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Filed pursuant to Rule 424(b)(1)
Registration No. 333-65433
PROSPECTUS
[LOGO]
LEVEL ONE COMMUNICATIONS, INCORPORATED
4,217,855 shares of Common Stock
These shares of common stock are being sold by the selling shareholders
listed beginning on page 6. Level One will not receive any proceeds from the
sale of these shares.
Level One's common stock is traded on the Nasdaq National Market under the
symbol "LEVL." The last reported sale price on December 28, 1998 was $36.12 per
share.
The common stock may be sold in transactions on the Nasdaq National Market
at market prices then prevailing, in negotiated transactions, or otherwise. See
"Plan of Distribution."
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THIS OFFERING INVOLVES MATERIAL RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is December 29, 1998
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QUESTIONS AND ANSWERS ABOUT THIS OFFERING
Q. WHAT IS THE PURPOSE OF THIS OFFERING?
A. The purpose of this offering is to register the resale of common stock
received by the selling stockholders in connection with the acquisition by
Level One of Acclaim Communications, Inc. in July 1998. Selling stockholders
are required to deliver a copy of this prospectus in connection with any
sale of shares.
Q. ARE THE SELLING STOCKHOLDERS REQUIRED TO SELL THEIR SHARES OF LEVEL ONE
COMMON STOCK?
A. No. The selling stockholders are not required to sell their shares of common
stock.
Q. HOW LONG WILL THE SELLING STOCKHOLDERS BE ABLE TO USE THIS PROSPECTUS?
A. Under the terms of a registration rights agreement, Level One agreed to keep
this prospectus effective until July 6, 1999. After that, the selling
stockholders will no longer be able to use this prospectus to sell their
shares.
ABOUT LEVEL ONE
Level One designs and sells semiconductor chips in the semiconductor
industry. Our products are described as application specific standard integrated
circuits, or "ASSPs." Our products are used for high-speed analog and digital
signal transmission, to build and connect networks to systems that transport
information, within an office or around the world. Our products are used to
produce systems for local area networks, called "LANs," wide area networks,
called "WANs," and public telephone transmission networks. LANs, WANs, and
telephone transmission networks are what makes it possible for you to use
intranets, the Internet, and the World Wide Web. Level One combines its
strengths as an industry leader in analog and digital circuit design with its
communications systems expertise to produce solutions with increased
functionality.
Level One was incorporated in California in November 1985. Our executive
offices are located at 9750 Goethe Road, Sacramento, California 95827. Our
telephone number is (916) 855-5000.
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RISK FACTORS
This prospectus and information incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of different factors, including those discussed in "Risk Factors" or
incorporated by reference into this prospectus.
OUR RELIANCE ON THIRD PARTIES TO MANUFACTURE, ASSEMBLE AND TEST OUR PRODUCTS MAY
RESULT IN INCREASED COSTS OR DELAYS
Because we do not manufacture the silicon wafers used for our products, we
depend on our wafer suppliers to produce wafers in sufficient quantities to meet
customer demand at acceptable yields and at competitive prices. We also depend
on wafer suppliers to assemble, test and deliver wafers on time. In 1994 and
1995, our foundries reduced shipments without prior notice to us which resulted
in increased costs and delays and required us to transfer the production of some
products to a new foundry. Supply agreements with wafer suppliers cannot
eliminate this risk since our suppliers may not be able to produce enough wafers
to meet increased demand because of their own capacity limitations.
IN ORDER TO COMPETE EFFECTIVELY IN THE SEMICONDUCTOR INDUSTRY, WE NEED TO
CONTINUALLY DEVELOP NEW PRODUCTS THAT GAIN MARKET ACCEPTANCE
In the semiconductor industry, price competition is intense and product life
cycles are short. As a result, the average selling price for our products
decreases rapidly as new or competing products are introduced. To compensate, we
rely on obtaining yield improvements to reduce manufacturing costs and on
introducing new products which incorporate advanced features that result in
higher average selling prices. To the extent that we do not successfully develop
and timely introduce new products that achieve market acceptance, or to the
extent that we do not achieve sufficient cost reductions on existing products to
maintain margins, we may be adversely impacted.
To be successful, we must identify new product opportunities, stay ahead of
the competition so that their products will not render our products obsolete or
noncompetitive, and gain market acceptance of our products with target
customers. Because of the increasing complexity of our new products, we could
experience delays in completing development and introduction of new products
that could adversely impact our anticipated market share for new products. We
may be adversely affected by a failure in any of these areas.
