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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-47150
PROSPECTUS
$500,000,000
MERCURY INTERACTIVE CORPORATION
4.75% Convertible Subordinated Notes Due July 1, 2007 and
4,494,400 Shares of Common Stock Issuable Upon Conversion of the Notes
Holders of our 4.75% Convertible Subordinated Notes due July 1, 2007 may
offer for sale the notes and the shares of our common stock into which the
notes are convertible at any time at market prices prevailing at the time of
sale or at privately negotiated prices. The selling holders may sell the notes
or the common stock directly to purchasers or through underwriters, broker-
dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions.
The holders of the notes may convert the notes into shares of our common
stock at any time at a conversion rate of 8.9888 shares per $1,000 principal
amount of notes. Interest on the notes is payable on January 1 and July 1 of
each year, commencing on January 1, 2001. After January 1, 2003, we may redeem
the notes, in whole or in part, at the redemption prices set forth in this
prospectus.
In the event of a change in control, defined in this prospectus, of Mercury,
each holder of notes may require us to repurchase the notes at 100% of the
principal amount of the notes plus accrued interest. At our option, we may
repurchase the notes for cash or common stock.
The notes are unsecured obligations that are subordinated in right of
payment to all of our existing and future senior indebtedness.
Our common stock currently trades on the Nasdaq National Market under the
symbol "MERQ." The last reported sale price on November 16, 2000 was $111.52
per share.
The notes are currently eligible for trading on the Portal Market of the
National Association of Securities Dealers, Inc.
Investing in our common stock or the notes involves a high degree of risk.
Please carefully consider the "Risk Factors" beginning on page 3 of this
prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is November 17, 2000.
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In connection with this offering, no person is authorized to give any
information or to make any representations not contained in this prospectus. If
information is given or representations are made, you may not rely on that
information or representations as having been authorized by us. This prospectus
is neither an offer to sell nor a solicitation of an offer to buy any
securities other than those registered by this prospectus, nor is it an offer
to sell or a solicitation of an offer to buy securities where an offer or
solicitation would be unlawful. You may not imply from the delivery of this
prospectus, nor from any sale made under this prospectus, that our affairs are
unchanged since the date of this prospectus or that the information contained
in this prospectus is correct as of any time after the date of this prospectus.
TABLE OF CONTENTS
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<S> <C>
Summary..................................................................... 2
Risk Factors................................................................ 3
Ratio of Earnings to Fixed Charges.......................................... 12
Where You Can Find More Information......................................... 12
Use of Proceeds............................................................. 13
Selling Holders............................................................. 13
Plan of Distribution........................................................ 19
Description of Notes........................................................ 21
Description of Capital Stock................................................ 36
Legal Matters............................................................... 39
Experts..................................................................... 39
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This prospectus contains forward-looking statements relating to future
events or financial results, including statements indicating that "we believe,"
"we expect" or "we anticipate" that various events may occur or various trends
may continue, and similar statements relating to future events or financial
results. These forward-looking statements are subject to material risks and
uncertainties as indicated under the caption "Risk Factors." Actual results
could vary materially as a result of a number of factors, including those set
forth in "Risk Factors" and elsewhere in this prospectus. We assume no
obligation to update the forward-looking information contained in this
prospectus.
Unless the context otherwise requires, the terms "we," "our," "us," and
"Mercury" refer to Mercury Interactive Corporation, a Delaware corporation.
All share numbers in this prospectus reflect the two-for-one stock splits of
our common stock, each of which were distributed as a stock dividend to our
stockholders, on February 26, 1999 and February 11, 2000. The information
incorporated by reference into this prospectus, however, may not reflect the
stock split.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus. Prospective investors
should consider carefully the information set forth in this prospectus under
the heading "Risk Factors."
The Company
We are the leading provider of integrated Web performance management
solutions that enable businesses to test and monitor their Internet
applications. Our software products and hosted services help e-businesses
enhance the user experience by improving the performance, availability,
reliability and scalability of their Web sites. As a result, e-businesses can
increase their ability to attract and retain customers and improve their
competitive advantage.
Our customers represent a wide range of industries, including Internet
companies such as Amazon.com, America Online, Ameritrade, E*Trade,
Healtheon/WebMD, HomeGrocer.com, Jobs.com, ShopLink.com and WingspanBank.com;
Internet infrastructure providers such as Ariba, Broadbase, Broadvision, i2
Technologies and Oracle; and Fortune 1000 enterprises such as Apple Computer,
Caterpillar, Cisco Systems, Ford Motor Co. and WalMart.
As a result of the growth in the Internet, performance, availability,
reliability and scalability have become critical for any organization
implementing an e-business strategy. The consequences of a Web site that is
down or even slow can be significant in the new Internet economy. Both
Internet-based businesses and traditional enterprises are trying to address the
challenge of providing reliable, 24x7 access to their mission-critical
applications in this dynamic, performance-sensitive environment. They are
increasingly requiring performance management solutions that can determine
whether applications will perform as expected, and maintain that performance
with increasing usage and rapid changes in content and functionality.
Our integrated performance management solutions address these requirements,
enabling customers to quickly identify and correct problems before users
experience them. Our products include load testing, functional testing and test
management products that automate the testing of Internet and other
applications, as well as Web performance monitoring products that monitor and
measure Web site performance from the end-user's perspective and alert our
customers to performance problems.
We also offer hosted Web performance monitoring and load testing services
through a wholly-owned subsidiary. These services complement our product
offerings by providing a cost-effective solution that allows customers to
quickly meet their needs without dedicating internal resources.
Our principal executive offices are located at 1325 Borregas Avenue,
Sunnyvale, California 94089. Our telephone number at that location is (408)
822-5200.
Astra, Astra LoadTest, LoadRunner, LoadRunner Active Test, Astra QuickTest,
WinRunner, XRunner, Astra SiteManager, TestDirector, Topz and Topaz ActiveWatch
are our trade names and trademarks. This prospectus also contains trade names
and trade marks of other companies.
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RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this prospectus, the following risk factors should be
considered carefully in evaluating us and our business before purchasing any of
the notes or common stock. This prospectus contains forward-looking statements
that involve risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. The cautionary statements made in this
prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this prospectus. Our actual results could
differ materially from those discussed in this prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this prospectus.
Our future success depends on our ability to respond to rapid market and
technological changes by introducing new products and to continually improve
the performance, features and reliability of our existing products and respond
to competitive offerings.
Our business will suffer if we do not successfully respond to rapid
technological changes. The market for our software products is characterized
by:
. rapidly changing technology;
. frequent introduction of new products and enhancements to existing
products by our competitors;
. increasing complexity and interdependence of Internet related
applications;
. changes in industry standards and practices; and
. changes in customer requirements and demands.
To maintain our competitive position, we must continue to enhance our
existing software testing and application performance management products and
to develop new products and services, functionality and technology that address
the increasingly sophisticated and varied needs of our prospective customers.
The development of new products and services, and enhancement of existing
products and services, entail significant technical and business risks and
require substantial lead-time and significant investments in product
development. If we fail to anticipate new technology developments, customer
requirements or industry standards, or if we are unable to develop new products
and services that adequately address these new developments, requirements and
standards in a timely manner, our products may become obsolete, our ability to
compete may be impaired and our revenues could decline.
We expect our quarterly revenues and operating results to fluctuate, which may
cause the price of our stock and the notes to decline.
Our revenues and operating results have varied in the past and are likely to
vary significantly from quarter to quarter in the future. These fluctuations
are due to a number of factors, many of which are outside of our control,
including:
. fluctuations in demand for and sales of our products and services;
. our success in developing and introducing new products and the timing of
new product introductions;
. our ability to introduce enhancements to our existing products in a
timely manner;
. the introduction of new or enhanced products by our competitors and
changes in the pricing policies of these competitors;
. the discretionary nature of our customers' purchase and budget cycles;
. the amount and timing of operating costs and capital expenditures
relating to the expansion of our business;
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. deferrals by our customers of orders in anticipation of new products or
product enhancements; and
. the mix of our domestic and international sales, together with
fluctuations in foreign currency exchange rates.
In addition, the timing of our license revenues is difficult to predict
because our sales cycles are typically short and can vary substantially from
product to product and customer to customer. We base our operating expenses on
our expectations regarding future revenue levels. As a result, if total
revenues for a particular quarter are below our expectations, we could not
proportionately reduce operating expenses for that quarter.
We have experienced seasonality in our revenues and earnings, with the
fourth quarter of the year typically having the highest revenue and earnings
for the year and higher revenue and earnings than the first quarter of the
following year. We believe that this seasonality results primarily from the
budgeting cycles of our customers and from the structure of our sales
commission program. This seasonality may continue in the future.
Due to these and other factors, we believe that period-to-period comparisons
of our results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. If our operating results are
below the expectations of investors or securities analysts, the price of our
common stock, and therefore the notes, could decline.
We expect to face increasing competition in the future, which could cause
reduced sales levels and result in price reductions, reduced gross margins or
loss of market share.
The market for our testing and application performance management products
and services is extremely competitive, dynamic and subject to frequent
technological changes. There are few substantial barriers to entry in our
market. In addition, the rapid growth and use of Internet for e-business is a
recent and emerging phenomenon. The Internet lowers the barriers to entry for
other companies to compete with us in the testing and application performance
management markets. As a result of the increased competition, our success will
depend, in large part, on our ability to identify and respond to the needs of
potential customers, and to new technological and market opportunities, before
our competitors identify and respond to these needs and opportunities. We may
fail to respond quickly enough to these needs and opportunities.
In the market for solutions for testing of applications, our principal
competitors include Compuware, Radview, Rational Software, RSW (a division of
Teradyne) and Segue Software. In the new and rapidly changing market for
application performance management solutions, our competitors include providers
of hosted services such as BMC Software, Keynote Systems and Service Metrics (a
division of Exodus Communications), and emerging application service providers,
or ASPs, such as Freshwater Software. In addition, we face potential
competition in this market from existing providers of testing solutions such as
Segue. Finally, in both the market for testing solutions and the market for
application performance management solutions, we face potential competition
from established providers of systems and network management software such as
Computer Associates.
The software industry is increasingly experiencing consolidation, and this
could increase the resources available to our competitors and the scope of
their product offerings. For example, in 2000, Keynote Systems acquired
Velogic, Inc., a provider of load testing services, and BMC Software acquired
Evity, Inc., a provider of Internet management services. Our competitors and
potential competitors may undertake more extensive marketing campaigns, adopt
more aggressive pricing policies or make more attractive offers to distribution
partners and to employees.
If we fail to maintain our existing distribution channels and develop
additional channels in the future, our revenues will decline.
We derive a substantial portion of our revenues from sales of our products
through distribution channels such as system integrators, value-added
resellers. We expect that sales of our products through these channels
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will continue to account for a substantial portion of our revenues for the
foreseeable future. We have also entered into private labelling arrangements
with ASPs and an enterprise software company who incorporate our products and
services into theirs. We may not experience increased revenues from these new
channels, which could harm our business.
The loss of one or more of our system integrators, value-added resellers or
ASPs, or any reduction or delay in their sales of our products and services
could result in reductions in our revenue in future periods. In addition, our
ability to increase our revenue in the future depends on our ability to expand
our indirect distribution channels.
