<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CYMER, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 33-0175463
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16750 VIA DEL CAMPO COURT
SAN DIEGO, CALIFORNIA 92127
(619) 451-7300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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DR. ROBERT P. AKINS
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
CYMER, INC.
16750 VIA DEL CAMPO COURT
SAN DIEGO, CALIFORNIA 92127
(619) 451-7300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
HENRY P. MASSEY, JR., ESQ.
DAVID C. DRUMMOND, ESQ.
GREGORY T. COX, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(415) 493-9300
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Approximate date of commencement of proposed sale to the public: FROM
TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, 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, 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. [ ]
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNTS TO MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
--------------------------- ------------- ------------------ ------------------ ----------------
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3 1/2%/7 1/4% Step-Up Convertible Subordinated
Notes due August 6, 2004...................... $172,500,000 100% $172,500,000 $52,272.73
Common Stock, no par value.................... 3,670,213(2) -- -- --(3)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) of the Securities Act of 1933, as amended.
(2) Such number represents the number of shares of Common Stock as are
initially issuable upon conversion of the 3/1/2%/7 1/4% Step-Up
Convertible Subordinated Notes due August 6, 2004 registered hereby and,
pursuant to Rule 416 under the Securities Act of 1933, as amended, such
indeterminate number of shares of Common Stock as shall be required for
issuance upon conversion of the Notes being registered hereunder.
(3) No additional consideration will be received for the Common Stock and,
therefore, no registration fee is required pursuant to Rule 457(i).
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
PROSPECTUS
CYMER, INC.
U.S. $172,500,000
3 1/2%/7 1/4% Step-Up Convertible Subordinated Notes due August 6, 2004
and
Shares of Common Stock Issuable Upon Conversion Thereof
-----------------------
This Prospectus relates to $172,500,000 aggregate principal amount of
3 1/2%/7 1/4% Step-Up Convertible Subordinated Notes due August 6, 2004 (the
"Notes") of Cymer, Inc. (the "Company") under the Securities Act of 1933, as
amended (the "Securities Act"), and the shares of Common Stock, $.001 par value
of the Company, ("Common Stock") issuable upon the conversion of the Notes (the
"Conversion Shares"). The Notes registered hereby were issued and sold on August
6, 1997 (the "Original Offering") in transactions exempt from the registration
requirements of the Securities Act, by Morgan Stanley & Co. Incorporated and
Montgomery Securities, as the initial purchasers (the "Initial Purchasers") of
the Notes, to "qualified institutional buyers" (as defined by Rule 144A under
the Securities Act) and other institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under Regulation D of the Securities Act) or
in compliance with the provisions of Regulation S under the Securities Act. The
Notes and the Common Stock issuable upon conversion thereof may be offered and
sold from time to time by the holders named herein or by their transferees,
pledgees, donees or their successors (collectively, the "Selling
Securityholders") pursuant to this Prospectus. The Registration Statement of
which this Prospectus is a part has been filed with the Securities and Exchange
Commission pursuant to a registration rights agreement dated as of August 6,
1997 (the "Registration Agreement") between the Company and the Initial
Purchasers, entered into in connection with the Original Offering.
The Notes are convertible at the option of the holder into shares of
Common Stock of the Company (at any time on or after November 5, 1997 and prior
to redemption or maturity, at a conversion rate of 21.2766 shares per $1,000
principal amount of Notes), subject to adjustment under certain circumstances.
Interest on the Notes is payable semi-annually in arrears on February 6 and
August 6 of each year, commencing on February 6, 1998. On October 29, 1997, the
closing price of the Common Stock, which is quoted on the Nasdaq National Market
under the symbol "CYMI," was $25 3/4 per share.
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THE NOTES AND THE COMMON STOCK OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 8.
-----------------------
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 OCTOBER 30, 1997
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The Notes are unsecured general obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture). See "Description of Notes -- Subordination of
Notes." The Notes will mature on August 6, 2004, and may be redeemed, at the
option of the Company, in whole or in part, on at least 30 days' notice, at any
time on or after August 9, 2000 at the redemption prices set forth herein plus
accrued interest. Each holder of Notes will have the right to cause the Company
to redeem any or all of such holder's Notes, in the event of a Fundamental
Change (as defined in the Indenture) that occurs at any time prior to August 6,
2004.
The Notes and the Conversion Shares may be offered by the Selling
Securityholders from time to time in transactions (which may include block
transactions in the case of the Conversion Shares) on any exchange or market on
which such securities are listed or quoted, as applicable, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the Notes or
Conversion Shares directly or to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Notes or Conversion Shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Company will not receive any of the
proceeds from the sale of the Notes or Conversion Shares by the Selling
Securityholders. The Company has agreed to pay all expenses incident to the
offer and sale of the Notes and Conversion Shares offered by the Selling
Securityholders hereby, except that the Selling Securityholders will pay all
underwriting discounts and selling commissions, if any. See "Plan of
Distribution."
The Notes have been designated for trading on The Portal Market. Notes
sold pursuant to this Prospectus are not eligible for trading on The Portal
Market.
The Selling Securityholders will receive all of the net proceeds from
the sale of the Notes and the Common Stock issuable upon conversion of the Notes
and will pay all underwriting discounts and selling commissions, if any,
applicable to the sale of the Notes and the Common Stock issuable upon
conversion of the Notes. The Company is responsible for payment of all other
expenses incident to the offer and sale of the Notes and the Common Stock
issuable upon conversion of the Notes.
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TABLE OF CONTENTS
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Page
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Available Information.................................................................................................3
Documents Incorporated by Reference...................................................................................3
The Company...........................................................................................................5
The Offering..........................................................................................................6
Risk Factors..........................................................................................................8
Ratio of Earnings to Fixed Charges...................................................................................19
Use of Proceeds......................................................................................................19
Dividend Policy......................................................................................................19
Description of Notes.................................................................................................20
Certain Federal Income Tax Considerations............................................................................30
Selling Securityholders..............................................................................................34
Plan of Distribution.................................................................................................35
Legal Matters........................................................................................................36
Experts..............................................................................................................36
</TABLE>
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements, and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements, and other information that are filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval System. This
Web site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Notes and Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company, the
Notes and the Common Stock, reference is made to the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. Copies of the Registration
Statement, including all exhibits thereto, may be obtained from the Commission's
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission, or may be examined without charge at the offices of the Commission
described above.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus is delivered, upon written or oral request of
any such person, a copy of any and all of the information that has been or may
be incorporated by reference in this Prospectus, other than exhibits to such
documents. Requests for such copies should be directed to William A. Angus, III,
Cymer, Inc., 16750 Via Del Campo Court, San Diego, CA 92127, Phone: (619)
451-7300.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
2. The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997.
3. The Company's Current Report on Form 8-K filed on August 7,
1997.
4. The Company's Current Report on Form 8-K filed on August 19,
1997.
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5. The description of the Company's capital stock contained in
the Company's Registration Statement filed on Form 8-A dated
September 6, 1996, and as amended on Form 8-A/A dated October
24, 1997.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering to which this Prospectus relates shall be deemed to be incorporated by
reference into this Prospectus and to be part of this Prospectus from the date
of filing thereof.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement.
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<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included or
incorporated by reference in this Prospectus.
THE COMPANY
Cymer is the leading provider of excimer laser illumination sources for
use in deep ultraviolet ("DUV") photolithography systems targeted at the pilot
and volume production segments of the semiconductor manufacturing market. The
Company's lasers are incorporated into step-and-repeat and step-and-scan
photolithography systems for use in the manufacture of semiconductors with
critical feature sizes below 0.35 microns. The Company believes that its excimer
lasers constitute a substantial majority of all excimer lasers incorporated in
DUV photolithography tools. The Company's customers include all five
manufacturers of DUV photolithography systems: ASM Lithography, Canon,
Integrated Solutions, Nikon and SVG Lithography. Photolithography systems
incorporating the Company's excimer lasers have been purchased by each of the
world's 15 largest semiconductor manufacturers: Intel, NEC, Motorola, Toshiba,
Hitachi, Texas Instruments, Samsung, Fujitsu, Mitsubishi, Philips, SGS-THOMSON,
Siemens, Matsushita, IBM and National Semiconductor.
The Company believes its leading position in the excimer laser market
is attributable to its development of advanced technologies that address the
needs of its customers as well as semiconductor manufacturers. The performance
characteristics of the Company's excimer lasers include high pulse repetition
rate, narrow bandwidth, energy stability and reliability relative to competing
products. The Company also believes that it is currently the only volume
supplier of excimer laser systems for DUV photolithography applications. The
Company's krypton fluoride excimer lasers are currently capable of producing
critical features as small as 0.25 microns, and the Company believes its
technology is extendible to critical feature sizes as small as 0.10 microns by
using different gas combinations and advanced optical and photomask technology.
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THE OFFERING
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Securities Offered................. $172,500,000 principal amount of 3 1/2%/7 1/4% Step-Up
Convertible Subordinated Notes due 2004 (the "Notes"), issued
under an indenture dated as of August 6, 1997 (the "Indenture")
between the Company and State Street Bank and Trust
Company of California, N.A. as trustee (the "Trustee") and
Common Stock issuable upon conversion thereof..
Interest Payment Dates............. February 6 and August 6, commencing February 6, 1998.
Conversion......................... The Notes are convertible at the option of the holder at any time on
or after November 5, 1997 through maturity, unless previously
redeemed, into Common Stock at a conversion price of $47
(adjusted to reflect the Company's 2-for-1 stock split effective
August 21, 1997) per share (equivalent to a conversion rate of
approximately 21.2766 shares per $1,000 stated principal
amount of Notes), subject to adjustment in certain events. See
"Description of Notes-- Conversion of Notes."
Subordination...................... The Notes are subordinated to all existing and future Senior
Indebtedness (as defined). At June 30, 1997, the Company had
approximately $2.4 million of outstanding Senior Indebtedness.
The Indenture does not prohibit or limit the incurrence of
additional Senior Indebtedness.
Redemption......................... The Notes are not redeemable by the Company prior to August 9,
2000. Subject to the foregoing, the Notes will be redeemable on
at least 30 days' notice at the option of the Company, in whole
or in part, at any time, at the redemption prices set forth in
"Description of Notes," in each case together with accrued
interest.
Fundamental Change................. Upon the occurrence of any Fundamental Change (as defined) prior
to the maturity of the Notes, each holder shall have the right, at
such holder's option, to require the Company to redeem all or
any part (provided that the principal amount is $1,000 or an
integral multiple thereof) of such holder's Notes at the
redemption prices set forth in "Description of Notes," subject to
adjustment in certain events, together with accrued interest. See
"Description of Notes-- Redemption at Option of the Holder."
Use of Proceeds.................... The Company will not receive any of the proceeds from sale of any
of the Notes or the Common Stock issuable upon conversion
thereof.
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Registration Rights................ Upon any failure by the Company to comply with certain of its
obligations under the Registration Rights Agreement, certain
predetermined liquidated damages will be payable by the
Company to those holders of the Notes and those holders of
Common Stock issued upon conversion of the Notes who have
requested to sell pursuant to the registration statement.
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RISK FACTORS
This Prospectus contains or incorporates by reference forward-looking
statements that involve risks and uncertainties. The statements contained or
incorporated by reference in this Prospectus that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
without limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and all forward-looking statements in documents incorporated by
reference are based on information available to the Company as of the date of
such documents. The Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ materially
from those anticipated in these such-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In evaluating the Company's business, prospective investors
should consider carefully the following factors in addition to the other
information set forth in this Prospectus.
