As Filed Pursuant to Rule 424(b)(5)
Registration No. 333-102645
This prospectus supplement and the related prospectus relate to an effective
registration statement under the Securities Act of 1933, as amended, but are not
complete and may be changed. This prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 28, 2003
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 28, 2003)
$1,300,000,000
[LUCENT LOGO]
LUCENT TECHNOLOGIES INC.
% SERIES A CONVERTIBLE SENIOR DEBENTURES DUE 2023
% SERIES B CONVERTIBLE SENIOR DEBENTURES DUE 2025
---------------------
We are offering $ million principal amount of % Series A Convertible
Senior Debentures due 2023 and $ million principal amount of % Series B
Convertible Senior Debentures due 2025. The Series A debentures and the Series B
debentures will be our direct, unsecured and unsubordinated obligations and will
rank equal in priority with all of our existing and future unsecured and
unsubordinated indebtedness and senior in right of payment to all our existing
and future subordinated indebtedness.
Interest on the Series A debentures and the Series B debentures is payable
on June 15 and December 15 of each year, beginning on December 15, 2003.
The Series A debentures are convertible during certain periods by holders
into shares of our common stock initially at a conversion rate of shares
of common stock per $1,000 principal amount of Series A debentures, and the
Series B debentures are convertible during certain periods by holders into
shares of our common stock initially at a conversion rate of shares of
common stock per $1,000 principal amount of Series B debentures (subject to
adjustment in certain events) under the following circumstances: (1) if the
price of our common stock issuable upon conversion reaches specified thresholds
described in this prospectus supplement, (2) subject to certain exceptions,
during the five business-day period after any five consecutive trading-day
period in which the trading price per debenture for each day of the five
trading-day period was less than 97% of the product of the closing sale price of
our common stock and the conversion rate of such debenture, (3) if we call the
debentures for redemption or (4) upon the occurrence of specified corporate
transactions described in this prospectus supplement.
The Series A debentures will mature on June 15, 2023, and the Series B
debentures will mature on June 15, 2025, in each case unless earlier converted,
redeemed or purchased by us. We may redeem for cash all or a portion of the
Series A debentures at our option at any time on or after June 20, 2010, and we
may redeem for cash all or a portion of the Series B debentures at our option at
any time on or after June 20, 2013, in each case at a price equal to the
principal amount of the debentures to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date. Our right to redeem the
debentures at our option is discussed in the section "Description of the
Debentures -- Optional Redemption." We also have the right to redeem the
debentures prior to such dates if the price of our common stock reaches certain
levels, as discussed in the section "Description of the Debentures --
Provisional Redemption."
Holders may require us to purchase all or a portion of their Series A
debentures on June 15, 2010, June 15, 2015 and June 15, 2020, and holders may
require us to purchase all or a portion of their Series B debentures on June 15,
2013 and June 15, 2019, in each case at a price equal to the principal amount of
the debentures to be purchased, plus accrued and unpaid interest, if any, to the
purchase date. We may choose to pay the purchase price in cash, common stock, or
a combination of cash and common stock.
Holders also may require us to purchase their debentures for cash upon a
fundamental change (as defined in this prospectus supplement) involving us. In
the case of a purchase upon a fundamental change, the purchase price for the
debentures will be equal to the principal amount of the debentures to be
purchased plus accrued and unpaid interest, if any, to the purchase date.
We have granted the underwriters named in this prospectus supplement an
option exercisable within 30 days of the closing of the initial offering to
purchase up to an additional $ aggregate principal amount of Series A
debentures and up to an additional $ aggregate principal amount of Series
B debentures, to cover overallotments, if any.
Our common stock is listed on The New York Stock Exchange under the symbol
"LU." The last reported sale price of our common stock on May 28, 2003, was
$2.28 per share.
---------------------
INVESTING IN THE DEBENTURES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-5 OF THIS PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
PER SERIES A PER SERIES B
DEBENTURE DEBENTURE TOTAL
------------ ------------ ------------
Public offering price(1).................................... % % $
Underwriting discount....................................... % % $
Proceeds to Lucent Technologies Inc. (before expenses)(1)... % % $
---------------
(1) Plus accrued interest from June , 2003, if settlement occurs after
that date.
We expect the debentures to be ready for delivery in book-entry form through
the facilities of The Depository Trust Company on or about June , 2003.
---------------------
JOINT BOOK-RUNNING MANAGER JOINT BOOK-RUNNING MANAGER JOINT LEAD MANAGER
JPMORGAN CITIGROUP HSBC
---------------------
BEAR, STEARNS & CO. INC.
MORGAN STANLEY
UBS WARBURG
MAY , 2003
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS.................. ii
WHERE YOU CAN FIND MORE INFORMATION......................... ii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... iii
PROSPECTUS SUPPLEMENT SUMMARY............................... S-1
RISK FACTORS................................................ S-5
USE OF PROCEEDS............................................. S-15
RATIOS OF EARNINGS TO FIXED CHARGES AND OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND
REQUIREMENTS.............................................. S-15
CAPITALIZATION.............................................. S-16
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... S-17
DESCRIPTION OF THE DEBENTURES............................... S-18
BOOK-ENTRY SYSTEM........................................... S-36
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS.............. S-39
ERISA CONSIDERATIONS........................................ S-44
UNDERWRITING................................................ S-45
LEGAL MATTERS............................................... S-47
PROSPECTUS
ABOUT THIS PROSPECTUS....................................... ii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... 1
WHERE YOU CAN FIND MORE INFORMATION......................... 1
THE COMPANY................................................. 2
RISK FACTORS................................................ 2
USE OF PROCEEDS............................................. 2
RATIOS OF EARNINGS TO FIXED CHARGES AND OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND
REQUIREMENTS.............................................. 2
DESCRIPTION OF CAPITAL STOCK................................ 3
DESCRIPTION OF DEBT SECURITIES.............................. 13
DESCRIPTION OF WARRANTS..................................... 21
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE
UNITS..................................................... 23
PLAN OF DISTRIBUTION........................................ 23
VALIDITY OF SECURITIES...................................... 25
EXPERTS..................................................... 25
IMPORTANT NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering of debentures.
The second part, the base prospectus, gives more general information, some of
which may not apply to this offering. Generally, when we refer only to the
"prospectus," we are referring to both parts combined, and when we refer to the
"accompanying prospectus," we are referring to the base prospectus.
i
IF THE DESCRIPTION OF THIS OFFERING VARIES BETWEEN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION
IN THIS PROSPECTUS SUPPLEMENT.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus supplement contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that are based
on current expectations, estimates, forecasts and projections about the
industries in which we operate, our beliefs and our management's assumptions. In
addition, other written or oral statements that constitute forward-looking
statements may be made by or on behalf of us. Words such as "expects,"
"anticipates," "targets," "goals," "projects," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. Statements that describe
our future objectives are also forward looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecast in such
forward-looking statements. The forward looking statements included in this
prospectus supplement are made only as of the date hereof. Except as required
under U.S. Federal securities laws and the rules and regulations of the SEC, we
do not have any intention or obligation to update publicly any forward-looking
statements after the distribution of this prospectus supplement, whether as a
result of new information, future events, changes in assumptions or otherwise.
The risks, uncertainties and assumptions that are involved in these
forward-looking statements include those risks and uncertainties described in
"Risk Factors" beginning on page S-5 of this prospectus supplement. Those risks
are representative of the risks, uncertainties and assumptions that could cause
actual outcomes and results to differ materially from what is expressed or
forecast in forward-looking statements. In addition, such statements could be
affected by general industry and market conditions and growth rates, general
U.S. and non-U.S. economic conditions, including the global economic slowdown
and interest rate and currency exchange rate fluctuations and other risks,
uncertainties and assumptions.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information reporting requirements of the Exchange
Act and accordingly file annual, quarterly and special reports, proxy statements
and other information with the SEC. Members of the public may read and copy any
materials we file with the SEC at the SEC's following public reference facility:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Information on the operation of this public reference facility may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site at www.sec.gov at that contains materials we file electronically with the
SEC. Our SEC filings can also be inspected and copied at the offices of The New
York Stock Exchange at 20 Broad Street, New York, New York 10005.
ii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This prospectus supplement and accompanying prospectus incorporate by
reference important business and financial information about us that is not
otherwise included in this prospectus supplement and the accompanying
prospectus. The following documents filed by us, Commission File No. 001-11639,
with the SEC are incorporated herein by reference and shall be deemed to be a
part hereof:
1. Annual Report on Form 10-K for the fiscal year ended September 30,
2002, filed on December 12, 2002;
2. Quarterly Reports on Form 10-Q for the three months ended December 31,
2002, filed on February 11, 2003 and for the three months ended March
31, 2003, filed on May 13, 2003;
3. Current Reports on Form 8-K filed pursuant to Item 5 or Item 7 of Form
8-K on October 11, 2002, October 18, 2002, October 23, 2002, January
22, 2003, February 21, 2003, February 27, 2003, March 28, 2003, April
11, 2003 and May 28, 2003; and
4. The "Description of Capital Stock" section of our registration
statement on Form 10, filed on February 26, 1996, as amended by
Amendment No. 1 on Form 10/A, filed on March 12, 1996, Amendment No. 2
on Form 10/A, filed on March 22, 1996, Amendment No. 3 on Form 10/A,
filed on April 1, 1996, Exhibit 99(i) on our Quarterly Report on Form
10-Q for the quarter ended December 31, 2001, filed on February 14,
2002 and any other amendments or reports for the purpose of updating
that description (including this prospectus).
Current Reports on Form 8-K containing only Regulation FD or Regulation G
disclosure furnished under Item 9 or 12 of Form 8-K are not incorporated herein
by reference.
All documents and reports filed by us with the SEC (other than Current
Reports on Form 8-K containing only Regulation FD or Regulation G disclosure
furnished pursuant to Item 9 or 12 of Form 8-K, unless otherwise indicated
therein) pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, after the date of this
prospectus and prior to the termination of this offering shall be deemed
incorporated herein by reference and shall be deemed to be a part hereof from
the date of filing of such documents and reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
prospectus shall be deemed to be modified or superseded for purposes of this
document to the extent that a statement contained herein or in any subsequently
filed document or report that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this document.
The preceding list supersedes and replaces the documents listed in the
accompanying prospectus under the heading "Incorporation of Certain Information
by Reference."
We will provide, without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon written or oral request of
such person, a copy of any or all of the documents incorporated herein by
reference other than exhibits, unless such exhibits specifically are
incorporated by reference into such documents or this document. Requests for
such documents should be addressed in writing or by telephone to:
Corporate Secretary
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
(908) 582 8500
Our web site address is www.lucent.com. The information on our web site is
not a part of, or incorporated by reference in, this prospectus.
iii
PROSPECTUS SUPPLEMENT SUMMARY
The following information is qualified entirely by, and should be read in
conjunction with, the more detailed information appearing elsewhere in and
incorporated by reference into this prospectus supplement and the accompanying
prospectus. This prospectus summary may not contain all of the information that
is important to you. You should carefully read this entire prospectus supplement
and the accompanying prospectus and the documents incorporated by reference to
understand fully the terms of the debentures, as well as the tax and other
considerations that may be important to you in making a decision about whether
to invest in the debentures. You should pay special attention to the "Risk
Factors" section of this prospectus supplement to determine whether an
investment in the debentures is appropriate for you.
THE COMPANY
We operate in the global communications networking industry and design and
deliver networks for the world's largest communications service providers.
Backed by Bell Labs, one of the world's foremost industrial and research
development organizations, we rely on our strengths in mobility, optical, data
and voice networking technologies as well as software and services to develop
next generation networks. Our systems, services and software are designed to
help customers quickly deploy and better manage their networks and create new
opportunities for revenue-generating services that help businesses and
consumers.
Our principal executive offices are located at 600 Mountain Avenue, Murray
Hill, New Jersey 07974 and our telephone number at that location is (908)
582-8500.
THE OFFERING
Issuer........................ Lucent Technologies Inc., a Delaware
corporation.
Securities Offered............ $ aggregate principal amount of % Series
A Convertible Senior Debentures due 2023 (the
"Series A debentures") and $ aggregate
principal amount of % Series B Convertible
Senior Debentures due 2025 (the "Series B
debentures" and, collectively with the Series A
debentures, the "debentures"). We have granted
the underwriters an option to purchase up to an
additional $ aggregate principal amount of
Series A debentures and up to an additional
$ aggregate principal amount of Series B
debentures, each to cover overallotments, if
any.
Issue Price................... Both the Series A debentures and the Series B
debentures will be issued at a price of $1,000
per debenture.
Maturity...................... The Series A debentures will mature on June 15,
2023 and the Series B debentures will mature on
June 15, 2025, in each case, unless earlier
converted, redeemed or purchased by us.
Ranking....................... The debentures are our unsecured and
unsubordinated obligations and rank equal in
right of payment with all of our existing and
future unsecured and unsubordinated
indebtedness. The senior indenture under which
the debentures will be issued contains no
restrictions on the amount of additional
indebtedness we may incur. The debentures will
effectively rank junior to any of our secured
indebtedness to the extent of the assets
securing such indebtedness, including any
future borrowings under secured bank credit
facilities. The debentures will be structurally
subordinated to all liabilities of our
subsidiaries. See "Risk Factors -- Risks
related to the debentures -- The debentures are
effectively junior to secured obligations under
our bank credit
S-1
agreement and structurally subordinated to
liabilities of our subsidiaries."
Interest...................... % per annum in the case of the Series A
debentures and % per annum in the case of
the Series B debentures, in each case on the
principal amount and payable semi-annually in
arrears on June 15 and December 15 of each
year, beginning on December 15, 2003.
Conversion Rights............. Holders may convert their debentures into
shares of our common stock only under any of
the following circumstances:
(i) during any calendar quarter after the
quarter ending September 30, 2003 (and
only during such calendar quarter) if the
sale price of our common stock for at
least 20 trading days during the period of
30 consecutive trading days ending on the
last trading day of the previous calendar
quarter is greater than or equal to 120%
of the conversion price per share of our
common stock;
(ii) during the five business-day period after
any five consecutive trading day period in
which the trading price per debenture for
each day of that period was less than 97%
of the product of the sale price of our
common stock and the conversion rate on
each such day;
(iii) if the debentures have been called for
redemption by us; or
(iv) upon the occurrence of specified corporate
transactions described under "Description
of the debentures -- Conversion
Rights -- Conversion Upon Specified
Corporate Transactions."
For each $1,000 principal amount of Series A
debentures surrendered for conversion you will
receive shares of our common stock. This
represents an initial conversion price of
$ per share of common stock based on the
issue price per Series A debenture.
For each $1,000 principal amount of Series B
debentures surrendered for conversion you will
receive shares of our common stock. This
represents an initial conversion price of
$ per share of common stock based on the
issue price per Series B debenture.
As described in this prospectus supplement, the
conversion rates may be adjusted upon the
occurrence of certain events, but they will not
be adjusted for accrued and unpaid interest.
You will not receive any cash payment
representing accrued and unpaid interest upon
conversion of a debenture. Instead, interest
will be deemed cancelled, extinguished and
forfeited upon conversion. Debentures called
for redemption may be surrendered for
conversion prior to the close of business on
the business day immediately preceding the
redemption date.
Sinking Fund.................. None.
Provisional Redemption........ If the sale price of our common stock has
exceeded 130% of the then applicable conversion
price for at least 20 trading days in any
consecutive 30-day trading period ending on the
trading day prior to the mailing of the notice
of redemption, we may:
S-2
- redeem all or a portion of the Series A
debentures at any time after June 20, 2008,
but prior to June 20, 2010, and
- redeem all or a portion of the Series B
debentures at any time after June 20, 2009,
but prior to June 20, 2013,
by providing not less than 30 nor more than 60
days' notice by mail to each registered holder
of the debentures to be redeemed, at a price
equal to 100% of the principal amount of the
debentures to be redeemed plus accrued and
unpaid interest to the date of redemption and
the "make whole" payment.
If we redeem any debentures under these
circumstances, we will pay in cash a "make
whole" payment on the redeemed debentures equal
to the present value of all remaining scheduled
payments of interest on the debentures to be
redeemed through and including, in the case of
the Series A debentures, June 20, 2010, or, in
the case of the Series B debentures, June 20,
2013.
For more information about the provisional
redemption of the debentures, see "Description
of the Debentures -- Provisional Redemption."
Optional Redemption........... We may redeem for cash all or a portion of:
- the Series A debentures on or after June 20,
2010, at a price equal to 100% of the
principal amount of the Series A debentures
to be redeemed plus any accrued and unpaid
interest, if any, to but excluding the
redemption date; and
- the Series B debentures on or after June 20,
2013, at a price equal to 100% of the
principal amount of the Series B debentures
to be redeemed plus any accrued and unpaid
interest, if any, to but excluding the
redemption date.
For more information about redemption of the
debentures at our option, see "Description of
the Debentures -- Optional Redemption."
Purchase of Debentures by Us
at the Option of the Holder... Holders of Series A debentures have the right
to require us to purchase all or a portion of
their Series A debentures on June 15, 2010,
June 15, 2015 and June 15, 2020, each of which
we refer to as a purchase date.
Holders of Series B debentures have the right
to require us to purchase all or a portion of
their Series B debentures on June 15, 2013 and
June 15, 2019, each of which we refer to as a
purchase date.
We may, at our option, choose to pay the
purchase price in cash, common stock, or a
combination of cash and common stock.
In each case, we will pay a purchase price
equal to 100% of the principal amount of the
debentures to be purchased plus any accrued and
unpaid interest, if any, to but excluding the
purchase date. If we choose to pay all or part
of the purchase price in shares of common
stock, the shares will be valued at 5% discount
from the market price of our common stock. For
more information about the purchase of
S-3
debentures by us at the option of the holder,
see "Description of the Debentures -- Purchase
of Debentures by Us at the Option of the
Holder."
Fundamental Change............ If we undergo a fundamental change (as defined
under "Description of the Debentures --
Fundamental Change Requires Purchase of
Debentures by Us at the Option of the Holder")
prior to maturity, you will have the right, at
your option, to require us to purchase all or a
portion of your debentures for cash. The cash
price we are required to pay is equal to 100%
of the principal amount of the debentures to be
purchased plus accrued and unpaid interest, if
any, to but excluding the fundamental change
purchase date. For more information about the
purchase of debentures by us at the option of
the holder following a fundamental change, see
"Description of the Debentures -- Fundamental
Change Requires Purchase of Debentures by Us at
the Option of the Holder."
Covenants..................... The senior indenture governing the debentures
contains certain covenants restricting our
ability to:
- create liens securing certain indebtedness;
and
- consolidate with or merge into, or sell
substantially all of our assets to, another
person.
Form.......................... The debentures will be issued in book-entry
form and will be represented by permanent
global certificates deposited with, or on
behalf of, The Depository Trust Company ("DTC")
and registered in the name of a nominee of DTC.
You may hold an interest in the global
certificates through DTC, Clearstream,
Luxembourg or Euroclear Bank, as operator of
the Euroclear system, directly as a participant
or indirectly through organizations that are
participants in such system. Beneficial
interests in any of the debentures will be
shown on, and transfers will be effected only
through, records maintained by DTC or its
nominee, Clearstream, Luxembourg or Euroclear
Bank, and any such interest may not be
exchanged for certificated securities, except
in limited circumstances.
Trading....................... We have not applied and do not intend to apply
for the listing of the debentures on any
securities exchange. Our common stock is listed
on The New York Stock Exchange under the symbol
"LU."
Use of Proceeds............... We intend to use the net proceeds from the sale
of the debentures, estimated, after deducting
the underwriting discount and related offering
expenses, to be approximately $
(approximately $ if the underwriters
exercise their overallotment option in full)
for the repayment or possible repurchase from
time to time of our outstanding debt,
convertible preferred stock and/or trust
preferred securities, or otherwise for other
general corporate purposes.
RISK FACTORS
You should carefully consider all of the information included or
incorporated by reference in this prospectus. In particular, you should evaluate
the specific risk factors set forth in the section "Risk Factors" in this
prospectus supplement for a discussion of the risks relating to our company and
an investment in the debentures.
S-4
RISK FACTORS
Our business, our future performance and forward-looking statements could
be affected by general industry and market conditions and growth rates, general
U.S. and non-U.S. economic and political conditions, including the global
economy, interest rate and currency exchange rate fluctuations and other future
events. You should carefully consider the risks described below and review the
information contained in the other sections of this prospectus supplement, the
accompanying prospectus and the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus before purchasing any
debentures.
RISKS RELATED TO OUR BUSINESS
IF THE TELECOMMUNICATIONS MARKET DOES NOT IMPROVE, OR IMPROVES AT A SLOWER PACE
THAN THE COMPANY ANTICIPATES, OUR RESULTS OF OPERATIONS WILL CONTINUE TO SUFFER.
During fiscal 2001 and 2002 and continuing during fiscal 2003 to date, the
global telecommunications market has significantly deteriorated, reflecting a
significant decrease in the competitive local exchange carrier market, failures
of many other start-up telecommunications service providers and a significant
reduction in capital spending by established service providers. Our sales and
results of operations have been adversely affected by this market deterioration.
If capital investment levels by service providers continue to decline, or
if the telecommunications market does not improve or improves at a slower pace
than we anticipate, our revenues and profitability will continue to be adversely
affected. In addition, if our sales volume and product mix do not improve, our
gross margin percentage may not improve as much as we expect, resulting in lower
than expected results of operations. These factors may fluctuate from quarter to
quarter.
The significant slowdown in capital spending in our target markets has
created uncertainty as to the level of demand in those markets. In addition, the
level of demand can change quickly and can vary over short periods of time,
including from month to month. As a result of the uncertainty and variations in
our markets, accurately forecasting revenues, results and cash flow is
increasingly difficult.
WE INCURRED SIGNIFICANT NET LOSSES IN FISCAL 2001 AND 2002 AND IN THE FIRST AND
SECOND QUARTERS OF FISCAL 2003 AND WE EXPECT TO INCUR A NET LOSS FOR FISCAL
2003. IF WE CONTINUE TO INCUR NET LOSSES, OUR ABILITY TO SATISFY OUR CASH
REQUIREMENTS MAY BE MORE DIFFICULT AND OUR LEGALLY AVAILABLE SURPLUS MAY BE
SIGNIFICANTLY REDUCED OR IMPAIRED.
We incurred net losses of $264 million and $351 million for the first and
second fiscal quarters of 2003, respectively. We incurred net losses of
approximately $12 billion and $16 billion in fiscal 2002 and 2001, respectively,
and in fiscal 2002 we recorded a $2.9 billion charge to equity on account of our
employee benefit plans.
We expect to have a net loss in fiscal 2003 as well. There can be no
assurance that we can return to profitability in the future. If we fail to
generate operating income and net income, we could have difficulty meeting our
cash requirements, including our debt obligations.
Our losses and charges to equity have contributed to a significant
reduction in our legally available surplus. Under Delaware law we generally can
pay dividends on or acquire shares of our capital stock only from our legally
available surplus, as defined by Delaware law. The significant reductions of our
surplus we have experienced, as well as potential future losses and charges to
equity, could adversely affect our ability to pay dividends or to redeem or
otherwise satisfy any repurchase obligations with respect to our capital stock.
OUR STRATEGIC DIRECTION AND RESTRUCTURING PROGRAMS MAY NOT YIELD THE BENEFITS WE
EXPECT AND COULD EVEN HARM OUR FINANCIAL CONDITION, REPUTATION AND PROSPECTS.
In connection with our strategic direction and restructuring programs, we
have completed or have substantially completed each of the following: exiting
certain product lines, outsourcing the manufacturing of
S-5
most of our products, selectively disposing of certain of our businesses and
facilities, reducing the number of countries in which we operate, and
significantly reducing our workforce. These activities may not yield the
benefits we expect.
Our strategic direction and restructuring program also may give rise to
unforeseen costs, which could wholly or partially offset any expense reductions
or other financial benefits we attain as a result of the changes to our
business. In addition, if the markets for our products do not improve, we may
need to take additional restructuring actions to address these market
conditions. Any such additional actions could result in additional restructuring
charges.
Our restructuring programs and our current business plan are designed to
get us back to profitability and positive cash flow, but we cannot be certain
that this will occur. Our current plan to return to profitability is predicated
upon achieving several financial targets, including gross profit margins in the
mid 30% range or higher. If we cannot sustain these levels or otherwise reach
our financial targets, we may not be able to obtain the cash flow and
profitability levels we expect.
OUR SUBSTANTIAL AMOUNT OF DEBT COULD ADVERSELY AFFECT OUR BUSINESS.
We have a substantial amount of debt. At March 31, 2003, we had
approximately $3.4 billion of indebtedness, as well as $1.2 billion of trust
preferred securities, and $960 million of convertible preferred stock,
outstanding. Upon the expected consolidation of the special purpose trust to
which we sold certain customer finance loans and receivables, our consolidated
debt will increase by approximately $300 million. Our substantial amount of debt
and other obligations could adversely affect our business.
Under the terms of the agreements governing our debt we are permitted to
incur additional debt, including secured debt under bank credit facilities and
certain other arrangements, and we may incur a significant amount of additional
debt in the future.
WE HAVE SUBSTANTIAL CASH REQUIREMENTS AND MAY REQUIRE ADDITIONAL SOURCES OF
FUNDS. ADDITIONAL SOURCES OF FUNDS MAY NOT BE AVAILABLE OR AVAILABLE ON
REASONABLE TERMS.
We have substantial cash requirements both in the near and long term in
connection with our operations, capital expenditures, restructuring programs,
debt service obligations, pension and postretirement benefit plans and, if we
elect to pay in cash and have sufficient surplus, dividends or redemptions for
our, preferred stock. We may also fund up to $320 million of our shareowner
litigation settlement with cash, shares of our common stock or a combination of
both and could be required to fund up to $356 million of certain obligations of
the special purpose trust due to the denial of credit insurance by an
unaffiliated insurer. We expect to continue to use cash to meet these
requirements through the remainder of fiscal 2003. In addition, new product
development, which is key to the success of our business, is cash intensive. We
cannot provide assurance that our actual cash requirements will not be greater
than we currently expect. If the cash we generate from our operations or from
our other sources is not available when needed or is insufficient to satisfy our
requirements, we may require additional sources of funds through additional
operating improvements, asset sales and financing from third parties, or a
combination thereof.