Our dependence on indirect distribution channels presents a number of risks,
including:
. many of our system integrators, value-added resellers and ASPs can cease
marketing our products and services with limited or no notice and with
little or no penalty;
. our existing system integrators, value-added resellers and ASPs may not
be able to effectively sell any new products and services that we may
introduce;
. we may not be able to replace existing or recruit additional system
integrators, value-added resellers and ASPs if we lose any of our
existing ones;
. our system integrators, value-added resellers and ASPs also offer
competitive products and services from third parties;
. we may face conflicts between the activities of our indirect channels and
our direct sales and marketing activities; and
. our system integrators, value-added resellers and ASPs may not give
priority to the marketing of our products and services as compared to our
competitors' products.
In March 1999, we entered into an agreement with Tivoli Systems, a
subsidiary of IBM, for the joint development and marketing of a family of
products for enterprise application performance management, incorporating
elements of our technology, which would be marketed and sold only by Tivoli.
Under this agreement, we agreed that until October 2002, we will not license
this technology to any other party for purposes of developing a product similar
to any developed under this agreement. In addition, we agreed that until
October 2002, we will not enter into technology relationships to create similar
products with specified competitors of Tivoli as long as Tivoli continues to
agree to pay minimum royalties. In September 2000, Tivoli notified us that it
would no longer pay the annual minimum royalties set forth in the agreement,
and, therefore, the restrictions on us regarding entering into agreements with
Tivoli's competitors expire.
We depend on strategic relationships and business alliances for continued
growth of our business.
Our development, marketing and distribution strategies rely increasingly on
our ability to form strategic relationships with software and other technology
companies. These business relationships often consist of cooperative marketing
programs, joint customer seminars, lead referrals and cooperation in product
development. Many of these relationships are not contractual and depend on the
continued voluntary cooperation of each party with us. Divergence in strategy
or change in focus by, or competitive product offerings by, any of these
companies may interfere with our ability to develop, market, sell or support
our products, which in turn could harm our business. Further, if these
companies enter into strategic alliances with other companies or are acquired,
they could reduce their support of our products. Our existing relationships may
be jeopardized if we enter into alliances with competitors of our strategic
partners. In addition, one or more of these companies may use the information
they gain from their relationship with us to develop or market competing
products.
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If we are unable to manage our growth, our business may be harmed.
Since 1991, we have experienced significant annual increases in revenue,
employees and number of product and service offerings. This growth has placed
and, if it continues, will place a significant strain on our management and our
financial, operational, marketing and sales systems. If we cannot manage our
growth effectively, our business, competitive position, operating results and
financial condition could suffer. Although we are implementing a variety of new
or expanded business and financial systems, procedures and controls, including
the improvement of our sales and customer support systems, the implementation
of these systems, procedures and controls may not be completed successfully, or
may disrupt our operations. Any failure by us to properly manage these
transitions could impair our ability to attract and service customers and could
cause us to incur higher operating costs and experience delays in the execution
of our business plan.
The success of our business depends on the efforts and abilities of our senior
key personnel.
We depend on the continued services and performance of our senior management
and other key personnel. We do not have long term employment agreements with
any of our key personnel. The loss of any of our executive officers or other
key employees could hurt our business.
If we cannot hire qualified personnel, our ability to manage our business,
develop new products and increase our revenues will suffer.
We believe that our ability to attract and retain qualified personnel at all
levels in our organization is essential to the successful management of our
growth. In particular, our ability to achieve revenue growth in the future will
depend in large part on our success in expanding our direct sales force and in
maintaining a high level of technical consulting, training and customer
support. There is substantial competition for experienced personnel in the
software and Internet industry. If we are unable to retain our existing key
personnel or attract and retain additional qualified individuals, we may from
time to time experience inadequate levels of staffing to perform services for
our customers. As a result, our growth could be limited due to our lack of
capacity to develop and market our products to our customers.
We depend on our international operations for a substantial portion of our
revenues.
Sales to customers located outside the United States have historically
accounted for a significant percentage of our revenue and we anticipates that
such sales will continue to be a significant percentage of our revenue. As a
percentage of our total revenues, sales to customers outside the United States
were approximately 34% in 1999, 35% in 1998, 36% in 1997 and 32% in the quarter
ended September 30, 2000. In addition, we have substantial research and
development operations in Israel. We face risks associated with our
international operations, including:
. changes in taxes and regulatory requirements;
. difficulties in staffing and managing foreign operations;
. reduced protection for intellectual property rights in some countries;
. the need to localize products for sale in international markets;
. longer payment cycles to collect accounts receivable in some countries;
. seasonal reductions in business activity in other parts of the world in
which we operate;
. political and economic instability; and
. economic downturns in international markets.
Any of these risks could harm our international operations and cause lower
international sales. For example, some European countries already have laws and
regulations related to technologies used on the
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Internet that are more strict than those currently in force in the United
States. Any or all of these factors could cause our business to be harmed.
Because our research and development operations are primarily located in
Israel, we may be affected by volatile economic, political and military
conditions in that country and by restrictions imposed by that country on the
transfer of technology.
Our operations depend on the availability of highly-skilled and relatively
low-cost scientific and technical personnel in Israel. Our business also
depends on trading relationships between Israel and other countries. In
addition to the risks associated with international sales and operations
generally, our operations could be adversely affected if major hostilities
involving Israel should occur or if trade between Israel and its current
trading partners were interrupted or curtailed.
These risks are compounded due to the restrictions on our ability to
manufacture or transfer outside of Israel any technology developed under
research and development grants from the government of Israel, without the
prior written consent of the government of Israel. If we are unable to obtain
the consent of the government of Israel, we may not be able to take advantage
of strategic manufacturing and other opportunities outside of Israel. We have,
in the past, obtained royalty-bearing grants from various Israeli government
agencies. In addition, we participate in special Israeli government programs
that provide significant tax advantages. The loss of or any material decrease
in these tax benefits could negatively affect our financial results.
We are subject to the risk of increased taxes.
We have structured our operations in a manner designed to maximize income in
Israel where tax rate incentives have been extended to encourage foreign
investment. Our taxes could increase if these tax rate incentives are not
renewed upon expiration or tax rates applicable to us are increased. Tax
authorities could challenge the manner in which profits are allocated among us
and our subsidiaries, and we may not prevail in any such challenge. If the
profits recognized by our subsidiaries in jurisdictions where taxes are lower
became subject to income taxes in other jurisdictions, our worldwide effective
tax rate would increase.
Our financial results may be negatively impacted by foreign currency
fluctuations.
Our foreign operations are generally transacted through our international
sales subsidiaries. As a result, these sales and related expenses are
denominated in currencies other than the U.S. Dollar. Because our financial
results are reported in U.S. Dollars, our results of operations may be harmed
by fluctuations in the rates of exchange between the U.S. Dollar and other
currencies, including:
. a decrease in the value of Pacific Rim or European currencies relative to
the U.S. Dollar, which would decrease our reported U.S. Dollar revenue,
as we generate revenues in these local currencies and report the related
revenues in U.S. Dollars; and
. an increase in the value of Pacific Rim, European or Israeli currencies
relative to the U.S. Dollar, which would increase our sales and marketing
costs in these countries and would increase research and development
costs in Israel.
We attempt to limit foreign exchange exposure through operational strategies
and by using forward contracts to offset the effects of exchange rate changes
on intercompany trade balances. This requires us to estimate the volume of
transactions in various currencies. We may not be successful in making these
estimates. If these estimates are overstated or understated during periods of
currency volatility, we could experience material currency gains or losses.
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Our ability to successfully implement our business strategy depends on the
continued growth of the Internet.
In order for our business to be successful, the Internet must continue to
grow as a medium for conducting business. However, as the Internet continues to
experience significant growth in the number of users and the complexity of Web-
based applications, the Internet infrastructure may not be able to support the
demands placed on it or the performance or reliability of the Internet might be
adversely affected. Security and privacy concerns may also slow the growth of
the Internet. Because our revenues ultimately depend upon the Internet
generally, our business may suffer as a result of limited or reduced growth.
Any future acquisitions may be difficult to integrate, disrupt our business,
dilute stockholder value or divert the attention of our management.
We have acquired, and in the future we may acquire or make investments in
other companies with similar products and technologies. For example, in
November 1999, we completed our acquisition of Conduct Ltd. In the event of any
future acquisitions or investments, we could:
. issue stock that would dilute the ownership of our then-existing
stockholders;
. incur debt;
. assume liabilities;
. incur amortization expense related to goodwill and other intangible
assets; or
. incur large write-offs.
If we fail to achieve the financial and strategic benefits of past and
future acquisitions, our operating results will suffer. Acquisitions and
investments involve numerous other risks, including:
. difficulties integrating the acquired operations, technologies or
products with ours;
. failure to achieve targeted synergies;
. unanticipated costs and liabilities;
. diversion of management's attention from our core business;
. adverse effects on our existing business relationships with suppliers and
customers or those of the acquired organization;
. difficulties entering markets in which we have no or limited prior
experience; and
. potential loss of key employees, particularly those of the acquired
organizations.
The price of our common stock and therefore the price of our notes may
fluctuate significantly, which may result in losses for investors.
The market price for our common stock has been and may continue to be
volatile. For example, during the 52-week period ended October 31, 2000, the
sales prices of our common stock as reported on the Nasdaq National Market
ranged from a high of $156.75 to a low of $40.20. We expect our stock price to
be subject to fluctuations as a result of a variety of factors, including
factors beyond our control. These factors include:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new products or services by
us or our competitors;
. announcements relating to strategic relationships or acquisitions;
. changes in financial estimates or other statements by securities
analysts;
. changes in general economic conditions;
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. conditions or trends affecting the software industry and the Internet;
and
. changes in the economic performance and/or market valuations of other
software and high-technology companies.
Because of this volatility, we may fail to meet the expectations of our
stockholders or of securities analysts at some time in the future, and our
stock price and therefore the price of our notes could decline as a result.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many high technology companies. These fluctuations have often
been unrelated or disproportionate to the operating performance of these
companies. Any negative change in the public's perception of software or
Internet software companies could depress our stock price regardless of our
operating results.
If we fail to adequately protect our proprietary rights and intellectual
property, we may lose a valuable asset, experience reduced revenues and incur
costly litigation to protect our rights.
We rely on a combination of patents, copyrights, trademark, service mark and
trade secret laws and contractual restrictions to establish and protect our
proprietary rights in our products and services. We will not be able to protect
our intellectual property if we are unable to enforce our rights or if we do
not detect unauthorized use of our intellectual property. Despite our
precautions, it may be possible for unauthorized third parties to copy our
products and use information that we regard as proprietary to create products
that compete with ours. Some license provisions protecting against unauthorized
use, copying, transfer and disclosure of our licensed programs may be
unenforceable under the laws of certain jurisdictions and foreign countries.
Further, the laws of some countries do not protect proprietary rights to the
same extent as the laws of the United States. To the extent that we increase
our international activities, our exposure to unauthorized copying and use of
our products and proprietary information will increase.
In many cases, we enter into confidentiality or license agreements with our
employees and consultants and with the customers and corporations with whom we
have strategic relationships and business alliances. No assurance can be given
that these agreements will be effective in controlling access to and
distribution of our products and proprietary information. Further, these
agreements do not prevent our competitors from independently developing
technologies that are substantially equivalent or superior to our products.
Litigation may be necessary in the future to enforce our intellectual
property rights and to protect our trade secrets. Litigation like this, whether
successful or unsuccessful, could result in substantial costs and diversions of
our management resources, either of which could seriously harm our business.
Third parties could assert that our products and services infringe their
intellectual property rights, which could expose us to litigation that, with or
without merit, could be costly to defend.