Likely Fluctuations in Operating Results. The Company's operating
results have in the past fluctuated and are likely in the future to fluctuate
significantly depending upon a variety of factors. Such factors may include: the
demand for semiconductors in general and, in particular, for leading-edge
devices with smaller circuit geometries; the rate at which semiconductor
manufacturers take delivery of photolithography tools from the Company's
customers; cyclicality in the market for semiconductor manufacturing equipment;
the timing and size of orders from the Company's small base of customers; the
ability of the Company to manufacture, test and deliver laser systems in a
timely and cost effective manner; the mix of shipments between new lasers and
lower-margin replacement parts; the ability of the Company's competitors to
obtain orders from the Company's customers; the timing of new product
announcements and releases by the Company and its competitors; the entry of new
competitors into the market for DUV photolithography illumination sources; the
ability of the Company to manage its costs as it supplies its products in higher
volumes; and the Company's ability to manage effectively its exposure to foreign
currency exchange rate fluctuations, principally with respect to the Japanese
yen (in which sales by the Company's Japanese subsidiary are denominated). In
addition, the Company's operating results may be affected by reductions in
customer laser inventories as customers become more efficient at integrating the
Company's lasers into their photolithography tools.
The Company has historically derived a substantial portion of its
quarterly and annual revenues from the sale of a relatively small number of
systems, which range in price from approximately $400,000 to $600,000. As a
result, the precise timing of the recognition of revenue from an order for a
small number of systems can have a significant impact on the Company's total
revenues and operating results for a particular period. The Company's operating
results for a particular period could be adversely affected if orders for a
small number of systems are canceled or rescheduled by customers or cannot be
filled in time to recognize revenue during that period due to, for example,
unanticipated manufacturing, testing, shipping or product acceptance delays. The
Company's expense levels are based, in large part, on the Company's expectations
as to future revenues and are, therefore, relatively fixed in the short term. If
revenue levels fall below expectations, net income will be disproportionately
and adversely affected. The impact of these and other factors on the Company's
revenues and operating results in any future period cannot be forecast with any
degree of certainty.
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<PAGE> 10
The Company believes that semiconductor manufacturers are currently
developing capability for pilot Production of 0.25um devices. The Company also
believes that demand for its excimer lasers for DUV photolithography tools is
currently being driven by the efforts to develop such capability. Once
semiconductor manufacturers have acquired such capability, the Company believes
that they will continue to invest in DUV photolithography tools to expand their
capacity to manufacture 0.25um devices only to the degree to which their sales
forecasts and 0.25um manufacturing process yields justify such investment.
Accordingly, the Company currently expects that demand for its DUV excimer
lasers will be subject to such demand and process development constraints.
Recently, the Company has significantly increased the scale of its
operations and its manufacturing capacity, including hiring additional personnel
and substantially increasing the number of systems in production. This expansion
has resulted in higher materials and work-in-process inventory levels and
significantly higher operating expenses, and has required the Company to
implement a variety of new systems, procedures and controls. Based on its
backlog of orders at September 30, 1997, the Company expects to continue to
increase its inventories and operating expenses. If orders received by the
Company do not result in sales, or if the Company is unable to sustain its
revenues at anticipated levels, the Company's operating results would be
materially adversely affected.
Due to the foregoing factors, as well as other unanticipated factors,
it is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts or investors. In such event,
the market price of the Company's Common Stock would be materially adversely
affected.
Unpredictability of Future Operating Results. The Company was founded
in 1986 and shipped its first prototype laser system in 1988. Although in recent
periods the Company has experienced sequential revenue growth and has been
profitable, there can be no assurance that the Company's revenues will grow or
be sustained in future periods or that the Company will be profitable in any
future period. The Company's history of annual and quarterly operating losses,
its substantial expansion in manufacturing capacity, its limited experience in
supplying products in volume and the difficulty of predicting the demand for its
products, among other factors, make the prediction of future operating results
difficult if not impossible.
Risks Associated with Rapid and Substantial Manufacturing Expansion. To
meet current and anticipated demand for its products, the Company must continue
to increase the rate by which it manufactures and tests its photolithography
laser systems. Although the Company has experienced recent success in expanding
production, the Company has historically been unable to manufacture and test its
photolithography laser systems fast enough to meet some of its delivery
schedules. Should the Company fail to meet delivery orders in the future, the
Company's customers could cancel orders and seek to meet all or a portion of
their needs for illumination sources from the Company's competitors. The Company
is also increasingly relying on outside suppliers for the manufacture of various
components and subassemblies used in its products and is dependent upon these
suppliers to meet the Company's manufacturing schedules. The failure by one or
more of these suppliers to supply the Company on a timely basis with sufficient
quantities of components or subassemblies that perform to the Company's
specifications could affect the Company's ability to deliver completed lasers to
its customers on schedule. See "-- Dependence on Key Suppliers." Additionally,
the Company may underestimate the costs required to increase its manufacturing
capacity, which may materially adversely affect the Company's financial
condition and results of operations.
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<PAGE> 11
In addition to increasing manufacturing capacity at its facilities in
San Diego, California, the Company has qualified Seiko Instruments, Inc.
("Seiko") of Japan as a contract manufacturer of its photolithography lasers.
While Seiko began limited production of lasers for the Company in the first
quarter of 1997, there can be no assurance that Seiko can maintain production on
schedule. The failure of Seiko to maintain production on schedule could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Seiko has been advised by Komatsu, Ltd. ("Komatsu"), a competitor of
the Company, that certain aspects of the Company's lasers might infringe certain
patents that have been issued to Komatsu in Japan and that Komatsu intends to
enforce its rights under such patents against Seiko, if Seiko engages in
manufacturing activities for the Company. Cymer has been advised by its patent
counsel in this matter, Wilson Sonsini Goodrich & Rosati, Professional
Corporation, which is relying in part on the opinion of the Company's Japanese
patent counsel, that in the opinion of such firm the Company's products do not
infringe any valid claims included in the Komatsu patents. In the event that,
notwithstanding its manufacturing agreement with the Company, Seiko should
determine not to continue manufacturing the Company's products until resolution
of the matter with Komatsu, the Company's ability to meet the anticipated demand
for its products could be materially adversely affected. See "-- Uncertainty
Regarding Patents and Protection of Proprietary Technology."
Dependence on Key Suppliers. Certain of the components and
subassemblies included in the Company's products are obtained from a single
supplier or a limited group of suppliers. In particular, there are no
alternative sources for certain of the components and subassemblies, including
certain optical components and pre-ionizer tubes used in the Company's lasers.
In addition, the Company is increasingly outsourcing the manufacture of various
subassemblies. Although to date the Company has been able to obtain adequate
supplies of the components and subassemblies used in the production of the
Company's laser systems in a timely manner from existing sources, the Company
has only recently commenced volume production of laser systems, which has caused
many of its suppliers to also commence volume production of the Company's
components and subassemblies. The Company believes that its recent manufacturing
expansion has significantly strained the production capacity of certain key
suppliers, including suppliers of optical components and pre-ionizer tubes. In
addition, certain materials necessary for precise optical performance in the
Company's lasers, including the calcium fluoride used in certain of the
Company's lasers, are in short supply. If the Company is unable to obtain
sufficient quantities of such materials, components or subassemblies, or if such
items do not meet the Company's quality standards, delays or reductions in
product shipments could occur which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Single Product Line. The Company's only product line is
excimer lasers, the primary market for which is use in DUV photolithography
equipment for manufacturing deep-submicron semiconductor devices. Demand for the
Company's products will depend in part on the rate at which semiconductor
manufacturers adopt excimer lasers as the illumination source for their
photolithography tools. Impediments to such adoption include a shortage of
engineers with experience implementing, utilizing and maintaining DUV
photolithography systems that incorporate excimer laser illumination sources,
instability of photoresists used in DUV photolithography and a shortage of
specialized glass used in DUV optics. There can be no assurance that such
impediments can or will be overcome, and, in any event, such impediments may
materially reduce the demand for the Company's products. In addition, to the
extent that such manufacturers are able to produce semiconductors with smaller
critical feature sizes by extending the performance capabilities of mercury lamp
illumination sources used in existing DUV photolithography tools, the demand for
the Company's products would also be materially reduced. Further, if the
Company's customers experience reduced demand for DUV photolithography tools, or
if the Company's competitors are successful in obtaining significant orders from
such customers, the Company's financial condition and results of operations
would be materially adversely affected.
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<PAGE> 12
Limited Production Use of Excimer Lasers. The Company first shipped its
lasers for photolithography applications in 1988. The Company is not aware of
any semiconductor manufacturer using the Company's laser for volume production
of semiconductor devices. There can be no assurance that the Company's products
will meet production specifications when subjected to prolonged and intense use
in volume production in semiconductor manufacturing processes. If any
semiconductor manufacturer is not able to successfully achieve volume production
using the Company's lasers, the Company's reputation with semiconductor
manufacturers or the limited number of photolithography tool manufacturers could
be damaged, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Small Number of Customers. The Company's primary customer
base is composed of a small number of manufacturers of DUV photolithography
tools. Four large firms, ASM Lithography, Canon, Nikon and SVG Lithography (a
subsidiary of Silicon Valley Group, Inc.), dominate the photolithography tool
business and collectively accounted for approximately 41%, 65%, 90% and 95% of
the Company's total revenues in 1994, 1995, 1996 and the first nine months of
1997, respectively. Sales to ASM Lithography, Canon, Nikon and SVG Lithography
accounted for approximately 25%, 24%, 41% and 4%, respectively, of total
revenues for the first nine months of 1997 and 19%, 30%, 31% and 10%,
respectively, of total revenues in 1996. The Company expects that sales of its
systems to these customers will continue to account for substantially all of its
revenues in the foreseeable future. None of the Company's customers is obligated
to purchase a minimum number of the Company's products. Loss of any significant
business from any one of these customers or a significant reduction in orders
from any one of these customers, including reductions caused by changes in a
customer's competitive position, a decision to purchase illumination sources
from other suppliers or economic conditions in the semiconductor and
photolithography tool industries, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Need to Manage a Changing Business. The Company recently has
dramatically expanded the scope of its operations and the number of employees in
most of its functional areas. For example, the Company increased the number of
its employees from 136 at December 31, 1995 to 336 at December 31, 1996 and to
726 at September 30, 1997. The Company installed a new management information
system and has also substantially expanded its facilities and manufacturing
capacity. For example, since December 31, 1996 the Company has occupied three
additional buildings covering approximately 187,000 square feet. If demand for
the Company's products continues to grow, the Company will be required to
continue this expansion. The management of such growth, if such growth occurs,
will require the Company to continue to improve and expand its management,
operational and financial systems, including accounting and other internal
management systems, its quality control, delivery and field service and customer
support capabilities. The Company will be required to attract, train and retain
key technical personnel, including both hardware and software engineers, in
order to support the Company's growth. The Company will be required to manage
effectively its expanding international operations, including the operations of
its Japanese subsidiary, its field service and support presence in Asia and
Europe and its relationship with Seiko as a manufacturer of its photolithography
lasers. The Company must also effect timely deliveries of its products and
maintain the product quality and reliability required by its customers. The
Company has experienced, and may continue to experience, delays in deliveries to
customers as a result of its inability to increase its manufacturing capacity
fast enough to meet demand. Any failure to manage the Company's growth, if such
growth occurs, would materially adversely affect the Company's financial
condition and results of operations.
Risks Associated with Laser Warranty; Need to Increase Production of
Component Modules. In the first quarter of 1997, the Company determined that
certain previously-shipped 5000 series lasers required changes in order to meet
the performance levels specified by the Company. As a result, the Company has
undertaken efforts through which it intends to make the necessary hardware and
software changes to such lasers.