We have entered into a new credit facility which is limited to providing
letters of credit and includes a collateral arrangement to, among other things,
facilitate lines of credit for our foreign subsidiaries and support our hedging
arrangements. The new facility contains covenants setting minimum levels of
quarterly operating income and cash and cash equivalents. If we fail to meet any
of these covenants, we may be required to provide cash collateral to support
letters of credit. We cannot assure you that any other required additional
sources of funds would be available or available on reasonable terms. If we do
not generate sufficient amounts of capital to meet our cash requirements at the
times and on the terms required by us, our business will be adversely affected.
S-6
OUR CREDIT RATINGS MAY BE REVIEWED FOR DOWNGRADE, PUT ON CREDIT WATCH OR
DOWNGRADED, WHICH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Declines in our credit ratings have resulted in increased costs on certain
of our financing arrangements. In addition, we have experienced reduced access
to credit markets and declines in the price of our common stock, convertible
preferred stock, trust preferred securities and debt securities. There can be no
assurance that our credit ratings will not be reduced in the future by Moody's,
S&P, or any other ratings agency. In addition, our current credit ratings may
cause some customers to be unwilling to do business with us on normal terms and
conditions, or at all.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY. OUR FAILURE TO COMPETE EFFECTIVELY
WOULD HARM OUR BUSINESS.
The industry in which we operate is highly competitive and we expect that
the level of competition on pricing and product offerings will continue to be
intensive. Factors that could affect our ability to compete successfully in the
industry include: the quality, performance, price, reliability, mix and market
acceptance of our products; market acceptance of our competitors' products;
efficiency and quality of the production and implementation of our products; and
our customer support and reputation.
We have a number of existing competitors, some of which are very large with
substantial technological and financial resources, brand recognition and
established relationships with global service providers. In addition, new
competitors may enter the industry as a result of shifts in technology. These
new competitors, as well as existing competitors, may include entrants from the
telecommunications, computer software, computer services, data networking, and
semiconductor industries. We cannot assure that we will be able to compete
successfully against existing or future competitors. Competitors may be able to
offer lower prices, additional or a more attractive mix of products or services,
or services or other incentives that we cannot or will not match or do not
offer. These competitors may be in a stronger position to respond quickly to new
or emerging technologies and may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies, and make more attractive
offers to potential customers, employees, and strategic partners. Because we
have a unionized workforce at some locations and many of our main competitors
are not unionized to the same extent, or at all, our costs may be higher and our
profitability may be lower than our competitors.
In addition, we may have less liquidity and a more limited access to the
capital markets as a result of our credit ratings than some of our competitors.
Therefore, these competitors may be better positioned to withstand a prolonged
downturn in the industry or in the economy as a whole.
A SMALL NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUES, AND THE LOSS OF ONE OR MORE KEY CUSTOMERS COULD SIGNIFICANTLY REDUCE
OUR REVENUES, PROFITABILITY AND CASH FLOW.
We rely on a few large customers to provide a substantial portion of our
revenues. These customers include: AT&T, AT&T Wireless, BellSouth, Cingular,
SBC, Sprint, Verizon and Verizon Wireless. Verizon and Verizon Wireless together
accounted for approximately 19% of our fiscal 2002 revenues. Our strategy is to
target our products and services to the world's largest service providers. In
addition, the telecommunications industry has recently experienced a
consolidation of both U.S. and non-U.S. companies. As a result of these factors,
it is likely that in fiscal 2003 and subsequent years an even greater percentage
of our revenues will be attributable to a limited number of large service
providers than in years past.
Reductions, delays or cancellations of orders from one or more of our
significant customers or the loss of one or more significant customers in any
period could continue to have an adverse effect on our revenues, profitability
and cash flow.
WE ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS AS A RESULT OF OUR CUSTOMER
FINANCING ARRANGEMENTS AND ACCOUNTS RECEIVABLE.
Our credit exposure to our customers makes us vulnerable to downturns in
the economy and the industry in general, and to adverse changes in our
customers' businesses in particular. Many of the customers to whom we
S-7
provide financing or with whom we have contracts have been negatively affected
by the continued softening in the telecommunications market, and some have filed
for bankruptcy or been declared insolvent. As a result, we wrote off some of our
accounts receivable and many of our customer financings and sold others at
significant discounts. We also recorded reserves or write-offs in our financial
statements and may have to record additional reserves or write-offs in the
future.
WE RELY ON THIRD PARTIES TO MANUFACTURE MOST OF OUR PRODUCTS AND TO PROVIDE
SUBSTANTIALLY ALL OF OUR COMPONENTS. IF THESE THIRD PARTIES FAIL TO DELIVER
QUALITY PRODUCTS AND COMPONENTS AT REASONABLE PRICES ON A TIMELY BASIS, WE MAY
ALIENATE SOME OF OUR CUSTOMERS, AND OUR REVENUES, PROFITABILITY AND CASH FLOW
MAY DECLINE.
We are increasing our use of contract manufacturers as an alternative to
our own manufacturing of products. If these contract manufacturers do not
fulfill their obligations to us, or if we do not properly manage these
relationships, our existing customer relationships may suffer. In addition, by
undertaking these activities, we run the risk that the reputation and
competitiveness of our products and services may deteriorate as a result of the
reduction of our control over quality and delivery schedules. We also may
experience supply interruptions, cost escalations and competitive disadvantages
if our contract manufacturers fail to develop, implement or maintain
manufacturing methods appropriate for our products and customers.
Our supply chain and manufacturing process relies on accurate forecasting
to provide us with optimal margins and profitability. Because of market
uncertainties, forecasting has become much more difficult. In addition, as we
come to rely more heavily on contract manufacturers, we may have fewer personnel
resources with expertise to manage these third-party arrangements.
WE HAVE LONG-TERM SALES AGREEMENTS WITH A NUMBER OF OUR LARGE CUSTOMERS. SOME OF
THESE AGREEMENTS MAY PROVE UNPROFITABLE AS OUR COSTS AND PRODUCT MIX SHIFT OVER
THE LIVES OF THE AGREEMENTS.
We have entered into long-term sales agreements with a number of our large
customers. Some of these sales agreements require us to sell products and
services at fixed prices over the lives of the agreements, and some require us
to sell products and services that we would otherwise discontinue, thereby
diverting our resources from developing more profitable or strategically
important products. The costs we incur in fulfilling some of our sales
agreements may vary substantially from our initial cost estimates. Any cost
overruns that we cannot pass on to our customers could adversely affect our
results of operations by reducing or eliminating our profit margins.
IF WE FAIL TO MAINTAIN A PRODUCT PORTFOLIO THAT IS ATTRACTIVE TO OUR CUSTOMERS,
ENHANCE OUR EXISTING PRODUCTS AND KEEP PACE WITH TECHNOLOGICAL ADVANCES IN OUR
INDUSTRY, OR IF WE PURSUE TECHNOLOGIES THAT DO NOT BECOME COMMERCIALLY ACCEPTED,
CUSTOMERS MAY NOT BUY OUR PRODUCTS, AND OUR REVENUES, PROFITABILITY AND CASH
FLOW MAY BE ADVERSELY AFFECTED.
The demand for our products can change quickly and in ways that we may not
anticipate because markets for our principal products are characterized by:
rapid, and sometimes disruptive, technological developments; evolving industry
and certification standards; frequent new product introductions and
enhancements; changes in customer requirements and a limited ability to
accurately forecast future customer orders; evolving methods of building and
operating communications systems for our customers; and short product life
cycles with declining prices over the life cycle of a product. For example, two
of our U.S.-based Mobility customers have selected alternatives to our Time
Division Multiple Access technology that we currently sell to them. We do not
have products for all of the alternative technologies. Approximately 50% of the
decline in our U.S. Mobility revenues in the six months ended March 31, 2003 as
compared with the comparable prior year period was attributed to these two
customers.
Our operating results depend, to a significant extent, on our ability to
maintain a product portfolio that is attractive to our customers, enhance our
existing products and continue to successfully introduce new products on a
timely basis. New technological innovations generally require a substantial
investment before any assurance is available as to their commercial viability,
including, in some cases, certification by U.S. and non-U.S. standards-setting
bodies.
S-8
If we fail to make sufficient investments or we focus on technologies that
do not become widely adopted, other technologies could render our current and
planned products obsolete, resulting in the need to change the focus of our
research and development and our product strategies. This will disrupt our
business significantly. Being one of the first to make products available is
important to the success of a new product, and any delays in bringing a new
product to market could have a negative effect on our results of operations.
Accordingly, when we do develop appropriate technology, this technology may not
be successful if we fail to bring it to market in a timely and commercially
feasible manner.
MANY OF OUR CURRENT AND PLANNED PRODUCTS ARE HIGHLY COMPLEX AND MAY CONTAIN
DEFECTS OR ERRORS THAT ARE DETECTED ONLY AFTER DEPLOYMENT IN COMMUNICATIONS
NETWORKS. IF THAT OCCURS, OUR REPUTATION MAY BE HARMED.
Our products are highly complex and some of them can only be fully tested
when deployed in communications networks or with other equipment. From time to
time, our products have contained undetected defects, errors or failures. The
occurrence of any defects, errors or failures could result in cancellation of
orders, product returns, diversion of our resources, legal actions by our
customers or our customers' end-users and other losses to us or to our customers
or end-users. Any of these occurrences could also result in the loss of or delay
in market acceptance of our products and loss of sales, which would harm our
business and adversely affect our revenue and profitability.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN AND RECRUIT KEY PERSONNEL.
Our success depends in large part on our ability to recruit and retain
highly skilled technical, managerial, sales and marketing personnel. In spite of
the economic slowdown, competition for these personnel remains intense. In
addition, our recent workforce reductions have increased our dependence on our
remaining workforce, as we are relying on our current personnel to assume
additional responsibilities. The loss of services of any of our key personnel or
our failure to retain and attract qualified personnel in the future could make
it difficult for us to meet our key objectives, such as timely product
introductions.
WE ARE PARTY TO LAWSUITS, WHICH, IF DETERMINED ADVERSELY TO US, COULD RESULT IN
THE IMPOSITION OF DAMAGES AGAINST US AND COULD HARM OUR BUSINESS AND FINANCIAL
CONDITION.
We and certain of our former officers and current and former members of our
board of directors are subject to various lawsuits brought by shareowners and
classes of shareowners, customers and participants in some of our employee
benefit plans, alleging, among other things, violations of federal and state
securities laws, ERISA and breaches of various fiduciary obligations. The
deterioration in the overall telecommunications market, the decline of our
results of operations in fiscal 2002 and 2001, and the consequent impact on our
common stock price, have increased the number and nature of the actions being
brought and the damages claimed against us. In addition, our substantial
workforce reductions appear to have been the catalyst for a number of employment
related actions against us. The actions and allegations made against us may
increase in the future as we continue to implement our restructuring efforts,
which may involve further asset dispositions and workforce reductions.
On March 27, 2003, we announced that we had reached an agreement in
principle to settle the purported securities, ERISA and derivative class action
lawsuits and several other related lawsuits against us and our current and
former directors, officers and employees. Under the settlement agreement, we
will pay $315 million in common stock, cash or a combination of both, at our
option. We will also issue warrants to purchase 200 million shares of our common
stock, at an exercise price of $2.75 per share and with an expiration date three
years from the date of issuance. The settlement requires court approval from
various courts before it becomes final. Failure of the court to approve the
settlement or a decision by a large proportion of class members to opt out of
the settlement could lead to continued litigation.
There can be no assurance that actions that have been or will be brought
against us will be resolved in our favor, or if a significant monetary judgment
is rendered against us, that we will have the ability to pay such a judgment.
Any losses resulting from these claims could adversely affect our profitability
and cash flow.
S-9
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR BUSINESS AND
PROSPECTS MAY BE HARMED.
Intellectual property, such as patents, are vital to our business and
developing new products and technology that are unique to us is critical to our
success. We have numerous United States and foreign patents and numerous pending
patents, but we cannot predict whether any patents, issued or pending, will
provide us with any competitive advantage, or will be challenged by third
parties. Moreover, our competitors may already have applied for patents that,
once issued, could prevail over our patent rights or otherwise limit our ability
to sell our products. Our competitors also may attempt to design around our
patents or copy or otherwise obtain and use our proprietary technology. In
addition, patent applications that we have currently pending may not be granted.
If we do not receive the patents we seek, or if other problems arise with our
intellectual property, our competitiveness could be significantly impaired,
which would limit our future revenues and harm our prospects.
WE ARE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION AND INFRINGEMENT CLAIMS,
WHICH COULD CAUSE US TO INCUR SIGNIFICANT EXPENSES OR PREVENT US FROM SELLING
OUR PRODUCTS.
From time to time, we receive notices from third parties of potential
infringement and receive claims of potential infringement when we attempt to
license our intellectual property to others. Intellectual property litigation
can be costly and time consuming and divert the attention of management and key
personnel from other business issues. The complexity of the technology involved
and the uncertainty of intellectual property litigation increase these risks. A
successful claim by a third party of patent or other intellectual property
infringement by us could compel us to enter into costly royalty or license
agreements or force us to pay significant damages and may even require us to
stop the sale of certain of our products.
WE ARE SUBJECT TO ENVIRONMENTAL, HEALTH AND SAFETY LAWS, THE COMPLIANCE WITH,
AND LIABILITIES PURSUANT TO WHICH COULD BE COSTLY AND RESTRICT OUR OPERATIONS.
We are subject to a wide range of environmental, health and safety laws,
including laws relating to the use, disposal, clean up of, and human exposure
to, hazardous substances. In the United States, these laws often require parties
to fund remedial action regardless of fault. Although we believe our reserves
are adequate to cover our environmental liabilities, factors such as the
discovery of additional contaminants, the extent of remediation and compliance
expenses, and the imposition of additional cleanup obligations at Superfund and
other sites could cause our capital expenditures and other expenses relating to
remediation activities to exceed the amount reflected in our environmental
reserve and adversely affect our results of operations or cash flows. Compliance
with and liabilities under existing or future environmental, health and safety
laws could cause the suspension of production, restrict our ability to expand
facilities, require us to acquire costly pollution control equipment or modify
manufacturing processes or incur other significant expenses.
RAPID CHANGES TO EXISTING REGULATIONS OR TECHNICAL STANDARDS OR THE
IMPLEMENTATION OF NEW REGULATIONS OR TECHNICAL STANDARDS UPON PRODUCTS AND
SERVICES NOT PREVIOUSLY REGULATED COULD BE DISRUPTIVE, TIME CONSUMING AND COSTLY
TO US.
Many of our products and services are developed in reliance upon existing
regulations and technical standards, our interpretation of unfinished technical
standards or the lack of such regulations and standards. Rapid changes to
existing regulations and technical standards or the implementation of new
regulations and technical standards upon products and services not previously
regulated could adversely affect development, demand, sale and warranty of our
products and services, thus increasing our costs and decreasing the demand for
our products and services.
WE CONDUCT A SIGNIFICANT AMOUNT OF OUR OPERATIONS OUTSIDE THE UNITED STATES,
WHICH SUBJECTS US TO SOCIAL, POLITICAL AND ECONOMIC RISKS OF DOING BUSINESS IN
FOREIGN COUNTRIES AND MAY CAUSE OUR PROFITABILITY TO DECLINE DUE TO INCREASED
COSTS.
We have significant operations in foreign countries, including
manufacturing facilities, sales personnel and customer support operations. For
the first six months of fiscal 2003 and fiscal 2002, we derived approximately
39% and 34%, respectively, of our revenues from sales outside the United States,
with the foreign markets
S-10
including China, Germany, India and Saudi Arabia. We manufacture a portion of
our products outside the United States. We are also dependent on international
suppliers for many of our components and subassemblies and assembly of some of
our products. We are concentrating sales and marketing, product development,
services and supply chain resources to meet the global needs of the world's
largest service providers and to follow the geographic footprint of our large
service provider customers around the world to the approximately 20 core
countries in which these customers do business. We are, therefore, subject to
the risks inherent in doing business in foreign countries. These risks include:
tariffs and duties, price controls, restrictions on foreign currencies and trade
barriers imposed by foreign countries; exchange controls and fluctuations in
currency exchange rates; difficulties in staffing and managing international
operations; political or social unrest or economic instability; the risk of
nationalization of private enterprises by foreign governments; adverse tax
consequences, including imposition of withholding or other taxes on payments by
subsidiaries; and the effects of health crises, such as the recent developments
relating to severe acute respiratory syndrome, or SARS.
Difficulties in some foreign financial markets and economies could also
inhibit demand from our customers in the affected countries. Any or all of these
factors could have a material adverse impact on our global business operations.
Although we attempt to manage our exposure to risks from fluctuations in foreign
currency exchange rates, through our regular operating and financing activities
and, when deemed appropriate, derivative financial instruments, our attempts may
not always be successful. A significant change in the value of the United States
dollar against the currency of one or more countries where we sell products to
local customers or make purchases from local suppliers may materially adversely
affect our operating results.
OUR COMMON STOCK HAS TRADED IN THE PAST YEAR AT PRICES BELOW $1.00 AND COULD BE
SUBJECT IN THE FUTURE TO DELISTING BY THE NEW YORK STOCK EXCHANGE.
Our common stock currently trades on the New York Stock Exchange. Under the
New York Stock Exchange requirements, a stock is required to maintain a minimum
trading price and can be delisted and not allowed to trade on the exchange if
the average closing price of the stock over a 30 trading-day period is less than
$1.00. As of October 17, 2002, our common stock had failed to meet this minimum
trading price requirement because the average closing price for 30 trading days
was below $1.00. The New York Stock Exchange gave us notice that we had six
months to cure this problem or our common stock could be delisted. Upon
conclusion of the six-month cure period on April 25, 2003, our common stock
traded over the $1.00 threshold, and it continues to do so as of the date of
this prospectus supplement. We may, however, not be able to maintain a common
stock price above the $1.00 threshold in order to prevent delisting in the
future.
In response to the notice of possible delisting from the New York Stock
Exchange, we requested authorization from our shareowners to effect a reverse
stock split until February 18, 2004, which our shareowners approved in February
2003. We have not undertaken this reverse stock split. If however the price of
our common stock were to again fall below the $1.00 threshold for a sustained
period, we would likely consummate a reverse stock split. We may elect to effect
the reverse stock split even if our common stock price does not fall below
$1.00. There can be no guarantee that this would result in a sustained trading
price for our common stock sufficient to prevent future delisting or that the
reverse stock split would not adversely affect the adjusted market price of our
common stock.
If our common stock is delisted, trading our stock may become more
difficult and our stock price could decrease even further. If our common stock
is not listed on a national securities exchange or NASDAQ, many potential
investors will not purchase our common stock, limiting the trading market for
our stock even further. If delisting by the New York Stock Exchange does occur,
our common stock would likely be removed from the Standard & Poor's 500 index,
which would also limit the trading market for our common stock.
WE HAVE RISKS RELATED TO OUR PENSION AND POSTRETIREMENT BENEFIT PLANS.
We currently maintain U.S. pension plans under the Employee Retirement
Income Security Act of 1974, or ERISA, that cover various categories of
employees and retirees. Liabilities related to 32,000 active employees and
127,000 retired employees make up approximately 95% of the total obligations
under these pension plans. The remaining 5% of the liabilities are attributable
to approximately 90,000 beneficiaries and former employees
S-11
with deferred vested pension rights. Separate trusts are maintained for
management participants and for represented participants to fund these pension
obligations. Our obligations to make contributions to fund benefit obligations
under the pension plans are based on the performance of the financial markets,
particularly the equity markets, and interest rates. Funding obligations are
determined under ERISA and are measured as of December 31 of each year utilizing
the value of assets and liabilities on that date. If the financial markets do
not provide the long-term returns that are expected under the ERISA funding
calculation, the likelihood of our being required to make contributions
increases. The equity markets can be, and recently have been, very volatile, and
therefore our estimate of future contribution requirements can change
dramatically in relatively short periods of time. Similarly, changes in interest
rates can impact our contribution requirements. In a low interest rate
environment, the likelihood of required contributions in the future increases.
With respect to the management pension plan, we do not expect to be
required to make a contribution for fiscal 2003 or 2004. However, because of the
volatility of the financial markets and fluctuations in interest rates, we could
be required to make contributions as early as fiscal 2005. With respect to the
represented pension plan, we do not currently foresee a need to make any
contributions, but this could change if the equity markets decline
substantially.
Approximately 127,000 of our current retirees are also covered by
postretirement healthcare benefit plans. With respect to management retirees, we
expect we will only need to make minimal, if any, cash payments in fiscal 2003
for these healthcare benefits. However, we do expect to make benefit payments
from our operating cash flow in fiscal 2004 and beyond. Although it is difficult
to estimate these expected future payments, our current view of the funding
requirement is approximately $350 million annually. With respect to represented
retirees, we do not expect to have to make cash payments before fiscal 2006 or
2007 due to assets currently held in a separate trust to fund these payments.
The cost of providing postretirement healthcare benefits continues to rise.
We expect to take steps designed to reduce the overall cost of providing
postretirement healthcare benefits and to reduce the share of these costs borne
by us, consistent with legal requirements and our collective bargaining
obligations. There can be no assurance that we will be successful in reducing
these costs.
If we are required to make significant contributions to fund the pension
plans or make significant cash payments for retiree healthcare benefits, our
cash flow available for other uses may be significantly reduced. In addition, if
we are unable at any time to meet any required funding obligations for the
pension plans, or if the Pension Benefit Guaranty Corporation (PBGC) concludes
that, as insurer of certain plan benefits, our risk may increase unreasonably if
the plans continue, under ERISA the PBGC could terminate the plans and place
liens on material amounts of our assets.
RISKS RELATED TO THE DEBENTURES
THE DEBENTURES ARE EFFECTIVELY JUNIOR TO SECURED OBLIGATIONS UNDER OUR BANK
CREDIT AGREEMENTS AND STRUCTURALLY SUBORDINATED TO LIABILITIES OF OUR
SUBSIDIARIES.
The debentures are our unsecured and unsubordinated obligations and rank
equal in right of payment with all of our existing and future unsecured and
unsubordinated indebtedness. As of March 31, 2003, we had approximately $3
billion (excluding the liabilities of our subsidiaries) outstanding in unsecured
and unsubordinated indebtedness.
The debentures will be effectively junior to our secured obligations,
including those incurred under our new bank credit agreement and our
indemnification obligations relating to the special purpose trust to which we
sold certain customer finance loans and receivables, which are secured by
substantially all our assets, and to secured obligations incurred under any
future credit facilities, receivables and real estate arrangements and certain
other arrangements. As of March 31, 2003, $760 million of outstanding
obligations, including, among other things, letters of credit, external sharing
debt and obligations relating to our hedging activities, were secured by
substantially all our assets and effectively senior to the debentures. The
debentures will also be effectively junior to our secured guarantee of our
subsidiaries' obligations under the bank credit agreement.
S-12
In addition, the debentures will be structurally subordinated to all
indebtedness and other obligations of our subsidiaries. As of March 31, 2003,
our subsidiaries had approximately $2.9 billion of outstanding liabilities,
including trade payables, all of which are structurally senior to the
debentures. In addition, in connection with the expected consolidation of our
special purpose trust in fiscal 2003, we expect that, upon consolidation, the
indebtedness of our consolidated subsidiaries will increase by approximately
$300 million. See "Capitalization."
The indenture under which the debentures will be issued contains no
restrictions on the amount of additional senior indebtedness we may incur, the
amount of indebtedness that may be secured under our new bank credit agreement
or future credit facilities, receivables and real estate arrangements and
certain other arrangements or the amount of liabilities our subsidiaries may
incur.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PURCHASE THE
DEBENTURES UPON A FUNDAMENTAL CHANGE OR OTHER PURCHASE DATE, AS REQUIRED BY THE
SENIOR INDENTURE GOVERNING THE DEBENTURES.
Holders of the Series A debentures may require us to purchase their Series
A debentures on June 15, 2010, June 15, 2015 and June 15, 2020. Holders of the
Series B debentures may require us to purchase their Series B debentures on June
15, 2013 and June 15, 2019. In addition, holders of the debentures also may
require us to purchase their debentures for cash upon a fundamental change as
described under "Description of the Debentures -- Fundamental Change Requires
Purchase of Debentures by Us at the Option of the Holder." A fundamental change
also may constitute an event of default, and result in the acceleration of the
maturity of our then existing indebtedness, under another indenture or other
agreement. We cannot assure you that we would have sufficient financial
resources, or would be able to arrange financing, to pay the purchase price in
cash for the debentures tendered by holders. Although we may choose to pay the
purchase price (other than in the event of a fundamental change) in cash, common
stock, or a combination of cash and common stock, if the amount of stock to be
issued in connection with any such purchase equals or exceeds 20% of the voting
power of our outstanding stock prior to the issuance in connection with the
purchase, we may, under New York Stock Exchange rules, be required to obtain
approval of our stockholders for the issuance. Failure by us to purchase the
debentures when required will result in an event of default with respect to the
debentures.
THE TRADING PRICES FOR THE DEBENTURES WILL BE DIRECTLY AFFECTED BY THE TRADING
PRICES OF OUR COMMON STOCK.
The trading prices of the debentures in the secondary market will be
directly affected by the trading prices of our common stock, the general level
of interest rates and our credit quality. It is impossible to predict whether
the price of our common stock or interest rates will rise or fall. Trading
prices of our common stock will be influenced by our operating results and
prospects and by economic, financial and other factors. In addition, general
market conditions, including the level of, and fluctuations in, the trading
prices of stocks generally, and sales of substantial amounts of common stock by
us in the market after the offering of the debentures, or the perception that
such sales could occur, could affect the price of our common stock. Fluctuations
in interest rates may give rise to arbitrage opportunities based upon changes in
the relative value of our common stock. Any other arbitrage could, in turn,
affect the trading prices of the debentures.
AN ACTIVE TRADING MARKET FOR THE DEBENTURES MAY NOT DEVELOP.
The debentures comprise a new issue of securities for which there is
currently no public market. We do not plan to list the debentures on any
securities exchange or to include them in any automated quotation system. We
cannot assure you that an active trading market for the debentures will develop
or as to the liquidity or sustainability of any such market, your ability to
sell the debentures or the price at which you will be able to sell your
debentures. Future trading prices of the debentures will depend on many factors,
including, among other things, prevailing interest rates, our operating results,
the price of our common stock and the market for similar securities.
