PROSPECTUS SUPPLEMENT Filed pursuant to Rule 424(b)(5)
(To Prospectus Dated July 24, 1997) File No. 333-29525
$250,000,000
QUANTUM LOGO
7% CONVERTIBLE SUBORDINATED NOTES DUE 2004
The 7% Convertible Subordinated Notes due 2004 (the "Notes") of Quantum
Corporation (the "Company" or "Quantum") offered hereby will mature on August 1,
2004. Interest on the Notes is payable on February 1 and August 1 of each year,
commencing February 1, 1998. The Notes are convertible at the option of the
Holder at any time prior to the close of business on the maturity date, unless
previously redeemed, into shares of the Company's common stock, par value $0.01
per share (the "Common Stock"), at a conversion price of $46.325 per share
(equivalent to a conversion rate of approximately 21.587 shares per $1,000
principal amount of Notes), subject to adjustment in certain events. See
"Description of Notes -- Conversion of Notes." The Company's Common Stock is
listed on the Nasdaq National Market under the symbol "QNTM". On July 28, 1997
the last reported sale price of the Common Stock on the Nasdaq National Market
was $27.25 per share.
The Notes are not redeemable by the Company prior to August 1, 1999. On or after
August 1, 1999 and prior to August 1, 2001, the Notes will not be redeemable at
the option of the Company unless the closing price of the Common Stock shall
have exceeded 125% of the then applicable conversion price for 20 trading days
within a period of 30 consecutive trading days ending within five trading days
prior to the notice of redemption. Subject to the foregoing, the Notes will be
redeemable on at least 15 days' notice at the option of the Company, in whole or
in part, at any time, at the redemption prices set forth in this Prospectus
Supplement, in each case together with accrued interest. The Notes may also be
redeemed at the option of the Holder if there is a Fundamental Change (as
defined), at declining redemption prices, subject to adjustment in certain
events as described herein, together with accrued interest. See "Description of
Notes -- Optional Redemption by the Company" and "-- Redemption at Option of
Holders."
The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Indebtedness of the Company and will be effectively
subordinated in right of payment to all indebtedness and other liabilities of
the Company's subsidiaries. As of June 29, 1997, the Company had approximately
$249 million of outstanding indebtedness that would have constituted Senior
Indebtedness (including approximately $163 million notional amount of foreign
exchange contracts and approximately $86 million of contingent reimbursement
obligations under outstanding letters of credit). As of the same date, the
Company's subsidiaries had approximately $477 million of outstanding
indebtedness and other liabilities. See "Description of Notes -- Subordination
of Notes."
SEE "RISK FACTORS" COMMENCING ON PAGE S-6 OF THIS PROSPECTUS SUPPLEMENT FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NOTES.
THESE NOTES AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES 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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
Per Note................................ 100.00% 2.25% 97.75%
Total (3)............................... $250,000,000 $5,625,000 $244,375,000
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from August 1, 1997.
(2) Before deducting expenses payable by the Company estimated at $500,000. The
Underwriter will reimburse the Company for certain of the expenses.
(3) The Company has granted the Underwriter an option, exercisable for 30 days
from the date of this Prospectus Supplement, to purchase up to an additional
$37,500,000 aggregate principal amount of Notes at the Price to Public, less
Underwriting Discount, to cover over-allotments, if any. If the Underwriter
exercises such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be approximately $287,500,000,
$6,468,750, and $281,031,250, respectively. See "Underwriting."
The Notes are offered subject to receipt and acceptance by the Underwriter, to
prior sale and to the Underwriter's right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made at the offices of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about August 1, 1997.
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SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is July 29, 1997
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES AND THE COMMON
STOCK. SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE NOTES AND COMMON STOCK IN THE OPEN MARKET.
FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING".
S-2
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
and other financial information, included or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus. Prospective investors
should carefully consider the factors set forth under the caption "Risk Factors"
below. Unless the context otherwise requires, references in this Prospectus
Supplement and the accompanying Prospectus to the "Company" or "Quantum" refer
to Quantum Corporation and its consolidated subsidiaries. Unless otherwise
indicated, all information in this Prospectus Supplement assumes no exercise of
the Underwriter's over-allotment option.
THE COMPANY
Quantum Corporation, operating in a single business segment, designs,
develops, and markets information storage products, including high-performance,
high-quality hard disk drives, half-inch cartridge tape drives, tape drive
related products, and solid state disk drives. The half-inch cartridge tape
drives and solid state disk drives are manufactured by the Company. The Company
combines its engineering and design expertise with the high-volume manufacturing
capabilities of its exclusive manufacturing partner, Matsushita-Kotobuki
Electronics Industries, Ltd. ("MKE") of Japan, a subsidiary of Matsushita
Electric Industrial Co., Ltd., to produce high-quality hard disk drives. Quantum
is also involved in the manufacture of magnetoresistive ("MR") recording heads
that are used in hard disk drives produced for the Company.
The Company's strategy is to offer a diversified product portfolio that
features leading-edge technology and high-quality manufacturing for a broad
range of market applications. Inherent in this strategy is a focus on meeting
and anticipating customers' information storage needs and on the research and
development of storage product technology.
The Company markets its products worldwide to major original equipment
manufacturers ("OEMs"), a broad range of distributors, resellers, and systems
integrators.
The Company's information storage business currently includes the following
four components:
DESKTOP AND PORTABLE STORAGE PRODUCTS. Quantum designs, develops, and
markets hard disk drives designed to meet the storage needs of desktop
systems. These products are designed for entry-level to high-end desktop
personal computers ("PCs") for use in both home and business environments.
WORKSTATION AND SYSTEMS STORAGE PRODUCTS. Quantum designs, develops,
and markets technologically advanced hard disk drives for the demanding
storage needs of network servers, workstations, storage subsystems,
high-end desktop systems, and minicomputers. These products are designed
for storage-intensive applications, such as graphics, disk arrays, desktop
publishing systems, multimedia computing systems, and networked data bases
and file servers.
SPECIALTY STORAGE PRODUCTS. Quantum designs, develops, manufactures,
and markets half-inch cartridge tape drives and solid state disk drives.
The tape drives use advanced linear recording technology and a highly
accurate tape guide system to perform data backup for mid-range and
high-end computer systems. The solid state disk drives have the high
execution speeds required for applications such as imaging, multimedia,
video-on-demand, on-line transaction processing, material requirements
planning, and scientific modeling.
RECORDING HEADS. Quantum is involved in the design, development, and
manufacture of MR recording heads used in the Company's products. The
Company believes that MR technology, which provides higher capacity per
disk than conventional thin-film heads, will replace thin-film heads as the
leading recording head technology. The Company does not currently market
thin-film or MR heads to other companies. Effective May 16, 1997, the
S-3
Company's involvement in the design, development, and manufacture of
recording heads is through a 49% ownership interest in a joint venture with
MKE.
Quantum operates in an industry characterized by rapid technological
change. The Company is currently concentrating its product development efforts
on broadening its existing disk and tape drive product lines through the
introduction of new products, including new high-capacity hard disk drive
products to be manufactured by MKE, as well as new products targeted
specifically for the increasing storage needs of the desktop market. The Company
is also focusing its efforts on applying its MR technology to new generations of
disk drives.
STRATEGIC DEVELOPMENTS
MKE/Quantum Recording Heads Joint Venture. On May 16, 1997, MKE and Quantum
formed a recording heads joint venture company, MKE-Quantum Components LLC.
Pursuant to the terms of the transaction, Quantum contributed certain recording
heads assets and operations, transferred employees of the Company's recording
heads operations and leased certain premises to the joint venture and retained a
49% ownership interest in the joint venture; the joint venture assumed $51
million of debt payable to Quantum; and MKE paid Quantum $94 million and
contributed $110 million to the joint venture in exchange for a 51% controlling
ownership interest in the joint venture. The joint venture combines Quantum's
engineering and design expertise with MKE's manufacturing expertise.
Renegotiated MKE Master Agreement. In May 1997, Quantum completed
renegotiation of its master agreement with MKE, which covers the general terms
of the business relationship. The agreement was extended for a period of 10
years, unless sooner terminated as a result of certain specified events
including a change-in-control of either Quantum or MKE. MKE currently
manufactures all of the hard disk drives developed and marketed by Quantum.
Quantum's relationship with MKE, which dates from 1984, is built on Quantum's
engineering and design expertise and MKE's high-volume, high-quality
manufacturing expertise.
S-4
THE OFFERING
SECURITIES OFFERED......... $250,000,000 principal amount of 7% Convertible
Subordinated Notes due 2004 (the "Notes")
($287,500,000 principal amount of Notes if the
over-allotment option is exercised in full).
INTEREST PAYMENT DATES..... February 1 and August 1, commencing February 1,
1998.
CONVERSION................. Convertible at the option of the Holder at any time
prior to the close of business on the maturity
date, unless previously redeemed, at a conversion
price of $46.325 per share, subject to adjustment
in certain events.
SUBORDINATION.............. Subordinated to all Senior Indebtedness (as
defined) of the Company and effectively
subordinated to all indebtedness and other
liabilities of the Company's subsidiaries. As of
June 29, 1997, Senior Indebtedness totaled
approximately $249 million (including approximately
$163 million notional amount of foreign exchange
contracts and approximately $86 million of
contingent reimbursement obligations under
outstanding letters of credit). As of the same
date, the Company's subsidiaries had approximately
$477 million of outstanding indebtedness and other
liabilities.
REDEMPTION................. The Notes are not redeemable by the Company prior
to August 1, 1999. On or after August 1, 1999 and
prior to August 1, 2001, the Notes will not be
redeemable at the option of the Company unless the
closing price of the Common Stock shall have
exceeded 125% of the then applicable conversion
price for 20 trading days within a period of 30
consecutive trading days ending within five trading
days prior to the notice of redemption. Subject to
the foregoing, thereafter the Notes will be
redeemable on at least 15 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. The Notes may also be redeemed at
the option of the Holder if there is a Fundamental
Change (as defined), at declining redemption
prices, subject to adjustment in certain events,
together with accrued interest.
USE OF PROCEEDS............ The Company plans to use the net proceeds for
general corporate purposes, including working
capital, capital expenditures and research and
development. See "Use of Proceeds."
GOVERNING LAW.............. The Subordinated Indenture, the Supplemental
Indenture and the Notes are governed by the laws of
the State of New York.
MARKET FOR THE NOTES....... The Underwriter has advised the Company that it
currently intends to make a market in the Notes.
The Underwriter is not obligated, however, to make
a market in the Notes, and any such market making
may be discontinued at any time at the sole
discretion of the Underwriter without notice. The
Company intends to apply to list the Notes on the
Nasdaq Stock Market.
COMMON STOCK............... The Common Stock is listed on the Nasdaq National
Market under the symbol "QNTM".
S-5
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus Supplement and the accompanying Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company and the Notes before purchasing any of the Notes offered hereby.
This Prospectus Supplement contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements usually contain the words "estimate," "anticipate," "expect" or
similar expressions. All forward-looking statements are inherently uncertain as
they are based on various expectations and assumptions concerning future events
and they are subject to numerous known and unknown risks and uncertainties.
These uncertainties could cause actual results to differ materially from those
expected for the reasons set forth below. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof.
Fluctuation in Product Demand. Fluctuation in demand for the Company's
products generally results in fluctuations in the Company's operating results.
Demand for computer systems-especially in the PC market segment, where the
Company derives a significant amount of its disk drive sales-has historically
been subject to significant fluctuations. Such fluctuations in end-user demand
have in the past, and may in the future, result in the deferral or cancellation
of orders for the Company's products, each of which could have a material
adverse effect on the Company. During the past several years, there has been
significant growth in the demand for PCs, a portion of which represented sales
of PCs for use in the home. However, many analysts predict that future growth
may be at a moderately slower rate than the rate experienced in recent years.
Sales of tape drives and tape drive-related products, which have been a
less significant component of sales for the Company than sales of disk drive
products but which have recently had a significant impact on margins and
profitability, have tended to be more stable. In this regard the Company expects
sales of DLT products, which represented 18% of sales and a much higher
percentage of operating profits for the quarter ended June 29, 1997, will
continue to increase as a percentage of the Company's total sales and operating
profits in the future.
The Company has experienced longer product cycles for its tape drives and
tape drive-related products, compared with the short product cycles of disk
drive products. However, there is no assurance that this trend will continue.
The Company could experience decreases in demand for its products in the
future, which could have a material adverse effect on the Company. For the
second fiscal 1998 quarter, the Company expects to experience continued gross
margin pressure with respect to both its desktop and high-end hard disk drive
products.
The hard disk drive industry has also been subject, from time to time, to
seasonal fluctuations in demand. The Company has typically experienced
relatively flat demand in the quarter ending September 30 compared with the
quarter ending June 30. The Company expects this trend to continue with respect
to the quarter ended September 28, 1997. In addition, the Company's shipments
tend to be highest in the third month of each quarter, which occurred in the
quarter ended June 29, 1997 and which the Company expects to occur again in the
quarter ending September 28, 1997. As a result, and because the Company has no
long-term purchase commitments from its customers, future demand is difficult to
predict. The failure by the Company to complete shipments in the final month of
a quarter due to a decline in customer demand, manufacturing problems or other
factors would adversely affect the Company's operating results for that quarter.
