<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1997
REGISTRATION NO. 333-39387
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO.1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CREDENCE SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 94-2878499
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
215 FOURIER AVENUE, FREMONT, CALIFORNIA 94539
(510) 657-7400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DR. WILMER R. BOTTOMS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CREDENCE SYSTEMS CORPORATION
215 FOURIER AVENUE, FREMONT, CALIFORNIA 94539
(510) 657-7400
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
WARREN T. LAZAROW, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD, PALO ALTO, CALIFORNIA 94303
(650) 424-0160
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
---------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997
PRELIMINARY PROSPECTUS
$115,000,000
CREDENCE SYSTEMS CORPORATION
5 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2002
INTEREST PAYABLE MARCH 15 AND SEPTEMBER 15
1,663,051 SHARES OF COMMON STOCK
----------
This prospectus (the "Prospectus") relates to $115,000,000 aggregate
principal amount of 5 1/4% Convertible Subordinated Notes due 2002 (the
"Notes") of Credence Systems Corporation, a Delaware corporation (together with
its subsidiaries, "Credence" or the "Company"), and 1,633,051 shares of common
stock, par value of $.001 per share, of the Company (the "Common Stock") which
are initially issuable upon conversion of the Notes plus such additional
indeterminate number of shares of Common Stock as may become issuable upon
conversion of the Notes as a result of adjustment to the conversion price (the
"Shares"). The Notes and the Shares that are being registered hereby are to be
offered for the account of the holders thereof (the "Selling Securityholders").
The Notes were issued and sold in September 1997 in transactions exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), to persons believed by Smith Barney Inc. (the "Initial
Purchaser") to be "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) or outside the United States to certain persons in
offshore transactions in reliance on Regulation S under the Securities Act. See
"Plan of Distribution."
The Notes are convertible into Common Stock at any time at or before
maturity, unless previously redeemed, at a conversion price of $69.15 per
share, subject to adjustment in certain events. The Common Stock is traded on
the Nasdaq National Market under the symbol CMOS. On December 22, 1997 the last
sale price as reported on the Nasdaq National Market was $26.875 per share.
The Notes do not provide for a sinking fund. The Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after September
20, 2000 at the redemption prices set forth in this Prospectus, together with
accrued interest. The Notes are redeemable at the option of the holder upon a
Repurchase Event (as defined herein) at a price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest. See "Description of Notes."
The Notes are unsecured obligations of the Company and are subordinated to
all present and future Senior Indebtedness (as defined herein) of the Company
and will be effectively subordinated to all indebtedness and other liabilities
of subsidiaries of the Company. The Indenture (as defined herein) does not
restrict the incurrence of any other indebtedness or liabilities by the Company
or its subsidiaries. See "Description of Notes--Subordination."
For a description of certain tax consequences to holders of the Notes and the
Shares, see "Certain United States Federal Tax Consequences."
The Notes and the Shares are being registered to permit public secondary
trading of the Notes and, upon conversion, the underlying Common Stock, by the
holders thereof from time to time after the date of this Prospectus. The
Company has agreed, among other things, to bear all expenses (other than
underwriting discounts and selling commissions) in connection with the
registration and sale of the Notes and the underlying Common Stock covered by
this Prospectus.
Upon their original issuance, the Notes became eligible for trading in the
Private Offerings, Resales, and Trading through Automatic Linkages ("PORTAL")
Market. However, the Notes sold pursuant to this Prospectus will no longer be
eligible for trading on the PORTAL Market. No assurance can be given that an
active market for the Notes will develop or as to the liquidity or
sustainability of any such market. See "Risk Factors--Absence of Existing
Active Public Market."
The Company will not receive any of the proceeds from the sale of the Notes
or the Shares by the Selling Securityholders. The Notes and the Shares may be
offered in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices. In addition, the Shares may be
offered from time to time through ordinary brokerage transactions on the Nasdaq
National Market. See "Plan of Distribution." The Selling Securityholders may be
deemed to be "Underwriters" as defined in the Securities Act. If any broker-
dealers are used by the Selling Securityholders, any commissions paid to
broker-dealers and, if broker-dealers purchase any Notes or Shares as
principals, any profits received by such broker-dealers on the resale of the
Notes or Shares, may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Securityholders may be deemed to be underwriting commissions.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE>
Some of the information set forth or incorporated by reference in this
Prospectus constitutes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are necessarily only estimates of future results, and there can be
no assurances that actual results will not materially differ from
expectations. Specific reference is made to the risks and uncertainties
described under "Risk Factors."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, information statements, and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at Suite 1400, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661 and at Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials may
also be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, DC 20549, at prescribed rates. In addition,
the Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding issuers, including
the Company, that file electronically with the Commission. Such Web site can
be found at http://www.sec.gov. The materials described above may also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, DC 20006.
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the
Commission under the Securities Act, omits certain of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Notes and the
Shares offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance
to the copy of such contract or document filed as an exhibit to or
incorporated by reference in the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The
Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-22366) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996, Quarterly Reports on Form 10-Q for the fiscal quarters
ended January 31, 1997, April 30, 1997 and July 31, 1997 and its Current
Reports on Form 8-K filed with the Commission on September 4, 1997,
September 9, 1997, September 12, 1997 and December 17, 1997.
2. The Company's definitive Proxy Statement dated February 12, 1997 filed
in connection with the Company's 1997 Annual Meeting of Stockholders.
3. The Company's Form 8-A Registration Statement filed with the
Commission on September 10, 1993, as amended on October 21, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus but prior
to the termination of the offering to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and to be part
hereof from the date of
2
<PAGE>
filing of such documents. Any statement contained in a document incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated herein modifies
or supersedes such statement. Any statement so modified or superseded shall
not be deemed, in its unmodified form, to constitute a part of this
Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
therein). Requests should be submitted in writing or by telephone at (510)
647-7400 to Director of Investor Relations, Credence Systems Corporation, at
the principal executive offices of the Company, 215 Fourier Avenue, Fremont,
California 94539.
3
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative in nature,
involves a high degree of risk and should not be made by an investor who
cannot afford the loss of his entire investment. The following risk factors
should be considered carefully in addition to the other information contained
or incorporated by reference in this Prospectus before purchasing the Notes or
the Shares offered hereby. In addition to the historical information contained
herein, the discussion in this Prospectus contains certain forward-looking
statements, within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, that involve risks and uncertainties, such as
statements of the Company's 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. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include those discussed below as well as those cautionary
statements and other factors set forth elsewhere or incorporated by reference
herein.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have in the past fluctuated significantly
and will in the future fluctuate significantly, due to a variety of factors.
The Company's operating performance from the first quarter of fiscal 1993
through the third quarter of fiscal 1996 produced sequential quarter-to-
quarter growth in both net sales and net income. In the fourth quarter of
fiscal 1996, however, net sales decreased 34% from the third quarter of fiscal
1996 and 17% from the fourth quarter of fiscal 1995. Net income for the fourth
quarter of fiscal 1996 decreased 63% from the third quarter of fiscal 1996 and
55% from the fourth quarter of fiscal 1995. In the first quarter of fiscal
1997, net sales decreased 9% from the fourth quarter of fiscal 1996 and
decreased 34% from the first quarter of fiscal 1996. Net income for the first
quarter of fiscal 1997 decreased 75% from the fourth quarter of fiscal 1996
and decreased 90% from the first quarter of fiscal 1996. In the second quarter
of fiscal 1997, net sales increased 8% from the first quarter of fiscal 1997
and decreased 35% from the second quarter of fiscal 1996. Net income for the
second quarter of fiscal 1997 increased 212% from the first quarter of fiscal
1997 and decreased 71% from the second quarter of fiscal 1996. The Company's
third quarter results reflected similar trends. The decreases year-to-year
were due primarily to a significant weakness in the ATE market which
materially adversely affected the Company and several other companies in the
semiconductor equipment industry. The factors that have caused and will
continue to cause the Company's results to fluctuate include the timing of new
product announcements and releases by the Company or its competitors, market
acceptance of new products and enhanced versions of the Company's products,
manufacturing inefficiencies associated with the start up of new products,
changes in pricing by the Company, its competitors, customers or suppliers,
manufacturing capacity, the ability to volume produce systems and meet
customer requirements, inventory obsolescence, patterns of capital spending by
customers, delays, cancellations or reschedulings of orders due to customer
financial difficulties or otherwise, changes in overhead absorption levels due
to changes in the number of systems manufactured, the timing and shipment of
orders, availability of components, subassemblies and services, expenses
associated with acquisitions and alliances, product discounts, customization
and reconfiguration of systems, product reliability, the proportion of direct
sales and sales through third parties, including distributors and original
equipment manufacturers, the mix of products sold, the length of manufacturing
and sales cycles, cyclicality or downturns in the semiconductor market and the
markets served by the Company's customers, natural disasters, political and
economic instability, regulatory changes and outbreaks of hostilities. The
Company presently intends to introduce many new products and product
enhancements in this current fiscal year, which will affect its operating
results, financial condition and business. The Company's gross margins on
system sales have varied significantly, especially in the last fourteen
months, and will continue to vary significantly based on a variety of factors,
including manufacturing efficiencies, pricing by competitors or suppliers,
product sales mix, reserves, production volume, new product introductions,
product reliability, customization and reconfiguration of systems,
international and domestic sales mix and field service margins. In addition,
new and enhanced products typically have lower gross margins in the early
stages of commercial introduction and production. While the Company has
recorded and continues to record allowances for estimated sales returns and
uncollectible accounts, there can be no assurance that such estimates
regarding allowances will be adequate.
4
<PAGE>
LIMITED SYSTEMS SALES; BACKLOG
The Company derives a substantial portion of its net sales from the sale of
a relatively small number of systems that typically range in price from
$350,000 to $2.0 million, excluding the current memory products, for which the
price range is typically below $100,000. As a result, the timing of
recognition of revenue from a single transaction could have a significant
impact on the Company's net sales and operating results for a particular
period. The Company's net sales and operating results for a particular period
could be materially adversely affected if an anticipated order for even one
system is not received in time to permit shipment during that period. The
Company's backlog at the beginning of a quarter typically does not include all
tester orders needed to achieve the Company's sales objectives for that
quarter. In addition, orders in backlog are subject to cancellation, delay,
deferral or rescheduling by a customer with limited or no penalties.
Consequently, the Company's net sales and operating results for a quarter have
in the past and will in the future depend upon the Company obtaining orders
for systems to be shipped in the same quarter that the order is received.
Furthermore, products generating most of the Company's net sales continue to
be shipped near the end of each quarter. Accordingly, the failure to receive
an anticipated order or a delay or rescheduling in a shipment near the end of
a particular period due, for example, to an order cancellation, a delay by a
customer, manufacturing, technical, reliability or other difficulties,
including difficulties relating to customization and reconfiguration of
systems, a delay in the supply of components, subassemblies or services or a
delay due to competitive or economic factors, may cause net sales in a
particular period to fall significantly below the Company's expectations,
which could have a material adverse effect upon the Company's business,
financial condition or results of operations. The relatively long
manufacturing cycle of many of its testers has caused and could continue to
cause future shipments of such products to be delayed from one quarter to the
next, which could materially adversely affect the Company's business,
financial condition or results of operations. Furthermore, announcements by
the Company or its competitors of new products and technologies could cause
customers to defer or cancel purchases of the Company's existing systems,
which could also have a material adverse effect on the Company's business,
financial condition or results of operations. The impact of these and other
factors on the Company's sales and operating results in any future period
cannot be forecasted with certainty. In addition, the need for continued
significant expenditures for research and development, marketing and other
expenses for new products, capital equipment purchases and worldwide training
and customer service and support, among other factors, will make it difficult
for the Company to reduce its significant fixed expenses in a particular
period if the Company's net sales goals for such period are not met.