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IF YOU HOLD DEBENTURES, YOU WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT TO
OUR COMMON STOCK, BUT YOU WILL BE SUBJECT TO ALL CHANGES MADE WITH RESPECT TO
OUR COMMON STOCK.
If you hold debentures, you will not be entitled to any rights with respect
to our common stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common stock), but you will
be subject to all changes affecting the common stock. You will only be entitled
to rights on the common stock if and when we deliver shares of common stock to
you in exchange for your debentures and in limited cases under the anti-dilution
adjustments of the debentures. For example, in the event that an amendment is
proposed to our certificate of incorporation or by-laws requiring stockholder
approval and the record date for determining the stockholders of record entitled
to vote on the amendment occurs prior to delivery of the common stock, you will
not be entitled to vote on the amendment, although you will nevertheless be
subject to any changes in the powers, preferences or special rights of our
common stock.
WE MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK AND THEREBY MATERIALLY AND
ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
We are not restricted from issuing additional common stock during the life
of the debentures and have no obligation to consider your interests for any
reason. If we issue additional shares of common stock, it may materially and
adversely affect the price of our common stock and, in turn, the price of the
debentures. We have issued approximately 700 million shares of our common stock
in connection with the retirement of certain trust preferred securities,
convertible preferred stock and debt obligations, the payment of convertible
preferred stock dividends and a contribution to a trust used to fund certain
retiree healthcare benefits. We may continue to issue additional shares of our
common stock in connection with our convertible preferred stock dividends and
with our efforts to reduce our trust preferred securities, convertible preferred
stock and debt obligations either through privately negotiated exchanges or by
raising cash which may be used to retire a portion of these obligations. We may
also issue additional shares of our common stock in connection with the August
2004 put obligation related to our convertible preferred stock, which has a
liquidation value of $943 million as of May 13, 2003, and our shareowner
litigation settlement to satisfy these obligations or to raise cash at various
times which could be used to satisfy these obligations when due.
The conversion rates of the debentures will not be adjusted for most
issuances of common stock, including the issuance of our common stock to retire
our trust preferred securities, convertible preferred stock and debt
obligations, to pay dividends on our convertible preferred stock or for the
settlement of litigation.
We have also entered into an agreement with UBS Warburg to sell from time
to time up to 100 million shares of our common stock.
OUR CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS, AND SEVERAL OTHER
FACTORS, COULD LIMIT ANOTHER PARTY'S ABILITY TO ACQUIRE US AND COULD DEPRIVE YOU
OF THE OPPORTUNITY TO OBTAIN A TAKEOVER PREMIUM FOR YOUR SHARES OF COMMON STOCK.
A number of provisions that are in our certificate of incorporation and
by-laws will make it difficult for another company to acquire us and for you to
receive any related takeover premium for our common stock. See "Antitakeover
Effects of Certain Provisions of our Certificate of Incorporation and By-Laws"
under "Description of Capital Stock" in the accompanying prospectus.
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USE OF PROCEEDS
We estimate the net proceeds from our sale of the debentures in this
offering, after deducting estimated expenses of $ and underwriting
discounts and commissions, to be approximately $ million (or
$ if the underwriters exercise their over-allotment option in full). We
expect to use the net proceeds of this offering for the repayment or possible
repurchase from time to time of our outstanding debt, convertible preferred
stock and/or trust preferred securities, including in connection with exercises
by holders of our convertible preferred stock of their put rights in 2004, or
otherwise for other general corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES AND OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The following table sets forth our consolidated ratios of earnings to fixed
charges and of earnings to combined fixed charges and preferred stock dividend
requirements for the periods shown.
SIX MONTHS
ENDED FISCAL YEAR ENDED SEPTEMBER 30,
MARCH 31, --------------------------------
2003 2002 2001 2000 1999 1998
---------- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges......... --(a) --(b) --(c) 4.6 7.2 4.3
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend
Requirements............................. --(a) --(b) --(c) 4.6 7.2 4.3
---------------
(a) Our earnings were insufficient to cover our fixed charges by $931 million
and our earnings were insufficient to cover our combined fixed charges and
preferred stock dividend requirements by $992 million during the six months
ended March 31, 2003.
(b) Our earnings were insufficient to cover our fixed charges by $7,087 million
and our earnings were insufficient to cover our combined fixed charges and
preferred stock dividend requirements by $7,254 million during fiscal 2002.
(c) Our earnings were insufficient to cover our fixed charges by $19,860
million and our earnings were insufficient to cover our combined fixed
charges and preferred stock dividend requirements by $19,888 million during
fiscal 2001.
Fixed charges consist of interest expense on all indebtedness and that
portion of operating lease rental expense that is representative of the interest
factor. Preferred stock dividend requirements consist of the amount of pre-tax
earnings that is required to pay the dividends on our outstanding preferred
stock.
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CAPITALIZATION
The following table sets forth our consolidated capitalization at March 31,
2003 on an actual basis and on an adjusted basis to give effect to this
offering, after deducting underwriting discounts and commissions and estimated
offering expenses.
The financial data in the following table are derived from our unaudited
consolidated balance sheet as of March 31, 2003, as adjusted for this offering.
The following data are qualified in their entirety by our financial statements
and other information contained elsewhere or incorporated by reference in this
prospectus supplement and the accompanying prospectus. The information set forth
below assumes that the underwriters have not exercised their over-allotment
option. You should read this table in conjunction with "Use of Proceeds."
ACTUAL AS ADJUSTED
-------- -----------
(IN MILLIONS)
Cash and cash equivalents and short term investments........ $ 3,439 $
======== ===
Debt maturing within one year............................... $ 271 $
Long-term debt.............................................. 3,170
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust............................ 1,152
-------- ---
Total debt(1).......................................... 4,593
-------- ---
8.00% redeemable convertible preferred stock................ 960
Shareowners' deficit:
Common stock................................................ 41
Additional paid-in capital.................................. 21,978
Accumulated deficit......................................... (22,640)
Accumulated other comprehensive loss........................ (3,249)
-------- ---
Total shareowners' deficit................................ (3,870)
-------- ---
Total capitalization................................... $ 1,683 $
======== ===
---------------
(1) In fiscal 2000 and 2001 we sold some of our customer finance loans and
receivables to a special purpose trust, all of which are in default. We
anticipate that we will consolidate the special purpose trust no later than
the fourth quarter of fiscal year 2003. Upon such consolidation, our
consolidated debt will increase by approximately $300 million. See
"Guarantees and Indemnification Agreements" and "Variable Interest Entities"
in Note 10 to our Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources -- Special Purpose Entities" in
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed for trading on the New York Stock Exchange,
under the trading symbol "LU." The following table presents the reported high
and low sales prices of the common stock as reported on the NYSE and the
dividends declared per share for the fiscal quarters indicated.
HIGH LOW DIVIDENDS
------ ------ ---------
Year Ended September 30, 2001:
First Quarter........................................... $34.50 $12.19 $0.02
Second Quarter.......................................... 21.13 9.15 0.02
Third Quarter........................................... 11.50 5.16 0.02
Fourth Quarter.......................................... 7.90 5.25 0.00
Year Ended September 30, 2002:
First Quarter........................................... 8.75 5.37 0.00
Second Quarter.......................................... 7.50 4.10 0.00
Third Quarter........................................... 5.03 1.48 0.00
Fourth Quarter.......................................... 2.94 0.71 0.00
Year Ending September 30, 2003:
First Quarter........................................... 1.99 0.55 0.00
Second Quarter.......................................... 2.03 1.24 0.00
Third Quarter (through May 28, 2003).................... 2.57 1.41 0.00
On May 28, 2003, the closing sale price of our common stock on the New York
Stock Exchange was $2.28 per share. At the close of business on May 27, 2003,
there were 1,449,089 holders of record of our common stock.
We eliminated our quarterly dividend in the fourth fiscal quarter of 2001
and do not anticipate paying any dividends on our common stock in the
foreseeable future.
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DESCRIPTION OF THE DEBENTURES
We will issue the debentures under a senior indenture between us and The
Bank of New York, as trustee, to be dated as of June , 2003, as supplemented
by the first supplemental indenture, to be dated as of June , 2003 (as so
supplemented, the "senior indenture"). This description of the particular terms
of the debentures supplements, and to the extent that the terms are
inconsistent, replaces the description of the general terms and provisions of
the debt securities set forth in the accompanying prospectus. This description
is not complete, and we refer you to the accompanying prospectus and the terms
of the senior indenture. The senior indenture has been, and the supplemental
indenture will be, filed with the SEC. You should read them in their entirety in
order to completely understand the terms of the debentures. As used in this
description, references to "we," "us," "our" or "Lucent" do not include any
current or future subsidiary of Lucent.
GENERAL
The Series A debentures will be limited to $ million aggregate principal
amount ($ million aggregate principal amount if the underwriters exercise in
full their over-allotment option to purchase additional Series A debentures).
The Series B debentures will be limited to $ million aggregate principal amount
($ million aggregate principal amount if the underwriters exercise in full
their over-allotment option to purchase additional Series B debentures). The
Series A debentures will mature on June 15, 2023 and the Series B debentures
will mature on June 15, 2025, in each case, unless earlier converted, redeemed
or purchased by us.
You have the option, subject to fulfillment of certain conditions and
during the periods described below, to convert your debentures into shares of
our common stock. The initial conversion rate for the Series A debentures is
shares of our common stock per $1,000 principal amount of Series A
debentures (equivalent to an initial conversion price of $ per share of common
stock), and the initial conversion rate for the Series B debentures is
shares of our common stock per $1,000 principal amount of Series B debentures
(equivalent to an initial conversion price of $ per share of common stock).
Each conversion rate is subject to adjustment if certain events occur. Upon
conversion of a debenture, you will, except as set forth below, receive only
shares of our common stock and a cash payment to account for fractional shares.
We may redeem the Series A debentures at our option at any time on or after
June 20, 2010 (or earlier if the price of our common stock reaches certain
levels), in whole or in part, at a price equal to 100% of the principal amount,
plus accrued and unpaid interest to, but excluding, the redemption date. We may
redeem the Series B debentures at our option at any time on or after June 20,
2013 (or earlier if the price of our common stock reaches certain levels), in
whole or in part, at a price equal to 100% of the principal amount, plus accrued
and unpaid interest to, but excluding, the redemption date. Our right to redeem
the debentures at our option is discussed below under "-- Optional Redemption,"
and our right to redeem the debentures if the price of our common stock reaches
certain levels is discussed below under "-- Provisional Redemption."
The debentures will initially be offered at a price to investors of $1,000
per debenture. The debentures will be issued only in denominations of $1,000
principal amount and integral multiples of $1,000 principal amount. Principal
and interest on the debentures will be payable at the office of the paying
agent, which initially will be an office or agency of the trustee, or any office
or agency maintained by us for that purpose, in the Borough of Manhattan, The
City of New York, or at our option, such payments may be made by check mailed to
the holders of the debentures at their respective addresses set forth in the
register of the holder of the debentures.
As used in this prospectus supplement, "business day" means, with respect
to any debenture, any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which commercial banks are authorized or required by
law, regulation or executive order to close in The City of New York.
When we refer to "common stock," we mean Lucent Technologies Inc. Common
Stock, par value $.01 per share (as defined in our certificate of
incorporation), which is the only outstanding class of our common stock.
RANKING
The debentures are our unsecured and unsubordinated obligations and rank
equal in right of payment with all of our existing and future unsecured and
unsubordinated indebtedness. As of March 31, 2003, we had
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approximately $3 billion (excluding the debt of our subsidiaries) outstanding in
unsecured and unsubordinated indebtedness. The senior indenture under which the
debentures will be issued contains no restrictions on the amount of additional
indebtedness we may incur. The debentures will be effectively junior to
obligations incurred under our new bank credit agreement and our indemnification
obligations relating to the special purpose trust to which we sold certain
customer finance loans and receivables, which are secured by substantially all
of our assets, and to secured obligations incurred under future credit
facilities, receivables and real estate financing arrangements and certain other
arrangements that are secured. As of March 31, 2003, approximately $760 million
in letters of credit outstanding and other obligations were secured by
substantially all of our assets and effectively senior to the debentures. In
addition, the debentures will be structurally subordinated to all indebtedness
and other obligations of our subsidiaries. Our subsidiaries are separate legal
entities and have no obligation to pay, or make funds available to pay, any
amounts due on the debentures. As of March 31, 2003, our subsidiaries had
approximately $2.9 billion of outstanding liabilities, including trade payables,
all of which are structurally senior to the debentures. See "Risk
Factors -- Risks related to the debentures -- The debentures are effectively
junior to obligations under our bank credit agreement and structurally
subordinated to liabilities of our subsidiaries."
INTEREST
The Series A debentures will bear interest at a rate of % per annum and
the Series B debentures will bear interest at a rate of % per annum. Interest
shall be payable semi-annually on June 15 and December 15 of each year,
commencing December 15, 2003, to the person in whose name such debenture is
registered at the close of business on the preceding June 1 or December 1.
Interest will be calculated on the basis of a 360-day year, consisting of twelve
30-day months, and will accrue from June , 2003 or from the most recent
interest payment date to which interest has been paid or duly provided for.
If any interest payment date, maturity date, redemption date or purchase
date (including upon the occurrence of a fundamental change, as described below)
of a debenture falls on a day that is not a business day, the required payment
will be made on the next succeeding business day with the same force and effect
as if made on the date that the payment was due and no additional interest will
accrue on that payment for the period from and after the interest payment date,
maturity date, redemption date or purchase date (including upon the occurrence
of a fundamental change), as the case may be, to the date of that payment on the
next succeeding business day.
CONVERSION RIGHTS
Subject to the conditions and during the periods described below, holders
may convert their debentures into our common stock at any time prior to the
stated maturity, unless previously redeemed or purchased. For each $1,000
principal amount of the debentures surrendered for conversion, a holder may
convert any outstanding debentures into our common stock at initial conversion
rates of:
- shares of our common stock per Series A debenture, equal to an initial
conversion price of approximately $ , and
- shares of our common stock per Series B debenture, equal to an initial
conversion price of approximately $ .
The conversion rate and the equivalent conversion price in effect at any
given time are referred to as the "applicable conversion rate" and the
"applicable conversion price," respectively, and will be subject to adjustment
as described below. A holder may convert fewer than all of such holder's
debentures so long as the debentures converted are an integral multiple of
$1,000 principal amount.
Upon conversion of a debenture, a holder will not receive any cash payment
of interest (unless such conversion occurs between a regular record date and the
interest payment date to which it relates) and we will not adjust the conversion
rate to account for accrued and unpaid interest. Our delivery to the holder of
the full number of shares of our common stock into which the debenture is
convertible, together with any cash payment for such holder's fractional shares,
will be deemed to satisfy our obligation to pay the principal amount of the
debenture. As a result, any accrued but unpaid interest to the conversion date
is deemed to be cancelled, extinguished and
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forfeited upon conversion. For a discussion of the tax treatment to you of
receiving our common stock upon conversion, see "Certain U.S. Federal Income Tax
Considerations."
If a holder converts debentures, we will pay any documentary, stamp or
similar issue or transfer tax due on the issue of shares of our common stock
upon the conversion, unless the tax is due because the holder requests the
shares to be issued or delivered to a person other than the holder, in which
case the holder will pay that tax.
If a holder wishes to exercise its conversion right, such holder must
deliver an irrevocable duly completed conversion notice, together, if the
debentures are in certificated form, with the certificated security, to the
conversion agent along with appropriate endorsements and transfer documents, if
required, and pay any transfer or similar tax, if required. The conversion agent
will, on the holder's behalf, convert the debentures into shares of our common
stock. Holders may obtain copies of the required form of the conversion notice
from the conversion agent. A certificate, or a book-entry transfer through DTC,
for the number of full shares of our common stock into which any debentures are
converted, together with a cash payment for any fractional shares, will be
delivered through the conversion agent as soon as practicable, but no later than
the fifth business day, following the conversion date. The trustee will
initially act as the conversion agent.
If a holder has already delivered a purchase notice as described under
either "-- Purchase of Debentures by Us at the Option of the Holder" or "--
Fundamental Change Requires Purchase of Debentures by Us at the Option of the
Holder" with respect to a debenture, however, the holder may not surrender that
debenture for conversion until the holder has withdrawn the purchase notice in
accordance with the senior indenture.
Holders of debentures at the close of business on a regular record date
will receive payment of interest payable on the corresponding interest payment
date notwithstanding the conversion of such debentures at any time after the
close of business on the applicable regular record date. Debentures surrendered
for conversion by a holder during the period from the close of business on any
regular record date to the opening of business on the next interest payment date
must be accompanied by payment of an amount equal to the interest that the
holder is to receive on the debentures; provided, however, that no such payment
need be made (1) if we have specified a redemption date that is after a record
date and on or prior to the next interest payment date, (2) if we have specified
a purchase date following a fundamental change that is after a record date and
on or prior to the next interest payment date or (3) only to the extent of
overdue interest, if any overdue interest exists at the time of conversion with
respect to such debenture.
Holders may surrender their debentures for conversion into shares of our
common stock prior to stated maturity in only the following circumstances.
CONVERSION UPON SATISFACTION OF SALE PRICE CONDITION
A holder may surrender any of its debentures for conversion into shares of
our common stock in any calendar quarter (and only during such calendar quarter)
after the quarter ending September 30, 2003 if the sale price of our common
stock for at least 20 trading days during the period of 30 consecutive trading
days ending on the last trading day of the previous calendar quarter is greater
than or equal to 120% of the applicable conversion price per share of our common
stock on such last trading day.
The "sale price" of our common stock on any date means the closing sale
price per share (or if no closing sale price is reported, the average of the bid
and asked prices or, if more than one in either case, the average of the average
bid and the average asked prices) on that date as reported in transactions for
the principal U.S. securities exchange on which our common stock is traded or,
if our common stock is not listed on a U.S. national or regional securities
exchange, as reported by the Nasdaq National Market. The sale price will be
determined without reference to after-hours or extended market trading.
If our common stock is not listed for trading on a U.S. national or
regional securities exchange and not reported by the Nasdaq National Market on
the relevant date, the "sale price" will be the last quoted bid price for our
common stock in the over-the-counter market on the relevant date as reported by
the National Quotation Bureau or similar organization.
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If our common stock is not so quoted, the "sale price" will be the average
of the mid-point of the last bid and asked prices for our common stock on the
relevant date from each of at least three nationally recognized independent
investment banking firms selected by us for this purpose.
"Trading day" means a day during which trading in securities generally
occurs on The New York Stock Exchange or, if our common stock is not then listed
on The New York Stock Exchange, on the principal other national or regional
securities exchange on which our common stock is then listed or, if our common
stock is not then listed on a national or regional securities exchange, on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
or, if our common stock is not then quoted on Nasdaq, on the principal other
market on which our common stock is then traded.
CONVERSION UPON SATISFACTION OF TRADING PRICE CONDITION
You may surrender your debentures for conversion into our common stock
prior to maturity during the five business days immediately following any five
consecutive trading day period in which the trading price per $1,000 principal
amount of debentures (as determined following a request by a holder of the
debentures in accordance with the procedures described below) for each day of
that period was less than 97% of the product of the sale price of our common
stock and the then applicable conversion rate (the "97% Trading Exception");
provided, however, that if, on the date of any conversion of the Series A
debentures pursuant to the 97% Trading Exception that is on or after June 15,
2020, or any conversion of the Series B debentures pursuant to the 97% Trading
Exception that is on or after June 15, 2022, the sale price of our common stock
is greater than the applicable conversion price for the Series A debentures or
the Series B debentures, as applicable, then you will receive upon conversion of
the Series A or the Series B debentures, in lieu of common stock based on the
then applicable conversion rate for your debentures, cash, common stock or a
combination of cash and common stock, at our option, with a value equal to the
principal amount of your debenture plus accrued and unpaid interest, if any, as
of the conversion date, which we refer to as a "principal value conversion." If
you surrender your debentures for conversion and it is a principal value
conversion, we will notify you by the second trading day following the date of
conversion whether we will pay you the principal amount plus accrued and unpaid
interest, if any, in cash, common stock or a combination of cash and common
stock, and in what percentage. Any common stock delivered upon a principal value
conversion will be valued at the greater of the then applicable conversion price
on the conversion date and the sale price on the third trading day after the
conversion date. We will pay you any portion of the principal amount plus
accrued and unpaid interest, if any, to be paid in cash on the third trading day
after the conversion date. With respect to any portion of the principal amount
plus accrued and unpaid interest, if any, to be paid in common stock, we will
deliver the common stock to you on the fifth trading day following the
conversion date.
For financial accounting purposes, the ability to convert upon satisfaction
of trading price condition will constitute an embedded derivative, the initial
value of which is not material to our consolidated financial position. Any
material changes in its value will be reflected in our future income statements,
in accordance with Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities." We do not
believe that such future changes in value will have a significant effect on our
future reported results of operations.
The "trading price" of the debentures on any date of determination means
the average of the secondary market bid quotations per $1,000 principal amount
of debentures obtained by the trustee for $5,000,000 principal amount of the
debentures at approximately 3:30 p.m., New York City time, on such determination
date from three independent nationally recognized securities dealers we select,
provided that if three such bids cannot reasonably be obtained by the trustee,
but two such bids are obtained, then the average of the two bids shall be used,
and if only one such bid can reasonably be obtained by the trustee, this one bid
shall be used. If the trustee cannot reasonably obtain at least one bid for
$5,000,000 principal amount of the debentures from a nationally recognized
securities dealer, then the trading price per $1,000 principal amount of the
debentures will be deemed to be less than 97% of the product of the sale price
of our common stock and the then applicable conversion rate.
In connection with any conversion upon satisfaction of the above trading
price condition, the trustee shall have no obligation to determine the trading
price of the debentures unless we have requested such determination;
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and we shall have no obligation to make such request unless you provide us with
reasonable evidence that the trading price per $1,000 principal amount of the
debentures would be less than 97% of the product of the sale price of our common
stock and the then applicable conversion rate; at which time, we shall instruct
the trustee to determine the trading price of the debentures beginning on the
next trading day and on each successive trading day until the trading price is
greater than or equal to 97% of the product of the sale price of our common
stock and the then applicable conversion rate.
CONVERSION UPON NOTICE OF REDEMPTION
If we call any or all of the debentures for redemption, holders may convert
debentures into our common stock at any time prior to the close of business on
the business day immediately preceding the redemption date, even if the
debentures are not otherwise convertible at such time. If a holder already has
delivered a purchase notice with respect to a debenture, however, the holder may
not surrender that debenture for conversion until the holder has withdrawn the
purchase notice in accordance with the senior indenture.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If we elect to:
- distribute to all holders of our common stock certain rights entitling
them to purchase, for a period expiring within 45 days after the date of
the distribution, shares of our common stock at less than the sale price
of a share of our common stock on the trading day immediately preceding
the declaration date of the distribution, or
- distribute to all holders of our common stock our assets, debt securities
or certain rights to purchase our securities, which distribution has a
per share value as determined by our board of directors exceeding 15% of
the sale price of a share of our common stock on the trading day
immediately preceding the declaration date of the distribution,
we must notify the holders of the debentures at least 20 business days prior to
the ex-dividend date for such distribution. Once we have given such notice,
holders may surrender their debentures for conversion at any time until the
earlier of the close of business on the business day immediately prior to the
ex-dividend date or our announcement that such distribution will not take place,
even if the debentures are not otherwise convertible at such time. No holder may
exercise this right to convert if the holder otherwise may participate in the
distribution without conversion. The ex-dividend date is the first date upon
which a sale of the common stock does not automatically transfer the right to
receive the relevant distribution from the seller of the common stock to its
buyer.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash or
property other than securities, a holder may surrender debentures for conversion
at any time from and after the date that is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual effective date
of such transaction. If we engage in certain reclassifications of our common
stock or are a party to a consolidation, merger, binding share exchange or
transfer of all or substantially all of our assets pursuant to which our common
stock is converted into cash, securities or other property, then at the
effective time of the transaction, the right to convert a debenture into our
common stock will be changed into a right to convert a debenture into the kind
and amount of cash, securities or other property that the holder would have
received if the holder had converted its debentures immediately prior to the
applicable record date for such transaction. If the transaction also constitutes
a fundamental change, as defined below, a holder can require us to purchase all
or a portion of its debentures as described below under "-- Fundamental Change
Requires Purchase of Debentures by Us at the Option of the Holder."
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CONVERSION RATE ADJUSTMENTS
The conversion rate will be subject to adjustment from time to time as
follows:
(1) Stock splits and combinations. In case we, at any time or from time to
time after the issue date of the debentures:
- subdivide or split the outstanding shares of our common stock,
- combine or reclassify the outstanding shares of our common stock
into a smaller number of shares or
- issue by reclassification of the shares of our common stock any
shares of our capital stock,
then, and in each such case, the conversion rate in effect immediately prior to
that event or the record date therefor, whichever is earlier, will be adjusted
so that the holder of any debentures thereafter surrendered for conversion will
be entitled to receive the number of shares of our common stock or of our other
securities which the holder would have owned or have been entitled to receive
after the occurrence of any of the events described above, had those debentures
been surrendered for conversion immediately before the occurrence of that event
or the record date therefor, whichever is earlier.
(2) Stock dividends in common stock. In case we, at any time or from time
to time after the issue date of the debentures, pay a dividend or make a
distribution in shares of our common stock on our common stock other than
dividends or distributions of shares of common stock or other securities with
respect to which adjustments are provided in paragraph (1) above, and the total
number of shares constituting the dividend or distribution exceeds 10% of the
total number of shares of common stock outstanding at the close of business on
the record date fixed for determination of stockholders entitled to receive the
dividend or distribution, the conversion rate will be adjusted by dividing:
- the conversion rate immediately prior to the record date fixed for
determination of stockholders entitled to receive the dividend or
distribution by
- a fraction, the numerator of which will be the number of shares of
common stock outstanding at the close of business on that record date
and the denominator of which will be the sum of that number of shares
and the total number of shares issued in that dividend or
distribution.
In case the total number of shares constituting that dividend or
distribution does not exceed 10% of the total number of shares of common stock
outstanding at the close of business on the record date fixed for that dividend
or distribution, the shares of common stock will be considered to be issued as a
dividend or distribution at the time of any such next succeeding dividend or
other distribution in which the number of shares of common stock issued,
together with the number of shares issued in all previous such dividends and
distributions for which no adjustment to the conversion rate has been made,
exceeds 10% of the total number of shares of common stock outstanding at the
close of business on the record date for such dividend or distribution.
