time to time, or any successor rule or regulation.
"Rule 144A" shall mean Rule 144A promulgated by the
Commission pursuant to the Securities Act, as such Rule may be
amended from time to time, or any successor rule or regulation.
"Rule 415" shall mean Rule 415 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be
amended from time to time, or any successor rule or regulation.
"Rule 430A" shall mean Rule 430A promulgated by the
Commission pursuant to the Securities Act, as such Rule may be
amended from time to time, or any successor rule or regulation.
"Restricted Securities" shall mean all Securities required
pursuant to Section 3.5(3) of the Indenture to bear any
Restricted Securities Legend (as defined in the Indenture).
"Registrable Security" shall mean any Restricted Security
and any share of Common Stock issuable upon conversion thereof
except any such Restricted Security or share of Common Stock
which (i) has been effectively registered under the Securities
Act and sold in a manner contemplated by the Registration
Statement, (ii) has been transferred in compliance with Rule 144
under the Securities Act (or any successor provision thereto),
or is transferable pursuant to paragraph (k) of such Rule 144
(or any successor provision thereto), (iii) has been resold in
compliance with Regulation S under the Securities Act (or any
successor thereto) and does not constitute the unsold allotment
of a distributor within the meaning of Regulation S under the
Securities Act, or (iv) has otherwise been transferred and a new
Security or share of Common Stock not subject to transfer
restrictions under the Securities Act has been delivered by or
on behalf of the Company in accordance with Section 3.5(2) of
the Indenture.
"Securities" shall mean the $250,000,000 aggregate
principal amount of 6% Convertible Subordinated Notes due
December 15, 2003 of the Company being issued pursuant to the
Indenture (together with up to $50,000,000 aggregate principal
amount of such Convertible Subordinated Notes if, and to the
extent, the Purchasers' over allotment option is exercised).
"Securities Act" means the United States Securities Act of
1933, as amended and the rules and regulations promulgated
thereunder.
"Shelf Registration" means a registration effected
pursuant to Section 2 hereof.
"Shelf Registration Statement" means a shelf registration
statement of the Company pursuant to the provisions of Section 2
hereof filed with the Commission which covers some or all of the
Registrable Securities, as applicable, on an appropriate form
under Rule 415 under the Securities Act, or any similar rule
that may be adopted by the Commission, amendments and
supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Special Counsel" means any special counsel to the
Holders, determined as provided in Section 4 hereof.
"Trust Indenture Act" has the meaning set forth in
Section 1.1 of the Indenture.
"Trustee" the Trustee under the Indenture.
"underwriter" means any underwriter of Registrable
Securities in connection with an offering thereof under a Shelf
Registration Statement.
2. Shelf Registration.
(a) The Company shall, within 90 calendar days
following the Issue Date of the Securities, file with the
Commission a Shelf Registration Statement relating to the offer
and sale of the Registrable Securities by the Holders from time
to time in accordance with the methods of distribution elected
by such Holders and set forth in such Shelf Registration
Statement and, thereafter, shall use its reasonable efforts to
cause such Shelf Registration Statement to be declared effective
under the Securities Act within 180 calendar days after the
Issue Date; provided, however, that no Holder shall be entitled
to have the Registrable Securities held by it covered by such
Shelf Registration unless such Holder is in compliance with
Section 3(m) hereof.
(b) The Company shall use its reasonable efforts:
(i) To keep the Shelf Registration Statement
continuously effective in order to permit the
Prospectus forming part thereof to be usable by
Holders for a period of three years from the Issue
Date or such shorter period that will terminate upon
the earliest of the following: (A) when all the
Securities covered by the Shelf Registration
Statement have been sold pursuant to the Shelf
Registration Statement, (B) when all shares of
Common Stock issued upon conversion of any such
Securities that had not been sold pursuant to the
Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement and (C) when
there shall cease to be outstanding Registrable
Securities (in any such case, such period being
called the "Effectiveness Period"); and
(ii) After the effectiveness of the Shelf
Registration Statement, promptly upon the request of
any Holder, to take any action reasonably necessary
to register the sale of any Registrable Securities
of such Holder and to identify such Holder as a
selling securityholder.
The Company shall be deemed not to have used its reasonable
efforts to keep the Shelf Registration Statement effective
during the requisite period if the Company voluntarily takes any
action that would result in Holders of Registrable Securities
covered thereby not being able to offer and sell any such
Registrable Securities during that period, unless (i) such
action is required by applicable law, (ii) the continued
effectiveness of the Shelf Registration Statement would require
the Company to disclose a material financing, acquisition or
other corporate transaction, and the Board of Directors shall
have determined in good faith that such disclosure is not in the
reasonable interests of the Company and its Common Stockholders,
or (iii) the Board of Directors shall have determined in good
faith that there is a valid business purpose for such
suspension, and (x), in the case of clause (i) above, the
Company thereafter promptly complies with the requirements of
paragraph 3(i) below and (y) in the case of clauses (ii) and
(iii) above, the Company complies with its obligations, if any,
to pay Liquidated Damages.