-11-
<PAGE> 13
In connection with these efforts, the Company has temporarily reallocated
management, technical and manufacturing resources and increased its
warranty reserve for the nine months ended September 30, 1997 by approximately
$6.4 million. There can be no assurance that such efforts will be successful,
that such warranty reserve will be sufficient to cover the costs associated with
such efforts, or that additional reserves will not be required in the future. If
such efforts are unsuccessful, or if the costs associated therewith are greater
than anticipated, the Company's business, financial condition and results of
operations could be materially and adversely affected.
The Company's aforementioned efforts and growing installed base will
require it to increase production of replacement parts and component modules.
Because the Company prioritizes the reliable operation of its installed units at
semiconductor manufacturers above all other requirements, it typically utilizes
available component modules first to support existing systems in the field.
Accordingly, the failure to rapidly expand production of component modules could
result in the delay in shipment of new laser systems, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Need to Expand Field Service and Support Organization. The Company
believes that the need to provide fast and responsive service to the
semiconductor manufacturers using its lasers is critical and that it will not be
able to depend solely on its direct customers to provide this specialized
service. Therefore, the Company believes it is essential to establish, through
trained third-party sources or through its own personnel, a rapid response
capability to service its lasers throughout the world. Accordingly, the Company
is currently expanding its direct support infrastructure in Japan, Europe, Korea
and Taiwan and Southeast Asia. This expansion entails recruiting and training
qualified field-service personnel and building effective and highly trained
organizations that can provide service to customers in various countries in
their assigned regions. The Company has historically experienced difficulties in
effectively training field-service personnel. There can be no assurance that the
Company will be able to attract and train qualified personnel to establish these
operations successfully or that the costs of such operations will not be
excessive. A failure to implement this plan effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Competition. The Company currently has two significant competitors in
the market for excimer laser systems for photolithography applications.
Lambda-Physik R&D ("Lambda-Physik"), a German-based subsidiary of Coherent, Inc.
("Coherent") and Komatsu, Ltd., located in Japan. Both of these companies are
larger than the Company, have access to greater financial, technical and other
resources than does the Company and are located in closer proximity to the
Company's customers than is the Company. Although the Company believes that
these competitors are not yet supplying excimer lasers in volume for
photolithography applications, the Company believes that both companies are
aggressively seeking to gain larger positions in this market. The Company
believes that its customers have each purchased one or more products offered by
these competitors and that its customers will continue to actively qualify these
competitors' lasers in their search for a second source. If competitors
successfully qualify their lasers for use by the Company's customers, the
Company could lose market share and its growth could slow or even decline. In
the future, the Company will likely experience competition from other
technologies, such as extreme ultraviolet ("EUV"), X-ray, electron beam and ion
projection processes. To remain competitive, the Company believes that it will
be required to manufacture and deliver products to customers on a timely basis
and without significant defects and that it will also be required to maintain a
high level of investment in research and development and in sales and marketing.
There can be no assurance that the Company will have sufficient resources to
continue to make the investments necessary to maintain its competitive position.
In addition, the market for excimer lasers is still small and immature and there
can be no assurance that larger competitors with substantially greater financial
resources, including other manufacturers of industrial lasers, will not attempt
to enter the market. There can be no assurance that the Company will remain
competitive. A failure to remain competitive would have a material adverse
effect on the Company's business, financial condition and results of operations.
Risk of Excessive Inventory Buildups by Photolithography Tool
Manufacturers. Substantially all of the Company's customers are photolithography
tool manufacturers, which in turn sell their systems to semiconductor
manufacturers. Over the past year, the Company's customers have substantially
increased their forecasted shipments of DUV photolithography tools. The Company
believes that the increase in competitive demand for DUV photolithography tools
may have caused, and may continue to cause, a degree of over-ordering of the
Company's products. The Company is working with its customers to better
understand end user demand for DUV photolithography tools. However, there can be
no assurance that the Company will be successful in this regard, or that its
customers will not build excessive laser inventories. Excessive customer laser
inventories could result in a material decline in the Company's revenues and
operating results in future periods as such inventories are brought into
balance.
Dependence on Semiconductor Industry. Substantially all of the
Company's revenues are derived from photolithography tool manufacturers that in
turn depend on the demand for their products from semiconductor manufacturers.
Semiconductor manufacturers correspondingly depend on the demand from
manufacturers of end- products or systems that use semiconductors. The
semiconductor industry is highly cyclical and has historically experienced
periodic and significant downturns, which often have had a severe effect on the
demand for semiconductor manufacturing equipment, including photolithography
tools. The Company believes that downturns in the semiconductor manufacturing
industry will occur in the future, and will result in decreased demand for
semiconductor manufacturing equipment. In addition, the Company believes that
its ability to reduce expenses in a future downturn will be constrained by the
need for continual investment in research and
-12-
<PAGE> 14
development, and the need to maintain extensive ongoing customer service and
support capability. Accordingly, any downturn in the semiconductor industry
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Rapid Technological Change; New Product Introductions. Semiconductor
manufacturing equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part upon its
ability to continue to enhance its excimer laser products and their process
capabilities and to develop and manufacture new products with improved
capabilities. In order to enhance and improve its products and develop new
products, among other things, the Company must work closely with its customers,
particularly in the product development stage, to integrate its lasers with its
customers' photolithography tools. There can be no assurance that future
technologies, such as EUV, X-ray, electron beam and ion projection processes,
will not render the Company's excimer laser products obsolete or that the
Company will be able to develop and introduce new products or enhancements to
its existing products and processes in a timely manner that satisfy customer
needs or achieve market acceptance. The failure to do so could materially
adversely affect the Company's business, financial condition and results of
operations.
Uncertainty Regarding Patents and Protection of Proprietary Technology.
The Company believes that the success of its business depends more on such
factors as the technical expertise of its employees, as well as their innovative
skills and marketing and customer relations ability, than on patents,
copyrights, trade secrets and other intellectual property rights. Nevertheless,
the success of the Company may depend in part on patents, and as of July 15,
1997, the Company owned 20 United States patents covering certain aspects of
technology associated with excimer lasers which expire from January 2008 to
February 2016 and had applied for 20 additional patents in the United States,
two of which have been allowed. As of July 15, 1997, the Company had filed 72
patent applications in other countries. There can be no assurance that the
Company's pending patent applications or any future applications will be
approved, that any patents will provide it with competitive
-13-
<PAGE> 15
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the Company's ability to do business.
In this regard, due to cost constraints, the Company did not begin filing for
patents in Japan or other countries with respect to inventions covered by its
United States patents and patent applications until recently and has therefore
lost the right to seek patent protection in those countries for certain of its
inventions. Additionally, because foreign patents may afford less protection
under foreign law than is available under United States patent law, there can be
no assurance that any such patents issued to the Company will adequately protect
the Company's proprietary information. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or, if patents are issued to the Company, design around the
patents issued to the Company.
Others may have filed and in the future may file patent applications
that are similar or identical to those of the Company. To determine the priority
of inventions, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office that could result in
substantial cost to the Company. No assurance can be given that any such patent
application will not have priority over patent applications filed by the
Company.
The Company also relies upon trade secret protection, employee and
third-party nondisclosure agreements and other intellectual property protection
methods to protect its confidential and proprietary information. Despite these
efforts, 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 or disclose such technology or that
the Company can meaningfully protect its trade secrets.
The Company has in the past funded a significant portion of its
research and development expenses from research and development revenues
received from photolithography tool manufacturers and from SEMATECH, a
semiconductor industry consortium, in connection with the design and development
of specific products. Although the Company's arrangements with photolithography
tool manufacturers and SEMATECH seek to clarify the ownership of the
intellectual property arising from research and development services performed
by the Company, there can be no assurance that disputes over the ownership or
rights to use or market such intellectual property will not arise between the
Company and such parties. Any such dispute could result in restrictions on the
Company's ability to market its products and could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has in the past been, and may in the future be, notified
that it may be infringing intellectual property rights possessed by third
parties. The Company's Japanese manufacturing partner, Seiko, has been notified
by Komatsu, one of the Company's competitors, that certain aspects of the
Company's lasers might infringe three patents (the "Komatsu Patents") that have
been issued to Komatsu in Japan, and that Komatsu intends to enforce its rights
under the Komatsu Patents against Seiko if Seiko continues to engage in
manufacturing activities for the Company. In connection with its manufacturing
agreement with Seiko, the Company has agreed to indemnify Seiko against such
claims under certain circumstances. The Company has engaged in discussions with
Komatsu with respect to the Komatsu Patents, in the course of which Komatsu has
also identified to the Company a number of pending applications and additional
patents. The Company, in consultation with Japanese patent counsel, has
initiated oppositions to two of the Komatsu Patents and one of the applications
in the Japanese Patent Office. However, there can be no assurance that
litigation will not ensue with respect to these claims, that the Company and
Seiko would ultimately prevail in any such litigation or that Komatsu will not
assert infringement claims under additional patents.
-14-
<PAGE> 16
Any patent litigation would at a minimum be costly and could divert the
efforts and attention of the Company's management and technical personnel, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, there can be no assurance that
other infringement claims by third parties or other claims for indemnification
by customers or end users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven to
be true, will not materially adversely affect the Company's business, financial
condition and results of operations. If any such claims are asserted against the
Company, 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, if at all. The Company could decide, in
the alternative, to resort to litigation to challenge such claims or to design
around the patented technology. Such actions could be costly and would divert
the efforts and attention of the Company's management and technical personnel,
which would materially adversely affect the Company's business, financial
condition and results of operations.
The Company has registered the trademark CYMER in the United States and
certain other countries and is seeking additional registrations in certain
countries. In Japan, the Company's application for registration was rejected on
the grounds that it is similar to a trademark previously registered by a
Japanese company for a broad range of products. The Company is seeking a partial
nullification of the other registration with respect to laser devices and
related components and does not believe that the holder of the other trademark
is engaged in any business similar to that of the Company. For this reason, the
Company is continuing to use the trademark CYMER in Japan and believes that it
will ultimately be permitted to register such mark for use with its products and
that it is not infringing the other company's trademark. There can be no
assurance that the Company will ultimately succeed in its efforts to register
its trademark in Japan or that it will not be subjected to an action for
trademark infringement, which could be costly to defend and, if successful,
would require the Company to cease use of the mark and, potentially, to pay
damages.
Dependence on Key Personnel. The Company is highly dependent on the
services of a number of key employees in various areas, including engineering,
research and development, sales and marketing and manufacturing. In particular,
there are a limited number of experts in excimer laser technology and there is
intense competition for such personnel, as well as for the highly-skilled
hardware and software engineers the Company requires. The Company has in the
past experienced, and continues to experience, difficulty in hiring personnel,
including experts in excimer laser technology. The Company believes that, to a
large extent, its future success will depend upon the continued services of its
engineering, research and development, sales and marketing and manufacturing and
service personnel and on its ability to attract, train and retain highly skilled
personnel in each of these areas. The Company does not have employment
agreements with any of its employees, and there is no assurance that the Company
will be able to retain its key employees. The failure of the Company to hire,
train and retain such personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks of International Sales and Operations. Approximately 69%, 81% and
89% of the Company's revenues in 1995, 1996 and the first nine months of 1997,
respectively, were derived from customers located outside the United States.