(3) Issuance of rights or warrants. In case we issue to all holders of our
common stock rights or warrants expiring within 45 days entitling those holders
to subscribe for or purchase our common stock at a price per share less than the
current market price, the conversion rate in effect immediately before the close
of business on the record date fixed for determination of stockholders entitled
to receive those rights or warrants will be increased by dividing:
- the conversion rate by
- a fraction, the numerator of which is the sum of the number of shares
of our common stock outstanding at the close of business on that
record date and the number of shares of common stock that the
aggregate offering price of the total number of shares of our common
stock so offered for subscription or purchase would purchase at the
current market price and the denominator of which is the sum of the
number of shares of common stock outstanding at the close of business
on that record date and the number of additional shares of our common
stock so offered for subscription or purchase.
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For purposes of this paragraph (3), the issuance of rights or warrants to
subscribe for or purchase securities convertible into shares of our common stock
will be deemed to be the issuance of rights or warrants to purchase shares of
our common stock into which those securities are convertible at an aggregate
offering price equal to the sum of the aggregate offering price of those
securities and the minimum aggregate amount, if any, payable upon conversion of
those securities into shares of our common stock. This adjustment will be made
successively whenever any such event occurs. For purposes of this paragraph, the
current market price of our common stock means the average of the sale prices of
our common stock for the five consecutive trading days selected by our board of
directors beginning not more than 20 trading days before, and ending not later
than the date immediately preceding the record date for the relevant event.
(4) Distribution of indebtedness, securities or assets. In case we
distribute to all holders of our common stock, whether by dividend or in a
merger, amalgamation or consolidation or otherwise, evidences of indebtedness,
shares of capital stock of any class or series, other securities, cash or assets
(other than common stock, rights or warrants referred to in paragraph (3) above,
a dividend payable exclusively in cash, shares of capital stock or similar
equity interests in the case of a spin-off, as described in the second
succeeding paragraph, and other than as a result of a fundamental change
described in paragraph (5) below), the conversion rate in effect immediately
before the close of business on the record date fixed for determination of
stockholders entitled to receive that distribution will be increased by
dividing:
- the conversion rate by
- a fraction, the numerator of which is the current market price of our common
stock and the denominator of which is the current market price of the common
stock plus the fair market value, as determined by our board of directors,
whose determination in good faith will be conclusive, of the portion of those
evidences of indebtedness, shares of capital stock, other securities, cash and
assets so distributed applicable to one share of common stock.
This adjustment will be made successively whenever any such event occurs.
For purposes of this paragraph, current market price of our common stock means
the average of the sale prices of our common stock for the first 10 trading days
from, and including, the first day that the common stock trades
"ex-distribution."
In respect of a dividend or other distribution of shares of capital stock
of any class or series, or similar equity interests, of or relating to a
subsidiary or other business unit, which we refer to as a spin-off, the
conversion rate in effect immediately before the close of business on the record
date fixed for determination of stockholders entitled to receive that
distribution will be increased by dividing:
- the conversion rate by
- a fraction, the numerator of which is the current market price of our
common stock and the denominator of which is the current market price of
the common stock plus the fair market value, determined as described
below, of the portion of those shares of capital stock or similar equity
interests so distributed applicable to one share of common stock.
The adjustment to the conversion rate under the preceding paragraph will
occur at the earlier of:
- the tenth trading day from, and including, the effective date of the
spin-off and
- the date of the initial public offering of the securities being
distributed in the spin-off, if that initial public offering is effected
simultaneously with the spin-off.
For purposes of this section, "initial public offering" means the first
time securities of the same class or type as the securities being distributed in
the spin-off are bona fide offered to the public for cash.
In the event of a spin-off that is not effected simultaneously with an
initial public offering of the securities being distributed in the spin-off, the
fair market value of the securities to be distributed to holders of our common
stock means the average of the sale prices of those securities over the first 10
trading days after the effective date of the spin-off. Also, for purposes of a
spin-off, the current market price of our common stock means the average of the
sale prices of our common stock over the first 10 trading days after the
effective date of the spin-off.
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If, however, an initial public offering of the securities being distributed
in the spin-off is to be effected simultaneously with the spin-off, the fair
market value of the securities being distributed in the spin-off means the
initial public offering price, while the current market price of our common
stock means the sale price of our common stock on the trading day on which the
initial public offering price of the securities being distributed in the
spin-off is determined.
(5) Fundamental changes. For purposes of this paragraph (5), the term
fundamental change means any transaction or event, including any merger,
consolidation, sale of assets, tender or exchange offer, reclassification,
compulsory share exchange or liquidation, in which all or substantially all
outstanding shares of our common stock are converted into or exchanged for
stock, other securities, cash or assets. If a fundamental change occurs, the
holder of each debenture outstanding immediately before that fundamental change
occurred that remains outstanding after the fundamental change will have the
right upon any subsequent conversion to receive the kind and amount of stock,
other securities, cash and assets that the holder would have received if that
debenture had been converted immediately prior to the fundamental change.
(6) Self-tender. In case we or any of our subsidiaries engage in a tender
or exchange offer (other than an odd-lot tender offer as described in Rule
13e-4(h) of the Exchange Act) for all or any portion of our common stock that
will expire, and such tender or exchange offer, as amended upon the expiration
thereof, will require the payment to stockholders of consideration per share of
common stock having a fair market value, as determined by the board of
directors, whose determination in good faith will be conclusive, that as of the
last time tenders or exchanges may be made pursuant to such tender or exchange
offer, as it may be amended, which we refer to as the expiration time, exceeds
the sale price per share of common stock as of the trading day next succeeding
the expiration time, the conversion rate shall be increased so that it will
equal the rate determined by dividing the conversion rate in effect immediately
prior to the expiration time by a fraction the numerator of which will be the
number of shares of common stock outstanding, including any tendered or
exchanged shares, at the expiration time multiplied by the sale price per share
of common stock as of the trading day next succeeding the expiration time and
the denominator of which will be the sum of:
- the fair market value, determined as described above, of the
aggregate consideration payable to stockholders based on the
acceptance, up to any maximum specified in the terms of the tender
or exchange offer, of all shares of common stock validly tendered or
exchanged and not withdrawn as of the expiration time, the shares of
common stock deemed so accepted, up to any such maximum, being
referred to as the purchased shares; and
- the product of the number of shares of common stock outstanding,
less any purchased shares, at the expiration time and the sale price
per share of common stock as of the trading day next succeeding the
expiration time,
such increase to become effective as of the opening of business on the trading
day next succeeding the expiration time. In the event that we are obligated to
purchase shares of common stock pursuant to any such tender or exchange offer,
but we are permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the conversion rate will again be
adjusted to be the conversion rate that would then be in effect if such tender
or exchange offer had not been made.
(7) Extraordinary cash distribution. In case we pay a dividend or make a
distribution in cash on our common stock and the amount of cash constituting the
dividend or distribution exceeds, together with all other cash distributions we
have made on our common stock in the preceding 12 months for which an adjustment
has not been made previously pursuant to this paragraph, 15% of the current
market price of our common stock at the close of business on the day that the
common stock trades ex-distribution, the conversion rate in effect immediately
before the close of business on the day that the common stock trades
ex-distribution, will be adjusted by dividing:
- the conversion rate by
- a fraction, the numerator of which will be the current market price of
our common stock and the denominator of which is the current market
price of our common stock plus the amount per share of such dividend
or distribution, to the extent it exceeds 15% of the current market
price of our common stock at the close of business on the day that the
common stock trades ex-distribution.
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For the purpose of this paragraph, the current market price of our common stock
will be the average of the sale prices of our common stock for the period of
five consecutive trading days after the common stock trades ex-distribution.
We will not, however, be required to give effect to any adjustment in the
conversion rate pursuant to any of the foregoing paragraphs (1) through (7)
unless and until the net effect of one or more adjustments, each of which will
be carried forward until counted toward adjustment, will have resulted in a
change of the conversion rate by at least 1%, and when the cumulative net effect
of more than one adjustment so determined will be to change the conversion rate
by at least 1%, that change in the conversion rate will be given effect. In the
event that, at any time as a result of the provisions of this section, the
holders of debentures upon subsequent conversion become entitled to receive any
shares of our capital stock other than common stock, the number of those other
shares so receivable upon conversion of debentures will thereafter be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained in this section.
There will be no adjustment to the conversion rate in case of the issuance
of any shares of our stock in a merger, reorganization, acquisition,
reclassification, recapitalization or other similar transaction except as
provided in this section.
In any case in which this section requires that an adjustment as a result
of any event become effective from and after a record date, we may elect to
defer until after the occurrence of that event:
- issuing to the holder of any debentures converted after that record date
and before the occurrence of that event the additional shares of common
stock issuable upon that conversion over and above the shares issuable on
the basis of the conversion rate in effect immediately before adjustment;
and
- delivering cash in lieu of a fractional share of common stock.
Our board of directors will have the power to resolve any ambiguity or,
subject to applicable law, correct any error in this section, and its action in
so doing will be final and conclusive.
If we take a record of the holders of our common stock for the purpose of
entitling them to receive a dividend or other distribution, and we thereafter
and before the distribution to stockowners legally abandon such plan to pay or
deliver the dividend or distribution, then no adjustment in the conversion rate
then in effect shall be required by reason of taking of such record.
We may make such increases in the conversion rate, in addition to those set
forth above, as our board of directors consider to be advisable to avoid or
diminish any income tax to holders of our common stock or rights to purchase our
common stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or any event treated as such for income tax purposes.
To the extent permitted by applicable law, we may from time to time
increase the conversion rate by any amount for any period of at least twenty
days, if the increase is irrevocable during such period and our board of
directors shall have made a determination that such increase is in the best
interests of the company, which determination shall be conclusive. Whenever the
conversion rate is adjusted pursuant to the foregoing sentence, we will provide
notice to the holders of debentures of the increase at least fifteen days prior
to the date the increase takes effect, and the notice shall state the increased
conversion rate and the period during which it will be in effect.
No adjustment to the conversion rate or the ability of a holder of a
debenture to convert will be made if the holder will otherwise participate in
the distribution without conversion or in certain other cases.
The applicable conversion rate will not be adjusted:
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of additional
optional amounts in shares of our common stock under any plan;
- upon the issuance of any shares of our common stock or options or rights
to purchase those shares pursuant to any present or future employee,
director or consultant benefit plan or program of or assumed by us or any
of our subsidiaries;
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- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right or exercisable, exchangeable or convertible
security not described in the preceding bullet and outstanding as of the
date the debentures were first issued;
- for a change in the par value of the common stock; or
- for accrued and unpaid interest, if any.
You will receive, upon conversion of the debentures, in addition to common
stock, the rights under our rights plan unless, prior to conversion, the rights
have expired, terminated or been redeemed or unless the rights have separated
from the common stock, in which case the conversion rate will be adjusted at the
time of separation as if we distributed to all holders of common stock, shares
of our capital stock, evidences of indebtedness or assets as described above,
subject to readjustment in the event of subsequent expiration, termination or
redemption of such rights.
PROVISIONAL REDEMPTION
If the sale price of our common stock has exceeded 130% of the then
applicable conversion price for at least 20 trading days in any consecutive
30-day trading period ending on the trading day prior to the mailing of the
notice of redemption, we may:
- redeem for cash all or a portion of the Series A debentures at any time
after June 20, 2008, but prior to June 20, 2010, and
- redeem for cash all or a portion of the Series B debentures at any time
after June 20, 2009, but prior to June 20, 2013,
by providing not less than 30 nor more than 60 days' notice by mail to each
registered holder of the debentures to be redeemed, at a price equal to 100% of
the principal amount of the debentures to be redeemed plus any accrued and
unpaid interest to but excluding the redemption date (except as described below
under "-- Optional Redemption") and the "make whole" payment described below.
If we redeem any debentures under these circumstances, we will pay in cash
a "make whole" payment on the redeemed debentures equal to the present value of
all remaining scheduled payments of interest on the debentures to be redeemed
through and including, in the case of the Series A debentures, June 20, 2010,
and, in the case of the Series B debentures, June 20, 2013. The present value of
the remaining interest payments will be computed using a discount rate equal to
the Treasury Yield. "Treasury Yield" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available at least two business days prior
to the date fixed for conversion (or, if such Statistical Release is no longer
published, any publicly available source for similar market data)) most nearly
equal to the then remaining term, in the case of the Series A debentures, to
June 20, 2010, and, in the case of the Series B debentures, to June 20, 2013;
provided, however, that if the then remaining term to June 20, 2010, or June 20,
2013, as applicable, is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the weekly average yields of United States Treasury securities
for which such yields are given, except that if the then remaining term to June
20, 2010, or June 20, 2013, as applicable, is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
We must pay these "make whole" payments on all Series A debentures called
for redemption pursuant to this section prior to June 20, 2010, and on all
Series B debentures called for redemption pursuant to this section prior to June
20, 2013, including on any Series A debentures or Series B debentures converted
after the date we mail the applicable notice.
OPTIONAL REDEMPTION
We will provide not less than 30 nor more than 60 days' notice mailed to
each registered holder of the debentures to be redeemed. If the redemption
notice is given and funds deposited as required, then interest will
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cease to accrue on and after the redemption date on the debentures or portions
of such debentures called for redemption. No sinking fund is provided for the
debentures.
If we decide to redeem fewer than all of the outstanding debentures
(pursuant to a provisional or optional redemption), the trustee will select the
debentures to be redeemed (in principal amounts of $1,000 or integral multiples
thereof) by lot, or on a pro rata basis or by another method the trustee
considers fair and appropriate. If the trustee selects a portion of your
debentures for partial redemption and you convert a portion of your debentures,
the converted portion will be deemed to be from the portion selected for
redemption.
On or after June 20, 2010, we may redeem for cash all or a portion of the
Series A debentures at any time for a price equal to 100% of the principal
amount of the Series A debentures to be redeemed plus any accrued and unpaid
interest to but excluding the redemption date (except as described below).
]On or after June 20, 2013, we may redeem for cash all or a portion of the
Series B debentures at any time for a price equal to 100% of the principal
amount of the Series B debentures to be redeemed plus any accrued and unpaid
interest to but excluding the redemption date (except as described below).
If a redemption date for either the Series A debentures or Series B
debentures falls after a record date and on or prior to the corresponding
interest payment date, we will pay the full amount of accrued and unpaid
interest payable on such interest payment date to the holder of record at the
close of business on the corresponding record date and pay 100% of the principal
amount of the debentures to be redeemed to the person who presents the
debentures for redemption on the redemption date.
PURCHASE OF DEBENTURES BY US AT THE OPTION OF THE HOLDER
Holders have the right to require us to purchase all or a portion of their
debentures on the following purchase dates:
- in the case of the Series A debentures, on June 15, 2010, June 15, 2015
and June 15, 2020; and
- in the case of the Series B debentures, on June 15, 2013 and June 15,
2019.
The purchase price payable will be equal to 100% of the principal amount of the
debentures to be purchased plus any accrued and unpaid interest to but excluding
the purchase date.
As discussed below under "-- Election to Pay Purchase Price in Common
Stock," we may elect to pay the purchase price of the debentures in cash, common
stock, or in any combination of cash and our common stock. We may in the future
without your consent amend the senior indenture to eliminate our ability to pay
the purchase price for the debentures in common stock on any purchase date after
the date of that amendment.
We will be required to purchase any outstanding debentures for which a
holder delivers a written purchase notice to the paying agent. This notice must
be delivered during the period beginning at any time from the opening of
business on the date that is 23 business days prior to the relevant purchase
date until the close of business on the third business day prior to the purchase
date. If the purchase notice is given and withdrawn during such period, we will
not be obligated to purchase the related debentures. Also, as described in the
"Risk Factors" section of this prospectus supplement under the caption "We may
not have the ability to raise the funds necessary to purchase the debentures
upon a fundamental change or other purchase date, as required by the senior
indenture governing the debentures," we may not have funds sufficient to
purchase the debentures when we are required to do so.
On or before the 23rd business day prior to each purchase date, we will
provide to the trustee, any paying agent and to all holders of the debentures at
their addresses shown in the register of the registrar, and to beneficial owners
as required by applicable law, a notice stating, among other things:
- whether we will pay the purchase price of the debentures in cash, common
stock, or any combination thereof, specifying the percentages of each;
- if we elect to pay in common stock, the method of calculating the market
price of the common stock, as described under "-- Election to Pay
Purchase Price in Common Stock" below;
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- the name and address of the trustee, any paying agent and the conversion
agent; and
- the procedures that holders must follow to require us to purchase their
debentures.
The purchase notice given by each holder electing to require us to purchase
their debentures must state:
- in the case of debentures in certificated form, the certificate numbers
of the holder's debentures to be delivered for purchase;
- the portion of the principal amount of debentures to be purchased, in
integral multiples of $1,000;
- that the debentures are to be purchased by us pursuant to the applicable
provision of the debentures and the senior indenture; and
- in the event we elect, pursuant to the notice that we are required to
give, to pay the purchase price in common stock, in whole or in part, but
the purchase price is ultimately to be paid to the holder entirely in
cash because any condition to payment of the purchase price or portion of
the purchase price in common stock is not satisfied prior to the close of
business on the purchase date, as described below, whether the holder
elects:
- to withdraw the purchase notice as to some or all of the debentures to
which it relates; or
- to receive cash in respect of the entire purchase price for all
debentures or portions of debentures subject to such purchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the fourth bullet point above, the holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
debentures subject to the purchase notice in these circumstances.
If the debentures are not in certificated form, your notice must comply
with appropriate DTC procedures.
Simultaneously with providing such notice, we will publish a notice
containing this information in a newspaper of general circulation in The City of
New York or publish the information on our website or through such other public
medium as we may use at that time.
No debentures may be purchased at the option of holders if there has
occurred and is continuing an event of default other than an event of default
that is cured by the payment of the purchase price of the debentures.
You may withdraw any purchase notice in whole or in part by a written
notice of withdrawal delivered to the trustee or any paying agent prior to the
close of business on the third business day prior to the purchase date. The
notice of withdrawal must state:
- the principal amount of the withdrawn debentures;
- if certificated debentures have been issued, the certificate numbers of
the withdrawn debentures; and
- the principal amount, if any, which remains subject to the purchase
notice.
If the debentures are not in certificated form, your notice must comply
with appropriate DTC procedures.
You must either effect book-entry transfer or deliver the debentures,
together with necessary endorsements, to the office of the trustee or any paying
agent after delivery of the purchase notice to receive payment of the purchase
price. You will receive payment promptly following the later of the purchase
date or the time of book-entry transfer or the delivery of the debentures. If
the trustee or any paying agent holds money or securities sufficient to pay the
purchase price of the debentures on the business day following the purchase
date, then:
- the debentures will cease to be outstanding and interest will cease to
accrue (whether or not book-entry transfer of the debentures is made or
whether or not the debentures are delivered to the paying agent); and
- all other rights of the holder will terminate (other than the right to
receive the purchase price upon delivery or transfer of the debentures).
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ELECTION TO PAY PURCHASE PRICE IN COMMON STOCK
We may, at our option, elect to pay the purchase price in cash, shares of
our common stock valued at a discount of 5% from the market price of our common
stock, or any combination thereof. If the amount of stock to be issued in
connection with any purchase equals or exceeds 20% of the voting power of our
outstanding stock prior to the issuance in connection with the purchase, we may,
under New York Stock Exchange rules, be required to obtain the approval of our
stockholders for such an issuance. Our future credit facilities and other
indebtedness may contain restrictions on our ability to pay the purchase price
of the debentures in cash. We may pay the purchase price in shares of our common
stock only if such shares are eligible for immediate sale in the public market
by non-affiliates of ours absent a registration statement. We will notify the
holders of the debentures upon the determination of the actual number of shares
of common stock deliverable upon any purchase of the debentures.
Our right to purchase debentures, in whole or in part, with shares of
common stock is subject to our satisfying various conditions, including:
- the listing of such shares of common stock on the principal United States
securities exchange on which the common stock is then listed or, if not
so listed, on Nasdaq;
- the registration of the common stock under the Exchange Act, if required;
and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to the
close of business on any purchase date, we will pay the purchase price of such
holder's debentures entirely in cash unless our credit facilities or other
contractual obligations prohibit us from paying the purchase price in cash. We
may not change the form or components or percentages of components of
consideration to be paid for the debentures once we have given any notice that
we are required to give to holders of the debentures, except as described in the
first sentence of this paragraph.
The "market price" of our common stock means the average of the sale prices
(as defined above) of our common stock for the twenty trading day period ending
on the third business day prior to the applicable purchase date (if the third
business day prior to the applicable purchase date is a trading day, or if not,
then on the last trading day prior to the third business day), appropriately
adjusted to take into account the occurrence, during the period commencing on
the first trading day during the twenty trading day period and ending on the
purchase date, of any event that would result in an adjustment to the conversion
rate of the debentures, as described above under "-- Conversion Rate
Adjustments."
Because the market price of our common stock is determined prior to the
applicable purchase date, holders of the debentures bear the market risk with
respect to the value of our common stock to be received from the date the market
price is determined to the purchase date. We may pay the purchase price or any
portion of the purchase price in shares of our common stock only if the
information necessary to calculate the market price is publicly available. In
connection with any redemption offer, we will comply with the provisions of Rule
13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act that
may then be applicable, including filing a Schedule TO or any other required
schedule under the Exchange Act.
Payment of the purchase price for debentures is conditioned upon book-entry
transfer of or physical delivery of certificates representing the debentures,
together with necessary endorsements, to the trustee or any paying agent at any
time after delivery of the redemption notice. Payment of the purchase price for
the debentures will be made promptly following the later of the purchase date
and the time of book-entry transfer of or physical delivery of the debentures.
FUNDAMENTAL CHANGE REQUIRES PURCHASE OF DEBENTURES BY US AT THE OPTION OF THE
HOLDER
If a fundamental change (as defined below) occurs at any time prior to
maturity, you will have the right, at your option, to require us to purchase any
or all of your debentures for cash, or any portion of the principal amount
thereof that is equal to $1,000 or an integral multiple of $1,000. The cash
price we are required to pay is
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equal to 100% of the principal amount of the debentures to be purchased plus any
accrued and unpaid interest to but excluding the fundamental change purchase
date (unless the fundamental change purchase date falls after a record date and
on or prior to the corresponding interest payment date, in which case we will
pay the full amount of accrued and unpaid interest payable on such interest
payment date to the holder of record at the close of business on the
corresponding record date).
A "fundamental change" will be deemed to have occurred at the time after
the debentures are originally issued that any of the following occurs:
(1) if any "person" or "group" (as such terms are used in Section
13(d) and Section 14(d) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning of
Rule 13d-5(b) (1) under the Exchange Act becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, except that a person will be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of 50% or more of
the total voting power of our voting stock; or
(2) if we consolidate or merge with or into any other person, other
than a consolidation or merger under a transaction in which the outstanding
voting stock of us remains outstanding or is changed into or exchanged for
cash, securities or property with the effect that the beneficial owners of
the outstanding voting stock of us immediately before that transaction,
beneficially own, directly or indirectly, more than 50% of the voting
stock, measured by voting power rather than number of shares, of the
surviving corporation immediately following that transaction; or
(3) upon the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of our company and its subsidiaries considered as a whole; or
(4) if during any period of two consecutive years, individuals who at
the beginning of such period constituted our board of directors (together
with any new directors whose election or appointment by such board or whose
nomination for election by our stockholders was approved by a vote of a
majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of our board of directors then in office.
A fundamental change will not be deemed to have occurred in respect of
either of the foregoing, however, if either:
(1) the sale price per share of our common stock for any five trading
days within the period of 10 consecutive trading days ending immediately
after the later of the fundamental change or the public announcement
thereof (in the case of a fundamental change under the first bullet above)
or the period of 10 consecutive trading days ending immediately before the
fundamental change (in the case of a fundamental change under the second,
third and fourth bullets above) shall equal or exceed 105% of the then
applicable conversion price of the debentures immediately after the later
of the fundamental change and the public announcement thereof; or
(2) at least 95% of the consideration in the fundamental change
transaction consists of shares of capital stock traded on a U.S. national
securities exchange or quoted on The Nasdaq National Market, and as a
result of the transaction, the debentures become convertible solely into
this capital stock.
For purposes of the above paragraphs:
- the term capital stock of any person means any and all shares, interests,
participations or other equivalents however designated of corporate stock
or other equity participations, including partnership interests, whether
general or limited, of such person and any rights (other than debt
securities convertible or exchangeable into an equity interest), warrants
or options to acquire an equity interest in such person; and
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- the term voting stock of any person means capital stock of such person
which ordinarily has voting power for the election of directors, or
persons performing similar functions, of such person, whether at all
times or only for so long as no senior class of securities has such
voting power by reason of any contingency.
On or before the 10th day after the occurrence of a fundamental change, we
will provide to all holders of the debentures and the trustee and any paying
agent a notice of the occurrence of the fundamental change and of the resulting
purchase right. Such notice shall state, among other things:
- the events causing a fundamental change;
- the date of the fundamental change;
- the last date on which a holder may exercise the purchase right;
- the fundamental change purchase price;
- the fundamental change purchase date;
- the name and address of the paying agent and the conversion agent;
- the applicable conversion rate and any adjustments to the applicable
conversion rate;
- the debentures with respect to which a fundamental change purchase notice
has been given by the holder may be converted only if the holder
withdraws the fundamental change purchase notice in accordance with the
terms of the senior indenture; and
- the procedures that holders must follow to require us to purchase their
debentures.
Simultaneously with providing such notice, we will publish a notice
containing this information in a newspaper of general circulation in The City of
New York or publish the information on our web site or through such other public
medium as we may use at that time.
To exercise the purchase right, you must deliver prior to the close of
business on the business day immediately preceding the fundamental change
purchase date, subject to extension to comply with applicable law, the
debentures to be purchased, duly endorsed for transfer, together with a written
purchase notice and the form entitled "Form of Fundamental Change Purchase
Notice" on the reverse side of the debentures duly completed, to the trustee or
any paying agent. Your purchase notice must state:
- if certificated, the certificate numbers of your debentures to be
delivered for purchase;
- the portion of the principal amount of debentures to be purchased, which
must be $1,000 or an integral multiple thereof; and
- that the debentures are to be purchased by us pursuant to the applicable
provisions of the debentures and the senior indenture.
