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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934)
SILICON GRAPHICS, INC.
(Name of the Issuer)
SILICON GRAPHICS, INC.
(Name of Person(s) Filing Statement)
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES DUE 2013
(Title of Class of Securities)
827056 AB 8
(CUSIP Number of Class of Securities)
SANDRA M. ESCHER WILLIAM H. HINMAN, JR.
DIRECTOR, CORPORATE LEGAL SERVICES SHEARMAN & STERLING
SILICON GRAPHICS, INC. 555 CALIFORNIA STREET
2011 N. SHORELINE BLVD. SAN FRANCISCO, CALIFORNIA 94104
MOUNTAIN VIEW, CALIFORNIA 94043-1389 (415) 616-1100
(415) 960-1980
(Name, Address and Telephone Number of Persons Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
AUGUST 7, 1997
(Date Tender Offer First Published, Sent or Given to Securityholders)
CALCULATION OF FILING FEE
================================================================================
Transaction Valuation* Amount of Filing Fee
$251,387,500 $50,277.50
================================================================================
* For purposes of calculating the filing fee pursuant to Rule 0-11(a)(4) of the
Securities Exchange Act of 1934, as amended, the market value of the Zero
Coupon Convertible Subordinated Debentures was determined based on the average
of the bid and asked prices of the Zero Coupon Convertible Subordinated
Debentures on August 1,1997.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $69,284.09
Form or Registration No.: S-4 (File No. 333-32379)
Filing Party: Silicon Graphics, Inc.
Date Filed: July 30, 1997
================================================================================
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This Issuer Tender Offer Statement (the "Statement") is being filed with
the Securities and Exchange Commission (the "Commission") by Silicon Graphics,
Inc. (the "Company") in connection with the filing under the Securities Act of
1933, as amended, of a registration statement on Form S-4 (as amended, the
"Registration Statement") regarding an exchange offer (the "Exchange Offer") to
holders of the Company's Zero Coupon Convertible Subordinated Debentures due
2013 (the "Zero Coupon Debentures"). A copy of the Prospectus, dated August 7,
1997 (the "Prospectus"), contained in the Registration Statement filed with the
Commission on August 6, 1997 is attached hereto as Exhibit 1. Pursuant to
General Instruction B to Schedule 13E-4, certain information contained in the
Prospectus is hereby incorporated by reference in answer to items of this
Statement.
References to the Prospectus are identified by the captions set forth in
the Prospectus. Where substantially identical information required by Schedule
13E-4 is included under more than one caption, reference is made to only one
caption of the Prospectus.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Silicon Graphics, Inc., a Delaware
corporation. The address of its principal executive office is 2011 N. Shoreline
Blvd., Mountain View, California 94043-1389.
(b) Reference is made to "Prospectus Summary," "The Exchange Offer--Terms
of the Exchange Offer" and "The Exchange Offer--Transactions and Arrangements
Concerning the Zero Coupon Debentures" in the Prospectus, which are incorporated
herein by reference.
(c) Reference is made to "The Exchange Offer--Trading of Senior Notes and
Zero Coupon Debentures" in the Prospectus, which is incorporated herein by
reference. The Zero Coupon Debentures are traded in the over-the-counter
market.
(d) Not Applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Reference is made to "The Exchange Offer--Terms of the Exchange Offer"
and "Description of Senior Notes" in the Prospectus, which are incorporated
herein by reference.
(b) Not Applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
Reference is made to "The Exchange Offer--Purpose of the Exchange Offer"
and "The Exchange Offer--Terms of the Exchange Offer" in the Prospectus, which
are incorporated herein
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by reference. The Zero Coupon Debentures acquired by the Company in the
Exchange Offer will be canceled.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
None.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
None, except as stated in "The Exchange Offer--Fees and Expenses; Transfer
Taxes" and "The Exchange Offer--Transactions and Arrangements Concerning the
Zero Coupon Debentures" in the Prospectus, which are incorporated herein by
reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Reference is made to "The Exchange Offer--Exchange Agent and Information
Agent," "The Exchange Offer--Dealer Manager," and "The Exchange Offer--Fees and
Expenses; Transfer Taxes" in the Prospectus, which are incorporated herein by
reference.
ITEM 7. FINANCIAL INFORMATION.
(a) Reference is made to "Selected Consolidated Financial Information,"
"Capitalization," and "Incorporation of Certain Documents by Reference" in the
Prospectus, which are incorporated herein by reference.
(b) Not Applicable.
ITEM 8. ADDITIONAL INFORMATION.
(a) None.
(b) There are no applicable regulatory requirements which must be complied
with or approvals which must be obtained in connection with the Exchange Offer
other than compliance with the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, including,
without limitation, Rule 13e-4 promulgated thereunder, the Trust Indenture Act
of 1939, as amended, and the requirements of state securities or "blue sky" laws
or the securities laws of non-U.S. jurisdictions.
(c) Not Applicable.
(d) None.
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(e) None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a) Prospectus, dated August 7, 1997 (Exhibit 1); Press Release Issued
by the Company on August 7, 1997 (Exhibit 2); Form of Letter of Transmittal
(Exhibit 3); Form of Notice of Guaranteed Delivery (Exhibit 4); Form of Letter
to Registered Holders and Depository Trust Participants (Exhibit 5); and Form of
Letter to Clients (Exhibit 6).
(b) Form of Indenture between the Company and State Street Bank and Trust
Company of California, N.A., as trustee, including form of Senior Note (Exhibit
7).
(c) None.
(d) Opinion of Shearman & Sterling as to certain tax matters (Exhibit 8).
(e) The Prospectus is included in (a) above.
(f) None.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: August 7, 1997
SILICON GRAPHICS, INC.
By: /s/ William M. Kelly
___________________________
Name: William M. Kelly
Title: Senior Vice President,
Corporate Operations
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INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
1 Prospectus, dated August 7, 1997.
2 Press Release issued by the Company on August 7, 1997.
3 Form of Letter of Transmittal (incorporated by reference 99.1
to the Registration Statement, File No. 333-32379). to Exhibit
4 Form of Notice of Guaranteed Delivery (incorporated by
reference to Exhibit 99.2 to the Registration Statement, File
No. 333-32379).
5 Form of Letter to Registered Holders and Depository Trust
(incorporated by reference to Exhibit 99.3 to the Registration
Participants Statement, File No. 333-32379).
6 Form of Letter to Clients (incorporated by reference to the
Registration Statement, File No. 333-32379). Exhibit 99.4 to
7 Form of Indenture, between the Company and State Street Trust
Company of California, N.A., as trustee (incorporated by Bank
and reference to Exhibit 4.1 to the Registration Statement,
File No. 333-32379).
8 Opinion of Shearman & Sterling regarding certain tax matters
(incorporated by reference to Exhibit 8.1 to the Registration
Statement, File No. 333-32379).
<PAGE>
PROSPECTUS
LOGO/(R)/ Silicon Graphics, Inc.
Offer To Exchange Its
5 1/4% Senior Convertible Notes Due 2004
For Its Zero Coupon Convertible Subordinated
Debentures Due 2013
---------------
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON SEPTEMBER 4, 1997, UNLESS EXTENDED.
---------------
Silicon Graphics, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal" which, together with the Prospectus, constitute the
"Exchange Offer"), to exchange the Company's 5 1/4% Senior Convertible Notes
due 2004 (the "Senior Notes") for up to all of its outstanding Zero Coupon
Convertible Subordinated Debentures due 2013 (the "Zero Coupon Debentures").
The Senior Notes, unlike the Zero Coupon Debentures, which are subordinated to
Senior Indebtedness (as defined herein) of the Company, will be unsubordinated
senior obligations of the Company and will rank pari passu with all existing
and future unsecured and unsubordinated Senior Indebtedness of the Company.
The Exchange Offer will be effected on the basis of that principal amount of
Senior Notes equal to the accreted value of each $1,000 principal amount at
maturity Zero Coupon Debenture as of the Expiration Date (as defined herein)
for each such Zero Coupon Debenture validly tendered and accepted for exchange
in the Exchange Offer. Senior Notes will not be issued in denominations of
less than $1,000, and the Company will pay cash in lieu of issuing fractional
Senior Notes to holders of validly tendered Zero Coupon Debentures. The
accreted value of each $1,000 principal amount at maturity Zero Coupon
Debenture, to but excluding September 4, 1997, will be $514.904, and the
aggregate accreted value of all outstanding Zero Coupon Debentures will be
$234,281,320.
The Senior Notes will be convertible at any time following the date of
issuance thereof and prior to maturity, unless previously redeemed, into
shares of common stock, par value $0.001 per share, of the Company ("Common
Stock") at a Conversion Price of $36 1/4 per share, subject to adjustment in
certain events. See "Description of Senior Notes--Conversion of Senior Notes."
The reported last sale price of the Common Stock on the New York Stock
Exchange on August 6, 1997 was $27 11/16 per share.
The Senior Notes are not redeemable prior to September 7, 2000. On or after
September 7, 2000 and prior to September 7, 2002, the Senior Notes will not be
redeemable at the option of the Company unless the closing price of the Common
Stock shall have exceeded 140% of the Conversion Price for 20 trading days
within a period of 30 consecutive trading days ending within five trading days
prior to the notice of redemption. Subject to the foregoing, the Senior Notes
will be redeemable on at least 30 days notice at the option of the Company, in
whole or in part, on or after September 7, 2000, at the redemption prices set
forth herein, in each case together with accrued interest. The Senior Notes
may also be redeemed at the option of the holder if there is a Fundamental
Change (as defined herein), at declining prices, subject to adjustment in
certain events as described herein, together with accrued interest. See
"Description of Senior Notes--Redemption of the Senior Notes at the Option of
the Company" and "--Redemption at the Option of the Holder upon a Fundamental
Change."
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange all Zero Coupon Debentures validly tendered
and not withdrawn prior to 12:00 midnight, New York City time, on September 4,
1997, or if extended by the Company, in its sole discretion, the latest date
and time to which extended (the "Expiration Date"). The Exchange Offer will
expire on the Expiration Date. Tenders of Zero Coupon Debentures may be
withdrawn at any time prior to the Expiration Date and, unless accepted for
exchange by the Company, may be withdrawn at any time after 40 business days
after the date of this Prospectus.
(continued on next page)
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY 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.
---------------
Morgan Stanley & Co. Incorporated has been retained to act as Dealer Manager
to solicit exchanges of Zero Coupon Debentures for Senior Notes. See "The
Exchange Offer--Dealer Manager." State Street Bank and Trust Company of
California, N.A. has been retained to act as Exchange Agent in connection with
the Exchange Offer. Georgeson & Company Inc. has been retained to act as
Information Agent to assist in connection with the Exchange Offer.
---------------
The Dealer Manager for the Exchange Offer:
MORGAN STANLEY DEAN WITTER
August 7, 1997
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(continued from previous page)
NONE OF THE BOARD OF DIRECTORS OF THE COMPANY OR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF ZERO COUPON DEBENTURES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING IN THE EXCHANGE OFFER. HOLDERS OF ZERO COUPON
DEBENTURES ARE URGED TO CONSULT THEIR FINANCIAL AND TAX ADVISORS IN MAKING
THEIR DECISIONS ON WHAT ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
IN ORDER TO PARTICIPATE IN THE EXCHANGE OFFER, HOLDERS OF ZERO COUPON
DEBENTURES MUST SUBMIT A LETTER OF TRANSMITTAL AND COMPLY WITH THE OTHER
PROCEDURES FOR TENDERING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN
AND IN THE LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION DATE. SEE "THE
EXCHANGE OFFER--PROCEDURES FOR TENDERING" AND "--LETTER OF TRANSMITTAL."
For a description of the other terms of the Exchange Offer, see "The
Exchange Offer--Terms of the Exchange Offer," "--Expiration Date; Extensions;
Amendments; Termination," and "--Withdrawal of Tenders." Consummation of the
Exchange Offer is conditioned on, among other things, receipt of validly
tendered Zero Coupon Debentures representing at least $200,000,000 aggregate
principal amount at maturity (which condition may be waived by the Company).
See "The Exchange Offer--Expiration Date; Extensions; Amendments;
Termination."
The Company expressly reserves the right, in its sole discretion, subject to
applicable law, to (i) terminate the Exchange Offer, and not accept for
exchange any Zero Coupon Debentures and promptly return all Zero Coupon
Debentures at any time for any reason, including (without limitation) if less
than $200,000,000 aggregate principal amount at maturity of Zero Coupon
Debentures are tendered or upon the failure of any of the conditions specified
in "The Exchange Offer--Procedures for Tendering," (ii) waive any condition to
the Exchange Offer and accept all Zero Coupon Debentures previously tendered
pursuant to the Exchange Offer, (iii) extend the Expiration Date and retain
all Zero Coupon Debentures tendered pursuant to the Exchange Offer until the
Expiration Date, subject, however, to all withdrawal rights of Holders (see
"The Exchange Offer--Withdrawal of Tenders") or (iv) amend or modify the terms
of the Exchange Offer in any manner, including (without limitation), the form
of the consideration or the formula for calculating the amount of the
consideration to be paid pursuant to the Exchange Offer. Any amendment
applicable to the Exchange Offer will apply to all Zero Coupon Debentures
tendered pursuant to the Exchange Offer. The minimum period during which the
Exchange Offer must remain open following a material change in the terms of
the Exchange Offer or a waiver by the Company of a material condition of the
Exchange Offer, other than a change in the principal amount at maturity of
Zero Coupon Debentures being sought or in the consideration offered, will
depend upon the facts and circumstances, including the relative materiality of
the change or waiver. See "The Exchange Offer--Expiration Date; Extensions;
Amendments; Termination."
The Zero Coupon Debentures trade in the over-the-counter market. Application
will be made to list the Senior Notes on the New York Stock Exchange. However,
there can be no assurance that an active public market for the Senior Notes
will develop and continue after the Exchange Offer.
ii
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE DEALER MANAGER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
EXCHANGE CONTEMPLATED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE RESPECTIVE DATES AS OF WHICH INFORMATION IS GIVEN HEREIN. THE EXCHANGE
OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF)
HOLDERS OF ZERO COUPON DEBENTURES IN ANY JURISDICTION IN WHICH THE MAKING OF
THE EXCHANGE OFFER OR THE ACCEPTANCE OF TENDERS THEREIN WOULD NOT BE IN
COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, THE COMPANY MAY, AT
ITS DISCRETION, TAKE SUCH ACTION AS IT MAY DEEM NECESSARY FOR THE COMPANY TO
MAKE THE EXCHANGE OFFER IN ANY SUCH JURISDICTION AND EXTEND THE EXCHANGE OFFER
TO HOLDERS OF ZERO COUPON DEBENTURES IN SUCH JURISDICTION. IN ANY JURISDICTION
THE SECURITIES LAWS OR BLUE SKY LAWS OF WHICH REQUIRE THE EXCHANGE OFFER TO BE
MADE BY A LICENSED BROKER OR DEALER, THE EXCHANGE OFFER IS BEING MADE ON
BEHALF OF THE COMPANY BY THE DEALER MANAGER OR ONE OR MORE REGISTERED BROKERS
OR DEALERS WHICH ARE LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
----------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Prospectus and the documents incorporated
herein by reference may constitute forward-looking statements and as such may
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance, or achievements of the Company to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed under
"Risks That Affect Our Business" in the Company's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1997.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Market Price of the Common Stock........................................... 9
Dividends on the Common Stock.............................................. 9
Capitalization............................................................. 10
Selected Consolidated Financial Data....................................... 11
The Exchange Offer......................................................... 12
Description of Senior Notes................................................ 18
Description of Zero Coupon Debentures...................................... 25
Description of Capital Stock............................................... 34
Book-Entry System--The Depository Trust Company............................ 37
Certain Federal Income Tax Considerations.................................. 38
Legal Matters.............................................................. 43
Experts.................................................................... 44
Available Information...................................................... 44
</TABLE>
1
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are incorporated herein by reference (Commission File No. 1-10441):
1. The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996.
2. The Company's Amendment on Form 10-K/A to its Annual Report on Form
10-K for the fiscal year ended June 30, 1996.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
5. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
6. The Company's Current Report on Form 8-K dated July 24, 1997.
7. The description of the Company's Common Stock contained in its
registration statement on Form 8-A filed on March 16, 1990, and the
description of the Company's Preferred Share Purchase Rights contained
in its Form 8-A filed on November 12, 1992, as amended by an amendment
on Form 8-A/A filed on July 20, 1995.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to
the termination of the offering of the securities offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified and superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER OF ZERO COUPON DEBENTURES, TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A
COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED HEREIN BY
REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). THESE DOCUMENTS
ARE AVAILABLE UPON REQUEST FROM SILICON GRAPHICS, INC., 2011 NORTH SHORELINE
BOULEVARD, MOUNTAIN VIEW, CALIFORNIA 94039-7311, ATTENTION: INVESTOR RELATIONS
((415) 933-2607). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE NOT LATER THAN FIVE BUSINESS DAYS PRIOR TO THE
EXPIRATION DATE.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the detailed information contained elsewhere in this Prospectus or
by documents incorporated by reference into this Prospectus.
THE COMPANY
Silicon Graphics is a leader in high-performance computing. The Company's
broad range of workstations and graphics servers deliver advanced 3D graphics
and computing capabilities for engineering and creative professionals. Silicon
Graphics and Cray Research-branded servers are the market leaders in technical
computing applications. The Company's highly scalable servers also have a
growing presence in the enterprise market, with a particular emphasis on
Internet, large corporate data and telecommunications applications.
The Company's MIPS Group designs and markets the world's highest volume
computer RISC microprocessors. The Company also markets applications software
targeted at engineering and creative professionals in the digital content
creation and manufacturing sectors.
The Company sells and services its products through a worldwide direct sales
and support organization and a network of resellers.
The Company was originally incorporated as a California corporation in
November 1981 and reincorporated in Delaware in January 1990. The principal
offices of the Company are located at 2011 North Shoreline Boulevard, Mountain
View, California, and its telephone number at that address is (415) 960-1980.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to refinance the Zero Coupon Debentures
with the Senior Notes. The Company has undertaken this refinancing to take
advantage of what it believes to be favorable conditions in the market for
convertible securities. In addition, to the extent that the Company may become
obligated to repurchase the Zero Coupon Debentures on or after November 2,
1998, the refinancing will enable the Company to avoid the related cash outlay
and/or the potentially dilutive effect of such repurchase if it is effected
using Common Stock.