Dependence on MKE Relationship. Quantum is dependent on MKE for the
manufacture of its disk drive products. Approximately 82% of the Company's
quarter ended June 29, 1997 sales, and 81% of the year ended March 31,1997
sales, were derived from products manufactured by MKE. In addition, the
formation of the joint venture with MKE to produce recording heads used in disk
drive production in combination with the transition of the manufacturing of the
Company's high-capacity
S-6
products to MKE in fiscal 1997 has resulted in an increased dependence on MKE.
The Company's relationship with MKE is therefore critical to the Company's
business and financial performance.
In May 1997, Quantum completed renegotiation of its master agreement with
MKE, which covers the general terms of the business relationship. The agreement
was extended for a period of 10 years, unless sooner terminated as a result of
certain specified events including a change-in-control of either Quantum or MKE.
MKE currently manufactures all of the hard disk drives developed and marketed by
Quantum. Quantum's relationship with MKE, which dates from 1984, is built on
Quantum's engineering and design expertise and MKE's high-volume, high-quality
manufacturing expertise.
The Company's dependence on MKE entails, among others, the following
principal risks:
Quality and Delivery. The Company relies on MKE's ability to bring new
products rapidly to volume production at low cost, to meet the Company's
stringent quality requirements, and to respond quickly to changing product
delivery schedules from the Company. This requires, among other things,
close and continuous collaboration between the Company and MKE in all
phases of design, engineering, and production. The Company's business and
financial results would be adversely affected if products manufactured by
MKE fail to satisfy the Company's quality requirements or if MKE is unable
to meet the Company's delivery commitments. In the event MKE is unable to
satisfy Quantum's production requirements, the Company would not have an
alternative manufacturing source to meet the demand without substantial
delay and disruption of the Company's operations. As a result, the Company
would be materially adversely affected.
Volume and Pricing. MKE's production schedule is based on the
Company's forecasts of its product purchase requirements, and the Company
has limited contractual rights to modify short-term purchase orders issued
to MKE. Further, the demand in the desktop business is inherently volatile,
and there is no assurance that the Company's forecasts are accurate. In
addition, the Company periodically negotiates pricing arrangements with
MKE. The failure of the Company to accurately forecast its requirements or
successfully adjust MKE's production schedule, which could lead to
inventory shortages or surpluses, or the failure to reach pricing
agreements reasonable to the Company would have a material adverse effect
on the Company.
Manufacturing Capacity and Capital Commitment. The Company believes
that MKE's current and committed manufacturing capacity should be adequate
to meet the Company's requirements at least through the end of fiscal 1998.
The Company's future growth will require, however, that MKE continue to
devote substantial financial resources to property, plant and equipment and
working capital to support manufacture of the Company's products, as to
which there can be no assurance. In the event that MKE is unable or
unwilling to meet the Company's manufacturing requirements, there can be no
assurance that the Company would be able to obtain an alternate source of
supply. Any such failure to obtain an alternative source would have a
material adverse effect on the Company.
Rapid Technological Change, New Product Development, and Qualification. The
combination of an environment of rapid technological changes, short product life
cycles and competitive pressures results in gross margins on specific products
decreasing rapidly. Accordingly, any delay in introduction of more advanced and
more cost-effective products can result in significantly lower sales and gross
margins. The Company's future is therefore dependent on its ability to
anticipate what customers will demand and to develop the new products to meet
this demand. The Company must also qualify new products with its customers,
successfully introduce these products to the market on a timely basis, and
commence volume production to meet customer demands. For example, during the
first quarter of fiscal 1998 the Company expects to introduce a new desktop
product that will account for a significant portion of the Company's sales.
There can be no assurance that the Company will successfully qualify this new
desktop product with its customers on a timely basis or that such product will
be produced in sufficient quantities to meet customer
S-7
demand. Due to these factors, the Company expects that sales of new products
will continue to account for a significant portion of its future sales and that
sales of older products will decline accordingly.
The Company is frequently in the process of qualifying new products with
its customers. The customer qualification process for disk drive products,
particularly high-capacity products, can be lengthy, complex, and difficult. In
addition, the Company transitioned the manufacturing of its high capacity
products to MKE during the first half of fiscal 1997, and MKE has only recently
begun volume production of such high-capacity products. In the event that the
Company is unable to obtain additional customer qualifications for new products
in a timely manner, or at all, or in the event that MKE is unable to continue to
manufacture such products in volume and with consistent high quality, the
Company would be materially adversely affected.
There can be no assurance that the Company will be successful in the
development and marketing of any new products and components in response to
technological change or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products and components; or that the
Company's new products and components will adequately meet the requirements of
the marketplace and achieve market acceptance. In addition, technological
advances in magnetic, optical or other technologies, or the development of new
technologies, could result in the introduction of competitive products with
superior performance to and substantially lower prices than the Company's
products. Further, the Company's new products and components are subject to
significant technological risks. If the Company experiences delays in the
commencement of commercial shipments of new products or components, the Company
could experience delays or loss of product sales. If the Company is unable, for
technological or other reasons, to develop and introduce new products in a
timely manner in response to changing market conditions or customer
requirements, the Company would be materially adversely affected.
MR Recording Heads Development and Manufacturing. Since the fiscal 1995
acquisition of MR recording heads technology as part of the acquisition of
certain businesses of the Storage Business Unit of Digital Equipment
Corporation, Quantum has made significant efforts to advance the development of
its MR recording heads capability. To further this effort, MKE and Quantum
formed a joint venture in the first quarter of fiscal 1998 to partner in the
research, development, and production of MR heads and technology. Quantum
believes that through MKE's manufacturing expertise, the potential of the MR
heads operations will be realized to the benefit of both MKE and Quantum.
However, cost-effective production of MR recording heads is not expected to be
realized in the near term. Until that time, the Company will incur losses based
on its pro rata ownership interest in the new joint venture. However, there can
be no assurance that the benefits of the joint venture will be realized on a
timely basis or at all.
Although the Company currently obtains the majority of its MR heads from
outside sources, the Company believes that by manufacturing MR heads it has
developed in-depth knowledge of MR head technology. The Company believes that MR
head technology, which enables higher capacity per disk than conventional
thin-film inductive heads, will replace inductive heads as the leading recording
head technology. This knowledge is leveraged in the research, development, and
production of disk drive products that utilize MR head technology. In addition,
the Company believes that having a captive supply of MR heads lowers the risk of
MR head supply shortages that may occur in the future as a result of increased
requirements for disk drive products that utilize MR recording heads. However,
MR technology is relatively complex and, to date, the Company's manufacturing
yields for its MR heads have been lower than would be necessary for cost
effective production of MR recording heads.
There is an additional uncertainty associated with maintaining or
increasing the supply of MR recording heads used in the manufacture of disk
drives. There are limited alternative sources of supply for MR recording heads.
In the event that current sources of MR recording heads, which
S-8
include the joint venture's MR heads operations, do not meet disk drive
production requirements, there can be no assurance that the Company will be able
to locate and obtain adequate supplies from alternative sources. A shortage of
MR recording heads would materially adversely affect the Company.
Customer Concentration. In addition to the information storage industry and
the Company's customer base being concentrated, the customers generally are not
obligated to purchase any minimum volume of the Company's products, and the
Company's relationships with its customers are generally terminable at will by
its customers.
Sales of the Company's desktop products, which comprise a majority of its
overall sales, were concentrated with several key customers in the quarter ended
June 29, 1997, and the fiscal year ended March 31, 1997. Sales to the top five
customers of the Company represented 46% of total sales for the first quarter of
fiscal 1998, and 38% of sales for the fiscal year ended March 31, 1997. In the
three month period ended June 29, 1997, revenue from the top five customers was
derived from both the OEM and Distribution sales channel, 31% and 15%
respectively. On the OEM side both HP and Digital represented over 10% of total
revenue. On the Distribution side Electronic Resources represented just under
10% of total revenue. In addition the Company is unable to predict whether or
not there will be any significant change in demand for any of its customers'
products in the future. In the event that any such changes result in decreased
demand for the Company's products, whether by loss of or delays in orders, the
Company could be materially adversely affected.
Intensely Competitive Industry. To compete within the information storage
industry, Quantum frequently introduces new products and transitions to newer
versions of existing products. Product introductions and transitions are
significant to the operating results of Quantum, and if they are not successful,
the Company would be materially and adversely affected. The hard disk drive
industry also tends to experience periods of excess product inventory and
intense price competition. If price competition intensifies, the Company may be
forced to lower prices more than expected, which could materially adversely
affect the Company. In addition, the Company's customers could commence the
manufacture of disk and tape drives for their own use or for sale to others. Any
such loss of customers could have a material adverse effect on the Company.
Quantum faces direct competition from a number of companies, including
Seagate, Western Digital, IBM, Maxtor, Exabyte and Sony. In the event that the
Company is unable to compete effectively with these or any other company, the
Company would be materially adversely affected. The Company's information
storage product competition can be further broken down as follows:
Desktop Storage Products. In the market for desktop products, Quantum
competes primarily with Seagate, Western Digital, and Maxtor. Quantum and
its competitors have developed and are developing a number of products
targeted at particular segments of this market, such as business users and
home PC buyers, and factors such as time to market can have a significant
effect on the success of any particular product. The desktop market is
characterized by more competitiveness and shorter product life cycles than
the hard disk drive market in general.
Workstation and System Storage Products. The Company faces competition
in the high-capacity disk drive market primarily from Seagate, IBM and
Fujitsu. Seagate has the largest share of the market for high-capacity disk
drives. Although the same competitive factors identified above as being
generally applicable to the overall disk drive industry apply to high-
capacity disk drives, the Company believes that the performance and quality
of its products are more important to the users in this market than to
users in the desktop market. The Company's success in the high-capacity
market during the foreseeable future is dependent on the successful
development, timely introduction, and market acceptance of key new
products, as to which there can be no assurance.
S-9
Specialty Storage Products. In the market for tape drives, the Company
competes with other companies that have tape drive product offerings and
alternative formats. The Company targets a market segment that requires a
mission critical backup system and competes in this segment based on the
reliability and durability of its tape drives. Although the Company has
experienced excellent market acceptance of its tape drive products, the
market may become more competitive as other companies broaden their product
lines in this market. As a result, the Company could experience increased
price competition. If price competition occurs, the Company may be forced
to lower prices, in which case the Company could be materially adversely
affected.
Dependence on Suppliers of Components and Sub-Assemblies; Component
Shortages. Each of the Company and its manufacturing partner, MKE, are dependent
on qualified suppliers for components and sub-assemblies, including recording
heads, media, and integrated circuits, which are essential to the manufacture of
the Company's disk drive and tape drive products. In connection with certain
products, the Company and MKE qualify only a single source for certain
components and sub-assemblies, which can magnify the risk of shortages.
Component shortages have constrained the Company's sales growth in the past, and
the Company believes that the industry will periodically experience component
shortages. For example, during the quarter ended June 29, 1997, the Company's
ability to meet customer demand for its tape drive products was somewhat
constrained by component availability. If component shortages occur, or if the
Company experiences quality problems with component suppliers, shipments of
products could be significantly delayed or costs significantly increased, which
would have a material adverse effect on the Company.
Risks Associated with Foreign Manufacturing. Many of the Company's products
are currently manufactured outside the United States. As a result, the Company
is subject to certain risks associated with contracting with foreign
manufacturers, including obtaining requisite United States and foreign
governmental permits and approvals, currency exchange fluctuations, currency
restrictions, political instability, labor problems, trade restrictions, and
changes in tariff and freight rates.
Foreign Exchange Contracts. The Company manages the impact of foreign
currency exchange rate changes on certain foreign currency receivables and
payables using foreign currency forward exchange contracts. With this approach
the Company expects to minimize the impact of changing foreign exchange rates on
the Company's net income. However, there can be no assurance that all foreign
currency exposures will be adequately managed, and the Company could incur
material charges as a result of changing foreign exchange rates.
Warranty. Quantum generally warrants its products against defects for a
period of one to five years. A provision for estimated future costs relating to
warranty expense is recorded when products are shipped. The actual warranty
expenditures could have a material unfavorable impact on the Company if the
actual rate of unit failure or the cost to repair a unit is greater than what
the Company has used in estimating the warranty expense accrual.
Intellectual Property Matters. From time to time, the Company is approached
by companies and individuals alleging Quantum's need for a license under
patented technology that Quantum assertedly uses. If required, there can be no
assurance that licenses to any such technology could be obtained or obtained on
commercially reasonable terms. Adverse resolution of any intellectual property
litigation could subject the Company to substantial liabilities and require it
to refrain from manufacturing certain products. In addition, the costs of
engaging in such litigation may be substantial, regardless of the outcome.
Future Capital Needs. The information storage industry is capital and
research and development intensive and the Company will need to maintain
adequate financial resources for capital expenditures, working capital, and
research and development, in order to remain competitive in the information
storage business. The Company believes that it will be able to fund these
capital requirements at least through fiscal 1998. However, if the Company
decides to increase its capital
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expenditures further, or sooner than presently contemplated, or if results of
operations do not meet the Company's expectations, the Company could require
additional debt or equity financing. There can be no assurance that such
additional funds will be available to the Company or will be available on
favorable terms. The Company may also require additional capital for other
purposes not presently contemplated. If the Company is unable to obtain
sufficient capital, it could be required to curtail its capital equipment and
research and development expenditures, which could adversely affect the Company.