If the debentures are not in certificated form, your notice must comply
with appropriate DTC procedures.
You may withdraw any fundamental change purchase notice (in whole or in
part) by a written notice of withdrawal delivered to the trustee or any paying
agent prior to the close of business on the third business day prior to the
fundamental change purchase date. The notice of withdrawal shall state:
- the principal amount of the withdrawn debentures;
- if certificated debentures have been issued, the certificate numbers of
the withdrawn debentures; and
- the principal amount, if any, which remains subject to the fundamental
change purchase notice.
If the debentures are not in certificated form, your notice must comply with
appropriate DTC procedures.
We will be required to purchase the debentures as of the business day to be
specified by us that is not less than 30 nor more than 45 days after the
occurrence of the relevant fundamental change, which we refer to as the
fundamental change purchase date. You will receive payment of the fundamental
change purchase price promptly following the later of the fundamental change
purchase date or the time of book-entry transfer or the delivery of
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the debentures. If the paying agent holds money or securities sufficient to pay
the fundamental change purchase price of the debentures on the business day
following the fundamental change purchase date, then:
- the debentures will cease to be outstanding and interest will cease to
accrue (whether or not book-entry transfer of the debentures is made or
whether or not the debenture is delivered to the trustee or any paying
agent); and
- all other rights of the holder will terminate (other than the right to
receive the fundamental change purchase price upon delivery or transfer
of the debentures).
The rights of the holders to require us to purchase their debentures upon a
fundamental change could discourage a potential acquirer of us. The fundamental
change purchase feature, however, is not the result of management's knowledge of
any specific effort to accumulate shares of our common stock, to obtain control
of us by any means or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the fundamental change purchase feature is a
standard term contained in other offerings of debt securities similar to the
debentures that have been marketed by the underwriters. The terms of the
fundamental change purchase feature resulted from negotiations between the
underwriters and us.
The term fundamental change is limited to specified transactions and may
not include other events that might adversely affect our financial condition. In
addition, the requirement that we offer to purchase the debentures upon a
fundamental change may not protect holders in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
No debentures may be purchased at the option of holders upon a fundamental
change if there has occurred and is continuing an event of default other than an
event of default that is cured by the payment of the fundamental change purchase
price of the debentures.
The definition of fundamental change includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our consolidated assets. There is no precise, established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of the debentures to require us to purchase its debentures as a result of
the conveyance, transfer, sale, lease or other disposition of less than all of
our assets may be uncertain.
If a fundamental change were to occur, we may not have enough funds to pay
the fundamental change purchase price. See "Risk Factors" under the caption "We
may not have the ability to raise the funds necessary to purchase the debentures
upon a fundamental change or other purchase date, as required by the senior
indenture governing the debentures." If we fail to purchase the debentures when
required following a fundamental change, we will be in default under the senior
indenture. In addition, we have, and may in the future incur, other indebtedness
with similar change in control provisions permitting our holders to accelerate
or to require us to purchase our indebtedness upon the occurrence of similar
events or on some specific dates.
MERGERS AND SALES OF ASSETS
The senior indenture provides that we may not consolidate with or merge
into any other person or convey, transfer or lease all or substantially all of
our properties and assets to another person unless the conditions described in
the accompanying prospectus under "Description of Debt Securities -- Mergers and
Sales of Assets" are satisfied. Although transactions that satisfy those
conditions are permitted under the senior indenture, some of those transactions
could constitute a fundamental change (as defined above) permitting each holder
to require us to purchase the debentures of such holder as described above.
CERTAIN COVENANTS
The senior indenture will contain covenants including, among others, the
following:
LIMITATION ON LIENS
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, incur or permit to exist any Lien (other than existing Liens)
securing Specified Indebtedness of any nature whatsoever on any of its
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properties or assets, whether owned at the issue date of the debentures or
thereafter acquired without effectively providing that the debentures are
secured equally and ratably with (or, if the obligation to be secured by the
Lien is subordinated in right of payment to the debentures, prior to) the
obligations so secured for so long as such obligations are so secured.
CERTAIN DEFINITIONS USED IN THE LIMITATIONS ON LIENS COVENANT
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind.
"Restricted Subsidiary" means any subsidiary other than an Unrestricted
Subsidiary.
"Specified Indebtedness" means any indebtedness for borrowed money that (i)
is in the form of, or represented by, bonds or other securities (other than
promissory notes or similar evidence of indebtedness under bank loans or similar
financing agreements) or any guarantee thereof and (ii) is, or may be, quoted,
listed or purchased and sold on any stock exchange, automated securities trading
system or over-the-counter or other securities market (including, without
prejudice to the generality of the foregoing, the market for securities eligible
for resale pursuant to Rule 144A under the Securities Act); provided, that, for
the avoidance of doubt, in no event shall any receivables financing facility or
arrangement pursuant to which any subsidiary purchases or otherwise acquires
accounts receivable of Lucent or any Restricted Subsidiaries and enters into
third party financing thereof be considered Specified Indebtedness.
"Unrestricted Subsidiary" means any subsidiary 50% or less of the voting
stock of which is owned directly by Lucent and/or one or more Restricted
Subsidiaries.
EVENTS OF DEFAULT
Each of the following constitutes an event of default with respect to each
series of debentures:
- failure to pay principal of or any premium on any debenture when due,
including upon maturity, redemption or purchase by us at the option of
the holder (upon the occurrence of a fundamental change or exercise by a
holder of its option to require us to purchase such holder's debentures);
- default for 30 days in the payment of interest when due on the
debentures;
- failure to give you notice of your right to require us to purchase your
debentures upon a fundamental change;
- default in our obligation to satisfy our conversion obligation upon
exercise of a holder's conversion right;
- failure to comply with the obligations described under "Description of
Debt Securities -- Mergers and Sales of Assets" in the accompanying
prospectus;
- failure to comply for 30 days after notice with any of the other
covenants set forth in this prospectus supplement;
- failure to comply for 60 days after notice with other agreements
contained in the senior indenture relating to the debentures;
- failure to pay when due principal, interest or premium aggregating
$100,000,000 or more with respect to any of our indebtedness or the
acceleration of any such indebtedness, which default shall not be cured
or waived, or such acceleration shall not be rescinded or annulled,
within 30 days after notice;
- any final judgment or judgments for the payment of money in excess of
$100,000,000 shall be rendered against us and shall not be discharged for
any period of 30 consecutive days during which a stay of enforcement
shall not be in effect; and
- certain events of bankruptcy, insolvency or reorganization affecting us.
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In addition, the holders of at least a majority in aggregate principal
amount of the outstanding debentures may waive an existing default as described
in the senior indenture with respect to the debentures and its consequences,
other than:
(i) any default in any payment of redemption price, purchase price or
fundamental change purchase price with respect to any debentures; or
(ii) any default that constitutes a failure to convert any debenture
in accordance with its terms and the terms of the senior indenture.
MODIFICATION AND WAIVER
In addition to those provisions described in the accompanying prospectus
under the heading "Description of Debt Securities -- Modification of the
Indenture," the senior indenture (including the terms and conditions of the
debentures) cannot be modified or amended without the consent of the holder of
each outstanding debenture to:
- reduce the redemption price, purchase price or fundamental change
purchase price of the debentures; and
- make any change that impairs or adversely affects the conversion rights
of any of the debentures.
We and the trustee may modify the senior indenture without the consent of
the holders of the debentures for the purposes described in the accompanying
prospectus under the heading "Description of Debt Securities--Modification of
the Indenture," and, in addition, we may modify the senior indenture to amend
the terms of the debentures to eliminate our right to elect to pay in common
stock all or part of the purchase price for the debentures as described above
under "--Purchase of Debentures by Us at the Option of the Holder."
CALCULATIONS IN RESPECT OF DEBENTURES
We will be responsible for making all calculations called for under the
debentures. These calculations include, but are not limited to, determinations
of the market prices of our common stock, accrued interest payable on the
debentures and the conversion price of the debentures. We will make all these
calculations in good faith and, absent manifest error, our calculations will be
final and binding on holders of debentures. We will provide a schedule of our
calculations to each of the trustee and the conversion agent, and each of the
trustee and conversion agent is entitled to rely upon the accuracy of our
calculations without independent verification. The trustee will forward our
calculations to any holder of debentures upon the request of that holder.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
We will issue the debentures in registered form, without interest coupons.
Holders may present debentures for conversion, registration of transfer and
exchange at the office maintained by us for such purpose, which will initially
be the Corporate Trust Office of the trustee in The City of New York.
NOTICES
Except as otherwise described herein, notice to registered holders of the
debentures will be given by mail to the addresses as they appear in the security
register. Notices will be deemed to have been given on the date of such mailing.
CONCERNING THE TRUSTEE
The Bank of New York is the trustee for the debentures. The Bank of New
York also serves as trustee for our other debt securities. We and the trustee
may have had, and continue to have, other customary banking arrangements,
including stock transfer agent, lending and depositary relationships.
The trustee is under no obligation to exercise any of its powers at the
request of any of the holders of the debentures unless those holders have
offered to the trustee security or indemnity satisfactory to it against the
cost, expenses and liabilities it might incur as a result. The holders of a
majority in principal amount of the debentures outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee, or the exercise of any trust or power of the trustee. The trustee will
not be liable for any action that it takes or omits to take in good faith in
accordance with any such direction.
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BOOK-ENTRY SYSTEM
We have obtained the information in this section concerning The Depository
Trust Company, or DTC, and its book-entry system and procedures from sources
that we believe to be reliable, but we take no responsibility for the accuracy
of this information.
The debentures initially will be represented by one or more fully
registered global debentures. Each global debenture will be deposited with, or
on behalf of, DTC or any successor thereto and registered in the name of Cede &
Co., DTC's nominee.
You may hold your interests in the global debentures in the United States
through DTC, either as a participant in such system or indirectly through
organizations which are participants in such system. So long as DTC or its
nominee is the registered owner of the global debentures, DTC or such nominee
will be considered the sole owner and holder of the debentures for all purposes
of the debentures and the senior indenture. Except as provided below, owners of
beneficial interests in the debentures will not be entitled to have the
debentures registered in their names, will not receive or be entitled to receive
physical delivery of the debentures in definitive form and will not be
considered the owners or holders of the debentures under the senior indenture,
including for purposes of receiving any reports that we or the trustee deliver
pursuant to the senior indenture. Accordingly, each person owning a beneficial
interest in a debenture must rely on the procedures of DTC or its nominee and,
if such person is not a participant, on the procedures of the participant
through which such person owns its interest, in order to exercise any rights of
a holder of debentures.
Investors may elect to hold interests in the global debentures held by DTC
through Clearstream Banking, societe anonyme, "Clearstream, Luxembourg," or
Euroclear Bank S.A./N.V. as operator of the Euroclear System, the "Euroclear
operator," if they are participants in such systems, or indirectly through
organizations that are participants in such systems. Clearstream, Luxembourg and
the Euroclear operator will hold interests on behalf of their participants
through customers' securities accounts in Clearstream, Luxembourg's and the
Euroclear operator's names on the books of their respective depositaries, which
in turn will hold such interests in customers' securities accounts in the
depositaries' names on the books of DTC.
Unless and until we issue the debentures in fully certificated form under
the limited circumstances described below under the heading "-- Certificated
Debentures":
- you will not be entitled to receive physical delivery of a certificate
representing your interest in the debentures;
- all references in this prospectus supplement or in the accompanying
prospectus to actions by holders will refer to actions taken by DTC upon
instructions from its direct participants; and
- all references in this prospectus supplement or the accompanying
prospectus to payments and notices to holders will refer to payments and
notices to DTC or Cede & Co., as the registered holder of the debentures,
for distribution to you in accordance with DTC procedures.
THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the debentures. The debentures
will be issued as fully registered global debentures registered in the name of
Cede & Co. DTC is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" under the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" under the New York Uniform Commercial Code; and
- a "clearing agency" registered under the provision of Section 17A of the
Securities Exchange Act of 1934.
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DTC holds securities that its direct participants deposit with DTC. DTC
also facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in direct participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers
(including underwriters), banks, trust companies, clearing corporations, and
certain other organizations. DTC is owned by a number of its direct participants
and by The New York Stock Exchange, Inc., the American Stock Exchange, Inc. and
the National Association of Securities Dealers, Inc. Indirect participants of
DTC, such as securities brokers and dealers, banks and trust companies, can also
access the DTC system if they maintain a custodial relationship with a direct
participant.
If you are not a direct participant or an indirect participant and you wish
to purchase, sell or otherwise transfer ownership of, or other interests in, the
debentures, you must do so through a direct participant or an indirect
participant. DTC agrees with and represents to DTC participants that it will
administer its book-entry system in accordance with its rules and by-laws and
requirements of law. The SEC has on file a set of the rules applicable to DTC
and its direct participants.
Title to book-entry interests in the debentures will pass by book-entry
registration of the transfer within the records of Clearstream, Luxembourg, the
Euroclear operator or DTC, as the case may be, in accordance with their
respective procedures. Book-entry interests in the debentures may be transferred
within Clearstream, Luxembourg and within the Euroclear System and between
Clearstream, Luxembourg and the Euroclear System in accordance with procedures
established for these purposes by Clearstream, Luxembourg and the Euroclear
operator. Book-entry interests in the debentures may be transferred within DTC
in accordance with procedures established for this purpose by DTC. Transfers of
book-entry interests in the debentures among Clearstream, Luxembourg, the
Euroclear operator and DTC may be effected in accordance with procedures
established for this purpose by Clearstream, Luxembourg, the Euroclear operator
and DTC. Beneficial owners will not receive physical delivery of certificates
representing their ownership interests in the debentures, except as provided
below in "-- Certificated Debentures."
To facilitate subsequent transfers, all debentures deposited with DTC are
registered in the name of DTC's nominee, Cede & Co. The deposit of debentures
with DTC and their registration in the name of Cede & Co. has no effect on
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the debentures. DTC's records reflect only the identity of the direct
participants to whose accounts such debentures are credited, which may or may
not be the beneficial owners. The participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct and
indirect participants to beneficial owners (including, by Clearstream,
Luxembourg or Euroclear, as applicable) will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
BOOK-ENTRY FORMAT
Under the book-entry format, the trustee will pay interest or principal
payments to Cede & Co., as nominee of DTC. DTC will forward the payment to the
direct participants, who will then forward the payment to the indirect
participants or to the beneficial owners. You may experience some delay in
receiving your payments under this system.
Initial settlement for the global debentures will be made in immediately
available funds. Secondary market trading between DTC's participants will occur
in the ordinary way in accordance with DTC's rules and will be settled in
immediately available funds using DTC's Same-Day Funds Settlement System.
Secondary market trading between Clearstream, Luxembourg customers and/or
Euroclear participants will occur in the ordinary way in accordance with the
applicable rules and operating procedures of Clearstream, Luxembourg and the
Euroclear System and will be settled using the procedures applicable to
conventional Eurobonds in immediately available funds.
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Cross-market transfers between persons holding directly or indirectly
through DTC on the one hand, and directly or indirectly through Clearstream,
Luxembourg customers or Euroclear participants, on the other, will be effected
through DTC in accordance with DTC's rules on behalf of the relevant European
international clearing system by its U.S. depositary, however, these
cross-market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in the clearing
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver instructions
to its U.S. depositary to take action to effect final settlement on its behalf
by delivering interests in the debentures to or receiving interests in the
debentures from DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Clearstream,
Luxembourg customers and Euroclear participants may not deliver instructions
directly to their respective U.S. depositaries.
Because of time-zone differences, credits of interests in the debentures
received in Clearstream, Luxembourg or the Euroclear System as a result of a
transaction with a DTC participant will be made during subsequent securities
settlement processing and dated the business day following DTC settlement date.
Credits of interests or any transactions involving interests in the debentures
received in Clearstream, Luxembourg or the Euroclear System as a result of a
transaction with a DTC participant and settled during subsequent securities
settlement processing will be reported to the relevant Clearstream, Luxembourg
customers or Euroclear participants on the business day following DTC settlement
date. Cash received in Clearstream, Luxembourg or the Euroclear System as a
result of sales of interests in the debentures by or through a Clearstream,
Luxembourg customer or a Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Clearstream, Luxembourg or Euroclear cash account only as of the
business day following settlement in DTC.
Although DTC, Clearstream, Luxembourg and the Euroclear operator have
agreed to the foregoing procedures in order to facilitate transfers of interests
in the debentures among participants of DTC, Clearstream, Luxembourg and
Euroclear, they are under no obligation to perform or continue to perform the
foregoing procedures and these procedures may be changed or discontinued at any
time.
The trustee will not recognize you as a holder under the senior indenture,
and you can only exercise the rights of a holder indirectly through DTC and its
direct participants. DTC has advised us that it will only take action regarding
a debenture if one or more of the direct participants to whom the debenture is
credited direct DTC to take such action. DTC can only act on behalf of its
direct participants. Your ability to pledge debentures to indirect participants,
and to take other actions, may be limited because you will not possess a
physical certificate that represents your debentures.
CERTIFICATED DEBENTURES
Unless and until they are exchanged, in whole or in part, for debentures in
definitive form in accordance with the terms of the debentures, the debentures
may not be transferred except as a whole by DTC to a nominee of DTC; as a whole
by a nominee of DTC to DTC or another nominee of DTC; or as a whole by DTC or
nominee of DTC to a successor of DTC or a nominee of such successor.
We will issue debentures to you or your nominees, in fully certificated
registered form, rather than to DTC or its nominees, only if:
- we advise the trustee in writing that DTC is no longer willing or able to
discharge its responsibilities properly or that DTC is no longer a
registered clearing agency under the Securities Exchange Act of 1934, and
the trustee or we are unable to locate a qualified successor within 90
days; or
- we, at our option, elect to terminate use of the book-entry system
through DTC.
If any of the two above events occurs, DTC is required to notify all direct
participants that debentures in fully certificated registered form are available
through DTC. DTC will then surrender the global debentures along with
instructions for re-registration. The trustee will re-issue the debentures in
full certificated registered form and will recognize the registered holders of
the certificated debentures as holders under the senior indenture.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. Federal income tax
consequences of the purchase, ownership and disposition of debentures and shares
of our common stock acquired upon conversion or repurchase of the debentures.
The discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, judicial authorities, published positions of the
Internal Revenue Service (the "IRS") and other applicable authorities, all as in
effect on the date hereof and all of which are subject to change, possibly with
retroactive effect. The discussion addresses holders who acquire debentures upon
original issuance at their original issue price and who hold the debentures and
shares of our common stock as capital assets. This discussion does not address
all the tax consequences that might be relevant to holders in light of their
particular circumstances such as:
- certain financial institutions;
- insurance companies;
- dealers in securities or foreign currencies;
- persons who hold debentures or shares of our common stock acquired upon
conversion or repurchase of the debentures as part of a straddle, hedge,
conversion transaction or other integrated investment;
- U.S. holders (as defined below) whose functional currency is not the U.S.
dollar;
- partnerships or other entities classified as partnerships for U.S.
Federal income tax purposes;
- persons who own 10% or more of our voting stock;
- persons subject to the alternative minimum tax; or
- tax-exempt organizations.
If a partnership holds debentures or shares of our common stock, the tax
treatment of a partner in the partnership will depend on the status of the
partner and the activities of the partnership. If you are a partner in a
partnership holding debentures or shares of our common stock, you are urged to
consult your tax adviser.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING
THE U.S. FEDERAL, STATE, LOCAL, AND NON-U.S. TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF DEBENTURES AND SHARES OF OUR COMMON
STOCK.
CHARACTERIZATION OF THE DEBENTURES
In the opinion of our tax counsel, Cravath, Swaine & Moore LLP, the
debentures will be treated as indebtedness for U.S. Federal income tax purposes.
By acquiring debentures, you agree to treat the debentures as indebtedness as
well. If, however, the debentures are recharacterized as equity, the U.S.
Federal income tax consequences could differ from the consequences described
below. Specifically, if you are a non-U.S. holder, as defined below, payments
made to you on the debentures could be subject to U.S. withholding tax. You
should consult your tax adviser regarding the consequences to you of the
possible recharacterization of the debentures as equity. The remainder of this
discussion assumes that the characterization of the debentures as indebtedness
will be respected for U.S. Federal income tax purposes.
U.S. HOLDERS
The following discussion applies to you only if you are a "U.S. holder."
For purposes of this discussion, a U.S. holder is a beneficial owner of
debentures that is for U.S. Federal income tax purposes:
- an individual U.S. citizen or resident alien;
- a corporation, or other entity taxable as a corporation for U.S. Federal
income tax purposes, created or organized under the laws of the U.S. or
any political subdivision thereof;
- an estate the income of which is subject to U.S. Federal income taxation
regardless of its source; or
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- a trust if (i) it is subject to the primary supervision of a U.S. court
and one or more U.S. persons have the authority to control all
substantial decisions of the trust or (ii) it has a valid election in
effect under applicable U.S. Treasury regulations to be treated as a U.S.
person.
INTEREST
Payments of interest on the debentures will be taxable as ordinary income
at the time the interest accrues or is received, in accordance with your method
of accounting for U.S. Federal income tax purposes.
CONVERSION OF DEBENTURES
In general, you will not recognize income, gain or loss upon conversion of
a debenture into shares of our common stock except with respect to cash received
in lieu of a fractional share. Your tax basis in the shares of our common stock
received upon conversion of debentures will be equal to your aggregate tax basis
in the debentures less any portion of your tax basis allocable to cash received
in lieu of a fractional share. Your holding period for those shares of common
stock will include the period during which you held the debentures prior to
conversion. Cash received in lieu of a fractional share of common stock should
be treated as a payment in exchange for the fractional share. As a result, you
will generally recognize taxable gain or loss on the receipt of cash in lieu of
a fractional share equal to the difference between the amount of cash received
and your tax basis in the fractional share.
CONVERSION RATE ADJUSTMENTS
You might be treated as receiving a constructive distribution of stock from
us if the conversion rate of the debentures is adjusted. Adjustments that have
the effect of increasing your proportionate interest in our assets or earnings
and profits and that are not made pursuant to a bona fide, reasonable
anti-dilution formula can give rise to deemed dividend income to you even though
you would not receive any cash related to that adjustment. A taxable
constructive stock distribution might result, for example, if the conversion
rate of the debentures is adjusted to compensate you for distributions of cash
or property to our shareholders.
REPURCHASE OF DEBENTURES BEFORE MATURITY
Repurchase of debentures solely for common stock. Receipt of only common
stock on the repurchase of debentures will be treated in the same manner as the
receipt of common stock on the conversion of debentures, as described above
under "Conversion of Debentures," except that you will recognize ordinary
interest income to the extent that a portion of the common stock is a payment of
accrued interest. Your tax basis in the shares of common stock attributable to
accrued interest will be equal to the amount of the accrued interest included in
income and your holding period for those shares will begin on the day after the
date of the repurchase.
Repurchase of debentures solely for cash. The repurchase of debentures
solely for cash will be a taxable disposition of the debentures and will be
treated as described below under "Sale or Disposition of Debentures or Shares of
our Common Stock." In the case of a provisional redemption of debentures, the
"make whole" payment on the debentures equal to the present value of all
remaining scheduled payments of interest will be treated as part of the amount
realized on the redemption and not as interest. See "Description of the
Debentures -- Provisional Redemption."
Repurchase of debentures for a combination of cash and common stock. If you
receive a combination of cash and shares of our common stock on the repurchase
of debentures, you will recognize gain equal to the lesser of (i) the gain
realized on the repurchase and (ii) the amount of cash received other than in
lieu of a fractional share. The gain will generally be treated as capital gain,
and as long-term capital gain if you held the debentures for more than one year.
No loss will be recognized on the repurchase of debentures for a combination of
cash and shares of our common stock other than with respect to cash received in
lieu of a fractional share.
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Your tax basis in the shares of our common stock, including fractional
shares, to which you are entitled upon repurchase of debentures, other than
shares attributable to accrued interest, will be equal to your aggregate tax
basis in the debentures that are repurchased, reduced by cash received other
than cash in lieu of a fractional share, and increased by gain recognized on the
repurchase (other than gain attributable to cash received in lieu of a
fractional share). Your holding period for those shares of common stock will
include the period during which you held the debentures prior to the repurchase.
Cash received in lieu of a fractional share of common stock should be
treated as a payment in exchange for the fractional share. As a result, you will
generally recognize taxable gain or loss on the receipt of cash in lieu of a
fractional share equal to the difference between the amount of cash received and
your tax basis in the fractional share.
The fair market value of the shares of common stock received that are
attributable to accrued interest will be taxable as ordinary interest income.
Your tax basis in those shares of common stock will be equal to the amount of
the accrued interest included in income and your holding period for those shares
will begin on the day after the date of repurchase.
DISTRIBUTIONS ON COMMON STOCK ACQUIRED ON CONVERSION OR REPURCHASE OF
DEBENTURES
Distributions on our common stock paid out of our current or accumulated
earnings and profits, as determined for U.S. Federal income tax purposes, will
be dividends and will be includible in your income when received. Under recently
enacted legislation, dividends received by an individual taxpayer during taxable
years before 2009 will be taxed at a maximum rate of 15%, provided the taxpayer
held the stock for more than 60 days during a specified period of time.
Dividends received by an individual taxpayer for taxable years after 2008 will
be subject to tax at ordinary income rates. If you are a corporation, dividends
on our common stock might qualify for a dividends received deduction.
SALE OR DISPOSITION OF DEBENTURES OR SHARES OF OUR COMMON STOCK
Upon a sale or other disposition of a debenture or share of our common
stock, you will recognize gain or loss equal to the difference between the
amount realized and your tax basis in the debenture or share of stock, as the
case may be. The amount realized on the sale or disposition of a debenture will
not include payments received in respect of accrued but unpaid interest, which
amount will be treated as ordinary interest income. The gain or loss upon sale
or disposition of a debenture or share of our common stock will generally be
capital gain or loss. Any capital gain or loss will be long-term capital gain or
loss if your holding period for the debenture or share of common stock, as the
case may be, is more than one year. The deductibility of capital losses is
subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting will apply to interest on the debentures,
dividends on our common stock, and the proceeds of the sale or other disposition
of the debentures and shares of our common stock unless you are an exempt
recipient such as a corporation. Backup withholding will apply to those payments
if you fail to provide your taxpayer identification number and comply with
certain certification procedures or otherwise establish an exemption from backup
withholding. If backup withholding applies, the relevant intermediary must
withhold tax on those payments at a rate of 28% for taxable years before 2009
and a rate of 31% for subsequent taxable years. Any amounts withheld under the
backup withholding rules will be allowed as a refund or credit against your U.S.