Accordingly, there can be no assurance that the Company will be able to be
profitable or that it will not again sustain losses in future periods. Due to
all of the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors, as they were in the first, second and third quarters
of 1997. In such event, the price of the Company's Common Stock may be
materially adversely affected.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The Company's business and results of operations depend in significant part
upon the capital expenditures of manufacturers of semiconductors and companies
which specialize in contract packaging and/or testing of semiconductors,
including manufacturers and contractors that are opening new or expanding
existing fabrication facilities, or upgrading existing equipment, which in
turn depend upon the current and anticipated market demand for semiconductors
and products incorporating semiconductors. Historically and recently, the
semiconductor industry has been highly cyclical with recurring periods of
oversupply, which often have had a severe effect on the semiconductor
industry's demand for test equipment, including the systems manufactured and
marketed by the Company. The Company believes that the markets for newer
generations of semiconductors will also be subject to similar fluctuations.
The Company has in the past, and during the last fourteen months in
particular, experienced shipment delays, delays in commitments and purchase
order restructurings by several of its customers and anticipates that this may
continue to occur in the future. Accordingly, the Company can give no
assurance that it will be able to achieve or maintain its current or prior
level of sales or rate of growth. During the last four quarters, including the
third quarter of 1997, the Company's net sales, gross margins and net income
have been significantly below the net sales, gross margins and net income,
respectively, of the comparable prior year's quarterly results. The Company
anticipates that a significant portion of new orders may depend upon
5
<PAGE>
demand from semiconductor device manufacturers building or expanding
fabrication facilities and new device testing requirements that are not
addressable by currently installed test equipment, and there can be no
assurance that such demand will develop to a significant degree, or at all. In
addition, any factor adversely affecting the semiconductor industry or
particular segments within the semiconductor industry may adversely affect the
Company's business, financial condition or results of operations. Therefore,
there can be no assurance that the Company's operating results will not
continue to be materially adversely affected if downturns or slowdowns in the
semiconductor industry continue or occur again in the future.
MANAGEMENT OF FLUCTUATIONS IN OPERATING RESULTS
The Company has over the last several years experienced significant
fluctuations in its operating results. Since 1993, the Company has overall
significantly increased the scale of its operations to support increased sales
levels and has expanded its operations to address critical infrastructure and
other requirements, including the hiring of additional personnel, significant
investments in research and development to support product development, the
March 1995 acquisition of EPRO, the Company's establishment of a joint venture
with Innotech, Inc., the Company's acquisition in July 1997 of the assets and
certain liabilities of Test Systems Strategies, Inc. ("TSSI") and the
Company's acquisition in August of 1997 of a software product line from Zycad
Corporation ("Zycad"). However, the Company has during certain historical
periods, particularly over the past fourteen months, experienced revenue
declines and reductions in its operations.
Fluctuations in the Company's sales and operations have placed a
considerable strain on its management, financial, manufacturing and other
resources. In order to effectively deal with the changes brought on by the
cyclical nature of the industry, the Company has been required to implement
and improve a variety of highly flexible operating, financial and other
systems, procedures and controls capable of expanding or contracting
consistent with the Company's business. There can be no assurance that any
existing or new systems, procedures or controls will be adequate to support
fluctuations in the Company's operations or that its systems, procedures and
controls will be designed, implemented or improved in a cost effective and
timely manner. Any failure to implement, improve and expand or contract such
systems, procedures and controls in an efficient manner at a pace consistent
with the Company's business could have a material adverse effect on the
Company's business, financial condition or results of operations.
EXPANSION OF OPERATIONS
Currently, the Company is devoting significant resources to the development
of new products and technologies. During 1997, the Company will conduct
evaluations of these products and will continue to invest significant
additional resources in plant and equipment, inventory, personnel and other
costs, to begin production of these products and to provide the marketing,
administration and after-sales service and support, if any, required to
service and support these new products. Accordingly, there can be no assurance
that gross profit margin and inventory levels will not be adversely impacted
in the future by start-up costs associated with the initial production and
installation of these new product lines. These start-up costs include, but are
not limited to, additional manufacturing overhead, additional inventory and
warranty reserve requirements and the creation of after-sales service and
support organizations. Additionally, there can be no assurance that operating
expenses will not increase, relative to sales, as a result of adding
additional marketing and administrative personnel, among other costs, to
support the Company's additional products. If the Company is unable to achieve
significantly increased net sales or its sales fall below expectations, the
Company's operating results will be materially adversely affected. There can
be no assurance that net sales will increase or remain at recent levels or
that such products will be successfully commercialized.
LIMITED SOURCES OF SUPPLY; RELIANCE ON SUBCONTRACTORS
Certain components, subassemblies and services necessary for the manufacture
of the Company's testers are obtained from a limited group of suppliers. The
Company does not maintain any long-term supply agreements with any of its
vendors and purchases its components and subassemblies through individual
purchase orders. The
6
<PAGE>
manufacture of certain of the Company's components and subassemblies is an
extremely complex process. The Company also relies on outside vendors to
manufacture certain components and subassemblies and to provide certain
services. In addition, the Company and certain of its subcontractors
periodically experience significant shortages and delays in delivery of
various components and subassemblies. There can be no assurance that these or
other problems will not continue to occur in the future with these or the
Company's other suppliers or outside subcontractors. The Company's reliance on
a limited group of suppliers and the Company's reliance on outside
subcontractors involve several risks, including an inability to obtain an
adequate supply of required components, subassemblies and services and reduced
control over the price, timely delivery, reliability and quality of
components, subassemblies and services. Shortages, delays, disruptions or
terminations of the sources for these components and subassemblies has delayed
and could continue to delay shipments of the Company's systems and could have
a material adverse effect on the Company's business, financial condition or
results of operations. Any continuing inability to obtain adequate yields or
timely deliveries or any other circumstance that would require the Company to
seek alternative sources of supply or to manufacture such components
internally could have a material adverse effect on the Company's business,
financial condition or results of operations. Such delays, shortages and
disruptions would also damage relationships with current and prospective
customers and could allow competitors to penetrate such customer accounts.
There can be no assurance that the Company's internal manufacturing capacity
and that of its suppliers and subcontractors will be sufficient to meet
customer requirements.
HIGHLY COMPETITIVE INDUSTRY
The automatic test equipment ("ATE") industry is intensely competitive.
Because of the substantial investment required to develop test application
software and interfaces, the Company believes that once a semiconductor
manufacturer has selected a particular ATE vendor's tester, the semiconductor
manufacturer is likely to use that tester for a majority of its testing
requirements for the market life of that semiconductor and, to the extent
possible, subsequent generations of similar products. As a result, once an ATE
customer chooses a system for the testing of a particular device, it is
difficult for competing vendors to achieve significant ATE sales to such
customer for similar use. The inability of the Company to achieve significant
sales to any ATE customer could have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company faces substantial competition throughout the world, primarily
from ATE manufacturers located in the United States, Europe and Japan, as well
as several of the Company's customers. Many of the Company's competitors have
substantially greater financial and other resources with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have recently introduced or announced new
products with certain performance or price characteristics equal or superior
to certain products currently offered by the Company. The Company believes
that if the ATE industry continues to consolidate through strategic alliances
or acquisitions, the Company will continue to face significant additional
competition from larger competitors that may offer more complete product lines
and services than the Company. The Company's competitors are continuing to
improve the performance of their current products and to introduce new
products, enhancements and new technologies that provide improved cost of
ownership and performance characteristics. New product introductions by the
Company's competitors could continue to cause a decline in sales or loss of
market acceptance of the Company's existing products. Moreover, increased
competitive pressure could continue to lead to intensified price-based
competition, which could materially adversely affect the Company's business,
financial condition or results of operations. The Company has experienced and
continues to experience significant price competition in the sale of all of
its testers. In addition, at the end of a product life cycle and as
competitors introduce more technologically advanced products, pricing
pressures typically become more intense. The Company believes that to be
competitive, it will continue to require significant financial resources in
order to, among other items, invest in new product development and
enhancements and to maintain customer service and support centers worldwide.
There can be no assurance that the Company will be able to compete
successfully in the future.
7
<PAGE>
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION
The ATE market is subject to rapid technological change and new product
introductions and enhancements and related software tools. The Company's
ability to be competitive in this market will depend in significant part upon
its ability to successfully develop and introduce new products and
enhancements and related software tools with greater features on a timely and
cost-effective basis, including the products under development acquired in the
EPRO merger and the TSSI and Zycad product line acquisitions. The Company's
customers require testers with additional features and higher performance and
other capabilities. The Company is therefore required to enhance the
performance and other capabilities of its existing systems and related
software tools. Any success by the Company in developing new and enhanced
systems and related software tools and new features to its existing systems
depends upon a variety of factors, including product selection, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes, product performance and reliability in
the field and effective sales and marketing. Because new product development
commitments must be made well in advance of sales, new product decisions must
anticipate both future demand and the availability of technology to satisfy
that demand. There can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or
enhancements and related software tools. The inability of the Company to
introduce new products and related software tools that contribute
significantly to net sales, gross margins and net income would have a material
adverse effect on the Company's business, financial condition or results of
operations. New product or technology introductions by the Company's
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products. In addition, new product introductions by the
Company may cause confusion among the Company's customers if they transition
to such new products, and may delay product purchases.
Significant delays can occur between a system's introduction and the
commencement by the Company of volume production of such system. The Company
has been and is experiencing significant delays in the introduction, volume
production and sales of its systems and related feature enhancements,
including new models within the digital, mixed-signal and non-volatile memory
product lines, due to technical, manufacturing, parts shortages, component
reliability and other difficulties and may continue to experience similar
delays in the future. As a result, certain of the Company's significant
customers have experienced significant delays in receiving and using certain
of the Company's testers in production. There can be no assurance that these
or additional difficulties will not continue to arise in the future with
respect to the Company's systems or that such delays will not materially
adversely affect customer relationships and future sales. Moreover, there can
be no assurance that the Company will not encounter these or other
difficulties that could delay future introductions or volume production or
sales of its systems or enhancements and related software tools. The Company
has incurred and may continue to incur substantial unanticipated costs to
ensure the functionality and reliability of its testers and to increase
feature sets. If the Company's systems continue to have reliability, quality
or other problems, or the market perceives certain of the Company's products
to be feature deficient, reduced orders, higher manufacturing costs, delays in
collecting accounts receivable and higher service, support and warranty
expenses, or inventory write-offs, among other items, could result. The
Company's failure to have a competitive tester and related software tools
available when required by a semiconductor manufacturer could make it
substantially more difficult for the Company to sell testers to that
manufacturer for a number of years. The Company believes that the continued
acceptance, volume production, timely delivery and customer satisfaction of
its newer digital, mixed signal and non-volatile memory testers are of
critical importance to its future financial results. As a result, an inability
to correct any technical, reliability, parts shortages or other difficulties
associated with the Company's systems or to manufacture and ship the Company's
systems on a timely basis to meet customer requirements could damage
relationships with current and prospective customers and would materially
adversely affect the Company's business, financial condition or results of
operations.
