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Filed pursuant to Rule 424(b)(5)
Registration Statement No. 333-34084
$539,450,000
NOVELLUS SYSTEMS, INC.
COMMON STOCK, PREFERRED STOCK, DEPOSITARY SHARES,
WARRANTS, DEBT SECURITIES AND WARRANTS TO
PURCHASE DEBT SECURITIES
Novellus Systems, Inc., a California corporation ("We," "Novellus" or
the "Company"), may offer, from time to time, in one or more series or classes
and in amounts, at prices and on terms that we will determine at the time of
offering, with an aggregate public offering price of up to $539,450,000 (or its
equivalent in another currency based on the exchange rate at the time of sale):
- shares of our common stock;
- shares of our preferred stock, in one or more series;
- our depositary shares;
- our warrants to purchase shares of common stock or preferred stock;
- our debt securities;
- our warrants to purchase debt securities; and
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the applicable supplement
carefully before you invest.
Pursuant to Rule 429 under the Securities Act of 1933, this prospectus
also relates to Registration Statement No. 333-48037 pursuant to which some of
the securities offered were originally registered.
INVESTING IN THE SECURITIES INVOLVES RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 6 OF THIS
PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is April 17, 2000.
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TABLE OF CONTENTS
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About This Prospectus.......................................................... 3
Where You Can Find More Information............................................ 3
Incorporation of Certain Documents by Reference................................ 3
The Company.................................................................... 4
Use of Proceeds................................................................ 6
Forward-Looking Statements..................................................... 6
Risk Factors................................................................... 6
Description of Securities......................................................14
Plan of Distribution...........................................................31
Legal Matters..................................................................32
Experts........................................................................32
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under this shelf process, we may sell any combination of the common stock,
preferred stock, depositary shares, warrants, debt securities and debt warrants
described in this prospectus in one or more offerings up to a total dollar
amount of $500,000,000. This prospectus provides you with a general description
of the securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and the applicable prospectus supplement together with additional information
described under the heading "Where You Can Find More Information."
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "Novellus", "we," "us," "our" or the "Company"
mean Novellus Systems, Inc. and its subsidiaries. When we refer to our "Charter"
we mean our Restated Articles of Incorporation, as amended.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file with the SEC at the SEC's public reference
rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. The SEC also maintains a
web site that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the SEC
(http://www.sec.gov). You can inspect reports and other information we file at
the offices of the National Association of Securities Dealers, Inc., 1735 K.
Street, N.W., Washington, D.C. 20006.
We have filed a registration statement of which this prospectus is a part
and related exhibits with the SEC under the Securities Act of 1933, as amended
(the "Securities Act"). The registration statement contains additional
information about us and the securities. You may inspect the registration
statement and exhibits without charge at the office of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and you may obtain copies from the SEC at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents we filed with the SEC:
- our Annual Report on Form 10-K for the year ended December 31,
1999 (including relevant portions of our definitive proxy
statement for the 2000 annual meeting of shareholders specifically
incorporated by reference in Part III of such Form 10-K);
- our Registration Statement on Form 8-A filed with the Commission
on September 1, 1988; and
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- each document filed by us pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus and prior to the
termination of the offering of all Securities to which this
Prospectus relates.
You should rely only on the information incorporated by reference or set
forth in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. We may only
use this prospectus to sell securities if it is accompanied by a prospectus
supplement. We are only offering these securities in states where the offer is
permitted. You should not assume that the information in this prospectus or the
applicable prospectus supplement is accurate as of any date other than the dates
on the front of these documents.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to our Executive Vice President and Chief Financial Officer, Novellus
Systems, Inc., 4000 North First Street, San Jose, California 95134, telephone
number: (408) 943-9700.
THE COMPANY
We are a leading supplier of high productivity deposition systems used in
the fabrication of integrated circuits. Chemical Vapor Deposition (CVD) systems
employ a chemical plasma to deposit all of the dielectric (insulating) layers
and certain of the conductive metal layers on the surface of a semiconductor
wafer. Physical Vapor Deposition (PVD) systems are used to deposit conductive
metal layers by sputtering metallic atoms from the surface of a target source
via high DC power. Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous solution. Our
strategy is to focus on major semiconductor manufacturers, and we have sold one
or more of our systems to each of the 20 largest semiconductor manufacturers in
the world.
The semiconductor industry has experienced significant growth over the
past decade due to increased demand for personal computers and the internet; the
expansion of the telecommunications industry (and especially wireless
communications); the emergence of new applications such as consumer electronics
products; and the increased semiconductor content in these electronics systems.
Significant performance advantages and lower prices for integrated circuits have
contributed to the growth and expansion of the semiconductor industry over time.
The semiconductor market is cyclical by nature, however, characterized by
short-term periods of either under or oversupply for both memory and logic
devices. When demand decreases, semiconductor manufacturers typically slow their
purchasing of capital equipment; conversely, when demand increases, so does
capital spending. The late 1990s also saw the emergence of a new trend, driven
by the increasingly rapid pace in which the size of the circuitry on the chip is
decreasing. When chips decrease in size, circuits can operate more quickly. With
size reduction, too, more chips can be produced on a given wafer size, and the
yield per manufacturing machine goes up. So, with decreasing chip size more
chips can be produced per machine, and there is a decreased need to build new
manufacturing plants, in particular, for pure capacity expansion. New equipment
featuring the latest technological advances, however, must often be purchased to
manufacture the smaller-sized chips, and in many cases is retrofit into existing
manufacturing facilities.
The fabrication of integrated circuits requires a number of complex and
repetitive processing steps, including deposition, photolithography and etch.
Deposition is a process in which a film of either electrically insulating or
electrically conductive material is deposited on the surface of a wafer. The
three principal methods of this film deposition are CVD, which can be used to
deposit both insulating and conductive films; PVD, which is used primarily for
sputtering conductive metals onto the wafer surface; and electrofill, a process
for depositing metal films via an electrically charged aqueous solution.
In the CVD process, wafers are typically placed in a reaction chamber and
a variety of pure and precisely metered gases are introduced while some form of
energy is added to activate a chemical reaction on the wafer surface. The result
of this reaction is the deposition of a film on the wafer. CVD processes are
used to deposit all of
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the dielectric films in an integrated circuit. The dielectric layers in an
integrated circuit include the initial interlayer, portions of the interconnect
layers and the final passivation layer. CVD is also used for deposition of
conductive metal layers, particularly those metals that are more difficult to
deposit in smaller line width geometry devices through conventional PVD or other
deposition technologies. CVD technology is particularly effective for depositing
blanket tungsten as a "plug" layer that connects one conductive metal layer to
another in a multi-level integrated circuit. For such applications, tungsten is
replacing aluminum, which has certain physical properties that reduce its
efficacy for the smaller interconnect holes of devices with smaller line width
geometries.
PVD, also known as "sputtering," is a process whereby ions of an inert
gas, typically argon, are electrically accelerated in a high vacuum toward a
target of pure metal, such as aluminum, tantalum, or copper. Upon impact, the
argon ions "sputter" off bits of the target material, which then deposits on the
silicon wafer to form thin conductive films which "wire" the thousands of
transistors in the computer chip together.
PVD processes are used to provide conducting liner and barrier metal
layers to prevent diffusion or reactions between metals such as tungsten and
silicon regions, and to provide underlying foundations for the nucleation of
other metal deposition layers. Aluminum PVD is also widely used at the present
time as the primary wiring material in up to six layers of device interconnect.
We believe, however, that PVD tantalum barrier and copper seed layers will play
an important role in enabling the transition from aluminum to copper as the
primary wiring material.
As the industry transitions to smaller and smaller line widths, a
fundamental change is occurring with the movement from aluminum to copper wires
as the primary conductors. Copper has lower resistance and capacitance values
than aluminum, the present conductive metal used in integrated circuits. Because
of this fact, copper has the potential to double the speed of an advanced
microprocessor while reducing the number of metal layers required by as much as
50%.
The electrofilling process was developed to deposit copper conductive
lines. Due to the difficulties in etching copper, the metal is filled in a
structure created within the circuit's insulating layers in a process called
dual damascene: this is the reverse of the process used with aluminum, where the
metal is deposited, etched to create lines and vias, and then filled with
insulating layers between the metal lines. The most difficult task is filling
copper into interconnect structures which can be less than 0.25 micron in width,
with aspect ratios of up to 5:1. Electrofilling employs a liquid chemistry and
electrolytic principles to deposit the copper wiring into the dielectric
structure, a simple and cost-effective process that is also highly reliable.
Electrofill processes are used to produce the primary copper conductive
layers in advanced integrated circuits (typically circuits smaller than 0.25
micron). The technology is believed by us to be extendible until at least the
0.13 micron design rule, and possibly down to 0.10 micron design rules; or in
other words, approximately another 5 or 6 years given the current industry
evolution.
Advanced integrated circuit technology has created increased demand for
more sophisticated semiconductor processing equipment. Today's complex
semiconductor devices are being designed with line width geometries as small as
0.25 micron, with up to six layers of interconnect circuitry. The next
generation of semiconductor devices, including 256 megabit DRAMs, will see line
widths as small as 0.18 micron, and we believe there will be widespread
transition from aluminum to copper conductive lines for faster processing
speeds. Each additional interconnect layer requires three separate layers of
deposition, which include the initial metal layer, a non-conductive dielectric
layer and then a "plug" metal film to fill patterned holes in the dielectric
layer that connects the metal layers on either side of the dielectric. We
believe that the greater complexity and number of interconnect layers in
advanced integrated circuits will enable the markets for CVD aluminum and PVD
aluminum to grow over the short term.
Semiconductor manufacturers generally measure the cost performance of
their production equipment in terms of "cost per wafer," which is determined by
factoring in the fixed costs for acquisition and installation of the system, its
variable operating costs and its net throughput rate. A system with higher
throughput allows the semiconductor manufacturer to recover the purchase price
of the system over a greater number of wafers and thereby reduce the cost of
ownership of the system on a per wafer basis. Throughput is most accurately
measured on
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a net or overall basis, which takes into account the processing speed of the
system and any non-operational downtime for cleaning, maintenance or other
repairs. Yield and film quality are also significant factors to the
semiconductor manufacturer in selecting processing equipment. The increased
costs of larger and more complex semiconductor wafers have made high yields
extremely important to semiconductor manufacturers. To achieve higher yields and
better film quality, deposition systems must be capable of repeating the
original process on a consistent basis without a disqualifying level of defects.