Federal income tax liability, provided the required information is furnished to
the IRS.
TAX RETURN DISCLOSURE AND INVESTOR LIST REQUIREMENTS
Recently promulgated Treasury regulations require taxpayers that
participate in "reportable transactions" to disclose those transactions on their
tax returns by attaching IRS Form 8886 and to retain information related to
those transactions. In addition, material advisers of a "reportable transaction"
are required to maintain records including lists identifying investors in the
transaction and to furnish those records to the IRS upon demand. A transaction
might be a "reportable transaction" if, for example, there is a significant
difference between the
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accounting and tax treatment of the transaction or the transaction results in a
taxpayer claiming a loss in excess of certain specified amounts. You should
consult your own tax adviser concerning your possible disclosure obligation with
respect to this offering and should be aware that we and other participants in
the offering might be required to report this transaction and maintain an
investor list.
NON-U.S. HOLDERS
The following discussion applies to you if you are a non-U.S. Holder. For
purposes of this discussion, a non-U.S. holder is a beneficial owner of
debentures who is not a U.S. holder.
INTEREST
Interest payments on the debentures will generally not be subject to U.S.
Federal income tax withholding if you satisfy one of the following requirements:
- You provide a completed Form W-8BEN to the bank, broker or other
intermediary through which you hold debentures, or, if you hold
debentures directly, to us or our paying agent.
- You hold debentures directly through an intermediary that (i) is either a
U.S. or non-U.S. entity, (ii) is acting out of a non-U.S. branch or
office and (iii) has signed an agreement with the IRS providing that it
will administer all or part of the U.S. tax withholding rules under
specified procedures (a "qualified intermediary"). In that case, you need
not file Form W-8BEN if the qualified intermediary has in its files, or
obtains from you, certain information concerning your eligibility for an
exemption from withholding.
- You are entitled to an exemption from withholding tax on interest under a
treaty between the U.S. and your country of residence. In general, to
claim this exemption, you must complete and submit a Form W-8BEN.
- The interest income is effectively connected with your conduct of a trade
or business in the U.S. To claim this exemption, you must complete and
submit a Form W-8ECI. In that case, the interest would generally be
subject to U.S. income tax as if you were a U.S. holder. In addition, if
you are a corporation, effectively connected income might be subject to a
branch profits tax imposed at a 30% rate or a lower rate under a tax
treaty.
Even if you satisfy one of the above requirements, interest on debentures
will be subject to withholding under certain limited circumstances, including if
you own actually or constructively 10% or more of our voting stock or you are a
controlled foreign corporation directly or indirectly related to us. In those
cases, you will be exempt from withholding taxes only if you are eligible for a
treaty exemption or if the interest income is effectively connected with your
conduct of a trade or business in the U.S. and the required certification has
been filed.
CONVERSION OF DEBENTURES
In general, you will not recognize income, gain or loss upon conversion of
a debenture into shares of our common stock. Gain realized with respect to cash
received in lieu of a fractional share, however, will be treated as described
below under "Sale or Disposition of Debentures or Shares of our Common Stock."
CONVERSION RATE ADJUSTMENTS
An adjustment to the conversion rate of a debenture might result in a
taxable constructive stock distribution, as described above under "U.S.
Holders -- Conversion Rate Adjustments." Any taxable constructive stock
distribution from an adjustment to the conversion rate will be treated in the
same manner as an actual distribution on our common stock, as described below
under "Distributions on Common Stock Acquired on Conversion or Repurchase of
Debentures."
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REPURCHASE OF DEBENTURES BEFORE MATURITY
Repurchase of debentures solely for common stock. In general, you will not
recognize gain or loss upon a repurchase of debentures for shares of our common
stock, except that you will recognize interest income to the extent that a
portion of the common stock is a payment of accrued but unpaid interest on the
debentures. That interest income will generally not be subject to withholding
tax.
Repurchase of debentures solely for cash. The repurchase of debentures for
cash will be treated as described below under "Sale or Disposition of Debentures
or Shares of our Common Stock."
Repurchase of debentures for a combination of cash and common stock. In
general, you will not recognize gain or loss upon a repurchase of debentures for
a combination of cash and shares of our common stock except that you will
recognize ordinary interest income to the extent that a portion of the common
stock is a payment of accrued interest on the debentures. That interest income
will generally not be subject to withholding tax.
DISTRIBUTIONS ON COMMON STOCK ACQUIRED ON CONVERSION OR REPURCHASE OF
DEBENTURES
Distributions on our common stock will constitute dividends to the extent
of our current or accumulated earnings and profits, as determined for U.S.
Federal income tax purposes. Dividends paid (or deemed paid) to a non-U.S.
holder on shares of our common stock acquired upon the conversion or redemption
of debentures will be subject to withholding at a 30% rate or a lower rate
provided by an applicable treaty. A non-U.S. holder that is eligible for a
reduced rate of U.S. withholding tax pursuant to a treaty may obtain a refund of
any excess amount withheld by filing an appropriate claim for a refund with the
IRS. In general, you can comply with the documentation requirements to claim tax
treaty benefits by satisfying one of the following conditions:
- You provide a completed Form W-8BEN to the bank, broker or other
intermediary through which you hold your shares, or, if you hold your
shares directly, to us or our paying agent.
- You hold your shares directly through a qualified intermediary. In that
case, you need not file Form W-8BEN if the qualified intermediary has in
its files, or obtains from you, certain information concerning your
eligibility for an exemption from withholding.
- In certain limited circumstances, you may be permitted to provide
documentary evidence in lieu of Form W-8BEN even if you hold your shares
through an intermediary that is not a qualified intermediary.
- Dividends will be exempt from U.S. withholding tax if the dividend income
is effectively connected with your conduct of a trade or business in the
U.S. In general, you must complete Form W-8ECI to claim this exemption.
In that case, the effectively connected dividends will be subject to
regular U.S. income tax as if you were a U.S. holder. In addition, if you
are a corporation, effectively connected dividends might be subject to a
branch profits tax imposed at a rate of 30% or a lower rate under an
applicable tax treaty.
SALE OR DISPOSITION OF DEBENTURES OR SHARES OF OUR COMMON STOCK
You will generally not be subject to U.S. Federal income tax on gain
recognized on a sale or other disposition of debentures or shares of our common
stock unless (i) the gain is effectively connected with your conduct of a trade
or business in the U.S., (ii) if you are an individual, you are present in the
U.S. for at least 183 days in the taxable year of disposition and you satisfy
certain other requirements, or (iii) we are or have been during certain periods
preceding the disposition a "U.S. real property holding corporation," for U.S.
Federal income tax purposes (which we believe we are not and are not likely to
become).
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding and information reporting will not apply to interest on
debentures and dividends on our common stock if you have furnished a Form W-8BEN
or W-8ECI or otherwise establish an exemption, provided that neither we nor a
paying agent has actual knowledge that you are a U.S. holder or other conditions
of any other exemption are not satisfied.
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Payments of the proceeds of the sale or disposition of debentures or shares
of our common stock through a foreign office of certain brokers are currently
subject to reporting requirements, but not backup withholding. Reporting
requirements apply if the broker is (i) a U.S. person; (ii) a controlled foreign
corporation; (iii) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable year
preceding the payment was effectively connected with the conduct of a trade or
business in the U.S.; (iv) a foreign partnership with certain connections to the
U.S.; or (v) a U.S. branch of a foreign bank or foreign insurance company. Those
payments will not be subject to reporting requirements if the broker has
evidence in its records that you are a non-U.S. holder and has no actual
knowledge or reason to know that such evidence is false.
Payments of the proceeds of a sale of debentures or shares of our common
stock through the U.S. office of a broker will be subject to information
reporting and backup withholding unless you certify under penalties of perjury
that you are a non-U.S. holder, satisfy certain other qualifications and provide
your name and address, or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against your U.S. Federal income tax liability, provided the
required information is furnished to the IRS.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") prohibit plans that are subject to ERISA, plans and other
arrangements that are subject to Section 4975 of the Code and entities whose
underlying assets are considered to include "plan assets" of such plans and
arrangements (collectively, "Plans") from engaging in specified transactions
involving plan assets with persons or entities who are "parties in interests"
within the meaning of ERISA or "disqualified persons" within the meaning of
Section 4975 of the Code. The acquisition and/or ownership of the security by a
Plan with respect to which the issuer is considered a party in interest or a
disqualified person may constitute or result in a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code, unless the securities are
acquired and are held in accordance with an applicable statutory, class or
individual prohibited transaction exemption. Accordingly, to prevent the
possibility of any such prohibited transaction, each purchaser will be deemed to
have represented by its purchase and holding of a security that either (1) it is
not a Plan and is not purchasing the security on behalf of or with the assets of
any Plan or (2) its purchase, holding and subsequent disposition of the security
is either not a prohibited transaction under ERISA or the Code, or is entitled
to exemptive relief from the prohibited transaction provisions of ERISA and the
Code in accordance with one or more statutory, class or individual prohibited
transaction exemptions, and is otherwise permissible under all applicable laws
which are similar to ERISA or Section 4975 of the Code.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, among us and the underwriters named below, we have agreed
to sell to each of the underwriters, and each of the underwriters has severally
agreed to purchase, the principal amount of debentures set forth opposite its
name.
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
UNDERWRITER SERIES A DEBENTURES SERIES B DEBENTURES
----------- ------------------- -------------------
J.P. Morgan Securities Inc. ...................... $ $
Citigroup Global Markets Inc. ....................
HSBC Securities (USA) Inc. .......................
Bear, Stearns & Co. Inc. .........................
Morgan Stanley & Co. Incorporated.................
UBS Warburg LLC...................................
---------------- ----------------
Totals ...................................... $ $
================ ================
The underwriting agreement provides that the several obligations of the
underwriters to purchase the debentures included in this offering are subject to
approval of a number of legal matters by counsel and to some other conditions.
The underwriters are obligated to purchase all of the debentures if they
purchase any of the debentures.
The underwriters propose to offer the debentures to the public at the
public offering price set forth on the cover page of this prospectus supplement
and to certain dealers at such prices less a concession not in excess of %
of the public offering of the debentures. After the initial offering of the
debentures to the public, the public offering price and such concessions may be
changed by the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date hereof, to purchase up to an additional $ aggregate principal
amount of Series A debentures and $ aggregate principal amount of Series B
debentures at the price to public less the underwriting discount set forth on
the cover page of this prospectus supplement. The underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering.
We and our executive officers and directors have agreed that, without the
prior written consent of J.P. Morgan Securities Inc. and Citigroup Global
Markets Inc., and subject to the exceptions described below, we and they will
not, during the period ending 90 days after the date of this prospectus
supplement,
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option to sell or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for our common
stock or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of our
common stock,
whether any transaction described above is to be settled by delivery of common
stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of the debentures offered by this prospectus supplement;
- the issuance by Lucent of shares of common stock
- upon the exercise of an option or warrant or the conversion of a
security outstanding on the date of this prospectus supplement and
disclosed in an SEC filing by Lucent;
- in respect of dividend payments on Lucent's outstanding convertible
preferred stock; or
- pursuant to employee or director benefit plans;
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- the granting by Lucent of stock options, restricted stock or restricted
stock units pursuant to any employee or director benefit plan approved by
our board of directors;
- the issuance by Lucent of equity securities or securities convertible
into or exercisable or exchangeable for equity securities to one or more
strategic investors in a private placement (other than an offering
pursuant to Rule 144A or similar offering) so long as such investors
agree to the restrictions set forth in the preceding paragraph with
respect to sales of such securities during the 90-day period referred to
above; or
- the issuance by Lucent of common stock and/or warrants to purchase common
stock in connection with the settlement agreement in respect of certain
litigation;
- in the case of our executive officers and directors, transactions
relating to shares of Lucent's common stock or its other securities
acquired in open market transactions after the completion of this
offering.
The debentures have no established trading market. We have been advised by
the underwriters that they intend to make a market in the debentures as
permitted by applicable laws and regulations. The underwriters are not
obligated, however, to make a market in the debentures and any market making may
be discontinued at any time without notice. No assurances can be given as to the
liquidity of, or trading market for, the debentures.
Our common stock is listed on the New York Stock Exchange under the symbol
"LU."
The following table shows the underwriting discount that we are to pay to
the underwriters in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option.
NO EXERCISE FULL EXERCISE
----------- -------------
Per Series A Debenture...................................... $ $
Total Series A Debentures.............................. $ $
Per Series B Debenture...................................... $ $
Total Series B Debentures.............................. $ $
Total............................................. $ $
In connection with the offering, certain underwriters and their affiliates
may purchase and sell debentures or common stock in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of the
debentures in excess of the principal amount of debentures to be purchased by
the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of debentures or common stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of debentures or common stock made for the purpose of preventing or
retarding a decline in the market price of the debentures or the common stock,
as applicable, while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when they,
in covering syndicate short positions or making stabilizing purchases,
repurchase the debentures originally sold by that syndicate member.
Any of these activities may cause the price of the debentures or the common
stock to be higher than the price that otherwise would exist in the open market
in the absence of such transactions. These transactions may be effected in the
over-the-counter market or otherwise and, if commenced, may be discontinued at
any time.
We estimate that our total expenses of this offering will be $1.5 million.
All of the underwriters and their respective affiliates have performed
investment banking or commercial banking transactions for us from time to time
for which they have received customary fees and expenses and may do so in the
future. The underwriters and their respective affiliates may, from time to time,
engage in transactions with and perform services for us in the ordinary course
of their business. Affiliates of JPMorgan, Citigroup and HSBC are participants
in and lenders to the special purpose trust to which we sold, in 2000 and 2001,
some of our customer finance loans and receivables, all of which are in default.
We have indemnified these affiliates of our
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underwriters against losses arising from these transactions. The trust currently
has approximately $150 million in outstanding obligations to these affiliates.
The insurer of these obligations has recently disclaimed coverage. See
"Guarantees and Indemnification Agreements" and "Variable Interest Entities" in
Note 10 to our Consolidated Financial Statements and "Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources -- Special Purpose Entities" in our Quarterly Report on Form
10-Q for the quarter ended March 31, 2003. In addition, JPMorgan, Citigroup and
HSBC are parties to our new credit agreements for the issuance of letters of
credit and extend, among other things, credit to our non-U.S. subsidiaries,
letters of credit and foreign exchange hedging. See our Current Report on Form
8-K dated May 28, 2003 and "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Future Capital Requirements" in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. We have also
entered into an agreement with UBS Warburg to sell from time to time up to 100
million shares of our common stock.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
LEGAL MATTERS
The validity of the debentures will be passed upon for us by Cravath,
Swaine & Moore LLP, New York, New York, our special New York counsel, and
Richard J. Rawson, our Senior Vice President, General Counsel and Secretary. As
of May 27, 2003, Mr. Rawson owned 334,074 shares of our common stock and vested
options for 2,659,876 shares of our common stock. The validity of the debentures
will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New
York.
In connection with this offering, certain matters relating to U.S. Federal
income tax will be passed upon for us by Cravath, Swaine & Moore LLP, New York,
New York, our special tax counsel.
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PROSPECTUS
$1,755,000,000
[LUCENT LOGO]
LUCENT TECHNOLOGIES INC.
COMMON STOCK
PREFERRED STOCK
DEBT SECURITIES
WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
We may sell, from time to time, securities comprising one or more of:
- shares of our common stock, $.01 par value per share;
- shares of our preferred stock, $1.00 par value per share;
- debt securities comprising one or more of debentures, notes or other
evidences of indebtedness;
- warrants to purchase our debt securities or shares of our common stock or
preferred stock;
- stock purchase contracts;
- stock purchase units;
- any combination of these securities,
in one or more offerings up to a total dollar (or its equivalent in foreign or
composite currencies) amount of $1,755,000,000 of these securities.
When we decide to sell particular securities, we will provide you with the
specific terms of the securities we are then offering in one or more prospectus
supplements to this prospectus. You should read this prospectus, together with
any prospectus supplement and information incorporated by reference in this
prospectus and any prospectus supplements carefully before you decide to invest.
Our common stock is listed for trading on the New York Stock Exchange under
the trading symbol "LU." Each prospectus supplement to this prospectus will
contain information, where applicable, as to any other listing on any national
securities exchange or The Nasdaq Stock Market of the securities covered by the
prospectus supplement.
These securities may be sold directly by us, through dealers or agents
designated from time to time, to or through underwriters or through a
combination of these methods. See "Plan of Distribution" in this prospectus. We
may also describe the plan of distribution for any particular offering of these
securities in any applicable prospectus supplement. If any agents, underwriters
or dealers are involved in the sale of any securities in respect of which this
prospectus is being delivered, we will disclose their names and the nature of
our arrangements with them in a prospectus supplement. The net proceeds we
expect to receive from any such sale will also be included in a prospectus
supplement.
This prospectus may not be used to offer or sell any securities unless it
is accompanied by a prospectus supplement.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 2 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March 28, 2003
TABLE OF CONTENTS
PAGE
----
About this Prospectus....................................... ii
Incorporation of Certain Information by Reference........... 1
Where You Can Find More Information......................... 1
The Company................................................. 2
Risk Factors................................................ 2
Use of Proceeds............................................. 2
Ratios of Earnings to Fixed Charges and of Earnings to
Combined Fixed Charges and
Preferred Stock Dividend Requirements..................... 2
Description of Capital Stock................................ 3
Description of Debt Securities.............................. 13
Description of Warrants..................................... 21
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 23
Plan of Distribution........................................ 23
Validity of Securities...................................... 25
Experts..................................................... 25
---------------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or, the SEC, utilizing a "shelf"
registration process, which allows us to offer and sell any combination of the
securities described in this prospectus in one or more offerings. Using this
prospectus, we may offer up to a total dollar (or its equivalent in foreign or
composite currencies) amount of $1,755,000,000 of these securities.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement that will describe the specific terms of the securities we are then
offering. Each prospectus supplement will also contain specific information
about the terms of the offering it describes. Prospectus supplements may also
add to, update or change the information contained in this prospectus. In
addition, as we describe in the section entitled "Where You Can Find More
Information," we have filed and plan to continue to file other documents with
the Securities and Exchange Commission, or, the SEC, that contain information
about us and the business conducted by us and our subsidiaries. Before you
decide whether to invest in any of these securities, you should read this
prospectus, the prospectus supplement that further describes the offering of
these securities and the information we file with the SEC.
You should rely only on the information contained or incorporated by
reference in this prospectus and any applicable prospectus supplement. We have
not authorized any other person to provide you with different information. We
will not make an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus is accurate only as of the date on the cover page.
In this prospectus, references to "Company," "we," "us," "our" and "Lucent"
refer to Lucent Technologies Inc. and does not include any of its subsidiaries
in the context of the issuer of securities. In other contexts, reference to
"Company," "we," "us," "our" and "Lucent" may also include subsidiaries of
Lucent. The phrase "this prospectus" refers to this prospectus and any
applicable prospectus supplement, unless the context otherwise requires.
References to "securities" refer collectively to the common stock, preferred
stock, debt securities, warrants, stock purchase contracts and stock purchase
units offered by this prospectus.
ii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This prospectus incorporates by reference important business and financial
information about us that is not otherwise included in this prospectus. The
following documents filed by us, Commission File No. 001-11639, with the SEC are
incorporated herein by reference and shall be deemed to be a part hereof:
1. Annual Report on Form 10-K for the fiscal year ended September 30,
2002, filed on December 12, 2002;
2. Quarterly Report on Form 10-Q for the three months ended December 31,
2002, filed on February 11, 2003;
3. Current Reports on Form 8-K filed pursuant to Item 5 or Item 7 of Form
8-K on October 11, 2002, October 18, 2002, October 23, 2002, January
22, 2003, February 21, 2003 and February 27, 2003; and
4. The "Description of Capital Stock" section of our registration
statement on Form 10, filed on February 26, 1996, as amended by
Amendment No. 1 on Form 10/A, filed on March 12, 1996, Amendment No. 2
on Form 10/A, filed on March 22, 1996, Amendment No. 3 on Form 10/A,
filed on April 1, 1996, Exhibit 99(i) on our Quarterly Report on Form
10-Q for the quarter ended December 31, 2001, filed on February 14,
2002 and any other amendments or reports for the purpose of updating
that description (including this prospectus).
Current Reports on Form 8-K containing only Regulation FD disclosure
furnished under Item 9 of Form 8-K are not incorporated herein by reference.
All documents and reports filed by us with the SEC (other than Current
Reports on Form 8-K containing only Regulation FD disclosure furnished pursuant
to Item 9 of Form 8-K, unless otherwise indicated therein) pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act of 1934, as
amended, or the Exchange Act, after the date of this prospectus and prior to the
termination of this offering shall be deemed incorporated herein by reference
and shall be deemed to be a part hereof from the date of filing of such
documents and reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this prospectus shall be deemed to be
modified or superseded for purposes of this document to the extent that a
statement contained herein or in any subsequently filed document or report that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
document.
We will provide, without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon written or oral request of
such person, a copy of any or all of the documents incorporated herein by
reference other than exhibits, unless such exhibits specifically are
incorporated by reference into such documents or this document. Requests for
such documents should be addressed in writing or by telephone to:
Corporate Secretary
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
(908) 582 8500
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information reporting requirements of the Exchange
Act and accordingly file annual, quarterly and special reports, proxy statements
and other information with the SEC. Members of the public may read and copy any
materials we file with the SEC at the SEC's following public reference
facilities:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 233 Broadway 175 West Jackson Boulevard
Room 1024 New York, NY 10279 Suite 900
Washington, D.C. 20549 Chicago, IL 60604
Information on the operation of these public reference facilities may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site at that contains materials we file electronically with the
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SEC. Our SEC filings can also be inspected and copied at the offices of The New
York Stock Exchange at 20 Broad Street, New York, New York 10005.
THE COMPANY
We operate in the global communications networking industry and design and
deliver networks for the world's largest communications service providers.
Backed by Bell Labs, one of the world's foremost industrial and research
development organizations, we rely on our strengths in mobility, optical, data
and voice networking technologies as well as software and services to develop
next generation networks. Our systems, services and software are designed to
help customers quickly deploy and better manage their networks and create new
opportunities for revenue-generating services that help businesses and
consumers.
Our principal executive offices are located at 600 Mountain Avenue, Murray
Hill, New Jersey 07974 and our telephone number, at that location is (908)
582-8500.
RISK FACTORS
Investing in our securities involves risks. You should carefully consider
the specific factors discussed under the caption "Risk Factors" in the
applicable prospectus supplement, together with all the other information
contained in the prospectus supplement or appearing or incorporated by reference
in this prospectus. You should also consider the risks, uncertainties and
assumptions discussed under the caption "Risks Related to Our Business and
Investing in Our Securities" included in our annual report on Form 10-K for the
year ended September 30, 2002, which is incorporated by reference in this
prospectus, and which may be amended, supplemented or superseded from time to
time by other reports we file with the SEC in the future.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities offered
by this prospectus for working capital, capital expenditures, debt service,
preferred stock dividend requirements or redemptions, other general corporate
purposes or for any other purpose we describe in any applicable prospectus
supplement. Debt service may include making interest and principal payments on
our debt. Our management will retain broad discretion in the allocation of the
net proceeds from the sale of these securities.
RATIOS OF EARNINGS TO FIXED CHARGES AND OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The following table sets forth our consolidated ratios of earnings to fixed
charges and of earnings to combined fixed charges and preferred stock dividend
requirements for the periods shown.
THREE MONTHS
ENDED
DECEMBER 31, FISCAL YEAR ENDED SEPTEMBER 30,
------------ ------------------------------------
2002 2002 2001 2000 1999 1998
------------ ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges......... --(a) --(b) --(c) 4.6 7.2 4.3
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend
Requirements............................. --(a) --(b) --(c) 4.6 7.2 4.3
---------------
(a) Our earnings were insufficient to cover our fixed charges by $383 million
and our earnings were insufficient to cover our combined fixed charges and
preferred stock dividend requirements by $408 million during the three
months ended December 31, 2002.
(b) Our earnings were insufficient to cover our fixed charges by $7,087 million
and our earnings were insufficient to cover our combined fixed charges and
preferred stock dividend requirements by $7,254 million during fiscal 2002.
(c) Our earnings were insufficient to cover our fixed charges by $19,860 million
and our earnings were insufficient to cover our combined fixed charges and
preferred stock dividend requirements by $19,888 million during fiscal 2001.
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Fixed charges consist of interest expense on all indebtedness and that
portion of operating lease rental expense that is representative of the interest
factor. Preferred stock dividend requirements consist of the amount of pre-tax
earnings that is required to pay the dividends on our outstanding preferred
stock.
DESCRIPTION OF CAPITAL STOCK
We are authorized by Section 1 of our Restated Certificate of
Incorporation, as amended, which we refer to as our certificate of
incorporation, to issue 10,250 million shares of capital stock, of which 10,000
million shares shall be common stock, $.01 par value, per share, or, our common
stock, and 250 million shares shall be preferred stock, $1.00 par value, per
share, or, our preferred stock. As of December 31, 2002, approximately
3,713,350,863 million shares of our common stock were issued and outstanding,
and 1,318,112 shares of our preferred stock were issued and outstanding. Our
common stock is listed for trading on the New York Stock Exchange under the
trading symbol "LU."
Our certificate of incorporation was amended on April 8, 1996 by the
designation of 7.5 million shares of our preferred stock as Series A Junior
Participating Preferred Stock, which we refer to as our junior preferred stock,
and further amended on February 17, 1999 and February 16, 2000 by the
designation of an additional 7.5 million shares and 10.0 million shares,
respectively, of our preferred stock as junior preferred stock.
Our certificate of incorporation was amended on August 6, 2001 by the
designation of 1,885,000 shares of our preferred stock as 8.00% redeemable
convertible preferred stock, which we refer to as our redeemable convertible
preferred stock.