THE EXCHANGE OFFER; SECURITIES OFFERED
Upon the terms and subject to the conditions of the Exchange Offer, the
Company hereby offers to exchange Senior Notes for up to all outstanding Zero
Coupon Debentures.
The Exchange Offer will be effected on the basis of that principal amount of
Senior Notes equal to the accreted value of each $1,000 principal at maturity
Zero Coupon Debenture as of the Expiration Date for each such Zero Coupon
Debenture validly tendered and accepted for exchange in the Exchange Offer.
Senior Notes will not be issued in denominations of less than $1,000, and the
Company will pay cash in lieu of issuing a fractional Senior Note to holders of
validity tendered Zero Coupon Debentures. The accreted value of each $1,000
principal amount at maturity Zero Coupon Debenture, to but excluding September
4, 1997, will be $514.904, and the aggregate accreted value of all outstanding
Zero Coupon Debentures will be $234,281,320.
The Senior Notes will be convertible at any time following the date of
issuance thereof and prior to maturity, unless previously redeemed, into shares
of Common Stock at a Conversion Price of $36.25 per share, subject to
adjustment in certain events.
3
<PAGE>
EXPIRATION DATE; WITHDRAWALS
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange all Zero Coupon Debentures validly tendered
and not withdrawn prior to the Expiration Date, or if extended by the Company,
in its sole discretion, the latest date and time to which extended. The
Exchange Offer will expire on the Expiration Date. Tenders of Zero Coupon
Debentures pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date and, unless accepted for exchange by the Company, may be
withdrawn at any time after 40 business days after the date of this Prospectus.
See "The Exchange Offer--Withdrawal of Tenders" and "--Expiration Date;
Extensions; Amendments; Termination."
EXTENSIONS, AMENDMENTS, AND TERMINATION
The Company expressly reserves the right to (i) extend, amend, or modify the
terms of the Exchange Offer in any manner and (ii) withdraw or terminate the
Exchange Offer and not accept for exchange any Zero Coupon Debentures, at any
time for any reason, including (without limitation) if less than $200,000,000
aggregate principal amount at maturity of Zero Coupon Debentures are tendered
(which condition may be waived by the Company). See "The Exchange Offer--
Expiration Date; Extensions; Amendments; Termination."
PROCEDURES FOR TENDERING
Each holder of Zero Coupon Debentures wishing to accept the Exchange Offer
must (i) properly complete and sign the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof) in accordance with the instructions
contained herein and therein, together with any required signature guarantees,
and deliver the same to State Street Bank and Trust Company of California,
N.A., as Exchange Agent, at either of its addresses set forth in "The Exchange
Offer--Exchange Agent and Information Agent" and either (a) certificates for
the Zero Coupon Debentures held by such holder must be received by the Exchange
Agent at either of such addresses or (b) such Zero Coupon Debentures must be
transferred pursuant to the procedures for book-entry transfer described herein
and a confirmation of such book-entry transfer must be received by the Exchange
Agent, in each case prior to the Expiration Date, or (ii) comply with the
guaranteed delivery procedures described herein. See "The Exchange Offer--
General" and "--Procedures for Tendering."
SPECIAL PROCEDURES FOR BENEFICIAL OWNERS
Any beneficial owner whose Zero Coupon Debentures are registered in the name
of a broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on its own behalf, such owner must, prior to
completing and executing a Letter of Transmittal and delivering its Zero Coupon
Debentures, either make appropriate arrangements to register the ownership of
such shares in such owner's name or obtain a properly completed bond power from
the registered holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date. See "The Exchange Offer--Procedures for Tendering--Signature Guarantees."
GUARANTEED DELIVERY PROCEDURES
If a holder of Zero Coupon Debentures desires to accept the Exchange Offer
and time will not permit a Letter of Transmittal or Zero Coupon Debentures to
reach the Exchange Agent before the Expiration Date or the procedure for book-
entry transfer cannot be completed on a timely basis, a tender may be effected
in accordance with the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering--Guaranteed Delivery."
4
<PAGE>
ACCEPTANCE OF ZERO COUPON DEBENTURES AND DELIVERY OF SENIOR NOTES
Upon the terms and subject to the conditions of the Exchange Offer, including
the reservation by the Company of the right to withdraw or terminate the
Exchange Offer and certain other rights, the Company will accept for exchange
all Zero Coupon Debentures validly tendered and not withdrawn, and will deliver
the Senior Notes to exchanging holders of Zero Coupon Debentures as promptly as
practicable after the Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer" and "--Expiration Date; Extensions; Amendments; Termination."
TAX CONSEQUENCES OF EXCHANGE
The Company believes that the exchange of Zero Coupon Debentures for Senior
Notes should constitute a recapitalization for United States federal income tax
purposes. Accordingly, holders of Zero Coupon Debentures who participate in the
Exchange Offer generally will not recognize a loss. However, such holders may
recognize gain to the extent, if any, that the fair market value of the Senior
Notes as of the Expiration Date exceeds the accreted value of the Zero Coupon
Debentures. See "Certain Federal Income Tax Considerations." INVESTORS
CONSIDERING THE EXCHANGE OF ZERO COUPON DEBENTURES IN THE EXCHANGE OFFER ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF THE
SENIOR NOTES UNDER FEDERAL AND APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS.
UNTENDERED ZERO COUPON DEBENTURES
Holders of Zero Coupon Debentures who do not tender their Zero Coupon
Debentures in the Exchange Offer or whose Zero Coupon Debentures are not
accepted for exchange will continue to hold such Zero Coupon Debentures and
will be entitled to all the rights, and will be subject to all of the
limitations, applicable thereto. See "The Exchange Offer--Trading of Senior
Notes and Zero Coupon Debentures." On and after November 2, 1998, the Company
may exercise its optional redemption rights on any Zero Coupon Debentures which
are not tendered and exchanged in the Exchange Offer. In addition, on each
Purchase Date (as defined herein), the Company is obligated, at the holder's
option, to purchase any untendered outstanding Zero Coupon Debenture, subject
to certain conditions. See "Description of Zero Coupon Debentures." To the
extent that Zero Coupon Debentures are tendered and exchanged in the Exchange
Offer, a holder's ability to sell untendered Zero Coupon Debentures could be
adversely affected.
EXCHANGE AGENT AND INFORMATION AGENT
State Street Bank and Trust Company of California, N.A. has been appointed as
Exchange Agent in connection with the Exchange Offer. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to Georgeson & Company Inc., which has been retained by the Company to
act as Information Agent for the Exchange Offer. The addresses and telephone
numbers of the Exchange Agent and Information Agent are set forth in "The
Exchange Offer--Exchange Agent and Information Agent."
DEALER MANAGER
Morgan Stanley & Co. Incorporated has been retained to act as Dealer Manager
to solicit exchanges of Zero Coupon Debentures for Senior Notes. Questions with
respect to the Exchange Offer may be directed to Morgan Stanley & Co.
Incorporated at (800) 835-9668 (extension 2262).
5
<PAGE>
COMPARISON OF SENIOR NOTES AND ZERO COUPON DEBENTURES
The following is a brief summary of certain terms of the Senior Notes and the
Zero Coupon Debentures. For a more complete description of the Senior Notes,
see "Description of Senior Notes."
<TABLE>
<CAPTION>
SENIOR NOTES ZERO COUPON DEBENTURES
------------ ----------------------
<S> <C> <C>
Issuer................ Silicon Graphics, Inc. Silicon Graphics, Inc.
Maturity Date......... September 1, 2004 November 2, 2013
Interest Rate......... 5 1/4% per annum, payable in There are no periodic cash
cash semi-annually on March 1 payments of interest. However,
and September 1 of each year, the Zero Coupon Debentures are
commencing March 1, 1998. subject to the accrual of
original issue discount (the
difference between the original
issue price and the principal
amount at maturity).
Conversion............ Convertible at the option of the Convertible at the option of
holder into shares of Common the holder into shares of
Stock at a Conversion Price Common Stock at the rate of
equal to $36.25 per share, sub- 16.2690 shares per $1,000
ject to adjustment in certain principal amount at maturity of
events. See "Description of Se- Zero Coupon Debentures
nior Notes--Conversion of Senior (equivalent to a conversion
Notes." price of $31.65 as of September
4, 1997). The conversion rate
for the Zero Coupon Debentures
is subject to adjustment in
certain events. See
"Description of Zero Coupon
Debentures--Conversion of Zero
Coupon Debentures."
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SENIOR NOTES ZERO COUPON DEBENTURES
------------ ----------------------
<S> <C> <C>
Redemption at the Op-
tion of the Company.. The Senior Notes are redeemable The Zero Coupon Debentures are
at the option of the Company on redeemable at the option of
and after September 7, 2000, in the Company on and after
whole or in part, upon not less November 2, 1998, in whole or
than 30 days notice nor more than in part, upon not less than 30
60 days notice, at the following days notice nor more than 60
redemption prices in effect days notice, at a redemption
during the 12-month period price per Zero Coupon
beginning September 1 of Debentures equal to the
each of the following years accreted value of such Zero
(expressed as percentages of Coupon Debentures as of the
the principal amount), plus redemption date. See
accrued and unpaid interest "Description of Zero Coupon
thereon to, but excluding, Debentures--Redemption of the
the redemption date: 103.00% Zero Coupon Debentures at the
in 2000; 102.25% in 2001; Option of the Company."
101.50% in 2002; 100.75% in 2003
and 100% at September 1, 2004;
provided however, that on or
after September 7, 2000 and prior
to September 7, 2002, the Senior
Notes will not be redeemable at
the option of the Company unless
the closing price of the Common
Stock shall have exceeded 140% of
the Conversion Price then in
effect for 20 trading days within
a period of 30 consecutive
trading days ending within five
trading days prior to the notice
of redemption. See "Description
of Senior Notes--Redemption of
the Senior Notes at the Option of
the Company."
Redemption at the
Option of the Holder
Upon a Fundamental
Change............... If a Fundamental Change occurs at If a Fundamental Change occurs
any time prior to September 1, at any time prior to November
2004, each holder of Senior Notes 2, 2013, each holder of Zero
shall have the right, at such Coupon Debentures shall have
holder's option, to require the the right, at such holder's
Company to redeem any or all of option, to require the Company
such holder's Senior Notes at the to redeem any or all of such
following redemption prices in holder's Zero Coupon
effect during the 12-month Debentures at a price equal to
period beginning September 1 the accreted value of the Zero
of each of the following years Coupon Debentures as for the
(expressed as percentages of the redemption date, subject to
principal amount), subject to adjustment in certain events.
adjustment in certain events, See "Description of Zero
plus accrued and unpaid interest Coupon Debentures--Redemption
thereon to, but excluding, the at the Option of the Holder
Repurchase Date: 105.25% in 1997; Upon a Fundamental Change."
104.50% in 1998; 103.75% in 1999
and thereafter at the redemption
price applicable to a redemption
at the option of the Company as
set forth above. See "Description
of Senior Notes--Redemption at
the Option of the Holder Upon a
Fundamental Change."
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SENIOR NOTES ZERO COUPON DEBENTURES
------------ ----------------------
<S> <C> <C>
Subordination......... The Senior Notes are Subordinated in right of payment
unsubordinated and will rank to the prior payment in full of
pari passu with all other all existing and future Senior
unsubordinated indebtedness of Indebtedness of the Company. As
the Company. of March 31, 1997, the Company
had total Senior Indebtedness of
approximately $76.1 million. See
"Description of Zero Coupon
Debentures--Subordination of
Zero Coupon Debentures."
Purchase at Holder's
Option............... None. Subject to certain conditions,
the Company will become
obligated to purchase, at the
option of the holder thereof,
any outstanding Zero Coupon
Debenture on the following dates
at the following prices per
$1,000 principal amount at
maturity, representing the
original issue price plus
accrued original issue discount:
November 2, 1998: $540.03;
November 2, 2003: $663.15; and
November 2, 2008: $814.34. The
Company may elect to purchase
the Zero Coupon Debentures in
cash or shares of Common Stock,
or any combination thereof. See
"Description of Zero Coupon
Debentures--Purchase of Zero
Coupon Debentures at the Option
of the Holder."
Trading............... Application will be made to The Zero Coupon Debentures trade
list the Senior Notes on the in the over-the-counter market.
New York Stock Exchange.
</TABLE>
8
<PAGE>
MARKET PRICE OF THE COMMON STOCK
The following table sets forth the high and low sales prices of a share of
the Common Stock reported on the New York Stock Exchange Composite
Transactions listing during the indicated periods.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year 1995
First Quarter............................................. $26 7/8 $21 1/4
Second Quarter............................................ 33 1/8 24 1/8
Third Quarter............................................. 38 29 1/8
Fourth Quarter............................................ 42 33 3/4
Fiscal Year 1996
First Quarter............................................. $45 5/8 $33
Second Quarter............................................ 38 3/4 26 7/8
Third Quarter............................................. 30 3/8 21 1/8
Fourth Quarter............................................ 30 1/8 23 1/8
Fiscal Year 1997
First Quarter............................................. $26 $20
Second Quarter............................................ 27 5/8 17 7/8
Third Quarter............................................. 28 3/8 19 1/4
Fourth Quarter............................................ 20 3/8 12 5/8
Fiscal Year 1998
First Quarter (through August 6, 1997).................... $28 13/16 $15
</TABLE>
A recent reported last sale price per share of the Common Stock on the New
York Stock Exchange is set forth on the cover page of this Prospectus. Holders
of Zero Coupon Debentures are urged to obtain a current market price for the
Common Stock.
DIVIDENDS ON THE COMMON STOCK
The Company has not paid any dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and does not
anticipate paying cash dividends to holders of its Common Stock.
9
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) at March 31, 1997, and (ii) as adjusted to give effect to the
issuance of the Senior Notes in the Exchange Offer on the assumption that all
of the outstanding Zero Coupon Debentures were validly tendered and accepted
for exchange as of such date. To the extent that Zero Coupon Debentures are
not validly tendered or accepted in the Exchange Offer, the amount attributed
to the Senior Notes would decrease and the amount attributed to the Zero
Coupon Debentures would increase. The financial data at March 31, 1997 in the
following table are derived from the Company's unaudited financial statements
for the nine months ended March 31, 1997.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt(1):................... $ 17,788 $ 17,788
========== ==========
Long-term debt(1):
Senior Notes.......................................... $ -- $ 230,250
Zero Coupon Debentures................................ 230,250 --
Other long-term debt.................................. 123,269 123,269
---------- ----------
Total long-term debt................................ 353,519 353,519
Stockholders' equity(1):
Preferred stock, par value $0.001 per share, issuable
in series; 2,000,000 shares authorized, 17,500 shares
issued and outstanding............................... 16,998 16,998
Common stock, par value $0.001 per share; 500,000,000
shares authorized, 176,744,669 shares issued and
outstanding(2)....................................... 176 176
Additional paid-in capital............................ 1,230,715 1,230,715
Retained earnings(3).................................. 435,424 432,819
Accumulated translation adjustment and other.......... 17,805 17,805
---------- ----------
Total stockholders' equity.......................... 1,701,118 1,698,513
---------- ----------
Total capitalization.............................. $2,054,637 $2,052,032
========== ==========
</TABLE>
- --------
(1) For additional information regarding long-term debt and stockholders'
equity, see notes 1, 9 and 12 to the audited consolidated financial
statements included in the Company's Annual Report to Stockholders for the
fiscal year ended June 30, 1996. See "Incorporation of Certain Documents
by Reference."
(2) Outstanding shares exclude shares reserved for issuance upon conversion of
the Senior Notes and 54,057,017 shares issuable under the Company's stock
award and purchase plans.
(3) Retained earnings "as adjusted" reflects an earnings charge for debt
issuance costs expected to be incurred in connection with the Exchange
Offer.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected operating data for each of the three years in the period ended
June 30, 1996 and the balance sheet data at June 30, 1995 and 1996 are derived
from the audited Consolidated Financial Statements of the Company audited by
Ernst & Young LLP, independent auditors, which are incorporated by reference in
this Prospectus and are qualified by reference to such Consolidated Financial
Statements and related Notes thereto. The selected operating data for the years
ended June 30, 1992 and 1993 and the balance sheet data at June 30, 1992, 1993
and 1994 have been derived from audited Consolidated Financial Statements of
the Company audited by Ernst & Young LLP that are not included or incorporated
by reference herein. The selected operating data for the nine months ended
March 31, 1996 and 1997 and the selected balance sheet data at March 31, 1997
are derived from unaudited Consolidated Financial Statements incorporated by
reference in this Prospectus. The unaudited Consolidated Financial Statements
include all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair statement of the information set
forth therein. Operating results for the nine months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the full
year or for any future period. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and
related Notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED JUNE 30,
---------------------- ------------------------------------------------------
1997 1996 1996(1) 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $2,500,284 $1,943,943 $2,921,316 $2,228,268 $1,537,766 $1,132,869 $ 906,713
Costs and expenses:
Cost of revenue........ 1,424,924 934,044 1,482,439 1,032,059 735,388 532,213 437,575
Research and
development........... 353,905 231,546 353,461 247,678 190,796 143,981 137,134
Selling, general and
administrative........ 740,601 561,237 807,830 619,259 417,753 336,054 329,204
Write-off of acquired
in-process technology
and merger-related
expenses.............. 7,647 1,275 103,193 22,000 -- -- 110,000
Restructuring costs.... -- -- -- -- -- 650 28,895
---------- ---------- ---------- ---------- ---------- ---------- ---------
Operating income (loss)
from continuing
operations............. (26,793) 215,841 174,393 307,272 193,829 119,971 (136,095)
Interest and other,
net.................... (4,371) 14,780 10,413 9,447 4,779 520 5,961
Minority interest in net
loss of Cray Research.. -- -- 3,982 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) from
continuing operations
before income taxes.... (31,164) 230,621 188,788 316,719 198,608 120,491 (130,134)
Provision (benefit) for
income taxes........... (7,312) 66,880 73,751 91,863 57,194 37,688 (28,951)
---------- ---------- ---------- ---------- ---------- ---------- ---------
Income (loss) from
continuing operations.. (23,852) 163,741 115,037 224,856 141,414 82,803 (101,183)
Discontinued
operations............. -- -- -- -- 400 (9,263) --
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss)....... $ (23,852) $ 163,741 $ 115,037 $ 224,856 $ 141,814 $ 73,540 $(101,183)
========== ========== ========== ========== ========== ========== =========
Income per share:
Income (loss) from
continuing
operations............ $ (0.14) $ 0.93 $ 0.65 $ 1.28 $ 0.86 $ 0.53 $ (0.89)
Net income loss........ $ (0.14) $ 0.93 $ 0.65 $ 1.28 $ 0.86 $ 0.47 $ (0.89)
Common and common
equivalent shares used
in the calculation of
income (loss) per
share.................. 174,761 176,663 175,790 175,435 165,149 154,887 119,233
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, AT JUNE 30,
------------ ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ----------- ----------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT RATIOS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents
and marketable
securities............. $ 411,449 $ 456,937 $ 780,012 $ 604,444 $ 208,538 $195,088
Working capital......... 1,062,616 994,817 889,371 645,296 398,053 362,529
Total assets............ 3,132,143 3,158,246 2,206,619 1,567,052 1,048,294 892,673
Long-term debt and
other.................. 398,335 381,490 287,267 252,645 56,832 71,900
Stockholders' equity.... 1,701,118 1,675,318 1,346,170 937,169 696,649 562,230
RATIO OF EARNINGS TO
FIXED CHARGES(2)....... 0.1x 5.5x 11.4x 11.2x 9.2x --
</TABLE>
- --------
(1) Amounts reflect the April 2, 1996 acquisition of Cray Research which was
accounted for as a purchase.