This characteristic, known in the industry as "repeatability," is extremely
important in achieving commercially acceptable yields. Repeatability is more
easily achieved in those systems that can operate at desired throughput rates
without requiring the system to approach its critical tolerance limits.
The continuing evolution of semiconductor devices to smaller line width
geometries and more complex multi-level circuitry has significantly increased
the cost and performance requirements of the capital equipment used to
manufacture these devices. An advanced 200 mm wafer fabrication line can cost
over $1 billion, representing a substantial increase over the costs of prior
generation facilities. Increased capital depreciation costs will continue to
become a much larger percentage of the aggregate production costs for
semiconductor manufacturers relative to labor, materials and other variable
manufacturing costs. As a result, there has been an increasing focus by the
semiconductor industry on obtaining increased productivity and higher returns
from its semiconductor manufacturing equipment, thereby reducing the effective
cost of ownership of such systems.
We were incorporated in California in 1984. Our headquarters are located
at 4000 North First Street, San Jose, California 95134, and our telephone number
is (408) 943-9700.
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USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we
intend to use the net proceeds of any sale of securities pursuant to this
prospectus for general corporate purposes.
FORWARD-LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to our
(including certain of our subsidiaries') technology, products, and business
performance. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of future events. There is no
assurance that the events or circumstances reflected in forward-looking
statements will be achieved or will occur. You can identify forward-looking
statements by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates" or "anticipates" or the negative of these
words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements are necessarily dependent on assumptions,
data or methods that may be incorrect or imprecise and we may not be able to
realize them. We caution you not to place undue reliance on forward-looking
statements, which reflect our analysis only. It is important to note that our
actual results could differ materially from those in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are the factors detailed below under the caption "Risk Factors". You
should also consult the risk factors listed in our Report on Form 10-K for the
year ended December 31, 1999 and on other reports filed by us from time to time
under the Exchange Act.
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this prospectus before purchasing the
securities offered hereby. The statements contained in this prospectus that are
not purely historical are "forward-looking statements" within the meaning of
Section 27A of the Securities Exchange Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements include, but
are not limited to, statements regarding our expectations, anticipations, hopes,
beliefs, intentions or strategies regarding the future. It is important to note
that actual results could differ materially from those projected in any
forward-looking statements as a result of a number of factors, including those
detailed below as well as those set forth elsewhere in this prospectus and from
time to time in our Reports on Form 10-K, 10-Q, 8-K and Annual Reports to
Stockholders. The forward-looking statements are made as of the date hereof and
we assume no obligation to update the forward-looking statements, or to update
the reasons why actual results could differ materially from those projected in
the forward-looking statements.
DOWNTURNS IN THE SEMICONDUCTOR INDUSTRY CAN HARM OUR OPERATING RESULTS.
Our business depends predominantly on capital expenditures of
semiconductor manufacturers, which in turn depends on the current and
anticipated market demand for integrated circuits and products utilizing
integrated circuits. The semiconductor industry has historically been very
cyclical and has experienced periodic downturns, which have had a material
adverse effect on the semiconductor industry's demand for semiconductor
processing equipment, including equipment manufactured and marketed by us.
During periods of reduced and declining demand, we must be able to quickly and
effectively align our cost structure with prevailing market conditions, and
motivate and retain key employees. During periods of rapid growth, we must be
able to acquire and/or develop sufficient manufacturing capacity to meet
customer demand, and hire and assimilate a sufficient number of qualified
people. No assurance can be given that our net sales and operating results will
not be adversely affected if downturns or slowdowns in the rate of capital
investment in the semiconductor industry occur in the future.
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OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SUBSTANTIALLY IN THE
FUTURE.
We have experienced and expect to continue to experience significant
fluctuations in our quarterly operating results. During each quarter, we
customarily sell a relatively small number of systems that typically sell for
prices in excess of $1 million. Our backlog at the beginning of each quarter
does not necessarily include all system sales needed to achieve expected net
sales for that quarter. Consequently, we will often be dependent on obtaining
orders for shipment in the same quarter that the order is received. Because we
build our systems according to forecast, the absence of significant backlog for
an extended period of time could hinder our ability to plan production and
inventory levels, which could adversely affect operating results. Our net sales
and operating results could also be adversely affected for a particular quarter
if an anticipated order for even a few systems is not received in time to permit
shipment during that quarter. Moreover, customers may reschedule or cancel
shipments, with, in the case of cancellations, little or no penalties, and
production difficulties could delay shipments. A delay in a shipment in any
quarter, due, for example, to an unanticipated shipment rescheduling, to
cancellations by customers or to unexpected manufacturing difficulties
experienced by us, may cause net sales in such quarter to fall significantly
below our expectations and may thus materially adversely affect our operating
results for such quarter. The timing of new product announcements and releases
by us may also contribute to fluctuations in quarterly operating results,
particularly in cases where new product offerings cause customers to defer
ordering products from our existing product lines. Our results of operations
also could be affected by new product announcements and releases by our
competitors, the volume, mix and timing of orders received during a period,
availability and pricing of key components, fluctuations in foreign exchange
rates, and conditions in the semiconductor equipment industry. Our operating
results also fluctuate based on gross profit realized on system sales. Gross
profit as a percentage of net sales may vary based on a variety of factors,
including the mix and average selling prices of products sold and costs to
manufacture upgrades and customize systems. Because our operating expenses are
based on anticipated net sales levels, and a high percentage of those expenses
are relatively fixed, a variation in the timing of recognition of net sales and
the level of gross profit from a single transaction can cause material
variations in operating results from quarter to quarter.
INTENSE COMPETITORS IN THE SEMICONDUCTOR EQUIPMENT INDUSTRY MAY REDUCE THE
DEMAND FOR OUR PRODUCTS OR THE PRICES OF OUR PRODUCTS, WHICH COULD REDUCE OUR
REVENUES.
The semiconductor equipment industry is highly competitive. The Company
faces substantial competition in the markets in which it competes from both
established competitors and potential new entrants. In the CVD and PVD markets,
our principal competitor is Applied Materials, Inc., which is a major supplier
of CVD and PVD systems that has established a substantial base of CVD, PVD and
other equipment in large semiconductor manufacturers. Certain of our competitors
have greater financial, marketing, technical or other resources, broader product
lines, greater customer service capabilities and larger and more established
sales organizations and customer bases than Novellus. Novellus may also face
future competition from new market entrants from overseas and domestic sources.
Novellus expects its competitors to continue to improve the design and
performance of their products. There can be no assurance that our competitors
will not develop enhancements to or future generations of competitive products
that will offer superior price or performance features, and there can be no
assurance that Novellus will be successful, or as successful as its competitors,
in selecting, developing, manufacturing, and marketing its new products, or
enhancing its existing products. Failure to successfully develop new products
could materially adversely affect our business, financial condition, and results
of operations. In addition, a substantial investment is required by customers to
install and integrate capital equipment into a semiconductor production line. As
a result, once a semiconductor manufacturer has selected a particular vendor's
capital equipment, Novellus believes that the manufacturer will be generally
reliant upon that equipment for the specific production line application.
Accordingly, Novellus may experience difficulty in selling a product to a
particular customer for a significant period of time if that customer selects a
competitor's product. Increased competitive pressure could lead to lower prices
for our products, thereby adversely affecting Our operating results. There can
be no assurance that Novellus will be able to compete successfully in the
future.
THE YEAR 2000 CALENDAR CHANGE MAY HARM OUR OPERATING RESULTS.
The year 2000 issue refers to the potential for disruption to business
activities caused by system failures or miscalculations that are triggered by
advancement of date records past the year 1999. In late 1999, we completed
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remediation and testing of systems with respect to the year 2000 issue. As a
result of those planning and implementation efforts, we experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believe those systems successfully
responded to the year 2000 date change. We expensed approximately $1.7 million
during 1999 in connection with remediating our systems. We are not aware of any
material problems resulting from year 2000 issues, either with our products, our
internal systems, or the products and services of third parties. We will
continue to monitor its mission critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent year
2000 matters that may arise are addressed promptly.
THIS CONVERSION IN EUROPE TO THE EURO CURRENCY MAY AFFECT OUR COMPETITIVE
POSITION IN EUROPE.
On January 1, 1999, several member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and adopted the Euro as their new common legal currency. As of that date, the
Euro traded on currency exchanges and the legacy currencies remain legal tender
in the participating countries for a transition period between January 1, 1999
and January 1, 2002. During the transition period, non-cash payments can be made
in the Euro, and parties can elect to pay for goods and services and transact
business using either the Euro or legacy currency. Between January 1, 1999 and
January 1, 2002 the participating countries will introduce Euro notes and coins
and withdraw all legacy currencies so that they will no longer be available. The
Euro conversion may affect cross-border competition by creating cross-border
transparency. We are assessing our pricing/marketing strategy in order to insure
that it remains competitive in a broader European market. We are also assessing
our information technology systems to allow for transactions to take place in
both legacy currencies and the Euro and the eventual elimination of the legacy
currencies, and reviewing whether certain existing contracts will be need to be
modified. Our currency risk and risk management for operations in participating
countries may be reduced as the legacy currencies are converted to the Euro.
WE HAVE LIMITED PRODUCT OFFERINGS.
Since the introduction of our original Concept One Dielectric system in
1987, we have developed and now offer a family of processing systems for the
dielectric and metal deposition markets. The Concept One Dielectric deposits a
variety of insulating or "dielectric" films on wafers including Oxide, Nitride
and TEOS. In 1990, Novellus introduced a modified version of the Concept
One-Dielectric, the Concept One-W, which also uses a CVD process to deposit
blanket tungsten metal films on wafers primarily as the metal interconnect
between conductor layers in the integrated circuit layers. In November 1991, we
introduced the Concept Two, which is a modular, integrated production system
capable of depositing both dielectric and conductive metal layers by combining
one or more processing chambers around a common, automated robotic wafer
handler. In February 1996, we introduced SPEED on the Concept Two platform,
targeted at advanced inter-metal dielectric ("IMD") deposition. Following the
acquisition of Varian's Thin Film Systems Division, we announced the
introduction of its INOVA system, an advanced PVD system that delivers Maxfill
aluminum and Ti/Ti-nitride film quality for aluminum barrier layer applications,
as well as highly conformal tantalum barrier copper seed layers (barrier/seed)
for copper conductive layers. Most recently, in June 1998 we announced the SABRE
copper Electrofill(TM) system for producing copper conductive layers. With the
SABRE product announcement, we can now provide our customers with the entire set
of metal and dielectric deposition processes required for 0.25 micron devices.