(c) (1) If (i) on or prior to 90 days following
Issue Date a Shelf Registration Statement has not been filed
with the Commission or (ii) on or prior to the 180th day
following the Issue Date, such Shelf Registration Statement is
not declared effective (each, a "Registration Default"),
additional interest ("Liquidated Damages") will accrue on the
Restricted Securities from and including the date following such
Registration Default until such time as such Shelf Registration
Statement is filed or such Shelf Registration Statement is
declared effective, as the case may be. Liquidated Damages will
be paid semi-annually in arrears, with the first semi-annual
payment due on the first Interest Payment Date under the
Indenture following the date on such Liquidated Damages begin to
accrue, and will accrue at a rate per annual equal to an
additional one-quarter of one percent (0.25%) of the principal
amount, to and including the 90th day following such
Registration Default and one-half of one percent (0.50%) thereof
from and after the 91st day following such Registration Default.
In the event that Shelf Registration Statement ceases to be
effective for more than 90 days or the Company suspends the use
of the prospectus which is a part thereof for more than 90 days,
whether or not consecutive, during any 12-month period, then the
interest rate borne by Restricted Securities will increase by an
additional one-half of one percent (0.50%) per annum from the
91st day of the applicable 12-month period such Shelf
Registration Statement ceases to be effective or the Company
suspends the use of the prospectus which is a part thereof, as
the case may be, until the earlier of such time as (i) the Shelf
Registration Statement again becomes effective, (ii) the use of
the related prospectus ceases to be suspended or (iii) the
Effectiveness Period expires. Following the cure of all
Registration Defaults relating to any Restricted Securities, the
accrual of Liquidated Damages with respect to such Restricted
Securities will cease (without in any way limiting the effect of
any subsequent Registration Default). In no event shall the
Company be required to pay Liquidated Damages in excess of the
applicable maximum amount of one-half of one percent (0.50%) set
forth above, regardless of whether one or multiple Registration
Defaults exist.
(2) Liquidated Damages on the Restricted
Securities shall be paid by the Company to the Holders on each
Interest Payment Date (as defined in the Indenture) in the same
manner as for interest on such Restricted Securities as provided
in the form of Securities set forth in Section 2.2 of the
Indenture.
(3) All of the Company's obligations set
forth in this Section 2(c) which are unsatisfied to any extent
with respect to any Restricted Security at the time such
security ceases to be a Restricted Security shall survive until
such time as all such obligations with respect to such security
have been satisfied in full (notwithstanding the earlier
termination of this Agreement).
(4) Any payments due and payable pursuant to
this Section 2(c) shall be subordinated to Senior Indebtedness
(as defined in the Indenture) to the extent and in the manner
set forth in Article XIII of the Indenture.
(5) The rights of the Holders to Liquidated
Damages as set forth in this Section 2(c) is not intended to be
exclusive of any other right or remedy, and shall be in addition
to every other right and remedy given hereunder or under the
Indenture or now or hereafter existing at law or in equity or
otherwise.
3. Registration Procedures. In connection with any
Shelf Registration Statement, the following provisions shall
apply:
(a) The Company shall furnish to the Special
Counsel and Holders (if requested), prior to the filing
thereof with the Commission, a copy of any Shelf
Registration Statement, and each amendment thereof and
each amendment or supplement, if any, to the Prospectus
included therein and shall use its reasonable efforts to
reflect in each such document, when so filed with the
Commission, such comments as the Special Counsel and
Holders reasonably may propose.
(b) The Company shall take such action as may be
necessary so that (i) any Shelf Registration Statement and
any amendment thereto and any Prospectus forming part
thereof and any amendment or supplement thereto (and each
report or other document incorporated therein by reference
in each case) complies in all material respects with the
Securities Act and the Exchange Act, (ii) any Shelf
Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of
a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading and (iii) any Prospectus forming
part of any Shelf Registration Statement, and any
amendment or supplement to such Prospectus, does not
include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements, in the light of the circumstances under which
they were made, not misleading.
(c) (1) The Company shall advise the Purchasers
and, in the case of clause (i), the Holders and, if
requested by the Purchasers or any such Holder, confirm
such advice in writing:
(i) when a Shelf Registration
Statement and any amendment thereto has been
filed with the Commission and when the Shelf
Registration Statement or any post effective
amendment thereto has become effective; and
(ii) of any request by the Commission
for amendments or supplements to the Shelf
Registration Statement or the Prospectus
included therein or for additional
information.
(2) The Company shall advise the Electing
Holders and, if requested by any such Electing
Holder, confirm such advice in writing of:
(i) the issuance by the Commission of
any stop order suspending effectiveness of the
Shelf Registration Statement or the initiation
of any proceedings for that purpose;
(ii) the receipt by the Company of any
notification with respect to the suspension of
the qualification of the securities included
therein for sale in any jurisdiction or the
initiation of any proceeding for such purpose;
and
(iii) the happening of any event that
requires the making of any changes in the
Shelf Registration Statement or the Prospectus
so that, as of such date, the Shelf
Registration Statement and the Prospectus do
not contain an untrue statement of a material
fact and do not omit to state a material fact
required to be stated therein or necessary to
make the statements therein (in the case of
the Prospectus, in light of the circumstances
under which they were made) not misleading
(which advice shall be accompanied by an
instruction to suspend the use of the
Prospectus until the requisite changes have
been made).