Because a significant majority of the Company's principal customers are located
in other countries, the Company anticipates that international sales will
continue to account for a significant portion of its revenues. In order to
support its overseas customers, the Company maintains subsidiaries in Japan,
Korea and Taiwan, is expanding its field service and support operations
worldwide and will continue to work with Seiko as a manufacturer of its products
in Japan. There can be no assurance that the Company will be able to manage
these operations effectively or that the Company's investment in these
activities will enable it to compete successfully in international markets or to
meet the service and support needs of its customers. Additionally, a significant
portion of the Company's sales and operations could be subject to certain risks,
including tariffs and
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<PAGE> 17
other barriers, difficulties in staffing and managing foreign subsidiary and
branch operations, currency exchange risks and exchange controls, potentially
adverse tax consequences and the possibility of difficulty in accounts
receivable collection. Further, while the Company has experienced no difficulty
to date in complying with United States export controls, these rules could
change in the future and make it more difficult or impossible for the Company to
export its products to various countries. There can be no assurance that any of
these factors will not have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's results of operations are subject to fluctuations in the
value of the Japanese yen against the United States dollar due to sales by the
Company to its Japanese subsidiary being denominated in dollars, and sales by
the subsidiary to customers in Japan being denominated in yen. The Company's
subsidiary manages its exposure to such fluctuations by entering into foreign
currency exchange contracts to hedge its purchase commitments. Although
management will continue to monitor the Company's exposure to currency
fluctuations, and, when appropriate, use financial hedging techniques to
minimize the effect of these fluctuations, there can be no assurance that
exchange rate fluctuations will not have a material adverse effect on the
Company's results of operations or financial condition. In the future, the
Company could be required to sell its products in other currencies, which would
make the management of currency fluctuations more difficult and expose the
Company to greater risks in this regard.
The Company's products are subject to numerous foreign government
standards and regulations that are continually being amended. Although the
Company endeavors to meet foreign technical and regulatory standards, there can
be no assurance that the Company's products will continue to comply with foreign
government standards and regulations, or changes thereto, or that it will be
cost effective for the Company to redesign its products to comply with such
standards and regulations. The inability of the Company to design or redesign
products to comply with foreign standards could have a material adverse effect
on the Company's business, financial condition and results of operations.
Environmental and Other Government Regulations. Federal, state and
local regulations impose various controls on the storage, handling, discharge
and disposal of substances used in the Company's manufacturing process and on
the facility leased by the Company. The Company believes that its activities
conform to present governmental regulations applicable to its operations and its
current facilities, including those related to environmental, land use, public
utility utilization and fire code matters. There can be no assurance that such
governmental regulations will not in the future impose the need for additional
capital equipment or other process requirements upon the Company or restrict the
Company's ability to expand its operations. The adoption of such measures or any
failure by the Company to comply with applicable environmental and land use
regulations or to restrict the discharge of hazardous substances could subject
the Company to future liability or could cause its manufacturing operations to
be curtailed or suspended.
Risks of Product Liability Claims. The Company faces a significant risk
of exposure to product liability claims in the event that the use of its
products results in personal injury or death, and there can be no assurance that
the Company will not experience material product liability losses in the future.
The Company maintains insurance against product liability claims, but there can
be no assurance that such coverage will continue to be available on terms
acceptable to the Company or that such coverage will be adequate for liabilities
actually incurred. Also, in the event that any of the Company's products prove
to be defective, the Company may be required to recall or redesign such
products. A successful claim brought against the Company in excess of available
insurance coverage, or any claim or product recall that results in significant
adverse publicity against the Company, could have a material adverse effect on
the Company's business, financial condition and results of operations.
-16-
<PAGE> 18
Subordination. The Notes are unsecured and subordinated in right of
payment in full to all existing and future Senior Indebtedness (as defined) of
the Company. As a result of such subordination, in the event of bankruptcy,
liquidation or reorganization of the Company or upon acceleration of the Notes
due to an Event of Default under the Indenture and in certain other events, the
assets of the Company will be available to pay obligations on the Notes only
after all Senior Indebtedness has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding. The Notes also are effectively subordinated to the liabilities,
including trade payables, of any subsidiary of the Company. The Indenture does
not prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by the Company or any subsidiary of the
Company, and the incurrence of additional indebtedness and other liabilities by
the Company or any subsidiary of the Company could adversely affect the
Company's ability to pay its obligations on the Notes. As of September 30, 1997,
the Company had approximately $1.3 million of Senior Indebtedness outstanding.
The Company anticipates that from time to time it will incur additional
indebtedness, including Senior Indebtedness, and that it will, and subsidiaries
of the Company may, from time to time incur other additional indebtedness and
liabilities. See "Description of Notes -- Subordination of Notes."
Limitations on Redemption of Notes Upon a Fundamental Change. Upon a
Fundamental Change (as defined), each holder of the Notes will have certain
rights, at the holder's option, to require the Company to redeem all or a
portion of such holder's Notes. If a Fundamental Change were to occur, there can
be no assurance that the Company would have sufficient funds to pay the
redemption price for all the Notes tendered by the holders thereof. Any future
credit agreements or other agreements relating to other indebtedness (including
other Senior Indebtedness) to which the Company becomes a party may contain
restrictions prohibiting the Company from purchasing or redeeming any Notes and
may also provide that a Fundamental Change would constitute an event of default
thereunder. In the event a Fundamental Change occurs at a time when the Company
is prohibited from purchasing or redeeming the Notes, the Company could seek the
consent of its lenders to the purchase of the Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company would remain
prohibited from purchasing or redeeming the Notes. In such case, the Company's
failure to redeem tendered Notes would constitute an Event of Default under the
Indenture, and may constitute a default under the terms of other indebtedness
that the Company may enter into from time to time. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
holders of Notes. The term "Fundamental Change" is limited to certain specified
transactions and may not include other events that might adversely affect the
financial condition of the Company nor would the requirement that the Company
offer to repurchase the Notes upon a Fundamental Change necessarily afford
holders of the Notes protection in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving the Company. See
"Description of Notes -- Redemption at Option of the Holder."
Absence of Public Market for the Notes and Restrictions on Resale. The
Notes were issued in August 1997 to a small number of institutional buyers. The
Notes issued in reliance on 144A have been designated for trading on the PORTAL
system of the National Association of Securities Dealers, Inc. Notes sold
pursuant to the Registration Statement of which this Prospectus forms a part are
not expected to remain eligible for trading on the PORTAL Systems. The
Registration Statement of which this Prospectus forms a part is filed pursuant
to the Registration Rights Agreement, which does not obligate the Company to
keep the Registration Statement effective after the date when all the Notes and
the Common Stock issuable on conversion thereof covered by the Registration
Statement have been sold pursuant to the Registration Statement or may be sold
without registration pursuant to Rule 144(k) under the Securities Act. The
Company does not intend to apply for listing of the Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. The Initial Purchasers have advised the Company that they intend to make
a market in the Notes. The Initial Purchasers are not obligated, however, to
make a market in the Notes and any such market making may be discontinued at any
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<PAGE> 19
time in the sold discretion of the Initial Purchasers without notice.
Accordingly, there can be no assurance as to the development of liquidity of any
market for the Notes. See "Description of Notes -- Registration Rights of the
Noteholders" and "-- Plan of Distribution."
Possible Price Volatility of Notes and Common Stock. The market price
of the Company's Common Stock has been, and may continue to be, extremely
volatile. The market price of the Notes and the shares of Common Stock into
which the Notes are convertible may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results,
announcements of technological innovations, new products or new contracts by the
Company or its competitors, developments with respect to patents or proprietary
rights, conditions and trends in the laser device and other technology
industries, changes in financial estimates by securities analysts, general
market conditions, and other factors. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market price for many high technology companies and that have often
been unrelated to the operating performance of these companies. The market price
of the Company's Common Stock has fluctuated substantially in recent periods,
rising from $4 3/4 (all prices are adjusted to reflect the Company's 2-for-1
stock split effective as of August 21, 1997) at the Company's initial public
offering on September 18, 1996 to $48 3/4 on August 22, 1997, and declining to
$25 1/2 on September 26, 1997. On October 29, 1997 the reported last sale price
of the Company's Common Stock was $25 3/4. These broad market fluctuations may
adversely affect the market price of the Notes and the Common Stock into which
the Notes are convertible, and there can be no assurance that the market price
of the Notes and the Common Stock into which the Notes are convertible will not
decline below the levels prevailing at the time of this offering. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. Such litigation, if brought against the Company, could result in
substantial costs and a diversion of management's attention and resources.
Anti-Takeover Effect of Nevada Law and Charter and Bylaw Provisions;
Availability of Preferred Stock for Issuance. Nevada law and the Company's
Articles of Incorporation and Bylaws contain provisions that could discourage a
proxy contest or make more difficult the acquisition of a substantial block of
the Company's Common Stock. In addition, the Board of Directors is authorized to
issue, without stockholder approval, up to 5,000,000 shares of Preferred Stock
with voting, conversion and other rights and preferences that may be superior to
those of the Common Stock and that could adversely affect the voting power or
other rights of the holders of Common Stock. The issuance of Preferred Stock or
of rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal.
-18-
<PAGE> 20
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges -- -- -- 1.21x 10.41x 10.77x
</TABLE>
Ratio of earnings to fixed charges is computed by dividing fixed charges into
earnings before income taxes plus fixed charges. Fixed charges include, as
applicable, interest (expensed or capitalized), amortization of debt issue costs
and the estimated interest component of rent expense (one-third of lease
payment). The Company had losses before income taxes and fixed charges of
$(1,100), $(2,651) and $(1,706) in 1992, 1993 and 1994, respectively, and
therefore a ratio is not presented.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Notes or
the Common Stock issuable upon conversion thereof by the Selling
Securityholders.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock and currently does not anticipate paying cash dividends in the foreseeable
future.
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<PAGE> 21
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of August 6, 1997
(the "Indenture"), between the Company and State Street Bank and Trust Company
of California, N.A., as trustee (the "Trustee"). A copy of the form of Indenture
and Registration Rights Agreement (as defined below) are available from the
Trustee upon request by a registered holder of the Notes. The following
summaries of certain provisions of the Notes, the Indenture and the Registration
Rights Agreement do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Notes,
the Indenture and the Registration Rights Agreement, including the definitions
therein of certain terms which are not otherwise defined in this Offering
Memorandum. Wherever particular provisions or defined terms of the Indenture (or
of the Form of Note which is a part thereof) or the Registration Rights
Agreement are referred to, such provisions or defined terms are incorporated
herein by reference.
GENERAL
The Notes represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Notes" and convertible into Common Stock as
described under "Conversion of Notes." The Notes are limited to $172,500,000
aggregate principal amount, were issued in denominations of $1,000 and multiples
thereof and mature on August 6, 2004 unless earlier redeemed at the option of
the Company or at the option of the holder upon a Fundamental Change (as
defined).
The Indenture does not contain any financial covenants or restrictions
on the payment of dividends, the incurrence of Senior Indebtedness (as defined
below under "Subordination of Notes") or the issuance or repurchase of
securities of 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 below under "Redemption at Option of the Holder."
Interest is payable semi-annually on February 6 and August 6,
commencing on February 6, 1998, to holders of record at the close of business on
the preceding January 22 and July 22, respectively (subject to certain
exceptions in the case of conversion of the Notes or redemption of the Notes at
the option of the Company or at the option of the holder upon a Fundamental
Change prior to the applicable interest payment date). Interest on the Notes
accrues at the rate per annum of 3 1/2% through August 5, 2000 and will accrue
at the rate per annum of 7 1/4% from August 6, 2000 to maturity or earlier
redemption, representing a yield to maturity of approximately 5.4%. THE NOTES
ARE TREATED FOR TAX PURPOSES AS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT. SEE
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- INTEREST AND ORIGINAL ISSUE
DISCOUNT." Interest may, at the Company's option, be paid either (i) by check
mailed to the address of the person entitled thereto as it appears in the Note
register (provided that the holder of Notes with an aggregate principal amount
in excess of $2,000,000 shall, at the election of such holder, be paid by wire
transfer in immediately available funds) or (ii) by transfer to an account
maintained by such person located in the United States; provided, however, that
payments to The Depository Trust Company, New York, New York ("DTC") will be
made by wire transfer of immediately available funds to the account of DTC or
its nominee. Interest is computed on the basis of a 360-day year composed of
twelve 30-day months.