A LARGE PORTION OF OUR NET SALES IS DERIVED FROM SALES TO A FEW CUSTOMERS. THE
LENGTHY PROCESS REQUIRED FOR OUR SALES MAY IMPEDE OUR SALES GROWTH.
Historically, we have sold a significant proportion of our systems in
any particular period to a limited number of customers. Sales to our ten largest
customers in 1999, 1998 and 1997 accounted for 65%, 57%, and 48% of net sales,
respectively. We expect that sales of our products to relatively few customers
will continue to account for a high percentage of our net sales in the
foreseeable future. None of our customers have entered into a long-term
agreement requiring it to purchase our products. We believe that sales to
certain of our customers will decrease in the near future as those customers
complete current purchasing requirements for new or expanded fabrication
facilities. Although the composition of the group comprising our largest
customers has varied from year to year, the loss of a significant customer or
any reduction in orders from any significant customer, including reductions due
to customer departures from recent buying patterns, market, economic or
competitive conditions in the semiconductor
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industry or in the industries that manufacture products utilizing integrated
circuits, could adversely affect our business, financial condition and results
of operations. In addition, sales of our systems depend in significant part upon
the decision of a prospective customer to increase manufacturing capacity or to
expand current manufacturing capacity, both of which typically involve a
significant capital commitment. We have from time to time experienced delays in
finalizing system sales following initial system qualification. Due to these and
other factors, our systems typically have a lengthy sales cycle during which we
may expend substantial funds and management effort.
OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY AND OUR OPERATING
RESULTS COULD BE HARMED IF WE DO NOT SUCCESSFULLY DEVELOP, INTRODUCE AND SELL
NEW PRODUCTS.
The semiconductor manufacturing industry is subject to rapid
technological change and new product introductions and enhancements. Our ability
to remain competitive in this market will depend in part upon our ability to
develop new and enhanced systems and to introduce these systems at competitive
prices and on a timely and cost-effective basis. Accordingly, we devote a
significant portion of our personnel and financial resources to research and
development programs and seek to maintain close relationships with our customers
to remain responsive to their product needs.
Our current research and development efforts are directed at development
of new systems and processes and improving existing system capabilities. We are
focusing our research and development efforts on additional Concept Two modules,
advanced PVD systems, advanced gap fill technology, primary conductor metals,
low-K dielectric materials and additional advanced technologies for the next
generation of smaller geometry fabrication lines, as well as equipment to
process 300mm wafers.
Expenditures for research and development during 1999, 1998 and 1997
were $119.7 million, $106.5 million, and $89.8 million, respectively, or
approximately 20%, 21%, and 17% of net sales, respectively. The amount and
percentage of sales in 1997 for research and development exclude the in-process
research and development charge of $119.2 million related to the acquisition of
Varian's Thin Film Systems business (TFS). We expect in future years that
research and development expenditures will continue to represent a substantial
percentage of net sales.
Our success in developing, introducing and selling new and enhanced
systems depends upon a variety of factors, including product selection, timely
and efficient completion of product design and development, timely and efficient
implementation of manufacturing and assembly processes, product performance in
the field and effective sales and marketing. There can be no assurance that we
will be successful in selecting, developing, manufacturing and marketing new
products or in enhancing our existing products. As is typical in the
semiconductor capital equipment market, we have experienced delays from time to
time in the introduction of, and certain technical and manufacturing
difficulties with, certain of our systems and enhancements and may experience
delays and technical and manufacturing difficulties in future introductions or
volume production of new systems or enhancements. Our inability to complete the
development or meet the technical specifications of any of our new systems or
enhancements or to manufacture and ship these systems or enhancements in volume
in a timely manner would materially adversely affect our business, financial
condition and results of operations. In addition, we may incur substantial
unanticipated costs to ensure the functionality and reliability of our future
product introductions early in the product's life cycle. If new products have
reliability or quality problems, reduced orders or higher manufacturing costs,
delays in collecting accounts receivable and additional service and warranty
expense may result. Any of these events could materially adversely affect our
business, financial condition and results of operations.
BECAUSE OUR INTELLECTUAL PROPERTY IS CRITICAL TO THE SUCCESS OF OUR BUSINESS,
OUR OPERATING RESULTS WOULD SUFFER IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR
INTELLECTUAL PROPERTY.
We intend to continue to pursue the legal protection of our technology
primarily through patent and trade secret protection. We currently hold over 100
patents and intend to file additional patent applications as appropriate. There
can be no assurance that patents will be issued from any of these pending
applications or that any claims allowed from existing or pending patents will be
sufficiently broad to protect our technology. While we intend to protect our
intellectual property rights vigorously, there can be no assurance that any
patents held by us will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide competitive advantages to
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us. We also rely on trade secrets and proprietary technology that it seeks to
protect, in part, through confidentiality agreements with employees, consultants
and other parties. There can be no assurance that these agreements will not be
breached, that we will have adequate remedies for any breach, or that our trade
secrets will not otherwise become known to or independently developed by others.
There has also been substantial litigation regarding patent and other
intellectual property rights in semiconductor related industries. We are
currently involved in such litigation (see "Pending Litigation"), and, although,
except as set forth in "Pending Litigation," we are not aware of any claim of
infringement by our products of any patent or proprietary rights of others, we
could become involved in additional litigation in the future. Although we do not
believe the outcome of the current litigation will have a material impact on our
business, financial condition or results of operations, no assurances can be
given that this litigation or future litigation will not have such an impact. In
addition to the current litigation, our operations, including the further
commercialization of our products, could provoke additional claims of
infringement from third parties. In the future, litigation may be necessary to
enforce patents issued to us, to protect trade secrets or know-how owned by us
or to defend us against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. Any such
litigation could result in substantial cost and diversion of effort by us, which
by itself could have a material adverse effect on our financial condition and
operating results. Further, adverse determinations in such litigation could
result in our loss of proprietary rights, subject us to significant liabilities
to third parties, require us to seek licenses from third parties or prevent us
from manufacturing or selling its products, any of which could have a material
adverse effect on our business, financial condition and results of operations.
BECAUSE WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY PARTS FOR
OUR PRODUCTS, WE ARE SUSCEPTIBLE TO SUPPLY SHORTAGES THAT COULD ADVERSELY AFFECT
OUR OPERATING RESULTS.
We use numerous suppliers to supply parts, components and subassemblies
(collectively, "parts") for the manufacture and support of our products.
Although we make reasonable efforts to ensure that parts are available from
multiple suppliers, this is not always possible; accordingly, certain key parts
are obtained from a single supplier or a limited group of suppliers. These
suppliers are, in some cases, thinly capitalized, independent companies that
generate significant portions of their business from us and/or a small group of
other companies in the semiconductor industry. Although we seek to reduce our
dependence on these limited source suppliers, disruption or termination of
certain of these sources could occur and such disruptions could have at least a
temporary adverse effect on our operations. Moreover, a prolonged inability to
obtain certain components could have a material adverse effect on our business,
financial condition and results of operations and could result in damage to
customer relationships.
BECAUSE WE SELL OUR PRODUCTS TO CUSTOMERS OUTSIDE OF THE UNITED STATES, WE FACE
FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS THAT COULD HARM OUR OPERATING
RESULTS.
Export sales accounted for approximately 67%, 51%, and 47% of net sales
in 1999, 1998, and 1997, respectively. We anticipate that export sales will
account for a significant portion of net sales in the foreseeable future. As a
result, a significant portion of our sales will be subject to certain risks,
including tariffs and other barriers, difficulties in staffing and managing
foreign subsidiary operations, difficulties in managing distributors,
potentially adverse tax consequences and the possibility of difficulty in
accounts receivable collection. We are also subject to the risks associated with
the imposition of legislation and regulations relating to the import or export
of semiconductor products. We cannot predict whether quotas, duties, taxes, or
other charges or restrictions will be implemented by the United States or any
other country upon the importation or exportation of our products in the future.
There can be no assurance that any of these factors or the adoption of
restrictive policies will not have a material adverse effect on our business,
financial condition or results of operations. Moreover, each region in the
global semiconductor equipment market exhibits unique characteristics that can
cause capital equipment investment patterns to vary significantly from period to
period. Although international markets provide us with significant growth
opportunities, periodic economic downturns, trade balance issues, political
instability and fluctuations in interest and foreign currency exchange rates are
all risks that could materially and adversely affect global products and service
demand, and, therefore, our business operations and financial condition. Asian
countries, particularly Japan and Korea, are affected by banking, currency and
other difficulties that are contributing to the economic developments in those
countries. We derive a substantial portion of our revenues from customers in
Asian countries particularly Japan and Korea. Economic developments in late 1997
and early 1998 resulted in decreased capital
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investments by Asian customers. Recent economic developments indicate that the
economies of Japan, Korea and other Asian countries have recovered somewhat from
1997 and 1998 levels. Any negative economic developments or delays in the
economic recovery of Asian countries could result in the cancellation or delay
of orders for our products from Asian customers, thus materially adversely
affecting our business, financial condition or results of operations.
In addition to the concerns described above, sales of systems shipped by
our Japanese subsidiary are denominated in Japanese Yen. We sell the systems to
our Japanese subsidiary in U.S. Dollars. We then enter into forward foreign
exchange contracts to hedge against the short-term impact of foreign currency
fluctuations of intercompany accounts payable denominated in U.S. Dollars
recorded by the Japanese subsidiary in order to manage this exposure. However,
there can be no assurance that future changes in the Japanese Yen will not have
a material effect on our business, financial condition or results of operations.
IF WE DO NOT HIRE, RETAIN AND INTEGRATE HIGHLY SKILLED PERSONNEL, OUR BUSINESS
MAY SUFFER.
The success of our future operations depends in large part on our
ability to recruit and retain engineers and technicians, as well as marketing,
sales, service and other key personnel, who in each case are in great demand.
There can be no assurance that we will be successful in retaining or recruiting
key personnel.
None of our employees are represented by a labor union and we have never
experienced a work stoppage, slowdown, or strike. We currently consider our
employee relations to be good.
Our success depends to a significant extent upon a limited number of key
employees and other members of senior management. The loss of the service of one
or more of these key employees could have a material adverse effect on us.
WE HAVE EXPERIENCED A PERIOD OF RAPID GROWTH AND IF WE ARE NOT ABLE TO
SUCCESSFULLY MANAGE THIS AND FUTURE GROWTH, OUR BUSINESS MAY SUFFER.