We may from time to time be subject to claims of infringement of other
parties' proprietary rights. We could incur substantial costs in defending
ourselves and our customers against these claims. Parties making these claims
may be able to obtain injunctive or other equitable relief that could
effectively block our ability to sell our products in the United States and
abroad and could result in an award of substantial damages against us. In the
event of a claim of infringement, we may be required to obtain licenses from
third parties, develop alternative technology or to alter our products or
processes or cease activities that infringe the intellectual property rights of
third parties. If we are required to obtain licenses, we cannot be sure that we
will be able to do so at a commercially reasonable cost, or at all. Defense of
any lawsuit or failure to obtain required licenses could delay shipment of our
products and increase our costs. In addition, any such lawsuit could result in
our incurring significant costs or the diversion of the attention of our
management.
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Defects in our products may subject us to product liability claims and make it
more difficult for us to achieve market acceptance for these products, which
could harm our operating results.
Our products may contain errors or "bugs" that may be detected at any point
in the life of the product. Any future product defects discovered after
shipment of our products could result in loss of revenues and a delay in the
market acceptance of these products that could adversely impact our future
operating results.
In selling our products, we frequently rely on "shrink wrap" or "click wrap"
licenses that are not signed by licensees. Under the laws of various
jurisdictions, the provisions in these licenses limiting our exposure to
potential product liability claims may be unenforceable. We currently carry
errors and omissions insurance against such claims, however, we cannot assure
you that this insurance will continue to be available on commercially
reasonable terms, or at all, or that this insurance will provide us with
adequate protection against product liability and other claims. In the event of
a products liability claim, we may be found liable and required to pay damages
which would seriously harm our business.
We have adopted anti-takeover defenses that could delay or prevent an
acquisition of our company, including an acquisition that would be beneficial
to our stockholders.
Our Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the stockholders. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be
issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock. We have no
present plans to issue shares of preferred stock. Furthermore, certain
provisions of our Certificate of Incorporation and of Delaware law may have the
effect of delaying or preventing changes in our control or management, which
could adversely affect the market price of our common stock.
Substantial leverage and debt service obligations may adversely affect our cash
flow.
In July 2000, we completed an offering of convertible subordinated notes
with a principal amount of $500 million. We now have a substantial amount of
outstanding indebtedness, primarily the notes. There is the possibility that we
may be unable to generate cash sufficient to pay the principal of, interest on
and other amounts due in respect of the notes when due.
Our substantial leverage could have significant negative consequences,
including:
. increasing our vulnerability to general adverse economic and industry
conditions;
. requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures; and
. limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete.
The notes rank below our future senior debt, and we may be unable to repay our
obligations under the notes.
The notes are unsecured and subordinated in right of payment to all of our
future senior debt. Because the notes are subordinate to our senior debt, if we
experience:
. a bankruptcy, liquidation or reorganization;
. an acceleration of the notes due to an event of default under the
indenture; or
. other specified events;
10
<PAGE>
we will be permitted to make payments on the notes only after we have satisfied
all of our senior debt obligations. Therefore, we may not have sufficient
assets remaining to pay amounts due on any or all of the notes. In addition,
the notes effectively are subordinate to all liabilities, including trade
payables, of our subsidiaries and any subsidiaries that we may in the future
acquire or establish. Consequently, our right to receive assets of any
subsidiaries upon their liquidation or reorganization, and the rights of the
holders of the notes to share in those assets, would be subordinate to the
claims of the subsidiaries' creditors.
The notes are our obligations exclusively. The indenture for the notes does
not limit our ability, or that of any of our presently existing or future
subsidiaries, to incur senior debt, other indebtedness and other liabilities.
We may have difficulty paying what we owe under the notes if we, or any of our
subsidiaries, incur additional indebtedness or other liabilities. As of
September 30, 2000, we had no senior debt outstanding, and our subsidiaries had
approximately $41.8 million of outstanding liabilities, excluding intercompany
liabilities. From time to time we and our subsidiaries may incur additional
indebtedness, including senior debt, which could adversely affect our ability
to pay our obligations under the notes.
We may be unable to repay or repurchase the notes.
At maturity, the entire outstanding principal amount of the notes will
become due and payable. In addition, if we experience a change in control, as
defined in the section "Description of the Notes--Repurchase at Option of
Holders Upon a Change in Control," each holder of the notes may require us to
repurchase all or a portion of that holder's notes. At maturity or if a change
in control occurs, we may not have sufficient funds or may be unable to arrange
for additional financing to pay the principal amount or repurchase price due.
Under the terms of the indenture for the notes, we may elect, if we meet
certain conditions, to pay the repurchase price with shares of common stock.
Any future borrowing arrangements or agreements relating to senior debt to
which we become a party may contain restrictions on, or prohibitions against,
our repayments or repurchases of the notes. If the maturity date or change in
control occurs at a time when our other arrangements prohibit us from repaying
or repurchasing the notes, we could try to obtain the consent of the lenders
under those arrangements, or we could attempt to refinance the borrowings that
contain the restrictions. If we do not obtain the necessary consents or
refinance these borrowings, we will be unable to repay or repurchase the notes.
In that case, our failure to repurchase any tendered notes or repay the notes
due upon maturity would constitute an event of default under the indenture. Any
such default, in turn, may cause a default under the terms of our senior debt.
As a result, in those circumstances, the subordination provisions of the
indenture would, absent a waiver, prohibit any repayment or repurchase of the
notes until we pay the senior debt in full.
11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Month
Ended
Fiscal Year Ended December 31, September 30,
--------------------------------- --------------
1995 1996 1997 1998 1999 1999 2000
------------ ------ ------ ------ ------- ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges........... -- 17.0x 17.3x 38.5x 46.0x 41.1x 7.6x
</TABLE>
For the purposes of computing the ratio of fixed charges, earnings consist
of income (loss) before provision for income taxes plus fixed charges. Fixed
charges consist of interest charges, amortization of debt expense and discount
or premium related to indebtedness, whether expensed or capitalized, and that
portion of rental expense we believe to be representative of interest.
Earnings, as defined, were not sufficient to cover fixed charges by $4,281,000
for the year ended December 31, 1995.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room. Our SEC filings are also available to the public
from the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference
the documents listed below:
. our annual report on Form 10-K for the fiscal year ended December 31,
1999;
. our quarterly report on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000;
. our current reports on Form 8-K filed January 19, 2000 and July 3, 2000;
. our definitive proxy statement filed in connection with our 2000 Annual
Meeting of Stockholders;
. the description of our common stock contained in our registration
statement on Form 8-A filed September 9, 1993, including any amendments
or reports filed for the purpose of updating such descriptions;
. the description of our preferred stock purchase rights, contained in our
registration statement on Form 8-A filed on July 8, 1996, including any
amendments or reports filed for the purpose of updating such description;
and
. all other information that we file with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this prospectus and prior to the termination of this offering.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Director of Investor Relations
Mercury Interactive Corporation
1325 Borregas Avenue
Sunnyvale, CA 94089
(408) 822-5200
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have authorized
no one to provide you with different information. We are not making an offer
of these securities in any state where the offer is not permitted. You should
not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of the
document.
12
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or common stock
by the selling holders.
SELLING HOLDERS
The notes were originally issued by us and sold by the initial purchasers in
a transaction exempt from the registration requirements of the Securities Act
to persons reasonably believed by the initial purchasers to be qualified
institutional buyers or other institutional accredited investors. Selling
holders, including their transferees, pledgees or donees or their successors,
may from time to time offer and sell pursuant to this prospectus any or all of
the notes and common stock into which the notes are convertible.
The following table sets forth information, as of November 15, 2000, with
respect to the selling holders and the principal amounts of notes beneficially
owned by each selling holder that may be offered under this prospectus. The
information is based solely on information provided by or on behalf of the
selling holders. The selling holders may offer all, some or none of the notes
or common stock into which the notes are convertible. Because the selling
holders may offer all or some portion of the notes or the common stock, no
estimate can be given as to the amount of the notes or the common stock that
will be held by the selling holders upon termination of any sales. In addition,
the selling holders identified below may have sold, transferred or otherwise
disposed of all or a portion of their notes since the date on which they
provided the information regarding their notes in transactions exempt from the
registration requirements of the Securities Act. No selling holder named in the
table below beneficially owns one percent or more of our common stock assuming
conversion of a selling holder's notes, except for Deutsche Bank Securities
Inc., which holds 1.5% of our common stock assuming conversion of its notes.