Subordination. The Notes will be unsecured and subordinated in right of
payment in full to all existing and future Senior Indebtedness (as defined) of
the Company, including the Company's existing revolving credit facility. As a
result of such subordination, in the event of the Company's liquidation or
insolvency, payment default with respect to Senior Indebtedness, a covenant
default with respect to Designated Senior Indebtedness (as defined), or upon
acceleration of the Notes due to an event of default, 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 are obligations exclusively of the Company. Since the operations
of the Company are partially conducted through subsidiaries, the cash flow and
the consequent ability to service debt, including the Notes, of the Company, are
partially dependent upon the earnings of its subsidiaries and the distribution
of those earnings to, or upon loans or other payments of funds by those
subsidiaries to, the Company. The payment of dividends and the making of loans
and advances to the Company by its subsidiaries are subject to statutory or
contractual restrictions, are dependent upon the earnings of those subsidiaries
and are subject to various business considerations. Any right of the Company to
receive assets of any of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in which
case the claims of the Company would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company.
As of June 29, 1997, the Company had approximately $249 million of
outstanding indebtedness and other liabilities that would have constituted
Senior Indebtedness (including approximately $163 million notional amount of
foreign exchange contracts and approximately $86 million of contingent
reimbursement obligations under outstanding letters of credit). As of June 29,
1997, the Company's subsidiaries had approximately $477 million of outstanding
indebtedness and other liabilities (including trade payables and excluding
intercompany liabilities) as to which the Notes would have been effectively
subordinated. 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 its subsidiaries. The incurrence of additional indebtedness and
other liabilities by the Company or its subsidiaries could adversely affect the
Company's ability to pay its obligations on the Notes. The Company expects from
time to time to incur additional indebtedness and other liabilities, including
Senior Indebtedness, and also expects that its subsidiaries will from time to
time incur additional indebtedness and other liabilities. See "Description of
Notes -- Subordination of Notes."
Limitations on Redemption of Notes. The Company's ability to redeem Notes
upon the occurrence of a Fundamental Change is subject to limitations. There can
be no assurance that the Company would have the financial resources, or would be
able to arrange financing, to pay the redemption price for all the Notes that
might be delivered by Holders of Notes seeking to exercise the redemption right.
The terms of the Company's existing revolving credit agreement prohibit the
redemption of Notes by the Company or its subsidiaries, and the Company's
ability to redeem Notes may be limited or prohibited by the terms of any future
borrowing arrangements, including Senior Indebtedness existing at the time of a
Fundamental Change. The Company's ability to redeem Notes may also be limited by
the terms of its subsidiaries' then-existing borrowing arrangements due to
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dividend restrictions. Any failure by the Company to redeem the Notes when
required following a Fundamental Change would result in an Event of Default
under the Indenture whether or not such redemption is permitted by the
subordination provisions of the Indenture. Any such default may, in turn, cause
a default under Senior Indebtedness of the Company. Moreover, the occurrence of
a Fundamental Change would result in an Event of Default under the Company's
existing revolving credit agreement and may cause an event of default under the
terms of other Senior Indebtedness of the Company. As a result, in each case,
any redemption of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Indebtedness is paid
in full. In addition, the Company's redemption of the Notes as a result of the
occurrence of a Fundamental Change may be prohibited or limited by, or create an
event of default under, the terms of agreements related to borrowings which the
Company may enter into from time to time, including agreements relating to
Senior Indebtedness. See "Description of Notes -- Redemption at Option of
Holders".
Absence of Public Market for the Notes; Volatility of Prices. The Notes
will be a new issue of securities with no established trading market. The
Underwriter has advised the Company that it currently intends to make a market
in the Notes. The Underwriter is not obligated, however, to make a market in the
Notes, and any such market making may be discontinued at any time at the sole
discretion of the Underwriter without notice. There can be no assurance that an
active market for the Notes will develop and continue upon completion of the
offering or that the market price of the Notes will not decline. Various factors
such as changes in prevailing interest rates or changes in perceptions of the
Company's creditworthiness could cause the market price of the Notes to
fluctuate significantly. The trading price of the Notes will also be
significantly affected by the market price of the Common Stock, which could be
subject to wide fluctuations in response to a variety of factors, including
those described above.
The market price of the Common Stock has been, and may continue to be,
extremely volatile. Factors such as new product announcements by the Company or
its competitors; quarterly fluctuations in the operating results of the Company,
its competitors, and other technology companies; and general conditions in the
computer market may have a significant impact on the market price of the common
stock. In particular, if the Company were to report operating results that did
not meet the expectations of the analysts, the market price of the Common Stock
could be materially adversely affected.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes
offered hereby, after deducting underwriting discount and other expenses of the
offering payable by the Company, are estimated to be approximately $244 million
($281 million if the Underwriter's over-allotment option is exercised in full).
The Company intends to use the net proceeds from this offering for general
corporate purposes, including working capital, capital expenditures and research
and development.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at June
29, 1997 and as adjusted to give effect to the sale of the Notes offered hereby
(assuming the over-allotment option granted to the Underwriter is not
exercised). The financial data at June 29, 1997 in the following table is
derived from the Company's unaudited condensed consolidated financial statements
for the three months ended June 29, 1997.
JUNE 29, 1997
--------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
Long-term debt:
7% Convertible Subordinated Notes due 2004...................... $ -- $ 250,000
5% Convertible Subordinated Notes due 2003...................... 241,350 241,350
Other long-term debt, excluding current portion................. 40,694 40,694
------- -------
Total long-term debt......................................... 282,044 532,044
Redeemable preferred stock, $.01 par value, 90,000 shares
issued.......................................................... 3,888 3,888
Shareholders' equity:
Preferred stock, $.01 par value; 4,000,000 shares authorized;
90,000 redeemable shares issued and outstanding and as
adjusted(1).................................................. -- --
Common stock, $.01 par value; 500,000,000 shares authorized;
132,226,790 shares issued and outstanding and as
adjusted(1).................................................. 1,322 1,322
Capital in excess of par value.................................. 471,574 471,574
Retained earnings............................................... 522,906 522,906
------- -------
Total shareholders' equity................................... 995,802 995,802
------- -------
Total capitalization.................................... $1,281,734 $ 1,531,734
======= =======
- ---------------
(1) Does not include (i) 9,683,500 shares of Common Stock available for grant or
issuance under the Company's stock option and stock purchase plans, (ii)
19,742,641 shares of Common Stock issuable upon exercise of outstanding
options as of June 29, 1997, (iii) 21,626,344 shares of Common Stock
reserved for issuance upon conversion of the 5% Convertible Subordinated
Notes due 2003, (iv) 180,000 shares of Common Stock reserved for issuance
upon conversion of the Redeemable Preferred Stock, and (v) 5,396,655 shares
of Common Stock reserved for issuance upon conversion of the Notes offered
hereby.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed and traded on the Nasdaq National
Market under the symbol "QNTM". The following table shows, for the periods
indicated, the high and low closing prices on the Nasdaq National Market. All
stock prices have been restated to reflect a two-for-one stock split effected in
the form of a stock dividend to stockholders of record as of May 27, 1997.
HIGH LOW
---- ---
FISCAL YEAR ENDED MARCH 31, 1996
First quarter............................................................ $13 5/32 $ 7 1/2
Second quarter........................................................... 13 25/32 10 7/16
Third quarter............................................................ 10 7/16 8 1/16
Fourth quarter........................................................... 9 15/16 8 5/16
FISCAL YEAR ENDED MARCH 31, 1997
First quarter............................................................ $13 $ 7 1/32
Second quarter........................................................... 9 3/16 5 1/2
Third quarter............................................................ 14 7/8 8 21/32
Fourth quarter........................................................... 22 17/32 13 3/4
FISCAL YEAR ENDED MARCH 31, 1998
First quarter (through July 28, 1997).................................... $24 9/16 $17 7/8
On July 28, 1997, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $27.25 per share. As of July 25, 1997, there were
approximately 1,955 holders of record of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock and has no
plans to pay cash dividends on its Common Stock in the foreseeable future. In
addition, the Company is prohibited by certain of its borrowing arrangements
from paying cash dividends without the prior written consent of the lender.
S-14
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth in the table below for
each of the five years in the period ended March 31, 1997 have been derived
from, and are qualified by reference to, the audited consolidated financial
statements previously filed with the Commission. The consolidated statement of
operations for the three months ended June 30, 1996 and June 29, 1997, and the
selected consolidated balance sheet data as of June 29, 1997 are derived from
unaudited condensed consolidated financial statements and the accounting records
of the Company, and, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operations for interim
periods. The following information should be read in conjunction with the
consolidated financial statements and related notes of the Company included, or
incorporated by reference, in its reports filed under the Exchange Act that are
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
THREE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, -----------------------
-------------------------------------------------------------- JUNE 30, JUNE 29,
1993 1994 1995(1) 1996(2) 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED STATEMENT OF OPERATING
DATA:
Sales................................ $1,697,240 $2,131,054 $3,367,984 $4,422,726 $5,319,457 $1,153,502 $1,446,144
Cost of Sales........................ 1,374,422 1,892,211 2,804,271 3,880,309 4,550,716 1,012,223 1,170,210
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit......................... 322,818 238,843 563,713 542,417 768,741 141,279 275,934
Operating expenses:
Research and development........... 63,019 89,837 169,282 239,116 291,332 66,665 74,029
Sales and marketing................ 77,085 74,015 108,290 142,413 149,371 36,195 41,732
General and administrative......... 33,849 41,910 52,134 65,145 86,507 21,487 27,473
Purchased research and development
and in merger costs.............. -- -- 72,945 -- -- -- --
Restructuring and non-recurring
charges.......................... -- 22,753 -- 209,122 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
173,953 228,515 402,651 655,796 527,210 124,347 143,234
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss).............. 148,865 10,328 161,062 (113,379) 241,531 16,932 132,700
Interest and other income (expense),
net................................ (2,286) (6,665) (15,757) (27,959) (40,835) 11,739 2,276
Income tax provision (benefit)....... 52,768 989 63,714 (50,882) 52,181 1,350 33,910
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 93,811 $ 2,674 $ 81,591 $ (90,456) $ 148,515 $ 3,843 $ 96,514
========== ========== ========== ========== ========== ========== ==========
Net Income (loss) per share, fully
diluted(3)......................... $ .89 $ .03 $ .76 $ (0.87) $ 1.03 $ .03 $ .61
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to fixed
charges(4)......................... 9.6x 1.2x 6.0x -- 4.5x 1.4x 16.9x
MARCH 31,
-------------------------------------------------------------- JUNE 29,
1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- ---------- -----------------------
SELECTED CONSOLIDATED BALANCE SHEET
DATA:
Total assets......................... $ 926,633 $ 997,438 $1,481,028 $1,975,355 $2,158,263 $2,113,430
Current liabilities.................. 315,895 373,666 644,041 821,142 815,578 797,432
Long-term debt, excluding current
portion, and redeemable preferred
stock.............................. 212,500 212,500 327,500 598,158 422,906 285,932
Stockholders' equity................. 398,238 411,272 509,487 544,823 886,192 995,802
- ---------------
(1) On October 15, 1994, Quantum acquired portions of Digital Equipment
Corporation's business. The acquisition is not reflected in the financial
statements prior to fiscal 1995, thus the results for fiscal 1995 and
thereafter are not comparable to the results prior to fiscal 1995.
(2) The results of operations for fiscal 1996 include the effect of a $209
million charge related to the transition of manufacturing of the Company's
high capacity products to MKE.
(3) Per share amounts reflect the two-for-one stock split effected June 1997.
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before income taxes, plus fixed charges and fixed charges
consist of interest expense incurred and the estimated portion of rental
expense deemed by the Company to be representative of the interest factor of
rental payments under operating leases. Earnings for fiscal 1996 were
insufficient to cover fixed charges by $141.3 million.
S-15
DESCRIPTION OF NOTES
The Notes will be issued under the Subordinated Indenture to be dated as of
August 1, 1997, as supplemented by the Supplemental Indenture to be dated as of
August 1, 1997 (the "Supplemental Indenture", and the Subordinated Indenture, as
supplemented by the Supplemental Indenture, is hereinafter referred to as the
"Indenture"). The following discussion includes a summary description of
material terms of the Supplemental Indenture and the Notes (which represent a
series of, and are referred to in the accompanying Prospectus as, "Debt
Securities"). The following description of the terms of the Notes offered hereby
supplements and to the extent inconsistent therewith supercedes the statements
under "Description of Debt Securities" in the accompanying Prospectus, to which
description reference is hereby made. The following summary does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Subordinated Indenture and the Supplemental
Indenture. Capitalized terms not defined herein have the meanings given to them
in the Subordinated Indenture and the Supplemental Indenture. References in this
section to the "Company" are solely to Quantum Corporation, a Delaware
corporation, and not to its subsidiaries.
GENERAL
The Notes will 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 will be limited to $250,000,000
aggregate principal amount ($287,500,000 if the Underwriter's over-allotment
option is exercised in full), will be issued only in denominations of $1,000 or
any multiple thereof and will mature on August 1, 2004, unless earlier redeemed
at the option of the Company or at the option of the holder upon a Fundamental
Change (as defined below).
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness or the issuance
or repurchase of securities of the Company. The Indenture contains no covenants
or other provisions to afford protection to Holders of Notes in the event of a
highly leveraged transaction or a change in control of the Company except to the
extent described under "Redemption at Option of Holders."