CUSTOMER CONCENTRATION; LENGTHY SALES CYCLE
During the nine months ended July 31, 1997, three customers accounted for
approximately 22%, 12% and 9%, respectively, of the Company's net sales. One
customer (a distributor) accounted for 25%, 17% and 13% of the Company's net
sales in fiscal 1996, 1995 and 1994, respectively. The loss of or any
reduction in orders by a
8
<PAGE>
significant customer, including losses or reductions due to continuing or
other technical, manufacturing, reliability or other difficulties associated
with the Company's products or market, economic or competitive conditions in
the semiconductor industry or in other industries that manufacture products
utilizing semiconductors could materially adversely affect the Company's
business, financial condition or results of operations. The Company's ability
to maintain or increase its sales levels in the future will depend in
significant part upon its ability to obtain orders from existing and new
customers and to manufacture systems on a timely and cost-effective basis, the
financial condition and success of its customers, general economic conditions,
and the Company's ability to meet increasingly stringent customer performance
and other requirements and shipment delivery dates. There can be no assurance
that the Company will be able to maintain or increase the level of its net
sales in the future or that the Company will be able to retain existing
customers or attract new ones.
Sales of the Company's systems depend in significant part upon the decision
of a semiconductor manufacturer to develop and manufacture new semiconductor
devices or to increase manufacturing capacity. As a result, sales of the
Company's testers are subject to a variety of factors outside of the Company's
control. In addition, the decision to purchase a tester generally involves a
significant commitment of capital, with the attendant delays frequently
associated with significant capital expenditures. For these and other reasons,
the Company's systems have lengthy sales cycles during which the Company may
expend substantial funds and management effort to secure a sale and subject
the Company to a number of significant risks.
ACQUISITIONS
The Company has developed in significant part through mergers and
acquisitions of other companies and businesses. Prior to its initial public
offering in 1993, the Company acquired two companies and the semiconductor
test systems division of Tektronix, Inc. In 1995, the Company acquired EPRO, a
memory tester company. In July 1997, the Company acquired the assets of TSSI
and, in August 1997, acquired the fault simulation and test program
development products from Zycad. The Company intends in the future to pursue
additional acquisitions of complementary product lines, technologies and
businesses. Any future acquisitions by the Company, if any, could result in
potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities, expenditures and reserves, and amortization
expenses related to goodwill and other intangible assets, which could
materially adversely affect the Company's business, financial condition or
results of operations. The Company's one-time charge for in-process research
and development for the TSSI asset acquisition accounted for the Company's net
loss for the third quarter of 1997. In addition, acquisitions involve numerous
other risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company. From time to time,
the Company has engaged in and will continue to engage in discussions with
third parties concerning potential acquisitions of product lines, technologies
and businesses. In the event that such an acquisition does occur, however,
there can be no assurance as to the effect thereof on the Company's business,
financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued service of its key personnel, none of whom are bound by an
employment or non-competition agreement. The Company's future operating
results also depend in significant part upon its ability to attract and retain
qualified management, manufacturing, technical, engineering and marketing and
sales and support personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in attracting or
retaining such personnel. There may be only a limited number of persons with
the requisite skills to serve in these positions and it may be increasingly
difficult for the Company to hire such personnel over time. The loss of any
key employee, the failure of any key employee to perform in his or her current
position, or the Company's inability to attract and retain skilled employees,
as needed, could materially adversely affect the Company's business, financial
condition or results of operations.
9
<PAGE>
Recently, the Company has experienced an increased level of employee
turnover. The Company believes that this increase is due to several factors,
including the recent semiconductor industry slowdown; an expanding economy
within the geographic area where the Company maintains its principal business
offices, making it more difficult for the Company to retain its employees; and
the declining value of stock options granted to employees, relative to their
total compensation, as a result of full vesting of options granted prior to
the Company's initial public offering. Due to these and other factors, the
Company may continue to experience high levels of employee turnover, which
could materially adversely impact the Company's business, financial condition
and results of operations.
INTERNATIONAL SALES
International sales accounted for approximately 70%, 67% and 55% of total
net sales for the first nine months of fiscal 1997, and for fiscal years 1996
and 1995, respectively. The Company is also attempting to increase its sales
to non-U.S.-based customers. As a result, the Company anticipates that
international sales will continue to account for a significant portion of
total net sales in the foreseeable future. These international sales will
continue to be subject to certain risks, including changes in regulatory
requirements, tariffs and other barriers, political and economic instability,
an outbreak of hostilities, integration of foreign operations of acquired
businesses, foreign currency exchange rate fluctuations, difficulties with
distributors, joint venture partners, original equipment manufacturers,
foreign subsidiaries and branch operations, potentially adverse tax
consequences and the possibility of difficulty in accounts receivable
collection. The Company is also subject to the risks associated with the
imposition of legislation and regulations relating to the import or export of
semiconductor equipment. The Company cannot predict whether quotas, duties,
taxes or other charges or restrictions will be implemented by the United
States or any other country upon the importation or exportation of the
Company's products in the future. Any of these factors or the adoption of
restrictive policies could have a material adverse effect on the Company's
business, financial condition or results of operations.
PROPRIETARY RIGHTS
The Company attempts to protect its intellectual property rights through
patents, copyrights, trade secrets and other measures, including
confidentiality agreements. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets and other
intellectual property rights or disclose such technology or that the Company
can meaningfully protect its trade secrets or other intellectual property
rights. There can be no assurance that patents owned by the Company will not
be invalidated, deemed unenforceable, circumvented or challenged, or that the
rights granted thereunder will provide competitive advantages to the Company
or that any of the Company's pending or future patent applications will be
issued with claims of the scope sought by the Company, if at all. Furthermore,
there can be no assurance that others will not develop similar products,
duplicate the Company's products or design around the patents owned by the
Company. In addition, there can be no assurance that foreign intellectual
property laws or the Company's agreements will protect the Company's
intellectual property rights. Failure to protect the Company's intellectual
property rights could have a material adverse effect upon the Company's
business, financial condition or results of operations. The Company has been
involved in extensive, expensive and time-consuming reviews of, and litigation
concerning, patent infringement claims. In addition, the Company has at times
been notified of other claims that it may be infringing intellectual property
rights possessed by third parties and expects to continue to receive notice of
such claims in the future.
The European patent application relating to one of the proprietary
complementary metal oxide semiconductor ("CMOS") stabilization methods owned
by the Company was abandoned by the prior owner after the European patent
examiner cited prior art. This prior art was not referenced in the
corresponding United States patent application. Based upon its review to date
of the cited prior art and the European examiner's objections, and in part
upon the advice of Smith-Hill and Bedell, P.C., outside patent counsel to the
Company ("SHB"), the Company believes that such prior art is unlikely to
affect the validity or scope of the claims of the United States issued patent.
10
<PAGE>
This prior art may, however, render invalid or significantly narrow the
scope of certain claims set forth in the United States patent covering the
Company's other proprietary CMOS stabilization method. The European examiner
referred to this prior art in the corresponding European patent application.
The European application was approved, but with narrower claims than the
United States patent. This prior art was not referenced in the corresponding
United States patent. Based in part upon the advice of SHB, and on the
Company's review of its current products, the Company believes that this
patent will continue to be valuable to the Company in preventing imitation of
the Company's products covered by this patent. Additionally, in mid-1992, a
third party suggested that certain claims set forth in this patent might be
invalid as a result of other alleged prior art. The Company believes, based in
part upon the advice of SHB, that the prior art alleged by the third party is
less relevant than the prior art referenced by the European examiner. However,
there can be no assurance that any of the aforementioned prior art or other
prior art will not be successfully asserted and used to invalidate or narrow
the scope of any claim of the United States patents or any other patents or
other patent applications of the Company.
Certain of the Company's customers have received notices of infringement
from Jerome Lemelson alleging that the manufacture of semiconductor products
and/or the equipment used to manufacture semiconductor products infringes
certain patents issued to such person. The Company was notified by a customer
in 1990 and a different customer in late 1994 that the Company may be
obligated to defend or settle claims that the Company's products infringe such
person's patents, and, in the event it is subsequently determined that the
customer infringes such person's patents, such customer intends to seek
reimbursement from the Company for damages and other related expenses. There
can be no assurance that the Company will be successful in defending current
or future patent infringement claims or claims for indemnification resulting
from infringement claims. An award of damages, injunctive relief or
expenditures by the Company of significant amounts in defending any such
action could materially adversely affect the Company's business, financial
condition or results of operations, regardless of the outcome of any
litigation. With respect to any claims, the Company may seek to obtain a
license under the third party's intellectual property rights. There can be no
assurance, however, that a license will be available on reasonable terms or at
all. The Company could decide, in the alternative, to continue to resort to
litigation to challenge such claims. Such challenges have been and could
continue to be extremely expensive and time consuming, and could materially
adversely affect the Company's business, financial condition or results of
operations, regardless of the outcome of any litigation.
LEVERAGE; SUBORDINATION OF NOTES; ABSENCE OF FINANCIAL COVENANTS
In connection with the sale of the Notes, the Company incurred $115 million
of indebtedness which will result in a ratio of long-term debt to total
capitalization at July 31, 1997 of approximately 37% on an as-adjusted basis.
As a result of this indebtedness, the Company's principal and interest
obligations will increase substantially. The degree to which the Company is
leveraged could materially adversely affect the Company's ability to obtain
financing for working capital, acquisitions or other purposes and could make
it more vulnerable to industry downturns and competitive pressures. The
Company's ability to meet its debt service obligations will be dependent upon
the Company's future performance, which will be subject to financial, business
and other factors affecting the operations of the Company, many of which are
beyond its control.
The Notes are subordinate in right of payment to all future Senior
Indebtedness (as defined herein) of the Company. Senior Indebtedness could
include any secured indebtedness of the Company that is not made subordinate
to or pari passu with the Notes by the instrument creating the indebtedness.
As of the date hereof, the Company had no Senior Indebtedness. The Indenture
does not limit the amount of additional indebtedness, including Senior
Indebtedness, which the Company or its subsidiaries can create, incur, assume
or guarantee. The Company is currently entitled to borrow up to $20.0 million
under its existing line of credit. By reason of such subordination of the
Notes, in the event of insolvency, bankruptcy, liquidation, reorganization,
dissolution or winding up of the business of the Company or upon default in
payment with respect to any Senior Indebtedness of the Company or an event of
default with respect to such indebtedness resulting in the acceleration
thereof, the assets of the Company will be available to pay the amounts due on
the Notes only after
11
<PAGE>
all Senior Indebtedness of the Company has been paid in full. Moreover,
holders of Common Stock would only receive the assets remaining after payment
of all indebtedness and preferred stock, if any. See "Description of Notes."
The Indenture (as defined herein) does not contain any financial covenants
or restrictions on the payment of dividends, the incurrence of indebtedness,
including Senior Indebtedness, by the Company or the issuance or repurchase of
securities by the Company. The Indenture contains no covenants or other
provisions to afford protection to holders of the Notes in the event of a
highly leveraged transaction or a change in control of the Company except to
the extent described under "Description of Notes--Certain Rights to Require
Repurchase of Notes."