(d) The Company shall use its reasonable efforts
to prevent the issuance, and if issued to obtain the
withdrawal, of any order suspending the effectiveness of
any Shelf Registration Statement at the earliest possible
time.
(e) The Company shall furnish to the Special
Counsel and each Electing Holder (if requested) with
respect to a Shelf Registration Statement, without charge,
at least one copy of such Shelf Registration Statement and
any post-effective amendment thereto, including financial
statements and schedules, and, if the Electing Holder so
requests in writing, all reports, other documents and
exhibits (including those incorporated by reference).
(f) The Company shall, during the Effectiveness
Period, deliver to each Electing Holder with respect to a
Shelf Registration Statement, without charge, as many
copies of the Prospectus (including each preliminary
Prospectus) included in such Shelf Registration Statement
and any amendment or supplement thereto as such Electing
Holder may reasonably request, and the Company consents
(except during the continuance of any event described in
Section 3(c)(2)(iii)) to the use of the Prospectus or any
amendment or supplement thereto by each of the Electing
Holders in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any
amendment or supplement thereto during the Effectiveness
Period.
(g) Prior to any offering of Registrable
Securities pursuant to any Shelf Registration Statement,
the Company shall register or qualify or cooperate with
the Special Counsel and Electing Holders in connection
with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue
sky laws of such jurisdictions as any such Electing
Holders reasonably request in writing and do any and all
other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Registrable
Securities covered by such Shelf Registration Statement;
provided, however, that in no event shall the Company be
obligated to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would
not otherwise be required to so qualify but for this
Section 3(g), (ii) file any general consent to service of
process in any jurisdiction where it is not as of the date
hereof then so subject or (iii) subject itself to taxation
in any jurisdiction if it is not so subject.
(h) Unless any Registrable Securities shall be in
book-entry only form, the Company shall cooperate with the
Electing Holders to facilitate the timely preparation and
delivery of certificates representing Registrable
Securities to be sold pursuant to any Shelf Registration
Statement free of any restrictive legends and in such
permitted denominations and registered in such names as
Electing Holders may request in connection with the sale
of Registrable Securities pursuant to such Shelf
Registration Statement.
(i) Upon the occurrence of any event contemplated
by paragraph 3(c)(2)(iii) above, the Company shall
promptly prepare a post-effective amendment to any Shelf
Registration Statement or an amendment or supplement to
the related Prospectus or file any other required document
so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the Prospectus
will not include an untrue statement of a material fact or
omit to state any material fact necessary to make the
statements therein, in the light of the circumstances
under which they were made, not misleading. If the
Company notifies the Electing Holders of the occurrence of
any event contemplated by paragraph 3(c)(2)(iii) above,
the Electing Holders shall suspend the use of the
Prospectus until the requisite changes to the Prospectus
have been made.
(j) Not later than the effective date of any Shelf
Registration Statement hereunder, the Company shall
provide a CUSIP number for the Securities registered under
such Shelf Registration Statement.
(k) The Company shall use its reasonable efforts
to comply with all applicable rules and regulations of the
Commission and shall make generally available to their
securityholders or otherwise provide in accordance with
Section 11(a) of the Securities Act as soon as practicable
after the effective date of the applicable Shelf
Registration Statement an earnings statement satisfying
the provisions of Section 11(a) of the Securities Act.
(l) The Company shall cause the Indenture and the
Securities to be qualified under the Trust Indenture Act
in a timely manner; and in connection with such
qualification, the Company shall cooperate with the
Trustee under the Indenture and the Holders (as defined in
the Indenture) to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in
accordance with the terms of the Trust Indenture Act; and
the Company shall execute and use all reasonable efforts
to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and
documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely
manner.
(m) The Company may require each Electing Holder
with respect to a Shelf Registration Statement to furnish
to the Company such information regarding the Electing
Holder and the distribution of Registrable Securities held
by such Electing Holder as may be required by applicable
law or regulation for inclusion in such Shelf Registration
Statement (including, without limitation, the information
required by Item 507 of Regulation S-K of the Securities
Act), and the Company may exclude from such registration
the Registrable Securities of any Electing Holder that
fails to furnish such information within a reasonable time
after receiving such request.
(n) The Company shall enter into such customary
agreements (including underwriting agreements in customary
form) to take all other appropriate actions in order to
expedite or facilitate the registration or the disposition
of the Registrable Securities, and in connection
therewith, if an underwriting agreement is entered into
pursuant to an underwritten offering in accordance with
the provisions of Section 6, cause the same to contain
indemnification provisions and procedures substantially
identical to those set forth in Section 5 (or such other
provisions and procedures acceptable to the Managing
Underwriters, if any) with respect to all parties to be
indemnified pursuant to Section 5.