The Notes will bear interest at the annual rate set forth on the cover page
hereof from August 1, 1997, payable semi-annually on February 1 and August 1,
commencing on February 1, 1998, to holders of record at the close of business on
the preceding January 15 and July 15, 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 may, at the
Company's option, be paid by check mailed to such Holders, provided that a
Holder with an aggregate principal amount in excess of $5,000,000 will be paid
by wire transfer in immediately available funds at the election of such Holder.
Interest will be computed on the basis of a 360-day year composed of twelve
30-day months.
Principal and premium, if any, will be payable, and the Notes may be
presented for conversion, registration of transfer and exchange, without service
charge, at the office of the Company maintained for such purpose in New York,
New York, which shall initially be an office or agency of the Trustee.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of a Global Security held in
book-entry form. Accordingly, The Depository Trust Company ("DTC") or its
nominee will be the sole registered Holder of the Notes for all purposes under
the Indenture. Owners of beneficial interests in the Notes represented by the
Global Security will hold such interests pursuant to the procedures and
practices of DTC and must exercise any rights in respect of their interests
(including any right to convert or require repurchase of their interests) in
accordance with those procedures and practices. Such
S-16
beneficial owners will not be Holders, and will not be entitled to any rights
under the Global Security or the Indenture, with respect to the Global Security,
and the Company and the Trustee, and any of their respective agents, may treat
DTC as the sole Holder and owner of the Global Security.
CONVERSION OF NOTES
The Holders of any Note will have the right, at the Holder's option, to
convert any portion of the principal amount of any Note that is an integral
multiple of $1,000 into shares of Common Stock at any time on or prior to the
close of business on the maturity date, unless previously redeemed, at the
conversion price set forth on the cover page of this Prospectus Supplement
(equivalent to a conversion rate of approximately 21.587 shares per $1,000
principal amount of Notes), subject to adjustment as described below. Except as
described below, no adjustment will be made on conversion of any Notes for
interest accrued thereon or for dividends on any Common Stock issued. Any Note
surrendered for conversion during the period from the close of business on any
record date to the opening of business on the next succeeding interest payment
date (except Notes and portions thereof called for redemption on a redemption
date during the period from the close of business on a record date and ending on
the opening of business on the first business day after the next succeeding
interest payment date, or if such interest payment date is not a business day,
the second such business day) 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 trading day prior to the
day 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 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 initial conversion price of $46.325 per share of Common Stock is
subject to adjustment (under formulae set forth in the Indenture) in certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (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 shares of capital stock of the
Company (other than Common Stock) or evidences of indebtedness of the Company or
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 daily Closing Prices (as defined) of the Common Stock for the ten
consecutive Trading Days (as defined) immediately prior to the date of
declaration of such dividend, and excluding any dividend or distribution in
connection with the liquidation, dissolution of such dividend, and excluding any
dividend or distribution in connection with the liquidation, dissolution or
winding up of the Company; (vi) payment in respect of a tender 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 exceed 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. If an adjustment is
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required to be made as set forth in clause (v) above as a result of a
distribution that is a quarterly dividend, such adjustment would be based upon
the amount by which such distribution exceed the amount of the quarterly cash
dividend permitted to be excluded pursuant to such clause (v). If an adjustment
is required to be made as set forth in clause (v) above as a result of a
distribution that is not a quarterly dividend, such adjustment would be based
upon the full amount of the distribution. The adjustment referred to in clause
(vii) above will only be made if the tender offer or exchange offer is for an
amount which increases that person'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 clause (vii)
above will 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.
In the event that the Rights (as defined) are separated from the Common
Stock in accordance with the provisions of the Company's Rights Agreement (as
defined) such that the Holders would thereafter not be entitled to receive any
such Rights in respect to the Common Stock issuable upon conversion of such
Notes, the conversion price of the Notes will be adjusted as provided in clause
(iv) of the preceding paragraph (subject to readjustment in the event of the
expiration, termination or redemption of the Rights). In lieu of any such
adjustment, the Company may amend the Rights Agreement or provide that upon
conversion of the Notes the Holders will receive, in addition to the Common
Stock issuable upon such conversion, the rights which would have attached to
such shares of Common Stock if the Rights had not become separated from the
Common Stock pursuant to the provisions of the Rights Agreement. See
"Description of Capital Stock -- Stockholder Rights Plan" in the accompanying
Prospectus.
In the case of (i) any reclassification or change 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 be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets (including cash) which they would
have owned or been entitled to receive upon such reclassification, change,
consolidation, merger, combination, sale or conveyance had such Notes been
converted into Common Stock immediately prior to such reclassification, change,
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 (including cash) receivable in connection
therewith.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, 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.
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 rights to acquire
S-18
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.
SUBORDINATION OF NOTES
The payment of the principal of, premium, if any, and interest on the Notes
and any amounts payable upon the redemption of the Notes will be subordinated in
right of payment to the extent set forth in the Indenture to the prior payment
in full of the principal of, premium, if any, interest and other amounts in
respect of all existing and future Senior Indebtedness of the Company. See
"Description of Debt Securities -- Subordination of Subordinated Debt
Securities" in the accompanying Prospectus.
The Notes will be structurally subordinated to all indebtedness and other
liabilities (including trade payables) of the Company's subsidiaries, as any
right of the Company to receive any assets of its subsidiaries upon their
liquidation or reorganization (and the consequent right of the Holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of the subsidiary's creditors (including trade creditors), except to the
extent that the Company itself is recognized as a creditor of such subsidiary,
in which case the claims of the Company would still be subordinate to any
security interest in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company.
As of June 29, 1997, the Company had approximately $249 million of
outstanding indebtedness and other liabilities that would have constituted
Senior Indebtedness (including approximately $163 million notional amount of
foreign exchange contracts and approximately $86 million of contingent
reimbursement obligations under outstanding letters of credit). As of June 29,
1997, the Company's subsidiaries had approximately $477 million of outstanding
indebtedness and other liabilities (including trade payables and excluding
intercompany liabilities) as to which the Notes would have been effectively
subordinated.
The Indenture does not limit the Company's or its subsidiaries' ability to
incur Senior Indebtedness or any other indebtedness or liabilities. The Company
expects from time to time to incur additional indebtedness and other
liabilities, including Senior Indebtedness, and also expects that its
subsidiaries will from time to time incur additional indebtedness and other
liabilities. See "Risk Factors -- Subordination."
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable by the Company prior to August 1, 1999. On or
after August 1, 1999, and prior to August 1, 2001, the Notes will not be
redeemable at the option of the Company unless the closing price of the Common
Stock shall have exceeded 125% of the then applicable conversion price for 20
trading days within a period of 30 consecutive trading days ending within five
trading days prior to the notice of redemption. Subject to the foregoing, the
Notes will be redeemable on at least 15 days' notice at the option of the
Company, in whole or in part, any time, at
S-19
the following prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning August 1:
REDEMPTION
YEAR PRICE
------------------------------------------------- ----------
1999............................................. 105%
2000............................................. 104
2001............................................. 103
2002............................................. 102
2003............................................. 101
and 100% at August 1, 2004, in each case together with accrued interest to, but
excluding, the date fixed for redemption, provided that any semi-annual payment
of interest becoming due on the date fixed for redemption shall be payable to
the Holders of record on the relevant record date of the Notes being redeemed.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed by lot or, in its discretion, on a pro rata basis. If any
Note is to be redeemed in part only, a new Note or Notes in principal amount
equal to the unredeemed principal portion thereof will be issued. If a portion
of a Holder's Notes are selected for partial redemption and such Holder converts
a portion of such Notes, such converted portion shall be deemed to be taken from
the portion selected for redemption.
No sinking fund is provided for the Notes.
REDEMPTION AT OPTION OF HOLDERS
If, at any time prior to August 1, 2004, there occurs a Fundamental Change,
each Holder of Notes shall have the right, at the Holder's option, to require
the Company to redeem all of such Holder's Notes or portions thereof (in
denominations of $1,000 or multiples thereof) on the date (the "Repurchase
Date") that is 30 days after the date of the Company's notice of such
Fundamental Change referred to below.
The Company shall redeem such Notes at a price (expressed as a percentage
of the principal amount) equal to (i) 107% if the Repurchase Date is during the
12-month period beginning August 1, 1997, (ii) 106% if the Repurchase Date is
during the 12-month period beginning August 1, 1998 and (iii) thereafter at the
redemption price set forth under "Optional Redemption by the Company" which
would be applicable to a redemption at the option of the Company on the
Repurchase Date; 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 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 February 1 or August 1, then the interest payable on such date shall be
paid to the Holder of record of the Note on the relevant record date.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Stock
shall be exchanged for, converted into, acquired for or constitute solely the
right to receive consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, 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. The term "Applicable Price" means (i) in the event of a Fundamental
Change in which the holders of 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 arithmetic average of
S-20
the closing 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 initially mean $18.16667 (which is equal
to 66 2/3% of the last sale price of the Common Stock on July 28, 1997, as
reflected on the cover page of this Prospectus Supplement) 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
$18.16667 to the conversion price specified on the cover page of this Prospectus
Supplement (without regard to any adjustment thereto).
On or before the 10th day after the occurrence of a Fundamental Change, the
Company or at its request, the Trustee, is required to notify by mail all
Holders of record of the Notes of the occurrence of such Fundamental Change and
of the redemption rights arising as a result thereof. The Company is also
required to deliver a copy of such notice to the Trustee. To exercise the
redemption right, Holders of Notes must deliver written notice of the Holders'
exercise of such right, together with the Notes with respect to which the right
is being exercised, duly endorsed for transfer, to the Company (or an agent
designated by the Company for such purpose) on or before the Repurchase Date.
Payment for Notes surrendered for redemption (and not withdrawn) prior to the
Repurchase Date will be made promptly following the Repurchase Date.
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 holders of the Notes in the event of a
Fundamental Change.
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 substantially increase the amount of Senior
Indebtedness outstanding at such time. The payment of the Fundamental Change
redemption price of the Notes is subordinated to the prior payment of Senior
Indebtedness as described under "Subordination of Notes" above.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect Holders.
The Fundamental Change redemption feature of the Notes may in certain
circumstances make more difficult or discourage a merger, consolidation or
tender offer (even if such transaction is supported by the Company's Board of
Directors or is favorable to the stockholders), the assumption of control by a
holder of a large block of the Company's shares, and the removal of incumbent
management. The Fundamental Change purchase redemption, however, is not the
result of management's knowledge of any specific effort to accumulate the
Company's stock or to obtain control of the Company by means of a merger,
consolidation or tender offer or otherwise, or part of a plan by management to
adopt a series of antitakeover provisions. Instead, the Fundamental Change
redemption feature is a result of negotiations between the Company and the
Underwriter. Management has no current intention to engage in a transaction
involving a Fundamental Change, although it is possible that the Company could
decide to do so in the future. Subject to certain limitations, the Company
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Fundamental
Change under the Indenture, but that could increase the amount of indebtedness
(including Senior Indebtedness) outstanding at such time or otherwise affect the
Company's capital structure or credit ratings, or substantially reduce or
eliminate the Company's assets. The payment of the redemption price in the event
of a Fundamental Change is subordinated to the prior payment of Senior
Indebtedness as described under "-- Subordination of Notes" above.
S-21
The Company's ability to redeem Notes upon the occurrence of a Fundamental
Change is subject to limitations. There can be no assurance that the Company
would have the financial resources, or would be able to arrange financing, to
pay the redemption price for all the Notes that might be delivered by Holders of
Notes seeking to exercise the redemption right. The terms of the Company's
existing revolving credit agreement prohibit the redemption of Notes by the
Company or its subsidiaries, and the Company's ability to redeem Notes may be
limited or prohibited by the terms of any future borrowing arrangements,
including Senior Indebtedness existing at the time of a Fundamental Change. The
Company's ability to redeem Notes may also be limited by the terms of its
subsidiaries' then-existing borrowing arrangements due to dividend restrictions.
Any failure by the Company to redeem the Notes when required following a
Fundamental Change would result in an Event of Default under the Indenture
whether or not such redemption is permitted by the subordination provisions of
the Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Fundamental Change
would result in an event of default under the Company's existing revolving
credit agreement and may cause an event of default under the terms of other
Senior Indebtedness of the Company. As a result, in each case, any redemption of
the Notes would, absent a waiver, be prohibited under the subordination
provisions of the Indenture until the Senior Indebtedness is paid in full. In
addition, the Company's redemption of the Notes as a result of the occurrence of
a Fundamental Change may be prohibited or limited by, or create an event of
default under, the terms of agreements related to borrowings which the Company
may enter into from time to time, including agreements relating to Senior
Indebtedness. See "-- Subordination of Notes" and "Risk
Factors -- Subordination."
DEFEASANCE AND COVENANT DEFEASANCE
The provisions described under "Description of Debt
Securities -- Defeasance and Covenant Defeasance" in the accompanying Prospectus
shall apply to the Notes, except that the Company will not be able to defease
the right of the Holders to convert the Notes.
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as Security Registrar,
transfer agent and conversion agent, acting through its Corporate Trust Office.
The Company reserves the right to vary or terminate the appointment of the
security registrar or of any transfer agent or conversion agent or to appoint
additional or other transfer agents or conversion agents or to approve any
change in the office through which any security registrar or any transfer agent
or conversion agent acts.