LIMITATIONS ON REPURCHASE UPON A REPURCHASE EVENT
In the event of a Repurchase Event, which includes a Change in Control and a
Termination of Trading (each as defined herein), each holder of Notes will
have the right, at the holder's option, to require the Company to repurchase
all or a portion of such holder's Notes at a purchase price equal to 100% of
the principal amount thereof plus accrued interest thereon to the repurchase
date. The Company's ability to repurchase the Notes upon a Repurchase Event
may be limited by the terms of the Company's Senior Indebtedness and the
subordination provisions of the Indenture. Further, the ability of the Company
to repurchase the Notes upon a Repurchase Event will be dependent on the
availability of sufficient funds and compliance with applicable securities and
corporate laws. Accordingly, there can be no assurance that the Company will
be able to repurchase the Notes upon a Repurchase Event. The term "Repurchase
Event" is limited to certain specified transactions and may not include other
events that might adversely affect the financial condition of the Company or
result in a downgrade of the credit rating (if any) of the Notes nor would the
requirement that the Company offer to repurchase the Notes upon a Repurchase
Event necessarily afford holders of the Notes protection in the event of a
highly leveraged reorganization, merger or similar transaction involving the
Company. See "Description of Notes."
ABSENCE OF EXISTING ACTIVE PUBLIC MARKET
Upon their original issuance, the Notes became eligible for trading on the
PORTAL Market. The Notes sold pursuant to this Prospectus, however, will no
longer be eligible for trading on the PORTAL Market. There can be no assurance
that an active trading market for the Notes will develop or as to the
liquidity or sustainability of any such market, the ability of the holders to
sell their Notes or the price at which holders of the Notes will be able to
sell their Notes. Future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the
Company's operating results, the price of the Company's Common Stock and the
market for similar securities. The Company does not intend to apply for
listing of the Notes on any securities exchange or quotation system.
FUTURE CAPITAL NEEDS
The development and manufacture of new ATE systems and enhancements are
highly capital intensive. In order to be competitive, the Company must make
significant investments in capital equipment, expansion of operations,
systems, procedures and controls, research and development and worldwide
training, customer service and support, among many items. The Company expects
that cash on hand and cash equivalents, including restricted cash, proceeds
from the $115 million private placement of the Notes, short-term investments,
funds available under its bank line of credit, anticipated cash flow from
operations and equipment lease arrangements will satisfy its financing
requirements for at least the next 12 months.
VOLATILITY OF STOCK PRICE
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's financial
results, general conditions or developments in the semiconductor and capital
equipment industry and the general economy, sales of the Company's Common
Stock
12
<PAGE>
into the marketplace, an outbreak of hostilities, natural disasters,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in patents or other intellectual
property rights, developments in the Company's relationships with its
customers and suppliers, or a shortfall or changes in revenue, gross margins
or earnings or other financial results from analysts' expectations could cause
the price of the Company's Common Stock to fluctuate, perhaps substantially.
In recent years the stock market in general, and the market for shares of
small capitalization stocks in particular, including the Company, have
experienced extreme price fluctuations, which have often been unrelated to the
operating performance of affected companies. There can be no assurance that
the market price of the Company's Common Stock will not continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's performance.
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, equity
incentive plans, Bylaws and Delaware law may discourage certain transactions
involving a change in control of the Company. In addition to the foregoing,
the Company's classified board of directors, the shareholdings of the
Company's officers, directors and persons or entities that may be deemed
affiliates and the ability of the Board of Directors to issue "blank check"
preferred stock without further stockholder approval could have the effect of
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of holders of Common Stock. See
"Description of Capital Stock--Delaware Anti-Takeover Law and Certain Charter
Provisions."
13
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Notes
or the Shares by the Selling Securityholders. See "Selling Securityholders"
for a list of those persons and entities receiving proceeds from sales of
Notes or Shares.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company's current bank line of credit precludes it from paying dividends
to stockholders. The Company currently intends to retain any earnings for use
in its business and therefore does not anticipate paying any dividends in the
future.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED JULY 31,
--------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
n/a 7.3x 30.7x 60.4x 42.0x 40.3x 8.0x
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before taxes plus fixed charges. Fixed charges consist of
interest expense incurred, including capital leases, amortization of interest
costs and the portion of rental expense under operating leases deemed by the
Company to be representative of the interest factor. Earnings were not
sufficient to cover fixed charges for fiscal 1992 by approximately $8.0
million.
14
<PAGE>
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of September 10, 1997 (the
"Indenture") between the Company and State Street Bank and Trust Company of
California, N.A., as trustee (the "Trustee"). The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Indenture, including the definition therein of certain
terms. Wherever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by
reference. Copies of the Indenture are available from the Company or the
Initial Purchaser upon request.
GENERAL
The Notes are unsecured obligations of the Company, are limited to $115
million in aggregate principal amount and will mature on September 15, 2002.
The Notes will bear interest at 5 1/4% per annum from the date of original
issuance of Notes pursuant to the Indenture, or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable semi-
annually on March 15 and September 15 of each year, commencing March 15, 1998,
to the Person in whose name the Note (or any predecessor Note) is registered
at the close of business on the preceding March 1 or September 1, as the case
may be. Interest on the Notes will be paid on the basis of a 360-day year of
twelve 30-day months.
Principal of, and premium, if any, and interest on, the Notes will be
payable (i) in respect of Notes held of record by the Depository Trust Company
("DTC") or its nominee in same day funds on or prior to the payment dates with
respect to such amounts and (ii) in respect of Notes held of record by holders
other than DTC or its nominee at the corporate trust office of the Trustee,
and the Notes may be surrendered for transfer, exchange or conversion at the
corporate trust office of the Trustee. In addition, with respect to Notes held
of record by holders other than DTC or its nominee, payment of interest may be
made at the option of the Company by check mailed to the address of the
persons entitled thereto as it appears in the Register for the Notes on the
Regular Record Date for such interest.
The Notes have been issued only in registered form, without coupons and in
denominations of $1,000 or any integral multiple thereof. No service charge
will be made for any transfer or exchange of the Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses (including the fees and expenses of the Trustee)
payable in connection therewith. The Company is not required (i) to issue,
register the transfer of or exchange any Notes during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption and ending at the close of business on the day of such mailing, or
(ii) to register the transfer of or exchange any Note selected for redemption
in whole or in part, except the unredeemed portion of Notes being redeemed in
part.
All monies paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium and interest on any Note which remain
unclaimed for two years after such principal, premium or interest become due
and payable may be repaid to the Company. Thereafter, the Holder of such Note
may, as an unsecured general creditor, look only to the Company for payment
thereof.
The Indenture does not contain any provisions that would provide protection
to Holders of the Notes against a sudden and dramatic decline in credit
quality of the Company resulting from any takeover, recapitalization or
similar restructuring, except as described below under "Certain Rights to
Require Repurchase of Notes."
CONVERSION RIGHTS
The Notes are convertible into Common Stock at any time prior to redemption
or final maturity, initially at the conversion price of $69.15 per share. The
right to convert Notes which have been called for redemption will terminate at
the close of business on the second business day preceding the Redemption
Date, unless the Company defaults in making the payment due on that
redemption. See "Optional Redemption" below.
15
<PAGE>
The conversion price is subject to adjustment upon the occurrence of any of
the following events: (i) the subdivision, combination or reclassification of
outstanding shares of Common Stock; (ii) the payment in shares of Common Stock
of a dividend or distribution on any class of capital stock of the Company;
(iii) the issuance of rights or warrants to all holders of Common Stock
entitling them to acquire shares of Common Stock at a price per share less
than the Current Market Price; (iv) the distribution to holders of Common
Stock or shares of capital stock other than Common Stock, evidences of
indebtedness, cash or assets (including securities, but excluding dividends or
distributions paid exclusively in cash and dividends, distributions, rights
and warrants referred to above); (v) a distribution consisting exclusively of
cash (excluding any cash distributions referred to in (iv) above) to all
holders of Common Stock in an aggregate amount that, together with (A) all
other cash distributions (excluding any cash distributions referred to in (iv)
above) made within the 12 months preceding such distribution and (B) any cash
and the fair market value of other consideration payable in respect of any
tender offer by the Company or a Significant Subsidiary (as defined under
Regulation S-X of the Securities Act) of the Company for Common Stock
consummated within the 12 months preceding such distribution, exceeds 12.5% of
the Company's market capitalization (determined as provided in the Indenture)
on the date fixed for determining the stockholders entitled to such
distribution; and (vi) the consummation of a tender offer made by the Company
or a Significant Subsidiary of the Company for Common Stock which involves an
aggregate consideration that, together with (X) any cash and other
consideration payable in respect of any tender offer by the Company or a
Significant Subsidiary of the Company for Common Stock consummated within the
12 months preceding the consummation of such tender offer and (Y) the
aggregate amount of all cash distributions (excluding any cash distributions
referred to in (iv) above) to all holders of the Common Stock within the
12 months preceding the consummation of such tender offer, exceeds 12.5% of
the Company's market capitalization at the date of consummation of such tender
offer. No adjustment of the conversion price will be required to be made until
cumulative adjustments amount to at least one percent of the conversion price,
as last adjusted. Any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
In addition to the foregoing adjustments, the Company from time to time may,
to the extent permitted by law, reduce the conversion price of the Notes by
any amount for any period of at least 20 days, in which case the Company shall
give at least 15 days' notice of such decrease. The Company is also permitted
to reduce the conversion price as it considers to be advisable in order that
any event treated for federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the holders of the Common Stock or, if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event. In the case of any consolidation or merger of the
Company with any other corporation (other than one in which no change is made
in the Common Stock), or any sale or transfer of all or substantially all of
the assets of the Company, the Holder of any Note then outstanding will, with
certain exceptions, have the right thereafter to convert such Note only into
the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of
shares of Common Stock into which such Note might have been converted
immediately prior to such consolidation, merger, sale or transfer; and
adjustments will be provided for events subsequent thereto that are as nearly
equivalent as practical to the conversion price adjustments described above.
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon the then
Closing Price at the close of business on the day of conversion. If any Notes
are surrendered for conversion during the period from the close of business on
any Regular Record Date through and including the next succeeding Interest
Payment Date (except any such Notes called for redemption), such Notes when
surrendered for conversion must be accompanied by payment in next day funds of
an amount equal to the interest thereon which the registered Holder on such
Regular Record Date is to receive. Except as described in the preceding
sentence, no interest will be payable by the Company on converted Notes with
respect to any Interest Payment Date subsequent to the date of conversion. No
other payment or adjustment for interest or dividends is to be made upon
conversion.
16
<PAGE>
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Notes is, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full of all Senior Indebtedness. If there is a
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due
thereon or provision for such payment in money or money's worth before the
Holders of the Notes will be entitled to receive any payment in respect of the
principal of or premium, if any, or interest on the Notes. In the event of the
acceleration of the maturity of the Notes, the holders of all Senior
Indebtedness are first entitled to receive payment in full in cash of all
amounts due thereon or provision for such payment in money or money's worth
before the Holders of the Notes will be entitled to receive any payment for
the principal of or premium, if any, or interest on the Notes. No payments on
account of principal of or premium, if any, or interest on the Notes or on
account of the purchase or acquisition of Notes may be made if there has
occurred and is continuing a default in any payment with respect to Senior
Indebtedness, any acceleration of the maturity of any Senior Indebtedness or
if any judicial proceeding is pending with respect to any such default.