(2) For purposes of this ratio, "earnings" consist of earnings before income
taxes and fixed charges. "Fixed charges" consist of interest on
indebtedness and capital lease obligations, amortization of debt discount
and issuance expense and that portion of operating lease rental expense
which is representative of the interest factor. Earnings (as defined) for
fiscal 1992 were insufficient to cover fixed charges by $18.4 million.
11
<PAGE>
THE EXCHANGE OFFER
GENERAL
Participation in the Exchange Offer is voluntary and holders of Zero Coupon
Debentures should carefully consider whether to accept. None of the Board of
Directors or the Company make any recommendation to holders of Zero Coupon
Debentures as to whether to tender or refrain from tendering in the Exchange
Offer. Holders of Zero Coupon Debentures are urged to consult their financial
and tax advisors in making their own decisions on what action to take in light
of their own particular circumstances.
Unless the context requires otherwise, the term "Holder" with respect to the
Exchange Offer means (i) any person in whose name any Zero Coupon Debentures
are registered on the books of the Company, (ii) any other person who has
obtained a properly completed bond power from the registered holder, or (iii)
any person whose Zero Coupon Debentures are held of record by The Depository
Trust Company ("DTC") who desires to deliver such Zero Coupon Debentures by
book-entry transfer at DTC.
PURPOSE OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to refinance the Zero Coupon Debentures
with the Senior Notes. The Company has undertaken to refinancing its Zero
Coupon Debentures at this time to take advantage of what it believes to be
favorable conditions in the market for convertible securities. In addition, to
the extent that the Company may become obligated to repurchase the Zero Coupon
Debentures on or after November 2, 1998, the refinancing will enable the
Company to avoid the related cash outlay and/or the potentially dilutive effect
of such repurchase if it is effected using Common Stock.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange Senior Notes for up to all of the outstanding Zero Coupon
Debentures. The Exchange Offer will be effected on the basis of that principal
amount of Senior Notes equal to the accreted value of each $1,000 principal
amount at maturity Zero Coupon Debenture as of the Expiration Date for each
such Zero Coupon Debenture validly tendered and accepted for exchange in the
Exchange Offer. Senior Notes will not be issued in denominations of less than
$1,000, and the Company will pay cash in lieu of issuing a fractional Senior
Note to holders of validly tendered Zero Coupon Debentures.
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange all Zero Coupon Debentures validly tendered
and not withdrawn as promptly as practicable after the Expiration Date unless
the Exchange Offer has been withdrawn or terminated. The Company will not
accept Zero Coupon Debentures for exchange prior to the Expiration Date. The
Company expressly reserves the right, in its sole discretion, to delay
acceptance for exchange of Zero Coupon Debentures tendered under the Exchange
Offer or the exchange of Senior Notes for the Zero Coupon Debentures accepted
for exchange (subject to Rules 13e-4 and 14e-1 under the Exchange Act, which
require that the Company consummate the Exchange Offer or return the Zero
Coupon Debentures deposited by or on behalf of the Holders thereof promptly
after the termination or withdrawal of the Exchange Offer), or to withdraw or
terminate the Exchange Offer and not accept any Zero Coupon Debentures at any
time for any reason. In all cases, except to the extent waived by the Company,
delivery of the Senior Notes in exchange for the Zero Coupon Debentures
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of such Zero Coupon Debentures (or
confirmation of book-entry transfer thereof), a properly completed and duly
executed Letter of Transmittal, and any other documents required thereby.
As of the date of this Prospectus, there were $455,000,000 aggregate
principal amount at maturity of Zero Coupon Debentures outstanding, which, to
and including such date, had an aggregate accreted value of $233,562,420. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered Holders as of such date.
12
<PAGE>
The Company shall be deemed to have accepted validly tendered Zero Coupon
Debentures (or defectively tendered Zero Coupon Debentures with respect to
which the Company has waived such defect) when, as and if the Company has
given oral or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering Holders for the purpose of receiving the
Senior Notes from the Company and remitting such Senior Notes to tendering
Holders. Upon the terms and subject to the conditions of the Exchange Offer,
delivery of Senior Notes in exchange for Zero Coupon Debentures will be made
as promptly as practicable after the Expiration Date.
If any tendered Zero Coupon Debentures are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein,
or otherwise, unless otherwise requested by the Holder under "Special Delivery
Instructions" in the Letter of Transmittal, such Zero Coupon Debentures will
be returned, without expense, to the tendering Holder thereof (or in the case
of Zero Coupon Debentures tendered by book-entry transfer into the Exchange
Agent's account at DTC, such Zero Coupon Debentures will be credited to an
account maintained at DTC designated by the participant therein who so
delivered such Zero Coupon Debentures), as promptly as practicable after the
Expiration Date or the withdrawal or termination of the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission thereunder.
Holders who tender Zero Coupon Debentures in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Zero Coupon Debentures pursuant to the Exchange Offer. See "--Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The Exchange Offer will expire on the Expiration Date. The Company reserves
the right to extend the Exchange Offer in its sole discretion at any time and
from time to time by giving oral or written notice to the Exchange Agent and
by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by issuing a press release. During any extension
of the Exchange Offer, all Zero Coupon Debentures previously tendered pursuant
to the Exchange Offer and not withdrawn will remain subject to the Exchange
Offer.
The Company expressly reserves the right to (i) extend, amend or modify the
terms of the Exchange Offer in any manner, including (without limitation) the
form of the consideration or the formula for calculating the amount of the
consideration to be paid pursuant to the Exchange Offer and (ii) withdraw or
terminate the Exchange Offer and not accept for exchange any Zero Coupon
Debentures, at any time for any reason, including (without limitation) if less
than $200,000,000 aggregate principal amount at maturity of Zero Coupon
Debentures are tendered (which condition may be waived by the Company). If the
Company makes a material change in the terms of the Exchange Offer or if it
waives a material condition of the Exchange Offer, the Company will extend the
Exchange Offer. The minimum period for which the Exchange Offer will be
extended following a material change or waiver, other than a change in the
amount of the Zero Coupon Debentures being sought for exchange or in the
consideration offered, will depend upon the facts and circumstances, including
the relative materiality of the change or waiver. With respect to a change in
the amount of the Zero Coupon Debentures being sought or in the consideration
offered, the Exchange Offer will be extended for a minimum of ten business
days following public announcement of such change. Any withdrawal or
termination of the Exchange Offer will be followed as promptly as practicable
by public announcement thereof. In the event the Company withdraws or
terminates the Exchange Offer, it will give immediate notice to the Exchange
Agent, and all Zero Coupon Debentures theretofore tendered pursuant to the
Exchange Offer will be returned promptly to the tendering Holders thereof. See
"--Withdrawal of Tenders."
13
<PAGE>
INTEREST ON THE SENIOR NOTES AND ORIGINAL ISSUE DISCOUNT ON THE ZERO COUPON
DEBENTURES
The Senior Notes will bear interest at the annual rate set forth on the
cover of this Prospectus from and including the Expiration Date. Original
issue discount on the Zero Coupon Debentures will accrete up to, but not
including, the Expiration Date.
PROCEDURES FOR TENDERING
The tender of Zero Coupon Debentures by a Holder thereof pursuant to one of
the procedures set forth below will constitute an agreement between such
Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Each Holder of Zero Coupon Debentures wishing to accept the Exchange Offer
must (i) properly complete and sign the Letter of Transmittal or a facsimile
thereof in accordance with the instructions contained herein and therein,
together with any required signature guarantees, and deliver the same to the
Exchange Agent, at either of its addresses set forth in "--Exchange Agent and
Information Agent" (unless such Zero Coupon Debentures are delivered in
accordance with the procedures set forth below under "--Book-Entry Transfer")
and either (a) certificates for the Zero Coupon Debentures held by such Holder
must be received by the Exchange Agent at either of such addresses or (b) such
Zero Coupon Debentures must be transferred pursuant to the procedures for
book-entry transfer described below and a confirmation of such book-entry
transfer must be received by the Exchange Agent, in each case prior to the
Expiration Date, or (ii) comply with the guaranteed delivery procedures
described below.
LETTERS OF TRANSMITTAL, ZERO COUPON DEBENTURES AND ANY OTHER REQUIRED
DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE COMPANY, THE
DEALER MANAGER, OR THE INFORMATION AGENT.
Signature Guarantees. If tendered Zero Coupon Debentures are registered in
the name of the signer of the Letter of Transmittal and the Senior Notes to be
issued in exchange therefor are to be issued (and any untendered Zero Coupon
Debentures are to be reissued) in the name of the registered Holder (which
term, for the purposes described herein, shall include any participant in DTC
whose name appears on a security listing as the owner of the Zero Coupon
Debentures), the signature of such signer need not be guaranteed. If the
tendered Zero Coupon Debentures are registered in the name of someone other
than the signer of the Letter of Transmittal, such tendered shares must be
endorsed or accompanied by written instruments of transfer in form
satisfactory to the Company and duly executed by the registered Holder, and
the signature on the endorsement or instrument of transfer must be guaranteed
by a financial institution (including most banks, savings and loan
associations, and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program or The New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (any of
the foregoing hereinafter referred to as an "Eligible Institution"). If the
Senior Notes and/or Zero Coupon Debentures not exchanged are to be delivered
to an address other than that of the registered Holder appearing on the
register for the Zero Coupon Debentures, the signature in the Letter of
Transmittal must be guaranteed by an Eligible Institution. Any beneficial
owner whose Zero Coupon Debentures are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact such registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on its own behalf, such owner must, prior to
completing and executing a Letter of Transmittal and delivering its Zero
Coupon Debentures, either make appropriate arrangements to register the
ownership of such Zero Coupon Debentures in such owner's name or obtain a
properly completed bond power from the registered Holder. The transfer of
registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
THE METHOD OF DELIVERY OF ZERO COUPON DEBENTURES AND ALL OTHER DOCUMENTS IS
AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PRIOR INSURANCE BE
OBTAINED,
14
<PAGE>
AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Book-Entry Transfer. The Company understands that the Exchange Agent will
make a request promptly after the date of this Prospectus to establish
accounts with respect to the Zero Coupon Debentures at DTC for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in DTC's system may make book-
entry delivery of Zero Coupon Debentures by causing DTC to transfer such Zero
Coupon Debentures into the Exchange Agent's account with respect to the Zero
Coupon Debentures in accordance with DTC's Automated Tender Offer Program
("ATOP") procedures for such book-entry transfers. However, the exchange for
Zero Coupon Debentures so tendered will only be made after timely confirmation
(a "Book-Entry Confirmation") of such book-entry transfer of Zero Coupon
Debentures into the Exchange Agent's account, and timely receipt by the
Exchange Agent of an Agent's Message (as such term is defined in the next
sentence) and any other documents required by the Letter of Transmittal. The
term "Agent's Message" means a message, transmitted by DTC and received by the
Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that DTC has received an express acknowledgement from a participant tendering
Zero Coupon Debentures that is the subject of such Book-Entry Confirmation
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal, and that the Company may enforce such agreement against
such participant. See "Book-Entry System--The Depository Trust Company."
Guaranteed Delivery. If a Holder desires to accept the Exchange Offer and
time will not permit a Letter of Transmittal or Zero Coupon Debentures to
reach the Exchange Agent before the Expiration Date or the procedure for book-
entry transfer cannot be completed on a timely basis, a tender may be effected
if the Exchange Agent has received at its office, prior to the Expiration
Date, a letter, a telegram, or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering Holder, the
name(s) in which the Zero Coupon Debentures are registered and, if the Zero
Coupon Debentures are held in certificated form, the certificate number of the
Zero Coupon Debentures to be tendered, and stating that the tender is being
made thereby and guaranteeing that within three trading days after the date of
execution of such letter, telegram, or facsimile transmission by the Eligible
Institution, the Zero Coupon Debentures, in proper form for transfer together
with a properly completed and duly executed Letter of Transmittal (and any
other required documents), or a confirmation of book-entry transfer of such
Zero Coupon Debentures into the Exchange Agent's account at DTC, will be
delivered by such Eligible Institution. Unless the Zero Coupon Debentures
being tendered by the above-described method are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents) or
a confirmation of book-entry transfer of such Zero Coupon Debentures into the
Exchange Agent's account at DTC in accordance with DTC's ATOP procedures is
received, the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for
the purposes described in this paragraph are available from the Exchange Agent
and the Information Agent.
Miscellaneous. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance for exchange of any tender of Zero
Coupon Debentures will be determined by the Company, whose determination will
be final and binding. The Company reserves the absolute right to reject any or
all tenders not in proper form or the acceptance for exchange of which may, in
the opinion of the Company's counsel, be unlawful. The Company also reserves
the absolute right to waive any defect or irregularity in the tender of any
Zero Coupon Debentures, and the Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding. None of the Company, the Exchange
Agent, the Dealer Manager, the Information Agent, or any other person will be
under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
Tenders of Zero Coupon Debentures involving any irregularities will not be
deemed to have been made until such irregularities have been cured or waived.
Zero Coupon Debentures received by the Exchange Agent that are not validly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering Holder (or in the case of
Zero Coupon Debentures tendered by book-entry transfer into the Exchange
Agent's account at DTC, such Zero Coupon Debentures will be credited to an
account
15
<PAGE>
maintained at DTC designated by the participant therein who so delivered such
Zero Coupon Debentures), unless otherwise requested by the Holder in the
Letter of Transmittal, as promptly as practicable after the Expiration Date or
the withdrawal or termination of the Exchange Offer.
LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Zero Coupon Debentures for exchange (the "Transferor")
exchanges, assigns, and transfers such Zero Coupon Debentures to the Company
and irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause such Zero Coupon Debentures
to be assigned, transferred, and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, assign, and
transfer the Zero Coupon Debentures and to acquire Senior Notes issuable upon
the exchange of such tendered Zero Coupon Debentures, and that, when the same
are accepted for exchange, the Company will acquire good and unencumbered
title to the tendered Zero Coupon Debentures, free and clear of all liens,
restrictions, charges, and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon request, execute, and deliver
any additional documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment, and transfer of tendered Zero Coupon
Debentures or transfer ownership of such Zero Coupon Debentures on the account
books maintained by DTC. All authority conferred by the Transferor will
survive the death, bankruptcy, or incapacity of the Transferor, and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors, and administrators of such
Transferor.
WITHDRAWAL OF TENDERS
Tenders of Zero Coupon Debentures pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date and, unless accepted for
exchange by the Company, may be withdrawn at any time after 40 business days
after the date of this Prospectus.
To be effective, a written notice of withdrawal delivered by mail, hand
delivery, or facsimile transmission must be timely received by the Exchange
Agent at the address set forth in the Letter of Transmittal. The method of
notification is at the risk and election of the Holder. Any such notice of
withdrawal must specify (i) the Holder named in the Letter of Transmittal as
having tendered Zero Coupon Debentures to be withdrawn, (ii) if Zero Coupon
Debentures are held in certificated form, the certificate numbers of such Zero
Coupon Debentures to be withdrawn, (iii) that such Holder is withdrawing his
election to have such Zero Coupon Debentures exchanged, and (iv) the name of
the registered Holder of such Zero Coupon Debentures, and must be signed by
the Holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender
has succeeded to the beneficial ownership of the Zero Coupon Debentures being
withdrawn. The Exchange Agent will return the properly withdrawn Zero Coupon
Debentures promptly following receipt of notice of withdrawal. If Zero Coupon
Debentures have been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn Zero Coupon Debentures and
otherwise comply with DTC's procedures. All questions as to the validity of
notice of withdrawal, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
Withdrawals of tenders of Zero Coupon Debentures may not be rescinded and any
Zero Coupon Debentures withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offer. Properly withdrawn Zero Coupon
Debentures, however, may be retendered by following the procedures therefor
described elsewhere herein at any time prior to the Expiration Date.See "--
Procedures for Tendering."
16
<PAGE>
EXCHANGE AGENT AND INFORMATION AGENT
State Street Bank and Trust Company of California, N.A. has been appointed as
Exchange Agent for the Exchange Offer. Deliveries to the Exchange Agent should
be as follows:
THE EXCHANGE AGENT:
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
By Hand or Overnight Courier: By Mail:
C/O STATE STREET BANK AND TRUST STATE STREET BANK AND TRUST COMPANY
COMPANY, N.A. P.O. BOX 778
61 BROADWAY
NEW YORK, NEW YORK 10006 BOSTON, MASSACHUSETTS 02102
By Facsimile Transmission
(For Eligible Institutions Only):
(617) 664-5739
Confirm by Telephone:
(617) 664-5314
Georgeson & Company Inc. has been retained to act as Information Agent.
Questions and requests for assistance regarding the Exchange Offer, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery may be directed to the Information
Agent at Wall Street Plaza, New York, New York 10005, telephone (800) 223-2064
or (212) 440-9800 (collect).
The Company will pay the Exchange Agent and Information Agent reasonable and
customary fees for their services and will reimburse them for all their
reasonable out-of-pocket expenses in connection therewith.