(o) The Company shall make reasonably available
for inspection by one representative of the Electing
Holders designated in writing by the Holders of a majority
of the Registrable Securities to be registered thereunder,
any underwriter participating in any disposition pursuant
to such Shelf Registration Statement, and any attorney,
accountant or other agent retained by such representative
or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of
the Company and its subsidiaries;
(p) The Company shall cause the Company's
officers, directors and employees to make reasonably
available for inspection all relevant information
reasonably requested by such representative or any such
underwriter, attorney, accountant or agent in connection
with any such Shelf Registration Statement, in each case,
as is customary for similar due diligence examinations;
provided, however, that any information that is designated
in writing by the Company, in good faith, as confidential
at the time of delivery of such information shall be kept
confidential by such representative, any Holders or any
such underwriter, attorney, accountant or agent, unless
such disclosure is made in connection with a court
proceeding or required by law, or such information becomes
available to the public generally or through a third party
without an accompanying obligation of confidentiality;
(q) The Company will use its reasonable efforts to
cause the Common Stock issuable upon conversion of the
Securities to be admitted for quotation on the Nasdaq
National Market or other stock exchange or trading system
on which the Common Stock primarily trades on or prior to
the effective date of any Shelf Registration Statement
hereunder.
(r) In the event that any broker-dealer registered
under the Exchange Act shall underwrite any Registrable
Securities or participate as a member of an underwriting
syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice and the
By-Laws of the National Association of Securities Dealers,
Inc. ("NASD")) thereof, whether as a Holder of such
Registrable Securities or as an underwriter, a placement
or sales agent or a broker or dealer in respect thereof,
or otherwise, assist such broker-dealer in complying with
the requirements of such Rules and By-Laws, including,
without limitation, by (A) such Rules or By-Laws,
including Schedule E thereto, shall so require, engaging a
"qualified independent underwriter" (as defined in
Schedule E) to participate in the preparation of the Shelf
Registration Statement relating to such Registrable
Securities and to exercise usual standards of due
diligence in respect thereto, (B) indemnifying any such
qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5
hereof and (C) providing such information to such broker-
dealer as may be required in order for such broker-dealer
to comply with the requirements of the Rules of Fair
Practice of the NASD.
(s) The Company shall use its reasonable efforts
to take all other steps necessary to effect the
registration, offering and sale of the Registrable
Securities covered by the Shelf Registration Statement
contemplated hereby.
4. Registration Expenses. Except as otherwise provided
in Section 6, the Company shall bear all fees and expenses
incurred in connection with the performance of its obligations
under Sections 2 and 3 hereof and shall bear or reimburse the
Electing Holders for the reasonable fees and disbursements of a
Special Counsel designated by the Company. For purposed of this
Agreement, the Company initially appoints Shearman & Sterling as
Special Counsel; provided that the Holders of a majority of the
Registrable Securities covered by the Shelf Registration
Statement have the right pursuant to this Agreement to
substitute another firm of counsel as Special Counsel under this
Agreement.
5. Indemnification and Contribution. (a) In
connection with any Shelf Registration Statement, the Company
shall indemnify and hold harmless each Electing Holder, each
underwriter who participates in an offering of Registrable
Securities, each person, if any, who controls any of such
parties within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act and each of their respective
directors, officers, employees, trustees and agents, as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, including any amounts paid
in settlement of any investigation, litigation, proceeding
or claim, joint or several, as incurred, arising out of
any untrue statement or alleged untrue statement of a
material fact contained in any Shelf Registration
Statement (or any amendment thereto) covering Registrable
Securities, including all documents incorporated therein
by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading
or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of
the circumstances under which they were made, not
misleading; provided, that the Company shall not be liable
under this clause (i) for any settlement of any action
effected without its written consent, which consent shall
not be unreasonably withheld; and
(ii) against any and all expenses whatsoever, as
incurred (including reasonable fees and disbursements of
counsel chosen by the Electing Holders, such Electing
Holder or any underwriter (except to the extent otherwise
expressly provided in Section 5(c) hereof)), reasonably
incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any
court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense
is not paid under subparagraph (i) of this Section 5(a);
provided that this indemnity shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of
an untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written
information furnished to the Company by such Electing Holder or
any underwriter in writing expressly for use in the Shelf
Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto). Any
amounts advanced by the Company to an indemnified party pursuant
to this Section 5 as a result of such losses shall be returned
to the Company if it shall be finally determined by such a court
in a judgment not subject to appeal or final review that such
indemnified party was not entitled to indemnification by the
Company.
(b) Each Electing Holder shall agree, severally and not
jointly, to indemnify and hold harmless the Company, each
underwriter who participates in an offering of Registrable
Securities and the other Electing Holders and each of their
respective directors, officers (including each officer of the
Company who signed the Shelf Registration Statement), employees,
trustees and agents and each Person, if any, who controls the
Company, any underwriter or any other Electing Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all loss, liability,
claim, damage and expense whatsoever described in the indemnity
contained in Section 5(a)(i) and (ii) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by
such Electing Holder expressly for use in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto); provided, however, that, no
such Electing Holder shall be liable for any claims hereunder in
excess of the amount of net proceeds received by such Electing
Holder from the sale of Registrable Securities pursuant to the
Shelf Registration Statement.