COMMON STOCK
The holders of shares of our common stock are entitled to one vote for each
share upon all proposals presented to the stockholders on which the holders of
our common stock are entitled to vote. Except as otherwise required by law or by
the resolution or resolutions adopted by our board of directors designating the
rights, powers and preferences of any series of our preferred stock, the holders
of shares of our common stock have the exclusive right to vote for the election
of directors and for all other purposes. Our certificate of incorporation does
not provide for cumulative voting in the election of our directors. Subject to
any preferential rights of any outstanding series of preferred stock created by
our board of directors from time to time, the holders of shares of our common
stock are entitled to such dividends as may be declared from time to time by our
board of directors from funds available therefor, and upon liquidation are
entitled to receive pro rata all our assets available for distribution to such
holders. See "Dividend Policy."
PREFERRED STOCK
The following is a summary of certain general terms and provisions of our
preferred stock and is not complete. The particular terms of any series of
preferred stock we offer, including the extent to which the general terms and
provisions below may apply to that series of preferred stock, will be described
in a prospectus supplement relating to that series of preferred stock. You
should refer to the applicable certificate of designation for such series of
preferred stock for complete information with respect to such preferred stock.
Our certificate of incorporation authorizes our board of directors to
establish one or more series of preferred stock and to determine, with respect
to any series of preferred stock, the terms and rights of such series,
including:
- the designation of the series;
- the number of shares of the series, which number our board of directors
may thereafter (except where otherwise provided in the applicable
certificate of designation) increase or decrease (but not below the
number of shares thereof then outstanding);
- whether dividends, if any, will be cumulative or noncumulative, and, in
the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative;
- the rate of any dividends (or method of determining such dividends)
payable to the holders of the shares of such series, any conditions upon
which such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable;
- the redemption rights and price or prices, if any, for shares of the
series;
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- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series;
- the amounts payable on and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of our company;
- whether the shares of the series will be convertible or exchangeable into
shares of any other class or series, or any other security, of our
company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange
price or prices or rate or rates, any adjustments thereof, the date or
dates as of which such shares will be convertible or exchangeable and all
other terms and conditions upon which such conversion or exchange may be
made;
- restrictions on the issuance of shares of the same series or of any other
class or series;
- the voting rights, if any, of the holders of the shares of the series;
and
- any other relative rights, preferences and limitations of such series.
We believe that the ability of our board of directors to issue one or more
series of preferred stock will provide us with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. The authorized shares of our preferred stock, as well
as shares of our common stock, will be available for issuance without further
action by our stockholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. The New York Stock Exchange currently
requires stockholder approval as a prerequisite to listing shares in several
instances, including where the present or potential issuance of shares could
result in an increase in the number of shares of common stock, or in the amount
of voting securities, outstanding of at least 20%. If the approval of our
stockholders is not required for the issuance of shares of our preferred stock
or our common stock, our board of directors may determine not to seek
stockholder approval.
Although our board of directors has no intention at the present time of
doing so, it could issue a series of our preferred stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. Our board of directors will make any determination to
issue such shares based on its judgment as to our and our stockholders' best
interests. Our board of directors, in so acting, could issue preferred stock
having terms that could discourage an acquisition attempt through which an
acquirer may be able to change the composition of our board of directors,
including a tender offer or other transaction that some, or a majority, of our
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
JUNIOR PREFERRED STOCK
We have designated and reserved 25 million shares of our preferred stock as
our junior preferred stock for issuance upon exercise of certain rights. See
"-- Rights Plan."
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On August 6, 2001, we designated and issued 1,885,000 shares of our
preferred stock as our redeemable convertible preferred stock. Each share of our
redeemable convertible preferred stock has an initial liquidation preference of
$1,000 and is currently convertible into common stock at a conversion price of
$5.94 per share of common stock (equivalent to a conversion rate of 168.3502
shares of common stock for each share of preferred stock), representing an
adjustment of the initial conversion price of $7.48 per share of common stock
(or initial conversion rate of 133.6898 shares of common stock for each share of
preferred stock) on account of our distribution of our shares of Agere Systems
Inc. to our common shareowners in connection with our spin-off of Agere Systems
Inc. The conversion price is subject to further specified adjustments.
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RANKING
Our redeemable convertible preferred stock ranks, with respect to dividend
rights and rights upon liquidation, winding up or dissolution:
- junior to:
- all our existing and future debt obligations; and
- each class or series of our capital stock that has terms providing that
such class or series will rank senior to our redeemable convertible
preferred stock;
- on a parity with each class or series of our capital stock that has terms
providing that such class or series will rank on a parity with our
redeemable convertible preferred stock; and
- senior to our junior preferred stock, our common stock and each class or
series of our capital stock that has terms providing that such class or
series will rank junior to our redeemable convertible preferred stock.
Without the consent of holders of at least two-thirds of the shares of our
redeemable convertible preferred stock outstanding, we will not be entitled to
issue any class or series of capital stock that ranks senior to our redeemable
convertible preferred stock.
DIVIDENDS
Dividends on our redeemable convertible preferred stock are payable on
February 1 and August 1 of each year. We began paying the dividends on our
redeemable convertible preferred stock on February 1, 2002. Dividends accrue
from the beginning of the relevant dividend period at the annual rate of 8.00%
of the applicable accreted liquidation preference per share. We will pay
dividends on a dividend payment date either, at our option and subject to agreed
upon conditions, in cash, shares of our common stock or any combination thereof.
Shares of our common stock delivered to the transfer agent on behalf of holders
of preferred stock will be sold on the holders' behalf, resulting in net cash
proceeds to be distributed to the holders in an amount equal to the cash
dividend otherwise payable.
To pay dividends, we must pay the dividends out of funds legally available
for payment, and to pay dividends by delivering shares to the transfer agent, we
must provide the transfer agent with a registration statement permitting the
immediate sale of the shares of common stock in the public market.
If we pay dividends by delivering shares of our common stock to the
transfer agent, those shares will be owned beneficially by the holders of our
redeemable convertible preferred stock upon delivery of such shares of our
common stock to the transfer agent, and the transfer agent will hold those
shares and the net cash proceeds from the sale of those shares for the exclusive
benefit of the holders. If a holder provides notice to the transfer agent at
least 30 days prior to the applicable dividend payment date not to sell any
shares of common stock received and held on behalf of that holder, the transfer
agent will deliver to or for the account of the holder promptly after receipt by
the transfer agent, shares of common stock having the value of the dividend
payment calculated based on an average sale price on the five trading days
preceding the third business day before the relevant dividend payment date.
If we are unable to pay dividends on our redeemable convertible preferred
stock in full on any dividend payment date, the liquidation preference of our
redeemable convertible preferred stock will be increased for subsequent dividend
periods by an amount that reflects the accretion of the unpaid dividends at an
annual rate of 10.00%, calculated on a semi-annual basis, from, and including,
the first day of the relevant dividend period to, but excluding, the dividend
payment date. The conversion price will not change as a result of any accretion.
REDEMPTION AT OUR OPTION
We may not redeem any shares of our redeemable convertible preferred stock
at any time before August 15, 2006. Thereafter, we may, at our option and upon
notice to the holders of our redeemable convertible preferred stock, redeem any
outstanding shares of our redeemable convertible preferred stock at a price per
share equal to the accreted liquidation preference thereof, plus an amount equal
to accrued and
5
unpaid dividends from, and including, the immediately preceding dividend payment
date to, but excluding, the redemption date. We may, at our option, elect to pay
the redemption price:
- in cash; or
- in shares of our common stock valued at a discount of 5% from the market
price of our common stock; or
- any combination thereof.
We may pay such redemption price only out of funds legally available for
such payment, and if we pay the redemption price in shares of our common stock,
such shares must be eligible for immediate sale in the public market by
non-affiliates of ours absent a registration statement.
REDEMPTION AT THE OPTION OF THE HOLDER
On the redemption dates of August 2, 2004, August 2, 2007, August 2, 2010,
and August 2, 2016, we will, at the option of the holder, be required to redeem
any outstanding shares of our redeemable convertible preferred stock at a price
per share equal to the accreted liquidation preference thereof, plus an amount
equal to accrued and unpaid dividends from, and including, the immediately
preceding dividend payment date to, but excluding, the redemption date.
The terms of our redeemable convertible preferred stock permit us, at our
option, to pay the redemption price:
- in cash; or
- in shares of our common stock valued at a discount of 5% from the market
price of our common stock; or
- any combination thereof.
We may pay the redemption price only out of funds legally available for
such payment, and if we pay the redemption price in shares of the common stock,
such shares must be eligible for immediate sale in the public market by
non-affiliates of ours absent a registration statement.
MANDATORY REDEMPTION
We will be obligated to redeem all outstanding shares of our redeemable
convertible preferred stock on August 1, 2031, at a price per share equal to the
accreted liquidation preference thereof, plus an amount equal to accrued and
unpaid dividends from, and including, the immediately preceding dividend payment
date to, but excluding, the date of redemption.
The terms of our redeemable convertible preferred stock permit us, at our
option, to pay the redemption price:
- in cash; or
- in shares of our common stock valued at a discount of 5% from the market
price of our common stock; or
- any combination thereof.
We may pay the redemption price only out of funds legally available for
such payment, and if we pay the redemption price in shares of our common stock,
such shares must be eligible for immediate sale in the public market by
non-affiliates of ours absent a registration statement.
CONVERSION
Each share of our redeemable convertible preferred stock may be converted
at the option of the holder into a number of shares of our common stock, subject
to adjustment based on adjustments to the conversion price.
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VOTING RIGHTS
The holders of shares of our redeemable convertible preferred stock are not
entitled to any voting rights except as required by law. Notwithstanding the
foregoing, so long as any shares of our redeemable convertible preferred stock
remain outstanding, we shall not, without the consent of the holders of at least
two-thirds of the shares of our redeemable convertible preferred stock
outstanding:
- issue shares of or increase the authorized number of shares of any class
or series of stock ranking prior to the outstanding redeemable
convertible preferred stock as to the payment of dividends or
distributions upon liquidation, dissolution or winding up; or
- amend our certificate of incorporation or the resolutions contained in
the certificate of designations relating to our redeemable convertible
preferred stock, whether by merger, consolidation or otherwise, if the
amendment would alter or change any power, preference or special right of
the outstanding redeemable convertible preferred stock so as to
materially and adversely affect the holders thereof.
CHANGE OF CONTROL
If we undergo a change of control, each holder of shares of our redeemable
convertible preferred stock will have the right to require us to redeem any
outstanding shares of the holder's redeemable convertible preferred stock at a
redemption price per share equal to the accreted liquidation preference of those
shares, plus an amount equal to accrued and unpaid dividends, if any, on those
shares from, and including, the immediately preceding dividend payment date to,
but excluding, the date of redemption. This right of holders will be subject to
our obligation to repay or repurchase any indebtedness or preferred stock
required to be repaid or repurchased in connection with a change of control and
to any contractual restrictions then contained in our indebtedness.
We may, at our option, elect to pay the redemption price in cash or in
shares of our common stock valued at a discount of 5% from the market price of
our common stock, or any combination thereof. However, we may pay such
redemption price only out of funds legally available for such payment, and if we
pay the redemption price in shares of our common stock, such shares must be
eligible for immediate sale in the public market by non-affiliates of ours
absent a registration statement.
Holders of our redeemable convertible preferred stock will not have this
redemption right if our common stock trades at or above 105% of the conversion
price of our redeemable convertible preferred stock during specified periods, or
if holders of our redeemable convertible preferred stock receive specified
securities as a result of the change of control.
EXCHANGE RIGHT
We have the right, at any time we have legally available funds, to require
all holders of our outstanding redeemable convertible preferred stock to
exchange their shares of our redeemable convertible preferred stock for 8.00%
convertible subordinated debentures having an aggregate principal amount equal
to the accreted liquidation preference of our redeemable convertible preferred
stock and having a conversion price and interest rate equal to the conversion
price and dividend rate for our redeemable convertible preferred stock, rounded
down to the nearest whole dollar amount.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND BY-LAWS
BOARD OF DIRECTORS
Our certificate of incorporation provides that, except as otherwise fixed
by or pursuant to the provisions of a certificate of designations setting forth
the rights of the holders of any class or series of our preferred stock, the
number of our directors will be fixed from time to time exclusively pursuant to
a resolution adopted by a majority of the total number of directors which we
would have if there were no vacancies, or the whole of our board of directors,
but shall not be less than three. Our directors, other than those who may be
elected by the holders of our preferred stock, are classified, with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as possible with each director to hold office until its
successor is duly elected and qualified. Directors elected to succeed directors
whose terms then expire are elected for a term of
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office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until such person's successor
is duly elected and qualified.
Our certificate of incorporation provides that, except as otherwise
provided for or fixed by or pursuant to a certificate of designations setting
forth the rights of the holders of any class or series of our preferred stock,
newly created directorships resulting from any increase in the number of our
directors and any vacancies on our board of directors resulting from death,
resignation, disqualification, removal or other cause will be filled by the
affirmative vote of a majority of our remaining directors then in office, even
though less than a quorum of our board of directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting our board of directors will shorten the
term of any incumbent director. Subject to the rights of holders of our
preferred stock, any director may be removed from office only for cause by the
affirmative vote of the holders of at least a majority of the voting power of
all voting stock then outstanding, voting together as a single class.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of our board of directors by
filling the vacancies created by removal with its own nominees. Under the
classified board provisions described above, it would take at least two
elections of our directors for any individual or group to gain control of our
board of directors. Accordingly, these provisions could discourage a third party
from initiating a proxy contest, making a tender offer or otherwise attempting
to gain control of us.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our certificate of incorporation and by-laws provide that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law and
subject to the rights of the holders of any of our preferred stock, special
meetings of our stockholders for any purpose or purposes may be called only by
our board of directors pursuant to a resolution stating the purpose or purposes
thereof approved by a majority of our whole board of directors or by the
chairman of our board of directors and any power of stockholders to call a
special meeting is specifically denied. No business other than that stated in
the notice shall be transacted at any special meeting. These provisions may have
the effect of delaying consideration of a stockholder proposal until the next
annual meeting unless a special meeting is called by our board of directors or
the chairman of our board of directors.
ADVANCE NOTICE PROCEDURES
Our by-laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of our stockholders, which we refer to as the
stockholder notice procedure. The stockholder notice procedure provides that
only persons who are nominated by, or at the direction of, the chairman of our
board of directors, or by a stockholder who has given timely written notice to
our secretary prior to the meeting at which directors are to be elected, will be
eligible for election as directors of our company. The stockholder notice
procedure also provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of, the
chairman of our board of directors or our board of directors, or by a
stockholder who has given timely written notice to our secretary of such
stockholder's intention to bring such business before such meeting. Under the
stockholder notice procedure, for notice of stockholder nominations to be made
at an annual meeting to be timely, such notice must be received by us not later
than the close of business on the 45th calendar day nor earlier than the close
of business on the 75th calendar day prior to the first anniversary of the
record date of stockholders entitled to vote at the preceding year's annual
meeting (except that, in the event that the record date is more than 30 calendar
days before or more than 60 calendar days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the 75th calendar day prior to such record date and not later than
the close of business on the later of the 45th calendar day prior to such record
meeting or the 10th calendar day following the day on which public announcement
of such record date is first made by us).
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Notwithstanding the foregoing, in the event that the number of directors to
be elected to our board of directors is increased and there is no public
announcement by us naming all of the nominees for director or specifying the
size of the increased board of directors at least 55 calendar days prior to the
first anniversary of the record date for preceding year's annual meeting, a
stockholder's notice also will be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered not later than the close of business on the 10th calendar day
following the day on which such public announcement is first made by us. Under
the stockholder notice procedure, timely notice of a stockholder nomination to
be made at a special meeting at which directors are to be elected must be
received by us not earlier than the close of business on the 90th calendar day
prior to such special meeting and not later than the close of business on the
later of the 60th calendar day prior to such special meeting or the 10th
calendar day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by our board of
directors to be elected at such meeting.
In addition, under the stockholder notice procedure, a stockholder's notice
to us proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain
certain specified information. If the chairman of a meeting determines that an
individual was not nominated, or other business was not brought before the
meeting, in accordance with the stockholder notice procedure, such individual
will not be eligible for election as a director, or such business will not be
conducted at such meeting, as the case may be.
AMENDMENT
Our certificate of incorporation provides that the affirmative vote of the
holders of at least 80% of the voting power of the outstanding shares of voting
stock, voting together as a single class, is required to amend provisions of our
certificate of incorporation relating to:
- stockholder action without a meeting;
- the calling of special meetings;
- the number, election and term of our directors;
- the filling of vacancies; and
- the removal of directors.
Our certificate of incorporation further provides that our related by-laws
described above (including the stockholder notice procedure) may be amended only
by our board of directors or by the affirmative vote of the holders of at least
80% of the voting power of the outstanding shares of voting stock, voting
together as a single class.
SHARE PURCHASE RIGHTS PLAN
Pursuant to the share purchase rights plan, or, our rights plan, our board
of directors has caused to be issued one preferred share purchase right, or, a
right, for each outstanding share of our common stock. Each right will entitle
the registered holder to purchase from us one one-hundredth of a share of our
junior preferred stock at a price of $90.00, which we refer to as the purchase
price, subject to adjustment. The description and terms of the rights is set
forth in a rights agreement dated April 4, 1996, which we refer to as the rights
agreement, between us and The Bank of New York (successor to First Chicago Trust
Company of New York) as rights agent. The description set forth below is
intended as a summary only and is qualified in its entirety by reference to the
rights agreement.
Until the earlier to occur of:
- ten days following a public announcement that a person or group of
affiliated or associated persons, which we refer to as the acquiring
person, has acquired beneficial ownership of 10% or more of the
outstanding shares of our common stock; or
- ten business days (or such later date as may be determined by action of
our board of directors prior to such time as any person becomes an
acquiring person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of
which would result
9
in the beneficial ownership by a person or group of 10% or more of such
outstanding shares of our common stock
(the earlier of such dates being called the rights distribution date), the
rights will be evidenced by the certificates representing our common stock.
The rights agreement provides that, until the rights distribution date (or
earlier redemption or expiration of the rights), the rights will be transferred
with and only with our common stock. Until the rights distribution date (or
earlier redemption or expiration of the rights), our common stock certificates
will contain a notation incorporating the rights agreement by reference. As soon
as practicable following the rights distribution date, separate certificates
evidencing the rights, called the right certificates, will be mailed to holders
of record of our common stock as of the close of business on the rights
distribution date and such separate right certificates alone will evidence the
rights.
The rights will not be exercisable until the rights distribution date. The
rights will expire on the 10th anniversary of the date of issuance referred to
as the final expiration date, unless the final expiration date is extended or
unless the rights are earlier redeemed or exchanged by us, in each case, as
summarized below.
In the event that any person or group of affiliated or associated persons
becomes an acquiring person, proper provision shall be made so that each holder
of a right, other than rights beneficially owned by the acquiring person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of our common stock having a market value of two
times the exercise price of the right. In the event that we are acquired in a
merger or other business combination transaction or 50% or more of our
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons becomes an acquiring person, proper provision
will be made so that each holder of a right will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise price of the
right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of our outstanding
common stock and prior to the acquisition by such person or group of 50% or more
of our outstanding common stock, our board of directors may exchange the rights
(other than rights owned by such person or group which have become void), in
whole or in part, at an exchange ratio of one share of our common stock, or one
one-hundredth of a share of our junior preferred stock (or of a share of a class
or series of our preferred stock having equivalent rights, preferences and
privileges), per right, subject to adjustment.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of our outstanding
common stock, our board of directors may redeem the rights in whole, but not in
part, at a price of $.01 per Right, referred to as the redemption price. The
redemption of the rights may be made effective at such time on such basis and
with such conditions as our board of directors, in its sole discretion, may
establish. Immediately upon any redemption of the rights, the right to exercise
the rights will terminate and the only right of the holders of the rights will
be eligible to receive the redemption price.
The terms of the rights may be amended by our board of directors without
the consent of the holders of the rights; provided, however, that, from and
after such time as any person or group of affiliated or associated persons
becomes an acquiring person, no such amendment may adversely affect the
interests of the holders of the rights. Until a right is exercised, the holder
thereof, as such, will have no rights as a stockholder of our company,
including, without limitation, the right to vote or to receive dividends.
The number of outstanding rights and the number of one one-hundredths of a
share of our junior preferred stock issuable upon exercise of each right also
will be subject to adjustment in the event of a stock split of our common stock
or a stock dividend on our common stock payable in our common stock or
subdivisions, consolidations or combinations of our common stock occurring, in
any such case, prior to the rights distribution date. The purchase price
payable, and the number of shares of our junior preferred stock or
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other securities or property issuable, upon exercise of the Rights will be
subject to adjustment from time to time to prevent dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, our junior preferred stock;
- upon the grant to holders of our junior preferred stock of certain rights
or warrants to subscribe for or purchase our junior preferred stock at a
price, or securities convertible into our junior preferred stock with a
conversion price, less than the then-current market price of our junior
preferred stock; or
- upon the distribution to holders of our junior preferred stock of
evidences of indebtedness or assets, excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends payable
in our junior preferred stock, or of subscription rights or warrants,
other than those referred to above.
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least one
percent in such purchase price. No fractional shares of our junior preferred
stock will be issued (other than fractions which are integral multiples of one
one-hundredth of a share of our junior preferred stock, which may, at our
election, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of our junior
preferred stock on the last trading day prior to the date of exercise.
Shares of our junior preferred stock purchasable upon exercise of the
rights will not be redeemable. Each share of our junior preferred stock will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend of 100 times the dividend declared
per share of our common stock. In the event of liquidation, our junior preferred
stockholders will be entitled to a minimum preferential liquidation payment of
$100 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of our common stock. Each share of our junior preferred
stock will have 100 votes voting together with our common stock. Finally, in the
event of any merger, consolidation or other transaction in which shares of our
common stock are exchanged, each share of our junior preferred stock will be
entitled to receive 100 times the amount received per share of our common stock.
These rights are protected by customary anti-dilution provisions.
Due to the nature of our junior preferred stock's dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a share of junior
preferred stock purchasable upon exercise of each right should approximate the
value of one share of our common stock.
The rights have certain antitakeover effects. The rights will cause
substantial dilution to a person or group of persons that attempts to acquire us
on terms not approved by our board of directors. The rights should not interfere
with any merger or other business combination approved by our board of directors
prior to the time that a person or group has acquired beneficial ownership of
10% percent or more of our common stock since the rights may be redeemed by us
at the redemption price until such time.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporation Law, or, the DGCL, provides
that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with the corporation for a three-year period
following the date that such stockholder becomes an interested stockholder
unless:
(i) prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder,
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding certain shares), or
(iii) on or subsequent to such date, the business combination is approved
by the board of directors of the corporation and authorized at an annual or
special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the interested
stockholder.
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Except as otherwise specified in Section 203, an interested stockholder is
defined to include:
(x) any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately prior
to the date of determination and
(y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. We have not elected to
be exempt from the restrictions imposed under Section 203. The provisions of
Section 203 may encourage persons interested in acquiring us to negotiate in
advance with our board of directors, since the stockholder approval requirement
would be avoided if a majority of our directors then in office approves either
the business combination or the transaction which results in any such person
becoming an interested shareholder. Such provisions also may have the effect of
preventing changes in our management. It is possible that such provisions could
make it more difficult to accomplish transactions which our stockholders may
otherwise deem to be in their best interests.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Our certificate of incorporation provides that a director of our company
will not be personally liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director, except, if required by the DGCL as
amended from time to time, for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions; or
- for any transaction from which the director derived an improper personal
benefit.
Neither the amendment nor repeal of such provision will eliminate or reduce
the effect of such provision in respect of any matter occurring, or any cause of
action, suit or claim that, but for such provision, would accrue or arise prior
to such amendment or repeal.
While our certificate of incorporation provides our directors with
protection from awards for monetary damages for breaches of their duty of care,
it does not eliminate such duty. Accordingly, our certificate of incorporation
will have no effect on the availability of equitable remedies such as an
injunction or rescission based on a director's breach of his or her duty of
care.
Our certificate of incorporation provides that each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a director or officer of our
company or is or was serving at the request of our company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, will be
indemnified and held harmless by us to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits us to provide
broader indemnification rights than said law permitted us to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have us pay the expenses incurred in defending any such
proceeding in advance of its final disposition, subject to the provisions of the
DGCL. Such rights are not exclusive of any other right which any person may have
or thereafter acquire under any statute, provision of our certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise. No repeal or modification of such provision will in any
way diminish or adversely affect the rights of any director, officer, employee
or agent of our company thereunder in
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respect of any occurrence or matter arising prior to any such repeal or
modification. Our certificate of incorporation also specifically authorizes us
to maintain insurance and to grant similar indemnification rights to our
employees or agents.
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent and registrar for our common
stock and our redeemable convertible preferred stock.
DESCRIPTION OF DEBT SECURITIES
The following is a summary of certain general terms and provisions of the
indenture which will govern the debt securities and is not complete. The
particular terms of any series of debt securities we offer, including the extent
to which the general terms and provisions may apply to that series of debt
securities, may be described in a prospectus supplement relating to those debt
securities.
We may issue debt securities from time to time in one or more series. The
debt securities will be issued under and controlled by an indenture between us
and The Bank of New York, as trustee, which we refer to as the indenture, and
any applicable supplement to the indenture. The following sections briefly
outline the provisions of the indenture. The indenture has been filed as an
exhibit to the registration statement of which this prospectus forms a part. If
we enter into any indenture supplement, we will file a copy of that supplement
with the SEC. You should read the applicable indenture and any supplements in
its entirety in order to completely understand its terms and conditions. In
addition, you should read the applicable prospectus supplement for particular
terms of our debt securities.
GENERAL TERMS
The debt securities represent our direct, unsecured, general obligations
and:
- may rank equally with our other unsubordinated debt or may be
subordinated to other debt we have or may incur;
- may be issued in one or more series with the same or various maturities;
- may be issued at a price of 100% of their principal amount or at a
premium or discount;
- may be issued in registered or bearer form and certificated or
uncertificated form; and
- may be represented by one or more global notes registered in the name of
a designated depository's nominee, and if so, beneficial interests in the
global note will be shown on and transfers will be made only through
records maintained by the designated depository and its participants.