DEALER MANAGER
Morgan Stanley & Co. Incorporated, as Dealer Manager, has agreed to solicit
exchanges of Zero Coupon Debentures. The Company will pay the Dealer Manager a
fee of 0.875% of the accreted value as of the Expiration Date for each $1,000
principal amount at maturity Zero Coupon Debenture validly tendered and
accepted for exchange pursuant to the Exchange Offer. Additional solicitation
may be made by telecopier, by telephone, or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Dealer Manager engages in transactions with, and from time to time has
performed services for, the Company.
TRADING OF SENIOR NOTES AND ZERO COUPON DEBENTURES
Application will be made to list the Senior Notes on the New York Stock
Exchange. However, there can be no assurance that an active public market for
the Senior Notes will develop and continue after the Exchange Offer.
The Zero Coupon Debentures are traded in the over-the-counter market. The
Zero Coupon Debentures, and the underlying shares of Common Stock issuable upon
conversion thereof, have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"). The Zero Coupon Debentures, and the
underlying shares of Common Stock issuable upon conversion thereof, which are
not (and have not been) held by an affiliate of the Company are no longer
subject to transfer restrictions. Holders of Zero Coupon Debentures who do not
tender their Zero Coupon Debentures in the Exchange Offer or whose Zero Coupon
Debentures are not accepted for exchange will continue to hold such Zero Coupon
Debentures and will be entitled to all the rights and preferences, and will be
subject to all of
17
<PAGE>
the limitations applicable thereto. To the extent that Zero Coupon Debentures
are tendered and accepted in the Exchange Offer, the liquidity and trading
market for the Zero Coupon Debentures outstanding following the Exchange
Offer, and the terms upon which such Zero Coupon Debentures could be sold,
could be adversely affected.
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE ZERO COUPON DEBENTURES IN
CONNECTION WITH THE EXCHANGE OFFER
Except as described herein, there are no contracts, arrangements,
understandings, or relationships in connection with the Exchange Offer between
the Company or any of its directors or executive officers and any person with
respect to any securities of the Company, including the Senior Notes, the Zero
Coupon Debentures, and the Common Stock issuable upon conversion thereof.
FEES AND EXPENSES; TRANSFER TAXES
The expenses of soliciting tenders of Zero Coupon Debentures will be borne
by the Company. For compensation to be paid to the Dealer Manager, see "--
Dealer Manager." The total expenses to be incurred by the Company in
connection with the Exchange Offer, other than fees payable to the Dealer
Manager, but including the expenses of the Dealer Manager, printing,
accounting, and legal fees, rating agency fees and the fees and expenses of
the Exchange Agent, the Information Agent and the Senior Notes Trustee are
estimated to be approximately $555,000. The Dealer Manager has agreed to
reimburse the Company for certain of its expenses.
The Company shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Zero Coupon Debentures to it or its order pursuant to the
Exchange Offer. If, however, certificates representing Senior Notes or Zero
Coupon Debentures are not tendered or accepted for exchange, are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered Holder(s) of such Zero Coupon Debentures tendered,
or if a transfer tax is imposed for any reason other than the exchange of Zero
Coupon Debentures to the Company or its order pursuant to the Exchange Offer,
the amount of any such transfer taxes (whether imposed on the registered
Holder(s) or any other person) will be payable by the tendering Holder(s). If
satisfactory evidence of payment of such taxes or exception therefrom is not
submitted, the amount of such transfer taxes will be billed directly to such
tendering Holder.
DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes are unsecured unsubordinated of the Company and mature on
September 1, 2004. The Senior Notes will be issued under an indenture dated as
of September 1, 1997 (the "Senior Notes Indenture"), between the Company and
State Street Bank and Trust Company of California, N.A., as trustee (the
"Senior Notes Trustee"), the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summaries of certain provisions of the Senior Notes and the Senior Notes
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 Senior Notes and
the Senior Notes Indenture, including the definitions therein. The Senior
Notes Indenture is subject to and governed by the Trust Indenture Act of 1939,
as amended. Wherever particular provisions or defined terms of the Senior
Notes Indenture (or of the form of Senior Note which is a part thereof) are
referred to, such provisions or defined terms are incorporated herein by
reference. As used in this "Description of Senior Notes," the "Company" refers
to Silicon Graphics, Inc. and does not, unless the context otherwise
indicates, include its subsidiaries.
The Senior Notes will bear interest at the annual rate set forth on the
cover page of this Prospectus, from and including the Expiration Date, payable
semi-annually on March 1 and September 1 of each year, commencing March 1,
1998, to the holders of record at the close of business on the preceding
February 15 and August 15, respectively. Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months. The Company may
not reissue a Senior Note that has matured or been converted, redeemed or
otherwise canceled (except for registration of transfer, exchange or
replacement thereof).
18
<PAGE>
Payments of principal and interest on the Senior Notes will be payable, the
transfer of the Senior Notes will be registrable, and Senior Notes will be
exchangeable for Senior Notes of other denominations of a like aggregate
principal amount, at the office or agency of the Senior Notes Trustee in New
York, New York; provided that the payment of interest may be made at the
option of the Company by check mailed to the address of, or by wire transfer
to the account of, the person entitled thereto and that the payment of
principal with respect to any Senior Note will be made only upon surrender of
such Senior Note to the Senior Notes Trustee.
The Senior Notes are obligations exclusively of the Company. Since the
operations of the Company are currently partially conducted through
subsidiaries, the cash flow and the consequent ability to service debt,
including the Senior 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 subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Senior Notes or to make any funds available therefor, whether by dividends,
loans or other payments. In addition, 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 contingent 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 Senior 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 Senior Notes Indenture does not limit the ability of the Company to
incur additional indebtedness.
DTC will act as securities depositary for the Senior Notes. The Senior Notes
will be issued only as fully registered securities registered in the name of
Cede & Co., DTC's nominee ("Cede & Co."). One or more fully registered global
Senior Notes certificates, representing the total aggregate principal amount
of Senior Notes, will be issued and will be deposited with DTC. A Beneficial
Owner (as defined herein) in a global Senior Note certificate will not be
entitled to receive physical delivery of Senior Notes. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Senior Notes. A more detailed description of the DTC book-entry
system is set forth in "Book-Entry System--The Depository Trust Company"
below.
CONVERSION OF SENIOR NOTES
A holder of a Senior Note may convert it into Common Stock of the Company at
any time through the close of business on September 1, 2004, unless previously
redeemed, at the Conversion Price set forth on the cover page of this
Prospectus, subject to adjustment as described below; provided that if a
Senior Note is called for redemption by the Company, the holder may convert it
only until the close of business on the last trading day prior to the
redemption date. A holder entitled to a fractional share of Common Stock upon
conversion of Senior Notes will receive cash equal to the then current market
value of such fractional share. Shares of Common Stock issued upon conversion
of Senior Notes in accordance with the terms of the Senior Notes Indenture,
and prior to the separation of the Rights (as defined herein) and the
redemption or expiration of the Rights, shall also be entitled to receive
Rights, under the terms and subject to the conditions of the Amended and
Restated Preferred Shares Rights Agreement dated as of May 6, 1992, as
amended, between the Company and the Rights Agent named therein (the
"Preferred Shares Rights Agreement"). A Senior Note in respect of which a
holder is exercising its option to require redemption upon a Fundamental
Change may be converted only if such holder withdraws its election to exercise
its option in accordance with the terms of the Senior Notes Indenture. A
holder may convert such holder's Senior Notes in part so long as such part is
$1,000 principal amount or a multiple thereof.
Except as described below, no adjustment will be made on conversion of any
Senior Notes for interest accrued thereon or for dividends on any Common Stock
issued. If any Senior Notes not called for redemption
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<PAGE>
are converted after a record date for the payment of interest and prior to the
next succeeding interest payment date, such Senior Notes must be accompanied
by funds equal to the interest payable on such succeeding interest payment
date on the principal amount so converted.
To convert a Senior Note into shares of Common Stock, a holder must (i)
complete and manually sign the conversion notice on the back of the Senior
Note (or complete and manually sign a facsimile thereof) and deliver such
notice to the Conversion Agent, (ii) surrender the Senior Note to the
Conversion Agent, (iii) if required, furnish appropriate endorsements and
transfer documents, and (iv) if required, pay all transfer or similar taxes.
Pursuant to the Senior Notes Indenture, the date on which all of the foregoing
requirements have been satisfied is the Conversion Date.
The initial Conversion Price of $36.25 per share of Common Stock is subject
to adjustment under formulae as set forth in the Senior Notes Indenture in
certain events, including: (i) the issuance of Common Stock of the Company as
a dividend or distribution on the Common Stock; (ii) subdivisions and
combinations of the Common Stock; (iii) the issuance to all holders of Common
Stock of certain rights or warrants entitling them to subscribe for or
purchase Common Stock at less than the Current Market Price (as defined); (iv)
the distribution to all holders of Common Stock of shares of capital stock
(other than Common Stock) or evidences of indebtedness of the Company or of
assets (other than cash distributions covered by clause (v) below) or rights
or warrants to subscribe for or purchase any of its securities (excluding
rights or warrants to purchase Common Stock referred to in clause (iii)
above); (v) distributions consisting of cash, excluding any quarterly cash
dividend on the Common Stock to the extent that the aggregate cash dividend
per share of Common Stock in any quarter does not exceed the greater of
(x) the amount per share of Common Stock of the next preceding quarterly
dividend on the Common Stock to the extent that such preceding quarterly
dividend did not require an adjustment of the Conversion Rate pursuant to this
clause (v) (as adjusted to reflect subdivisions or combinations of the Common
Stock), and (y) 3.75 percent of the average of the last reported sales price
of the Common Stock during the ten trading days immediately prior to the date
of declaration of such dividend, and excluding any dividend or distribution in
connection with the liquidation, dissolution or winding up of the Company;
(vi) payment in respect of a tender or exchange offer by the Company or any
subsidiary of the Company for the Common Stock to the extent that the cash and
value of any other consideration included in such payment per share of Common
Stock exceeds the Current Market Price per share of Common Stock on the
trading day next succeeding the last date on which tenders or exchanges may be
made pursuant to such tender or exchange; and (vii) payment in respect of a
tender offer or exchange offer by a person other than the Company or any
subsidiary of the Company in which, as of the closing date of the offer, the
Board of Directors is not recommending rejection of the offer. If any
adjustment is required to be made as set forth in clause (v) above as a result
of a distribution that is a quarterly dividend, such adjustment would be based
upon the amount by which such distribution exceeds the amount of the quarterly
cash dividend permitted to be excluded pursuant to such clause (v). If an
adjustment is required to be made as set forth in clause (v) above as a result
of a distribution that is not a quarterly dividend, such adjustment would be
based upon the full amount of the distribution. The adjustment referred to in
clause (vii) will only be made if the tender offer or exchange offer is for an
amount which increases the offeror's ownership of Common Stock to more than
25% of the total shares of Common Stock outstanding, and if the cash and value
of any other consideration included in such payment per share of Common Stock
exceeds the Current Market Price per share of Common Stock on the business day
next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer. The adjustment referred to in
clause (vii) will generally not be made, however, if, as of the closing of the
offer, the offering documents with respect to such offer disclose a plan or an
intention to cause the Company to engage in a consolidation or merger of the
Company or a sale of all or substantially all of the Company's assets.
In the event that the Rights are separated from the Common Stock in
accordance with the provisions of the Preferred Shares Rights Agreement such
that the holders of Senior Notes would thereafter not be entitled to receive
any such Rights in respect to the Common Stock issuable upon conversion of
such Senior Notes, the Conversion Price will be adjusted as provided in clause
(iv) of the preceding paragraph (subject to readjustment in the event of the
expiration, termination or redemption of the Rights). In lieu of any such
adjustment, the
20
<PAGE>
Company may amend the Preferred Shares Rights Agreement to provide that upon
conversion of the Senior Notes the holders will receive, in addition to the
Common Stock issuable upon such conversion, the Rights which would have
attached to such shares of Common Stock if the Rights had not become separated
from the Common Stock pursuant to the provisions of the Preferred Shares
Rights Agreement.
No adjustment in the Conversion Price will be required unless such
adjustment would require a change of at least 1% in the Conversion Price then
in effect; provided that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. The Company reserves the right to make such increase in the
Conversion Price in addition to those required in the foregoing provisions as
the Company in its discretion shall determine to be advisable in order that
certain stock-related distributions hereafter made by the Company to its
stockholders shall not be taxable. Except as stated above, the Conversion
Price will not be adjusted for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock or carrying the right to
purchase any of the foregoing.
In the case of (i) any reclassification of the Common Stock, or (ii) a
consolidation or merger involving the Company or a sale or conveyance to
another corporation of the property and assets of the Company as an entirety
or substantially as an entirety, in each case as a result of which holders of
Common Stock shall be entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
Common Stock, the holders of the Senior Notes then outstanding will be
entitled thereafter to convert such Senior Notes into the kind and amount of
shares of stock, other securities or other property or assets (including cash)
which they would have owned or been entitled to receive upon such
reclassification, consolidation, merger, sale or conveyance had such Senior
Notes been converted immediately prior to such reclassification,
consolidation, merger, sale or conveyance assuming that a holder of Senior
Notes would not have exercised any rights of election as to the stock, other
securities or other property or assets (including cash) receivable in
connection therewith.
In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring an adjustment to the Conversion Price,
the holders of Senior Notes may, in certain circumstances, be deemed to have
received a distribution subject to United States income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock. See "Certain Federal Income
Tax Considerations."
The Company from time to time may to the extent permitted by law increase
the Conversion Price 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.
The Company may, at its option, make such increases in the Conversion Price,
in addition to those set forth above, as the Board of Directors deems
advisable to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. See "Certain
Federal Income Tax Considerations."
REDEMPTION OF THE SENIOR NOTES AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Senior Notes. Prior to September 7,
2000, the Senior Notes will not be redeemable at the option of the Company.
Beginning on September 7, 2000, the Company may redeem the Senior Notes for
cash as a whole at any time, or from time to time in part, upon not less than
30 days' nor more than 60 days' notice at the following prices (expressed as
percentages of the principal amount), together with accrued and unpaid
interest to, but excluding, the date fixed for redemption, except that on or
after September 7, 2000 and prior to September 7, 2002, the Senior Notes will
not be redeemable at the option of the Company unless the closing price of the
Common Stock shall have exceeded 140% of the Conversion Price then in effect
for 20 trading days within a period of 30 consecutive trading days ending
within five trading days prior to the notice of redemption.
21
<PAGE>
If redeemed during the 12-month period beginning September 1 (beginning on
September 7, 2000 and ending on August 31, 2001, in the case of the first such
period):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000..................................................... 103.00%
2001..................................................... 102.25
2002..................................................... 101.50
2003..................................................... 100.75
</TABLE>
and 100% at September 1, 2004; provided that any semi-annual payment of
interest becoming due on the date fixed for redemption shall be payable to the
holders of record on the relevant record date of the Senior Notes being
redeemed. No Senior Notes may be redeemed by the Company if an Event of Default
with respect to the payment of interest on the Senior Notes has occurred and is
continuing.
If fewer than all of the Senior Notes are to be redeemed, the Senior Notes
Trustee will select the Senior Notes to be redeemed by lot or, in its
discretion, on a pro rata basis. If any Senior Note is to be redeemed in part
only, a new Senior Note or Senior Notes in principal amount equal to the
unredeemed principal portion thereof will be issued. If a portion of a holder's
Senior Notes are selected for partial redemption and such holder converts a
portion of such Senior Notes, such converted portion shall be deemed to be
taken from the portion selected for redemption.
REDEMPTION AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
If a Fundamental Change (as defined) occurs at any time prior to September 1,
2004, each holder of Senior Notes shall have the right, at the holder's option,
to require the Company to redeem any or all of such holder's Senior Notes on
the date (the "Repurchase Date") that is 45 days after the date of the
Company's notice of such Fundamental Change. The Senior Notes will be
redeemable in multiples of $1,000 principal amount.
The Company shall redeem such Senior Notes at a price (expressed as a
percentage of the principal amount) equal to (i) 105.25% if the Repurchase Date
is during the 12-month period beginning September 1, 1997; (ii) 104.50% if the
Repurchase Date is during the 12-month period beginning September 1, 1998;
(iii) 103.75% if the Repurchase Date is during the 12-month period beginning
September 1, 1999 and (iv) thereafter at the redemption price set forth under
"Redemption of the Senior Notes at the Option of the Company" which would be
applicable to a redemption at the option of the Company on the Repurchase Date;
provided that if the Applicable Price (as defined) in connection with the
Fundamental Change is less than the Reference Market Price (as defined), the
Company shall redeem such Senior Notes at a price equal to the foregoing
redemption price multiplied by the fraction obtained by dividing the Applicable
Price by the Reference Market Price. In each case, the Company shall also pay
accrued interest on the redeemed Senior Notes to, but excluding, the Repurchase
Date; provided that, if such Repurchase Date is an interest payment date, then
the interest payable on such date shall be paid to the holder of record of the
Senior Notes on the relevant record date.
The Company shall mail to all holders of record of the Senior Notes a notice
of the occurrence of a Fundamental Change and of the redemption right arising
as a result thereof on or before the tenth day after the occurrence of such
Fundamental Change. The Company shall deliver to the Senior Notes Trustee a
copy of such notice. To exercise the redemption right, holders of Senior Notes
must deliver, on or before the 30th day after the date of the Company's notice
of a Fundamental Change, the Senior Notes to be so redeemed, duly endorsed for
transfer, together with the form entitled "Option to Elect Redemption Upon a
Fundamental Change" on the reverse thereof duly completed, to the Company (or
an agent designated by the Company for such purpose).
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all Common Stock shall be
exchanged for, converted into, acquired for or constitute solely the right to
receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock listed (or, upon consummation of or immediately following such
transaction or event, which will be listed) on a United States national
securities exchange or approved for quotation on the
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Nasdaq National Market or any similar United States system of automated
dissemination of quotations of securities prices. The term "Applicable Price"
means (i) in the event of a Fundamental Change in which the holders of the
Common Stock receive only cash, the amount of cash received by the holder of
one share of Common Stock and (ii) in the event of any other Fundamental
Change, the average of the last reported sale price for the Common Stock
during the ten trading days prior to the record date for the determination of
the holders of Common Stock entitled to receive cash, securities, property or
other assets in connection with such Fundamental Change, or, if there is no
such record date, the date upon which the holders of the Common Stock shall
have the right to receive such cash, securities, property or other assets in
connection with the Fundamental Change. The term "Reference Market Price"
shall initially mean $18.33 (which is equal to 66 2/3% of the closing price of
the Common Stock on August 5, 1997) and, in the event of any adjustment to the
Conversion Price pursuant to the provisions of the Senior Notes Indenture, the
Reference Market Price shall also be adjusted so that the Reference Market
Price shall be equal to the initial Reference Market Price multiplied by a
fraction the numerator of which is the initial Conversion Price and the
denominator of which is the Conversion Price following such adjustment.