Although we have recently experienced significant growth in net sales,
there can be no assurance that we will be able to continue to maintain or
increase the level of net sales in future periods. This growth has placed, and
is expected to continue to place, a significant strain on our management and
operations. Our inability to effectively manage growth, or to attract and retain
the personnel we require, could have a material adverse effect on our business,
financial condition and results of operations.
THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE WIDELY AND MAY DECLINE.
The price of our Common Stock may be subject to wide fluctuations and
possible rapid increases or declines in a short time period. These fluctuations
may be due to factors specific to us such as variations in quarterly operating
results or changes in analysts' earnings estimates, or to factors relating to
the semiconductor industry or to the securities markets in general, which, in
recent years, have experienced significant price fluctuations. These
fluctuations often have been unrelated to the operating performance of the
specific companies whose stocks are traded. Shareholders should be willing to
incur the risk of such fluctuations. Sales of substantial amounts of Common
Stock in the public market after any offering of our Securities could adversely
affect the market price of the outstanding Common Stock.
OUR PENDING LITIGATION AND OTHER POTENTIAL LITIGATION MAY HARM OUR OPERATING
RESULTS.
Applied Materials, Inc. vs. Varian Associates Inc. (Case No. C-97-20523
RMW) and Novellus Systems, Inc. v. Applied Materials, Inc. (Case No. C-97-20551
RMW).
On July 7, 1997, prior to the consummation of the purchase of the Thin
Film Systems Business ("TFS") of Varian Associates ("Varian"), Applied
Materials, Inc. ("Applied") filed a complaint (the "Applied Complaint") against
Varian in the United States District Court for the Northern District of
California San Jose Division, Civil
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Action No. C-97-20523 RMW, alleging, among other things, infringement by Varian
(including the making, using, selling and/or offering for sale of certain
products and systems made by TFS) of United States Patent Nos. 5,171,412,
5,186,718, 5,496,455 and 5,540,821 (the "Applied Patents"), which patents are
owned by Applied.
Immediately after consummation of the TFS purchase, Novellus filed a
complaint (the "Company Complaint") against Applied in the same Court, Civil
Action No. C-97-20551 RMW, alleging infringement by Applied (including the
making, using, selling and/or offering for sale of certain products and systems)
of United States Patent Nos. 5,314,597, 5,330,628, and 5,635,036 (the "Company
Patents"), which patents Novellus acquired from Varian in the TFS purchase. In
the Company Complaint, Novellus also alleged that it is entitled to declarations
from Applied that Novellus does not infringe the Applied Patents and/or that the
Applied Patents are invalid and/or unenforceable. Applied has filed
counterclaims alleging that Novellus infringes the Applied Patents.
Also after consummation of the TFS purchase, but some time after
Novellus filed the Company Complaint, Applied amended the Applied Complaint to
add Novellus as a defendant. Novellus has requested that the Court dismiss
Novellus as a defendant in Applied's lawsuit against Varian. The Court has not
yet required Novellus to file an answer to the Applied Complaint.
In addition to a request for a permanent injunction against further
infringement, the Applied Complaint and Applied's counterclaims to the Company
Complaint include requests for damages for alleged prior infringement and treble
damages for alleged "willful" infringement. In connection with the consummation
of the TFS purchase, Varian agreed, under certain circumstances, to reimburse
Novellus for certain of its legal and other expenses in connection with the
defense and prosecution of this litigation, and to indemnify Novellus for a
portion of any losses incurred by Novellus arising from this litigation
(including losses resulting from a permanent injunction). Novellus and Varian
believe that there are meritorious defenses to Applied's allegations, including
among other things, that our operations (including TFS products and systems) do
not infringe the Applied Patents and/or that the Applied Patents are invalid
and/or unenforceable. However, the resolution of intellectual property disputes
is often fact intensive and, therefore, inherently uncertain. Although Novellus
believes that the ultimate outcome of the dispute with Applied will not have a
material adverse effect on our business or results of operations (taking into
account both the defenses available to Novellus and Varian's reimbursement and
indemnity obligations), there can be no assurances that Applied will not
ultimately prevail in this dispute and that, in such an event, Varian's
reimbursement and indemnity obligations will not be sufficient to fully
reimburse Novellus for its losses. If Applied were to prevail in this dispute,
it could have a material adverse effect on our business, financial condition or
results of operations.
The Company Complaint against Applied also includes requests for damages
for prior infringement and treble damages for "willful" infringement, in
addition to a request for a permanent injunction for further infringement.
Although Novellus believes that we will prevail against Applied, there can be no
assurances that we will prevail in our litigation against Applied. If Applied
were to prevail against the Company Complaint, it could have a material adverse
effect on our business, financial condition or results of operations.
On July 13, 1999, in Novellus lawsuit against Applied where Novellus has
alleged that Applied infringes Company Patents, the Court ruled on the
interpretation of the claims of the Company Patents. On September 20, 1999, in
the Applied lawsuit against Varian and Novellus, where Applied has alleged that
Varian and Novellus infringe Applied patents, the Court ruled on the
interpretation of the claims of the Applied patents. On January 14, 2000,
Applied withdrew its U.S. Patent No. 5,496,455 from the lawsuits against
Novellus and Varian.
On March 16, 2000, the Court granted Varian's motion for summary
judgment that claims 14 & 18 of Applied's U.S. Patent No. 5,171,412 are invalid.
In the same order, the Court gave Applied 3 months to conduct discovery
concerning an issue relating to Varian's motion for summary judgment that claim
21 is invalid. After that discovery period, Varian may renew its motion to
invalidate claim 21.
Semitool, Inc. v. Novellus Systems, Inc. (Case No. C-98-3089 DLJ)
On August 10, 1998, Semitool sued Novellus for patent infringement in
the United States District Court for the Northern District of California.
Semitool alleges that our SABRE(TM) copper deposition system infringes two
Semitool patents, U.S. Patent No. 5,222,310, issued June 29, 1993, entitled
"Single Wafer Processor with a Frame,"
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and U.S. Patent No. 5,377,708, issued January 3, 1995, entitled "Multi-Station
Semiconductor Processor with Volatilization." Semitool seeks an injunction
against our manufacture and sale of SABRE(TM) systems, and seeks damages for
past infringement. Semitool also seeks trebled damages for alleged willful
infringement. Semitool also seeks its attorneys' fees and costs, and interest on
any judgement.
On September 24, 1999, the Court ruled on the interpretation of the claims of
the Semitool patents. On December 18, 1999, Novellus filed a motion for summary
judgment of non-infringement. On February 18, 2000, the Court heard oral
arguments on Novellus' motion.
On March 17, 2000, the Court granted our motion for summary judgment of
non-infringement. The Court ruled that our SABRE and SABRE xT systems do not
infringe the two patents asserted by Semitool.
Plasma Physics Litigation
On December 28, 1999, Plasma Physics Corporation and Solar Physics
Corporation filed a patent infringement lawsuit against many of our Japanese and
Korean customers. The suit is entitled Plasma Physics Corp. v. Fujitsu, Ltd., 99
Civ. 8593, and is pending in the United States District Court for the Eastern
District of New York. Plasma Physics has asserted U.S. Patent Nos. 4,226,897,
5,470,784, and 5,543,634. Many of the defendants have notified Novellus that
they believe that Novellus has indemnification obligations and liability for the
lawsuit. Plasma Physics has not yet identified what, if any, of our equipment
used by the customers is accused of infringement.
Plasma Physics seeks an injunction against the defendants' alleged
infringement of the '784 and '634 patents (the '897 patent has expired). Plasma
Physics also seeks trebled damages for alleged willful infringement. Plasma
Physics also seeks its attorneys' fees and costs, and interest on any judgement.
Novellus believes that there are meritorious defenses to Plasma Physics'
allegations, including among other things, that the defendants' use of our
equipment does not infringe the Plasma Physics patents and/or that the Plasma
Physics patents are invalid and/or unenforceable. But the resolution of
intellectual property disputes is often fact intensive and, like most other
litigation matters, inherently uncertain. Although Novellus believes that the
ultimate outcome of the dispute with Plasma Physics will not have a material
adverse effect on our business, financial condition, or results of operations
(taking into account the defenses available to Novellus), there can be no
assurances that Plasma Physics will not ultimately prevail in this dispute and
that Novellus will not have any indemnity obligations or liability. If Plasma
Physics were to prevail in the dispute, it could have a material adverse effect
on our business, financial condition or results of operations.
Other Litigation
In addition, in the normal course of business we from time to time
receive inquiries with regard to possible other patent infringements. We believe
it is unlikely that the outcome of the patent infringement inquiries will have a
material adverse effect on our financial position or results of operations.
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Although we
are not aware of any infringement by its products of any patents or proprietary
rights of others except as claimed by Applied and Semitool, further
commercialization of our products could provoke claims of infringement from
third parties. In the future, litigation may be necessary to enforce patents
issued to us, to protect trade secrets or know-how owned by us or to defend us
against claimed infringement of the rights of others and to determine the scope
and validity of the proprietary rights of others. Any such litigation could
result in substantial cost and diversion of effort by us, which by itself could
have a material adverse effect on our financial condition and operating results.
Further, adverse determinations in such litigation could result in our loss of
proprietary rights, subject us to significant liabilities to third parties,
require us to seek licenses from third parties or prevent us from manufacturing
or selling its products, any of which could have a material adverse effect on
our business, financial condition and results of operations.
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OUR USE OF FINANCIAL INSTRUMENTS SUBJECTS US TO RISKS RELATED TO THE
CONCENTRATIONS OF CREDIT.
We use financial instruments that potentially subject us to
concentrations of credit risk. Such instruments include cash equivalents,
short-term investments, accounts receivable, and financial instruments used in
hedging activities. We invest our cash in cash deposits, money market funds,
commercial paper, certificates of deposit, readily marketable debt securities,
or medium term notes. We place our investments with high-credit-quality
financial institutions and limit the credit exposure from any one financial
institution or instrument. To date, we have not experienced material losses on
these investments. We perform ongoing credit evaluations of our customers'
financial condition and generally require no collateral. We have an exposure to
nonperformance by counterparties on the foreign exchange contracts used in
hedging activities. These counterparties are large international financial
institutions and to date, no such counterparty has failed to meet its financial
obligations to us. We do not believe there is a significant risk of
nonperformance by these counterparties because we continuously monitor our
positions and the credit ratings of such counterparties and the amount of
contract we enter into with any one party. However, there can be no assurance
that there will be no significant nonperformance by these counterparties and
that this would not materially adversely affect our business, financial
condition, and results of operations.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 240,000,000
shares of common stock, no par value, and 10,000,000 shares of preferred stock,
no par value.