PURCHASE AND CANCELLATION
The Company or any subsidiary may at any time and from time to time
purchase Notes at any price in the open market or otherwise.
All Notes surrendered for payment, redemption, registration of transfer or
exchange or conversion shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee. All Notes so delivered to the Trustee
shall be canceled promptly by the Trustee. No Notes shall be authenticated in
lieu of or in exchange for any Notes canceled as provided in the Indenture.
The Company may, to the extent permitted by applicable law, at any time
purchase Notes in the open market or by tender at any price or by private
agreement. Any Note so purchased by the Company may, to the extent permitted by
applicable law, be reissued or resold or may, at the Company's option, be
surrendered to the Trustee for cancellation. Any Notes surrendered as aforesaid
may not be reissued or resold and will be canceled promptly.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss,
S-22
theft or destruction thereof satisfactory to the Company and the Trustee. In the
case of a lost, stolen or destroyed Note, indemnity satisfactory to the Trustee
and the Company may be required at the expense of the Holder of such Note before
a replacement Note will be issued.
GOVERNING LAW
The Subordinated Indenture, the Supplemental Indenture and the Notes will
be governed by, and construed in accordance, with the law of the State of New
York.
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 interpretations of 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, for example, banks, tax-exempt organizations, insurance companies,
dealers in securities or currencies, foreign persons 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 CONSIDERING THE PURCHASE OF NOTES 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.
PAYMENT OF INTEREST
Interest on a Note generally will be includable in the income of a Holder
as ordinary income at the time such interest is received or accrued, in
accordance with such Holder's method of accounting for United States federal
income tax purposes.
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. 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 one year at the time of
sale, exchange or redemption.
S-23
CONVERSION OF THE NOTES
A Holder generally will not recognize any income, gain or loss upon
conversion of a Note into Common Stock (except to the extent the Common Stock is
considered attributable to accrued interest not previously included in income,
which is taxable as ordinary income). A Holder's tax basis in the Common Stock
received on conversion of a Note generally 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. However, a Holder's tax basis on shares of Common Stock
considered attributable to accrued interest as described above generally will
equal the amount of such accrued interest included in income, and the holding
period for such shares shall not include the period the converted Note was held.
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
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.
If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidence of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the antidilution provisions of the Indenture, the
conversion rate of the Notes is increased, or (ii) the conversion rate of the
Notes is increased at the discretion of the Company, such increase in conversion
rate may be deemed to be the payment of a taxable dividend to holders of Notes
(pursuant to Section 305 of the Code). Holders of Notes could therefore have
taxable income as a result of an event pursuant to which they received no cash
or property.
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.
Such capital gain or loss generally will be long-term capital gain or loss
if the holder's holding period in Common Stock is more than one year 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."
S-24
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 to certain noncorporate Holders, and a 31%
backup withholding tax may apply to such payments if the Holder (i) fails to
furnish or certify his correct taxpayer identification number to the payor in
the manner required, (ii) is notified by the IRS that he has failed to report
payments of interest and dividends properly, or (iii) 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.
S-25
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the Underwriter, the
Company has agreed to sell to the Underwriter, and the Underwriter has agreed to
purchase from the Company the principal amounts of the Notes set forth opposite
its name below.
PRINCIPAL
UNDERWRITER AMOUNT
- ----------------------------------------------------------------------------- ------------
Salomon Brothers Inc......................................................... $250,000,000
------------
Total.............................................................. $250,000,000
============
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth herein, that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase the entire principal amount of the Notes offered hereby if
any Notes are purchased.
The Company has been advised by the Underwriter that they propose to offer
the Notes directly to the public initially at the public offering price set
forth on the cover of this Prospectus Supplement, and to certain dealers at such
price less a concession not in excess of 1.35% of the principal amount of the
Notes. After the initial public offering of the Notes, the public offering price
and such concessions may be changed.
The Company has granted the Underwriter an option, exercisable during the
30-day period after the date of this Prospectus Supplement to purchase up to an
additional $37,500,000 principal amount of Notes at the initial public offering
price less the underwriting discount, solely to cover over-allotments. The
Underwriter has also agreed to reimburse the Company for certain expenses
incurred in connection with the offering.
The Company has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Notes offered hereby; however, it is
not obligated to do so. Any market making may be discontinued at any time, and
there can be no assurance that an active public market for the Notes will
develop. The Company intends to apply to list the Notes on the Nasdaq Stock
Market.
No action has been taken or will be taken in any jurisdiction by the
Company or the Underwriter that would permit a public offering of the Notes and
Common Stock offered hereby in any jurisdiction where action for that purpose is
required, other than the United States. Persons who come into possession of this
Prospectus are required by the Company and the Underwriter to inform themselves
about and to observe any restrictions as to the offering of the Notes and Common
Stock offered hereby and the distribution of this Prospectus.
Except for certain exceptions pertaining to employee benefit plans and
outstanding options to purchase Common Stock and the issuance of Common Stock as
consideration in an acquisition of the stock or assets of another entity
(provided that in connection with such acquisitions the number of shares so
issued shall not exceed 5% of the currently outstanding shares of Common Stock),
the Company has agreed that it will not, without the prior written consent of
the Underwriter, for a period of 60 days after the date of this Prospectus
Supplement, directly or indirectly, offer to sell, sell, grant any option for
the sale of or otherwise dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for any shares of Common Stock,
or any right or option to acquire any such shares or securities or offer, sell
or contract to sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, any debt securities issued or guaranteed by the
Company (other than the Notes).
In connection with the offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Notes and Common
Stock. Specifically, the Underwriter may overallot the offering, creating a
syndicate short position. In addition, the Underwriter may bid
S-26
for and purchase shares of Notes and Common Stock in the open market to cover
syndicate short positions or to stabilize the price of the Notes and Common
Stock. Finally, the underwriting syndicate may reclaim selling concessions from
syndicate members in the offering, if the syndicate repurchases previously
distributed Notes and Common Stock in syndicate covering transactions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Notes and Common Stock, above independent
market levels. The Underwriter is not required to engage in these activities,
and may end any of these activities at any time.
In the ordinary course of their respective businesses, the Underwriter has
engaged in and may in the future engage in investment banking activities with
the Company.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California and for the Underwriter by Munger, Tolles & Olson LLP, Los
Angeles, California.
S-27
PROSPECTUS
$450,000,000
QUANTUM LOGO
DEBT SECURITIES AND COMMON STOCK
------------------------
Quantum Corporation ("Quantum" or the "Company") may from time to time
offer, together or separately, (1) its debt securities (the "Debt Securities"),
which may be either senior debt securities (the "Senior Debt Securities") or
subordinated debt securities (the "Subordinated Debt Securities") and (2) shares
of its common stock, par value $0.01 per share (the "Common Stock"). The Debt
Securities and the Common Stock are collectively referred to herein as the
"Securities".
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuances and will be limited to $450,000,000 aggregate public
offering price (or its equivalent (based on the applicable exchange rate at the
time of the sale) in one or more foreign currencies, currency units or composite
currencies as shall be designated by the Company). Certain specific terms of the
particular Securities in respect of which this Prospectus is being delivered
will be set forth in an accompanying Prospectus Supplement (the "Prospectus
Supplement"), including, where applicable, (i) in the case of Debt Securities,
the specific title, aggregate principal amount, the denomination, whether such
Debt Securities are secured or unsecured obligations, whether such Debt
Securities are senior or subordinated, maturity, premium, if any, the interest
rate (which may be fixed, floating or adjustable), the time and method of
calculating payment of interest, if any, the place or places where principal of
(and premium, if any) and interest, if any, on such Debt Securities will be
payable, the currency in which principal of (and premium, if any) and interest,
if any, on such Debt Securities will be payable, any terms of redemption at the
option of the Company or the Holder, any sinking fund provisions, terms for any
conversion or exchange into Securities or other securities of the Company
(provided, however, that any such other securities issuable upon exchange or
conversion of Debt Securities will be subject to registration under the
Securities Act or an applicable exemption therefrom) or property, the initial
public offering price and other special terms and (ii) in the case of Common
Stock, the number of shares offered for sale by the Company and the initial
public offering price or method of determining the initial public offering
price. If so specified in the applicable Prospectus Supplement, Debt Securities
of a series may be issued in whole or in part in the form of one or more
temporary or permanent global securities. The Company's Common Stock is listed
on the Nasdaq National Market under the symbol "QNTM". Any Common Stock sold
pursuant to a Prospectus Supplement will be quoted on such market.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities, when issued, will be unsecured and will rank equally with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities, when issued, will be subordinated in right of payment to all Senior
Indebtedness (as defined) of the Company, including any outstanding Senior Debt
Securities. See "Description of Debt Securities -- Subordination of Subordinated
Debt Securities".
The Prospectus Supplement may contain information concerning U.S. federal
income tax considerations, if applicable to the Securities offered.
The Securities may be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. See "Plan of Distribution". If agents of the Company or any dealers or
underwriters are involved in the sale of the Securities in respect of which the
Prospectus is being delivered, the names of such agents, dealers or underwriters
and any applicable commissions or discounts, if any, are set forth in or may be
calculated from the Prospectus Supplement with respect to such Securities.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
SEE "RISK FACTORS" ON PAGE 3 OF THIS PROSPECTUS FOR A DESCRIPTION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE SECURITIES.
------------------------
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 JULY 24, 1997.
AVAILABLE INFORMATION
The Company is subject to the information 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, NW, Washington, D.C. 20549, and at
the Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 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, 450 Fifth Street, NW, 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
regarding registrants that file electronically with the Commission. The address
of the World Wide Web site is http://www.sec.gov. The Common Stock is quoted on
the Nasdaq National Market. Reports, proxy and information statements and other
information concerning the Company may be inspected at the offices of the Nasdaq
Stock Market at 1735 K Street, NW, Washington, D.C. 2001.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities. This Prospectus which
constitutes part of the Registration Statement does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement and the exhibits and the
financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission at the addresses set forth above or
through the Commission's World Wide Web site.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance are
qualified in all respects by reference to the copy of such contract or document
filed as an exhibit to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997;
(b) The Company's Registration Statement on Form 8-A filed with the
Commission on August 1, 1983, relating to the Company's Common Stock; and
(c) The Company's Registration Statement on Form 8-A filed with the
Commission on August 5, 1988, relating to the Company's Preferred Share
purchase rights.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Registration Statement of which
this Prospectus forms a part and prior to the termination of the offering of the
Securities offered hereby shall be deemed to be incorporated by reference into
this Prospectus and be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement or this Prospectus to the extent that
a statement contained herein, in a Prospectus Supplement or in any other
document subsequently filed with the Commission which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
2
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement or this
Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Investor Relations, Quantum Corporation, 500 McCarthy Boulevard,
Milpitas, California 95035, telephone (408) 894-4000.
THE COMPANY
Quantum Corporation ("Quantum" or the "Company") designs, develops and
markets mass storage products, including high-performance, high quality hard
disk drives, recording heads and tape drives. The Company was incorporated as a
California corporation in February 1980, and reincorporated as a Delaware
corporation in April 1987. The Company's principal executive offices are located
at 500 McCarthy Boulevard, Milpitas, California 95035, and its telephone number
is (408) 894-4000.
RISK FACTORS
Prior to making an investment decision with respect to the Securities
offered hereby, prospective investors should carefully consider the specific
factors set forth under the caption "Risk Factors" in the applicable Prospectus
Supplement pertaining thereto, together with all of the other information
appearing herein or therein or incorporated by reference herein, in light of
their particular investment objectives and financial circumstances.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying Prospectus Supplement, the
net proceeds to be received by the Company from the sale of the Securities will
be used for general corporate purposes, including capital expenditures and to
meet working capital needs. Pending such uses, the Company will invest the net
proceeds in interest-bearing securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company and its consolidated subsidiaries for the periods indicated. For
purposes of calculating the ratio of earnings to fixed charges, earnings consist
of income before income taxes, plus fixed charges and fixed charges consist of
interest expense incurred and the estimated portion of rental expense deemed by
the Company to be representative of the interest factor of rental payments under
operating leases.
FISCAL YEAR ENDED MARCH 31,
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Ratio of Earnings to Fixed
Charges(1).......................... 4.5x -- 6.0x 1.2x 9.6x
- ---------------
(1) Earnings for fiscal 1996 were insufficient to cover fixed charges by $141.3
million.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture (the "Senior
Indenture"), between the Company, as issuer, and LaSalle National Bank, as
Trustee (the "Trustee"). The Subordinated Debt Securities are to be issued under
a separate Indenture (the "Subordinated
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Indenture"), also between the Company, as issuer, and LaSalle National Bank, as
Trustee. The Senior Indenture and Subordinated Indenture are sometimes referred
to collectively as the "Indentures". A copy of the form of each Indenture is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series, or of Debt Securities forming a part of a
series, which are offered by a Prospectus Supplement will be described in such
Prospectus Supplement.
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject, and are qualified in their entirety by
reference, to all the provisions of the Indentures, including the definitions
therein of certain terms, and, with respect to any particular Debt Securities,
to the description of the terms thereof included in the Prospectus Supplement
relating thereto. Wherever particular Sections or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections
or defined terms are incorporated by reference herein or therein, as the case
may be.