The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act which may then be applicable in
connection with the redemption rights of Senior Note holders in the event of a
Fundamental Change. The redemption rights of the holders of Senior Notes could
discourage a potential acquiror of the Company. The Fundamental Change
redemption feature, however, is not the result of management's knowledge of
any specific effort to obtain control of the Company by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by management to
adopt a series of anti-takeover provisions.
No Senior Notes may be redeemed at the option of holders upon a Fundamental
Change if there has occurred and is continuing an Event of Default described
under "Events of Default; Notice and Waiver" (other than a default in the
payment of the redemption price in the event of a Fundamental Change with
respect to such Senior Notes).
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other person or
convey, transfer or lease its properties and assets substantially as an
entirety to another person, unless, among other items, (i) the resulting,
surviving or transferee person (if other than the Company) is organized and
existing under the laws of the United States, any state thereof or the
District of Columbia and such person assumes all obligations of the Company
under the Senior Notes and the Senior Notes Indenture, and (ii) the Company or
such successor person shall not immediately thereafter be in default under the
Senior Notes Indenture. Upon the assumption of the Company's obligations by
such a person in such circumstances, subject to certain exceptions, the
Company shall be discharged from all obligations under the Senior Notes and
the Senior Notes Indenture. Certain such transactions which would constitute a
Fundamental Change would permit each holder to require the Company to redeem
the Senior Notes of such holder as described under "Redemption at the Option
of the Holder Upon a Fundamental Change."
EVENTS OF DEFAULT; NOTICE AND WAIVER
Under the Senior Notes Indenture, Events of Default are defined as: (i)
default in payment of the principal of, or premium, if any, on the Senior
Notes; (ii) default for 30 days in the payment of any installment of interest
on the Senior Notes; (iii) failure by the Company to comply with any of its
other agreements in the Senior Notes or the Senior Notes Indenture upon the
receipt by the Company of notice of such default by the Senior Notes Trustee
or by holders of not less than 25% in aggregate principal amount of the Senior
Notes then outstanding and the Company's failure to cure such default within
60 days after receipt by the Company of such notice; or (iv) certain events of
bankruptcy or insolvency.
The Senior Notes Indenture provides that, if an Event of Default specified
therein shall have happened and be continuing, either the Senior Notes Trustee
or the holders of not less than 25% in aggregate principal amount of the
Senior Notes then outstanding may declare the principal of and accrued
interest on the Senior Notes to be
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immediately due and payable. In the case of certain events of bankruptcy or
insolvency, the principal of, premium, if any, and accrued and unpaid interest
on the Senior Notes shall automatically become and be immediately due and
payable. However, if the Company shall cure all defaults (except the non-
payment of principal of, premium, if any, and interest on any of the Senior
Notes which shall have become due by acceleration) and certain other
conditions are met, with certain exceptions, such declaration may be canceled
and past defaults may be waived by the holders of a majority in principal
amount of the Senior Notes then outstanding. Interest shall accrue and be
payable on demand upon a default in the payment of the principal of, premium,
if any, accrued interest, or any redemption price to the extent that payment
of such interest shall be legally enforceable.
The Senior Notes Trustee shall give notice to holders of the Senior Notes of
any continuing default known to the Senior Notes Trustee within 90 days after
the occurrence thereof; provided that the Senior Notes Trustee may withhold
such notice if it determines in good faith that withholding the notice is in
the interests of the holders.
The holders of a majority in aggregate principal amount of the outstanding
Senior Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Senior Notes Trustee or exercising
any trust or power conferred on the Senior Notes Trustee, provided that such
direction shall not be in conflict with any law or the Senior Notes Indenture
and subject to certain other limitations. Before proceeding to exercise any
right or power under the Senior Notes Indenture at the direction of such
holders, the Senior Notes Trustee shall be entitled to receive from such
holders reasonable security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction. No holder of any Senior Note will have any right to pursue any
remedy with respect to the Senior Notes Indenture or the Senior Notes, unless
(i) such holder shall have previously given the Senior Notes Trustee written
notice of a continuing Event of Default; (ii) the holders of at least 25% in
aggregate principal amount of the outstanding Senior Notes shall have made a
written request to the Senior Notes Trustee to pursue such remedy; (iii) such
holder or holders have offered to the Senior Notes Trustee reasonable
indemnity satisfactory to the Trustee; (iv) the holders of a majority in
aggregate principal amount of the outstanding Senior Notes have not given the
Senior Notes Trustee a direction inconsistent with such request within 60 days
after receipt of such request; and (v) the Senior Notes Trustee shall have
failed to comply with the request within such 60-day period.
However, the right of any holder (x) to receive payment of the principal
amount, premium, if any, and any interest in respect of a default in the
payment of any such amounts on a Senior Note, on or after the due date
expressed in such Senior Note, (y) to institute suit for the enforcement of
any such payments or conversion or (z) to convert Senior Notes shall not be
impaired or adversely affected without such holder's consent. The holders of
at least a majority in aggregate principal amount of the outstanding Senior
Notes may waive an existing default and its consequences, other than (i) any
default in any payment on the Senior Notes, (ii) any default with respect to
the conversion rights of the Senior Notes or (iii) any default in respect of
certain covenants or provisions in the Senior Notes Indenture which may not be
modified without the consent of the holder of each Senior Note as described in
"Modification" below.
The Company will be required to furnish to the Senior Notes Trustee annually
a statement as to any default by the Company in the performance and observance
of its obligations under the Senior Notes Indenture.
MODIFICATION
Without the consent of any holder of Senior Notes, the Company and the
Senior Notes Trustee may amend the Senior Notes Indenture to cure any
ambiguity, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of the Company under the Senior Notes
Indenture or to make any change that does not adversely affect the rights of
any holder of Senior Notes.
Modification and amendment of the Senior Notes Indenture or the Senior Notes
may be effected by the Company and the Senior Notes Trustee with the consent
of the holders of not less than a majority in aggregate principal amount of
the Senior Notes then outstanding, except that no such modification or
amendment shall (i)
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extend the fixed maturity of any Senior Note, reduce the rate or extend the
time for payment of interest thereon, reduce the principal amount thereof or
premium, if any, thereon, reduce any amount payable upon redemption thereof,
change the obligation of the Company to redeem any Senior Note upon the
happening of any Fundamental Change in a manner adverse to holders of Senior
Notes, impair the right of a holder to institute suit for the payment thereof
or impair the right to convert the Senior Notes into Common Stock subject to
the terms set forth in the Senior Notes Indenture, without the consent of each
holder of a Senior Note so affected, or (ii) reduce the aforesaid percentage
of Senior Notes whose holders are required to consent to any such supplemental
indenture, without the consent of the holders of all of the Senior Notes then
outstanding.
INFORMATION CONCERNING THE SENIOR NOTES TRUSTEE
State Street Bank and Trust Company of California, N.A., the Senior Notes
Trustee under the Senior Notes Indenture, has been appointed by the Company as
the paying agent, conversion agent, registrar and custodian with regard to the
Senior Notes, and is the trustee, paying agent conversion agent, registrar and
custodian with regard to the Zero Coupon Debentures. An affiliate of the
Senior Notes Trustee is the transfer agent and registrar of the Company's
Common Stock.
DESCRIPTION OF ZERO COUPON DEBENTURES
GENERAL
The Zero Coupon Debentures are unsecured obligations of the Company and
mature on November 2, 2013. The Zero Coupon Debentures were issued under an
indenture dated as of November 1, 1993 (the "Debenture Indenture"), between
the Company and State Street Bank and Trust Company of California, N.A., as
successor trustee (the "Debenture Trustee"). The following summaries of
certain provisions of the Zero Coupon Debentures and the Debenture 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 Zero Coupon Debentures and
the Debenture Indenture, including the definitions therein. Wherever
particular provisions or defined terms of the Debenture Indenture (or of the
form of Zero Coupon Debenture which is a part thereof) are referred to, such
provisions or defined terms are incorporated herein by reference. As used in
this "Description of Zero Coupon Debentures," the "Company" refers to Silicon
Graphics, Inc. and does not, unless the context otherwise indicates, include
its subsidiaries.
The Zero Coupon Debentures were offered at a substantial discount from their
principal amount at maturity. The calculation of the accrual of original issue
discount is on a semi-annual bond equivalent basis using a year composed of
twelve 30-day months. Maturity, conversion, purchase by the Company at the
option of a holder thereof, or redemption of a Zero Coupon Debenture will
cause original issue discount and interest, if any, to cease to accrue on such
Zero Coupon Debenture, under the terms and subject to the conditions of the
Debenure Indenture. The Company may not reissue a Zero Coupon Debenture that
has matured or been converted, purchased by the Company at the option of a
holder, redeemed or otherwise canceled (except for registration of transfer,
exchange or replacement thereof).
The Zero Coupon Debentures and the shares of Common Stock issuable upon
conversion of the Zero Coupon Debentures have not been registered under the
Securities Act. The Zero Coupon Debentures, and the Common Stock issuable upon
conversion thereof, which are not (and have not been) held by an affiliate of
the Company are no longer subject to transfer restrictions.
SUBORDINATION OF ZERO COUPON DEBENTURES
Indebtedness evidenced by the Zero Coupon Debentures is subordinated in
right of payment, as set forth in the Debenture Indenture, to the prior
payment in full of all existing and future Senior Indebtedness of the Company.
Such subordination will not prevent the occurrence of any Event of Default
under the Debenture Indenture.
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Upon any distribution of assets of the Company upon any dissolution, winding
up, liquidation or reorganization, the payment of the principal amount at
maturity, issue price, accrued original issue discount, any redemption price,
Purchase Price, Debenture Fundamental Change Redemption Price and interest, if
any, on the Zero Coupon Debentures is to be subordinated to the extent
provided in the Debenture Indenture in right of payment to the prior payment
in full of all Senior Indebtedness. By reason of such subordination, in the
event of the Company's dissolution, holders of Senior Indebtedness may receive
more, ratably, and the holders of Zero Coupon Debentures may receive less,
ratably, than the other creditors of the Company.
In the event that the Zero Coupon Debentures are declared due and payable
prior to their stated maturity by reason of the occurrence of an Event of
Default, then the Company is obligated to notify promptly holders of Senior
Indebtedness of such acceleration. The Company may not pay the Zero Coupon
Debentures until 120 days have passed after such acceleration occurs and may
thereafter pay the Zero Coupon Debentures if the terms of the Debenture
Indenture otherwise permit payment at that time. During the continuance beyond
any applicable grace period of any default in the payment of principal,
premium, interest or any other payment due on any Senior Indebtedness, no
payment of the principal amount at maturity, issue price, accrued original
issue discount, any redemption price, Purchase Price, Debenture Fundamental
Change Redemption Price or interest, if any, on the Zero Coupon Debentures and
no payment for the purpose of any redemption, purchase or other acquisition of
the Zero Coupon Debentures shall be made by the Company. In addition, during
the continuance of any other event of default (other than a payment default)
with respect to Senior Indebtedness pursuant to which the maturity thereof may
be accelerated, from and after the date of receipt by the Debenture Trustee of
written notice from the holders of Designated Senior Indebtedness (or their
representative), no payment of the principal amount at maturity, issue price,
accrued original issue discount, any redemption price, Purchase Price,
Debenture Fundamental Change Redemption Price or interest, if any, in respect
of the Zero Coupon Debentures and no payment for the purpose of any
redemption, purchase or other acquisition of the Zero Coupon Debentures may be
made by the Company for a period ("Payment Blockage Period") commencing on the
date of delivery of such notice and, subject to certain exceptions, ending 180
days thereafter (unless such Payment Blockage Period shall be terminated by
written notice to the Debenture Trustee from the holders of such Designated
Senior Indebtedness (or their representative), or such event of default has
been cured or waived or has ceased to exist). If payments on the Zero Coupon
Debentures are permitted to resume under the Zero Coupon Debentures after a
Payment Blockage Period begins, payments on the Zero Coupon Debentures may not
be suspended again on account of a non-payment event of default on Senior
Indebtedness until the passage of 90 days after the payments on the Zero
Coupon Debentures are permitted to resume. The term "Designated Senior
Indebtedness" means a majority of the aggregate amount of Senior Indebtedness.
The term "Senior Indebtedness" means the principal of, premium, if any, and
interest on, and any other amounts due on or in connection with any
Indebtedness (as defined) of the Company (including, without limitation, fees,
costs and expenses), whether outstanding on the date of the Debenture
Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by the Company (including all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to, the foregoing);
provided, however, that Senior Indebtedness does not include (i) Indebtedness
evidenced by the Zero Coupon Debentures, (ii) Indebtedness of the Company to
any subsidiary of the Company, a majority of the voting stock of which is
owned by the Company, (iii) accounts payable or other indebtedness to trade
creditors created or assumed by the Company in the ordinary course of business
and (iv) any particular Indebtedness in which the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior in right of payment to, or is pari
passu with, or is subordinated or junior to, the Zero Coupon Debentures. The
term "Indebtedness" means, with respect to any person, (i) any obligation,
contingent or otherwise, of such person (a) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such person or
only to a portion thereof), (b) evidenced by a note, debenture, bond or
similar instrument issued for money, (c) for the payment of any money under a
lease required to be capitalized on the balance sheet of the lessee under
generally accepted accounting principles, (d) in respect of letters of credit
(including reimbursement obligations with respect thereto), local guarantees
or bankers' acceptances issued for the account of such person or (e) to pay
the deferred purchase price of property or services; (ii) any obligation
secured by a mortgage, pledge or other lien on the assets or property of such
person which is (x) given to secure
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all or a part of the purchase price of property subject thereto, whether given
to the vendor of such property or to another person, or (y) existing on
property at the time of acquisition thereof; (iii) obligations under currency
exchange or purchase agreements and interest rate protection agreements or
similar arrangements; (iv) obligations of such person under direct or indirect
guarantees in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against loss
in respect of, Indebtedness of others of the kinds referred to in clauses (i)
through (iii) above; and (v) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability
of the kind described in any of the preceding clauses (i), (ii), (iii) or
(iv). The Senior Notes will constitute Senior Indebtedness under the Debenture
Indenture.
The Zero Coupon Debentures are obligations exclusively of the Company. Since
the operations of the Company are currently partially conducted through
subsidiaries, the cash flow and the consequent ability to service debt,
including the Zero Coupon Debentures, 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 subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Zero Coupon Debentures or to make any funds available therefor, whether by
dividends, loans or other payments. In addition, 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 contingent 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 Zero Coupon Debentures 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.
CONVERSION OF ZERO COUPON DEBENTURES
A holder of a Zero Coupon Debenture may convert it into Common Stock of the
Company at any time through the close of business on November 2, 2013;
provided that if a Zero Coupon Debenture is called for redemption, the holder
may convert it only until the close of business on the last trading day prior
to the redemption date. A Zero Coupon Debenture in respect of which a holder
has delivered a Purchase Notice exercising the option of such holder to
require the Company to purchase such Zero Coupon Debenture may be converted
only if such notice is withdrawn in accordance with the terms of the Debenture
Indenture. Similarly, a Zero Coupon Debenture in respect of which a holder is
exercising its option to require redemption upon a Fundamental Change may be
converted only if such holder withdraws its election to exercise its option in
accordance with the terms of the Debenture Indenture. A holder may convert
such holder's Zero Coupon Debentures in part so long as such part is $1,000
principal amount at maturity or a multiple thereof.
The conversion rate for the Zero Coupon Debentures as of the date of this
Prospectus is 16.2690 shares of Common Stock per $1,000 principal amount at
maturity of Zero Coupon Debentures, subject to adjustment upon the occurrence
of certain events. A holder entitled to a fractional share of Common Stock
upon conversion of Zero Coupon Debentures shall receive cash equal to the then
current market value of such fractional share. Shares of Common Stock issued
upon conversion of Zero Coupon Debentures in accordance with the terms of the
Debenture Indenture, and prior to the separation of the Rights and the
redemption or expiration of the Rights, shall also be entitled to receive
Rights, under the terms and subject to the conditions of the Preferred Shares
Rights Agreement.
On conversion of a Zero Coupon Debenture, a holder will not receive any cash
payment representing accrued original issue discount. The Company's delivery
to the holder of the fixed number of shares of Common Stock into which the
Zero Coupon Debenture is convertible (together with the cash payment, if any,
in lieu of fractional shares of Common Stock) will be deemed to satisfy the
Company's obligation to pay the principal
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amount of the Zero Coupon Debenture including the accrued original issue
discount attributable to the period from the issue date to the conversion
date. Thus, the accrued original issue discount is deemed to be paid in full
rather than canceled, extinguished or forfeited. The conversion rate of the
Zero Coupon Debentures will not be adjusted at any time during the term of the
Zero Coupon Debentures for such accrued original issue discount.
The conversion rate of the Zero Coupon Debentures is subject to adjustment
under formulae as set forth in the Debenture Indenture in certain events,
including: (i) the issuance of Common Stock of the Company as a dividend or
distribution on the Common Stock; (ii) subdivisions and combinations of the
Common Stock; (iii) the issuance to all holders of Common Stock of certain
rights or warrants entitling them to subscribe for or purchase Common Stock at
less than the Current Market Price (as defined); (iv) the distribution to all
holders of Common Stock of shares of capital stock (other than Common Stock)
or evidences of indebtedness of the Company or of assets (other than cash
distributions covered by clause (v) below) or rights or warrants to subscribe
for or purchase any of its securities (excluding rights or warrants to
purchase Common Stock referred to in clause (iii) above); (v) distributions
consisting of cash, excluding any quarterly cash dividend on the Common Stock
to the extent that the aggregate cash dividend per share of Common Stock in
any quarter does not exceed the greater of (x) the amount per share of Common
Stock of the next preceding quarterly dividend on the Common Stock to the
extent that such preceding quarterly dividend did not require an adjustment of
the conversion rate pursuant to this clause (v) (as adjusted to reflect
subdivisions or combinations of the Common Stock), and (y) 3.75 percent of the
average of the last reported sales price of the Common Stock during the ten
trading days immediately prior to the date of declaration of such dividend,
and excluding any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company; and (vi) payment in respect of a
tender or exchange offer by the Company or any subsidiary of the Company for
the Common Stock to the extent that the cash and value of any other
consideration included in such payment per share of Common Stock exceeds the
Current Market Price (as defined) per share of Common Stock on the trading day
next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange. If any adjustment is required to be made
as set forth in clause (v) above as a result of a distribution that is a
quarterly dividend, such adjustment would be based upon the amount by which
such distribution exceeds the amount of the quarterly cash dividend permitted
to be excluded pursuant to such clause (v). If an adjustment is required to be
made as set forth in clause (v) above as a result of a distribution that is
not a quarterly dividend, such adjustment would be based upon the full amount
of the distribution.