(c) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, enclosing a
copy of all papers served on such indemnified party, but failure
to so notify an indemnifying party shall not relieve it of any
liability which it may have to the indemnified party otherwise
than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of any
such action. If an indemnifying party so elects within a
reasonable time after receipt of such notice, such indemnifying
party, jointly with any other indemnifying party, may assume the
defense of such action with counsel chosen by it and approved by
the indemnified party or parties defendant in such action,
provided that if any such indemnified party reasonably
determines that there may be legal defenses available to such
indemnified party which are different from or in addition to
those available to such indemnifying party or that
representation of such indemnifying party and any indemnified
party by the same counsel would present a conflict of interest,
then such indemnifying party or parties shall not be entitled to
assume such defense. If an indemnifying party is not entitled
to assume the defense of such action as a result of the proviso
to the preceding sentence, counsel for such indemnifying party
shall be entitled to conduct the defense of such indemnifying
party and counsel for each indemnified party or parties shall be
entitled to conduct the defense of such indemnified party or
parties. If an indemnifying party assumes the defense of an
action in accordance with and as permitted by the provisions of
this paragraph, such indemnifying party shall not be liable for
any fees and expenses of counsel for the indemnified parties
incurred thereafter in connection with such action. In no event
shall the indemnifying party or parties be liable for the fees
and expenses of more than one counsel (in addition to any local
counsel) separate from its own counsel for all indemnified
parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnity provision
agreement provided for in this Section 5 is for any reason held
to be unavailable to the indemnified parties although applicable
in accordance with its terms, the Company, and the Electing
Holders shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company and the Electing
Holders, as incurred; provided that no Person guilty of
fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person that was not guilty of such
fraudulent misrepresentation. As between the Company, on the
one hand, and the Electing Holders, on the other hand, such
parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such
indemnity agreement in such proportion as shall be appropriate
to reflect the relative fault of the Company, on the one hand,
and the Electing Holders, on the other hand, with respect to the
statements or omissions which resulted in such loss, liability,
claim, damage or expense, or action in respect thereof, as well
as any other relevant equitable considerations. The relative
fault of the Company, on the one hand, and of the Electing
Holders, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the
Company, on the one hand, or by or on behalf of the Electing
Holders, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the
Purchasers agree, and the Electing Holders shall agree, that it
would not be just and equitable if contribution pursuant to this
Section 5 were to be determined by pro rata allocation or by any
other method of allocation that does not take into account the
relevant equitable considerations. For purposes of this
Section 5(d), each director, officer, employee, trustee, agent
and Person, if any, who controls a Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as such Holder,
and each director, officer, employee, trustee and agent of the
Company, and each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to
contribution as the Company. No party shall be liable for
contribution with respect to any action, suit, proceeding or
claim settled without its written consent.
(e) The Company may require, as a condition to including
any Registrable Securities in any Registration Statement filed
and to entering into any underwriting agreement with respect
thereto, that the Company shall have received an undertaking
reasonably satisfactory to it from the holder of such
Registrable Securities and from each underwriter named in any
such underwriting agreement, severally and not jointly, to
comply with the provisions of paragraphs (a) through (d) of this
Section 5.
6. Underwritten Offering. The Electing Holders who
desire to do so may sell Registrable Securities in an
underwritten offering. In any such underwritten offering, the
investment banker or bankers and manager or managers that will
administer the offering will be selected by, and the
underwriting arrangements with respect thereto will be approved
by the Holders of a majority of the Registrable Securities to be
included in such offering; provided, however, that (i) such
investment bankers and managers and underwriting arrangements
must be reasonably satisfactory to the Company and (ii) the
Company shall not be obligated to arrange for more than one
underwritten offering during the Effectiveness Period. No
Holder may participate in any underwritten offering contemplated
hereby unless such Holder (a) agrees to sell such Holder's
Registrable Securities in accordance with any approved
underwriting arrangements, (b) completes and executes all
reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents
required under the terms of such approved underwriting
arrangements and (c) at least 20% of the outstanding Registrable
Securities are included in such underwritten offering. The
Holders participating in any underwritten offering shall be
responsible for any expenses customarily borne by selling
securityholders, including underwriting discounts and
commissions and fees and expenses of counsel to the selling
securityholders and shall reimburse the Company for the fees and
disbursements of their counsel, their independent public
accountants and any printing expenses incurred in connection
with such underwritten offerings. Notwithstanding the foregoing
or the provisions of Section 6(a) hereof, upon receipt of a
request from the Managing Underwriter or a representative of
Holders of a majority of the Registrable Securities outstanding
to prepare and file an amendment or supplement to the Shelf
Registration Statement and Prospectus in connection with an
underwritten offering, the Company may delay the filing of any
such amendment or supplement for up to 90 days if the Company in
good faith has a valid business reason for such delay.