COMMON STOCK
As of March 20, 2000, there were 121,164,891 shares of common stock
outstanding, held of record by approximately 682 shareholders. The holders of
common stock are entitled to one vote per share on all matters to be voted upon
by the shareholders, except that upon giving the legally required notice,
shareholders may cumulate their votes in the election of directors. Subject to
preferences that may be applicable to any outstanding preferred stock, the
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of common stock are entitled to share
ratably in assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription right. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable, and the
shares of common stock to be issued upon completion of any offering will be
fully paid and non-assessable.
The common stock is listed on the NASDAQ National Market System under
the symbol "NVLS." The transfer agent and registrar for our common stock is
Chase Mellon Shareholder Services.
PREFERRED STOCK
Under the Company's Restated Articles of Incorporation, as amended, the
Company's Board of Directors may direct the issuance of up to 10,000,000 shares
of preferred stock in one or more series and with rights, preferences,
privileges and restrictions, including dividend rights, voting rights,
conversion rights, terms of redemption and liquidation preferences, that may be
fixed or designated by the Board of Directors without any further vote or action
by our shareholders.
General
Because the Board of Directors has the power to establish the preferences,
powers and rights of each class of preferred stock, it may afford the holders of
any class of preferred stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares of common stock. The
issuance of preferred stock could adversely affect the voting power of holders
of common stock and the likelihood that such holders will receive
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dividend payments and payments upon liquidation and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any shares of preferred stock.
Preferred stock, upon issuance against full payment of the purchase
price therefor, will be fully paid and nonassessable. The specific terms of a
particular class of preferred stock will be described in the prospectus
supplement relating to that class, including a prospectus supplement providing
that preferred stock may be issuable upon the exercise of warrants. The
description of preferred stock set forth below and the description of the terms
of a particular class of preferred stock set forth in a prospectus supplement do
not purport to be complete and are qualified in their entirety by reference to
the Certificate of Designation relating to that class.
The preferences and other terms of the preferred stock of each class
will be fixed by the Certificate of Designation relating to the class. A
prospectus supplement relating to each class of preferred stock will specify the
following terms:
- The title and stated value of the preferred stock;
- The number of shares of the preferred stock offered, the liquidation
preference per share and the offering price of the preferred stock;
- The dividend rate(s), period(s), and/or payment date(s) or method(s)
of calculation thereof applicable to the preferred stock;
- Whether the preferred stock is cumulative or not and, if cumulative,
the date from which dividends on the preferred stock will accumulate;
- The provision for a sinking fund, if any, for the preferred stock;
- The provision for redemption, if applicable, of the preferred stock;
- Any listing of the preferred stock on any securities exchange;
- The terms and conditions, if applicable, upon which the preferred
stock will be converted into common stock, including the conversion
price (or manner of calculation thereof);
- A discussion of any material federal income tax considerations
applicable to the preferred stock;
- The relative ranking and preferences of the preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding
up of our affairs;
- Any limitations on issuance of any class of preferred stock ranking
senior to or on a parity with such class or series of preferred stock
as to dividend rights and rights upon liquidation, dissolution or
winding up of our affairs;
- Any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock; and
- Any voting rights of the preferred stock.
Rank
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will be, with respect to dividends and upon our voluntary or
involuntary liquidation, dissolution or winding up:
- senior to all classes or series of common stock and to all of our
equity securities the terms of which provide that the equity
securities shall rank junior to the preferred stock;
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- junior to all equity securities that we issue which rank senior to
the preferred stock; and
- on a parity with all equity securities that we issued other than
those that are referred to in the bullet points above.
The term "equity securities" does not include convertible debt
securities.
DEPOSITARY SHARES
General
We may issue depositary shares, each of which will represent a
fractional interest of a share of a particular class of preferred stock, as
specified in the applicable prospectus supplement. We will deposit with a
depositary (the "preferred stock depositary") shares of a class of preferred
stock represented by depositary shares pursuant to a separate deposit agreement
among the Company, the preferred stock depositary and the holders from time to
time of the depositary receipts issued by the preferred stock depositary which
will evidence the depositary shares ("depositary receipts"). Subject to the
terms of the deposit agreement, each owner of a depositary receipt will be
entitled, in proportion to the fractional interest of a share of a particular
class of preferred stock represented by the depositary shares evidenced by the
depositary receipt, to all the rights and preferences of the class of the
preferred stock represented by the depositary shares (including dividend,
voting, conversion, redemption and liquidation rights).
The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable deposit agreement. Immediately after we issue and
deliver the preferred stock to a preferred stock depositary, we will cause the
preferred stock depositary to issue the depositary receipts on our behalf. You
may obtain copies of the applicable form of deposit agreement and depositary
receipt from us upon request. The statements made in this section relating to
the deposit agreement and the depositary receipt are summaries of certain
anticipated provisions. These summaries are not complete and may be modified by
the applicable prospectus supplement. For more detail you should refer to the
deposit agreement itself, which will be filed as an exhibit to the registration
statement of which this prospectus is a part or incorporated by reference in
this registration statement by a Form 8-K.
Dividends and Other Distributions
The preferred stock depositary will distribute all cash dividends or
other cash distributions received in respect of a class or series of preferred
stock to the record holders of depositary receipts evidencing the related
depositary shares in proportion to the number of depositary receipts owned by
such holders, subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
the preferred stock depositary.
In the event of a distribution other than in cash, the preferred stock
depositary will distribute property that it receives to the record holders of
depositary receipts entitled to the property, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the preferred stock depositary, unless the preferred
stock depositary determines that it is not feasible to make the distribution, in
which case the preferred stock depositary may, with our approval, sell the
property and distribute the net proceeds from the sale to the holders.
Withdrawal of Stock
Upon surrender of the depositary receipts at the corporate trust office
of the preferred stock depositary, the holders will be entitled to delivery at
the corporate trust office, or upon each such holder's order, of the number of
whole or fractional shares of the class or series of preferred stock and any
money or other property represented by the depositary shares evidenced by such
depositary receipts. Holders of depositary receipts will be entitled to receive
whole or fractional shares of the related class or series of preferred stock on
the basis of the proportion of preferred stock represented by each depositary
share as specified in the applicable prospectus supplement, but
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holders of such shares of preferred stock will not thereafter be entitled to
receive depositary shares therefor. If the depositary receipts delivered by the
holder evidence a number of depositary shares in excess of the number of
depositary shares representing the number of shares of preferred stock to be
withdrawn, the preferred stock depositary will deliver to such holder at the
same time a new depositary receipt evidencing the excess number of depositary
shares.
Redemption of Depositary Shares
Whenever we redeem shares of preferred stock held by the preferred stock
depositary, the preferred stock depositary will redeem as of the same redemption
date the number of the depositary shares representing shares of such class or
series of preferred stock so redeemed, provided we shall have paid in full to
the preferred stock depositary the redemption price of the preferred stock to be
redeemed plus an amount equal to any accrued and unpaid dividends on the
preferred stock to the date fixed for redemption. The redemption price per
depositary share will be equal to the corresponding portion of the redemption
price and any other amounts per share payable with respect to such class or
series of preferred stock. If we redeem fewer than all the depositary shares, we
will select the depositary shares that we will redeem pro rata (as nearly as may
be practicable without creating fractional depositary shares), by lot or by any
other equitable method that we determine.
From and after the date fixed for redemption, all dividends in respect
of the shares of a class or series of preferred stock so called for redemption
will cease to accrue, the depositary shares called for redemption will no longer
be deemed to be outstanding and all rights of the holders of the depositary
receipts evidencing the depositary shares so called for redemption will cease,
except the right to receive any moneys payable upon redemption and any money or
other property to which the holders of the depositary receipts were entitled
upon redemption upon surrender of the depositary receipts to the preferred stock
depositary.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of a class of
preferred stock deposited with the preferred stock depositary are entitled to
vote, the preferred stock depositary will mail the information contained in the
notice of meeting to the record holders of the depositary receipts evidencing
the depositary shares which represent such class of preferred stock. Each record
holder of depositary receipts evidencing depositary shares on the record date
(which will be the same date as the record date for such class of preferred
stock) will be entitled to instruct the preferred stock depositary as to the
exercise of the voting rights pertaining to the amount of preferred stock
represented by the holder's depositary shares. The preferred stock depositary
will vote the amount of such class or series of preferred stock represented by
the depositary shares in accordance with such instructions, and we will agree to
take all reasonable action which the preferred stock depositary may deem
necessary in order to enable the preferred stock depositary to do so. The
preferred stock depositary will abstain from voting the amount of preferred
stock represented by the depositary shares to the extent it does not receive
specific instructions from the holders of depositary receipts evidencing the
depositary shares. The preferred stock depositary will not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect of
any such vote made, as long as any such action or non-action is in good faith
and does not result from the preferred stock depositary's negligence or willful
misconduct.
Liquidation Preference
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up, the holders of each depositary receipt will be entitled to the fraction
of the liquidation preference accorded each share of preferred stock represented
by the depositary share evidenced by the depositary receipt as set forth in the
applicable prospectus supplement.
Conversion of Preferred Stock
The depositary shares, as such, will not be convertible into common
stock or any other securities or property. Nevertheless, if stated in the
applicable prospectus supplement relating to an offering of depositary shares,
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holders may surrender depositary receipts to the applicable preferred stock
depositary with written instructions to the preferred stock depositary to
instruct us to cause conversion of a class or series of preferred stock
represented by the depositary shares evidenced by the depositary receipts into
whole shares of common stock, other shares of a class or series of preferred
stock or other shares of stock, and we have agreed that upon receipt of these
instructions and any amounts payable, we will cause the conversion of the shares
of preferred stock utilizing the same procedures as those provided for delivery
of preferred stock to effect the conversion. If we convert only a portion of
depositary shares evidenced by a depositary receipt, we will issue a depositary
receipt or receipts for any depositary shares that we do not covert. We will not
issue fractional shares of common stock upon conversion, and if conversion will
result in a fractional share, we will pay an amount in cash by equal to the
value of the fractional interest based upon the closing price of our common
stock on the last business day prior to the conversion.