In the event that the Rights are separated from the Common Stock in
accordance with the provisions of the Preferred Shares Rights Agreement such
that the holders of Zero Coupon Debentures would thereafter not be entitled to
receive any such Rights in respect to the Common Stock issuable upon
conversion of such Zero Coupon Debentures, the conversion rate of the Zero
Coupon Debentures will be adjusted as provided in clause (iv) of the preceding
paragraph (subject to readjustment in the event of the expiration, termination
or redemption of the Rights). In lieu of any such adjustment, the Company may
amend the Preferred Shares Rights Agreement to provide that upon conversion of
the Zero Coupon Debentures the holders will receive, in addition to the Common
Stock issuable upon such conversion, the Rights which would have attached to
such shares of Common Stock if the Rights had not become separated from the
Common Stock pursuant to the provisions of the Preferred Shares Rights
Agreement.
No adjustment in the conversion rate of the Zero Coupon Debentures will be
required unless such adjustment would require a change of at least 1% in the
conversion rate then in effect; provided that any adjustment that would
otherwise be required to be made shall be carried forward and taken into
account in any subsequent adjustment. The Company reserves the right to make
such increase in the conversion rate in addition to those required in the
foregoing provisions as the Company in its discretion shall determine to be
advisable in order that certain stock-related distributions hereafter made by
the Company to its stockholders shall not be taxable. Except as stated above,
the conversion rate of the Zero Coupon Debentures will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable
for Common Stock or carrying the right to purchase any of the foregoing.
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In the case of (i) any reclassification of the Common Stock, or (ii) a
consolidation or merger involving the Company or a sale or conveyance to
another corporation of the property and assets of the Company as an entirety
or substantially as an entirety, in each case as a result of which holders of
Common Stock shall be entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
Common Stock, the holders of the Zero Coupon Debentures then outstanding will
be entitled thereafter to convert such Zero Coupon Debentures into the kind
and amount of shares of stock, other securities or other property or assets
(including cash) which they would have owned or been entitled to receive upon
such reclassification, consolidation, merger, sale or conveyance had such Zero
Coupon Debentures been converted immediately prior to such reclassification,
consolidation, merger, sale or conveyance assuming that a holder of Zero
Coupon Debentures would not have exercised any rights of election as to the
stock, other securities or other property or assets (including cash)
receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring an adjustment to the conversion rate of
the Zero Coupon Debentures, the holders of Zero Coupon Debentures may, in
certain circumstances, be deemed to have received a distribution subject to
United States income tax as a dividend; in certain other circumstances, the
absence of such an adjustment may result in a taxable dividend to the holders
of Common Stock.
The Company from time to time may to the extent permitted by law increase
the conversion rate of the Zero Coupon Debentures 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. The Company may, at its option, make such
increases in the conversion rate, in addition to those set forth above, as the
Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes.
REDEMPTION OF ZERO COUPON DEBENTURES AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Zero Coupon Debentures. Prior to
November 2, 1998, the Zero Coupon Debentures are not redeemable at the option
of the Company. Beginning on November 2, 1998, the Company may redeem the Zero
Coupon Debentures for cash as a whole at any time, or from time to time in
part, upon not less than 30 days' nor more than 60 days' notice of redemption
given by mail to holders of Zero Coupon Debentures. The Zero Coupon Debentures
will be redeemable in multiples of $1,000 principal amount at maturity.
29
<PAGE>
The table below shows redemption prices of Zero Coupon Debentures per $1,000
principal amount at maturity thereof at November 2, 1998 and at each November
2 thereafter prior to maturity and at maturity on November 2, 2013 which
prices reflect the accrued original issue discount calculated to each such
date. The redemption price of a Zero Coupon Debenture redeemed between such
dates would include an additional amount reflecting the additional original
issue discount accrued since the next preceding date in the table to the
actual redemption date.
<TABLE>
<CAPTION>
(2)
ACCRUED
ORIGINAL (3)
(1) ISSUE REDEMPTION
DEBENTURE DISCOUNT PRICE
REDEMPTION DATE ISSUE PRICE AT 4.15% (1) + (2)
- --------------- ----------- -------- ----------
<S> <C> <C> <C>
November 2, 1998................................ $439.77 $100.26 $ 540.03
November 2, 1999................................ 439.77 122.91 562.68
November 2, 2000................................ 439.77 146.50 586.27
November 2, 2001................................ 439.77 171.08 610.85
November 2, 2002................................ 439.77 196.69 636.46
November 2, 2003................................ 439.77 223.38 663.15
November 2, 2004................................ 439.77 251.19 690.96
November 2, 2005................................ 439.77 280.16 719.93
November 2, 2006................................ 439.77 310.35 750.12
November 2, 2007................................ 439.77 341.80 781.57
November 2, 2008................................ 439.77 374.57 814.34
November 2, 2009................................ 439.77 408.72 848.49
November 2, 2010................................ 439.77 444.29 884.06
November 2, 2011................................ 439.77 481.36 921.13
November 2, 2012................................ 439.77 519.99 959.76
November 2, 2013................................ 439.77 560.23 1,000.00
</TABLE>
If less than all of the outstanding Zero Coupon Debentures are to be
redeemed, the Debenture Trustee shall select the Zero Coupon Debentures to be
redeemed in principal amounts at maturity of $1,000 or multiples thereof by
lot, pro rata or by another method the Debenture Trustee considers fair and
appropriate. If a portion of a holder's Zero Coupon Debentures is selected for
partial redemption and such holder converts a portion of such Zero Coupon
Debentures, such converted portion shall be deemed to be of the portion
selected for redemption.
REDEMPTION AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
If a Fundamental Change occurs at any time prior to November 2, 2013, each
holder of Zero Coupon Debentures shall have the right, at the holder's option,
to require the Company to redeem any or all of such holder's Zero Coupon
Debentures on the Repurchase Date. The Zero Coupon Debentures will be
redeemable in multiples of $1,000 principal amount at maturity.
The Company shall redeem such Zero Coupon Debentures at a price (the
"Debenture Fundamental Change Redemption Price") equal to the issue price plus
accrued original issue discount to the date of redemption; provided that if
the Applicable Price in connection with the Fundamental Change is less than
the Debenture Reference Market Price (as defined), the Company shall redeem
such Zero Coupon Debentures at a price equal to the foregoing redemption price
multiplied by the fraction obtained by dividing the Applicable Price by the
Debenture Reference Market Price. As of the date of this Prospectus, the
"Debenture Reference Market Price" is $14.415, and, in the event of any
adjustment to the conversion rate applicable to the Zero Coupon Debentures
pursuant to the provisions of the Debenture Indenture, the Debenture Reference
Market Price shall also be adjusted so that it shall be equal to the Debenture
Reference Market Price multiplied by a fraction the numerator of which is
8.1345 and the denominator of which is the conversion rate applicable to the
Zero Coupon Debentures following such adjustment. The redemption rights of the
holders of Zero Coupon Debentures could discourage a potential acquiror of the
Company.
30
<PAGE>
No Zero Coupon Debentures may be redeemed at the option of the holders
thereof upon a Fundamental Change if there has occurred and is continuing an
Event of Default described under "Events of Default; Notice and Waiver" (other
than a default in the payment of the Debenture Fundamental Change Redemption
Price with respect to such Zero Coupon Debentures). Further, the payment of
the Debenture Fundamental Change Redemption Price on the Zero Coupon
Debentures is subordinated to the prior payment of Senior Indebtedness as
described under "Subordination of Zero Coupon Debentures" above.
PURCHASE OF ZERO COUPON DEBENTURES AT THE OPTION OF THE HOLDER
On November 2, 1998, November 2, 2003 and November 2, 2008 (each, a
"Purchase Date"), the Company is obligated to purchase, at the option of the
holder thereof, any outstanding Zero Coupon Debenture for which a written
Purchase Notice (containing such information as is required by the Debenture
Indenture) has been delivered by the holder thereof to the office of the
Paying Agent at any time from the opening of business on the date that is 20
Business Days prior to such Purchase Date until the close of business on such
Purchase Date and for which such Purchase Notice has not been withdrawn,
subject to certain additional conditions. Any Purchase Notice may be withdrawn
by a written notice of withdrawal delivered to the Paying Agent prior to the
close of business on the Purchase Date.
The Purchase Price payable in respect of a Zero Coupon Debenture shall be
equal to the issue price plus accrued original issue discount to the Purchase
Date. The table below shows the Purchase Prices of a Zero Coupon Debenture as
of the specified Purchase Dates. The Company may elect to pay the Purchase
Price payable as of any Purchase Date in cash or shares of Common Stock, or
any combination thereof.
<TABLE>
<CAPTION>
PURCHASE
PURCHASE DATE PRICE
------------- --------
<S> <C>
November 2, 1998.................................................... $540.03
November 2, 2003.................................................... $663.15
November 2, 2008.................................................... $814.34
</TABLE>
If the Company elects to pay the Purchase Price, in whole or in part, in
shares of Common Stock, the number of shares to be delivered in respect of the
portion of the Purchase Price to be paid in shares of Common Stock shall be
equal to such portion of the Purchase Price divided by the Market Price (as
defined) of the Common Stock. Shares of Common Stock issued upon purchase of
Zero Coupon Debentures in accordance with the provisions of the Debenture
Indenture, and prior to the date the Rights trade separately from the Common
Stock and the redemption or expiration of the Rights, shall also be entitled
to receive Rights, under the terms and subject to the conditions of the
Preferred Shares Rights Agreement. However, no fractional shares of Common
Stock will be delivered upon any purchase by the Company of Zero Coupon
Debentures through the delivery of shares of Common Stock in payment, in whole
or in part, of the Purchase Price. Instead, the Company will pay cash based on
the Market Price for all fractional shares of Common Stock.
The Company will give notice (the "Company Notice") not less than 20
Business Days prior to the Purchase Date (the "Company Notice Date") to all
holders of Zero Coupon Debentures at their addresses shown in the register of
the Registrar (and to beneficial owners as required by applicable law)
stating, among other things, whether the Company will pay the Purchase Price
of the Zero Coupon Debentures in cash or Common Stock, or any combination
thereof (specifying the percentage of each) and, if the Company elects to pay
in Common Stock, in whole or in part, the method of calculating the Market
Price of the Common Stock.
The "Market Price" means the average of the Sale Prices (as defined) of the
Common Stock for the five trading day period ending on (if the third Business
Day prior to the applicable Purchase Date is a trading day or, if not, then on
the last trading day prior to) the third Business Day prior to the applicable
Purchase Date, appropriately adjusted to take into account the occurrence
during the period commencing on the first of such trading days during such
five trading day period and ending on such Purchase Date of certain events
that would result in an adjustment of the conversion rate of the Zero Coupon
Debentures with respect to the Common Stock.
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<PAGE>
The "Sale Price" of the Common Stock on any date means the closing per share
sale price (or if no closing sale price is reported, the average bid and ask
prices or, if more than one in either case, the average of the average bid and
average ask prices) on such date as reported in the composite transactions for
the principal United States securities exchange on which the Common Stock is
traded or, if the Common Stock is not listed on a United States national or
regional stock exchange, as reported on the Nasdaq National Market System.
Because the Market Price of the Common Stock is determined prior to the
applicable Purchase Date, holders of Zero Coupon Debentures bear the market
risk with respect to the value of the Common Stock to be received from the
date such Market Price is determined to such Purchase Date. The Company may
elect to pay the Purchase Price in Common Stock only if the information
necessary to calculate the Market Price is reported in a daily newspaper of
national circulation. Upon determination of the actual number of shares of
Common Stock in accordance with the foregoing provisions, the Company will
publish such determination in a daily newspaper of national circulation.
The Company's right to purchase Zero Coupon Debentures with shares of Common
Stock is subject to the Company satisfying various conditions, including: (i)
the registration of the Common Stock under the Securities Act, if required;
and (ii) compliance with other applicable federal and state securities laws,
if any. If such conditions are not satisfied by a Purchase Date, the Company
will pay the Purchase Price of the Zero Coupon Debentures to be purchased on
such Purchase Date entirely in cash.
No Zero Coupon Debentures may be purchased at the option of the holder
thereof for cash if there has occurred (prior to, on or after the giving, by
the holders of such Zero Coupon Debentures, of the required Purchase Notice)
and is continuing an Event of Default described under "Events of Default;
Notice and Waiver" (other than a default in the payment of the Purchase Price
with respect to such Zero Coupon Debentures).
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other person or
convey, transfer or lease its properties and assets substantially as an
entirety to another person, unless, among other items, (i) the resulting,
surviving or transferee person (if other than the Company) is organized and
existing under the laws of the United States, any state thereof or the
District of Columbia and such person assumes all obligations of the Company
under the Zero Coupon Debentures and the Debenture Indenture, and (ii) the
Company or such successor person shall not immediately thereafter be in
default under the Indenture. Upon the assumption of the Company's obligations
by such a person in such circumstances, subject to certain exceptions, the
Company shall be discharged from all obligations under the Zero Coupon
Debentures and the Debenture Indenture. Certain such transactions which would
constitute a Fundamental Change would permit each holder to require the
Company to redeem the Zero Coupon Debentures of such holder as described under
"Redemption at the Option of the Holder Upon a Fundamental Change."
EVENTS OF DEFAULT; NOTICE AND WAIVER
Under the Debenture Indenture, Events of Default are defined as: (i) default
in payment of the principal amount at maturity, issue price, accrued original
issue discount, any redemption price, Purchase Price or Debenture Fundamental
Change Redemption Price with respect to any Zero Coupon Debenture when such
becomes due and payable (whether or not payment is prohibited by the
provisions of the Debenture Indenture); (ii) failure by the Company to comply
with any of its other agreements in the Zero Coupon Debentures or the
Debenture Indenture upon the receipt by the Company of notice of such default
by the Debenture Trustee or by holders of not less than 25% in aggregate
principal amount at maturity of the Zero Coupon Debentures then outstanding
and the Company's failure to cure such default within 60 days after receipt by
the Company of such notice; or (iii) certain events of bankruptcy or
insolvency.
The Debenture Indenture provides that, if an Event of Default specified
therein shall have happened and be continuing, either the Debenture Trustee or
the holders of not less than 25% in aggregate principal amount at maturity of
the Zero Coupon Debentures then outstanding may declare the issue price of the
Zero Coupon
32
<PAGE>
Debentures plus the original issue discount on the Zero Coupon Debentures
accrued to the date of such declaration to be immediately due and payable. In
the case of certain events of bankruptcy or insolvency, the Issue Price of the
Zero Coupon Debentures plus the original issue discount accrued thereon to the
occurrence of such event shall automatically become and be immediately due and
payable. See "Subordination of Zero Coupon Debentures." Under certain
circumstances, the holders of a majority in aggregate principal amount at
maturity of the outstanding Zero Coupon Debentures may rescind any such
acceleration with respect to the Zero Coupon Debentures and its consequences.
Interest shall accrue and be payable on demand upon a default in the payment
of the issue price, accrued original issue discount, or any redemption price,
Purchase Price or Debenture Fundamental Change Redemption Price to the extent
that payment of such interest shall be legally enforceable.
The Debenture Trustee shall give notice to holders of the Zero Coupon
Debentures of any continuing default known to the Debenture Trustee within 90
days after the occurrence thereof; provided that the Debenture Trustee may
withhold such notice if it determines in good faith that withholding the
notice is in the interests of the holders.
The holders of a majority in aggregate principal amount at maturity of the
outstanding Zero Coupon Debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
exercising any trust or power conferred on the Debenture Trustee, provided
that such direction shall not be in conflict with any law or the Debenture
Indenture and subject to certain other limitations. Before proceeding to
exercise any right or power under the Debenture Indenture at the direction of
such holders, the Debenture Trustee shall be entitled to receive from such
holders reasonable security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction. No holder of any Zero Coupon Debenture will have any right to
pursue any remedy with respect to the Debenture Indenture or the Zero Coupon
Debentures, unless (i) such holder shall have previously given the Debenture
Trustee written notice of a continuing Event of Default; (ii) the holders of
at least 25% in aggregate principal amount at maturity of the outstanding Zero
Coupon Debentures shall have made a written request to the Debenture Trustee
to pursue such remedy; (iii) such holder or holders have offered to the
Debenture Trustee reasonable indemnity satisfactory to the Debenture Trustee;
(iv) the holders of a majority in aggregate principal amount at maturity of
the outstanding Zero Coupon Debentures have not given the Debenture Trustee a
direction inconsistent with such request within 60 days after receipt of such
request; and (v) the Debenture Trustee shall have failed to comply with the
request within such 60-day period.
However, the right of any holder (x) to receive payment of the principal
amount at maturity, issue price, accrued original issue discount, any
redemption price, Purchase Price, Debenture Fundamental Change Redemption
Price and any interest in respect of a default in the payment of any such
amounts on a Zero Coupon Debenture, on or after the due date expressed in such
Zero Coupon Debenture, (y) to institute suit for the enforcement of any such
payments or conversion or (z) to convert Zero Coupon Debentures shall not be
impaired or adversely affected without such holder's consent. The holders of
at least a majority in aggregate principal amount at maturity of the
outstanding Zero Coupon Debentures may waive an existing default and its
consequences, other than (i) any default in any payment on the Zero Coupon
Debentures, (ii) any default with respect to the conversion rights of the Zero
Coupon Debentures or (iii) any default in respect of certain covenants or
provisions in the Debenture Indenture which may not be modified without the
consent of the holder of each Zero Coupon Debenture as described in
"Modification" below.
The Company will be required to furnish to the Debenture Trustee annually a
statement as to any default by the Company in the performance and observance
of its obligations under the Debenture Indenture.