Senior Indebtedness with respect to the Company is defined in the Indenture
as (a) all secured indebtedness of the Company for money borrowed under any
Company revolving credit facility and any predecessor or successor credit
facilities thereto, whether outstanding on the date of execution of the
Indenture or thereafter created, incurred or assumed, (b) all other secured
indebtedness of the Company for money borrowed, whether outstanding on the
date of execution of the Indenture or thereafter created, incurred or assumed,
except any indebtedness that by the terms of the instrument or instruments by
which such indebtedness was created or incurred expressly provides that it (i)
is junior in right of payment to the Notes or (ii) ranks pari passu in right
of payment with the Notes, and (c) any amendments, renewals, extensions,
modifications, refinancings and refundings of any of the foregoing. The term
"indebtedness for money borrowed" when used with respect to the Company is
defined to mean (i) any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money (including without limitation
interest, fees, penalties and other obligations in respect thereof), whether
or not evidenced by bonds, debentures, notes or other written instruments,
(ii) any deferred payment obligation of, or any such obligation guaranteed by,
the Company for the payment of the purchase price of property or assets
evidenced by a note or similar instrument, (iii) any obligation of, or any
such obligation guaranteed by, the Company for the payment of rent or other
amounts under a lease of property or assets which obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of
the Company under generally accepted accounting principles, (iv) any
obligation of, or any such obligation which is guaranteed by, the Company for
the reimbursement of any obligor of any letter of credit, banker's acceptance
or similar credit transaction, (v) any obligation of, or any such obligation
which is guaranteed by, the Company under interest rate swaps, caps, collars,
options and similar arrangements and (vi) any obligation of the Company under
any foreign exchange contract, currency swap agreement, futures contract,
currency option contract or other foreign currency hedge.
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. As of the date hereof, the Company had no outstanding Senior
Indebtedness. The Company expects to incur additional indebtedness, including
Senior Indebtedness from time to time in the future.
OPTIONAL REDEMPTION
The Notes are redeemable, at the Company's option, in whole or from time to
time in part, at any time on or after September 20, 2000, upon not less than
15 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed
at its address appearing in the Security Register and prior to Maturity at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to the Redemption Date (subject to the right of Holders
of record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date).
17
<PAGE>
If redeemed during the 12-month period beginning September 15 in the year
indicated (September 20, in the case of 2000), the redemption price shall be:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000.................................................... 102.10%
2001.................................................... 101.05
</TABLE>
No sinking fund is provided for the Notes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, or permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties substantially as an entirety to the Company, unless (a) if
applicable, the Person formed by such consolidation or into which the Company
is merged or the Person or corporation which acquires the properties and
assets of the Company substantially as an entirety is a corporation, limited
liability company, partnership or trust organized and validly existing under
the laws of the United States or any state thereof or the District of Columbia
and expressly assumes payment of the principal of and premium, if any, and
interest on the Notes and performance and observance of each obligation of the
Company under the Indenture, (b) after consummating such consolidation,
merger, transfer or lease, no Default or Event of Default will occur and be
continuing, (c) such consolidation, merger or acquisition does not adversely
affect the validity or enforceability of the Notes and (d) the Company has
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, conveyance, transfer or lease
complies with the provisions of the Indenture.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF NOTES
In the event of any Repurchase Event (as defined below) occurring after the
date of issuance of the Notes and on or prior to Maturity, each Holder of
Notes has the right, at the Holder's option, to require the Company to
repurchase all or any part of the Holder's Notes on the date (the "Repurchase
Date") that is 30 days after the date the Company gives notice of the
Repurchase Event as described below at a price (the "Repurchase Price") equal
to 100% of the principal amount thereof, together with accrued and unpaid
interest to the Repurchase Date. On or prior to the Repurchase Date, the
Company shall deposit with the Trustee or a Paying Agent an amount of money
sufficient to pay the Repurchase Price of the Notes which are to be repaid on
or promptly following the Repurchase Date.
Failure by the Company to provide timely notice of a Repurchase Event, as
provided for below, or to repurchase the Notes when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
On or before the 15th day after the occurrence of a Repurchase Event, the
Company is obligated to mail to all Holders of Notes a notice of the
occurrence of such Repurchase Event and identifying the Repurchase Date, the
date by which the repurchase right must be exercised, the Repurchase Price for
Notes and the procedures which the Holder must follow to exercise this right.
To exercise the repurchase right, the Holder of a Note must deliver, on or
before the close of business on the Repurchase Date, written notice to the
Company (or an agent designated by the Company for such purpose) and to the
Trustee of the Holder's exercise of such right, together with the certificates
evidencing the Notes with respect to which the right is being exercised, duly
endorsed for transfer.
A "Repurchase Event" shall have occurred upon the occurrence of a Change in
Control or a Termination of Trading (each as defined below).
18
<PAGE>
A "Change in Control" shall occur when: (i) all or substantially all of the
Company's assets are sold as an entirety to any person or related group of
persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a wholly owned
subsidiary of the Company in which all shares of Common Stock outstanding
immediately prior to the effectiveness thereof are changed into or exchanged
for the same consideration) or (B) pursuant to which the Common Stock would be
converted into cash, securities or other property, in each case other than a
consolidation or merger of the Company in which the holders of the Common
Stock immediately prior to the consolidation or merger have, directly or
indirectly, at least a majority of the total voting power of all classes of
capital stock entitled to vote generally in the election of directors of the
continuing or surviving corporation immediately after such consolidation or
merger in substantially the same proportion as their ownership of Common Stock
immediately before such transaction; (iii) any person, or any persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Exchange Act, together with any affiliates thereof, shall beneficially own (as
defined in Rule 13d-3 under the Exchange Act) at least 50% of the total voting
power of all classes of capital stock of the Company entitled to vote
generally in the election of directors of the Company; (iv) at any time during
any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Company was approved by a vote of 66
2/3% of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (v) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution.
A "Termination of Trading" shall occur if the Common Stock is neither listed
for trading on a U.S. national securities exchange nor approved for trading on
an established automated over-the-counter trading market in the United States.
The right to require the Company to repurchase Notes as a result of the
occurrence of a Repurchase Event could create an event of default under Senior
Indebtedness of the Company, as a result of which any repurchase could, absent
a waiver, be blocked by the subordination provisions of the Notes. See
"Subordination." Failure by the Company to repurchase the Notes when required
will result in an Event of Default with respect to the Notes whether or not
such repurchase is permitted by the subordination provisions. The Company's
ability to pay cash to the Holders of Notes upon a repurchase may be limited
by certain financial covenants contained in the Company's Senior Indebtedness.
In the event a Repurchase Event occurs and the Holders exercise their rights
to require the Company to repurchase Notes, the Company intends to comply with
applicable tender offer rules under the Exchange Act, including Rules 13e-4
and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions do not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving
the Company that may adversely affect Holders. In addition, the foregoing
provisions may discourage open market purchases of the Common Stock or a non-
negotiated tender or exchange offer for such stock and, accordingly, may limit
a stockholder's ability to realize a premium over the market price of the
Common Stock in connection with any such transaction.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to the
Notes: (a) default in the payment of principal of or any premium on any Note
when due (even if such payment is prohibited by the subordination provisions
of the Indenture), whether at maturity, upon redemption, upon acceleration or
otherwise; (b) default in the payment of any interest on any Note when due,
which default continues for 30 days (even if such payment is prohibited by the
subordination provisions of the Indenture); (c) failure to provide timely
notice of a Repurchase Event as required by the Indenture; (d) default in the
payment of the Repurchase Price in respect of any Note on the Repurchase Date
therefor (even if such payment is prohibited by the
19
<PAGE>
subordination provisions of the Indenture); (e) default in the performance of
any other covenant of the Company in the Indenture which continues for 60 days
after written notice as provided in the Indenture; (f) default under one or
more bonds, debentures, notes or other evidences of indebtedness for money
borrowed by the Company or any Significant Subsidiary of the Company or under
one or more mortgages, indentures or instruments under which there may be
issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company or any Significant Subsidiary of the Company,
whether such indebtedness now exists or shall hereafter be created, which
default individually or in the aggregate shall constitute a failure to pay the
principal of indebtedness in excess of $10,000,000 when due and payable after
the expiration of any applicable grace period with respect thereto or shall
have resulted in indebtedness in excess of $10,000,000 becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, without such indebtedness having been discharged, or
such acceleration having been rescinded or annulled, in each case within a
period of 30 days after there shall have been given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Notes a written notice
specifying such default and requiring the Company to cause such indebtedness
to be discharged or cause such acceleration to be rescinded or annulled; and
(g) certain events in bankruptcy, insolvency or reorganization of the Company
or any Significant Subsidiary of the Company.
If an Event of Default with respect to the Notes shall occur and be
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Notes may declare the principal of and
premium, if any, on all such Notes to be due and payable immediately, but if
the Company cures all Events of Default (except the nonpayment of interest on,
premium, if any, and principal of any Notes) and certain other conditions are
met, such declaration may be canceled and past defaults may be waived by the
holders of a majority in principal amount of Outstanding Notes. If an Event of
Default shall occur as a result of an event of bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary of the Company,
the aggregate principal amount of the Notes shall automatically become due and
payable. The Company is required to furnish to the Trustee annually a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in such performance. The Indenture
provides that the Trustee may withhold notice to the Holders of the Notes of
any continuing default (except in the payment of the principal of or premium,
if any, or interest on any Notes) if the Trustee considers it in the interest
of Holders of the Notes to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority of the aggregate
principal amount of the Outstanding Notes, to execute a supplemental indenture
to add provisions to, or change in any manner or eliminate any provisions of,
the Indenture or modify in any manner the rights of Holders of the Notes,
provided that without the consent of each holder of Outstanding Notes, no
supplemental indenture may (i) change the stated maturity of the principal of,
or any installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Note or any premium or interest thereon is payable, or
impair the right to institute suit for enforcement of any such payment on or
after the stated maturity thereof (or, in the case of redemption, on or after
the redemption date), (ii) adversely affect the right to convert the Notes as
provided in the Indenture, (iii) modify the provisions of the Indenture with
respect to the subordination of the Notes in a manner adverse to the Holders
of Notes, (iv) impair the right of Holders of Notes to require the Company to
repurchase Notes upon the occurrence of a Repurchase Event or (v) reduce the
percentage in principal amount of Outstanding Notes, the consent of whose
Holders is required for any waiver of compliance with certain provisions of
the Indenture or certain defaults thereunder.
Modifications and amendments of the Indenture may be made by the Company and
the Trustee without the consent of the Holders to: (a) cause the Indenture to
be qualified under the Trust Indenture Act; (b) evidence the succession of
another Person to the Company and the assumption by any such successor of the
covenants of the Company herein and in the Notes; (c) add to the covenants of
the Company for the benefit of the Holders or an
20
<PAGE>
additional Event of Default, or surrender any right or power conferred upon
the Company; (d) secure the Notes; (e) make provision with respect to the
conversion rights of Holders in the event of a consolidation, merger or sale
of assets involving the Company, as required by the Indenture; (f) evidence
and provide for the acceptance of appointment by a successor Trustee with
respect to the Notes; or (g) cure any ambiguity, correct or supplement any
provision which may be defective or inconsistent with any other provision, or
make any other provisions with respect to matters or questions arising under
the Indenture which shall not be inconsistent with the provisions of the
Indenture, provided, however, that no such modifications or amendment may
adversely affect the interest of Holders in any material respect.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain Outstanding if (a) all Outstanding Notes will become due and payable at
their scheduled maturity within one year or (b) all Outstanding Notes are
scheduled for redemption within one year, and in either case the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
Outstanding Notes on the date of their scheduled maturity or the scheduled
date of redemption.