The Company shall in connection with an underwritten
offering in accordance with the provisions of this Section:
(a) The Company shall, if requested, promptly
include or incorporate in a Prospectus supplement or post-
effective amendment to a Shelf Registration Statement,
such information as the Managing Underwriters
administering an underwritten offering of Registrable
Securities registered thereunder reasonably request to be
included therein and to which the Company does not
reasonably object and shall make all required filings of
such Prospectus supplement or post-effective amendment as
soon as practicable after they are notified of the matters
to be included or incorporated in such Prospectus
supplement or post-effective amendment;
(b) make such representations and warranties to
the Electing Holders and the underwriters in form,
substance and scope as are customarily made by the Company
to underwriters in primary underwritten offerings and
covering matters, including, but not limited to, those set
forth in the Purchase Agreement;
(c) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to
the Managing Underwriters) addressed to each Electing
Holder and the underwriters covering such matters as are
customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably
requested by such Electing Holders and underwriters (it
being agreed that the matters to be covered by such
opinion or written statement by such counsel delivered in
connection with such opinions shall include in customary
form, without limitation, as of the date of the opinion
and as of the effective date of the Shelf Registration
Statement or most recent post-effective amendment thereto,
as the case may be, the absence from such Shelf
Registration Statement and the prospectus included
therein, as then amended or supplemented, including the
documents incorporated by reference therein, of an untrue
statement of a material fact or the omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading);
(d) obtain "cold comfort" letters and updates
thereof from the independent public accountants of the
Company (and, if necessary, any other independent public
accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial
statements and financial data are, or are required to be,
included in the Shelf Registration Statement), addressed
to each Electing Holder and the underwriters in customary
form and covering matters of the type customarily covered
in "cold comfort" letters in connection with primary
underwritten offerings; and
(e) deliver such documents and certificates as may
be reasonably requested by any such Electing Holders and
the Managing Underwriters, including those to evidence
compliance with Section 3(i) and with any customary
conditions contained in the underwriting agreement or
other agreement entered into by the Company.
7. Miscellaneous.
(a) Other Registration Rights. The Company may
grant registration rights that would permit any Person that is a
third party the right to piggy-back on any Shelf Registration
Statement, provided that if the Managing Underwriter, if any, of
such offering delivers an opinion to the Electing Holders that
the total amount of securities which they and the holders of
such piggy-back rights intend to include in any Shelf
Registration Statement is so large as to materially adversely
affect the success of such offering (including the price at
which such securities can be sold), then only the amount, the
number or kind of securities to be offered for the account of
holders of such piggy-back rights will be reduced to the extent
necessary to reduce the total amount of securities to be
included in such offering to the amount, number or kind
recommended by the Managing Underwriter prior to any reduction
in the amount of Registrable Securities to be included.
(b) Amendments and Waivers. The provisions of
this Agreement, including the provisions of this sentence, may
not be amended, qualified, modified or supplemented, and waivers
or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of
Goldman, Sachs & Co.
(c) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by
hand-delivery, first-class mail, telex, telecopier, or air
courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current
address given by such Holder to the Company in
accordance with the provisions of this Section 7(c);
(2) if to the Purchasers, initially at the
address set forth in the Purchase Agreement;
(3) if to the Company, initially at its
address set forth in the Purchase Agreement; and
(4) if to the Special Counsel, the address
given by such Special Counsel to the Company in
accordance with the provisions of this Section 7(c).
All such notices and communications shall be deemed to have been
duly given when received.
The Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent
notices or communications.
(d) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and
assigns of each of the parties and the Holders, including,
without the need for an express assignment or any consent by the
Company thereto, subsequent Holders of Registrable Securities.
The Company hereby agrees to extend the benefits of this
Agreement to any Holder of Registrable Securities and any such
Holder may specifically enforce the provisions of this Agreement
as if an original party hereto.
(e) Counterparts. This agreement may be executed
in any number of counterparts and by the parties hereto in
separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(f) Headings. The headings in this agreement are
for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be
governed by and construed in accordance with the laws of the
State of New York, without giving effect to any provisions
relating to conflicts of laws.
(h) Severability. In the event that any one or
more of the provisions contained herein, or the application
thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in
any way impaired or affected thereby, it being intended that all
of the rights and privileges of the parties shall be enforceable
to the fullest extent permitted by law.
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you.
Very truly yours,
By:
Name:
Title:
The foregoing Registration Rights Agreement is hereby confirmed
and accepted as of the date first above written.
Goldman, Sachs & Co.
Salomon Brothers Inc
J.P. Morgan Securities Inc.
Robertson, Stephens & Company LLC
By:
(Goldman, Sachs & Co.)
EXHIBIT 5.1
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 415-493-9300 FACSIMILE 415-493-6811
WWW.WSGR.COM
March 18, 1997
Cirrus Logic, Inc.
3100 W. Warren Avenue
Fremont, CA 94538
Re: Cirrus Logic, Inc. Registration Statement on Form S-1
-----------------------------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed
by Cirrus Logic, Inc. (the "Company") with the Securities and Exchange
Commission on March 18, 1997 (the "Registration Statement") in connection
with the registration under the Securities Act of 1933, as amended, of
11,591,219 shares of Common Stock of the Company upon conversion of
$280,750,000 aggregate principal amount of 6% Convertible Subordinate Notes
(the "Registrable Notes") of the Company due December 15, 2003 (equal to a
conversion rate of 41.2903 shares per $1000 principal amount of
Registrable Notes).
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
Shares, and upon the completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with securities laws
of various states, where required, the Shares, when issued and sold in the
manner referred to in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in
the Registration Statement, including the Prospectus constituting a part
thereof, and any amendment thereto.
Very truly yours,
/s/ WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
Part II. Other information, Item 6a.