GENERAL
The Indentures will provide that Debt Securities in separate series may be
issued thereunder from time to time without limitation as to aggregate principal
amount. The Company may specify a maximum aggregate principal amount for the
Debt Securities of any series. (Section 301) The Debt Securities are to have
such terms and provisions which are not inconsistent with the Indentures,
including as to maturity, principal and interest, as the Company may determine.
Unless otherwise specified in the applicable Prospectus Supplement, the Senior
Debt Securities when issued will be unsecured and unsubordinated obligations of
the Company and will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Company. The Subordinated Debt Securities
when issued will be subordinated in right of payment to the prior payment in
full of all Senior Indebtedness of the Company, including any outstanding Senior
Debt Securities, as described under "Subordination of Subordinated Debt
Securities" and in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will set forth whether the Debt
Securities offered shall be Senior Debt Securities or Subordinated Debt
Securities, the price or prices at which the Debt Securities to be offered will
be issued and will describe the following terms of such Debt Securities: (1) the
title of such Debt Securities; (2) any limit on the aggregate principal amount
of such Debt Securities or the series of which they are a part; (3) the Person
to whom any interest on a Debt Security of the series shall be payable, if other
than the Person in whose name that Debt Security (or one or more predecessor
Debt Securities) is registered at the close of business on the Regular Record
Date for such interest; (4)the date or dates on which the principal of any of
such Debt Securities will be payable; (5) the rate or rates at which any of such
Debt Securities will bear interest, if any, the date or dates from which any
such interest will accrue, the Interest Payment Dates on which any such interest
will be payable and the Regular Record Date for any such interest payable on any
Interest Payment Date; (6) the place or places where the principal of and any
premium and interest on any of such Debt Securities will be payable; (7) the
period or periods within which, the price or prices at which, and the terms and
conditions on which any of such Debt Securities may be redeemed, in whole or in
part, at the option of the Company; (8) the obligation, if any, of the Company
to redeem or purchase any of such Debt Securities pursuant to any sinking fund
or analogous provision or at the option of the Holder thereof, and the period or
periods within which, the price or prices at which, and the terms and conditions
on which any of such Debt Securities will be redeemed or purchased, in whole or
in part, pursuant to any such obligation; (9) the denominations in which any of
such Debt Securities will be issuable, if other than denominations of $1,000 and
any integral multiple thereof; (10) if the amount of principal of or any premium
or interest on any of such Debt Securities may be determined with reference to
an index or pursuant to a formula, the manner in which such amounts will be
determined; (11) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any premium
or interest on any of such Debt Securities will be payable (and the
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manner in which the equivalent of the principal amount thereof in the currency
of the United States of America is to be determined for any purpose, including
for the purpose of determining the principal amount deemed to be Outstanding at
any time); (12) if the principal of or any premium or interest on any of such
Debt Securities is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than those in which
such Debt Securities are stated to be payable, the currency, currencies or
currency units in which payment of any such amount as to which such election is
made will be payable, the periods within which and the terms and conditions upon
which such election is to be made and the amount so payable (or the manner in
which such amount is to be determined); (13) if other than the entire principal
amount thereof, the portion of the principal amount of any of such Debt
Securities which will be payable upon declaration of acceleration of the
Maturity thereof; (14) if the principal amount payable at the Stated Maturity of
any of such Debt Securities will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which will be deemed to be such
principal amount as of any such date for any purpose, including the principal
amount thereof which will be due and payable upon any Maturity other than the
Stated Maturity or which will be deemed to be Outstanding as of any such date
(or, in any such case, the manner in which such deemed principal amount is to be
determined); (15) if applicable, that such Debt Securities, in whole or any
specified part, are defeasible pursuant to the provisions of the Indentures
described under "Defeasance and Covenant Defeasance-Defeasance and Discharge" or
"Defeasance and Covenant Defeasance-Defeasance of Certain Covenants," or under
both such captions; (16) if applicable, the terms of any right to convert or
exchange the Debt Securities into Securities or other securities of the Company
(provided, however, that any such other securities issuable upon conversion or
exchange of Debt Securities will be subject to registration under the Securities
Act or an applicable exemption therefrom) or property; (17) whether any of such
Debt Securities will be issuable in whole or in part in the form of one or more
Global Securities and, if so, the respective Depositaries for such Global
Securities, the form of any legend or legends to be borne by any such Global
Security in addition to or in lieu of the legends referred to under "Form,
Exchange and Transfer" or "Global Securities" and, if different from those
described under such captions, any circumstances under which any such Global
Security may be exchanged in whole or in part for Securities registered, and any
transfer of such Global Security in whole or in part may be registered, in the
names of Persons other than the Depositary for such Global Security or its
nominee; (18) any addition to or change in the Events of Default applicable to
any of such Debt Securities and any change in the right of the Trustee or the
Holders to declare the principal amount of any of such Debt Securities due and
payable; (19) any addition to or change in the covenants in the Indentures
described under "Restrictive Covenants" applicable to any of such Debt
Securities; and (20) any other terms of such Debt Securities not inconsistent
with the provisions of the relevant Indenture. (Section 301)
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Certain special United
States federal income tax considerations (if any) applicable to Debt Securities
sold at an original issue discount will be described in the applicable
Prospectus Supplement under "United States Taxation." In addition, certain
special United States federal income tax or other considerations (if any)
applicable to any Debt Securities which are denominated in a currency or
currency unit other than United States dollars will be described in the
applicable Prospectus Supplement.
CONVERSION RIGHTS
The terms on which Debt Securities of any series are convertible into
Common Stock or other securities or property will be set forth in the Prospectus
Supplement relating thereto. Such terms shall include provisions as to whether
conversion is mandatory or at the option of the Holder and may include
provisions pursuant to which the number of shares of Common Stock or other
securities or property to be received by the Holders of Debt Securities upon
conversion would be calculated according to the market price of Common Stock or
other securities or property as of a time stated in the applicable Prospectus
Supplement. (Article Fourteen)
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SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The indebtedness evidenced by the Subordinated Debt Securities is
subordinated to the extent provided in the Subordinated Indenture to the prior
payment in full of all Senior Indebtedness (as defined), including any
outstanding Senior Debt Securities. 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 on the
Subordinated Debt Securities is to be subordinated to the extent provided in the
Subordinated 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 Subordinated
Debt Securities because of an Event of Default, 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
Subordinated Debt Securities are entitled to receive any payment or distribution
in respect thereof. The Subordinated Indenture will require that the Company
promptly notify holders of Senior Indebtedness if payment of the Subordinated
Debt Securities is accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the
Subordinated Debt Securities if (i) a default in the payment of the principal
of, premium, if any, interest, 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 Subordinated
Indenture. Payments on the Subordinated Debt Securities 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 Subordinated Debt Securities that have become due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or 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 Subordinated Debt
Securities 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 Subordinated 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 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 Subordinated 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 Subordinated Debt Securities or
expressly provides that such Indebtedness is "pari passu" or
6
"junior" to the Subordinated Debt Securities. 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 or the Company's 5% Convertible
Subordinated Notes due 2003.
The term "Indebtedness" means, with respect to any Person (as defined in
the Subordinated Indenture), 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 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 (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 Credit Agreement (as
defined in the Subordinated Indenture), the Sumitomo Credit Agreement (as
defined in the Subordinated Indenture) 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 Subordinated Debenture (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).
The Subordinated Debt Securities will be obligations exclusively of the
Company. Since the operations of the Company are partially conducted through its
subsidiaries, the cash flow and the consequent ability to service debt,
including the Subordinated Debt Securities, of the Company will be partially
dependent upon the earnings of any such subsidiaries and the distribution of
those earnings, or upon loans or other payments of funds by those subsidiaries,
to the Company. Such subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
the Subordinated Debt Securities or to make any funds available therefor,
whether by dividends, distributions, loans or other payments. In addition, the
7
payment of dividends or distributions and the making of loans and advances to
the Company by any such subsidiaries could be subject to statutory or
contractual restrictions, could be contingent upon the earnings of those
subsidiaries and are subject to various business considerations.
Any right of the Company to receive any assets of any of its subsidiaries
upon their liquidation or reorganization (and the consequent right of the
Holders of the Subordinated Debt Securities to participate in those assets) will
be effectively subordinated to the claims of the subsidiary's creditors
(including trade creditors), except to the extent that the Company is itself
recognized as a creditor of such subsidiary, in which case the claims of the
Company would still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Indebtedness, which may include indebtedness that is senior to
the Subordinated Debt Securities, but subordinate to other obligations of the
Company. The Senior Debt Securities, when issued, will constitute Senior
Indebtedness.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular series.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in fully
registered form, without coupons, and, unless otherwise specified in the
applicable Prospectus Supplement, only in denominations of $1,000 and integral
multiples thereof. (Section 302)
At the option of the Holder, subject to the terms of the Indentures and the
limitations applicable to Global Securities, Debt Securities of each series will
be exchangeable for other Debt Securities of the same series of any authorized
denomination and of a like tenor and aggregate principal amount. (Section 305)
Subject to the terms of the Indentures and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with the form of
transfer endorsed thereon duly executed) at the office of the Security Registrar
or at the office of any transfer agent designated by the Company for such
purpose. No service charge will be made for any registration of transfer or
exchange of Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustee as Security Registrar. Any transfer agent (in addition
to the Security Registrar) initially designated by the Company for any Debt
Securities will be named in the applicable Prospectus Supplement. (Section 305)
The Company may at any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts, except that the Company will be required to
maintain a transfer agent in each Place of Payment for the Debt Securities of
each series. (Section 1002)
If the Debt Securities of any series (or of any series and specified tenor)
are to be redeemed in part, the Company will not be required to (i) issue,
register the transfer of or exchange any Debt Security of that series (or of
that series and specified tenor, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any such Debt Security being
redeemed in part. (Section 305)
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GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more global securities which will have an aggregate
principal amount equal to that of the Debt Securities represented thereby (a
"Global Security"). Each Global Security will be registered in the name of a
depositary (the "Depositary") or a nominee thereof identified in the applicable
Prospectus Supplement, will be deposited with such Depositary or nominee or a
custodian therefor and will bear a legend regarding the restrictions on
exchanges and registration of transfer thereof referred to below and any such
other matters as may be provided for pursuant to the Indentures.
Notwithstanding any provision of the Indentures or any Debt Security
described herein, no Global Security may be exchanged in whole or in part for
Debt Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than the Depositary for
such Global Security or any nominee of such Depositary unless (i) the Depositary
has notified the Company that it is unwilling or unable to continue as
Depositary for such Global Security or has ceased to be qualified to act as such
as required by the Indentures, (ii) there shall have occurred and be continuing
an Event of Default with respect to the Debt Securities represented by such
Global Security or (iii) there shall exist such circumstances, if any, in
addition to or in lieu of those described above as may be described in the
applicable Prospectus Supplement. All securities issued in exchange for a Global
Security or any portion thereof will be registered in such names as the
Depositary may direct. (Sections 204 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities represented thereby for all purposes under the Debt Securities and
the Indentures. Except in the limited circumstances referred to above, owners of
beneficial interests in a Global Security will not be entitled to have such
Global Security or any Debt Securities represented thereby registered in their
names, will not receive or be entitled to receive physical delivery of
certificated Debt Securities in exchange therefor and will not be considered to
be the owners or Holders of such Global Security or any Debt Securities
represented thereby for any purpose under the Debt Securities or the Indentures.
All payments of principal of and any premium and interest on a Global Security
will be made to the Depositary or its nominee, as the case may be, as the Holder
thereof. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. These
laws may impair the ability to transfer beneficial interests in a Global
Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participants on their behalf). Payments,
transfers, exchanges and others matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by the
Depositary from time to time. None of the Company, the Trustee or any agent of
the Company or the Trustee will have any responsibility or liability for any
aspect of the Depositary's or any participant's records relating to, or for
payments made on account of, beneficial interests in a Global Security, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
9
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Company may designate for such purpose from time to time, except that at the
option of the Company payment of any interest may be made by check mailed to the
address of the Person entitled thereto as such address appears in the Security
Register. Unless otherwise indicated in the applicable Prospectus Supplement,
the Corporate Trust Office of the Trustee will be designated as the Company's
sole Paying Agent for payments with respect to Debt Securities of each series.
Any other Paying Agents initially designated by the Company for the Debt
Securities of a particular series will be named in the applicable Prospectus
Supplement. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent in each Place of Payment for the Debt Securities of a
particular series. (Section 1002)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed for a period ending the earlier of 10 business days prior to the date
such money would escheat to the State or at the end of two years after such
principal, premium or interest has become due and payable will be repaid to the
Company, and the Holder of such Debt Security thereafter may look only to the
Company for payment thereof. (Section 1003)
RESTRICTIVE COVENANTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions will apply to the Senior Debt Securities.