<TABLE>
<CAPTION>
Principal Common
Amount of Stock
Notes Common Owned After
Beneficially Stock Owned Common Completion
Owned and Prior to the Stock of the
Name of Beneficial Owner Offered Offering(1)(2) Offered(2) Offering
------------------------ ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
1976 Distribution Trust FBO
A. R. Lauder/Zinterhofer.. $ 12,000 107 107 --
1976 Distribution Trust FBO
Jane A. Lauder............ 13,000 116 116 --
AIG/National Union Fire
Insurance................. 800,000 7,191 7,191 --
Alexandra Global Investment
Fund 1 Ltd................ 3,700,000 33,258 33,258 --
Allstate Insurance
Company................... 2,000,000 25,077 17,977 7,100(3)
Arapahoe County, Colorado.. 45,000 404 404 --
Argent Classic Convertible
Arbitrage Fund (Bermuda)
L.P....................... 2,000,000 17,977 17,977 --
Ariston Internet
Convertible Fund.......... 25,000 224 224 --
Aspen Global Technology.... 1,790,000 36,349 16,089 20,260
Associated Electric & Gas
Insurance Services
Limited................... 600,000 5,393 5,393 --
AST Janus Midcap Growth.... 280,000 2,516 2,516 --
Attorney's Title Insurance
Fund Inc.................. 200,000 1,797 1,797 --
Bank Austria Cayman
Islands, Ltd.............. 6,870,000 61,753 61,753 --
BankAmerica Pension Plan... 3,000,000 26,966 26,966 --
Bear, Stearns, & Co. Inc... 1,750,000 15,730 15,730 --
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Principal Common
Amount of Stock
Notes Common Owned After
Beneficially Stock Owned Common Completion
Owned and Prior to the Stock of the
Name of Beneficial Owner Offered Offering(1)(2) Offered(2) Offering
------------------------ ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
Boulder II Limited......... $ 8,500,000 76,404 76,404 --
BP Amoco Corporation Master
Trust for Employee Pension
Plans..................... 5,000,000 44,944 44,944 --
British Virgin Islands
Social Security Board..... 34,000 305 305 --
Christian Science Trustees
for Gifts & Endowments.... 205,000 1,842 1,842 --
Chrysler Corporation Master
Retirement Trust.......... 1,435,000 12,898 12,898 --
CIBC World Markets......... 2,500,000 22,472 22,472 --
City University of New
York...................... 107,000 961 961 --
Conseco Fund Group--
Convertible Securities
Fund...................... 350,000 3,146 3,146 --
Conseco Health Insurance
Company--Convertible...... 150,000 1,348 1,348 --
Conseco Senior Health
Insurance Company--
Convertible............... 150,000 1,348 1,348 --
Conseco Variable Insurance
Company--Convertible...... 100,000 898 898 --
Continental Assurance
Company on Behalf of its
Separate Account (E)...... 4,150,000 37,303 37,303 --
Cova Bond Debenture Fund... 350,000 3,146 3,146 --
David Lipscomb University
General Endowment......... 110,000 988 988 --
Delaware Group Dividend and
Income Fund, Inc.......... 550,000 4,943 4,943 --
Delaware Group Global
Dividend and Income Fund,
Inc....................... 275,000 2,471 2,471 --
Delaware Group Premium
Fund-Convertible
Securities Series......... 175,000 1,573 1,573 --
Delphi Foundation.......... 36,000 323 323 --
Delta Air Lines Master
Trust..................... 670,000 6,022 6,022 --
Deutsche Bank Securities... 117,446,000 1,055,698 1,055,698 --
Dynamic Growth Trust....... 520,000 4,674 4,674 --
ELC Investments............ 5,000,000 44,944 44,944 --
Elf Aquitaine.............. 200,000 1,797 1,797 --
EQAT Alliance Growth &
Income.................... 5,650,000 50,786 50,786 --
EQAT Alliance Growth
Investors................. 2,490,000 22,382 22,382 --
Equitable Life Assurance
Separate Account
Convertibles.............. 3,265,000 29,348 29,348 --
First Republic Bank........ 100,000 898 898 --
First Union International
Capital Markets Inc....... 22,240,000 199,910 199,910 --
First Union National Bank.. 28,215,000 253,618 253,618 --
First Union Risk Management
Inc....................... 5,975,000 53,708 53,708 --
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Common
Amount of Stock
Notes Common Owned After
Beneficially Stock Owned Common Completion
Owned and Prior to the Stock of the
Name of Beneficial Owner Offered Offering(1)(2) Offered(2) Offering
------------------------ ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
Fuji U.S. Income Open....... $ 350,000 3,146 3,146 --
General Motors Employees
Global Group Pension
Trust...................... 4,194,000 37,699 37,699 --
General Motors Foundation... 306,000 2,750 2,750 --
General Motors Welfare
Benefit Trust (L-T Veba)... 2,000,000 17,977 17,977 --
General Motors Welfare
Benefit Trust (S-T Veba)... 2,000,000 17,977 17,977 --
Grady Hospital Foundation... 96,000 862 862 --
Granville Capital
Corporation................ 16,500,000 148,315 148,315 --
Highbridge International
LLC........................ 37,500,000 337,080 337,080 --
HT Insight Convertible
Securities Fund............ 500,000 4,494 4,494 --
Independence Blue Cross..... 93,000 835 835 --
Island Holdings............. 50,000 449 449 --
J.P. Morgan Securities...... 13,500,000 121,348 121,348 --
Janus Global Technology..... 35,830,000 422,068 322,068 100,000
Jersey, Ima................. 315,000 2,831 2,831 --
JMG Capital Partners, LP.... 1,750,000 48,555 15,730 32,825
JWF Global Technology....... 2,510,000 22,561 22,561 --
Kentfield Trading, Ltd...... 12,089,000 108,665 108,665 --
Key Asset Management Inc. as
Agent for the Victory
Convertible Securities
Fund....................... 1,000,000 8,988 8,988 --
LibertyView Funds L.P....... 935,000 8,404 8,404 --
Lipper Convertibles Series
II, L.P.................... 2,000,000 17,977 17,977 --
Lipper Convertibles, L.P.... 12,750,000 114,607 114,607 --
Lipper Offshore
Convertibles, L.P.......... 2,650,000 23,820 23,820 --
Lipper Offshore
Convertibles, L.P. #2...... 2,000,000 17,977 17,977 --
Local Initiatives Support
Corporation................ 43,000 386 386 --
Lord Abbett Bond Debenture
Fund....................... 1,800,000 16,179 16,179 --
Mainstay Convertible Fund... 500,000 4,494 4,494 --
Mainstay VP Convertible
Portfolio.................. 1,000,000 8,988 8,988 --
Memphis Light, Gas & Water
Retirement System.......... 1,865,000 16,764 16,764 --
Merrill Lynch Insurance
Group...................... 228,000 2,049 2,049 --
Morgan Stanley & Co......... 10,000,000 89,888 89,888 --
Morgan Stanley Dean Witter
Convertible Securities
Trust...................... 1,425,000 12,809 12,809 --
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Principal Common
Amount of Stock
Notes Common Owned After
Beneficially Stock Owned Common Completion
Owned and Prior to the Stock of the
Name of Beneficial Owner Offered Offering(1)(2) Offered(2) Offering
------------------------ ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
Motion Picture Industry
Health Plan--Active Member
Fund...................... $ 170,000 1,528 1,528 --
Motion Picture Industry
Health Plan--Retiree
Member Fund............... 85,000 764 764 --
Motors Insurance
Corporation............... 1,464,000 13,159 13,159 --
MSD Portfolio L.P.--
Investments............... 20,280,000 182,292 182,292 --
Museum of Fine Arts,
Boston.................... 43,000 386 386 --
Nabisco Holdings........... 26,000 233 233 --
Nalco Chemical Company..... 300,000 2,696 2,696 --
New Orleans Firefighters
Pension/Relief Fund....... 101,000 907 907 --
New York Life Insurance
Company................... 14,800,000 133,034 133,034 --
New York Life Insurance and
Annuity Corporation....... 1,250,000 11,236 11,236 --
Nomural Janus Global
Technology................ 2,870,000 46,837 25,797 21,040
Northern Income Equity
Fund...................... 2,000,000 17,977 17,977 --
Occidental Petroleum
Corporation............... 171,000 1,537 1,537 --
OCM Convertible Trust...... 460,000 4,134 4,134 --
Ohio Bureau of Workers
Compensation.............. 119,000 1,069 1,069 --
Onex Industrial Partners
Limited................... 4,900,000 44,045 44,045 --
Oppenheimer Convertible
Securities Fund........... 5,000,000 44,944 44,944 --
Oxford, Lord Abbett & Co... 1,300,000 11,685 11,685 --
Pacific Life Insurance
Company................... 500,000 4,494 44,944 --
Parker-Hannifin
Corporation............... 74,000 665 665 --
Partner Reinsurance Company
Ltd....................... 355,000 3,191 3,191 --
Pebble Capital Inc......... 1,850,000 16,629 16,629 --
Peoples Benefit Life
Insurance Company
(Teamsters Separate
Account).................. 5,000,000 44,944 44,944 --
Pimco Convertible Fund..... 1,800,000 16,179 16,179 --
ProMutual.................. 157,000 1,411 1,411 --
Putnam Asset Allocation
Funds--Balanced
Portfolio................. 304,000 2,732 2,732 --
Putnam Asset Allocation
Funds--Conservative
Portfolio................. 187,000 1,680 1,680 --
Putnam Convertible Income--
Growth Trust.............. 1,500,000 13,483 13,483 --
Putnam Convertible
Opportunities and Income
Trust..................... 110,000 988 988 --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Common
Amount of Stock
Notes Common Owned After
Beneficially Stock Owned Common Completion
Owned and Prior to the Stock of the
Name of Beneficial Owner Offered Offering(1)(2) Offered(2) Offering
------------------------ ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
Ramius Capital Group
Holdings, Ltd............. $1,180,000 10,606 10,606 --
Raytheon Master Pension
Trust..................... 350,000 3,146 3,146 --
RCG Latitude Master Fund,
Ltd....................... 200,000 1,797 1,797 --
RJR Reynolds............... 45,000 404 404 --
Robertson Stephens......... 15,000,000 134,832 134,832 --
RT Partners LP............. 2,500,000 322,472 22,472 300,000
SG Cowen Securities........ 2,000,000 17,977 17,977 --
Shell Pension Trust........ 244,000 2,193 2,193 --
Silvercreek Limited
Partnership............... 4,250,000 38,202 38,202 --
Southern Farm Bureau Life
Insurance................. 500,000 4,494 4,494 --
Starvest Combined
Portfolio................. 1,000,000 8,988 8,988 --
Starvest Managed
Portfolio................. 50,000 449 449 --
State Employees' Retirement
Fund of the State of
Delaware.................. 730,000 6,561 6,561 --
State of Connecticut
Combined Investment
Funds..................... 1,990,000 17,887 17,887 --
State of Maryland
Retirement Agency......... 2,369,000 21,294 21,294 --
TCW Group, Inc............. 12,965,000 116,539 116,539 --
The Class 1C Company Ltd... 1,500,000 13,483 13,483 --
The Frist Foundation....... 515,000 4,629 4,629 --
The Grable Foundation...... 90,000 808 808 --
The John Henry Mennen GST.. 110,000 988 988 --
UBKAM Arbitrage Fund....... 1,000,000 8,988 8,988 --
UBS AG, London Branch...... 11,000,000 98,876 98,876 --
University of Rochester.... 40,000 359 359 --
Vanguard Convertible
Securities Fund, Inc...... 1,605,000 14,427 14,427 --
White River Securities
L.L.C..................... 1,750,000 15,730 15,730 --
Zurich HFR Master Hedge
Fund Index Ltd............ 100,000 898 898 --
</TABLE>
--------
(1) Includes common stock into which the notes are convertible.
(2) Assumes a conversion rate of 8.9888 shares per $1,000 principal amount of
notes and a cash payment in lieu of any fractional interest.
(3) Inclues 500 shares held by Allstate Life Insurance Company, a subsidiary of
Allstate Insurance Company.
17
<PAGE>
None of the selling holders nor any of their affiliates, officers, directors
or principal equity holders has held any position or office or has had any
material relationship with us within the past three years except that Goldman,
Sacho & Co., Chase Securities Inc. and Deutsche Bank Securitities Inc., were
the initial purchasers in connection with the offer and sale of the notes in
July 1999. The selling holders purchased all of the notes from us in private
transactions on July 3, 2000 and July 10, 2000. All of the notes were
"restricted securities" under the Securities Act prior to this registration.
Information concerning the selling holders may change from time to time and
any changed information will be set forth in supplements to this prospectus if
and when necessary. In addition, the conversion rate, and therefore, the number
of shares of common stock issuable upon conversion of the notes, is subject to
adjustment under certain circumstances. Accordingly, the aggregate principal
amount of notes and the number of shares of common stock into which the notes
are convertible may increase or decrease.
18
<PAGE>
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the notes and the common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the
form of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market prices, at
varying prices determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses or block
transactions:
. on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or the
common stock may be listed or quoted at the time of sale;
. in the over-the-counter market;
. in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
. through the writing of options, whether the options are listed on an
options exchange or otherwise; or
. through the settlement of short sales.
In connection with the sale of the notes and the common stock into which the
notes are convertible or otherwise, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or the common stock into which the
notes are convertible in the course of hedging the positions they assume. The
selling holders may also sell the notes or the common stock into which the
notes are convertible short and deliver these securities to close out their
short positions, or loan or pledge the notes or the common stock into which the
notes are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock into which the notes are convertible offered by them will be the
purchase price of the notes or common stock less discounts and commissions, if
any. Each of the selling holders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any
proposed purchase of notes or common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on the Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock into which the notes are convertible may be sold in
these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the notes and common stock into which the notes are
convertible may not be sold unless they have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under
the Securities Act. Selling holders who are "underwriters" within the meaning
of Section 2(11) of the Securities Act will be subject to the prospectus
delivery requirements of the Securities Act. The selling holders have
acknowledged that they understand their
19
<PAGE>
obligations to comply with the provisions of the Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling holder
may not sell any notes or common stock described in this prospectus and may not
transfer, devise or gift these securities by other means not described in this
prospectus.
To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is a
part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws under specific circumstances and at specific times.
The registration rights agreement provides for cross-indemnification of the
selling holders and Mercury and their respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and the common stock, including liabilities under the
Securities Act. We will pay substantially all of the expenses incurred by the
selling holders incident to the offering and sale of the notes and the common
stock.
20
<PAGE>
DESCRIPTION OF NOTES
We issued the notes under a document called the "Indenture." The Indenture
is a contract between us and State Street Bank and Trust Company of California,
N.A., as Trustee. The Indenture and the notes are governed by New York law.