Amendment and Termination of A Deposit Agreement
The form of depositary receipt evidencing depositary shares which
represent the preferred stock and any provision of the deposit agreement may at
any time be amended by agreement between us and the preferred stock depositary.
However, any amendment that materially and adversely alters the rights of the
holders of depositary receipts or that would be materially or adversely
inconsistent with the rights granted to the holders of the related preferred
stock will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the applicable depositary shares
evidenced by the applicable depositary receipts then outstanding. No amendment
will impair the right, subject to certain anticipated exceptions in the deposit
agreements, of any holder of depositary receipts to surrender any depositary
receipt with instructions to deliver to the holder the related class of
preferred stock and all money and other property, if any, represented by the
depositary receipt, except in order to comply with law. Every holder of an
outstanding depositary receipt at the time any such amendment becomes effective
will be deemed, by continuing to hold such depositary receipt, to consent and
agree to such amendment and to be bound by the applicable deposit agreement as
amended.
Charges of A Preferred Stock Depositary
We will pay all transfer and other taxes and governmental charges
arising solely from the existence of the deposit agreement. In addition, we will
pay the fees and expenses of the preferred stock depositary in connection with
the performance of our duties under the deposit agreement. However, holders of
depositary receipts will pay the fees and expenses of the preferred stock
depositary for any duties requested by the holders to be performed which are
outside of those expressly provided for in the deposit agreement.
Resignation and Removal of Depositary
The preferred stock depositary may resign at any time by delivering to
us notice of its election to do so, and we may at any time remove the preferred
stock depositary, any such resignation or removal to take effect upon the
appointment of a successor preferred stock depositary. A successor preferred
stock depositary must be appointed within 60 days after delivery of the notice
of resignation or removal and must be a bank or trust company with its principal
office in the United States and a combined capital and surplus of at least
$50,000,000.
Miscellaneous
The preferred stock depositary will forward to holders of depositary
receipts any reports and communications from us which are received by the
preferred stock depositary with respect to the related preferred stock.
We will not be liable, and the preferred stock depositary will not be
liable, if we are prevented or it is prevented from or delayed in, by law or any
circumstances beyond its or our control, performing the obligations under the
deposit agreement. Our obligations and the obligations of the preferred stock
depositary under the deposit agreement will be limited to performing our duties
in good faith and without negligence (in the case of any action or inaction in
the voting of a class or series of preferred stock represented by the depositary
shares), gross negligence or willful misconduct. We will not be obligated, and
the preferred stock depositary will not be obligated, to prosecute
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or defend any legal proceeding in respect of any depositary receipts, depositary
shares or shares of a class or series of preferred stock represented thereby
unless satisfactory indemnity is furnished. We may rely on, and the preferred
stock depositary may rely on, written advice of counsel or accountants, or
information provided by persons presenting shares of preferred stock represented
thereby for deposit, holders of depositary receipts or other persons that we
believe in good faith to be competent to give such information, and on documents
that we believe in good faith to be genuine and signed by a proper party.
If a preferred stock depositary receives conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and from
us, on the other hand, the preferred stock depositary will be entitled to act on
such claims, requests or instructions received by us.
WARRANTS
We currently have no warrants outstanding (other than options issued
under our stock option plans). We may issue warrants for the purchase of common
stock or preferred stock. We may issue warrants independently or together with
any other securities offered pursuant to any prospectus supplement and warrants
may be attached to or separate from such securities. We will issue each series
of warrants under a separate warrant agreement that we will enter into with a
warrant agent specified in the applicable prospectus supplement. The warrant
agent will act solely as our agent in connection with the warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any provisions of the warrants. We will set forth additional terms of
the warrants and the applicable warrant agreements in the applicable prospectus
supplement.
The applicable prospectus supplement will describe the terms of the
warrants in respect of which we are delivering this prospectus, including, where
applicable, the following:
- the title of the warrants;
- the aggregate number of the warrants;
- the price or prices at which the warrants will be issued;
- the designation, terms and number of shares of preferred stock or
common stock purchasable upon exercise of the warrants;
- the designation and terms of any securities with which the warrants
are issued and the number of any warrants issued with each such
security;
- the date, if any, on and after which the warrants and the related
preferred stock or common stock will be separately transferable;
- the price at which each share of preferred stock or common stock
purchasable upon exercise of the warrants may be purchased;
- the date on which the right to exercise the warrants will commence
and the date on which the right will expire;
- the minimum or maximum amount of the warrants which may be exercised
at any one time;
- information with respect to book-entry procedures, if any;
- a discussion of certain federal income tax considerations; and
- any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
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DEBT SECURITIES
General
The debt securities may be secured or unsecured and may be senior or
subordinated indebtedness of the Company. Unless otherwise specified in the
applicable prospectus supplement, the debt securities are to be issued under an
indenture, as amended or supplemented from time to time, among the Company and a
trustee chosen by the Company and qualified to act as trustee under the Trust
Indenture Act of 1939, as amended. The indenture is subject to, and governed by,
the Trust Indenture Act of 1939, as amended. The statements made in this section
relating to the indenture and the debt securities are summaries of certain
provisions of the debt securities and the indenture. These summaries are not
complete. For more detail you should refer to the indenture, which we have filed
as an exhibit to the registration statement of which this prospectus is a part.
Term
We will describe the particular terms of the debt securities offered by
a prospectus supplement in the applicable prospectus supplement, along with any
applicable modifications of or additions to the general terms of the debt
securities as described in this prospectus. Accordingly, for a description of
the terms of any series of debt securities, you must refer to both the
prospectus supplement relating to that series and the description of the debt
securities set forth in this prospectus. A prospectus supplement may change any
of the terms of the debt securities described in this prospectus.
The Company may offer under this prospectus up to $500,000,000 (or its
equivalent in another currency based on the exchange rate at the time of sale)
aggregate principal amount of debt securities or if debt securities are issued
at a discount, such principal amount as may be sold for an initial public
offering price of up to $500,000,000. Unless we state otherwise in any
prospectus supplement, the Company may issue the debt securities in one or more
series, as established from time to time by the Company. The Company need not
issue all debt securities of one series at the same time and, unless otherwise
provided, a series may be reopened, without the consent of the holders of the
debt securities of that series, for issuances of additional debt securities of
that series.
The Company may, but need not, designate more than one trustee under the
indenture, each with respect to one or more series of debt securities. Any
trustee may resign or be removed with respect to one or more series of debt
securities, and a successor trustee may be appointed to act with respect to the
series. If two or more persons are acting as trustee with respect to different
series of debt securities, each such trustee will be a trustee of a trust under
the indenture separate and apart from the trust administered by any other
trustee and, except as we state otherwise in this prospectus, any action to be
taken by a trustee may be taken by each trustee with respect to, and only with
respect to, the one or more series of debt securities for which it is trustee.
The following summaries set forth certain general terms and provisions
of the indenture and the debt securities. The prospectus supplement relating to
the series of debt securities being offered will contain further terms of the
debt securities, including the following specific terms:
- the title of the debt securities;
- the limit on the aggregate principal amount of the debt securities of
the series that may be authenticated and delivered under the
indenture;
- the date or dates, or the method for determining the date or dates,
on which the Company will pay the principal of the debt securities;
- the rate or rates (which may be fixed or variable), or the method by
which such rate or rates will be determined, at which the debt
securities will bear interest, if any;
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- the date or dates (or the method for determining the date or dates)
from which any interest will accrue, the dates upon which any
interest will be payable and the record dates for payment of interest
(or the method by which the record dates will be determined);
- the place or places, if any, other than or in addition to the Borough
of Manhattan, The City of New York, where the principal of (and
premium, if any) and interest, if any, on the debt securities will be
payable, where the debt securities may be surrendered for conversion
or registration of transfer or exchange and where notices or demands
to or upon the Company in respect of the debt securities and the
indenture may be served;
- any obligation the Company has to redeem, repay or repurchase the
debt securities, in whole or in part, at the option of a holder of
the debt securities, and the period or periods within which, the date
or dates on which the price or prices at which and the terms and
conditions upon which the Company will redeem, repay or repurchase
the debt securities;
- if other than the trustee, the identity of each security registrar
and/or paying agent;
- any conversion or exchange provisions of the debt securities;
- any provisions granting special rights to holders of the debt
securities;
- any deletions from, modifications of, or additions to the events of
default or covenants of the Company with respect to the debt
securities, whether or not such events of default or covenants are
consistent with the events of default or covenants with the
indenture;
- the person to whom any interest will be payable, if other than the
person in whose name the debt security is registered; and
- any other terms of the debt securities and any deletions from or
modifications or additions to the indenture in respect of the debt
securities (whether or not consistent with the other provisions of
the indenture).
The Company may issue debt securities at a discount below their
principal amount and provide for less than the entire principal amount of the
debt securities to be payable upon declaration of acceleration of maturity. In
such cases, we will describe any material U.S. federal income tax, accounting
and other considerations in the applicable prospectus supplement.
Conversion and Exchange
The applicable prospectus supplement will specify the terms and
conditions, if any, on which debt securities of any series are convertible into
or exchangeable for common stock or preferred stock. Such terms may include
provisions for conversion or exchange, either mandatory, at the option of the
holder, or at the option of the Company, in which the number of shares of common
stock or preferred stock to be received by the holders of the debt securities
would be calculated according to the market price of common stock or preferred
stock as of a time stated in the prospectus supplement.
Denominations and Interest
Unless we specify otherwise in the applicable prospectus supplement, the
debt securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof. Unless we specify otherwise in the applicable
prospectus supplement, interest on any series of debt securities will be payable
to the person in whose name the security is registered at the close of business
on the record date for such interest at the office of the Company maintained for
such purpose within the City and State of New York. However, unless we provide
otherwise in the applicable prospectus supplement, the Company may make interest
payments by check mailed to the address of the
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person entitled to the interest as it appears in the applicable register for
debt securities or by wire transfer of funds to such person at an account
maintained within the United States.
Global Notes
Unless we specify otherwise in the applicable prospectus supplement, the
debt securities of each series will be issued in the form of one or more fully
registered book-entry debt securities of such series (each, a "Global Note")
that will be deposited with, or on behalf of The Depository Trust Company, New
York, New York ("DTC"). Global Notes will be issued in fully registered form.
The Company anticipates that the Global Notes will be deposited with, or
on behalf of DTC, and that such Global Note will be registered in the name of
Cede & Co., DTC's nominee. Unless we specify otherwise in the applicable
prospectus supplement, the Company further anticipates that the following
provisions will apply to the depository arrangements with respect to the Global
Notes.