FORM, DENOMINATION AND REGISTRATION
The Notes have been issued in fully registered form, without coupons, in
denominations of $1,000 in principal amount and integral multiples thereof.
Notes currently held by "Qualified Institutional Buyers" as defined in Rule
144A under the Securities Act or by persons who are not U.S. persons who
acquired such Notes in "offshore transactions" in reliance on Regulation S
under the Securities Act are currently evidenced by restricted global notes,
which were deposited with or on behalf of DTC and were registered in the name
of Cede & Co. ("Cede"), as DTC's nominee.
Any purchaser (each, a "Public Holder") of Notes pursuant to this Prospectus
will receive a beneficial interest in an unrestricted global note (the "Public
Global Note") which will be deposited with or on behalf of DTC and registered
in the name of Cede, as DTC's nominee. Except as set forth below, the record
ownership of the Public 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.
A Public Holder may hold its interest in the Public Global Note directly
through DTC if such Public Holder is a participant in DTC, or indirectly
through organizations which are participants in DTC (a "Participant" or
"Participants"). Transfers between Participants are effected in the ordinary
way in accordance with DTC rules and will be settled in same day funds. The
laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer
beneficial interests in the Public Global Note to such persons may be limited.
Public Holders who are not Participants may beneficially own interests in
the Public Global Note held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC,
is the registered owner of the Public Global Note, Cede for all purposes will
be considered the sole holder of the Public Global Note.
Payment of interest on and the redemption price or repurchase price (upon
redemption at the option of the Company or repurchase at the option of the
Holder upon a Repurchase Event) of the Public Global Note will be made to
Cede, the nominee for DTC, as the registered owner of the Public Global Note,
by wire transfer of immediately available funds. Neither the Company, the
Trustee nor any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Public Global Note or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
21
<PAGE>
With respect to any payment of interest on and the redemption price or
repurchase price (upon redemption at the option of the Company or repurchase
at the option of the Holder upon a Repurchase Event) of the Public Global
Note, DTC's practice is to credit Participants' accounts on the payment date
therefor with payments in amounts proportionate to their respective beneficial
interests represented by the Public Global Note as shown on the records of
DTC, unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests
represented by the Public Global Note held through such Participants will be
the responsibility of such Participants, as is now the case with securities
held for the accounts of customers registered in "street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest represented by the Public Global Note to pledge
such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the
Company will cause Notes to be issued in definitive form in exchange for the
Public Global Note.
PAYMENTS OF PRINCIPAL AND INTEREST
The Indenture requires that payments in respect of the Notes (including
principal, premium, if any, and interest) held of record by DTC (including
Notes evidenced by the Public Global Note) be made in same day funds. Payments
in respect of the Notes held of record by holders other than DTC may, at the
option of the Company, be made by check and mailed to such holders of record
as shown on the Register for the Notes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser have entered into a registration
rights agreement dated September 4, 1997 (the "RRA"). In the RRA, the Company
agreed to file with the Commission within 60 days after September 10, 1997
(the "Closing Date") a registration statement (the "Shelf") on Form S-3, of
which this Prospectus is a part, to cover resales of Transfer Restricted
Securities (as defined below) by the holders thereof who satisfy the
conditions referred to below. Notwithstanding the foregoing, the Company is
permitted to prohibit offers and sales of Transfer Restricted Securities
pursuant to the Shelf under certain circumstances and subject to certain
conditions (any period during which offers and sales are prohibited being a
"Suspension Period"). "Transfer Restricted Securities" means each Note and
each Share until such Note or Share, as the case may be, (i) has been
transferred pursuant to the Shelf or another registration statement covering
it which has been filed with the Commission pursuant to the Securities Act, in
either case after such registration statement has become effective under the
Securities Act, (ii) has been transferred pursuant to Rule 144 under the
Securities Act or (iii) may be sold or transferred pursuant to Rule 144(k)
under the Securities Act (or any similar provisions then in force).
Holders of Transfer Restricted Securities not already included under
"Selling Securityholders" below will be required to deliver information to be
used in connection with and to be named as selling securityholders in the
Shelf and to provide any comments they may wish to make on the Shelf in order
to have their Transfer Restricted Securities included in the Shelf. The
Transfer Restricted Securities of any Holder who elects not to include those
securities in the Shelf could be deemed to be less liquid than if those
securities were so included. No assurance can be given that the Company will
be able to maintain an effective and current registration statement as
required. The absence of such a registration statement may limit the ability
to sell such Transfer Restricted Securities or adversely affect the price at
which such Transfer Restricted Securities can be sold.
22
<PAGE>
If the Shelf is filed and declared effective but thereafter ceases to be
effective (without being succeeded immediately by a replacement shelf
registration statement filed and declared effective) or useable for the offer
and sale of Transfer Restricted Securities for period of time (including any
Suspension Period) which shall exceed 60 days in the aggregate in any 12-month
period ending on or prior to the second anniversary of the Closing Date (each
such event referred to in clauses (i) and (ii), a "Registration Default"), the
Company will pay liquidated damages to each Holder of Transfer Restricted
Securities which has complied with its obligations under the RRA. The amount
of liquidated damages payable during any period in which a Registration
Default shall have occurred and be continuing is that amount which is equal to
one-quarter of one percent (25 basis points) per annum per $1,000 principal
amount or $2.50 per annum per 14.4613 shares of Common Stock (subject to
adjustment in the event of a stock split, stock recombination, stock dividend
and the like) constituting Transfer Restricted Securities for the first 90
days during which a Registration Default has occurred and is continuing and 50
basis points per annum per $1,000 principal amount of Notes or $5.00 per annum
per 14.4613 shares of Common Stock (subject to adjustment as set forth above)
constituting Transfer Restricted Securities for any additional days during
which a Registration Default has occurred and is continuing. The Company has
agreed to pay all accrued liquidated damages by wire transfer of immediately
available funds or by federal funds check on each Damages Payment Date (as
defined in the RRA). Following the cure of a Registration Default, liquidated
damages will cease to accrue with respect to such Registration Default.
The Company has agreed to maintain the Shelf until the first to occur of (i)
the second anniversary of the Closing Date or (ii) the date on which no
security covered by the Shelf remains a Transfer Restricted Security.
The foregoing summary of certain provisions of the RRA does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the provisions of the RRA. Copies of the RRA are available from the
Company or the Initial Purchaser on request.
GOVERNING LAW
The Indenture and, except as may otherwise be required by law, the Notes
will be governed by and construed in accordance with the laws of the State of
New York, without giving effect to such state's conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company maintains deposit accounts and conducts other banking
transactions with the Trustee in the ordinary course of business. An affiliate
of the Trustee also serves as transfer agent with respect to the Common Stock.
ABSENCE OF PUBLIC MARKET
Upon their original issuance, the Notes became eligible for trading on the
PORTAL Market. The Notes sold pursuant to this Prospectus, however, will no
longer be eligible for trading on the PORTAL Market. There can be no assurance
that an active trading market for the Notes will develop or as to the
liquidity or sustainability of any such market, the ability of the holders to
sell their Notes or at what price holders of the Notes will be able to sell
their Notes. Future trading prices of the Notes will depend upon many factors
including, among other things, prevailing interest rates, the Company's
operating results, the price of the Common Stock and the market for similar
securities. The Company does not intend to apply for listing of the Notes on
any securities exchange or quotation system.
23
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation authorizes capital stock
consisting of 40,000,000 shares of Common Stock, $0.001 par value per share,
of which 21,970,476 shares were outstanding as of September 30, 1997, and
1,000,000 shares of preferred stock, $0.001 par value per share, none of which
is outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors, and are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. The Company's Certificate of Incorporation does not
provide for cumulative voting with respect to the election of directors. As a
result, the holders of a majority of the shares voting in the election of
directors can elect all of the directors then standing for election. In the
event of liquidation or dissolution of the Company, the holders of Common
Stock are entitled to receive all assets available for distribution to the
stockholders, subject to any preferential rights of any preferred stock then
outstanding. The holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to the Common Stock. All outstanding
shares of Common Stock are, and the shares to be issued upon conversion of the
Notes in accordance with the terms thereof will be, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of "blank check"
preferred stock that may be issued from time to time in one or more series
upon authorization by the Company's Board of Directors. The Board of
Directors, without further approval of the stockholders, is authorized to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, and any other rights, preferences,
privileges and restrictions applicable to each series of preferred stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes could, among other things,
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, make it more difficult for a third party to gain
control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Common Stock.
The Company has no current plans to issue any preferred stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for liability (i)
for any breach of their duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and may indemnify its officers and employees and other agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence on the part of
indemnified parties. The Company's Bylaws also permit it to secure insurance
on behalf of any officer, director, employee or other agent for any liability
arising out of his actions in such capacity, regardless of whether the Bylaws
would permit indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the
Company's Bylaws and Certificate of Incorporation. These agreements, among
other things, indemnify the Company's directors and executive officers for
certain expenses (including
24
<PAGE>
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or executive
officer of the Company, any subsidiary of the Company or any other company or
enterprise to which the person provides services at the request of the
Company. The Company believes that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" transaction
with any "interested stockholder" for a period of three years after the date
of the transaction in which the person became an "interested stockholder,"
unless the business combination is approved in a prescribed manner. For
purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of a corporation's voting stock. By virtue of the Company's decision not to
elect out of the statute's provisions, the statute applies to the Company. The
statute could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
Stockholders who are officers and directors or their affiliates may be able
to significantly influence the election of the Company's directors and the
determination of the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions. This may have a significant effect
in delaying, deferring or preventing a change in control of the Company and
may adversely affect the voting and other rights of other holders of Common
Stock. Certain provisions of the Company's Certificate of Incorporation,
Bylaws and equity compensation plans and Delaware law may also discourage
certain transactions involving a change in control of the Company. This may,
when combined with the Company's classified Board of Directors and the ability
of the Board of Directors to issue blank check Preferred Stock without further
stockholder approval, have the effect of delaying, deferring or preventing a
change in control of the Company and may adversely affect the voting and other
rights of other holders of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston Equiserve,
LLP. Its telephone number is (617) 575-2000.
25
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations to holders of the Notes and the Shares. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings, and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations.
This discussion does not deal with all aspects of United States federal
income taxation that may be important to holders of the Notes or Shares and
does not deal with tax consequences arising under the laws of any foreign,
state or local jurisdiction. This discussion is for general information only,
and does not purport to address all tax consequences that may be important to
particular purchasers in light of their personal circumstances, or to certain
types of purchasers (such as certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities or persons who hold the
Notes or Shares in connection with a straddle) that may be subject to special
rules. This discussion assumes that each holder holds the Notes and the Shares
as capital assets.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any holder
who is not a United States person. The term "United States person" means a
citizen or resident of the United States, a corporation or other entity
taxable as a corporation created or organized under the laws of the United
States or any state thereof or a person or other entity otherwise subject to
United States federal income taxation on a net income basis in respect of
income derived from the Notes or the Common Stock.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION
IN THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING CONVERSION
OF THE NOTES, AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON
SUCH TAX CONSEQUENCES.
OWNERSHIP OF THE NOTES AND THE SHARES
Interest on Notes. Interest paid on Notes will be taxable to a holder as
ordinary interest income in accordance with the holder's methods of tax
accounting at the time that such interest is accrued or (actually or
constructively) received. The Company expects that the Notes will not be
issued with original issue discount ("OID") within the meaning of the code.