OUR RECENT ACQUISITIONS PLACE A STRAIN ON OUR MANAGEMENT AND PERSONNEL RESOURCES
In July 1998, we acquired Acclaim Communications, Inc. In late November
1998, we acquired Jato Technologies, Inc. In order to successfully integrate
these two newly acquired businesses and successfully manage our existing
business, we will need to expand and refine our management and personnel
resources. We will also need to significantly increase our development, testing,
quality control, marketing, logistics and service capabilities. If we do not
effectively expand and deploy our resources to meet these needs, our business
may be adversely impacted.
ASSERTING AND DEFENDING INTELLECTUAL PROPERTY RIGHTS MAY IMPACT RESULTS OF
OPERATIONS REGARDLESS OF SUCCESS
In the semiconductor industry, competitors often assert intellectual
property infringement claims against one another. The success of our business
depends on our ability to successfully defend our intellectual property. This
litigation may have a material impact on our financial condition regardless of
whether or not we are successful. There is no assurance that we will be
successful in defending or asserting our intellectual property rights.
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EXCESS OR INSUFFICIENT INVENTORIES MAY ADVERSELY IMPACT OUR REVENUES AND
EARNINGS
If we produce excess or insufficient product inventories because we do not
accurately anticipate customer demand, our revenues and earnings could be
materially adversely impacted. This may happen for three reasons: First, some of
our customers place orders with long lead-times, which may be cancelled or
rescheduled without significant penalty. Second, our inventory risk increases
during periods of strong demand and/or restricted semiconductor capacity
because, based on our past experience, customers often over-order to assure
adequate supply and then may cancel or postpone orders without notice or
significant penalty if other product becomes available. Third, component
shortages from our customers' suppliers could cause our customers to cancel or
delay plans to incorporate our products into the design of target products,
resulting in the cancellation or delay of orders for our products.
THE COMPLETION OF OUR 4% CONVERTIBLE NOTE OFFERING HAS INCREASED OUR INTEREST
EXPENSE AND MAY LIMIT OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR WORKING
CAPITAL, ACQUISITIONS OR OTHER PURPOSES
We incurred approximately $115 million in additional debt as a result of our
issuance of 4% Convertible Subordinated Notes due 2004 in September 1997. These
notes increased our ratio of long-term debt to total capitalization from 3.0% at
September 28, 1997, to 44.6% at September 27, 1998. This increased leverage has
increased our interest expense substantially. This increased leverage could
adversely affect our ability to obtain additional financing for working capital,
acquisitions or other purposes and could make us more vulnerable to economic
downturns and competitive pressures. This increased leverage could also affect
our liquidity, as a substantial portion of available cash from operations may
have to be applied to meet debt service requirements and, in the event of a cash
shortfall, we could be forced to reduce other expenditures and/or forego
potential acquisitions to be able to meet such requirements.
THE FAILURE OF OUR KEY SUPPLIERS TO BE YEAR 2000 COMPLIANT AND OUR FAILURE TO
DEVELOP YEAR 2000 CONTINGENCY PLANS COULD CAUSE US TO EXPERIENCE MANUFACTURING
INTERRUPTIONS OR DELAYS THAT COULD ADVERSELY IMPACT OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS
We are currently in the process of determining whether there are any
critical areas in our business that are not Year 2000 compliant. We have begun a
comprehensive project to prepare our computer systems for the Year 2000. We
presently estimate that the total cost of addressing our Year 2000 problems will
be approximately $100,000, of which approximately 5% has been expended to date.
This cost estimate was derived utilizing numerous assumptions, including the
assumption that we have already identified our most significant Year 2000
problems and that the assessment, remediation and contingency plans of our third
party suppliers will be fulfilled in a timely manner without significant
additional cost to us.
We believe that there is a remote possibility of an adverse impact on our
business due to problems with our internal systems or products. Our products
have no date specific functions or date dependencies and will operate according
to published specifications through the Year 2000 and dates into the 21st
century.
As part of our Year 2000 assessment, we are contacting key suppliers of
products and services to determine whether such suppliers' operations, products
and services are Year 2000 capable and/or to monitor their progress toward Year
2000 compliance. If our suppliers are not Year 2000 compliant, we could
experience manufacturing interruptions or shutdowns, decreased yields, quality
inconsistencies, delayed or inaccurate product testing, delivery delays, or
service interruptions. It is possible that one or more of these problems could
have a material adverse effect on our business, financial condition, or results
of operations.
There is also a risk because we have not yet fully developed Year 2000
contingency plans to address any failure of our Year 2000 assessment to identify
and remediate significant Year 2000 risks to our business operations.