Because this section is a summary, it does not describe every aspect of the
notes and the Indenture. This summary is subject to and qualified in its
entirety by reference to all of the provisions of the Indenture, including
definitions of certain terms used in the Indenture. For example, in this
section we use capitalized words to signify defined terms that have been given
special meaning in the Indenture. We describe the meaning of only the more
important terms. Wherever we refer to particular defined terms, those defined
terms are incorporated by reference here. In this section, references to
"Mercury," "we," "our" or "us" refer solely to Mercury Interactive Corporation
and not our subsidiaries.
General
The notes are general, unsecured obligations of Mercury. The notes are
subordinated, which means that they rank behind certain of our indebtedness as
described below. The notes are limited to $500,000,000 aggregate principal
amount. We are required to repay the principal amount of the notes in full on
July 1, 2007. The notes bear interest at the rate of 4.75% per year. We will
pay interest on the notes on January 1 and July 1 of each year, commencing on
January 1, 2001. Interest payable per $1,000 principal amount of notes for the
period from July 3, 2000 to January 1, 2001 will be $23.4861.
A holder of notes may convert the notes into shares of our common stock
initially at the conversion rate of 8.9888 shares per $1,000 in principal
amount of the notes at any time before the close of business on July 1, 2007,
unless the notes have been previously redeemed or repurchased. The conversion
rate may be adjusted as described below.
We may redeem the notes at our option at any time on or after July 1, 2003,
in whole or in part, at the redemption prices set forth below under "--Optional
Redemption by Mercury," plus accrued and unpaid interest to the redemption
date. If there is a Change in Control of Mercury, a holder of notes may have
the right to require us to repurchase its notes as described below under "--
Repurchase at Option of Holders Upon a Change in Control."
Form, Denomination, Transfer, Exchange and Book-Entry Procedures
The notes are issued:
. only in fully registered form;
. without interest coupons; and
. in denominations of $1,000 and greater multiples.
The notes are evidenced by one or more global notes which were deposited
with the Trustee as custodian for DTC and registered in the name of Cede & Co.,
which we refer to as Cede, as nominee of DTC. The global note and any notes
issued in exchange for the global note are subject to restrictions on transfer
and will bear legends regarding those restrictions. Except as described below,
record ownership of the global note may be transferred, in whole or in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
The global note will not be registered in the name of any person, or
exchanged for notes that are registered in the name of any person, other than
DTC or its nominee unless either of the following occurs:
. DTC notifies us that it is unwilling, unable or no longer qualified to
continue acting as the depositary for the global note; or
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. an Event of Default with respect to the notes represented by the global
note has occurred and is continuing.
In those circumstances, DTC will determine in whose names any securities issued
in exchange for the global note will be registered.
DTC or its nominee will be considered the sole owner and holder of the
global note for all purposes, and as a result:
. a holder of notes cannot get notes registered in its name if they are
represented by the global note;
. a holder of notes cannot receive certificated (physical) notes in
exchange for its beneficial interest in the global notes;
. a holder of notes will not be considered to be the owner or holder of the
global note or any note it represents for any purpose; and
. all payments on the global note will be made to DTC or its nominee.
The laws of some jurisdictions require that certain kinds of purchasers, for
example, certain insurance companies, can only own securities in definitive
(certificated) form. These laws may limit the ability of a holder of notes to
transfer its beneficial interests in the global note to these types of
purchasers.
Only institutions, such as securities brokers or dealers, which are refered
to as participants, that have accounts with the DTC or its nominee, and persons
that may hold beneficial interests through participants can own a beneficial
interest in the global note. The only place where the ownership of beneficial
interests in the global note will appear and the only way the transfer of those
interests can be made will be on the records kept by DTC for their
participants' interests, and the records kept by those participants for
interests of persons held by participants on their behalf.
Secondary trading in bonds and notes of corporate issuers is generally
settled in clearinghouse, or next-day, funds. In contrast, beneficial interests
in a global note usually trade in DTC's same-day funds settlement system, and
settle in immediately available funds. We make no representations as to the
effect that settlement in immediately available funds will have on trading
activity in those beneficial interests.
We will make cash payments of interest on and principal of and the
redemption or repurchase price of the global note, as well as any payment of
Liquidated Damages, to Cede, the nominee for DTC, as the registered owner of
the global note. We will make these payments by wire transfer of immediately
available funds on each payment date.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global note as
shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on that payment date. Payments by participants to owners of
beneficial interests in notes represented by the global note held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in "street
name."
We will send any redemption notices to Cede. We understand that if less than
all the notes are being redeemed, DTC's practice is to determine by lot the
amount of the holdings of each participant to be redeemed.
We also understand that neither DTC nor Cede will consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an "omnibus proxy" to us as soon as possible after the record date.
The omnibus proxy assigns Cede's consenting or voting rights to those
participants to whose accounts the notes are credited on the record date
identified in a listing attached to the omnibus proxy.
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Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge the
interest to persons or entities that do not participate in the DTC book-entry
system, or otherwise take actions in respect of that interest, may be affected
by the lack of a physical certificate evidencing its interest.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes, including the presentation of notes for exchange, only at the
direction of one or more participants to whose account with DTC interests in
the global note are credited and only in respect of such portion of the
principal amount of the notes represented by the global note as to which such
participant or participants has or have given such direction.
DTC has also advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act. DTC was created to
hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Some of the
participants, or their representatives, together with other entities, own DTC.
Indirect access to the DTC system is available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
The policies and procedures of DTC, which may change periodically, will
apply to payments, transfers, exchanges and other matters relating to
beneficial interests in the global note. We and the Trustee have no
responsibility or liability for any aspect of DTC's or any participants'
records relating to beneficial interests in the global note, including for
payments made on the global note, and we and the Trustee are not responsible
for maintaining, supervising or reviewing any of those records.
Conversion Rights
A holder of notes may, at its option, convert any portion of the principal
amount of any note that is an integral multiple of $1,000 into shares of our
common stock at any time on or prior to the close of business on the maturity
date, unless the notes have been previously redeemed or repurchased, at a
conversion rate of 8.9888 shares of common stock per $1,000 principal amount of
notes. The conversion rate is equivalent to a conversion price of approximately
$111.25. The right of a holder of notes to convert a note called for redemption
or delivered for repurchase will terminate at the close of business on the
redemption date or repurchase date for that note, unless we default in making
the payment due upon redemption or repurchase.
A holder of notes may convert all or part of any note by delivering the note
at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The
City of New York, accompanied by a duly signed and completed notice of
conversion, a copy of which may be obtained by the Trustee. The conversion date
will be the date on which the note and the duly signed and completed notice of
conversion are so delivered.
As promptly as practicable on or after the conversion date, we will issue
and deliver to the Trustee a certificate or certificates for the number of full
shares of our common stock issuable upon conversion, together with payment in
lieu of any fraction of a share. The certificate will then be sent by the
Trustee to the conversion agent for delivery to the Holder. The shares of our
common stock issuable upon conversion of the notes will be fully paid and
nonassessable and will rank equally with the other shares of our common stock.
If a holder of notes surrenders a note for conversion on a date that is not
an Interest Payment Date, the holder will not be entitled to receive any
interest for the period from the next preceding Interest Payment Date to the
conversion date, except as described below in this paragraph. Any note
surrendered for conversion during the period from the close of business on any
Regular Record Date to the opening of business on the next succeeding Interest
Payment Date, except notes or portions of notes called for redemption on a
redemption
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date or to be repurchased on a repurchase date for which the right to convert
would terminate during this period, must be accompanied by payment of an amount
equal to the interest payable on that Interest Payment Date on the principal
amount of notes being surrendered for conversion. In the case of any note which
has been converted after any Regular Record Date but before the next succeeding
Interest Payment Date, interest payable on that Interest Payment Date shall be
payable on that Interest Payment Date notwithstanding the conversion, and the
interest shall be paid to the holder of the note on the Regular Record Date.
No other payment or adjustment for interest, or for any dividends in respect
of our common stock, will be made upon conversion. Holders of our common stock
issued upon conversion will not be entitled to receive any dividends payable to
holders of our common stock as of any record time or date before the close of
business on the conversion date. We will not issue fractional shares upon
conversion. Instead, we will pay cash based on the market price of our common
stock at the close of business on the conversion date.
A holder of notes will not be required to pay any taxes or duties relating
to the issue or delivery of our common stock on conversion but will be required
to pay any tax or duty relating to any transfer involved in the issue or
delivery of our common stock in a name other than that of the holder.
Certificates representing shares of our common stock will not be issued or
delivered unless all taxes and duties, if any, payable by the holder have been
paid.
The conversion rate will be subject to adjustment for, among other things:
. dividends, and other distributions, payable in our common stock on shares
of our capital stock,
. the issuance to all holders of our common stock of rights, options or
warrants entitling them to subscribe for or purchase our common stock at
less than the then Current Market Price of such common stock, determined
as provided in the Indenture, as of the record date for stockholders
entitled to receive these rights, options or warrants,
. subdivisions, combinations and reclassifications of our common stock,
. distributions to all holders of our common stock of evidences of
indebtedness of Mercury, shares of capital stock, cash or assets,
including securities, but excluding those dividends, rights, options,
warrants and distributions referred to above, dividends and distributions
paid exclusively in cash and distributions upon mergers or consolidations
discussed below,
. distributions consisting exclusively of cash, excluding any cash portion
of distributions referred to in the immediately preceding clause or cash
distributed upon a merger or consolidation to which the next succeeding
paragraph applies, to all holders of our common stock in an aggregate
amount that, combined together with (1) other such all-cash distributions
made within the preceding 365-day period in respect of which no
adjustment has been made and (2) any cash and the fair market value of
other consideration payable in connection with any tender offer by us or
any of our subsidiaries for our common stock concluded within the
preceding 365-day period in respect of which no adjustment has been made,
exceeds 10% of our market capitalization, being the product of the
Current Market Price per share of the common stock on the record date for
such distribution and the number of shares of common stock then
outstanding, and
. the successful completion of a tender offer made by us or any of our
subsidiaries for our common stock which involves an aggregate
consideration that, together with (1) any cash and other consideration
payable in a tender offer by us or any of our subsidiaries for our common
stock expiring within the 365-day period preceding the expiration of such
tender offer in respect of which no adjustment has been made and (2) the
aggregate amount of any such all-cash distributions referred to in the
immediately preceding clause above to all holders of our common stock
within the 365-day period preceding the expiration of such tender offer
in respect of which no adjustments have been made, exceeds 10% of our
market capitalization on the expiration of such tender offer.
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We reserve the right to effect such increases in the conversion rate in
addition to those required by the foregoing provisions as we consider to be
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. We will not be required to make any adjustment to the conversion
rate until the cumulative adjustments amount to 1.0% or more of the conversion
rate. We will compute all adjustments to the conversion rate and will give
notice by mail to holders of the registered notes of any adjustments.
In case of any consolidation or merger of Mercury with or into another
entity or any merger of another entity into Mercury, other than a merger which
does not result in any reclassification, conversion, exchange or cancellation
of our common stock, or in case of any sale or transfer of all or substantially
all of our assets, each note then outstanding will become convertible only into
the kind and amount of securities, cash and other property receivable upon the
consolidation, merger, sale or transfer by a holder of the number of shares of
common stock into which the notes were convertible immediately prior to the
consolidation or merger or sale or transfer.