CONVERSION OF NOTES
The holders of Notes are entitled at any time after 90 days following
the latest date of original issuance thereof through the close of business on
the final maturity date of the Notes, subject to prior redemption, to
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<PAGE> 22
convert any Notes or portions thereof (in denominations of $1,000 or multiples
thereof) into Common Stock of the Company, at the conversion price of $47.00 per
share (adjusted to reflect the Company's 2-for-1 stock split effective August
21, 1997), and subject to further adjustment as described below (with the number
of shares issuable upon conversion to be calculated by dividing the applicable
conversion price into the stated principal amount of the Note to be converted).
The effective conversion rate per $1,000 stated principal amount of Notes shall
equal $1,000 divided by the applicable conversion price. Except as described
below, no payment or other adjustment will be made on conversion of any Notes
for interest accrued thereon or for dividends on any Common Stock issued. If any
Notes not called for redemption are converted after a record date for the
payment of interest and prior to the next succeeding interest payment date, such
Notes must be accompanied by funds equal to the interest payable on such
succeeding interest payment date on the principal amount so converted. The
Company is not required to issue fractional shares of Common Stock upon
conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon
the market price of Common Stock on the last business day prior to the date of
conversion. In the case of Notes called for redemption, conversion rights will
expire at the close of business on the business day preceding the day fixed for
redemption unless the Company defaults in the payment of the redemption price. A
Note in respect of which a holder is exercising its option to require redemption
upon a Fundamental Change may be converted only if such holder withdraws its
election to exercise its option in accordance with the terms of the Indenture.
The conversion price of $47.00 per share of Common Stock (adjusted to
reflect the Company's 2-for-1 stock split effective August 21, 1997) is subject
to further adjustment under formulae as set forth in the Indenture in certain
events, including:
(i) the issuance of Common Stock of the Company as a dividend
or distribution on the Common Stock;
(ii) certain subdivisions and combinations of the Common
Stock;
(iii) the issuance to all holders of Common Stock of certain
rights or warrants to purchase Common Stock;
(iv) the distribution to all holders of Common Stock of
capital stock (other than Common Stock) or evidences of indebtedness of
the Company or of assets (including securities, but excluding those
rights, warrants, dividends and distributions referred to above or paid
in cash);
(v) distributions consisting of cash, excluding any quarterly
cash dividend on the Common Stock to the extent that the aggregate cash
dividend per share of Common Stock in any quarter does not exceed the
greater of (x) the amount per share of Common Stock of the next
preceding quarterly cash dividend on the Common Stock to the extent
that such preceding quarterly dividend did not require an adjustment of
the conversion price pursuant to this clause (v) (as adjusted to
reflect subdivisions or combinations of the Common Stock), and (y)
3.75% of the average of the last reported sales price of the Common
Stock during the ten trading days immediately prior to the date of
declaration of such dividend, and excluding any dividend or
distribution in connection with the liquidation, dissolution or winding
up of the Company. If an adjustment is required to be made as set forth
in this clause (v) as a result of a distribution that is a quarterly
dividend, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend
permitted to be excluded pursuant to this clause (v). If an adjustment
is required to be made as set forth in this clause (v) as a result of a
distribution that is not a quarterly dividend, such adjustment would be
based upon the full amount of the distribution;
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<PAGE> 23
(vi) payment in respect of a tender offer or exchange offer by
the Company or any subsidiary of the Company for the Common Stock to
the extent that the cash and value of any other consideration included
in such payment per share of Common Stock exceeds the Current Market
Price (as defined) per share of Common Stock on the trading day next
succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer; and
(vii) payment in respect of a tender offer or exchange offer
by a person other than the Company or any subsidiary of the Company in
which, as of the closing date of the offer, the Board of Directors is
not recommending rejection of the offer. The adjustment referred to in
this clause (vii) will only be made if the tender offer or exchange
offer is for an amount which increases the offeror's ownership of
Common Stock to more than 25% of the total shares of Common Stock
outstanding, and if the cash and value of any other consideration
included in such payment per share of Common Stock exceeds the Current
Market Price per share of Common Stock on the business day next
succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer. The adjustment referred to
in this clause (vii) will generally not be made, however, if, as of the
closing of the offer, the offering documents with respect to such offer
disclose a plan or an intention to cause the Company to engage in a
consolidation or merger of the Company or a sale of all or
substantially all of the Company's assets.
The Indenture provides that if the Company implements a stockholder's
rights plan, such rights plan must provide that upon conversion of the Notes the
holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In the case of (i) any reclassification of the Common Stock, or (ii) a
consolidation, merger or combination involving the Company or a sale or
conveyance to another person of the property and assets of the Company as an
entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will generally be
entitled thereafter to convert such Notes into the kind and amount of shares of
stock, other securities or other property or assets which they would have owned
or been entitled to receive upon such reclassification, consolidation, merger,
combination, sale or conveyance had such Notes been converted into Common Stock
immediately prior to such reclassification, consolidation, merger, combination,
sale or conveyance assuming that a holder of Notes would not have exercised any
rights of election as to the stock, other securities or other property or assets
receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring conversion price adjustments, the holders
of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations" below.
The Company from time to time may to the extent permitted by law reduce
the conversion price by any amount for any period of at least 20 days, in which
case the Company shall give at least 15 days' notice of such reduction, if the
Board of Directors has made a determination that such reduction would be in the
best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or
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<PAGE> 24
rights to acquire stock) or from any event treated as such for income tax
purposes. See "Certain Federal Income Tax Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not entitled to any sinking fund. At any time on or after
August 9, 2000, the Notes will be redeemable at the Company's option on at least
30 days' notice as a whole or, from time to time, in part at a redemption price
equal to the accreted value of such Notes to, but excluding, the date fixed for
redemption, together with accrued interest to, but excluding, the date fixed for
redemption.
The table below shows the amount payable upon redemption of Notes
(expressed as a percentage of the principal amount) at August 9, 2000 and each
interest payment date thereafter during the term of the Notes. The amount
payable upon redemption of a Note redeemed between such dates would include an
additional amount reflecting additional accrued interest less amortized original
issue discount since the next preceding date in the table to the actual
redemption date.
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION AMOUNT REDEMPTION DATE REDEMPTION AMOUNT
- ------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
August 9, 2000........... 106.372% February 6, 2003 ................ 102.533%
February 6, 2001......... 105.606 August 6, 2003 .................. 101.711
August 6, 2001........... 104.868 February 6, 2004 ................ 100.867
February 6, 2002......... 104.111 August 6, 2004 .................. 100.000
August 6, 2002........... 103.332
</TABLE>
If less than all of the outstanding Notes are to be redeemed, the
Trustee shall select the Notes to be redeemed in principal amounts of $1,000 or
multiples thereof by lot, pro rata or by another method the Trustee considers
fair and appropriate. If a portion of a holder's Notes is selected for partial
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed to be of the portion selected for redemption.
The Company may not give notice of any redemption of Notes if an Event
of Default with respect to the payment of interest on any Notes has occurred and
is continuing.
REDEMPTION AT OPTION OF THE HOLDER
If a Fundamental Change (as defined) occurs at any time prior to August
6, 2004, each holder of Notes shall have the right, at the holder's option, to
require the Company to redeem any or all of such holder's Notes on the date (the
"Repurchase Date") that is 30 days after the date of the Company's notice of
such Fundamental Change. The Notes will be redeemable in multiples of $1,000
principal amount.
The Company shall redeem such Notes at a price equal to the accreted
value of the Note to, but excluding, the date of redemption; provided that, if
the Applicable Price (as defined) is less than the Reference Market Price (as
defined), the Company shall redeem such Notes at a price equal to the foregoing
redemption
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<PAGE> 25
price multiplied by the fraction obtained by dividing the Applicable Price by
the Reference Market Price. In each case, the Company shall also pay accrued
interest on the redeemed Notes to, but excluding, the Repurchase Date; provided
that, if such Repurchase Date is an interest payment date, then the interest
payable on such date shall be paid to the holder of record of the Notes on the
relevant record date.
The Company is required to mail to all holders of record of the Notes a
notice of the occurrence of a Fundamental Change and of the redemption right
arising as a result thereof on or before the tenth day after the occurrence of
such Fundamental Change. The Company is also required to deliver the Trustee a
copy of such notice. To exercise the redemption right, a holder of Notes must
deliver, on or before the 30th day after the date of the Company's notice of a
Fundamental Change (the "Fundamental Change Expiration Time"), written notice of
the holder's exercise of such right, together with the Notes to be so redeemed,
duly endorsed for transfer, to the Company (or an agent designated by the
Company for such purpose). Payment for Notes surrendered for redemption (and not
withdrawn) prior to the Fundamental Change Expiration Time will be made promptly
following the Repurchase Date.
The term "Fundamental Change" means the occurrence of any transaction
or event in connection with which all or substantially all Common Stock shall be
exchanged for, converted into, acquired for or constitute the right to receive
consideration which is not all or substantially all common stock listed (or,
upon consummation of or immediately following such transaction or event, which
will be listed) on a United States national securities exchange or approved for
quotation on the Nasdaq National Market or any similar United States system of
automated dissemination of quotations of securities prices (whether by means of
an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise). The term
"Applicable Price" means (i) in the event of a Fundamental Change in which the
holders of the Common Stock receive only cash, the amount of cash received by
the holder of one share of Common Stock and (ii) in the event of any other
Fundamental Change, the average of the last reported sale price for the Common
Stock during the ten trading days prior to the record date for the determination
of the holders of Common Stock entitled to receive cash, securities, property or
other assets in connection with such Fundamental Change, or, if there is no such
record date, the date upon which the holders of the Common Stock shall have the
right to receive such cash, securities, property or other assets in connection
with the Fundamental Change. The term "Reference Market Price" shall mean
$24.375 (which is equal to 66 2/3% of the last bid price of the Common Stock
prior to the original issuance of the Notes, as adjusted to reflect the
Company's 2-for-1 stock split effective August 21, 1997) and in the event of any
adjustment to the conversion price described above pursuant to the provisions of
the Indenture, the Reference Market Price shall also be adjusted so that the
ratio of the Reference Market Price to the conversion price after giving effect
to any such adjustment shall always be the same as the ratio of $24.375 to the
conversion price of $47.00 per share (without regards to any adjustment
thereto).
The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act which may then be applicable in
connection with the redemption rights of the holders of Notes in the event of a
Fundamental Change. The redemption rights of the holders of Notes could
discourage a potential acquiror of the Company. The Fundamental Change
redemption feature, however, is not the result of management's knowledge of any
specific effort to obtain control of the Company by means of a merger, tender
offer, solicitation or otherwise, or part of a plan by management to adopt a
series of anti-takeover provisions.
The Company could, in the future, enter into certain transactions,
including certain recapitalizations of the Company, that would not constitute a
Fundamental Change, but that would increase the amount of Senior Indebtedness
outstanding at such time. Further, the payment of the Fundamental Change
redemption price on the Notes is subordinated to the prior payment of Senior
Indebtedness as described under "Subordination of Notes" below. In addition, any
future credit agreements or other agreements relating to other indebtedness
(including
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<PAGE> 26
other Senior Indebtedness) to which the Company becomes a party may contain
restrictions prohibiting the Company from purchasing or redeeming any Notes and
may also provide that a Fundamental Change would constitute an event of default
thereunder. In addition, if a Fundamental Change were to occur, there can be no
assurance that the Company would have sufficient funds to pay the Fundamental
Change redemption price for all Notes tendered by the holders thereof. A default
by the Company on its obligations to pay the Fundamental Change redemption price
could result in acceleration of the payment of other indebtedness of the Company
at the time outstanding pursuant to cross-default provisions. See "Risk Factors
- -- Limitations on Redemption of Notes Upon a Fundamental Change."