Limitations on Liens
The Senior Indenture will provide that the Company will not issue, incur,
create, assume or guarantee, and will not permit any Restricted Subsidiary (as
defined) to issue, incur, create, assume or guarantee, any debt for borrowed
money secured by a mortgage, security interest, pledge, lien, charge or other
encumbrance ("mortgages") upon any Principal Property (as defined) of the
Company or any Restricted Subsidiary or upon any shares of stock or indebtedness
of any Restricted Subsidiary (whether such Principal Property, shares or
indebtedness are now existing or owned or hereafter created or acquired) without
in any such case effectively providing concurrently with the issuance,
incurrence, creation, assumption or guarantee of any such secured debt, or the
grant of a mortgage with respect to any such indebtedness, that the Senior Debt
Securities (together with, if the Company shall so determine, any other
indebtedness of or guarantee by the Company or such Restricted Subsidiary
ranking equally with the Senior Debt Securities) shall be secured equally and
ratably with (or, at the option of the Company, prior to) such secured debt. The
foregoing restriction, however, will not apply to: (a) mortgages on property
existing at the time of acquisition thereof by the Company or any Subsidiary,
provided that such mortgages were in existence prior to the contemplation of
such acquisition; (b) mortgages on property, shares of stock or indebtedness or
other assets of any corporation existing at the time such corporation becomes a
Restricted Subsidiary, provided that such mortgages are not incurred in
anticipation of such corporation becoming a Restricted Subsidiary; (c) mortgages
on property, shares of stock or indebtedness existing at the time of acquisition
thereof by the Company or a Restricted Subsidiary or mortgages thereon to secure
the payment of all or any part of the purchase
10
price thereof, or mortgages on property, shares of stock or indebtedness to
secure any indebtedness for borrowed money incurred prior to, at the time of, or
within 270 days after, the latest of the acquisition thereof, or, in the case of
property, the completion of construction, the completion of improvements, or the
commencement of substantial commercial operation of such property for the
purpose of financing all or any part of the purchase price thereof, such
construction, or the making of such improvements; (d) mortgages to secure
indebtedness owing to the Company or to a Restricted Subsidiary; (e) mortgages
existing at the date of the Senior Indenture; (f) mortgages on property of a
corporation existing at the time such corporation is merged into or consolidated
with the Company or a Restricted Subsidiary or at the time of a sale, lease or
other disposition of the properties of a corporation as an entirety or
substantially as an entirety to the Company or a Restricted Subsidiary, provided
that such mortgage was not incurred in anticipation of such merger or
consolidation or sale, lease or other disposition; (g) mortgages in favor of the
United States or any State, territory or possession thereof (or the District of
Columbia), or any department, agency, instrumentality or political subdivision
of the United States or any State, territory or possession thereof (or the
District of Columbia), to secure partial, progress, advance or other payments
pursuant to any contract or statute or to secure any indebtedness incurred for
the purpose of financing all or any part of the purchase price or the cost of
constructing or improving the property subject to such mortgages; (h) mortgages
created in connection with the acquisition of assets or a project financed with,
and created to secure, a Nonrecourse Obligation (as defined); and (i)
extensions, renewals, refinancings or replacements of any mortgage referred to
in the foregoing clauses (a), (b), (c), (d), (e), (f), (g), and (h) provided,
however, that any mortgages permitted by any of the foregoing clauses (a), (b),
(c), (d), (e), (f), (g), and (h) shall not extend to or cover any property of
the Company or such Restricted Subsidiary, as the case may be, other than the
property, if any, specified in such clauses and improvements thereto, and
provided further that any refinancing or replacement of any mortgages permitted
by the foregoing clauses (g) and (h) shall be of the type referred to in such
clauses (g) or (h), as the case may be.
Notwithstanding the restrictions described in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise be subject
to such restrictions, without equally and ratably securing the Senior Debt
Securities, provided that after giving effect thereto, the aggregate amount of
all debt so secured by mortgages (not including mortgages permitted under
clauses (a) through (i) above) does not exceed 15% of the Consolidated Net
Tangible Assets (as defined below) of the Company as most recently determined on
or prior to such date.
Limitations on Sale and Lease-Back Transactions
The Senior Indenture will provide that the Company will not, nor will it
permit any Restricted Subsidiary to, enter into any Sale and Lease-Back
Transaction (as defined) with respect to any Principal Property, other than any
such transaction involving a lease for a term of not more than three years or
any such transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, unless (a) the Company or such Restricted Subsidiary
would be entitled to incur indebtedness secured by a mortgage on the Principal
Property involved in such transaction at least equal in amount to the
Attributable Debt (as defined) with respect to such Sale and Lease-Back
Transaction, without equally and ratably securing the Senior Debt Securities,
pursuant to the limitation on liens in the Senior Indenture; or (b) the Company
shall apply an amount equal to the greater of the net proceeds of such sale or
the Attributable Debt with respect to such Sale and Lease-Back Transaction
within 180 days of such sale to either (or a combination of) the retirement
(other than any mandatory retirement, mandatory prepayment or sinking fund
payment or by payment at maturity) of debt for borrowed money of the Company or
a Restricted Subsidiary that matures more than 12 months after the creation of
such indebtedness or the purchase, construction or development of other
comparable property.
11
Certain Definitions Applicable to Covenants
The term "Attributable Debt" when used in connection with a Sale and
Lease-Back Transaction involving a Principal Property shall mean, at the time of
determination, the lesser of: (a) the fair value of such property (as determined
in good faith by the Board of Directors of the Company); or (b) the present
value of the total net amount of rent required to be paid under such lease
during the remaining term thereof (including any renewal term or period for
which such lease has been extended), discounted at the rate of interest set
forth or implicit in the terms of such lease or if not practicable to determine
such rate, the weighted average interest rate per annum (in the case of Original
Issue Discount Securities, the imputed interest rate) borne by the Senior Debt
Securities of each series outstanding pursuant to the Indenture compounded
semi-annually. For purposes of the foregoing definition, rent shall not include
amounts required to be paid by the lessee, whether or not designated as rent or
additional rent, on account of or contingent upon maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges. In the case of
any lease which is terminable by the lessee upon the payment of a penalty, such
net amount shall be the lesser of the net amount determined assuming termination
upon the first date such lease may be terminated (in which case the net amount
shall also include the amount of the penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated) and the net amount determined assuming no such
termination.
The term "Consolidated Net Tangible Assets" shall mean, as of any
particular time, total assets (excluding applicable reserves and other properly
deductible items) less: (a) total current liabilities, except for (1) notes and
loans payable; (2) current maturities of long-term debt and (3) current
maturities of obligations under capital leases; and (b) goodwill, patents and
trademarks, to the extent included in total assets; all as set forth on the most
recent consolidated balance sheet of the Company and its Restricted Subsidiaries
and computed in accordance with generally accepted accounting principles.
The term "Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a project
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such indebtedness
or obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
The term "Principal Property" shall mean the land, land improvements,
buildings and fixtures (to the extent they constitute real property interests,
including any leasehold interest therein) constituting the principal corporate
office, any manufacturing facility or any distribution center (whether now owned
or hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b)
is located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors of the Company not to be materially important to the total business
conducted by the Company and its Subsidiaries taken as a whole; and (d) has a
market value on the date as of which the determination is being made in excess
of 2.0% of Consolidated Net Tangible Assets of the Company as most recently
determined on or prior to such date.
The term "Restricted Subsidiary" shall mean any Subsidiary that owns any
Principal Property; provided, however, that the term "Restricted Subsidiary"
shall not include (a) any Subsidiary which is principally engaged in financing
receivables, or which is principally engaged in financing the Company's
operations outside the United States of America or (b) any Subsidiary less than
80% of the voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries if the common stock of such
12
Subsidiary is traded on any national securities exchange or quoted on the Nasdaq
National Market or in the over-the-counter market.
The term "Sale and Lease-Back Transaction" shall mean any arrangement with
any person providing for the leasing by the Company or any Restricted Subsidiary
of any Principal Property which property has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such person.
The term "Subsidiary" shall mean any corporation of which at least a
majority of the outstanding voting stock having the power to elect a majority of
the board of directors of such corporation is at the time owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries, and the accounts of which are
consolidated with those of the Company in the most recent consolidated financial
statements in accordance with generally accepted accounting principles. For the
purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indentures will provide that the Company may not consolidate with or
merge into any other Person (in a transaction in which the Company is not the
surviving corporation), or convey, transfer or lease its properties and assets
substantially as an entirety to, any Person (a "Successor Person"), unless (i)
the Successor Person (if any) is a corporation, limited liability company,
partnership, trust or other entity organized and existing under the laws of any
domestic jurisdiction and assumes the Company's obligations on the Debt
Securities and under the Indentures, (ii) immediately after giving effect to the
transaction, and treating any indebtedness which becomes an obligation of the
Company or any Subsidiary as a result of the transaction as having been incurred
by it at the time of the transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
have occurred and be continuing, and (iii) certain other conditions are met.
(Section 801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indentures with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Security of that series when due,
whether or not such payment is prohibited by the subordination provisions of the
Subordinated Indenture; (b) failure to pay any interest on any Debt Securities
of that series when due, continued for 30 days, whether or not such payment is
prohibited by the subordination provisions of the Subordinated Indenture; (c)
failure to deposit any sinking fund payment, when due, in respect of any Debt
Security of that series, whether or not such deposit is prohibited by the
subordination provisions of the Subordinated Indenture; (d) failure to perform
any other covenant of the Company in the Indentures (other than a covenant
included in the Indentures solely for the benefit of a series other than that
series), continued for 60 days after written notice has been given by the
Trustee, or the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series, as provided in the Indentures; (e)
certain events in bankruptcy, insolvency or reorganization with respect to the
Company; and (f) any other Event of Default specified in the applicable
Prospectus Supplement. (Section 501)
The Indentures will provide that, if an Event of Default (other than an
Event of Default described in clause (e) above) with respect to the Debt
Securities of any series at the time Outstanding shall occur and be continuing,
either the Trustee or the Holders of at least 25% in aggregate principal amount
of the Outstanding Securities of that series by notice as provided in the
Indentures may declare the principal amount of the Debt Securities of that
series (or, in the case of any Debt Security that is an Original Issue Discount
Security or the principal amount of which is not then determinable, such portion
of the principal amount of such Debt Security, or such other amount in
13
lieu of such principal amount, as may be specified in the terms of such Debt
Security) to be due and payable immediately. If an Event of Default described in
clause (e) above with respect to the Debt Securities of any series at the time
Outstanding shall occur, the principal amount of all the Debt Securities of that
series (or, in the case of any such Original Issue Discount Security or other
Debt Security, such specified amount) will automatically, and without any action
by the Trustee or any Holder, become immediately due and payable. After any such
acceleration, but before a judgment or decree based on acceleration, the Holders
of a majority in aggregate principal amount of the Outstanding Securities of
that series may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal (or other specified amount), have been cured or waived as provided in
the Indentures. (Section 502) For information as to waiver of defaults, see
"Modification and Waiver".
Subject to the provisions of the Indentures relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indentures at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the Outstanding Securities of any
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee with respect to the Debt Securities of that
series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the Holders
of at least 25% in aggregate principal amount of the Outstanding Securities of
that series have made a written request, and such Holder or Holders have offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee and
(iii) the Trustee has failed to institute such proceeding, and has not received
from the Holders of a majority in aggregate principal amount of the Outstanding
Securities of that series a direction inconsistent with such request, within 60
days after such notice, request and offer. (Section 507) However, such
limitations do not apply to a suit instituted by a Holder of a Debt Security for
the enforcement of payment of the principal of or any premium or interest on
such Debt Security on or after the applicable due date specified in such Debt
Security. (Section 508)
The Indentures will include a covenant requiring the Company to furnish to
the Trustee annually a statement by certain of its officers as to whether or not
the Company, to their knowledge, is in default in the performance or observance
of any of the terms, provisions and conditions of the Indentures and, if so,
specifying all such known defaults. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Debt Security, (b) reduce the
principal amount of, or any premium or interest on, any Debt Security, (c)
reduce the amount of principal of an Original Issue Discount Security or any
other Debt Security payable upon acceleration of the Maturity thereof, (d)
change the place or currency of payment of principal of, or any premium or
interest on, any Debt Security, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security, (f) in the
case of Subordinated Debt Securities, modify the subordination provisions in a
manner adverse to the Holders of the Subordinated Debt Securities, (g) in the
case of Debt Securities that are convertible or exchangeable into Securities or
other securities of the Company, adversely affect the right of Holders to
convert or exchange any of the
14
Debt Securities other than as provided in or pursuant to the Indentures, (h)
reduce the percentage in principal amount of Outstanding Securities of any
series, the consent of whose Holders is required for modification or amendment
of the Indentures, (i) reduce the percentage in principal amount of Outstanding
Securities of any series necessary for waiver of compliance with certain
provisions of the Indentures or for waiver of certain defaults or (j) modify
such provisions with respect to modification and waiver. (Section 902)
The Indentures will provide that the Holders of a majority in aggregate
principal amount of the Outstanding Securities of any series may waive, on
behalf of the Holders of all Debt Securities of such series, compliance by the
Company with certain restrictive provisions of the Indentures. (Sections 1010
and 1008 of the Senior Indenture and the Subordinated Indenture, respectively.)
The Holders of a majority in principal amount of the Outstanding Securities of
any series may waive any past default under the Indentures, except a default in
the payment of principal, premium or interest and certain covenants and
provisions of the Indentures which cannot be amended without the consent of the
Holder of each Outstanding Security of such series affected. (Section 513)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given or taken any
direction, notice, consent, waiver or other action under the Indentures as of
any date, (i) the principal amount of an Original Issue Discount Security that
will be deemed to be Outstanding will be the amount of the principal thereof
that would be due and payable as of such date upon acceleration of the Maturity
thereof to such date, (ii) if, as of such date, the principal amount payable at
the Stated Maturity of a Debt Security is not determinable (for example, because
it is based on an index), the principal amount of such Debt Security deemed to
be Outstanding as of such date will be an amount determined in the manner
prescribed for such Debt Security and (iii) the principal amount of a Debt
Security denominated in one or more foreign currencies or currency units that
will be deemed to be Outstanding will be the U.S. dollar equivalent, determined
as of such date in the manner prescribed for such Debt Security, of the
principal amount of such Debt Security (or, in the case of a Debt Security
described in clause (i) or (ii) above, of the amount described in such clause).