We may increase the conversion rate for any period of at least 20 days, upon
at least 15 days' notice, if our Board of Directors determines that the
increase would be in our best interest. The Board of Directors' determination
in this regard will be conclusive. We will give holders of notes at least 15
days' notice of such an increase in the conversion rate. Any increase, however,
will not be taken into account for purposes of determining whether the closing
price of our common stock exceeds the conversion price by 105% in connection
with an event which otherwise would be a Change In Control as defined below.
If at any time we make a distribution of property to our stockholders that
would be taxable to such stockholders as a dividend for United States federal
income tax purposes, such as distributions of evidences of indebtedness or
assets of Mercury, but generally not stock dividends on common stock or rights
to subscribe for common stock, and, pursuant to the anti-dilution provisions of
the Indenture, the number of shares into which notes are convertible is
increased, that increase may be deemed for United States federal income tax
purposes to be the payment of a taxable dividend to holders of notes.
Subordination
The notes are subordinated and, as a result, the payment of the principal,
any premium and interest, including Liquidated Damages, on the notes, including
amounts payable on any redemption or repurchase, will be subordinated to the
prior payment in full, in cash or other payment satisfactory to holders of
Senior Debt, of all of our Senior Debt. The notes are also effectively
subordinated to any debt or other liabilities of our subsidiaries. On September
30, 2000 we had no outstanding Senior Debt and the aggregate amount of
liabilities of our subsidiaries was $41.8 million, excluding intercompany
liabilities.
"Senior Debt" is defined in the Indenture to mean: the principal of,
premium, if any, and interest on, including all interest accruing subsequent to
the commencement of any bankruptcy or similar proceeding, whether or not a
claim for post-petition interest is allowable as a claim in any such
proceeding, and all fees and other amounts payable in connection with, the
following, whether absolute or contingent, secured or unsecured, due or to
become due, outstanding on the date of the Indenture or thereafter created,
incurred or assumed:
. our indebtedness evidenced by a credit or loan agreement, note, bond,
debenture or other written obligation;
. all of our obligations for money borrowed;
. all of our obligations evidenced by a note or similar instrument given in
connection with the acquisition of any businesses, properties or assets
of any kind;
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. our obligations (1) as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting
principles or (2) as lessee under other leases for facilities, capital
equipment or related assets, whether or not capitalized, entered into or
leased for financing purposes;
. all of our obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts or similar
agreements or arrangements;
. all of our obligations with respect to letters of credit, bankers'
acceptances and similar facilities, including reimbursement obligations
with respect to the foregoing;
. all of our obligations issued or assumed as the deferred purchase price
of property or services, but excluding trade accounts payable and accrued
liabilities arising in the ordinary course of business;
. all obligations of the type referred to in the above clauses of another
person and all dividends of another person, the payment of which, in
either case, we have assumed or guaranteed, or for which we are
responsible or liable, directly or indirectly, jointly or severally, as
obligor, guarantor or otherwise, or which are secured by a lien on our
property; and
. renewals, extensions, modifications, replacements, restatements and
refundings of, or any indebtedness or obligation issued in exchange for,
any such indebtedness or obligation described in the above clauses of
this definition.
Senior Debt will not include the notes or any other indebtedness or
obligation if its terms or the terms of the instrument under which or pursuant
to which it is issued expressly provide that it is not superior in right of
payment to the notes.
We may not make any payment on account of principal, premium or interest,
including Liquidated Damages, if any, on the notes, or redemption or repurchase
of the notes, if either of the following occurs:
. we default in our obligations to pay principal, premium, interest or
other amounts on our Senior Debt, including a default under any
redemption or repurchase obligation, and the default continues beyond any
grace period that we may have to make those payments; or
. any other default occurs and is continuing on any Designated Senior Debt
and (1) the default permits the holders of the Designated Senior Debt to
accelerate its maturity and (2) the Trustee has received a notice, which
is referred to as a Payment Blockage Notice, of the default from Mercury,
the holder of such debt or such other person permitted to give such
notice under the Indenture.
If payments of the notes have been blocked by a payment default on Senior
Debt, payments on the notes may resume when the payment default has been cured
or waived or ceases to exist. If payments on the notes have been blocked by a
nonpayment default, payments on the notes may resume on the earlier of (1) the
date the nonpayment default is cured or waived or ceases to exist or (2) 179
days after the Payment Blockage Notice is received.
No nonpayment default that existed on the day a Payment Blockage Notice was
delivered to the Trustee can be used as the basis for any subsequent Payment
Blockage Notice. In addition, once a holder of Designated Senior Debt has
blocked payment on the notes by giving a Payment Blockage Notice, no new period
of payment blockage can be commenced pursuant to a subsequent Payment Blockage
Notice until both of the following are satisfied:
. 365 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice; and
. all scheduled payments of principal, any premium and interest with
respect to the notes that have come due have been paid in full in cash.
"Designated Senior Debt" means our obligations under any particular Senior
Debt in which the instrument creating or evidencing the same or the assumption
or guarantee thereof, or related agreements or
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documents to which we are a party, expressly provides that such indebtedness
shall be "Designated Senior Debt" for purposes of the Indenture. The
instrument, agreement or other document evidencing any Designated Senior Debt
may place limitations and conditions on the right of the Senior Debt to
exercise the rights of Designated Senior Debt.
In addition, upon any acceleration of the principal due on the notes as a
result of an Event of Default or payment or distribution of our assets to
creditors upon any dissolution, winding up, liquidation or reorganization,
whether voluntary or involuntary, marshaling of assets, assignment for the
benefit of creditors, or in bankruptcy, insolvency, receivership or other
similar proceedings, all principal, premium, if any, interest and other amounts
due on all Senior Debt must be paid in full before a holder of notes is
entitled to receive any payment. By reason of such subordination, in the event
of insolvency, our creditors who are holders of Senior Debt are likely to
recover more, ratably, than a holder of notes is, and a holder of notes will
likely experience a reduction or elimination of payments on the notes.
In addition, the notes will be "structurally subordinated" to all
indebtedness and other liabilities, including trade payables and lease
obligations, of our subsidiaries. This occurs because any right of Mercury to
receive any assets of our subsidiaries upon their liquidation or
reorganization, and the right of the holders of the notes to participate in
those assets, will be effectively subordinated to the claims of that
subsidiary's creditors, including trade creditors, except to the extent that
Mercury itself is recognized as a creditor of such subsidiary, in which case
the claims of Mercury would still be subordinate to any security interest in
the assets of the subsidiary and any indebtedness of the subsidiary senior to
that held by Mercury.
The Indenture does not limit our ability to incur Senior Debt or our ability
or the ability of our subsidiaries to incur any other indebtedness.
Optional Redemption by Mercury
On or after July 1, 2003 we may redeem the notes, in whole or in part, at
the prices set forth below. If we elect to redeem all or part of the notes, we
will give at least 30, but no more than 60 days notice to the holders of notes.
The redemption price, expressed as a percentage of principal amount, is as
follows for the 12-month periods beginning on July 1 of the following years:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003.............................................................. 102.714%
2004.............................................................. 102.036%
2005.............................................................. 101.357%
2006.............................................................. 100.679%
</TABLE>
and thereafter is equal to 100% of the principal amount, in each case together
with accrued interest to the date of redemption.
No sinking fund is provided for the notes, which means that the Indenture
does not require us to redeem or retire the notes periodically.
We may, to the extent permitted by applicable law, at any time purchase
notes in the open market, by tender at any price or by private agreement. Any
note that we purchase may, to the extent permitted by applicable law and
subject to restrictions contained in the purchase agreement with the Initial
Purchasers, be re-issued or resold or may, at our option, be surrendered to the
Trustee for cancellation. Any notes surrendered for cancellation may not be re-
issued or resold and will be canceled promptly.
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Payment and Conversion
We will make all payments of principal and interest on the notes by dollar
check drawn on an account maintained at a bank in The City of New York. If a
holder of notes holds registered notes with a face value greater than
$2,000,000, at the request of the holder we will make payments of principal or
interest to the holder by wire transfer to an account maintained by the holder
at a bank in The City of New York. Payment of any interest on the notes will be
made to the person in whose name the note, or any predecessor note, is
registered at the close of business on the June 15 or the December 15 (whether
or not a business day) immediately preceding the relevant Interest Payment
Date, which is referred to as a Regular Record Date. If a holder of notes holds
registered notes with a face value in excess of $2,000,000 and the holder would
like to receive payments by wire transfer, the holder will be required to
provide the Trustee with wire transfer instructions at least 15 days prior to
the relevant payment date.
Payments on any global note registered in the name of DTC or its nominee
will be payable by the Trustee to DTC or its nominee in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, we and
the Trustee will treat the persons in whose names the notes, including any
global note, are registered as the owners for the purpose of receiving payments
and for all other purposes. Consequently, neither we, the Trustee nor any of
our agents or the Trustee's agents has or will have any responsibility or
liability for (1) any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interests in the global note, or for maintaining, supervising or
reviewing any of DTC's records or any participant's or indirect participant's
records relating to the beneficial ownership interests in the global note, or
(2) any other matter relating to the actions and practices of DTC or any of its
participants or indirect participants.
We will not be required to make any payment on the notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next succeeding business day will be treated as though it were paid
on the original due date and no interest will accrue on the payment for the
additional period of time.
Notes may be surrendered for conversion at the Corporate Trust Office of the
Trustee in the Borough of Manhattan, The City of New York. Notes surrendered
for conversion must be accompanied by appropriate notices and any payments in
respect of interest or taxes, as applicable, as described above under "--
Conversion Rights."
We have initially appointed the Trustee as paying agent and conversion
agent. We may terminate the appointment of any paying agent or conversion agent
and appoint additional or other paying agents and conversion agents. However,
until the notes have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of, premium, if any, and interest on the notes
have been made available for payment and either paid or returned to us as
provided in the Indenture, the Trustee will maintain an office or agency in the
Borough of Manhattan, The City of New York for surrender of notes for
conversion. Notice of any termination or appointment and of any change in the
office through which any paying agent or conversion agent will act will be
given in accordance with "--Notices" below.
All moneys deposited with the Trustee or any paying agent, or then held by
us, in trust for the payment of principal of, premium, if any, or interest on
any notes which remain unclaimed at the end of two years after the payment has
become due and payable will be repaid to us, and a holder of notes will then
look only to us for payment.
Repurchase at Option of Holders Upon a Change in Control
If a Change in Control as defined below occurs, a holder of notes will have
the right, at its option, to require us to repurchase all of its notes not
previously called for redemption, or any portion of the principal amount
thereof, that is equal to $1,000 or an integral multiple of $1,000. The price
we are required to pay is 100% of the principal amount of the notes to be
repurchased, together with interest accrued to, but excluding, the repurchase
date.
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At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in our common stock valued at 95% of the average of the
closing prices of the our common stock for the five trading days immediately
preceding and including the third day prior to the repurchase date. We may only
pay the repurchase price in our common stock if we satisfy conditions provided
in the Indenture.
Within 30 days after the occurrence of a Change in Control, we are obligated
to give to the holders of notes notice of the Change in Control and of the
repurchase right arising as a result of the Change of Control. We must also
deliver a copy of this notice to the Trustee. To exercise the repurchase right,
a holder of notes must deliver on or before the 30th day after the date of our
notice irrevocable written notice to the Trustee of the holder's exercise of
its repurchase right, together with the notes with respect to which the right
is being exercised. We are required to repurchase the notes on the date that is
45 days after the date of our notice.