So long as DTC or its nominee is the registered owner of the Global
Notes, DTC or its nominee, as the case may be, will be considered the sole
holder of the debt securities represented by the Global Note for all purposes
under the indenture. Except as described below, owners of beneficial interests
in the Global Notes will not be entitled to have debt securities represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of debt securities in certificated form and will not
be considered the owners or holders of the debt securities under the indenture.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in certificated form; accordingly, such
laws may limit the transferability of beneficial interests in the Global Notes.
The Global Notes will be exchangeable for certificated debt securities
only if:
- DTC notifies the Company that it is unwilling or unable to continue
as depository or DTC ceases to be a clearing agency registered under
the Exchange Act (if so required by applicable law or regulation)
and, in either case, a successor depository is not appointed by the
Company within 90 days after the Company receives such notice or
becomes aware of such ineligibility;
- the Company in its sole discretion determines that the Global Notes
shall be exchangeable for certificated debt securities; or
- there shall have occurred and be continuing an event of default with
respect to debt securities of any series under the indenture and
beneficial owners representing a majority in aggregate principal
amount of the debt securities of such series represented by a Global
Note advise DTC to cease acting as depository. Upon any such
exchange, owners of a beneficial interest in such Global Note will be
entitled to physical delivery of individual debt securities of such
series in certificated form of like tenor, terms and rank, equal in
principal amount to such beneficial interest, and to have such debt
securities in certificated form registered in the names of the
beneficial owners, which names are expected to be provided by DTC's
relevant Participants (as identified by DTC) to the trustee.
Debt securities so issued in certificated form will be issued in denominations
of $1,000 or any integral multiple thereof, and will be issued in registered
form only, without coupons.
Merger, Consolidation or Sale of Assets
Unless we specify otherwise in the applicable prospectus supplement, the
indenture provides that the Company will not, in any transaction or series of
transactions, consolidate with, or sell, lease, assign, transfer or otherwise
convey all or substantially all of its assets to, or merge with or into any
other person unless:
- either the Company is the continuing person or the successor person
(if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received the transfer
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of such assets shall expressly assume payment of the principal of
(and premium, if any) and interest on all of debt securities, and
the due and punctual performance and observance of all of the
covenants and conditions contained in the indenture;
- immediately after giving effect to the transaction and treating any
debt which becomes an obligation of the Company or any of its
subsidiaries as a result of such transaction as having been incurred
by the Company or such subsidiary at the time of such transaction, no
event of default under the indenture, and no event which, after
notice or lapse of time, or both, would become an event of default,
shall have occurred and be continuing; and
- the Company delivers to the trustee an officers' certificate and
legal opinion covering these conditions.
In the event that the Company is not the continuing person, then, for purposes
of the second bullet point above, the successor person will be deemed to be the
Company.
Upon any such merger, consolidation, sale, assignment, transfer, lease
or conveyance in which the Company is not the continuing legal entity, the
successor entity formed by the consolidation or into which the Company is merged
or to which the sale, assignment, transfer, lease or other conveyance is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the indenture with the same effect as if the successor
entity has been named as the Company in the indenture and the Company will be
released (except in the case of a lease) from its obligations under the
indenture and the debt securities.
Events of Default, Notice and Waiver
Unless we specify otherwise in the applicable prospectus supplement, the
indenture provides that the following events are "events of default" with
respect to any series of debt securities issued under the indenture:
- default in the payment of any interest upon any debt security of that
series when it becomes due and payable, and continuance of that
default for a period of 30 days;
- default in the payment of principal of or premium, if any, on any
debt security of that series when due and payable;
- default in the performance or breach of any covenant or warranty of
the Company in the indenture with respect to any debt security of
that series (other than a covenant or warranty the default or breach
of which is specifically dealt with in the indenture), which default
continues uncured for a period of 60 days after receipt of written
notice as provided in the indenture;
- default in the payment of an aggregate principal amount exceeding
$10,000,000 of any evidence of indebtedness of the Company or any
mortgage, indenture, note, bond, capitalized lease or other
instrument under which such indebtedness is issued or by which such
indebtedness is secured, such default having continued after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such
indebtedness is not discharged or such acceleration is not rescinded
or annulled;
- certain events of bankruptcy, insolvency or reorganization with
respect to the Company, the Company or any significant subsidiary of
the Company (as defined in Regulation S-X under the Securities Act);
and
- any other event of default provided with respect to debt securities
of that series that is described in the applicable prospectus
supplement.
A supplemental indenture establishing the terms of a particular series
of debt securities may delete, modify or add to the events of default described
above.
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No event of default with respect to a particular series of debt
securities necessarily constitutes an event of default with respect to any other
series of debt securities. The occurrence of an event of default may constitute
an event of default under our bank credit agreements in existence from time to
time. In addition, the occurrence of certain events of default or an
acceleration under the indenture may constitute an event of default under
certain of our other indebtedness outstanding from time to time.
If an event of default with respect to debt securities of any series at
the time outstanding occurs and is continuing, then the trustee or the holders
of not less than a majority in principal amount of the outstanding debt
securities of that series may, by a notice in writing to us (and to the trustee
if given by the holders), declare all debt securities of that series to be due
and payable immediately.
At any time after a declaration of acceleration with respect to debt
securities of any series has been made, but before a judgment or decree for
payment of the money due has been obtained by the trustee, the holders of a
majority in principal amount of the outstanding debt securities of that series
may rescind and annul the acceleration if:
- the Company has paid or deposited with the trustee a sum sufficient
to pay:
- all overdue installments of interest on all outstanding debt
securities of that series;
- the principal of (and premium, if any, on) any outstanding debt
securities of that series which have become due otherwise than by
such declaration of acceleration, and interest thereon at the rates
provided for in such debt securities; and
- to the extent lawful, interest upon overdue installments of interest
at the rate or rates provided in such debt securities; and
- all events of default with respect to debt securities of that series,
other than the nonpayment of the principal of (or premium, if any) or
interest on debt securities of that series which have become due
solely by such declaration of acceleration, have been cured or
waived.
The indenture also provides that the holders of a majority in principal
amount of the outstanding debt securities of any series may on behalf of the
holders of all debt securities of such series waive any past default under the
indenture with respect to such debt securities and its consequences, except a
default:
- in the payment of the principal of (or premium, if any) or interest
on or payable in respect of any debt security of such series; or
- in respect of a covenant or provision of the indenture which cannot
be modified or amended without the consent of the holder of each
outstanding debt security of such series affected.
If the trustee knows of a default with respect to the debt securities of
any series, the indenture requires the trustee, within 90 days after the
default, to give notice to the holders of such debt securities, unless such
default shall have been cured or waived. However the trustee may withhold notice
to the holders of any debt securities of such series of any default (except a
default in the payment of the principal of (or premium, if any) or interest, if
any, on any debt security of such series) if the trustee determines such
withholding is in the interest of such holders.
The indenture provides that the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holders of outstanding debt securities, unless the holders offer the trustee
security or indemnity reasonably satisfactory to it against the costs, expenses
and liabilities which might be incurred by it in compliance with such request.
Subject to certain rights of the trustee, the holders of a majority in principal
amount of the outstanding debt securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
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No holder of any debt security of any series will have any right to
institute any proceeding, judicial or otherwise, with respect to the indenture
or for the appointment of a receiver or trustee, or for any remedy under the
indenture, unless:
- that holder has previously given to the trustee written notice of a
continuing event of default with respect to debt securities of that
series; and
- the holders of a majority in principal amount of the outstanding debt
securities of that series have made a written request, and offered
reasonable indemnity, to the trustee to institute the proceeding as
trustee, and the trustee has not received from the holders of a
majority in principal amount of the outstanding debt securities of
that series a direction inconsistent with that request and has failed
to institute the proceeding within 60 days.
Notwithstanding the foregoing, the holder of any debt security will have
an absolute and unconditional right to receive payment of the principal of,
premium and any interest on that debt security on or after the due dates
expressed in that debt security and to institute suit for the enforcement of
payment.
The indenture requires the Company, within 120 days after the end of
each fiscal year, to furnish to the trustee a statement as to compliance with
the indenture. Further, upon any request by the Company to take any action under
the indenture, the Company will furnish to the trustee:
- an officers' certificate stating that all conditions precedent, if
any, provided for in the indenture relating to the proposed action
have been complied with; and
- an opinion of counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with.
Modification and Waiver
We may modify and amend the indenture with the consent of the holders of
a majority in principal amount of the outstanding debt securities of each series
affected by the modifications or amendments except that we may not make any
modification or amendment without the consent of the holders of each affected
debt security then outstanding if that amendment will:
- change the stated maturity of the principal of (or premium, if any,
on) or any installment of principal of or interest on such debt
security;
- reduce the principal amount of debt securities or the rate or amount
of interest on such debt securities, or any premium payable on such
debt security;
- adversely affect the right of any holder of debt securities to
repayment of such debt security at the holder's option;
- change the place, or the currency, for payment of principal of (or
premium, if any) such debt security;
- impair the right to institute suit for enforcement of any payment on
or with respect to such debt security;
- reduce the amount of debt securities whose holders must consent to an
amendment or waiver or reduce the quorum or voting requirements set
forth in the indenture; or
- modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or
to
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provide that certain other provisions may not be modified or waived
without the consent of the holder of such debt security.
The holders of a majority in principal amount of the outstanding debt
securities of any series may on behalf of the holders of all debt securities of
that series waive the Company's compliance with certain covenants of the
indenture.
Modifications and amendments of the indenture may be made by the Company
and the trustee without the consent of any holder of debt securities issued
thereunder for any of the following purposes:
- to evidence the succession of another person to the Company under
the indenture;
- to add to the covenants of the Company for the benefit of the holders
of the debt securities or to surrender any right or power conferred
upon the Company in the indenture;
- to add events of default for the benefit of the holders of all or any
series of debt securities;
- to add or change any provisions of the indenture to facilitate the
issuance of the debt securities in certificated form, provided that
such action shall not adversely affect the interests of the holders
of any debt securities in any material respect;
- to secure the debt securities;
- to provide for the acceptance of appointment by a successor trustee
or to facilitate the administration of the trusts under the indenture
by more than one trustee;
- to cure any ambiguity, defect or inconsistency in the indenture or to
add or change any other provisions with respect to matters or
questions arising under the indenture, provided that such action
shall not adversely affect the interests of holders of debt
securities of any series or any related guarantees in any material
respect; or
- to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series of debt securities, provided that such action shall not
adversely affect the interests of the holders of the debt securities
in any material respect.