Constructive Dividend. Certain corporate transactions, such as distributions
of assets to holders of Common Stock, may cause a deemed distribution to the
holders of the Notes if the conversion price or conversion ratio of the Notes
is adjusted to reflect such corporate transaction. Such deemed distributions
will be taxable as a dividend, return of capital, or capital gain in
accordance with the earnings and profits rules discussed under "Dividends on
Shares of Common Stock."
Sale or Exchange of Notes or Shares of Common Stock. In general, subject to
the market discount rules discussed below, a holder of Notes will recognize
capital gain or loss upon the sale, redemption, retirement or other
disposition of the Notes measured by the difference between the amount of cash
and the fair market value of any property received (except to the extent
attributable to the payment of accrued interest, which will be taxable as
interest income) and the holder's adjusted tax basis in the Notes. A holder's
tax basis in Notes generally will equal the cost of the Notes to the holder
increased by the amount of market discount, if any, previously taken into
income by the holder or decreased by any premium theretofore amortized by the
holder with respect to the Notes. In general, subject to the market discount
rules discussed below, each holder of Common Stock into which the Notes have
been converted will recognize capital gain or loss upon the sale, exchange,
redemption, or other disposition of the Common Stock. However, special rules
may apply to redemptions of the Common Stock which may result in the amount
paid being treated as a dividend. With respect to U.S. Holders who are
individuals, trusts or estates, the Taxpayer Relief Act of 1997 (the "Act")
reduces the maximum tax rate on net capital gains derived from securities held
for more than 18 months to 20% and provides a maximum tax rate on net capital
gains derived from securities held for more than one year and for not more
26
<PAGE>
than 18 months ("mid-term gains") of 28%. Net gain recognized by such U.S.
Holders on securities held for one year or less in excess of net long-term
capital loss continues to be short-term capital gain subject to tax at
ordinary income rates. The Act generally does not affect the taxation of
capital gains to corporations. (For the basis and holding period of shares of
Common Stock, see "Conversion of Notes.")
Conversion of Notes. A holder of Notes will not recognize gain or loss on
the conversion of the Notes into shares of Common Stock. The holder's tax
basis in the shares of Common Stock received upon conversion of the Notes will
be equal to the holder's aggregate basis in the Notes exchanged therefor (less
any portion thereof allocable to cash received in lieu of a fractional share).
The holding period of the shares of Common Stock received by the holder upon
conversion of Notes will generally include the period during which the holder
held the Notes prior to the conversion.
Cash received in lieu of a fractional share of Common Stock should be
treated as a payment in exchange for such fractional share rather than as a
dividend. Gain or loss recognized on the receipt of cash paid in lieu of such
fractional shares generally will equal the difference between the amount of
cash received and the amount of tax basis allocable to the fractional shares.
Market Discount. The resale of Notes may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Note will generally be equal to the amount, if any, by which the stated
redemption price at maturity of the Note immediately after its acquisition
exceeds the holder's tax basis in the Note. Subject to a de minimis exception,
these provisions generally require a holder of a Note acquired at a market
discount to treat as ordinary income any gain recognized on the disposition of
such Note to the extent of the "accrued market discount" on such Note at the
time of disposition, unless the holder elects to include accrued market
discount in income currently. In general, market discount on a Note will be
treated as accruing on a straight-line basis over the term of such Note, or,
at the election of the holder, under a constant yield method. A holder of a
Note acquired at a market discount who does not elect to include accrued
market discount in income currently may be required to defer the deduction of
a portion of the interest on any indebtedness incurred or maintained to
purchase or carry the Note until the Note is disposed of in a taxable
transaction. If a holder acquires a Note at a market discount and receives
Common Stock upon conversion of the Note, the amount of accrued market
discount not previously included in income with respect to the converted Note
through the date of conversion will be treated as ordinary income upon the
disposition of the Common Stock.
Dividends on Shares of Common Stock. Distributions on shares of Common Stock
will constitute dividends for United States federal income tax purposes to the
extent of current or accumulated earnings and profits of the Company as
determined under United States federal income tax principles. Dividends paid
to holders that are United States corporations may qualify for the dividends-
received deduction.
To the extent, if any, that a holder receives distributions on shares of
Common Stock that would otherwise constitute dividends for United States
federal income tax purposes but that exceed current and accumulated earnings
and profits of the Company, such distributions will be treated first as a non-
taxable return of capital reducing the holder's basis in the shares of Common
Stock. Any such distributions in excess of the holder's basis in the shares of
Common Stock will be treated as capital gain.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Notes. Generally, interest paid on the Notes to a Non-U.S.
Holder will not be subject to United States federal income tax if: (i) such
interest is not effectively connected with the conduct of a trade or business
within the United States by such Non-U.S. Holder; (ii) the Non-U.S. Holder
does not actually or constructively own 10% or more of the total voting power
of all classes of stock of the Company entitled to vote and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code; and (iii) the beneficial owner, under
penalty of perjury, certifies that the owner is not a United States person and
provides the owner's name and address. If certain requirements are satisfied,
the certification described in clause (iii) above may be provided by a
securities clearing organization, a bank, or other financial
27
<PAGE>
institution that holds customers' securities in the ordinary course of its
trade or business. For this purpose, the holder of Notes would be deemed to
own constructively the Common Stock into which it could be converted. A holder
that is not exempt from tax under these rules will be subject to United States
federal income tax withholding at a rate of 30% (or lower treaty rate) unless
the interest is effectively connected with the conduct of a United States
trade or business, in which case the interest will be subject to the United
States federal income tax on net income that applies to United States persons
generally. Non-U.S. Holders should consult applicable income tax treaties,
which may provide different rules.
Sales or Exchange of Notes or Shares of Common Stock. A Non-U.S. Holder
generally will not be subject to United States federal income tax on gain
recognized upon the sale or other disposition of the Notes or shares of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-U.S. Holder, or (ii) in the
case of a Non-U.S. Holder who is a nonresident alien individual and holds the
Common Stock as a capital asset, such holder is present in the United States
for 183 or more days in the taxable year and certain other circumstances are
present. If the Company is a "United States real property holding
corporation," a Non-U.S. Holder may be subject to federal income tax with
respect to gain realized on the disposition of such Notes or shares of Common
Stock as if it were effectively connected with a United States trade or
business and the amount realized will be subject to withholding at the rate of
10%. The amount withheld pursuant to these rules will be creditable against
such Non-U.S. Holder's United States federal income tax liability and may
entitle such Non-U.S. Holder to a refund upon furnishing the required
information to the IRS. Non-U.S. Holders should consult applicable income tax
treaties, which may provide different rules.
Conversion of Notes. A Non-U.S. Holder generally will not be subject to
United States federal income tax on the conversion of a Note into shares of
Common Stock. To the extent a Non-U.S. Holder receives cash in lieu of a
fractional share on conversion, such cash may give rise to gain that would be
subject to the rules described above with respect to the sale or exchange of a
Notes or Common Stock.
Dividends on Shares of Common Stock. Generally, any distribution on shares
of Common Stock to a Non-U.S. Holder will be subject to United States federal
income tax withholding at a rate of 30% unless the dividend is effectively
connected with the conduct of trade or business within the United States by
the Non-U.S. Holder, in which case the dividend will be subject to the United
States federal income tax on net income that applies to United States persons
generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax). Non-U.S. Holders should consult any
applicable income tax treaties, which may provide for a lower rate of
withholding or other rules different from those described above. A Non-U.S.
Holder may be required to satisfy certain certification requirements in order
to claim a reduction of or exemption from withholding under the foregoing
rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting and backup withholding may apply to
payments of interest or dividends on or the proceeds of the sale or other
disposition of the Notes or shares of Common Stock made by the Company with
respect to certain non-corporate U.S. holders. Such U.S. holders generally
will be subject to backup withholding at a rate of 31% unless the recipient of
such payment supplies a taxpayer identification number, certified under
penalties of perjury, as well as certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the U.S. holder's federal income tax, upon furnishing the
required information.
Non-U.S. Holders. Generally, information reporting and backup withholding of
United States federal income tax at a rate of 31% may apply to payments of
principal, interest and premium (if any) on the Notes to Non-U.S. Holders if
the payee fails to certify that the holder is a Non-U.S. person or if the
Company or its paying agent has actual knowledge that the payee is a United
States person. The 31% backup withholding tax generally will not apply to
dividends paid to foreign holders outside the United States that are subject
to 30% withholding as discussed above or that are subject to a tax treaty that
reduces such withholding.
28
<PAGE>
The payment of the proceeds on the disposition of Notes or shares of Common
Stock to or through the United States office of a United States or foreign
broker will be subject to information reporting and backup withholding unless
the owner provides the certification described above or otherwise establishes
an exemption.
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company and sold by the Initial
Purchaser in a transaction exempt from the registration requirements of the
Securities Act to persons reasonably believed by such Initial Purchaser to be
"qualified institutional buyers" (as defined by Rule 144A under the Securities
Act) or in transactions complying with the provisions of Regulation S under
the Securities Act. The Selling Securityholders (which term includes their
transferees, pledges, donees or successors) may from time to time offer and
sell pursuant to this Prospectus any and all of the Notes and Shares.
Set forth below, to the Company's knowledge, are the names of each Selling
Securityholder, the principal amount of Notes that may be offered by such
Selling Securityholder pursuant to this Prospectus, the percentage of Notes
held by such Selling Securityholder and the number of Shares into which such
Notes are convertible. Unless set forth below, none of the Selling
Securityholders has had a material relationship with the Company or any of its
predecessors or affiliates within the past three years.
The following table sets forth certain information as of December 10, 1997.
However, any or all of the Notes or Shares listed below may be offered for
sale pursuant to this Prospectus by the Selling Securityholders from time to
time. Accordingly, no estimate can be given as to the amounts of Notes or
Shares that will be held by the Selling Securityholders upon consummation of
any such sales. In addition, the Selling Securityholders identified below may
have sold, transferred, or otherwise disposed of all or a portion of their
Notes since the date on which the information regarding their Notes was
provided, in transactions exempt from the registration requirements of the
Securities Act.
<TABLE>
<CAPTION>
NUMBER OF SHARES
AGGREGATE PRINCIPAL AMOUNT PERCENTAGE OF OF COMMON STOCK
NAME OF NOTES THAT MAY BE SOLD NOTES OUTSTANDING THAT MAY BE SOLD(1)
---- -------------------------- ----------------- -------------------
<S> <C> <C> <C>
BancAmerica Robertson
Stephens............... $ 550,000 * % 7,953
Bank of New York........ 4,655,000 4.0 67,317
Bankers Trust Company... 5,365,000 4.7 77,584
Bear, Stearns Securities
Corp. ................. 3,450,000 3.0 49,891
Boston Safe Deposit and
Trust Company.......... 14,137,000 12.3 204,439
Brown Brothers Harriman
& Co................... 18,000,000 15.7 260,303
BT/Corp. Clearance-BTI.. 10,000,000 8.7 144,613
Chase Manhattan Bank.... 1,025,000 * 14,822
Chase Manhattan
Bank/Chemical.......... 265,000 * 3,832
CIBC Wood Gundy
Securities Inc. ....... 2,000,000 1.7 28,922
Deutsche Morgan
Grenfell, Inc.......... 3,070,000 2.7 44,396
Mercantile Safe Deposit
& Trust................ 885,000 * 12,798
Merrill Lynch, Pierce,
Fenner & Smith, Inc.... 5,875,000 5.1 84,960
Merrill Lynch
Professional Clearing
Corp................... 1,250,000 1.1 18,076
Merrill Pierce, Fenner &
Smith, Inc.-Debt
Securities ............ 5,325,000 4.6 77,006
Morgan (J.P.)