Development of contingency plans is in progress and will continue during
calendar
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year 1999. Such plans could include accelerating replacement of affected
equipment or software, using back-up equipment and software, developing
temporary manual procedures to compensate for system deficiencies, and
identifying Year 2000 capable suppliers and service providers. There can be no
assurance that any such contingency plans would adequately address the Year 2000
problem. The failure to develop a successful contingency plan could result in
significant delays and inefficiency in our business which could have a material
adverse effect on our business, financial condition and results of operations.
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SELLING STOCKHOLDERS
The selling stockholders listed below received their shares of Level One
common stock in connection with the acquisition by Level One of Acclaim
Communications, whereby the selling shareholders exchanged their shares of
Acclaim Communications for shares of Level One.
Except as described in the table, none of the selling stockholders has held
any position or office or had a material relationship with Level One or any of
its affiliates within the past three years other than as a result of the
ownership of Level One's common stock. The information is "as of" the date of
this prospectus but may be amended or supplemented after this date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES WHICH
MAY BE SOLD SHARES ISSUABLE OWNED AFTER OFFERING
SHARES PURSUANT TO UPON EXERCISE OF
BENEFICIALLY THIS OPTIONS/ ----------------------------
SELLING STOCKHOLDER OWNED(1) PROSPECTUS(2) WARRANTS(3) NUMBER PERCENT
- -------------------------------------------- ----------- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Visveswar Akella............................ 1,302,460 1,302,460 36,562 -- --
Tom Hsien-Chin Hsieh and Ling Ling T.
Hsieh..................................... 1,360 1,360 -- --
Eugene Fleisher............................. 3,429 3,429 -- --
Swaminathan Ganesan......................... 1,360 1,360 -- --
Steve Gulesserian........................... 1,209 1,209 -- --
Joseph Toste................................ 3,930 3,930 -- --
Douglas Denny............................... 2,116 2,116 -- --
Anindya Chakraborty......................... 2,947 2,947 -- --
Frances Hsin-Pei Wang....................... 2,154 2,154 -- --
Durvasula Sastry............................ 9,071 9,071 -- --
Jagannadham Akella.......................... 7,257 7,257 -- --
Seshagiri Rao Mandalika..................... 3,628 3,628 -- --
Ethindrababu A. Baktha...................... 3,628 3,628 -- --
David E. Dukinfield......................... 3,401 3,401 -- --
Diosdado P. Banatao......................... 1,307,848 1,307,848 70,687 -- --
Angel Ventures, L.P......................... 583,672 583,672 12,187 -- --
Jones M. Castro, Jr. and/or Marina E.
Castro, JTWROS............................ 9,750 9,750 -- --
Phurpa G. LadenLa and Sophie C. LandenLa,
TTEES UTD, 10/14/85, Phurpa G. LadenLa and
Sophie C. LadenLa, Trustors............... 4,875 4,875 -- --
Stephen R. Dohrmann......................... 4,062 4,062 -- --
Capquest Ventures, Incorporated............. 9,750 9,750 -- --
Alfredo Alforque............................ 1,625 1,625 -- --
Reynaldo S. Factoran........................ 1,625 1,625 -- --
Gil Espinosa................................ 1,625 1,625 -- --
Juan Magdaraog.............................. 812 812 -- --
Rogelio Laraya.............................. 812 812 -- --
Diosdado Rey Banatao........................ 3,250 3,250 -- --
Desi R. Banatao............................. 3,250 3,250 -- --
Tala M. Banatao............................. 3,250 3,250 -- --
Thomas Alexander............................ 56,990 56,990 7,312 -- --
Adaptive Technologies, LLC.................. 33,753 33,753 4,265 -- --
Chong-Moon Lee.............................. 640,420 640,420 80,437 -- --
Ravinder Sajwan............................. 240,445 77,160 172,986 -- --
Ramjit Johl................................. 117,991 85,335 49,718 -- --
Satish Sathe................................ 75,371 19,323 58,485 -- --
LINC Capital, Inc........................... 6,093 6,093 6,093 -- --
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES WHICH SHARES ISSUABLE OWNED AFTER OFFERING
SHARES MAY BE SOLD UPON EXERCISE OF
BENEFICIALLY PURSUANT TO THIS OPTIONS/ ----------------------------
SELLING STOCKHOLDER OWNED(1) PROSPECTUS(2) WARRANTS(3) NUMBER PERCENT
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<S> <C> <C> <C> <C> <C>
Silicon Valley Bank......................... 9,750 9,750 9,750 -- --
Brian Creek & Evelyn G. Lopez-Creek,
In Joint Tenancy.......................... 815 815 -- --
Daniel-Edward G. Lopez & Karen Lopez, In
Joint Tenancy............................. 815 815 -- --
Danilo S. Lopez & Evelyn G. Lopez,
In Joint Tenancy.......................... 3,245 3,245 -- --
</TABLE>
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(1) Includes any shares as to which the individual has sole or shared voting
power or investment power and also any shares which the individual has the
right to acquire within 60 days of the date of this prospectus through the
exercise of any stock option or other right. Unless otherwise indicated in
the footnotes, each person has sole voting and investment power (or shares
such powers with his or her spouse) with respect to the shares shown as
beneficially owned.