The indenture provides that in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver under
the indenture or whether a quorum is present at a meeting of holders of the debt
securities of a series, debt securities of each series owned by the Company or
any other obligor upon such debt securities or any affiliate of the Company or
of such other obligor will be disregarded.
The indenture contains provisions for convening meetings of the holders
of debt securities of a series. A meeting may be called at any time by the
trustee and also, upon request, by the Company or the Holders of 25% in
principal amount of the outstanding debt securities of such series, in any such
case upon notice given as provided in the indenture. Except for any consent that
must be given by the holder of each debt security affected by certain
modifications and amendments of the indenture, any resolution presented at a
meeting or adjourned meeting duly reconvened at which a quorum is present may be
adopted by the affirmative vote of the holders of a majority in principal amount
of the outstanding debt securities of such series. However, except as referred
to above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders of a specified percentage, which is less or more than a
majority, in principal amount of the outstanding debt securities of such series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the holders of such specified
percentage in principal amount of the outstanding debt securities of such
series. Any resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with the indenture will be
binding on all
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holders of debt securities of such series. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding debt securities
of any series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage, which is less or more than a majority, in
principal amount of the outstanding debt securities of such series, the persons
holding or representing such specified percentage in principal amount of the
outstanding debt securities of such series will constitute a quorum.
Notwithstanding the provisions described above, the indenture provides
that if any action is to be taken at a meeting of holders of debt securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that the indenture expressly provides
may be made, given or taken by the holders of a specified percentage in
principal amount of all outstanding debt securities of such series affected
thereby:
- there shall be no minimum quorum requirement for such meeting; and
- the principal amount of the outstanding debt securities of such
series that are entitled to vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action
shall be taken into account in determining whether such request,
demand, authorization, direction, notice, consent, waiver or other
action has been made, given or taken under the indenture.
Defeasance of Debt Securities and Certain Covenants in Certain
Circumstances
Legal Defeasance and Covenant Defeasance. Unless we specify otherwise in
the applicable prospectus supplement, the indenture provides that the Company
may elect:
- to be discharged from any and all obligations in respect of the debt
securities of any series (except for certain obligations to register
the transfer or exchange of debt securities of such series, to
replace stolen, lost or mutilated debt securities of such series, and
to maintain paying agencies and certain provisions relating to the
treatment of funds held by paying agents) ("legal defeasance"); or
- to be released from compliance with the covenants in the indenture
("covenant defeasance").
The Company will be so discharged upon the deposit with the trustee, in
trust, of money and/or Government Obligations that, through the payment of
interest and principal in accordance with their terms, will provide money in an
amount sufficient to pay and discharge each installment of principal (and
premium, if any) and interest on the debt securities of that series on the
scheduled due dates or the applicable redemption date in accordance with the
terms of the indenture and those debt securities.
This trust may only be established if, among other things:
- the Company has delivered to the trustee a legal opinion to the
effect that the holders of the debt securities will not recognize
income, gain or loss for United States federal income tax purposes as
a result of such legal defeasance or covenant defeasance and will be
subject to United States federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if
such legal defeasance or covenant defeasance had not occurred, and
such legal opinion, in the case of legal defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a
change in applicable United States federal, income tax law occurring
after the date of the indenture;
- such legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under, the indenture
or any other material agreement or instrument to which the Company is
a party or by which it is bound; and
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- no event of default or event which with notice or lapse of time or
both would become an event of default with respect to the debt
securities shall have occurred and shall be continuing on the date
of, or, solely in the case of events of default due to certain events
of bankruptcy, insolvency, or reorganization, during the period
ending on the 91st day after the date of, such deposit into trust.
"Government Obligations" means securities which are:
- direct obligations of the United States of America, for the payment
of which obligations its full faith and credit is pledged; or
- obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America and which, in
either of the above cases, are not callable or redeemable at the
option of the issuer thereof and also includes a depository receipt
issued by a bank or trust company as custodian with respect to any
such Government Obligation held by such custodian for the account of
the holder of a depository receipt, provided that (except as provided
by law) such custodian is not authorized to make any amount received
by the custodian.
Subordination
The applicable prospectus supplement will set forth the terms and
conditions, if any, upon which the debt securities are subordinated to other
indebtedness of the Company. Such terms will include a description of the
indebtedness ranking senior to the debt securities, the restrictions on payments
to the holders of such debt securities while a default with respect to such
senior indebtedness is continuing, the restrictions, if any, on payments to the
holders of such debt securities following an event of default, and provisions
requiring holders of such debt securities to remit certain payment to holders of
senior indebtedness.
WARRANTS TO PURCHASE DEBT SECURITIES
The following statements with respect to the debt warrants are summaries
of, and subject to, the detailed provisions of a warrant agreement to be entered
into by Novellus and a warrant agent to be selected at the time of issue.
General
The debt warrants, evidenced by warrant certificates, may be issued
under the debt warrant agreement independently or together with any debt
securities offered by any prospectus supplement and may be attached to or
separate from such debt securities. If debt warrants are offered, the prospectus
supplement will describe the terms of the warrants, including the following:
- the offering price, if any;
- the designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the warrants;
- if applicable, the designation and terms of the debt securities with
which the debt warrants are issued and the number of debt warrants
issued with each such debt security;
- if applicable, the date on and after which the debt warrants and the
related debt securities will be separately transferable;
- the principal amount of debt securities purchasable upon exercise of
one debt warrant and the price at which such principal amount of debt
securities may be purchased upon exercise;
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- the date on which the right to exercise the debt warrants shall
commence and the date on which such right shall expire;
- Federal income tax consequences;
- whether the warrants represented by the debt warrant certificates
will be issued in registered or bearer form;
- the currency, currencies or currency units in which the offering
price, if any, and exercise price are payable;
- the antidilution provisions of the debt warrants; and
- any other terms of the debt warrants.
Debt warrant certificates may be exchanged for new debt warrant
certificates of different denominations and may (if in registered form)
be presented for registration of transfer at the corporate trust office
of the debt warrant agent, which will be listed in the prospectus
supplement, or at such other office as may be set forth therein.
Warrantholders do not have any of the rights of holders of debt
securities (except to the extent that the consent of warrantholders may
be required for certain modifications of the terms of an indenture and
the series of debt securities issuable upon exercise of the debt
warrants) and are not entitled to payments of principal of and interest,
if any, on the debt securities.
Exercise of Debt Warrants
Debt warrants may be exercised by surrendering the debt warrant
certificate at the corporate trust office of the debt warrant agent, with the
form of election to purchase on the reverse side of the debt warrant certificate
properly completed and executed, and by payment in full of the exercise price,
as set forth in the prospectus supplement. Upon the exercise of debt warrants,
the debt warrant agent will, as soon as practicable, deliver the debt securities
in authorized denominations in accordance with the instructions of the
exercising warrantholder and at the sole cost and risk of such holder. If less
than all of the debt warrants evidenced by the warrant certificate are
exercised, a new debt warrant certificate will be issued for the remaining
amount of debt warrants.
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PLAN OF DISTRIBUTION
We may sell securities offered pursuant to any applicable prospectus
supplement directly to one or more purchasers or though agents or underwriters.
We may sell securities offered pursuant to any applicable prospectus supplement
in at-the-market equity offerings or on a negotiated or competitive bid basis
through underwriters or dealers or directly to other purchasers or through
agents. We will name any underwriter or agent involved in the offer and sale of
the securities in the applicable prospectus supplement.
We may distribute the securities from time to time in one or more
transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to prevailing market prices; or
- at negotiated prices.
We also may, from time to time, authorize underwriters acting as our
agents to offer and sell securities upon the terms and conditions as set forth
in the applicable prospectus supplement. In connection with the sale of the
securities, underwriters may be deemed to have received compensation from us in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of securities for whom they may act as agent.
Underwriters may sell the securities to or through dealers, and dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agent.
We will describe in the applicable prospectus supplement any
underwriting compensation we pay to underwriters or agents in connection with
the offering of the securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers. Dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions. We may enter into agreements to indemnify
underwriters, dealers and agents against certain civil liabilities, including
liabilities under the Securities Act, and to reimburse these persons for certain
expenses. We will describe any indemnification agreements in the applicable
prospectus supplement.
Unless we specify otherwise in the related prospectus supplement, each
series of securities offered will be a new issue with no established trading
market, other than the common stock which is listed on the NASDAQ National
Market System. Any shares of common stock sold pursuant to a prospectus
supplement may be listed on the NASDAQ National Market System, subject to
official notice of issuance. We may elect to list any series of preferred stock
and any series of debt securities, depository shares or warrants on any
exchange, but we are not obligated to do so. It is possible that one or more
underwriters may make a market in a series of offered securities, but will not
be obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market for the securities.
If indicated in the applicable prospectus supplement, we may authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase the securities from us at the public offering price set forth in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on the date or dates stated in the prospectus supplement.
We may make delayed delivery with various institutions, including commercial and
savings banks, insurance companies, pension funds, investment companies and
educational and charitable institutions. Delayed delivery contracts will not be
subject to any conditions except:
- the purchase by an institution of the securities covered by its
delayed delivery contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to
which the institution is subject; and
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- if the securities are sold to underwriters, we shall have sold to the
underwriters the total principal amount of the offered securities
less the principal amount covered by the delayed delivery contracts.
To facilitate the offering of the securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the securities. This may include
over-allotments or short sales of the securities, which involves the sale by
persons participating in the offering of more securities than we sold to them.
In these circumstances, these persons would cover the over-allotments or short
positions by making purchases in the open market or by exercising their
over-allotment option. In addition, these persons may stabilize or maintain the
price of the debt securities by bidding for or purchasing debt securities in the
open market or by imposing penalty bids, whereby selling concessions allowed to
dealers participating in the offering may be reclaimed if securities sold by
them are repurchased in connection with stabilization transactions. The effect
of these transactions may be to stabilize or maintain the market price of the
securities at a level above that which might otherwise prevail in the open
market. These transactions may be discontinued at any time.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for, us in the ordinary course
of business.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for us
by Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements incorporated by reference in our Annual Report on Form 10-K
and the related financial data schedule included in our Annual Report on Form
10-K for the year ended December 31, 1999, as set forth in their report, which
is incorporated by reference in this prospectus and elsewhere in the
registration statement. Our financial statements and schedule are incorporated
by reference in reliance upon Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
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