SUBORDINATION OF NOTES
The Indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness. Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest (including liquidated damages, if
any) on the Notes is to be subordinated to the extent provided in the Indenture
in right of payment to the prior payment in full in cash of all Senior
Indebtedness. In the event of any acceleration of the Notes because of an Event
of Default (as defined), the holders of any Senior Indebtedness then outstanding
would be entitled to payment in full in cash of all obligations in respect of
such Senior Indebtedness before the holders of the Notes are entitled to receive
any payment or distribution in respect thereof. The Indenture will require that
the Company promptly notify holders of Senior Indebtedness if payment of the
Notes is accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the
Notes if (i) a default in the payment of the principal of, premium, if any,
interest (including liquidated damages, if any), rent or other obligations in
respect of Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with respect
to Designated Senior Indebtedness (as defined) that permits holders of the
Designated Senior Indebtedness as to which such default relates to accelerate
its maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or other person permitted to give such notice
under the Indenture. Payments on the Notes may and shall be resumed (a) in case
of a payment default, upon the date on which such default is cured or waived or
ceases to exist and (b) in case of a nonpayment default, the earlier of the date
on which such nonpayment default is cured or waived or ceases to exist or 179
days after the date on which the applicable Payment Blockage Notice is received.
No new period of payment blockage may be commenced pursuant to a Payment
Blockage Notice unless and until (i) 365 days have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. During any period of payment
blockage, any payment that otherwise would have been made during such period
will accrue interest, to the extent legally permissible, at the annual rate set
forth on the cover page hereof from the date on which such payment was required
under the terms of the Indenture until the date of payment. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or shall be made, the basis for a
subsequent Payment Blockage Notice.
By reason of the subordination provisions described above, in the event
of the Company's bankruptcy, dissolution or reorganization, holders of Senior
Indebtedness may receive more ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default under the Indenture.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for
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<PAGE> 27
post-petition interest is allowable as a claim in any such proceeding) and rent
payable on or in connection with, and all fees, costs, expenses and other
amounts accrued or due on or in connection with, Indebtedness (as defined) of
the Company, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by the Company
(including all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless in the case of any
particular Indebtedness the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes or expressly provides that such
Indebtedness is pari passu or junior to the Notes. Notwithstanding the
foregoing, the term Senior Indebtedness shall not include any Indebtedness of
the Company to any subsidiary of the Company, a majority of the voting stock of
which is owned, directly or indirectly, by the Company.
The term "Indebtedness" means, with respect to any Person (as defined)
and without duplication:
(a) all indebtedness, obligations and other liabilities
(contingent or otherwise) of such Person for borrowed money (including
obligations of the Company in respect of overdrafts, foreign exchange
contracts, currency exchange agreements, interest rate protection
agreements, and any loans or advances from banks, whether or not
evidenced by notes or similar instruments) or evidenced by bonds,
debentures, notes or similar instruments (whether or not the recourse
of the lender is to the whole of the assets of such Person or to only a
portion thereof), other than any account payable or other accrued
current liability or obligation incurred in the ordinary course of
business in connection with the obtaining of materials or services,
(b) all reimbursement obligations and other liabilities
(contingent or otherwise) of such Person with respect to letters of
credit, bank guarantees or bankers' acceptances,
(c) all obligations and liabilities (contingent or otherwise)
in respect of leases of such Person required, in conformity with
generally accepted accounting principles, to be accounted for as
capitalized lease obligations on the balance sheet of such Person and
all obligations and other liabilities (contingent or otherwise) under
any lease or related document (including a purchase agreement) in
connection with the lease of real property which provides that such
Person is contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual
value of the leased property to the lessor and the obligations of such
Person under such lease or related document to purchase or to cause a
third party to purchase such leased property,
(d) all obligations of such Person (contingent or otherwise)
with respect to an interest rate or other swap, cap or collar agreement
or other similar instrument or agreement or foreign currency hedge,
exchange, purchase or similar instrument or agreement,
(e) all direct or indirect guaranties or similar agreements by
such Person in respect of, and obligations or liabilities (contingent
or otherwise) of such Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another Person of the kind described in
clauses (a) through (d),
(f) any indebtedness or other obligations described in clauses
(a) through (d) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person, and
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<PAGE> 28
(g) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any indebtedness,
obligation or liability of the kind described in clauses (a) through
(f).
The term "Designated Senior Indebtedness" means the Company's credit
facility and any particular Senior Indebtedness in which the instrument creating
or evidencing the same or the assumption or guarantee thereof (or related
agreements or documents to which the Company is a party) expressly provides that
such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes
of the Indenture (provided that such instrument, agreement or other document may
place limitations and conditions on the right of such Senior Indebtedness to
exercise the rights of Designated Senior Indebtedness).
At September 30, 1997, the Company had approximately $1.3 million
indebtedness outstanding that would have constituted Senior Indebtedness. The
Indenture does not limit the amount of additional indebtedness, including Senior
Indebtedness, which the Company can create, incur, assume or guarantee, nor does
the Indenture limit the amount of indebtedness which any subsidiary can create,
incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any
holder of the Notes receives any payment or distribution of assets of the
Company of any kind in contravention of any of the subordination provisions of
the Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness is paid in full, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior Indebtedness
or their representatives to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
The Company is obligated to pay reasonable compensation to the Trustee
and to indemnify the Trustee against certain losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will generally be senior to those of holders
of the Notes in respect of all funds collected or held by the Trustee.
EVENTS OF DEFAULT; NOTICE AND WAIVER
An Event of Default is defined in the Indenture as being: default in
payment of the principal of, or premium, if any, on the Notes; default for 30
days in payment of any installment of interest on the Notes; default by the
Company for 60 days after notice in the observance or performance of any other
covenants in the Indenture; or certain events involving bankruptcy, insolvency
or reorganization of the Company. The Indenture provides that the Trustee may
withhold notice to the holders of the Notes of any default (except in payment of
principal or premium, if any, or interest with respect to the Notes) if the
Trustee considers it in the interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately. In the case of certain
events of bankruptcy or insolvency, the principal of, premium, if any, and
interest on the Notes shall automatically become and be immediately due and
payable. However, if the Company shall cure all defaults (except the nonpayment
of principal of, premium, if any, and interest on any of the Notes which shall
have become due by acceleration) and certain other conditions are met, with
certain exceptions, such declaration may be canceled and past defaults may be
waived by the holders of a majority of the principal amount of the Notes then
outstanding.
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<PAGE> 29
The holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Notes at the time outstanding, to modify the Indenture
or any supplemental indenture or the rights of the holders of the Notes, except
that no such modification shall (i) extend the fixed maturity of any Note,
reduce the rate or extend the time for payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption thereof, change the obligation of the Company to redeem any Note
upon the happening of any Fundamental Change in a manner adverse to holders of
Notes, impair the right of a holder to institute suit for the payment thereof,
change the currency in which the Notes are payable, impair the right to convert
the Notes into Common Stock subject to the terms set forth in the Indenture, or
modify the provisions of the Indenture with respect to the subordination of the
Notes in a manner adverse to the holders of the Notes in any material respect,
without the consent of each holder of a Note so affected, or (ii) reduce the
aforesaid percentage of Notes whose holders are required to consent to any such
supplemental indenture, without the consent of the holders of all of the Notes
then outstanding. The Indenture also provides for certain modifications of its
terms without the consent of holders of the Notes.
REGISTRATION RIGHTS OF THE NOTEHOLDERS
The Company agreed to file with the Commission a shelf registration
statement, of which this prospectus forms a part, covering resales by holders of
the Notes and the Common Stock issuable upon conversion of the Notes within 90
days after the latest date of original issuance of the Notes. The Company agreed
to use its reasonable efforts to cause the registration statement to become
effective as promptly as is practicable and to keep the registration statement
effective until the earlier of (i) the sale pursuant to the shelf registration
statement of all the securities registered thereunder and (ii) the expiration of
the holding period applicable to such securities under Rule 144(k) under the
Securities Act, or any successor provision. The Company is permitted to suspend
the use of this prospectus which is a part of the shelf registration statement
for a period not to exceed 30 days in any three-month period, or not to exceed
an aggregate of 60 days in any 12-month period under certain circumstances
relating to pending corporate developments, public filings with the Commission
and similar events. The Company has agreed to pay predetermined liquidated
damages to those holders of Notes and those holders of Common Stock issued upon
conversion of the Notes who have requested to sell pursuant to the registration
statement if the registration statement is not timely filed or if the prospectus
is unavailable for periods in excess of those permitted above. The Company has
further agreed, if such failure to file or unavailability continues for an
additional 30 day period, to pay predetermined liquidated damages to all holders
of Notes and all holders of Common Stock issued upon conversion of the Notes,
whether or not such holder has requested to sell pursuant to the shelf
registration statement. A holder who sells Notes and Common Stock issued upon
conversion of the Notes pursuant to the shelf registration statement, of which
this prospectus forms a part, generally will be required to be named as a
selling stockholder in the prospectus, deliver a prospectus to purchasers and be
bound by those provisions of the Registration Rights Agreement (the
"Registration Rights Agreement") which are applicable to such holder (including
certain indemnification provisions). The Company has agreed to pay all expenses
of the registration statement, provide to each registered holder copies of such
prospectus, notify each registered holder when the shelf registration statement
has become effective and take certain other actions as are required to permit,
subject to the foregoing, unrestricted resales of the Notes and the Common Stock
issued upon conversion of the Notes.
-28-
<PAGE> 30
INFORMATION CONCERNING THE TRUSTEE
State Street Bank and Trust Company of California, N.A., as Trustee
under the Indenture, has been appointed by the Company as paying agent,
conversion agent, registrar and custodian with regard to the Notes.
-29-
<PAGE> 31
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and of Common Stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating thereto.
This summary is based on laws, regulations, rulings and decisions now in effect,
all of which are subject to change. This summary deals only with holders that
will hold Notes and Common Stock into which Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, or persons that will hold Notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes. This
summary discusses the tax considerations applicable to the initial purchasers of
the Notes who purchase the Notes at their "issue price" as defined in Section
1273 of the Code and does not discuss the tax considerations applicable to
subsequent purchasers of the Notes. The Company has not sought any ruling from
the Internal Revenue Service (the "IRS") with respect to the statements made and
the conclusions reached in the following summary, and there can be no assurance
that the IRS will agree with such statements and conclusions. In addition, the
IRS is not precluded from successfully adopting a contrary position. This
summary does not consider the effect of any applicable foreign, state, local or
other tax laws.
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION
OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
INTEREST AND ORIGINAL ISSUE DISCOUNT
Qualified Stated Interest on the Notes. Interest constituting
"qualified stated interest" paid on a Note will be taxable to a holder as
ordinary interest income at the time it accrues or is received, in accordance
with the holder's usual method of accounting for federal income tax purposes.
Special original issue discount ("OID") rules governing the treatment of
interest other than qualified stated interest are described under "Original
Issue Discount" below.
In general, qualified stated interest is stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer), at least annually during the entire term of a note, at a single
fixed rate of interest (which rate reflects accrual periods of different
lengths, if any), or at variable rates or a combination thereof.
Interest on the Notes will be fixed for all periods through August 5,
2000, at a 3 1/2% rate which will be lower than the rate that will be fixed
thereafter. As a result only interest computed at the 3 1/2% initial stated
interest rate should be treated as qualified stated interest. Interest that
accrues on the Notes in an amount in excess of interest computed at that rate
(the "Step-Up Interest") should generally not be treated as qualified stated
interest.