Securities, Inc........ 5,000,000 4.3 72,306
Morgan Stanley & Co.
Incorporated........... 1,500,000 1.3 21,691
NationsBanc Montgomery
Securities, Inc........ 2,000,000 1.7 28,922
Norwest Bank Minnesota,
N.A.................... 335,000 * 4,844
</TABLE>
(Table continued on following page)
29
<PAGE>
(Continued from previous page)
<TABLE>
<CAPTION>
NUMBER OF SHARES
AGGREGATE PRINCIPAL AMOUNT PERCENTAGE OF OF COMMON STOCK
NAME OF NOTES THAT MAY BE SOLD NOTES OUTSTANDING THAT MAY BE SOLD(1)
---- -------------------------- ----------------- -------------------
<S> <C> <C> <C>
Northern Trust Company.. $ 1,300,000 1.1% 18,799
PNC Bank, National
Association............ 140,000 * 2,024
Smith Barney Inc........ 11,088,000 9.6 160,347
Societe Generale
Securities Corp. ...... 5,000,000 4.3 72,306
SSB-Custodian........... 10,735,000 9.3 155,242
U.S. Clearing Corp...... 1,500,000 1.3 21,691
Wachovia Bank of North
Carolina, N.A.......... 550,000 * 7,953
------------ ----- ---------
Total................. $115,000,000 100.0% 1,663,037(2)
============ ===== =========
</TABLE>
- --------
* Less than 1%.
(1) Assumes a conversion price of $69.15 per share and a cash payment in lieu
of any fractional share interest.
(2) Total differs from the amount to be registered due to the rounding down of
fractional shares.
The preceding table has been prepared based upon information furnished to
the Company by DTC and certain Selling Securityholders. From time to time,
additional information concerning ownership of the Notes and Shares may rest
with certain holders thereof not named in the preceding table, with whom the
Company believes it has no affiliation.
PLAN OF DISTRIBUTION
The Notes and the Shares are being registered to permit public secondary
trading of such securities by the holders thereof from time to time after the
date of this Prospectus. The Company has agreed, among other things, to bear
all expenses (other than underwriting discounts and selling commissions) in
connection with the registration and sale of the Notes and the Shares covered
by this Prospectus.
The Company will not receive any of the proceeds from the offering of Notes
or the Shares by the Selling Securityholders. The Company has been advised by
the Selling Securityholders that the Selling Securityholders may sell all or a
portion of the Notes and Shares beneficially owned by them and offered hereby
from time to time on any exchange on which the securities are listed on terms
to be determined at the times of such sales. The Selling Securityholders may
also make private sales directly or through a broker or brokers.
Alternatively, any of the Selling Securityholders may from time to time offer
the Notes or the Shares beneficially owned by them through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Notes or Shares for whom they may act as agent. The
aggregate proceeds to the Selling Securityholders from the sale of the Notes
or Shares offered by them hereby will be the purchase price of such Notes or
Shares less discounts and commissions, if any.
The Notes and the Shares may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices
will be determined by the holders of such securities or by agreement between
such holders and underwriters or dealers who may receive fees or commissions
in connection therewith.
The outstanding Common Stock is listed for trading on the Nasdaq National
Market, and the Shares have been approved for listing on the Nasdaq National
Market.
The Selling Securityholders and any broker and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Notes or the Shares may be deemed to be
30
<PAGE>
"underwriters" within the meaning of the Securities Act, in which event any
commissions received by such broker-dealers, agents or underwriters and any
profit on the resale of the Notes or the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
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. There is no
assurance that any Selling Securityholder will sell any or all of the Notes or
Shares described herein, and any Selling Securityholder may transfer, devise
or gift such securities by other means not described herein.
The Notes were issued and sold in September 1997 in transactions exempt from
the registration requirements of the Securities Act to persons reasonably
believed by the Initial Purchaser to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) or outside the United States to
certain persons in offshore transactions in reliance on Regulation S under the
Securities Act. Pursuant to the RRA, the Company has agreed to indemnify the
Initial Purchaser and each Selling Securityholder, and each Selling
Securityholder has agreed to indemnify the Company, the Initial Purchaser and
each other Selling Stockholder against certain liabilities arising under the
Securities Act.
The Company will use its best efforts to keep the registration statement of
which this Prospectus is a part effective for a period of two years from the
Closing Date, or until the Shelf Registration is no longer required for
transfer of the Notes or the Shares. The Company may prohibit offers and sales
of Notes and Shares pursuant to the registration statement to which this
Prospectus relates at any time if (A)(i) it is in possession of material non-
public information, (ii) the Board of Directors of the Company or the
Executive Committee thereof determines (based on advice of counsel) that such
prohibition is necessary in order to avoid a requirement to disclose such
material non-public information and (iii) the Board of Directors of the
Company or the Executive Committee thereof determines in good faith that
disclosure of such material non-public information would not be in the best
interests of the Company and its stockholders or (B) the Company has made a
public announcement relating to an acquisition or business combination
transaction including the Company and/or one or more of its subsidiaries (i)
that is material to the Company and its subsidiaries taken as a whole and (ii)
the Board of Directors of the Company or the Executive Committee thereof
determines in good faith that offers and sales of Notes and Shares pursuant to
the registration statement to which this Prospectus relates prior to the
consummation of such transaction (or such earlier date as the Board of
Directors or the Executive Committee thereof shall determine) is not in the
best interests of the Company and its stockholders. Expenses of preparing and
filing the registration statement to which this Prospectus relates and all
post-effective amendments thereto will be borne by the Company.
31
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes and the
validity of the Shares offered hereby are being passed upon for the Company by
Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in its Annual Report on Form 10-K for the year ended October 31,
1996 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon incorporated by reference therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The statements made in the second and third paragraphs of "Risk Factors--
Proprietary Rights" are included in part in reliance upon the advice of Smith-
Hill and Bedell, P.C., general patent counsel to the Company, and upon the
authority of such firm as experts in such matters.
32
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL OR A SOLICITATION FOR AN OFFER TO BUY ANY SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Information
by Reference.............................................................. 2
Risk Factors............................................................... 4
Use of Proceeds............................................................ 14
Dividend Policy............................................................ 14
Ratio of Earnings to Fixed Charges ........................................ 14
Description of Notes....................................................... 15
Description of Capital Stock............................................... 24
Certain United States Federal Income Tax
Consequences ............................................................. 26
Selling Securityholders ................................................... 29
Plan of Distribution ...................................................... 30
Legal Matters.............................................................. 32
Experts.................................................................... 32
</TABLE>
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$115,000,000
CREDENCE SYSTEMS CORPORATION
5 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2002
1,663,051 SHARES COMMON STOCK
----------------
PROSPECTUS
----------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses incurred in connection with the issuance and distribution of
the securities being registered will be paid by the Registrant. The following
is an itemized statement of these expenses. All amounts are estimates except
the Securities and Exchange Commission registration fee and the Nasdaq listing
fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 34,848
Nasdaq listing fee............................................... 17,500
Printing and engraving........................................... 10,000
Legal fees and expenses of the Registrant........................ 10,000
Accounting fees and expenses..................................... 15,000
Trustee's fees and expenses...................................... 1,000
Miscellaneous.................................................... 12,000
--------
Total.......................................................... $100,348
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145")
authorizes a court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad to
permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act. The Registrant's Certificate of Incorporation and Bylaws provide for
mandatory indemnification by the Registrant of all persons the Registrant may
indemnify under Section 145 to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Certificate of Incorporation further
provides that the liability of its directors is eliminated to the fullest
extent permitted by the Delaware General Corporation Law. These provisions in
the Certificate of Incorporation do not eliminate the directors' fiduciary
duty, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware
law. In addition, each director will continue to be subject to liability for
breach of the director's duty of loyalty to the Registrant for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into indemnification agreements with all of its officers and
directors.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Purchase Agreement, dated September 4, 1997, between the Registrant
and Smith Barney Inc.
4.1* Indenture, dated as of September 10, 1997, between the Registrant
and State Street Bank and Trust Company of California, N.A., as
Trustee.
Form of 5 1/4% Convertible Subordinated Note due 2002 (included in
4.2* Exhibit 4.1).
4.3* Registration Rights Agreement, dated as of September 4, 1997,
between the Registrant and Smith Barney Inc.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
12.1* Calculation of Ratio of Earnings to Fixed Charges.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
23.1 Consent of Ernst & Young LLP.
Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
23.2* 5.1).
23.3* Consent of Smith-Hill and Bedell, P.C.
Powers of Attorney (included in the signature page of this
24.1* Registration Statement).
25.1* Statement of Eligibility of Trustee (Form T-1).
</TABLE>
--------
*Previously filed.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement of the securities offered, and the offering of such securities at
that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fremont, State of California, on
this 23rd day of December, 1997.
CREDENCE SYSTEMS CORPORATION
By: /s/ Dr. Wilmer R. Bottoms
___________________________________
Dr. Wilmer R. Bottoms
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the persons whose signatures appear
below, which persons have signed such Registration Statement in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dr. Wilmer R. Bottoms Chairman of the Board of December 23, 1997
______________________________________ Directors and Chief
Dr. Wilmer R. Bottoms Executive Officer
(Principal Executive
Officer)
/s/ Jerry Bruce Acting Chief Financial December 23, 1997
______________________________________ Officer (Principal
Jerry Bruce Financial and Accounting
Officer)
* Director December 23, 1997
______________________________________
Henk J. Evenhuis
* Director December 23, 1997
______________________________________
Jos C. Henkens
* Director December 23, 1997
______________________________________
William G. Howard, Jr.
* Director December 23, 1997
______________________________________
Bernard V. Vonderschmitt
</TABLE>
*By: /s/ Dr. Wilmer R. Bottoms
------------------------------
Dr. Wilmer R. Bottoms
(Attorney-in-Fact)
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1.1* Purchase Agreement, dated September 4, 1997, between the
Registrant and Smith Barney Inc.
4.1* Indenture, dated as of September 10, 1997, between the
Registrant and State Street Bank and Trust Company of
California, N.A., as Trustee.
4.2* Form of 5 1/4% Convertible Subordinated Note due 2002
(included in Exhibit 4.1).
4.3* Registration Rights Agreement, dated as of September 4, 1997,
between the Registrant and Smith Barney Inc.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
12.1* Calculation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
23.3* Consent of Smith-Hill and Bedell, P.C.
24.1* Powers of Attorney (included in the signature page of this
Registration Statement).
25.1* Statement of Eligibility of Trustee (Form T-1).
</TABLE>
- --------
*Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3) and related
Prospectus of Credence Systems Corporation for the registration of
$115,000,000 5 1/4% Convertible Subordinated Notes due 2002 and 1,663,051
shares of its common stock and to the incorporation by reference therein of
our report dated December 2, 1996, with respect to the consolidated financial
statements of Credence Systems Corporation incorporated by reference in its
Annual Report (Form 10-K) for the year ended October 31, 1996 and the related
financial statement schedule included therein, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
San Jose, California
December 22, 1997