MODIFICATION
Without the consent of any holder of Zero Coupon Debentures, the Company and
the Debenture Trustee may amend the Debenture Indenture to cure any ambiguity,
defect or inconsistency, to provide for the assumption by a successor
corporation of the obligations of the Company under the Debenture Indenture or
to make any change that does not adversely affect the rights of any holder of
Zero Coupon Debentures. No amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any
33
<PAGE>
holder of Senior Indebtedness then outstanding, unless the holders of such
Senior Indebtedness (as required pursuant to the terms of such Senior
Indebtedness) consent to such change.
Modification and amendment of the Debenture Indenture or the Zero Coupon
Debentures may be effected by the Company and the Debenture Trustee with the
consent of the holders of not less than a majority in aggregate principal
amount at maturity of the Zero Coupon Debentures then outstanding. However,
without the consent of each holder affected thereby, no amendment may, among
other things: (i) reduce the principal amount at maturity, issue price,
Purchase Price, Debenture Fundamental Change Redemption Price or any
redemption price, or extend the stated maturity of any Zero Coupon Debenture
or alter the manner or rate of accrual of original issue discount or interest,
or make any Zero Coupon Debenture payable in money or securities other than
that stated in the Zero Coupon Debenture; (ii) make any change to the
principal amount at maturity of Zero Coupon Debentures whose holders must
consent to an amendment or any waiver under the Debenture Indenture or modify
the Debenture Indenture provisions relating to such amendments or waivers;
(iii) make any change that adversely affects the right to convert any Zero
Coupon Debenture or the right to require the Company to purchase a Zero Coupon
Debenture or the right to require the Company to redeem a Zero Coupon
Debenture upon a Fundamental Change; (iv) modify the provisions of the
Debenture Indenture relating to the subordination of the Zero Coupon
Debentures in a manner adverse to the holders of the Zero Coupon Debentures;
or (v) impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the Zero Coupon Debentures.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of the Company, the claim
of the holder of a Zero Coupon Debenture is, under Title 11 of the United
States Code, limited to the issue price of the Zero Coupon Debenture plus that
portion of the original issue discount that has accrued from the date of issue
to the commencement of the proceeding. In addition, the holders of the Zero
Coupon Debentures will be subordinated in right of payment to Senior
Indebtedness and effectively subordinated to the indebtedness and other
obligations of the Company's subsidiaries. See "Subordination of Zero Coupon
Debentures."
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
State Street Bank and Trust Company of California, N.A., the Debenture
Trustee under the Debenture Indenture, is the paying agent, conversion agent,
registrar and custodian with regard to the Zero Coupon Debentures, and will be
the Senior Notes Trustee and the paying agent, conversion agent, registrar and
custodian with regard to the Senior Notes. An affiliate of the Debenture
Trustee is also the transfer agent and registrar of the Company's Common
Stock.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, $.001 par value, and 2,000,000 shares of Preferred stock,
$.001 par value. As of March 31, 1997, 176,744,669 shares of Common Stock were
outstanding and 17,500 shares of Series A Preferred Stock were outstanding.
COMMON STOCK
Each share of Common Stock entitles the holder to one vote on matters
submitted to a vote of the stockholders (cumulative voting may be invoked in
connection with the election of directors), and, subject to the prior
preferences of the Company's Preferred Stock, a pro rata share of such
dividends as may be declared on the Common Stock and a pro rata share of
assets remaining available for distribution to stockholders upon a liquidation
of the Company. Certain rights of the Common Stock are subject to the prior
preferences of the Company's outstanding Series A Preferred Stock and any
other series of Preferred Stock which may be issued in the future. The Common
Stock is not convertible and has no preemptive rights. There are no redemption
provisions with respect to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares
34
<PAGE>
of Common Stock issuable upon conversion of the Senior Notes and the Zero
Coupon Debentures will be, fully paid and non-assessable.
The transfer agent for the Company's Common Stock is BankBoston, N.A.
PREFERRED STOCK
The Company's Certificate of Incorporation and Bylaws provides that
Preferred Stock may be issued from time-to-time in one or more series. The
Company's Board of Directors has authority to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices,
and liquidation preferences of any wholly unissued series of Preferred Stock,
as well as the number of shares constituting any such unissued series and the
designation thereof, and to increase or decrease the number of shares of any
outstanding series (but not below the number of shares of such series then
outstanding), without any further vote or action by the Company's
stockholders.
Series A Preferred Stock. The Series A Preferred Stock is owned by a wholly-
owned subsidiary of NKK Corporation, a Japanese corporation ("NKK"). The
Series A Preferred Stock receives a 3% cumulative annual dividend and a
preference upon liquidation in the amount of its original purchase price, has
aggregate voting rights equivalent to 1,400,000 shares of Common Stock, and is
convertible into Common Stock at certain times at the then-current market
price of the Common Stock. The Series A Preferred Stock is perpetual, but is
subject to redemption at certain times after the initial conversion date in
certain events if the market price of the Common Stock is below $8.75 per
share at such times.
NKK is subject to certain contractual restrictions on its right to transfer
shares of Series A Preferred Stock (or shares of Common Stock issuable upon
conversion thereof). The Company has rights of first refusal to purchase the
shares on certain proposed transfers of stock by NKK. NKK has agreed to limit
its ownership of the Company's voting stock to 10% of the Company's
outstanding voting stock. NKK has also agreed, so long as it holds more than
3% of the outstanding voting stock, to be present at all stockholder meetings
so that all shares held by it may be counted for purposes of determining a
quorum. In addition, NKK has agreed to vote for management's nominees in all
elections of directors and in the manner recommended by management on all
other issues, except for certain significant events. NKK has also agreed to
restrictions on soliciting proxies and acting in concert with others.
Preferred Shares Rights Agreement. Effective February 1991, the Board of
Directors of the Company approved the Preferred Shares Rights Agreement and
declared a dividend distribution payable March 1, 1991 of one Preferred Share
Purchase Right (the "Rights") for each share of its Common Stock outstanding
on March 1, 1991 and each share of its Common Stock issued thereafter (subject
to certain limitations). The Preferred Shares Rights Agreement was amended
effective as of May 24, 1991 and again effective as of May 6, 1992 and again
effective as of May 2, 1995.
Currently, the Rights trade with the shares of Common Stock. When the Rights
become exercisable, each Right will entitle the holder to buy one one-
thousandth of a share of Series B Participating Preferred Stock, $0.001 par
value, at an exercise price of $200 per one one-thousandth of a share. The
Rights will become exercisable and will trade separately from the Common Stock
(unless postponed by action of the disinterested directors of the Company) on
the earlier of (i) 10 days following a public announcement that a person or
group has acquired, or obtained the right to acquire, beneficial ownership of
15% or more of the outstanding Common Stock or (ii) 10 days following the
commencement or announcement of a tender offer or exchange offer which, if
consummated, would result in the beneficial ownership by a person or group of
15% or more of the Company's outstanding Common Stock.
In general, if any person or group acquires 15% or more of the Company's
Common Stock without approval of the Company's Board of Directors, each Right
not held by the acquiring person will entitle its holder to purchase $400
worth of the Company's Common Stock for an effective purchase price of $200.
If, after any
35
<PAGE>
person or group acquires 15% or more of the Company's Common Stock without the
approval of the Board of Directors, the Company is acquired in a merger or
other business combination transaction, each Right not held by the acquiring
person would entitle its holder to purchase $400 worth of the common stock of
the acquiring company for $200. Under certain conditions, the Company may
elect to redeem the Rights for $.005 per Right or cause the exchange of each
Right not held by the acquiring person for one share of the Company's Common
Stock. Additionally, the exercise price, number of Rights, and number of
shares of Series B Participating Preferred or Common Stock that may be
acquired for the exercise price are subject to adjustment from time to time to
prevent dilution. The Rights expire on March 1, 2001, unless previously
exchanged or redeemed as described above, or terminated in connection with the
acquisition of the Company by consolidation or merger approved by the Board of
Directors and satisfying certain conditions.
The Rights are designed to protect and maximize the value of the outstanding
equity interests in the Company in the event of an unsolicited attempt by an
acquiror to take over the Company in a manner or on terms not approved by the
Board of Directors. Takeover attempts frequently include coercive tactics to
deprive a corporation's Board of Directors and its stockholders of any real
opportunity to determine the destiny of the corporation. The Rights have been
declared by the Board in order to deter such tactics, including a gradual
accumulation of shares in the open market of a 15% or greater position to be
followed by a merger or a partial or two-tier tender offer that does not treat
all stockholders equally. These tactics could unfairly pressure stockholders,
squeeze them out of their investment without giving them any real choice or
deprive them of the full value of their shares.
The Rights are not intended to prevent a takeover of the Company and will
not do so. Nevertheless, the Rights may have the effect of rendering more
difficult or discouraging an acquisition of the Company deemed undesirable by
the Board of Directors. The Rights may cause substantial dilution to a person
or group that attempts to acquire the Company on terms or in a manner not
approved by the Company's Board of Directors, except pursuant to an offer
conditioned upon the negation, purchase or redemption of the Rights.
The description above is qualified in its entirety by reference to the
Preferred Shares Rights Agreement.
CERTAIN CHARTER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain procedural
provisions that could have the effect of delaying, deferring or preventing a
change in control of the Company. These include the following: (i) a provision
requiring that special meetings of the stockholders be called only by the
Board of Directors, the Chairman of the Board, the Secretary or an executive
officer of the Company; (ii) a provision permitting only a majority of the
remaining members of the Board of Directors to fill vacancies on the Board of
Directors; (iii) a provision requiring stockholders to give advance notice of
proposals for action by the stockholders at meetings of the stockholders; (iv)
a provision classifying the Board of Directors into three classes and
requiring that directors may be removed only for "cause"; and (v) a provision
requiring stockholders to give advance notice of director nominations.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the Delaware General Corporation Law,
which restricts certain business combinations between the Company and an
"interested stockholder" (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) or such stockholder's affiliates or
associates for a period of three years following the date on which the
stockholder becomes an "interested stockholder." The restrictions do not apply
if (i) prior to an interested stockholder becoming such, the Board of
Directors approves either the business combination or the transaction in which
the stockholder becomes an interested stockholder, (ii) upon consummation of
the transaction in which such stockholder becomes an interested stockholder,
such interested stockholder owns at least 85% of the voting stock of the
Company outstanding at the time the transaction commenced (excluding shares
owned by certain employee stock ownership plans and persons who are both
directors and officers of the Company) or (iii) on or
36
<PAGE>
subsequent to the date an interested stockholder becomes such, the business
combination is both approved by the Board of Directors and authorized at an
annual or special meeting of the Company's stockholders (and not by written
consent) by the affirmative vote of at least 66 2/3% of the outstanding voting
stock not owned by the interested stockholder.
BOOK-ENTRY SYSTEM--THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") acts as securities depositary (the
"Depositary") for the Zero Coupon Debentures and will act as the Depository
for the Senior Notes. DTC is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of 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 holds securities that its participants (the "Participants")
deposit with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
(the "Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others, such securities brokers and dealers,
banks, and trust companies that clear transactions through or maintain a
direct or indirect custodial relationship with a Direct Participant ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
The ownership interest of each actual owner of a Senior Note ("Beneficial
Owner") within the DTC system is recorded on the Direct and Indirect
Participants' records and is credited to the Direct Participant on DTC's
records. Beneficial Owners do not receive written confirmation from DTC of
their transactions, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners exchanged or hold Senior Notes. Transfers of
ownership interests in the Senior Notes are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial Owners.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the Senior Notes represented
by a global certificate.
To facilitate subsequent transfers, all the Senior Notes deposited by
Participants with DTC will be registered in the name of Cede & Co. The deposit
of Senior Notes with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the identity
of the Beneficial Owners of the Senior Notes, as its records reflect only the
identity of the Direct Participants to whose accounts such Senior Notes are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communication by DTC to Direct Participants,
by Direct Participants to Indirect Participants and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements that may be in
effect from time to time.
Redemptions are coordinated through DTC. Redemption notices shall be sent to
Cede & Co. If less than all of the Senior Notes held by DTC are being
redeemed, DTC will reduce the amount of the interest of each Direct
Participant in such Senior Notes in accordance with its procedures.
Conversions are coordinated through DTC. Conversion notices shall be sent to
Cede & Co. by a Direct Participant for the benefit of Beneficial Owners. DTC
will reduce the amount of interest of a Direct Participant in the Senior Notes
as a result of any such conversions in accordance with its procedures.
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Distribution payments on the Senior Notes are made to DTC. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in "street name," and
such payments will be the responsibility of such Participant and not of DTC or
the Company, subject to any statutory or regulatory requirements to the
contrary that may be in effect from time to time. Payment of distributions to
DTC is the responsibility of the Company, disbursement of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of the Senior Notes only at the direction of one or more
Participants to whose account with DTC interests in Senior Notes represented
by a global certificate are credited and only in respect of such principal
amount of the Senior Notes represented by a global certificate as to which
such Participants have given such direction.
Except as provided herein, a Beneficial Owner in a global Senior Note
certificate will not be entitled to receive physical delivery of such
securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under such securities. Because DTC can only act on
behalf of Participants, who in turn act on behalf of Indirect Participants,
the ability of a person having a beneficial interest in shares represented by
a global certificate to pledge such interest to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of
such interest, may be affected by the lack of a physical certificate of such
interest.
DTC may discontinue providing its services as a Depositary with respect to
the Senior Notes at any time by giving reasonable notice to the Company. Under
such circumstances, in the event that a successor securities depositary is not
obtained, certificates for the Senior Notes for which DTC has discontinued its
services are required to be printed and delivered. Additionally, the Company
may decide to discontinue use of the system of book-entry transfers through
DTC (or any successor depositary) with respect to the Senior Notes. In that
event, certificates for the Senior Notes will be printed and delivered.
Notwithstanding any provision of the Senior Notes Indenture, no global
Senior Note may be exchanged in whole or in part for Senior Notes registered,
and no transfer of a global Senior Note in whole or in part may be registered,
in the name of any person other than DTC or its nominee unless (i) DTC has
notified the Company that it is unwilling or unable to continue as Depositary
for such global Senior Note or has ceased to be qualified to act as such as
required by the Senior Notes Indenture, or (ii) there shall have occurred and
be continuing an Event of Default with respect to the Senior Notes. All
securities issued in exchange for a Senior Note or any portion thereof will be
registered in such names as the Depositary may 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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material, anticipated United States
federal income tax consequences relating to the Exchange Offer and the
ownership and disposition of the Senior Notes (and Common Stock received upon
a conversion of Senior Notes) by holders that receive their Senior Notes in
the Exchange Offer. In addition, portions of this discussion are based on
areas in which the Internal Revenue Code of 1986, as amended (the "Code") and
the Income Tax Regulations promulgated thereunder (the "Regulations") do not
provide any clear guidance, and the administrative rulings and judicial
decisions do not provide a clear resolution. This discussion does not purport
to address all aspects of United States federal income taxation that may be
relevant to particular holders in light of their personal circumstances, the
United States federal income tax consequences to certain types of holders
subject to special treatment under the Code (e.g., life insurance companies,
tax exempt organizations, financial institutions, dealers in securities or
currencies, and persons holding Zero Coupon
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Debentures or Senior Notes as a part of a hedging or conversion transaction or
a straddle), or the effect of any applicable state, local or foreign tax laws.
The discussion assumes that the Zero Coupon Debentures are held, and the
Senior Notes will be held, as "capital assets" within the meaning of Section
1221 of the Code.
This discussion is based upon provisions of the Code, the Regulations, and
judicial and administrative interpretations thereof, all as in effect as of
the date hereof, and all of which are subject to change (possibly on a
retroactive basis) or different interpretation. There can be no assurance that
the Internal Revenue Service (the "Service") will not challenge one or more of
the tax consequences described herein, and the Company has not obtained, nor
does it intend to obtain, a ruling from the Service with respect to the
federal income tax consequences of the Exchange Offer. INVESTORS CONSIDERING
THE EXCHANGE OF ZERO COUPON DEBENTURES IN THE EXCHANGE OFFER ARE URGED TO
CONSULT THEIR OWN TAX ADVISOR TO DETERMINE THEIR PARTICULAR TAX CONSEQUENCES
OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF THE SENIOR NOTES
UNDER FEDERAL AND APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS.
As used herein, a "U.S. Holder" means a beneficial holder of Zero Coupon
Debentures or Senior Notes received in the Exchange Offer that is a citizen or
resident (within the meaning of Section 7701(b) of the Code) of the United
States, a corporation, partnership or other entity formed under the laws of
the United States or any political subdivision thereof, an estate the income
of which is subject to United States federal income taxation regardless of its
source and a trust subject to the primary supervision of a court within the
United States and the control of a United States fiduciary as described in
Section 7701(a)(30) of the Code and any other person whose income or gain with
respect to a Senior Note is effectively connected with the conduct of a United
States trade or business. A "non-U.S. Holder" is any holder other than a U.S.
Holder.
TREATMENT OF EXCHANGE OFFER
The tax treatment of a U.S. Holder's exchange of Zero Coupon Debentures for
Senior Notes pursuant to the Exchange Offer may vary depending on whether that
exchange is treated as part of a recapitalization, which is generally
nontaxable except to the extent of the lesser of any gain realized or "boot"
(i.e., non-qualifying consideration) received. Under the Code, the exchange of
Zero Coupon Debentures for Senior Notes pursuant to the Exchange Offer will be
treated as a recapitalization only if both the Zero Coupon Debentures and the
Senior Notes constitute "securities" within the meaning of the provisions of
the Code governing reorganizations. This, in turn, depends upon the facts and
circumstances surrounding the origin and nature of these debt instruments and
upon the interpretation of numerous judicial decisions.
Assuming the exchange of Zero Coupon Debentures for Senior Notes constitutes
a recapitalization, a U.S. Holder will not recognize loss upon the exchange. A
U.S. Holder will recognize gain, if any, to the extent that the U.S. Holder
receives "boot." Under a literal interpretation of the Code, a U.S. Holder
would not be considered to receive "boot" because the principal amount of the
Senior Notes will not exceed the principal amount at maturity of the Zero
Coupon Debentures exchanged therefor. However, a reasonable interpretation of
these rules, and the interpretation the Company intends to take is that the
principal amount should be determined by reference to the "adjusted issue
price," in the case of the Zero Coupon Debentures, and the "issue price," in
the case of the Senior Notes. The adjusted issue price of the Zero Coupon
Debentures will equal the accreted value of the Zero Coupon Debentures. The
issue price of the Senior Notes will equal the fair market value of the Senior
Notes as of the Expiration Date. Accordingly, under this interpretation, a
U.S. Holder (i) would be considered to receive "boot" to the extent that the
fair market value of the Senior Notes exceeds the accreted value of the Zero
Coupon Debentures and (ii) would recognize gain equal to the lesser of (a) the
amount of boot received, or (b) the excess of the fair market value of the
Senior Notes over the U.S. Holders' adjusted basis in the Zero Coupon
Debentures.