Original Issue Discount. In general, the amount of OID with respect to
a Note will equal the excess of the "stated redemption price at maturity" of the
Note over its issue price. The stated redemption price at maturity of a Note is
the aggregate of all payments due to the holder on the Note at or prior to its
maturity date, other than qualified stated interest. In general, the "issue
price" of a Note will be the first price paid by a holder who
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<PAGE> 32
purchased the Notes in connection with their original issuance at the original
issue price. Thus, the stated redemption price at maturity of the Notes will
include the Step-Up Interest and the Notes will be treated as issued with OID,
and a holder of a Note will be required to include such OID in income under a
constant yield method based on compounding of interest regardless of the
holder's regular method of accounting and regardless of when such holder
receives cash payments relating to the OID, unless the amount of OID is de
minimis. Initially, accruals of OID together with qualified stated interest will
exceed cash interest payments on the Notes. Thereafter, OID together with
qualified stated interest will be less than the cash interest payments on the
Notes relating to OID. Any payment (other than a payment of qualified stated
interest) will be treated first as a payment of OID to the extent of the OID
that has accrued as of the date of payment (and to which prior payments have not
been allocated) and second as a payment of principal.
The Issuer or the Paying Agent will be required to furnish annually to
the Internal Revenue Service and to each holder information regarding the amount
of OID attributable to that year.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a Note, a holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property received on
the sale, exchange or redemption (except to the extent such amount is
attributable to accrued interest income not previously included in income which
is taxable as ordinary income) and (ii) such holder's adjusted tax basis in the
Note. A holder's adjusted tax basis in a Note generally will equal the cost of
the Note to such holder, increased by the amount of OID previously included in
income with respect to the Note and reduced by the amount of payments received
with respect to the Note that for tax purposes was allocated to accrued OID or
treated as a payment of principal. Under current law such capital gain or loss
will be long-term capital gain or loss if the holder's holding period in the
Note is more than eighteen months at the time of sale, exchange or redemption.
CONVERSION OF THE NOTES
A holder generally will not recognize any income, gain or loss upon
conversion of a Note into Common Stock except with respect to cash received in
lieu of a fractional Share of Common Stock. A holder's tax basis in the Common
Stock received on conversion of a Note will be the same as such holder's
adjusted tax basis in the Note at the time of conversion (reduced by any basis
allocable to a fractional share interest), and the holding period for the Common
Stock received on conversion will generally include the holding period of the
Note converted.
Cash received in lieu of a fractional share of Common Stock upon
conversion will be treated as a payment in exchange for the fractional share of
Common Stock. Accordingly, the receipt of cash in lieu of a fractional share of
Common Stock generally will result in capital gain or loss (measured by the
difference between the cash received for the fractional share and the holder's
adjusted tax basis in the fractional share).
DIVIDENDS; ADJUSTMENT OF CONVERSION PRICE
Dividends paid on the Common Stock generally will be includable in the
income of a holder as ordinary income to the extent of the Company's current or
accumulated earnings and profits.
Holders of convertible debt instruments such as the Notes may, in
certain circumstances, be deemed to have received constructive distributions
where the conversion ratio of such instruments is adjusted. Adjustments
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<PAGE> 33
to the conversion price made pursuant to a bona fide reasonable adjustment
formula which has the effect of preventing the dilution of the interest of the
holders of the debt instruments, however, will generally not be considered to
result in a constructive distribution of stock. Certain of the possible
adjustments provided in the Notes (including, without limitation, adjustments in
respect of taxable dividends to stockholders of the Company) will not qualify as
being pursuant to a bona fide reasonable adjustment formula. If such adjustments
are made, the holders of Notes might be deemed to have received constructive
distributions taxable as dividends.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) such holder's adjusted tax basis in the Common Stock. Under
current law such capital gain or loss will be long-term capital gain or loss if
the holder's holding period in Common Stock is more than eighteen months at the
time of the sale or exchange. A holder's basis and holding period in Common
Stock received upon conversion of a Note are determined as discussed above under
"-- Conversion of the Notes."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments
of principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock, and a 31% backup withholding tax may apply
to such payments if the holder either (i) fails to demonstrate that the holder
comes within certain exempt categories of holders or (ii) fails to furnish or
certify his correct taxpayer identification number to the payor in the manner
required, is notified by the IRS that he has failed to report payments of
interest and dividends properly, or under certain circumstances, fails to
certify that he has not been notified by the IRS that he is subject to backup
withholding for failure to report interest and dividend payments. Any amounts
withheld under the backup withholding rules from a payment to a holder will be
allowed as a credit against such holder's United States federal income tax and
may entitle the holder to a refund, provided that the required information is
furnished to the IRS.
SPECIAL TAX RULES APPLICABLE TO FOREIGN HOLDERS
For purposes of the following discussion, a "United States Alien
Holder" is any holder who, for United States federal income tax purposes, is a
foreign corporation, a foreign partnership, a nonresident alien individual, an
estate, other than an estate the income of which is includible in income for
federal income tax purposes regardless of its source, or a trust other than a
trust for which a court within the United States is able to exercise primary
supervision over the administration of the trust, and for which one or more
United States fiduciaries have the authority to control all substantial
decisions of the trust. Such discussion does not address any specific facts or
circumstances that may apply to a particular United States Alien Holder
(including the fact that in the case of a United States Alien Holder that is
treated as a partnership for United States tax purposes, the United States tax
consequences of holding and disposing of the Notes or the Common Stock may be
affected by certain determinations at the partner level).
Payments of interest on the Notes to a United States Alien Holder will
not be subject to United States federal withholding tax provided that (a) the
holder does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (b) the
holder is not a controlled foreign corporation that is related to the Company
through stock ownership and (c) either (1) the beneficial owner of the Note,
under penalties of perjury, provides the Company or its agent with its name and
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<PAGE> 34
address and certifies that it is not a United States person or (2) a securities
clearing organization, bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") certifies to the Company or its agent, under penalties
of perjury, that such a statement has been received from the beneficial owner by
it or another financial institution and furnishes to the Company or its agent a
copy thereof.
A United States Alien Holder generally will not be subject to United
States federal income or withholding tax on gain realized on the sale or
exchange of Notes or Common Stock unless (i) the holder is an individual who was
present in the United States for 183 days or more during the taxable year and to
whom such gain is, under applicable tax rules, considered to be from United
States sources, (ii) the gain is effectively connected with the conduct of a
trade or business of the holder in the United States, (iii) the United States
Alien Holder is subject to tax pursuant to the provisions of United States tax
law applicable to certain former United States citizens or residents or (iv) the
Company is or has been a "United States real property holding corporation" at
any time within the shorter of the five-year period preceding such disposition
or such holder's holding period. The Company does not believe that it is
currently a "United States real property holding corporation," or that it will
become one in the future.
Income received by a United States Alien Holder in the form of interest
on Notes or dividends on Common Stock will be subject to a United States federal
withholding tax at a 30% rate upon the actual payment of the dividends or
interest (except as described above with respect to the payment of interest) and
except where an applicable tax treaty provides for the reduction or elimination
of such withholding tax. However, a United States Alien Holder generally will be
taxed in the same manner as a United States corporation or resident with respect
to such income if it is effectively connected with the conduct of a trade or
business in the United States. Such effectively connected income received by a
United States Alien Holder which is a corporation may in certain circumstances
be subject to an additional "branch profits tax" at a 30% rate or, if
applicable, a lower treaty rate.
Dividends paid to United States Alien Holders that are subject to the
withholding tax described above will generally be exempt from United States
backup withholding tax but will be subject to certain information reporting.
Backup withholding generally will not apply to payments of interest made to a
United States Alien Holder if the certification described above is received, but
will be subject to certain information reporting. Payment of the proceeds of the
sale of Notes or Common Stock to or through a United States office of a broker
will be subject to information reporting and possible backup withholding at a
rate of 31% unless the owner certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption. Payment of the
proceeds of the sale of Notes or Common Stock to or through a foreign office of
a broker generally will not be subject to backup withholding tax. However, in
the case of the payment of proceeds from the disposition of Notes or Common
Stock through a foreign office of a broker that is (i) a United States person,
(ii) a "controlled foreign corporation" for United States federal income tax
purposes, or (iii) a foreign person 50% or more of whose gross income from all
sources for a specified period is derived from activities that are effectively
connected with the conduct of a United States trade or business, information
reporting is required on the payment unless the broker has documentary evidence
in its files that the owner is a non-United States person and the broker has no
actual knowledge to the contrary. Any amounts withheld under the backup
withholding rules from a payment to a United States Alien Holder will be allowed
as a refund or a credit against such United States Alien Holder's United States
federal income tax, provided that the required information is furnished to the
Internal Revenue Service.
The backup withholding and information reporting rules are under study
by the United States Treasury Department. Treasury regulations addressing backup
withholding and information reporting were proposed in April, 1996. There can be
no assurance when, and in what form, final regulations will be adopted.
-33-
<PAGE> 35
SELLING SECURITYHOLDERS
The Notes offered hereby were originally issued by the Company and sold
by the Initial Purchasers, in a transaction exempt from the registration
requirements of the Securities Act, to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act), or other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) or in compliance with the provisions of Regulation S under the
Securities Act. The Selling Securityholders (which term includes their
transferees, pledgees, donees or their successors) may from time to time offer
and sell pursuant to this Prospectus any or all of the Notes and Common Stock
issued upon conversion of the Notes.
Prior to any use of this Prospectus in connection with an offering of
the Notes and/or the Common Stock issuable upon conversion of the Notes, this
Prospectus will be supplemented to set forth the name and number of shares
beneficially owned by the Selling Securityholder intending to sell such Notes
and/or Common Stock and the number of Notes and/or shares of Common Stock to be
offered. The Prospectus Supplement will also disclose whether any Selling
Securityholder selling in connection with such Prospectus Supplement has held
any position or office with, been employed by or otherwise has had a material
relationship with, the Company or any of its affiliates during the three years
prior to the date of the Prospectus Supplement.
-34-
<PAGE> 36
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Notes and Common Stock offered hereby. The Notes and Common Stock may be sold
from time to time to purchasers directly by the Selling Securityholders.
Alternatively, the Selling Securityholders may from time to time offer the Notes
and Common Stock through brokers, dealers or agents who may receive compensation
in the form of discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of the Notes and Common Stock for whom
they may act as agent. The Selling Securityholders and any such brokers, dealers
or agents who participate in the distribution of the Notes and Common Stock may
be deemed to be "underwriters," and any profits on the sale of the Notes and
Common Stock by them and any discounts, commissions or concessions received by
any such brokers, dealers or agents might be deemed to be underwriting discounts
and commissions under the Securities Act. To the extent the Selling
Securityholders may be deemed to be underwriters, the Selling Securityholders
may be subject to certain statutory liabilities of, including, but not limited
to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the
Exchange Act.
The Notes and Common Stock offered hereby may be sold from time to time
in one or more transactions at fixed prices, at prevailing market prices at the
time of sale, at varying prices determined at the time of sale or at negotiated
prices. The Notes and Common Stock may be sold by one or more of the following
methods, without limitation: (a) a block trade in which the broker or dealer so
engaged will attempt to sell the Notes and Common Stock issuable upon conversion
thereof as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; (d) an exchange distribution in accordance with the rules
of such exchange; (e) face-to-face transactions between sellers and purchasers
without a broker-dealer; (f) through the writing of options; and (g) other. At
any time a particular offer of the Notes and Common Stock is made, a revised
Prospectus or Prospectus Supplement, if required, will be distributed which will
set forth the aggregate amount and type of Securities being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, any discounts, commissions, concessions and other items constituting
compensation from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. Such Prospectus Supplement
and, if necessary, a post-effective amendment to the Registration Statement of
which this Prospectus is a part, will be filed with the Commission to reflect
the disclosure of additional information with respect to the distribution of the
Notes and Common Stock. In addition, the Notes and Common Stock covered by this
Prospectus may be sold in private transactions or under Rule 144 rather than
pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangement or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Securities by the
Selling Securityholders. There is no assurance that any Selling Securityholder
will sell any or all of the Securities offered by it hereunder or that any such
Selling Securityholder will not transfer, devise or gift such Securities by
other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of any of the Notes and
Common Stock by the Selling Securityholders and any other such person.