Certain Debt Securities, including those for whose payment or redemption money
has been deposited or set aside in trust for the Holders and those that have
been fully defeased pursuant to Section 1302, will not be deemed to be
Outstanding. (Section 101)
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Securities of any series entitled to give or take any direction,
notice, consent, waiver or other action under the Indentures, in the manner and
subject to the limitations provided in the Indentures. In certain limited
circumstances, the Trustee will be entitled to set a record date for action by
Holders. If a record date is set for any action to be taken by Holders of a
particular series, such action may be taken only by persons who are Holders of
Outstanding Securities of that series on the record date. To be effective, such
action must be taken by Holders of the requisite principal amount of such Debt
Securities within a specified period following the record date. For any
particular record date, this period will be 180 days or such other shorter
period as may be specified by the Company (or the Trustee, if it set the record
date), and may be shortened or lengthened (but not beyond 180 days) from time to
time. (Section 104)
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement, the
Company may elect, at its option at any time, to have the provisions of Section
1302, relating to defeasance and discharge of indebtedness, or Section 1303,
relating to defeasance of certain restrictive covenants in the Indentures,
applied to the Debt Securities of any series, or to any specified part of a
series. (Section 1301)
Defeasance and Discharge. The Indentures will provide that, upon the
Company's exercise of its option (if any) to have Section 1302 applied to any
Subordinated Debt Securities, the provisions
15
of Article Fifteen of the Subordinated Indenture relating to subordination will
cease to be effective and, with respect to any Debt Securities, the Company will
be discharged from all its obligations with respect thereto (except for certain
obligations to exchange or register the transfer of Debt Securities, to replace
stolen, lost or mutilated Debt Securities, to maintain paying agencies, to hold
moneys for payment in trust and, if applicable, to effect conversion of Debt
Securities) upon the deposit in trust for the benefit of the Holders of such
Debt Securities of money or U.S. Government Obligations, or both, which, through
the payment of principal and interest in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal of
and any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the Indentures and such Debt
Securities. Such defeasance or discharge may occur only if, among other things,
the Company has delivered to the Trustee an Opinion of Counsel to the effect
that the Company has received from, or there has been published by, the United
States Internal Revenue Service a ruling, or there has been a change in tax law,
in either case to the effect that Holders of such Debt Securities will not
recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge were not to occur. (Sections 1302
and 1304)
Defeasance of Certain Covenants. The Indentures will provide that, upon the
Company's exercise of its option (if any) to have Section 1303 applied to any
Debt Securities, the Company may omit to comply with certain restrictive
covenants, including those described under "Restrictive Covenants" and any that
may be described in the applicable Prospectus Supplement, and the occurrence of
certain Events of Default, which are described above in clause (d) (with respect
to such restrictive covenants) under "Events of Default" and any that may be
described in the applicable Prospectus Supplement, will be deemed not to be or
result in an Event of Default, in each case with respect to such Debt
Securities, and, in the case of the Subordinated Indenture, the provisions of
Article Fifteen relating to subordination will cease to be effective with
respect to any Subordinated Debt Securities. The Company, in order to exercise
such option, will be required to deposit, in trust for the benefit of the
Holders of such Debt Securities, money or U.S. Government Obligations, or both,
which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and any premium and interest on such Debt Securities on the
respective Stated Maturities in accordance with the terms of the Indentures and
such Debt Securities. The Company will also be required, among other things, to
deliver to the Trustee an Opinion of Counsel to the effect that Holders of such
Debt Securities will not recognize gain or loss for federal income tax purposes
as a result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance were not
to occur. In the event the Company exercised this option with respect to any
Debt Securities and such Debt Securities were declared due and payable because
of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay amounts
due on such Debt Securities at the time of their respective Stated Maturities
but may not be sufficient to pay amounts due on such Debt Securities upon any
acceleration resulting from such Event of Default. In such case, the Company
would remain liable for such payments. (Sections 1303 and 1304)
The Company may, at its option, satisfy and discharge each of the
Indentures (except for certain obligations of the Company and the Trustee,
including, among others the obligations to apply money held in trust) when (i)
either (a) all Debt Securities under such Indenture previously authenticated and
delivered (other than (1) Debt Securities that were destroyed, lost or stolen
and that have been replaced or paid and (2) Debt Securities for the payment of
which money has been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust) have
been delivered to the Trustee for cancellation or discharge from such trust)
have been delivered to the Trustee for cancellation or (b) all such Debt
Securities under such Indenture not theretofore delivered to the Trustee for
cancellation (1) have
16
become due and payable, (2) will become due and payable at their Stated Maturity
within one year, or (3) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name and at the expense of the Company, and the Company
has deposited or caused to be deposited with the Trustee as trust funds in trust
for such purpose an amount sufficient to pay and discharge the entire
indebtedness on such Debt Securities under such Indenture not previously
delivered to the Trustee for cancellation, for principal and any premium and
interest to the date of such deposit (in the case of Debt Securities under such
Indenture which have become due and payable) or to the Stated Maturity or
redemption date as the case may be, (ii) the Company has paid or caused to be
paid all other sums payable under such Indenture by the Company, and (iii) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each to the effect that all conditions precedent relating to the
satisfaction and discharge of such Indenture have been satisfied.
NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. (Sections
101 and 106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the purpose
of making payment and for all other purposes. (Section 308)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the law of the State of New York. (Section 112)
REGARDING THE TRUSTEE
The Indentures contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize for its own account on certain property received in
respect of any such claim as security or otherwise. (Section 613) The Trustee is
permitted to engage in certain other transactions; however, if it acquires any
conflicting interest and there is a default under the Securities of any series
for which the Trustee serves as trustee, the Trustee must eliminate such
conflict or resign. (Section 608)
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 500,000,000 shares
of Common Stock, $.01 par value, and 4,000,000 shares of Preferred Stock, $.01
par value.
COMMON STOCK
As of May 1, 1997, there were 65,509,049 shares of Common Stock outstanding
held of record by approximately 1890 stockholders. (Such outstanding share
amounts have not been restated to reflect the 2-for-1 split of the Company's
Common Stock that was effected during June 1997 in the form of a stock dividend
of one share for each outstanding share.) The holders of Common Stock are
entitled to one vote per share on all matters to be voted on by the
stockholders, other than the election of directors. Subject to preferences that
may be applicable to outstanding shares of Preferred Stock, if any, the holders
of Common Stock are entitled to receive ratably such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, the holders of
17
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive, conversion rights or other
subscription rights. There are no redemption or sinking funds provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 4,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock,
including the loss of voting control to others.
In February 1997, the Company issued 90,000 shares of Redeemable
Convertible Participating Series B Preferred Stock ("Series B Preferred") in
conjunction with the acquisition of a 19% minority ownership interest in Quantum
Peripherals Colorado, Inc., a consolidated subsidiary involved in the
development and manufacture of recording heads. The shares of Series B Preferred
are mandatorily redeemable for $111.11 per share, plus declared but unpaid
dividends, in the event of a voluntary or involuntary liquidation, dissolution,
change in control, or sale of all or substantially all of the assets of the
Company. Holders of the shares of Series B Preferred have a liquidation
preference senior to that of holders of the Company's Common Stock. Each share
of Series B Preferred will convert into two shares of the Company's Common Stock
upon the earlier of (i) the Company's Common Stock closing at $35.00 per share
(as adjusted upon the occurrence of certain specified events), (ii) April 1,
1999, or (iii) written notice to the Company of the holders of a majority of
outstanding shares of Series B Preferred. The holders of shares of Series B
Preferred ratably participate on an as-if-converted basis with holders of Common
Stock, in declared cash and in-kind dividends.
STOCKHOLDER RIGHTS PLAN
On July 21, 1988, the Board of Directors of the Company declared a dividend
of one Preferred Share purchase right (a "Right") for each outstanding share of
Common Stock to the holders of record on August 19, 1988 and authorized and
directed the issuance of one Right with respect to each share of Common Stock
that shall become outstanding prior to the occurrence of certain terminating
events. Currently the Rights trade with the shares of Common Stock. Upon the
occurrence of certain events generally associated with an unsolicited takeover
attempt of the Company or certain transactions involving a change of control,
the Rights (except for Rights held by an Acquiring Person (as defined in the
Preferred Shares Rights Agreement) (the "Rights Agreement") will become
exercisable and will cease to automatically trade with the Common Stock. Upon
the acquisition of 20% or more of the Company's outstanding Common Stock or the
commencement of, or announcement of an intention to make a tender offer or
exchange offer, the consummation of which would result in the beneficial
ownership by a person or group of 30% or more of the Company's outstanding
Common Stock, each Right (except for Rights held by an Acquiring Person) will be
converted into a right to purchase at the then-current exercise price of the
Right that number of shares of Preferred Shares (as defined in the Rights
Agreement) having a market value of two times the exercise price of the Right
or, in the event of merger of the Company into an Acquiring Person, securities
of the Acquiring Person having a market value of two times the exercise price of
the Right.
18
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become exercisable. The Company believes,
however, that the Rights should neither affect any prospective offeror willing
to negotiate with the Board of Directors of the Company nor interfere with any
merger of other business combination approved by the Board of Directors of the
Company. The Rights may be redeemed pursuant to the terms of the Rights
Agreement. The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights.
CHANGE OF CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company and may maintain the incumbency of the Board of Directors
and management. The authorization of undesignated Preferred Stock makes it
possible for the Board of Directors to issue Preferred Stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the Company.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Antitakeover Law") regulating corporate takeovers.
The Antitakeover Law prevents certain Delaware corporations, including those
whose securities are listed on the Nasdaq National Market, from engaging, under
certain circumstances, in a "business combination" (which includes a merger or
sale of more than 10% of the corporation's assets) with any "interested
stockholder" (a stockholder who acquired 15% or more of the corporation's
outstanding voting stock without the prior approval of the corporation's Board
of Directors) for three years following the date that such stockholder became an
"interested stockholder." A Delaware corporation may "opt out" of the
Antitakeover Law with an express provision in its original certificate of
incorporation or an express provision in its certificate of incorporation or
bylaws resulting from a stockholders' amendment approved by at least a majority
of the outstanding voting shares. The Company has not "opted out" of the
provisions of the Antitakeover Law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust
Company of California.
PLAN OF DISTRIBUTION
The Company may sell the Securities separately or together, (i) to one or
more underwriters or dealers for public offering and sale by them and (ii) to
investors directly or through agents. The distribution of the Securities may be
effected from time to time in one or more transactions at a fixed price or
prices (which may be changed from time to time), at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Each Prospectus Supplement will describe the method of
distribution of the Securities offered thereby.
In connection with the sale of the Securities, underwriters, dealers or
agents may receive compensation from the Company or from purchasers of the
Securities for whom they may act as agents, in the form of discounts,
concessions or commissions. The underwriters, dealers or agents which
participate in the distribution of the Securities may be deemed to be
underwriters under the Securities Act and any discounts or commissions received
by them and any profit on the resale of the Securities received by them may be
deemed to be underwriting discounts and commissions thereunder. Any such
underwriter, dealer or agent will be identified and any such compensation
received from the Company will be described in the Prospectus Supplement. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
19
Under agreements that may be entered into with the Company, underwriters,
dealers and agents may be entitled to indemnification by the Company against
certain civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters, dealers or agents
may be required to make in respect thereof.
The Company may grant underwriters who participate in the distribution of
Securities an option to purchase additional Securities to cover over-allotments,
if any.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with or perform services for the Company in the
ordinary course of business.
LEGAL OPINIONS
The validity of the Securities is being passed upon for the Company by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California.
EXPERTS
The consolidated financial statements of Quantum Corporation appearing in
Quantum Corporation's Annual Report (Form 10-K) for the year ended March 31,
1997, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
20
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE UNDERWRITER, OR ANY OTHER PERSON. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY PERSON OR IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER 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 INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........ S-3
Risk Factors......................... S-6
Use of Proceeds...................... S-12
Capitalization....................... S-13
Price Range of Common Stock and
Dividend Policy.................... S-14
Selected Consolidated Financial
Data............................... S-15
Description of Notes................. S-16
Certain Federal Income Tax
Considerations..................... S-23
Underwriting......................... S-26
Legal Matters........................ S-27
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
The Company.......................... 3
Risk Factors......................... 3
Use of Proceeds...................... 3
Ratio of Earnings to Fixed Charges... 3
Description of Debt Securities....... 3
Description of Capital Stock......... 17
Plan of Distribution................. 19
Legal Opinions....................... 20
Experts.............................. 20
$250,000,000
QUANTUM CORPORATION
7% CONVERTIBLE
SUBORDINATED NOTES
DUE 2004
QUANTUM LOGO
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SALOMON BROTHERS INC
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PROSPECTUS SUPPLEMENT
DATED JULY 29, 1997