(2) See "Plan of Distribution".
(3) Represents shares issuable upon exercise of warrants and/or options assumed
by Level One that are exerciseable within 60 days of the date of this
prospectus. If any of the warrants or the options are exercised before the
end of the escrow period, ten percent of the shares issued upon such
exercise will be deposited into the escrow fund in accordance with the terms
of the Merger Agreement.
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PLAN OF DISTRIBUTION
The common stock covered by this prospectus may be offered and sold from
time to time by the selling stockholders, including in one or more of the
following transactions:
- on the Nasdaq National Market;
- in the over-the-counter market;
- in transactions other than on the Nasdaq National Market or in the
over-the-counter market;
- in connection with short sales;
- by pledge to secure debts and other obligations;
- in connection with the writing of options, in hedge transactions, and in
settlement of other transactions in standardized or over-the-counter
options;
- in a combination of any of the above transactions; or
- pursuant to Rule 144, assuming the availability of an exemption from
registration.
The selling shareholders may sell their shares at market prices prevailing
at the time of sale, at prices related to prevailing market prices, at
negotiated prices, or at fixed prices.
Broker-dealers that are used to sell shares will either receive discounts or
commissions from the selling shareholders, or will receive commissions from the
purchasers for whom they acted as agents.
The sale of common stock by the selling stockholders is subject to
compliance by the selling stockholders with certain contractual restrictions
with Level One including certain restrictions contained in a registration rights
agreement between Level One and the selling stockholders. There can be no
assurance that the selling stockholders will sell all or any of the common
stock.
Level One has agreed to keep this prospectus effective until July 6, 1999.
Level One intends to deregister any of the common stock not sold by the selling
stockholders immediately after that date. However, at that time, it is
anticipated that at such time any unsold common stock may be freely tradable in
compliance with Rule 144 of the Securities Act.
Level One and the selling stockholders have agreed to customary
indemnification obligations with respect to the sale of the common stock by use
of this prospectus.
LEGAL MATTERS
Graham & James LLP, Sacramento, California, has passed on the validity of
the shares.
EXPERTS
The consolidated financial statements of Level One and its subsidiaries have
been audited by Arthur Andersen LLP, independent public accountants, has audited
the consolidated financial statements of Level One and its subsidiaries, as
indicated in the report of Arthur Andersen LLP, in reliance on its authority as
an expert in the fields of auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Level One files reports with the SEC on a regular basis that contain
financial information and results of operations. You may read or copy any
document that Level One files with the SEC at the SEC's Public Reference Room at
450 5th Street, N.W., Washington, D.C. 20549. You may obtain information about
the Public Reference Room by calling the SEC for further information at
1-800-SEC-0330. Level One's SEC filings are also available at the SEC's web site
at www.sec.gov.
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INCORPORATION BY REFERENCE
To avoid repeating information in this prospectus that has already been
filed with the SEC, we have "incorporated by reference" the following SEC
filings of Level One (SEC File No. 22068). This information is considered a part
of this prospectus. Those documents are:
(1) Form 10-K for the year ended December 29, 1997;
(2) Form 10-Q for the quarters ended March 29, June 28 and September 27;
(3) Form 8-K, Form 8-K/A (Amendment No. 1), Form 8-K/A (Amendment No 2) and
Form 8-K/A (Amendment No. 3), filed with the SEC July 17, September 21,
October 7, and December 16, 1998;
(4) Form 8-K filed with the SEC on November 20, 1998;
(5) Form 8-K filed with the SEC on December 9, 1998;
(6) Description of common stock in Item 1 and 2 of Form 8-A filed on July 9,
1993; and
(7) All other documents subsequently filed under Sections 13(a), 13(c), 14
or 15(d).
We will send you a copy of these filings, at no cost to you, if you write or
call us:
Investor Relations
Level One Communications, Incorporated
9750 Goethe Road
Sacramento, California 95827
(916) 855-5000
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE BY THIS
PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF OR OFFER TO SELL THE SHARES MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
About Level One................................ 2
Risk Factors................................... 3
Selling Stockholders........................... 6
Plan of Distribution........................... 8
Legal Matters.................................. 8
Experts........................................ 8
</TABLE>
4,217,855 SHARES
LEVEL ONE COMMUNICATIONS,
INCORPORATED
COMMON STOCK
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PROSPECTUS
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DECEMBER 29, 1998
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