A Change in Control will be deemed to have occurred at the time after the
notes are originally issued that any of the following occurs:
(1) any person, including any syndicate or group deemed to be a "person"
under Section 13(d)(3) of the Securities Exchange Act, acquires beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of our capital
stock entitling the person to exercise 50% or more of the total voting
power of all shares of our capital stock that is entitled to vote generally
in elections of directors, other than an acquisition by us, any of our
subsidiaries or any of our employee benefit plans; or
(2) we merge or consolidate with or into any other person, any merger of
another person into us, or we convey, sell, transfer or lease all or
substantially all of our assets to another Person, other than (a) any such
transaction (i) that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our capital stock and
(ii) pursuant to which the holders of our common stock immediately prior to
such transaction have the entitlement to exercise, directly or indirectly,
50% or more of the total voting power of all shares of capital stock
entitled to vote generally in the election of directors of the continuing
or surviving corporation immediately after such transaction and (b) any
merger which is effected solely to change our jurisdiction of incorporation
and results in a reclassification, conversion or exchange of outstanding
shares of our common stock into solely shares of common stock.
However, a Change in Control will not be deemed to have occurred if either
(A) the closing price per share of our common stock for any five trading days
within the period of 10 consecutive trading days ending immediately after the
later of the Change in Control or the public announcement of the Change in
Control, in the case of a Change in Control relating to an acquisition of
capital stock, or the period of 10 consecutive trading days ending immediately
before the Change in Control, in the case of Change in Control relating to a
merger, consolidation or asset sale, equals or exceeds 105% of the conversion
price of the notes in effect on each of those trading days or (B) all of the
consideration, excluding cash payments for fractional shares and cash payments
made pursuant to dissenters' appraisal rights, in a merger or consolidation
otherwise constituting a Change of Control under clause (1) and/or clause (2)
above consists of shares of common stock traded on a national securities
exchange or quoted on the Nasdaq National Market, or will be so traded or
quoted immediately following such merger or consolidation, and as a result of
such merger or consolidation the notes become convertible into such common
stock.
For purposes of these provisions:
. the conversion price is equal to $1,000 divided by the conversion rate;
. whether a person is a "beneficial owner" will be determined in accordance
with Rule 13d-3 under the Securities Exchange Act; and
. ""person'' includes any syndicate or group that would be deemed to be a
"person" under Section 13(d)(3) of the Securities Exchange Act.
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Rule 13e-4 under the Securities Exchange Act requires the dissemination of
prescribed information to security holders in the event of an issuer tender
offer and may apply in the event that the repurchase option becomes available
to the holders of notes. We will comply with this rule to the extent it applies
at that time.
The definition of Change in Control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, the ability of a holder
of notes to require us to repurchase its notes as a result of conveyance,
transfer, sale, lease or other disposition of less than all of our assets may
be uncertain.
The foregoing provisions would not necessarily provide the holders of notes
with protection if we are involved in a highly leveraged or other transaction
that may adversely affect the holders.
Our ability to repurchase notes upon the occurrence of a Change in Control
is subject to important limitations. Some of the events constituting a Change
in Control could result in an event of default under our Senior Debt. Moreover,
a Change in Control could cause an event of default under, or be prohibited or
limited by, the terms of our Senior Debt. As a result, unless we were to obtain
a waiver, a repurchase of the notes in cash could be prohibited under the
subordination provisions of the Indenture until the Senior Debt is paid in
full. Although we have the right to repurchase the notes with our common stock,
subject to certain conditions, we cannot assure the holders of notes that we
would have the financial resources, or would be able to arrange financing, to
pay the repurchase price in cash for all the notes that might be delivered by
holders of notes seeking to exercise the repurchase right. If we were to fail
to repurchase the notes when required following a Change in Control, an Event
of Default under the Indenture would occur, whether or not such repurchase is
permitted by the subordination provisions of the Indenture. Any such default
may, in turn, cause a default under our Senior Debt. See "--Subordination."
Mergers and Sales of Assets
We may not consolidate with or merge into any other person or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any person, and we may not permit any person to consolidate with or merge
into us or convey, transfer, sell or lease such person's properties and assets
substantially as an entirety to us unless:
. the person formed by such consolidation or into or with which we are
merged or the person to which our properties and assets are so conveyed,
transferred, sold or leased, shall be a corporation, limited liability
company, partnership or trust organized and existing under the laws of
the United States, any State within the United States or the District of
Columbia and, if we are not the surviving person, the surviving person
assumes the payment of the principal of, premium, if any, and interest on
the notes and the performance of our other covenants under the Indenture,
and
. immediately after giving effect to the transaction, no Event of Default,
and no event that, after notice or lapse of time or both, would become an
Event of Default, will have occurred and be continuing.
Events of Default
The following will be Events of Default under the Indenture:
. we fail to pay principal of or premium, if any, on any note when due,
whether or not prohibited by the subordination provisions of the
Indenture;
. we fail to pay any interest, including any Liquidated Damages, on any
note when due, which failure continues for 30 days, whether or not
prohibited by the subordination provisions of the Indenture;
. we fail to provide notice of a Change in Control, whether or not such
notice is prohibited by the subordination provisions of the Indenture;
. we fail to perform any other covenant in the Indenture, which failure
continues for 60 days after written notice as provided in the Indenture;
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. any indebtedness under any bonds, debentures, notes or other evidences of
indebtedness for money borrowed, or any guarantee thereof, by us or any
of our significant subsidiaries in an aggregate principal amount in
excess of $10,000,000 is not paid when due either at its stated maturity
or upon acceleration thereof, and such indebtedness is not discharged, or
such acceleration is not rescinded or annulled, within a period of 30
days after notice as provided in the Indenture; and
. certain events of bankruptcy, insolvency or reorganization involving us
or any of our significant subsidiaries.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any holder, unless the holder shall
have offered reasonable indemnity to the Trustee. Subject to providing
indemnification of the Trustee, the holders of a majority in aggregate
principal amount of the outstanding notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee.
If an Event of Default other than an Event of Default arising from events of
insolvency, bankruptcy or reorganization with respect to Mercury occurs and is
continuing, either the Trustee or the holders of at least 25% in principal
amount of the outstanding notes may, subject to the subordination provisions of
the Indenture, accelerate the maturity of all notes. However, after such
acceleration, but before a judgment or decree based on acceleration, the
holders of a majority in aggregate principal amount of outstanding notes may,
under certain circumstances, rescind and annul the acceleration if all Events
of Default, other than the non-payment of principal of the notes which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in the Indenture. If an Event of Default arising from events
of insolvency, bankruptcy or reorganization with respect to Mercury occurs,
then the principal of, and accrued interest on, all the notes will
automatically become immediately due and payable without any declaration or
other act on the part of the holders of the notes or the Trustee. For
information as to waiver of defaults, see "--Meetings, Modification and
Waiver."
A holder of notes will not have any right to institute any proceeding with
respect to the Indenture, or for any remedy under the Indenture, unless the
holder gives the Trustee written notice of a continuing Event of Default and
the holders of at least 25% in aggregate principal amount of the outstanding
notes have made written request, and offered reasonable indemnity, to the
Trustee to institute proceedings, and the Trustee has not received from the
holders of a majority in aggregate principal amount of the outstanding notes
direction inconsistent with the written request and shall have failed to
institute such proceeding within 60 days. However, these limitations do not
apply to a suit instituted by a holder of notes for the enforcement of payment
of the principal of, premium, if any, or interest, including Liquidated
Damages, on the holder's note on or after the respective due dates expressed in
its note or the holder's right to convert its note in accordance with the
Indenture.
We will be required to furnish to the Trustee annually a statement as to our
performance of certain of our obligations under the Indenture and as to any
default in such performance.
Meetings, Modification and Waiver
The Indenture contains provision for convening meetings of the holders of
notes to consider matters affecting their interests.
Certain limited modifications of the Indenture may be made without the
necessity of obtaining the consent of the holders of the notes. Other
modifications and amendments of the Indenture may be made, and certain past
defaults by us may be waived, either
. with the written consent of the holders of not less than a majority in
aggregate principal amount of the notes at the time outstanding or
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. by the adoption of a resolution, at a meeting of holders of the notes at
which a quorum is present, by the holders of at least 66 2/3% in
aggregate principal amount of the notes represented at such meeting.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes
at the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of such aggregate principal amount.
However, a modification or amendment requires the consent of the holder of
each outstanding note affected if it would:
. change the stated maturity of the principal or interest of a note;
. reduce the principal amount of, or any premium or interest on, any note;
. reduce the amount payable upon a redemption or mandatory repurchase;
. modify the provisions with respect to the repurchase rights of holders of
notes in a manner adverse to the holders;
. change the place or currency of payment on a note;
. impair the right to institute suit for the enforcement of any payment on
any note;
. modify our obligation to maintain an office or agency in New York City;
. modify the subordination provisions in a manner that is adverse to the
holders of the notes;
. adversely affect the right to convert the notes;
. modify our obligation to deliver information required under Rule 144A to
permit resales of the notes and common stock issued upon conversion of
the notes if we cease to be subject to the reporting requirements under
the Securities Exchange Act;
. reduce the above-stated percentage of the principal amount of the holders
whose consent is needed to modify or amend the Indenture;
. reduce the percentage of the principal amount of the holders whose
consent is needed to waive compliance with certain provisions of the
Indenture or to waive certain defaults; or
. reduce the percentage required for the adoption of a resolution or the
quorum required at any meeting of holders of notes at which a resolution
is adopted.
The holders of a majority in aggregate principal amount of the outstanding
notes may waive compliance by us with certain restrictive provisions of the
Indenture by written consent. Holders of at least 66 2/3% of the principal
amount of notes attending a meeting may also waive compliance by us with
certain restrictive provisions of the Indenture by the adoption of a resolution
at the meeting if a quorum of holders are present and certain other conditions
are met. The holders of a majority in aggregate principal amount of the
outstanding notes also may waive by written consent any past default under the
Indenture, except a default in the payment of principal, premium, if any, or
interest.
Registration Rights
The registration statement of which this prospectus forms a part has been
filed under the terms of a Registration Rights Agreement, which we entered into
with the Initial Purchasers of the notes. In the Registration Rights Agreement
we agreed, for the benefit of the holders of the notes and the shares of common
stock issuable upon conversion of the notes, which are referred to together as
the Registrable Securities, that we would, at our expense:
. file with the SEC, within 90 days after the date the notes were
originally issued, a shelf registration statement covering resales of the
Registrable Securities;
. use our reasonable efforts to cause the shelf registration statement to
be declared effective under the Securities Act within 180 days after the
date the notes were originally issued, subject to our right to postpone
having the shelf registration statement declared effective for an
additional 90 days in limited circumstances; and
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. use our reasonable efforts to keep effective the shelf registration
statement until two years after the date the notes are issued or, if
earlier, until there are no outstanding Registrable Securities, which is
referred to as the Effectiveness Period.
We will be permitted to suspend the use of this prospectus, which is part of
the shelf registration statement, in connection with the sales of Registrable
Securities during prescribed periods of time for reasons relating to pending
corporate developments, public filings with the SEC and other events. The
periods during which we can suspend the use of this prospectus may not,
however, exceed a total of 45 days in any 90 day period or a total of 90 days
in any 12-month period. Following the effectiveness of the registration
statement of which this prospectus forms a part, we will provide to each holder
of Registrable Securities copies of this prospectus, notify each holder that
the shelf registration statement has become effective and take certain other
actions required to permit public resales of the Registrable Securities.