Assuming the exchange of Zero Coupon Debentures for Senior Notes constitutes
a recapitalization, a U.S. Holder will receive a tax basis in the Senior Notes
equal to the U.S. Holder's adjusted tax basis in the Zero Coupon Debentures
exchanged therefor, plus any gain recognized by the U.S. Holder in the
Exchange Offer, and
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the U.S. Holder's holding period for the Senior Notes will include the period
in which the U.S. Holder held the Zero Coupon Debentures.
If the exchange of Zero Coupon Debentures for Senior Notes does not
constitute a recapitalization, a U.S. Holder generally will recognize gain or
loss on the exchange of Zero Coupon Debentures for Senior Notes equal to the
difference between (i) the issue price of the Senior Notes received and (ii)
the U.S. Holder's adjusted tax basis in the Zero Coupon Debentures. A U.S.
Holder will receive a tax basis in the Senior Notes equal to the fair market
value of the Senior Notes, and the U.S. Holder's holding period for the Senior
Notes will commence on the date after the Exchange Offer is consummated.
Any gain or loss recognized by a U.S. Holder (including amounts attributable
to any "boot" considered received) will be long-term capital gain or loss if
the U.S. Holder has held the Zero Coupon Debentures for more than one year.
However, under the market discount rules, any gain recognized by a U.S. Holder
will be ordinary income to the extent of the accrued market discount which has
not previously been included in income.
A non-U.S. Holder generally will not recognize gain or loss for United
States federal income tax purposes on the exchange of Zero Coupon Debentures
for Senior Notes, except in the instances comparable to those described in
"Non-U.S. Holders--Gain on Disposition of Senior Notes and Common Stock" with
respect to sales of the Senior Notes and Common Stock.
For tax purposes, the Exchange Offer should generally be considered to take
place on the Expiration Date. Thus, for example, holders of Zero Coupon
Debentures will continue to accrue original issue discount on the Zero Coupon
Debentures after the Zero Coupon Debentures have been tendered but prior to
the Expiration Date.
The remainder of this discussion assumes the Exchange Offer constitutes a
recapitalization.
TAX TREATMENT OF THE OWNERSHIP AND DISPOSITION OF SENIOR NOTES AND COMMON
STOCK
Stated Interest and Original Issue Discount on the Senior Notes
The stated interest on the Notes will be includable in a U.S. Holder's gross
income as ordinary income for United States federal income tax purposes at the
time it is paid or accrued in accordance with the U.S. Holder's regular method
of tax accounting.
The Company anticipates that the Senior Notes will be issued with de minimis
original issue discount (as defined below). Accordingly, the Company
anticipates that a U.S. Holder will not be subject to tax on original issue
discount but instead will be subject to tax only on stated interest on the
Senior Notes in the manner set forth above. If, however, the issue price of
the Senior Notes is determined to be significantly less than the stated
redemption price at maturity of the Senior Notes amount determined by the
Company as described above with the effect that the original issue discount on
the Senior Notes is no longer considered to be de minimis, the United States
federal income tax consequences set forth below will apply.
The amount of original issue discount on a debt instrument generally is
equal to the difference between the stated redemption price at maturity of the
debt instrument and the debt instrument's issue price. However, if the
original issue discount on a debt instrument is less than 1/4 of 1 percent of
the stated redemption price at maturity of the debt instrument multiplied by
the number of complete years to maturity, the original issue discount on the
debt instrument is considered de minimis and will be deemed to be zero. The
stated redemption price at maturity of a debt instrument will equal the sum of
all amounts provided under the debt instrument, regardless of whether
denominated as principal or interest, other than "qualified stated interest"
payments. For such purposes, "qualified stated interest" generally means
stated interest that is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed rate.
The stated interest on the Senior Notes will constitute "qualified stated
interest."
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A U.S. Holder (other than Holders with amortizable bond premium or
offsetting acquisition premium) must include any original issue discount on
the Senior Notes as ordinary interest income as it accrues (in advance of the
receipt of any cash payments attributable to such income) in accordance with a
constant yield method based on a compounding of interest, regardless of such
U.S. Holder's regular method of tax accounting. Subject to making an
appropriate election, a U.S. Holder generally will be permitted to include all
interest that accrues or is to be paid on the Senior Notes (including stated
interest, acquisition discount, original issue discount, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest as adjusted by any amortizable bond premium or acquisition premium)
in income under the constant yield method applicable to original issue
discount, subject to certain limitations and exceptions.
Amortizable Bond Premium and Acquisition Premium
As discussed above, a U.S. Holder's initial tax basis in the Senior Notes
will depend in part on the tax treatment of the Exchange Offer to such U.S.
Holder, including whether the U.S. Holder reports a gain as a result thereof.
If a U.S. Holder's initial tax basis in the Senior Notes is greater than the
stated redemption price at maturity, such U.S. Holder generally will not be
required to include original issue discount, if any, in income. In addition,
such U.S. Holder will have "amortizable bond premium" with respect to the
Senior Notes, to the extent that the premium is not attributable to the
conversion feature on the Senior Note, which may be deductible to the U.S.
Holder over the term of the Senior Notes.
If a U.S. Holder's initial tax basis in the Senior Notes is greater than the
issue price of the Senior Notes but less than the state redemption price at
maturity, such U.S. Holder generally will be considered to have "acquisition
premium" with respect to the Senior Notes, which may reduce the amount of
original issue discount, if any, that the U.S. Holder is required to include
in income.
Sale, Exchange or Retirement of the Senior Notes
A U.S. Holder generally will recognize gain or loss on the sale, exchange or
retirement of Senior Notes equal to the difference between the amount realized
on the sale, exchange or retirement of the Senior Notes and the U.S. Holder's
adjusted tax basis in the Senior Notes. Any gain or loss recognized on the
sale, exchange or retirement of Senior Notes will generally be long-term
capital gain or loss if the U.S. Holder has held the Senior Notes for more
than one year (other than amounts attributable to accrued interest). However,
under the market discount rules, any gain recognized by a U.S. Holder will be
ordinary income to the extent of the accrued market discount which has not
previously been included in income. For these purposes, the market discount
that the U.S. Holder had in the Zero Coupon Debentures, which has not been
previously included in income, will be considered to be market discount with
respect to the Senior Notes.
Constructive Dividend
If at any time the Company makes a distribution of property to shareholders
that would be taxable to such shareholders as a dividend for United States
federal income tax purposes (for example, 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 Price of the Senior Notes is
increased, such increase may be deemed to be the payment of a taxable dividend
to U.S. Holders of Senior Notes. If the Conversion Price is increased at the
discretion of the Company or in certain other circumstances, such increase may
be deemed to be the payment of the taxable dividend to U.S. Holders of Senior
Notes.
Conversion of Senior Notes into Common Stock
A U.S. Holder's conversion of Senior Note into Common Stock will generally
not be a taxable event. The U.S. Holder's tax basis in the Common Stock
received on conversion of Senior Notes will be the same as the U.S. Holder's
adjusted tax basis in the Senior Notes at the time of conversion (exclusive of
any tax basis
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allocable to a fractional share), and the holding period for the Common Stock
received on conversion will include the holding period of the Senior Notes
converted. The receipt of cash in lieu of fractional shares of Common Stock
should generally result in capital gain or loss (measured by the difference
between the cash received for the fractional share interest and the U.S.
Holder's tax basis in the fractional share interest).
The Common Stock
Distributions, if any, paid on the Common Stock after a conversion, to the
extent made from current or accumulated earnings and profits of the Company,
as determined for United States federal income tax purposes, will be included
in a U.S. Holder's income as ordinary income as they are paid. Gain or loss
realized on a sale or exchange of Common Stock will equal the difference
between the amount realized on such sale or exchange and the Holder's adjusted
tax basis in such shares. Such gain or loss will generally be long-term
capital gain or loss if the U.S. Holders's holding period in the Common Stock
is more than one year. However, under the market discount rules, any gain
recognized by a U.S. Holder will be ordinary income to the extent of the
accrued market discount which has not previously been included in income. For
these purposes, the market discount that the U.S. Holder had in the Zero
Coupon Debentures and carried over to the Senior Notes, which has not been
previously included in income, will be considered to be market discount with
respect to the Common Stock.
RECENT LEGISLATION
On August 5, 1997, legislation was enacted which reduces, in the case of an
individual, the rate of tax on long-term capital gains on property held for
more than 18 months.
NON-U.S. HOLDERS
The following discussion is a summary of the principal United States federal
income and estate tax consequences resulting from the ownership of the Senior
Notes or Common Stock by Non-U.S. Holders.
Withholding Tax on Payments of Principal and Interest on Senior Notes
The payment of principal and interest on Senior Notes to a non-U.S. Holder
will not be subject to United States federal withholding tax, provided that
(i) the Non-U.S. Holder does not actually or constructively own 10% or more of
the total voting power of all voting stock of the Company and is not a
controlled foreign corporation that is related to the Company within the
meaning of the Code and (ii) the beneficial owner of the Senior Notes
certifies to the Company or its agent, under penalties of perjury, that it is
not a U.S. Holder and provides its name and address on United States Treasury
Form W-8 (or a suitable substitute form) or a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Debenture certifies under penalties of perjury
that such a Form W-8 (or suitable substitute form) has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof.
Gain on Disposition of the Senior Notes and Common Stock
Provided that the Company is at no time a United States real property
holding corporation within the meaning of Section 897(c) of the Code (a
"USRPHC"), Non-U.S. Holder generally will not be subject to United States
federal income tax on gain or income realized on the sale, exchange or
redemption of Senior Notes, including the conversion of Senior Notes for
Common Stock, or the sale or exchange of Common Stock unless in the case of an
individual Non-U.S. Holder such Holder is present in the United States for 183
days or more in the year of such sale, exchange or redemption and either (a)
has a "tax home" in the United States and the gain or income is not
attributable to an office or other fixed place of business maintained by such
non-U.S. Holder outside of the United States, or (b) the gain from the
disposition is attributable to an office or other fixed place of business in
the United States. Even if the Company is determined to be a USRPHC, a Non-
U.S. Holder not described in the preceding sentence will not be subject to
United States federal income tax on any such gain or income provided that such
Holder does not actually or constructively own more than 5% of the Common
Stock (including any Common Stock that may be received as a result of the
conversion of Senior Notes) and does not own, on any date on which the Holder
acquires Senior Notes, Senior Notes with an aggregate value of 5% or
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more of the aggregate value of the outstanding Common Stock on such date.
Under present law the Company would not at any time within a specified
(generally five-year) period be a USRPHC so long as during a specified
(general five-year) period (i) the fair market value of its United States real
property interests is less than (ii) 50% of the sum of the fair market value
of its United States real property interests, interests in real property
located outside the United States and other of its assets that are used or
held for use in a trade or business.
The Company believes that it is not presently a USRPHC, but there can be no
assurance that it will not become a USRPHC in the future.
The Common Stock
Dividends, if any, paid on the Common Stock to a Non-U.S. Holder generally
will be subject to a 30% United States federal withholding tax, subject to
reduction for non-U.S. Holders eligible for the benefits of certain income tax
treaties. For purposes of determining whether tax is to be withheld at a 30%
rate or at a reduced rate as specified by an income tax treaty, the Company
ordinarily will presume that dividends paid to an address in a foreign country
are paid to a resident of such country absent knowledge that such presumption
is not warranted. Common Stock held by an individual who at the time of death
is not a citizen or resident of the United States (as specially defined for
United States federal estate tax, subject to reduction of such estate tax if
the individual is eligible for the benefits of an estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments on the Senior Notes made by the Company or any paying agent of the
Company, and payments of dividends on the Common Stock, to certain non-
corporate holders of the Senior Notes or Common Stock generally will be
subject to information reporting and possible to "backup withholding" at a
rate of 31%. Information reporting and backup withholding will not apply,
however, to payments made on a Senior Note if the certification described in
clause (i) under "Non-U.S. Holders--Withholding Tax on Payments of Principal
and Interest on the Senior Notes" above is received, provided in each case
that the payor does not have actual knowledge that the holder is a U.S.
Holder, or to payments made on the Common Stock if such payments are subject
to the 30% (or reduced treaty rate) withholding tax described above under
"Non-U.S. Holders--The Common Stock."
Payment of proceeds from the sale of a Senior Note or Common Stock to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding. Payment outside
the United States of the proceeds of the sale of a Senior Note or Common Stock
to or through a foreign office of a "broker" (as defined in applicable U.S.
Treasury Department regulations) will not be subject to information reporting
or backup withholding, except that if the broker is a U.S. person, a
controlled foreign corporation for United States tax purposes or a foreign
person 50 percent or more of whose gross income is from a United States trade
or business, information reporting will apply to such payment unless the
broker has documentary evidence in its records that the beneficial owner is
not a U.S. Holder and certain other conditions are met, or the beneficial
owner otherwise establishes an exemption.
Any amounts withheld from a payment to a non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax, and may entitle such holder to a refund, provided
that the required information is furnished to the Service.
LEGAL MATTERS
Certain matters relating to the validity of the Senior Notes offered hereby
will be passed upon for the Company by Shearman & Sterling, San Francisco,
California. Certain legal matters will be passed upon for the Dealer Manager
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain tax matters will be passed upon for the Company by
Shearman & Sterling, San Francisco, California.
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EXPERTS
The consolidated financial statements and financial statement schedule of
the Company and its subsidiaries incorporated by reference and included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated by reference and included therein, and
incorporated by reference herein. Such consolidated financial statements and
financial statement schedule are incorporated by reference herein in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements, and other information concerning the Company
can be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and 7 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. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy statements, and other
information concerning the Company, which files electronically with the
Commission. The Common Stock is listed on the New York Stock Exchange, Inc.
(the "NYSE") and the Pacific Stock Exchange (the "PSE"). Reports, proxy
statements, and other information concerning the Company can be inspected and
copied at the offices of the NYSE, 20 Broad Street, New York, New York 10005
and at the offices of the PSE, 115 Sansome Street, 3rd Floor, San Francisco,
California 94104.
This Prospectus constitutes a part of a combined registration statement on
Form S-4 (together with all amendments and exhibits, the "Registration
Statement") filed by the Company with the Commission under the Securities Act.
This Prospectus does not contain all of the information included in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained herein
concerning the provisions of any document do not purport to be complete and,
in each instance, are qualified in all respects by reference to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is subject to and qualified in
its entirety by such reference. Reference is made to such Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby.
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The Exchange Agent:
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
By Hand or Overnight Courier: By Mail
(Registered or Certified Mail
Recommended):
C/O STATE STREET BANK AND TRUST STATE STREET BANK AND TRUST COMPANY
COMPANY, N.A. P.O. BOX 778
61 BROADWAY BOSTON, MASSACHUSETTS 02102
NEW YORK, NEW YORK 10006
By Facsimile Transmission
(For Eligible Institutions Only):
(617) 664-5739
Confirm by Telephone:
(617) 664-5314
The Information Agent:
GEORGESON
& COMPANY INC.
--------------
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
Call Toll Free: (800) 223-2064
Any questions or requests for assistance or additional copies of this
Prospectus and the Letter of Transmittal may be directed to the Information
Agent at its telephone number and location set forth above. You may also
contact your broker, dealer, commercial bank or trust company or other nominee
for assistance concerning the Exchange Offer.
The Dealer Manager for the Exchange Offer:
MORGAN STANLEY DEAN WITTER
1585 Broadway
New York, New York 10036
(800) 835-9668 (extension 2262) (Toll-Free)
<PAGE>
Contact: Marilyn Lattin (415) 933-5070
Director, Investor Relations
Media: John Thompson (415) 933-8515
Manager, Public Relations
SILICON GRAPHICS ANNOUNCES DEBENTURE EXCHANGE OFFER
MOUNTAIN VIEW, California, August 7, 1997 (NYSE: SGI) -- Silicon Graphics, Inc.
today announced an offer to exchange its 5 1/4% Senior Convertible Notes due
2004 for the Company's outstanding Zero Coupon Convertible Subordinated
Debentures due 2013.
The exchange offer will commence on August 7, 1997, and is scheduled to expire
at midnight, New York City time, on September 4, 1997, unless extended.
The purpose of the exchange offer is to refinance the Zero Coupon Convertible
Subordinated Debentures with the Senior Notes. The exchange offer will be
effected on the basis of that principal amount of Senior Notes equal to the
accreted value of each $1,000 principal amount at maturity Zero Coupon Debenture
as of the expiration date for each such Zero Coupon Debenture validly tendered
and accepted for exchange in the exchange offer.
The Senior Notes will be convertible at any time following the date of issuance
thereof and prior to maturity, unless previously redeemed, into Common Stock of
Silicon Graphics at a conversion price of $36.25 per share, subject to
adjustment in certain events. The Senior Notes will be redeemable at the option
of the Company on or after September 7, 2000, subject to certain conditions, and
at the option of the holders in the event of a Fundamental Change (as defined).
Consummation of the exchange offer will be conditioned on receipt of validly
tendered Zero Coupon Debentures representing at least $200,000,000 aggregate
principal amount at maturity of the Zero Coupon Debentures.
Morgan Stanley & Co., Incorporated will act as dealer manager to solicit
exchanges. State Street Bank and Trust Company of California, N.A., will act as
exchange agent. A prospectus for the exchange offer will be available from
Georgeson & Company Inc., Wall Street Plaza, New York, NY 10005 (toll free (800)
223-2064; collect (212) 440-9800), which has been retained as information agent.
Holders of the Zero Coupon Debentures should contact Morgan Stanley & Co.
Incorporated at (800) 835-9668, extension 2262, for additional information.
Silicon Graphics, Inc. is a leading supplier of high-performance interactive
computing systems. Silicon Graphics and its subsidiaries have offices throughout
the world and headquarters in Mountain View, California.
Silicon Graphics and the Silicon Graphics logo are registered trademarks of
Silicon Graphics, Inc. Press materials are available on the World Wide Web at
http://www.sgi.com/Overview/newsroom. Financial information is available on the
World Wide Web at http://www.sgi.com/headlines/investor.