Exhibit 11
CIRRUS LOGIC, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<CAPTION>
Three Quarters Ended
Fiscal Year -------------------------
-------------------------------------- December 30, December 28,
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 51,838 59,708 62,761 62,409 64,704
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 4,558 3,964 N/A 7,020 1,678
Common stock warrants, using treasury
stock or modified treasury stock method 6 8 N/A 8 -
------------ ------------ ------------ ------------ ------------
Common and common equivalent shares used in
the calculation of net income (loss) per share 56,402 63,680 62,761 69,437 66,382
============ ============ ============ ============ ============
Net income (loss) $45,368 61,402 (36,183) $52,173 $5,703
Net income (loss) per share $0.80 $0.96 ($0.58) $0.75 $0.09
============ ============ ============ ============ ============
Fully diluted:
Weighted average shares outstanding 51,838 59,708 62,761 62,409 64,704
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 4,978 4,096 N/A 7,528 2,309
Convertible subordinated debt, using the
"if converted" method - - - - N/A
Common stock warrants, using treasury
stock or modified treasury stock method 8 8 N/A 9 -
------------ ------------ ------------ ------------ ------------
Common and common equivalent shares used in
the calculation of net income (loss) per share 56,824 63,812 62,761 69,946 67,013
============ ============ ============ ============ ============
Net income (loss) $45,368 $61,402 ($36,183) $52,173 $5,703
Net income (loss) per share $0.80 $0.96 ($0.58) $0.75 $0.09
============ ============ ============ ============ ============
<FN>
</TABLE>
<PAGE>
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
Exhibit 12.1
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<CAPTION>
Three Quarters Ended
Fiscal Year ---------------------
------------------------------------------------- Dec. 30, Dec. 28,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $25,086 $32,545 $55,964 $89,638 ($41,723) $73,169 $15,755
Fixed charges (1) 2,946 2,931 4,075 5,514 8,504 5,935 14,587
--------- --------- --------- --------- --------- ---------- ----------
Total earnings and fixed charges 28,032 35,476 60,039 95,152 (33,219) 79,104 30,342
Fixed charges (1) 2,946 2,931 4,075 5,514 8,504 5,935 14,587
Ratio of earnings to fixed charges (2) 9.5x 12.1x 14.7x 17.3x N/A 13.3x 2.1x
========= ========= ========= ========= ========= ========== ==========
ADJUSTED FOR MiCRUS FIXED CHARGES:
Fixed charges (3) 7,284 17,401 11,088 25,585
Ratio of earnings to fixed charges (4) 13.1x N/A 7.1x 1.2x
========= ========= ========== ==========
ADJUSTED FOR MiCRUS AND CIRENT FIXED CHARGES:
Fixed charges (5) 33,236 22,965 37,462
Ratio of earnings to fixed charges (6) N/A 3.4x N/A
========= ========== ==========
</TABLE>
____________________
(1) Fixed charges consist of interest expense incurred, including capital
leases, amortization of interest costs and the portion of rental
expense under operating leases deemed by the Company to be
representative of the interest factor.
(2) Earnings were inadequate to cover fixed charges for fiscal 1996 by
approximately $41.7 million.
(3) Fixed charges consist of interest expense incurred, including capital
leases, amortization of interest costs and the portion of rental
expense under operating leases deemed by the Company to be
representative of the interest factor and interest on capitalized
leases and the interest factor associated with operating leases of
the Company's MiCRUS joint venture.
(4) Earnings would have been inadequate to cover fixed charges for fiscal
1996 by approximately $50.6 million.
(5) Fixed charges consist of interest expense incurred, including capital
leases, amortization of interest costs and the portion of rental
expense under operating leases deemed by the Company to be
representative of the interest factor and interest on capitalized
leases and the interest factor associated with operating leases of
the Company's MiCRUS joint venture and on a pro forma basis including
the Cirent leases as if they were outstanding from the beginning of
fiscal 1996.
(6) Earnings would have been inadequate to cover fixed charges for fiscal
1996 and the three quarters ended December 28, 1996 by approximately
$66.5 million and $7.1 million, respectively.
[ARTICLE] 5
[MULTIPLIER] 1,000
EXHIBIT 21.1
CIRRUS LOGIC INC.
SUBSIDIARIES OF REGISTRANT
Acumos Incorporated (California)
Cirel Inc. (California)
Ciror, Inc. (California)
Cirrus Logic Holdings, Inc. (California)
Cirrus Logic International Ltd. (Bermuda)
Cirrus Logic International SARL (France)
Cirrus Logic Korea Co., LTD. (Korea)
Cirrus Logic, GmBh. (Germany)
Cirrus Logic, K.K. (Japan)
Cirrus Logic, Software India, Pvt. Ltd. (India)
Cirrus Logic (U.K.) Limited (United Kingdom)
Crystal Semiconductor Corporation (Delaware)
Pacific Communications Sciences, Inc. (Delaware)
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
and to the use of our report dated April 24, 1996, (except for the second
paragraph of Note 8, as to which the date is April 30, 1996, and the third
paragraph of Note 14, as to which the date is June 27, 1996) in the
Registration Statement (Form S-1) and related Prospectus of Cirrus Logic,
Inc. for the registration of $280,750,000 principal amount of its 6%
Convertible Subordinated Notes due December 15, 2003 and 11,591,219 shares
of its common stock.