We may, upon written notice to all the holders of notes, postpone having the
shelf registration statement declared effective for a reasonable period not to
exceed 90 days if we possess material non-public information the disclosure of
which would have a material adverse effect on us and our subsidiaries taken as
a whole. Notwithstanding any such postponement, additional interest, which is
referred to as Liquidated Damages, will accrue on the notes if either of the
following events, which are referred to as Registration Defaults, occurs:
. on or prior to 90 days following the date the notes were originally
issued, a shelf registration statement has not been filed with the SEC;
or
. on or prior to 180 days following the date the notes were originally
issued, the shelf registration statement is not declared effective.
In that case, Liquidated Damages will accrue on the notes from and including
the day following the Registration Default to but excluding the day on which
the Registration Default has been cured. Liquidated Damages will be paid semi-
annually in arrears, with the first semi-annual payment due on the first
Interest Payment Date following the date on which the Liquidated Damages began
to accrue.
The rates at which Liquidated Damages will accrue will be as follows:
. 0.25% of the principal amount per annum to and including the 90th day
after the Registration Default; and
. 0.5% of the principal amount per annum from and after the 91st day after
the Registration Default.
In addition, the interest rate on the notes will be increased if:
. the shelf registration statement ceases to be effective, or we otherwise
prevent or restrict holders of Registrable Securities from making sales
under the shelf registration statement, for more than 45 days, whether or
not consecutive; or
. the shelf registration statement ceases to be effective, or we otherwise
prevent or restrict holders of Registrable Securities from making sales
under the shelf registration statement, for more than 90 days, whether or
not consecutive, during any 12-month period.
In either event, the interest rate on the notes will increase by an
additional 0.50% per annum from the 46th day of the 90-day period or the 91st
day of the 12-month period. The increased rate will continue until the earlier
of the following:
. the time the shelf registration statement again becomes effective or the
holders of Registrable Securities are again able to make sales under the
shelf registration statement, depending on which event triggered the
increase in interest rate; or
. the date the Effectiveness Period expires.
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A holder who elects to sell any Registrable Securities pursuant to the shelf
registration statement of which this prospectus forms a part is required to be
named as a selling security holder in this prospectus, may be required to
deliver a prospectus to purchasers, may be subject to certain civil liability
provisions under the Securities Act in connection with those sales and is bound
by the provisions of the Registration Rights Agreement that apply to a holder
making such an election, including certain indemnification provisions.
No holder of Registrable Securities is entitled to be named as a selling
security holder in this prospectus and no holder of Registrable Securities is
entitled to use this prospectus for offers and resales of Registrable
Securities at any time, unless such holder has returned a completed and signed
Notice and Questionnaire to us.
Beneficial owners of Registrable Securities who have not returned a Notice
and Questionnaire may receive Notice and Questionnaire from us upon request.
Following our receipt of a completed and signed Notice and Questionnaire, we
will include the Registrable Securities covered thereby in the shelf
registration statement, subject to restrictions on the timing and number of
supplements to the shelf registration statement provided in the Registration
Rights Agreement.
We agreed in the Registration Rights Agreement to use our reasonable efforts
to cause the shares of common stock issuable upon conversion of the notes to be
quoted on the Nasdaq National Market. However, if the common stock is not then
quoted on the Nasdaq National Market, we will use our reasonable efforts to
cause the shares of common stock issuable upon conversion of the notes to be
quoted or listed on whichever market or exchange the common stock is then
quoted or listed, upon effectiveness of the shelf registration statement.
This summary of certain provisions of the Registration Rights Agreement is
not complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, a copy of which will
be made available to beneficial owners of the notes upon request to us.
Notices
Notice to holders of the registered notes will be given by mail to the
addresses as they appear in the security register. Notices will be deemed to
have been given on the date of such mailing.
Notice of a redemption of notes will be given not less than 30 nor more than
60 days prior to the redemption date and will specify the redemption date. A
notice of redemption of the notes will be irrevocable.
Replacement of Notes
We will replace any note that becomes mutilated, destroyed, stolen or lost
at the expense of the holder upon delivery to the Trustee of the mutilated
notes or evidence of the loss, theft or destruction satisfactory to us and the
Trustee. In the case of a lost, stolen or destroyed note, indemnity
satisfactory to the Trustee and us may be required at the expense of the holder
of the note before a replacement note will be issued.
Payment of Stamp and Other Taxes
We have paid all stamp and other duties, if any, which may have been imposed
by the United States or any political subdivision thereof or taxing authority
thereof or therein with respect to the issuance of the notes. We were not
required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority thereof or therein.
Governing Law
The Indenture and the notes are governed by and construed in accordance with
the laws of the State of New York, United States of America.
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The Trustee
If an Event of Default occurs and is continuing, the Trustee will be
required to use the degree of care of a prudent person in the conduct of his
own affairs in the exercise of its powers. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the holders of notes, unless they
shall have offered to the Trustee reasonable security or indemnity.
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DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 240,000,000 shares of common stock, par
value $.002 per share, and 5,000,000 shares of preferred stock, par value $.002
per share.
Common Stock
As of October 31, 2000, there were 80,891,684 shares of our common stock
outstanding that were held of record by approximately 40,500 stockholders.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Our stockholders
do not have cumulative voting rights in the election of directors, and
accordingly, holders of a majority of the shares voting are able to elect all
of the directors. Subject to preferences that may be granted to any then
outstanding preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of
funds legally available therefor as well as any distributions to the
stockholders. In the event of our liquidation, dissolution or winding up,
holders of common stock are entitled to share ratably in all our assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding preferred stock. Holders of common stock have no preemptive or
other subscription or conversion rights. There are no redemption or sinking
fund provisions applicable to the common stock.
Preferred Stock
Our Certificate of Incorporation authorizes our Board of Directors to issue
up to 5,000,000 shares of preferred stock without any vote or action by our
stockholders. Our Board of Directors may issue preferred stock in one or more
series and determine the dividend rights, conversion rights, voting rights,
redemption rights, liquidation preferences, sinking fund terms, the designation
of, and the number of shares constituting each series. The preferred stock that
can be authorized by our Board of Directors could have preference over our
common stock with respect to dividends and other distributions and upon our
liquidation. In addition, the voting power of our outstanding common stock may
become diluted in the event that the board of directors issues preferred stock
with voting rights.
In connection with our Shareholder Rights Plan, described below, our Board
of Directors has designated and reserved for issuance a series of 50,000 shares
of Series A Participating Preferred Stock, par value $.002 per share. We may
issue these shares of preferred stock under certain circumstances if, as
discussed below, the rights distributed to our stockholders pursuant to the
Shareholder Rights Plan become exercisable. We have no present plans to issue,
or reserve for issuance, any other series of preferred stock.
Shareholder Rights Plan
We adopted a Shareholder Rights Plan on July 5, 1996, which was amended on
March 31, 1999 and on May 19, 2000. In connection with the Shareholder Rights
Plan, our Board of Directors declared and paid a dividend of one preferred
share purchase right for each share of our common stock outstanding on July 15,
1996. Each right entitles the holder, under certain circumstances, to purchase
from us one one-thousandth of a share of our Series A Participating Preferred
Stock, par value $.002 per share, at an exercise price of $463.00 per one one-
thousandth of a share of Series A Participating Preferred Stock.
Initially, the rights are attached to outstanding certificates representing
our common stock, and no separate certificates representing the rights are
distributed. The rights will separate from our common stock, be represented by
separate certificates and will become exercisable upon the earlier of:
. ten business days following a public announcement that a person or group
has acquired or has obtained the right to acquire 15% or more of our
outstanding common stock; or
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. ten business days after someone commences or announces they intend to
commence a tender offer or exchange offer for 15% or more of our
outstanding common stock.
If after the rights become exercisable we agree to merge into another
entity, another merges into us or we sell more than 50% of our assets, each
right will entitle the holder to purchase, at a price equal to the exercise
price of the right, a number of shares of common stock of such entity having a
then-current value of twice the exercise price.
We may exchange the rights at a ratio of one share of common stock for each
right at any time after someone acquires 15% or more of our common stock but
before such person acquired 50% or more of our common stock. We may also of
redeem the rights at our option at a price of $.002 per right at any time
before the tenth day following the announcement that someone has acquired 15%
or more of our common stock. The rights expire on the earliest of July 15,
2006, an exchange or redemption of the rights as described above, or the
consummation of merger as described above.
Each share of Series A Participating Preferred Stock that is purchased upon
exercise of a right entitles the holder to receive an aggregate dividend
payment of 1,000 times the cash and non-cash dividends declared per share of
common stock. In addition, each share of Series A Participating Preferred Stock
will have 1,000 votes and vote together with our common stock.
Anti-Takeover Effects of Provisions of Our Charter, Bylaws, Shareholder Rights
Plan and Delaware Law
Certificate of Incorporation and Bylaws
Our Certificate of Incorporation provides that our Board of Directors may
issue, without stockholder action, up to 5,000,000 shares of preferred stock
with voting or other rights. As described above, our Board of Directors has
designated 50,000 shares of preferred stock as Series A Participating Preferred
Stock in connection with a Shareholder Rights Plan adopted on July 5, 1996. Our
Certificate of Incorporation also provides that our stockholders do not have
cumulative voting rights, and stockholders representing a majority of the
shares of common stock outstanding are able to elect all of the directors. Our
Bylaws provide that only our President, our Board of Directors and the Chairman
of our Board of Directors may call a special meeting of stockholders.
The lack of cumulative voting may make it more difficult for our existing
stockholders to replace the Board of Directors as well as for another party to
obtain control of us by replacing the Board of Directors. Since the Board of
Directors has the power to retain and discharge our officers, these provisions
could also make it more difficult for existing stockholders or another party to
effect a change in management.
These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or our management. These provisions
are intended to enhance the likelihood of continued stability in the
composition of the Board of Directors and in the policies furnished by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control. These provisions are
designed to reduce our vulnerability to an unsolicited acquisition proposal.
The provisions also are intended to discourage certain tactics that may be used
in proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for our shares and, as a consequence, they
also may inhibit fluctuations in the market price of our shares that could
result from actual or rumored takeover attempts.
Shareholder Rights Plan
The Shareholder Rights Plan approved by the Board of Directors is designed
to protect and maximize the value of our outstanding equity interests in the
event of an unsolicited attempt to acquire us in a manner or on terms not
approved by the Board of Directors and that prevent our stockholders from
realizing the full value of their shares of our common stock. The rights are
not intended to prevent a takeover of us and will not do so.
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We may redeemed the rights at a price of $.002 per right within ten days after
the accumulation of 15% or more of the Company's shares by a single acquiror or
group. Accordingly, the rights should not interfere with any merger or business
combination approved by our Board of Directors.
However, the rights may have the effect of rendering more difficult or
discouraging an acquisition of us that is deemed undesirable by our Board of
Directors. The rights may cause substantial dilution to a person or group that
attempts to acquire us on terms or in a manner not approved by the Company's
Board of Directors, except pursuant to an offer conditioned upon the negation,
purchase or redemption of the rights.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any "business combination" with an "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
. the Board of Directors of the corporation approves either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder, prior to the date the interested stockholder
attained that status,
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (i) by persons who are
directors and also officers and (ii) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 defines a business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
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LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will provide us with an opinion
as to legal matters in connection with the notes and the common stock.
EXPERTS
The financial statements incorporated in this prospectus by reference to our
annual report on Form 10-K for the year ended December 31, 1999 have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
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$500,000,000
MERCURY INTERACTIVE CORPORATION
4.75% Convertible Subordinated Notes
Due July 1, 2007
and
4,494,400 Shares of Common Stock
Issuable Upon Conversion of the Notes
----------------
PROSPECTUS
----------------
November 17, 2000
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