Furthermore, Regulation M of the Exchange Act may restrict the ability of any
person engaged in the distribution of the Notes and Common Stock to engage in
market-making activities with respect to the particular Notes and Common Stock
being distributed for a period of up to five business days prior to the
commencement of such distribution. All of the foregoing may affect the
marketability
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<PAGE> 37
of the Notes and Common Stock and the ability of any person or entity to engage
in market-making activities with respect to the Notes and Common Stock.
Pursuant to the Registration Rights Agreement entered into in
connection with the offer and sale of the Notes by the Company, each of the
Company and the Selling Securityholders will be indemnified by the other against
certain liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses
incidental to the registration, offering and sale of the Securities to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
The validity of the Notes and the Common Stock being offered hereby
will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of Cymer, Inc. incorporated by
reference in this prospectus from the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report incorporated herein by reference
(which report expresses an unqualified opinion and includes an explanatory
paragraph that describes a change during 1994 in the Company's method of
accounting for the accretion on the Company's Redeemable Convertible Preferred
Stock), and have been so incorporated herein in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
-36-
<PAGE> 38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Securityholders. All amounts are estimated except
the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
AMOUNT
--------------
<S> <C>
SEC registration fee..................................................... $52,272.73
Accounting fees and expenses............................................. 10,000.00
Legal fees and expenses.................................................. 10,000.00
Miscellaneous fees and expenses.......................................... 5,000.00
---------
Total........................................................... $77,272.73
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law authorizes a court
to award, or a corporation's Board of Directors to grant, indemnity 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 of 1933, as amended (the "Securities
Act"). The Registrant's Bylaws provide that the Registrant shall indemnify its
directors and officers to the fullest extent permitted by Nevada law, including
circumstances in which indemnification is otherwise discretionary under Nevada
law. The Registrant has entered into indemnification agreements with its
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Nevada General
Corporation Law. The indemnification agreements may require the Registrant,
among other things, to indemnify its directors and officers against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms. Article 5 of the
Registrant's Restated Articles of Incorporation provides for indemnification of
its directors and officers to the maximum extent permitted by the Nevada General
Corporation Law and Article 26 of the Registrant's Amended and Restated Bylaws
provides for indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by the Nevada General Corporation Law. In
addition, the Company agreed to indemnify and hold the Initial Purchasers
harmless against certain liabilities under the Securities Act that could arise
in connection with the sale of the Notes by the Initial Purchasers. The
Registration Rights Agreement provides for the Company and the Selling
Securityholders to indemnify each other against certain liabilities arising
under the Securities Act.
II-1
<PAGE> 39
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -------------------------------------------------------------------
<S> <C>
4.5 Indenture, dated as of August 6, 1997, by and among the
Company and State Street Bank and Trust Company of California,
N.A., as trustee thereunder(1).
4.6 Registration Rights Agreement, dated as of August 6, 1997, by
and among the Company and Morgan Stanley & Co. Incorporated
and Montgomery Securities(1).
4.7 Form of Note (included in Exhibit 4.5).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Independent Auditors' Consent, Deloitte & Touche LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
25.1 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation designated to act as
Trustee on Form T-1.
27.1 Financial Data Schedule(2).
</TABLE>
- ------------
(1) Filed as an exhibit to the Company's Form 8-K dated August 7, 1997 and
incorporated herein by reference.
(2) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
June 30, 1997 and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement
to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering
amendment any of the securities being registered which remain
unsold at the termination of the offering.
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 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 as that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
II-2
<PAGE> 40
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that such a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant , Cymer, Inc., a corporation organized and existing under the
laws of the State of Nevada, certifies that it has reasonable ground to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California, on
this 29th day of October 1997.
CYMER, INC.
By: /s/ WILLIAM A. ANGUS, III
-----------------------------------
William A. Angus, III
Senior Vice President,
Chief Financial Officer and Secretary
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert P. Akins and William A.
Angus, III, and each of them acting individually, as his attorney-in-fact, each
with full power of substitution, for him in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to any and all amendments
to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ----------------------------------------------- -------------------
<S> <C> <C>
/s/ ROBERT P. AKINS President, Chief Executive Officer and October 29, 1997
- ------------------------------------ Chairman of the Board
Robert P. Akins
/s/ WILLIAM A. ANGUS, III Senior Vice President, Finance, Chief Financial October 29, 1997
- ------------------------------------ Officer and Secretary
William A. Angus, III
/s/ NANCY J. BAKER Director, Corporate Finance, Treasurer and October 29, 1997
- ------------------------------------ Chief Accounting Officer
Nancy J. Baker
/s/ RICHARD P. ABRAHAM Director October 29, 1997
- ------------------------------------
Richard P. Abraham
/s/ KENNETH M. DEEMER Director October 29, 1997
- ------------------------------------
Kenneth M. Deemer
Director
- ------------------------------------
Peter J. Simone
/s/ F. DUWAINE TOWNSEN Director October 29, 1997
- ------------------------------------
F. Duwaine Townsen
</TABLE>
II-4
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -------------------------------------------------------------------
<S> <C>
4.5 Indenture, dated as of August 6, 1997, by and among the
Company and State Street Bank and Trust Company of California,
N.A., as trustee thereunder(1).
4.6 Registration Rights Agreement, dated as of August 6, 1997, by
and among the Company and Morgan Stanley & Co. Incorporated
and Montgomery Securities(1).
4.7 Form of Note (included in Exhibit 4.5).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Independent Auditors' Consent, Deloitte & Touche LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
25.1 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation designated to act as
Trustee on Form T-1.
27.1 Financial Data Schedule(2).
</TABLE>
- --------------
(1) Filed as an exhibit to the Company's Form 8-K dated August 7, 1997 and
incorporated herein by reference.
(2) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
June 30, 1997 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 5.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
October 28, 1997
Cymer, Inc.
16750 Via Del Campo Court
San Diego, CA 92127
Re: Cymer, Inc. Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by
Cymer, Inc. (the "Company") with the Securities and Exchange Commission on or
about October 30, 1997 (the "Registration Statement") in connection with the
registration under the Securities Act of 1933, as amended, of 3,670,213 shares
of Common Stock of the Company (the "Shares") upon conversion of $172,500,000
aggregate principal amount of 3 1/2%/7 1/4% Step-Up Convertible Subordinated
Notes (the "Registrable Notes") of the Company due August 6, 2004 (equal to
conversion rate of 21.2766 shares per $1,000 principal amount of Registrable
Notes).
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of
Shares, and upon the completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with securities laws of
various states, where required, the Shares, when issued and sold in the manner
referred to in the Registration Statement, will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
-------------------------------------
Wilson Sonsini Goodrich & Rosati
Professional Corporation
<PAGE> 1
EXHIBIT 12.1
CYMER, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands)
<TABLE>
<CAPTION> NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED
SEPTEMBER 30
--------------------------------------------------- -------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from continuing operations $(1,168) $(2,703) $(1,987) $ 105 $ 7,701 $25,014
Fixed charges:
Interest expense(1) 68 52 281 254 467 2,018
Rentals -- -- -- 245 351 543
------- ------- ------- ------- ------- -------
Total fixed charges 68 52 281 499 818 2,561
------- ------- ------- ------- ------- -------
Earnings before income taxes and fixed charges $(1,100) $(2,651) $(1,706) $ 604 $ 8,519 $27,575
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges n/a n/a n/a 1.21 10.41 10.77
======= ======= ======= ======= ======= =======
</TABLE>
- -----------
(1) Included in this amount for the nine months ended September 30, 1997 is
$135 of amortization of debt issuance costs and $1,883 of interest expense.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Cymer, Inc. on Form S-3 of our report dated January 29, 1997 (which report
contains an explanatory paragraph that describes a change during 1994 in the
Company's method of accounting for the accretion on the Company's Redeemable
Convertible Preferred Stock), appearing in the Annual Report on Form 10-K of
Cymer, Inc. for the year ended December 31, 1996, and to the reference to us
under the heading "Experts" in the Prospectus, which is part of such
Registration Statement.
DELOITTE & TOUCHE LLP
San Diego, California
October 27, 1997
<PAGE> 1
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(B)(2) [X]
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
(Exact name of trustee as specified in its charter)
UNITED STATES
- --------------------------------------------------------------------------------
(Jurisdiction of incorporation or organization if not a U.S. national bank)
06-1143380
- --------------------------------------------------------------------------------
(IRS Employer Identification No.)
725 SOUTH FIGUEROA STREET, SUITE 3100, LOS ANGELES, CALIFORNIA 90017
- --------------------------------------------------------------------------------
(Address of principal executive offices)
90017
- --------------------------------------------------------------------------------
(Zip code)
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
725 SOUTH FIGUEROA STREET, SUITE 3100, LOS ANGELES, CALIFORNIA, 90017
213-362-7338
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
CYMER, INC.
- --------------------------------------------------------------------------------
(Exact Name of Obligor as specified in its charter)
NEVADA
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
33-0175463
- --------------------------------------------------------------------------------
(IRS Employer Identification No.)
16750 VIA DEL CAMPO COURT, SAN DIEGO, CALIFORNIA
- --------------------------------------------------------------------------------
(Address of principal executive offices)
92127-1712
- --------------------------------------------------------------------------------
(Zip code)
3 1/2% - 7 1/4% STEP-UP CONVERTIBLE SUBORDINATED NOTES DUE
8/6/2004
- --------------------------------------------------------------------------------
(Title of the indenture securities)
<PAGE> 2
Item 1. General Information.
(a) The trustee is subject to the supervision of the Comptroller of the
Currency, Western District Office, 50 Fremont Street, Suite 3900, San
Francisco, CA 94105-2292.
(b) The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with the obligor.
The trustee is not affiliated with the obligor.
No responses are included for Items 3-15 of this form T-1 because the obligor is
not in default on securities issued under indentures under which State Street
Bank and Trust Company of California, N.A. is trustee.
Item 16. List of Exhibits
1. Articles of Association of State Street Bank and Trust Company of
California, National Association.*
2. Certificate of Corporate Existence (with fiduciary powers) from the
Comptroller of the Currency, Administrator of National Banks.*
3. Authorization of the Trustee to exercise fiduciary powers (included in
Exhibits 1 and 2; no separate instrument).
4. By-laws of State Street Bank and Trust Company of California, National
Association.*
5. Consent of State Street Bank and Trust Company of California, National
Association required by Section 321(b) of the Act.*
6. Consolidated Report of Income at the close of business March 31, 1997,
Federal Financial Institutions Examination Council, Consolidated Reports
of Condition and Income for A Bank With Domestic Offices Only and Total
Assets of Less Than $100 Million - FFIEC 034.**
* The indicated documents have been filed as exhibits with corresponding
exhibit numbers to the Form T-1 of Oasis Residential, Inc., filed
pursuant to Section 305(b)(2) of the Act, filed with the Securities and
Exchange Commission on November 18, 1996 (Registration No. 033-90488),
and are incorporated herein by reference.
** The indicated document was filed as an exhibit with a corresponding
exhibit number to the Form T-1 filed as Exhibit 25 to a Registration
Statement on Form S-4 of Silicon
<PAGE> 3
Graphics, Inc., filed with the Securities and Exchange Commission on
July 30, 1997 (Registration No. 333-32379), and is incorporated herein by
reference.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, State Street Bank and Trust Company of California, National Association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, and
State of California, on the 27th day of October, 1997.
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ SCOTT C. EMMONS
-----------------------------------
Scott C. Emmons
Assistant Vice President