Our audit also included the consolidated financial statement schedule of
Cirrus Logic, Inc. listed in Item 16(b). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
March 18, 1997
EXHIBIT 25.1
Conformed Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
----------------------
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq.
Senior Vice President and Corporate Secretary
225 Franklin Street
Boston, Massachusetts 02110
Tel: (617) 654-3253
(Name, address and telephone number of agent for service)
_____________________
CIRRUS LOGIC, INC.
(Exact name of obligor as specified in its charter)
CALIFORNIA 77-0024818
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3100 West Warren Avenue
Fremont, California 94538
(510) 623-8300 (Zip Code)
(Address of principal executive offices)
_____________________
6% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 2003
(Title of Indenture Securities)
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street,
Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance
Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent,
State Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and
Exchange Commission as Exhibit 1 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement
of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is
on file with the Securities and Exchange Commission as
Exhibit 2 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities
and Exchange Commission as Exhibit 3 to Amendment No. 1
to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with the Registration Statement
of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect,
is on file with the Securities and Exchange Commission
as Exhibit 4 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Eastern Edison Company
(File No. 33-37823) and is incorporated herein by
reference thereto.
5. A copy of each indenture referred to in Item 4. if the obligor
is in default.
Not applicable.
6. The consents of United States institutional trustees required
by Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
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.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information
furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
The answer furnished to Item 2. of this statement will be amended,
if necessary, to reflect any facts which differ from those stated
and which would have been required to be stated if known at the date
hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
as amended, the trustee, State Street Bank and Trust Company,
a corporation organized and existing under the laws of The
Commonwealth of Massachusetts, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on March 6, 1997.
STATE STREET BANK AND TRUST COMPANY
By: ______________________________________
E. Decker Adams
Vice President
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the proposed
registration by Cirrus Logic, Inc. of its 6% Convertible Subordinated
Debentures, we hereby consent that reports of examination by Federal,
State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request
therefor.
STATE STREET BANK AND TRUST COMPANY
By: _____________________________________
E. Decker Adams
Vice President
Dated: March 6, 1997
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company
of Boston, Massachusetts and foreign and domestic subsidiaries, a state
banking institution organized and operating under the banking laws of this
commonwealth and a member of the Federal Reserve System, at the close of
business September 30, 1996, published in accordance with a call made by
the Federal Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act and in accordance with a call made by the
Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of
ASSETS Dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ..... 1,385,597
Interest-bearing balances .............................. 6,205,892
Securities .................................................. 8,693,549
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary .................... 5,707,012
Loans and lease financing receivables:
Loans and leases, net of unearned income ............... 4,352,939
Allowance for loan and lease losses .................... 71,421
Loans and leases, net of unearned income and allowances. 4,281,518
Assets held in trading accounts ............................. 702,030
Premises and fixed assets ................................... 364,550
Other real estate owned ..................................... 1,100
Investments in unconsolidated subsidiaries .................. 65,775
Customers' liability to this bank on acceptances outstanding. 36,351
Intangible assets ........................................... 71,688
Other assets................................................. 835,647
Total assets ................................................ 28,350,709
===========
LIABILITIES
Deposits:
In domestic offices ................................... 8,283,786
Noninterest-bearing .............................. 6,040,773
Interest-bearing ................................. 2,243,013
In foreign offices and Edge subsidiary ................ 9,309,212
Noninterest-bearing .............................. 53,213
Interest-bearing ................................. 9,255,999
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ................... 7,014,421
Demand notes issued to the U.S. Treasury and Trading
Liabilities ........................................ 698,705
Other borrowed money ....................................... 690,865
Bank's liability on acceptances executed and outstanding ... 37,357
Other liabilities .......................................... 695,718
Total liabilities .......................................... 26,730,064
EQUITY CAPITAL
Common stock ............................................... 29,931
Surplus .................................................... 277,023
Undivided profits .......................................... 1,311,920
Cumulative foreign currency translation adjustments ....... 1,771
Total equity capital ....................................... 1,620,645
Total liabilities and equity capital ....................... 28,350,709
============
I, Rex S. Schuette, Senior Vice President and Comptroller of the above
named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true to the best of
my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best
of our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve
System and is true and correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5 . A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
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.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any
underwriter of the obligor, the trustee has relied upon the information
furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
The answer to Item 2. of this statement will be amended, if necessary,
to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust
Indenture Act of 1939, as amended, the
trustee, State Street Bank and Trust
Company, a corporation duly organized and
existing under the laws of The Commonwealth
of Massachusetts, has duly caused this
statement of eligibility to be signed on
its behalf by the undersigned, thereunto
duly authorized, all in the City of Boston
and The Commonwealth of Massachusetts,
on March 6, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ E. Decker Adams
E. Decker Adams
Vice President
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section
321(b) of the Trust Indenture Act of 1939,
as amended, in connection with the proposed
registration by Cirrus Logic, Inc. of its
6% Convertible Subordinated Debentures
we hereby consent that reports of examination
by Federal, State, Territorial or District
authorities may be furnished by such
authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ E. Decker Adams
E. Decker Adams
Vice President
Dated: March 6, 1997