The applicable prospectus supplement will describe, among other things, the
following terms, to the extent they are applicable to that series of debt
securities:
- the title of the debt securities of the series;
- any limit upon the aggregate principal amount of the debt securities of
the series that may be authenticated and delivered under the indenture;
- the date or dates on which the principal and premium of the debt
securities of the series are payable;
- the rate or rates (which may be fixed or variable) at which the debt
securities of the series shall bear interest, if any, or the method of
determining such rate or rates, the date or dates from which such
interest, if any, shall accrue, the interest payment dates on which such
interest, if any, shall be payable or the method by which such dates will
be determined, the record dates for the determination of holders thereof
to whom such interest is payable (in the case of debt securities in
registered form), and the basis upon which such interest will be
calculated if other than that of a 360-day year of twelve 30-day months;
- the currency or currencies, including composite currencies in which debt
securities of the series shall be denominated, if other than U.S.
dollars, the place or places, if any, in addition to or instead of the
corporate trust office of the trustee (in the case of debt securities in
registered form) or the principal
13
New York office of the trustee (in the case of debt securities in bearer
form), where the principal, premium and interest with respect to debt
securities of such series shall be payable or the method of such payment,
if by wire transfer, mail or other means;
- the price or prices at which, the period or periods within which, and the
terms and conditions upon which, debt securities of the series may be
redeemed, in whole or in part at our option or otherwise;
- whether debt securities of the series are to be issued in registered form
or bearer form or both and, if debt securities are to be issued in bearer
form, whether coupons will be attached to them, whether debt securities
of the series in bearer form may be exchanged for debt securities of the
series issued in registered form, and the circumstances under which and
the places at which any such exchanges, if permitted, may be made;
- if any debt securities of the series are to be issued in bearer form or
as one or more global securities representing individual debt securities
of the series in bearer form, whether certain provisions for the payment
of additional interest or tax redemptions shall apply; whether interest
with respect to any portion of a temporary debt security of the series in
bearer form payable with respect to any interest payment date prior to
the exchange of such temporary debt security in bearer form for
definitive debt securities of the series in bearer form shall be paid to
any clearing organization with respect to the portion of such temporary
debt security in bearer form held for its account and, in such event, the
terms and conditions (including any certification requirements) upon
which any such interest payment received by a clearing organization will
be credited to the persons entitled to interest payable on such interest
payment date; and the terms upon which a temporary debt security in
bearer form may be exchanged for one or more definitive debt securities
of the series in bearer form;
- our obligation, if any, to redeem, purchase or repay the debt securities
of the series pursuant to any sinking fund or analogous provisions or at
the option of a holder of such debt securities and the price or prices at
which, the period or periods within which, and the terms and conditions
upon which, debt securities of the series shall be redeemed, purchased or
repaid, in whole or in part, pursuant to such obligations;
- the terms, if any, upon which the debt securities of the series may be
convertible into or exchanged for any of our common stock, preferred
stock, other debt securities or warrants for common stock, preferred
stock or other securities of any kind and the terms and conditions upon
which such conversion or exchange shall be effected, including the
initial conversion or exchange price or rate, the conversion or exchange
period and any other additional provisions;
- if other than denominations of $1,000 and any integral multiple thereof,
the denominations in which the debt securities of the series shall be
issuable;
- if the amount of principal, premium or interest with respect to the debt
securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts will be
determined;
- if the principal amount payable at the stated maturity of debt securities
of the series will not be determinable as of any one or more dates prior
to such stated maturity, the amount that 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 and 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), and if necessary, the
manner of determining the equivalent thereof in U.S. currency;
- any changes or additions to the indenture dealing with defeasance;
- if other than the principal amount thereof, the portion of the principal
amount of the debt securities of the series that shall be payable upon
declaration of acceleration of the maturity thereof or provable in
bankruptcy;
- the terms, if any, of the transfer, mortgage, pledge or assignment as
security for the debt securities of the series of any properties, assets,
moneys, proceeds, securities or other collateral, including whether
14
certain provisions of the Trust Indenture Act of 1939, as amended, are
applicable and any corresponding changes to provisions of the indenture
as then in effect;
- any addition to or change in the events of default with respect to the
debt securities of the series and any change in the right of the trustee
or the holders to declare the principal amount of, premium, if any, and
interest, with respect to such debt securities due and payable;
- if the debt securities of the series shall be issued in whole or in part
in the form of a global security, the terms and conditions, if any, upon
which such global security may be exchanged in whole or in part for other
individual debt securities in definitive registered form, the depositary
(as defined in the applicable prospectus supplement) for such global
security and the form of any legend or legends to be borne by any such
global security in addition to or in lieu of the legend referred to in
the indenture;
- any trustee, authenticating agent, paying agent, transfer agent, service
agent or registrar;
- the applicability of, and any addition to or change in, the covenants
(and the related definitions) set forth in the indenture or in the terms
then set forth in the indenture relating to permitted consolidations,
mergers, or sales of assets;
- the subordination, if any, of the debt securities of the series pursuant
to the indenture and any corresponding changes to the provisions of the
indenture as then in effect;
- with regard to debt securities of the series that do not bear interest,
the dates for certain required reports to the trustee;
- any U.S. Federal income tax consequences applicable to the debt
securities of the series;
- the terms applicable to original issue discount securities, including the
rate or rates at which original issue discount will accrue; and
- any other terms of debt securities of the series (which terms shall not
be prohibited by the provisions of the indenture).
We may issue debt securities of a series in registered form or bearer form
or both as specified in the terms of the series, may be issued in whole or in
part in the form of one or more global securities and as book-entry securities
that will be deposited with, or on behalf of a depositary named by us and
identified in a prospectus supplement with respect to such series. The
prospectus supplement will specify whether the offered debt securities will be
registered, bearer, global or book-entry form.
GLOBAL SECURITIES
We may issue debt securities of a series in whole or in part in the form of
one or more global debt securities. A global security is a security, typically
held by a depositary, that represents and is denominated in an amount equal to
the aggregate principal amount of all outstanding debt securities of a series or
any portion thereof, in either case having the same original issue date, date or
dates on which principal and interest are due, and interest rate or method of
determining interest. Any global debt securities will be deposited with, or on
behalf of, a depositary or its nominee, which will be identified in the
applicable prospectus supplement. We may issue global securities in either
registered or bearer form and in either temporary or definitive form.
Unless and until a global security is exchanged in whole or in part for the
individual debt securities represented thereby, a global security may not be
transferred except as a whole:
- by the depositary for the global security to a nominee for the
depository;
- by a nominee of the depositary to the depositary or to another nominee of
the depositary; or
- by the depositary or its nominee to a successor depositary or a nominee
of a successor depositary.
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The prospectus supplement relating to a particular series of debt
securities will describe the specific terms of the depositary arrangement with
respect to such series of debt securities. We anticipate that the following
provisions will generally apply to all depositary arrangements for debt
securities:
- ownership of beneficial interests in a global security will be limited to
persons that have accounts with the depositary for the global security,
which we refer to as a participant, or persons holding interests through
the participants;
- after the issuer of a series of debt securities issues the registered
global security for the series, the depositary will credit, on its
book-entry registration and transfer system, the participants' accounts
in an amount equal to the respective principal amounts of the debt
securities of that series represented by the global security beneficially
owned by the participants;
- the underwriters, agents or dealers participating in the distribution of
the debt securities will designate the accounts to be credited unless
such debt securities are offered by us or through our agents, in which
case we will designate the accounts to be credited;
- only a participant or a person that may hold an interest through a
participant may be the beneficial owner of a global security; and
- ownership of beneficial interests in the global security will be shown
on, and the transfer of that ownership interest will be effected only
through, records maintained by the depositary for the global security for
interests of the participants, and on the records of the participants for
interests of persons holding through the participants.
The laws of some states may require that specified purchasers of securities
take physical delivery of the securities in definitive form. These laws may
limit the ability of those persons to own, transfer or pledge beneficial
interests in global securities.
So long as the depositary for a global security, or its nominee, is the
registered owner of the global security, the depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the debt securities
represented by the global security for all purposes under the indenture. Except
as stated below, owners of beneficial interests in a global security:
- will not be entitled to have the debt securities represented by a
registered global security registered in their names;
- will not receive or be entitled to receive physical delivery of the debt
securities in definitive form; and
- will not be considered the owners or holders of the debt securities under
the indenture.
Accordingly, each person owning a beneficial interest in a registered
global security must rely on the procedures of the depositary for the registered
global security and, if the person is not a participant, on the procedures of
the participant through which the person owns its interests, to exercise any
rights of a holder under the indenture applicable to the registered global
security.
We understand that, under existing industry practices, if we request any
action of holders, or if an owner of a beneficial interest in a registered
global security desires to give or take any action which a holder is entitled to
give or take under the indenture, the depositary for the registered global
security would authorize the participants holding the relevant beneficial
interests to give or take the action, and the participants would authorize
beneficial owners owning through the participants to give or take the action or
would otherwise act upon the instructions of beneficial owners holding through
them.
Subject to the restrictions applicable to bearer securities described in
the applicable prospectus supplement, principal, premium, if any, and interest
payments on individual debt securities represented by a global security will be
made to the depositary or its nominee, as the case may be, as the registered
owner or holder of such global security. Neither we, the applicable trustee, nor
any registrar or paying agent of the debt securities will be responsible or
liable for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the global security for the series or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
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We expect that the depositary for any such debt securities represented by a
global security, upon receipt of any payment of principal, premium, if any, or
interest in respect of the global security, will immediately credit participants
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the global security as shown on the
depositary's records. We also expect that payments by participants to owners of
beneficial interests in a global security held through the participants will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers and registered
in "street name." Such payments will be the responsibility of the participants.
Receipt by owners of beneficial interests in a temporary global security of
payments of principal, premium or interest with respect thereto will be subject
to the restrictions described in an applicable prospectus supplement.
If the depositary for any debt securities represented by a global security
is at any time unwilling or unable to continue as depositary or ceases to be a
clearing agency registered under the Securities Exchange Act of 1934, we will
appoint an eligible successor depositary. If we fail to appoint an eligible
successor depositary within 90 days, individual debt securities of such series
will be issued in exchange for the global security. In addition, we may at any
time and in our sole discretion determine not to have any debt securities of a
series represented by one or more global securities. In that event, individual
debt securities of such series will be issued in exchange for the global
security representing such series debt securities. Furthermore, if we so specify
with respect to the debt securities of a series, an owner of a beneficial
interest in a global security representing debt securities of such series may,
on terms acceptable to us, the trustee, and the depositary for such global
security, receive individual debt securities of such series in exchange for such
beneficial interests, subject to any limitations described in the prospectus
supplement relating to such debt securities. In any such instance, an owner of a
beneficial interest in a global security will be entitled to physical delivery
of individual debt securities of the series represented by such global security
equal in principal amount to such beneficial interest and to have such debt
securities registered in its name (if the debt securities are issuable as
registered securities). Individual debt securities of such series so issued will
be issued (a) as registered securities in denominations, unless otherwise
specified by us, of $1,000 and integral multiples thereof if the debt securities
are issuable as registered securities, (b) as bearer securities in the
denomination or denominations specified by us if the debt securities are
issuable as bearer securities or (c) as either registered securities or bearer
securities as described above if the debt securities are issuable in either
form.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
The debt securities of a series may be issued as registered securities
(which will be registered as to principal and interest in the register
maintained by the registrar for such debt securities) or bearer securities
(which will be transferable only by delivery). If such debt securities are
issuable as bearer securities, the applicable prospectus supplement will
describe certain special limitations and considerations that will apply to such
debt securities.
COVENANTS
If debt securities are issued, the indenture, as supplemented for a
particular series of debt securities, will contain certain covenants for the
benefit of the holders of such series of debt securities, which will be
applicable (unless waived or amended) so long as any of the debt securities of
such series are outstanding, unless stated otherwise in the prospectus
supplement. The specific terms of the covenants, and summaries thereof, will be
set forth in the prospectus supplement relating to such series of debt
securities.
MERGERS AND SALES OF ASSETS
The indenture provides that we may not consolidate with or merge into any
other person or convey, transfer or lease all or substantially all of our
properties and assets to another person, unless among other items: (i) the
resulting, surviving or transferee person (if other than Lucent) is organized
and existing under the laws of the United States, any state thereof or the
District of Columbia and such person expressly assumes, by supplemental
indenture, all our obligations under the indenture and the debt securities; (ii)
we or such successor person shall not immediately thereafter be in default under
the indenture and the debt securities; and (iii) we shall have provided the
trustee with an opinion of counsel and officer's certificate confirming
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compliance with the indenture. Upon the assumption of the obligations by such a
person in such circumstances, subject to certain exceptions, we shall be
discharged from all obligations under all debt securities and the indenture
(except in the case of a lease).
SUBORDINATION
Debt securities of a series, and any guarantees, may be subordinated, which
we refer to as the subordinated debt securities, to senior indebtedness (as
defined in the applicable prospectus supplement) to the extent set forth in the
prospectus supplement relating thereto. To the extent we conduct operations
through subsidiaries, the holders of debt securities (whether or not
subordinated debt securities) will be structurally subordinated to the creditors
of our subsidiaries except to the extent such subsidiary is a guarantor of such
series of debt securities.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the form of
indenture with respect to any series of debt securities which may be issued,
except as may be specified in the prospectus supplement:
1. default for 30 days in the payment of interest when due on the debt
securities;
2. default in the payment of principal or premium, if any, when due on the
debt securities;
3. our failure to comply with the obligations described under "-- Mergers
and Sales of Assets" above;
4. our failure to comply for 30 days after notice with any of the
obligations in the covenants set forth in the prospectus supplement;
5. our failure to comply for 60 days after notice with other agreements
contained in the indenture or any supplemental indenture relating to
that series of debt securities;
6. certain events of bankruptcy, insolvency or reorganization affecting
us; or
7. any other event of default provided with respect to that series of debt
securities.
A prospectus supplement may omit, modify or add to the foregoing events of
default.
A default under clauses (4) or (5) will not constitute an event of default
until the trustee or the holders of 25% in principal amount of the outstanding
debt securities notify us of the default and we do not cure such default within
the time specified after receipt of such notice.
If an event of default (other than certain events of bankruptcy, insolvency
or reorganization) occurs and is continuing, the trustee or the holders of at
least 25% in aggregate principal amount of the outstanding applicable series of
debt securities may declare the principal of and accrued but unpaid interest on
all the applicable debt securities to be due and payable. Upon such a
declaration, such principal of (or, in the case of original issue discount debt
securities, the portion thereby specified in the terms thereof), premium, if
any, and accrued interest shall be due and payable immediately. In the case that
certain events of bankruptcy, insolvency or reorganization occur and are
continuing, the principal of (or, in the case of original issue discount debt
securities, the portion thereby specified in the terms thereof), premium, if
any, and accrued interest on all the applicable debt securities will
automatically become and be immediately due and payable without any declaration
or other act on the part of the trustee or any holders of such debt securities.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default occurs and is continuing, the trustee is
under no obligation to exercise any of the rights or powers under the indenture
at the request or direction of any of the holders of the applicable debt
securities unless such holders
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have offered to the trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no holder of a debt security
may pursue any remedy with respect to the indenture or debt securities unless:
1. such holder has previously given the trustee written notice that an
event of default is continuing with respect to such series of debt
securities;
2. holders of at least 25% in aggregate principal amount of the
outstanding debt securities of the applicable series have made a
written request to the trustee to pursue the remedy;
3. such holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense;
4. the trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
5. holders of a majority in aggregate principal amount of the outstanding
debt securities of such series have not given the trustee a direction
inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding debt securities of such series are given the right
under the indenture to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or of exercising any trust or
power conferred on the trustee. The trustee, however, may refuse to follow any
direction that conflicts with law or the indenture or that the trustee
determines is unduly prejudicial to the rights of any other holder of such
series of debt securities or that would involve the trustee in personal
liability.
If a default with respect to a series of debt securities occurs, is
continuing and is known to the trustee, such trustee must mail to each holder of
such debt securities notice of the default within 90 days after it occurs.
Except in the case of a default in the payment of principal, premium, if any, or
interest on any debt security, the trustee may withhold notice if and so long as
a committee of its trust officers in good faith determines that withholding
notice is in the interests of the holders of the debt securities. In addition,
we are required to deliver to each trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any default under the related indenture that occurred during the previous year.
MODIFICATION OF THE INDENTURE
We and the trustee may enter into supplemental indentures without the
consent of the holders of debt securities for one or more of the following
purposes:
(a) to evidence the succession of another person to us pursuant to the
provisions of the indenture relating to consolidations, mergers and
sales of assets and the assumption by such successor of our covenants,
agreements and obligations in the indenture and in the debt
securities;
(b) to surrender any right or power conferred upon us by the indenture, to
add to our covenants such further covenants, restrictions, conditions
or provisions for the protection of the holders of all or any series of
debt securities as our board of directors shall consider to be for the
protection of the holders of such debt securities, and to make the
occurrence, or the occurrence and continuance, of a default in any of
such additional covenants, restrictions, conditions or provisions a
default or an event of default under the indenture (provided, however,
that with respect to any such additional covenant, restriction,
condition or provision, such supplemental indenture may provide for a
period of grace after default, which may be shorter or longer than that
allowed in the case of other defaults, may provide for an immediate
enforcement upon such default, may limit the remedies available to the
trustee upon such default or may limit the right of holders of a
majority in aggregate principal amount of any or all series of debt
securities to waive such default);
(c) to cure any ambiguity or correct or supplement any provision contained
in the indenture, in any supplemental indenture or in any debt
securities that may be effective or inconsistent with any other
provision contained therein, to convey, transfer, assign, mortgage or
pledge any property to or with
19
the trustee, or to make such other provisions in regard to matters or
questions arising under the indenture as shall not adversely affect
the interests of any holders of debt securities of any series;
(d) to modify or amend the indenture in such a manner as to permit the
qualification of the indenture or any supplemental indenture under the
Trust Indenture Act as then in effect;
(e) to add or change any of the provisions of the indenture to provide
that bearer securities may be registerable as to principal, to change
or eliminate any restrictions on the payment of principal or premium
with respect to registered securities or of principal, premium or
interest with respect to bearer securities, or to permit registered
securities to be exchanged for bearer securities, so as to not
adversely affect the interests of the holders of debt securities or
any coupons of any series in any material respect or permit or
facilitate the issuance of debt securities of any series in
uncertificated form;
(f) to comply with the provisions of the indenture relating to
consolidations, mergers and sales of assets;
(g) in the case of subordinated debt securities, to make any change in the
provisions of the indenture relating to subordination that would limit
or terminate the benefits available to any holder of senior
indebtedness under such provision (but only if each such holder of
senior indebtedness consents to such change);
(h) to add guarantees with respect to the debt securities or to secure the
debt securities;
(i) to make any change that does not adversely affect the rights of any
holder;
(j) to add to, change, or eliminate any of the provisions of the indenture
with respect to one or more series of debt securities, so long as any
such addition, change or elimination not otherwise permitted under the
indenture shall (1) neither apply to any debt security of any series
created prior to the execution of such supplemental indenture and
entitled to the benefit of such provision nor modify the rights of the
holders of any such debt security with respect to such provision or
(2) become effective only when there is no such debt security
outstanding;
(k) to evidence and provide for the acceptance of appointment by a
successor or separate trustee with respect to the debt securities of
one or more series and to add to or change any of the provisions of the
indenture as shall be necessary to provide for or facilitate the
administration of the indenture by more than one trustee; and
(l) to establish the form or terms of debt securities and coupons of any
series, as described under "-- General Terms" above.
With the consent of the holders of a majority in aggregate principal amount
of the outstanding debt securities of each series affected thereby, we and the
trustee may from time to time and at any time enter into a supplemental
indenture for the purpose of adding any provisions to, changing in any manner or
eliminating any of the provisions of the indenture or of any supplemental
indenture or modifying in any manner the rights of the holder of the debt
securities of such series; provided, however, that without the consent of the
holders of each debt security so affected, no such supplemental indenture shall
(a) reduce the percentage in principal amount of debt securities of any series
whose holders must consent to an amendment, (b) reduce the rate of or extend the
time for payment of interest on any debt security or coupon or reduce the amount
of any payment to be made with respect to any coupon, (c) reduce the principal
of or extend the stated maturity of any debt security, (d) reduce the premium
payable upon the redemption of any debt security or change the time at which any
debt security may or shall be redeemed, (e) make any debt security payable in a
currency other than that stated in the debt security, (f) in the case of any
subordinated debt security or coupons appertaining thereto, make any change in
the provisions of the indenture relating to subordination that adversely affects
the rights of any holder under such provision, (g) release any security that may
have been granted with respect to the debt securities, (h) make any change in
the provisions of the indenture relating to waivers of defaults or amendments
that require unanimous consent, (i) change any obligation of ours provided for
in the indenture to pay additional interest with respect to bearer securities or
(j) limit our obligation to maintain a paying agency outside the United States
for payment on bearer securities or limit our obligation to redeem certain
bearer securities.
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SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
Unless otherwise provided in the prospectus supplement, the indenture shall
cease to be of any further effect with respect to a series of debt securities if
(a) we have delivered to the trustee for cancellation all debt securities of
such series (with certain limited exceptions) or (b) all debt securities of such
series not theretofore delivered to the trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year, and we shall have
deposited with the trustee as trust funds the entire amount sufficient to pay at
maturity or upon redemption all such debt securities and coupons (and if, in
either case, we shall also pay or cause to be paid all other sums payable under
the indenture by us).
In addition, we shall have a "legal defeasance option" (pursuant to which
we may terminate, with respect to the debt securities of a particular series,
all of our obligations under such debt securities, the indenture and the
applicable indenture supplement with respect to such debt securities) and a
"covenant defeasance option" (pursuant to which we may terminate, with respect
to the debt securities of a particular series, our obligations with respect to
such debt securities under certain specified covenants contained in the
indenture). If we exercise our legal defeasance option with respect to a series
of debt securities, payment of such debt securities may not be accelerated
because of an event of default. If we exercise our covenant defeasance option
with respect to a series of debt securities, payment of such debt securities may
not be accelerated because of an event of default related to the specified
covenants.
The applicable prospectus supplement will describe the procedures we must
follow in order to exercise our defeasance options.
REGARDING THE TRUSTEE
The indenture provides that, except during the continuance of an event of
default, the trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an event of default, the trustee will
exercise its rights and powers under the indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use under
the circumstances in the conduct of their own affairs.
We and the trustee may have had, and continue to have, other customary
banking agreements and arrangements, including stock transfer agent, lending and
depository relationships.
The indenture and provisions of the Trust Indenture Act of 1939 that are
incorporated by reference therein contain limitations on the rights of the
trustee, should it become one of our creditors, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claim as security or otherwise. The trustee is permitted to engage in other
transactions with us or any of our affiliates; provided, however, that if it
acquires any conflicting interest (as defined under the Trust Indenture Act), it
must eliminate such conflict or resign.
GOVERNING LAW
The indenture and the debt securities will be governed by the laws of the
State of New York.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of our common stock, preferred
stock, debt securities or any combination thereof. Warrants may be offered and
sold separately or together with other securities offered by any prospectus
supplement and may be attached to or separate from such securities. Our warrants
will be issued in one or more series, each under a warrant agreement to be
entered into between us and a bank or trust company, as warrant agent. A copy of
each warrant agreement entered into by us will be subsequently filed by us in
Current Reports on Form 8-K, which will be incorporated herein by reference, or
by an amendment to the registration statement of which this prospectus forms a
part. The warrant agent will act solely as our agent in connection with our
warrants and will not assume any obligation or relationship of agency or trust
for or with any holders or beneficial owners of our warrants. The following is a
general description of the terms of the warrants. The details of any series of
our warrants will be set forth in the applicable prospectus supplement.
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GENERAL TERMS
The prospectus supplement for any individual issuance of a series of our
warrants will describe in detail, if applicable:
- the title of the warrants;
- the aggregate number of warrants;
- the price and currency or currencies, including composite currencies, at
which the warrants will be sold;
- the dates upon which the right to exercise the warrants will commence and
expire;
- if the warrants are not continuously exercisable, the specific date or
dates on which they can be exercised;
- whether the warrants will be issued in registered or bearer form or both
and whether they will be issued in certificated or uncertificated form;
- the designation and terms of the securities purchasable upon exercise of
the warrants and the number of such securities issuable upon exercise of
the warrants;
- if applicable, the minimum or maximum amount of the warrants which may be
exercised at any one time;
- the price at which and the currency or currencies in which, including
composite currencies, the securities purchasable upon exercise of the
warrants may be purchased;
- if warrants are issued together with a series of other securities, the
title of the other securities, their terms, the number of warrants
accompanying each other security and the date that the warrants and other
securities will become separately transferable;
- information with respect to book-entry procedures, if any;
- information regarding the listing of the warrants on a securities
exchange;
- the U.S. Federal income tax consequences applicable to the warrants; and
- any other specific terms of the warrants.
Warrant certificates may be exchanged for new warrant certificates of
different denominations, transferred and exercised at the corporate trust office
of the warrant agent or any other office indicated in the applicable prospectus
supplement. Prior to the exercise of their warrants, holders of warrants will
not have any of the rights of holders of the securities purchasable upon
exercise of the warrants.
EXERCISE OF WARRANTS
Warrant holders will be able to purchase the securities purchasable upon
exercise of the warrants at the exercise price designated in the prospectus
supplement relating to the warrants. Warrants may not be exercised after 5:00
P.M. New York time on the expiration date. Any warrants unexercised by that time
and date will become void. Unless otherwise set forth in the applicable
prospectus supplement, holders of warrants may exercise them by delivering
properly completed warrant certificates and payment of the exercise price to the
warrant agent at its corporate trust office. As soon as practicable after such
delivery, we will issue and deliver to the indicated holder the securities
purchased upon exercise of the warrants. If a holder does not exercise all the
warrants represented by a particular certificate, we will also issue a new
certificate for the remaining number of warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
We and the warrant agent may amend or supplement the warrant agreement for
a series of warrants without the consent of the holders of the warrants issued
thereunder to effect changes that are not inconsistent with the provisions of
the warrants and that do not materially and adversely affect the interests of
the holders of the warrants.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The following is a general description of the terms of the stock purchase
contracts and stock purchase units we may issue from time to time. Particular
terms of any stock purchase contracts and/or stock purchase units we offer will
be described in the prospectus supplement relating to such stock purchase
contracts and/or stock purchase units.
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us and obligating us to sell to holders at a future
date a specified number of shares of common stock or preferred stock, or a
number of shares of common stock or preferred stock to be determined by
reference to a specific formula set forth in the stock purchase contract. The
consideration per share of common stock or preferred stock may be fixed at the
time that the stock purchase contracts are issued or may be determined by
reference to a specific formula set forth in the stock purchase contracts. Any
stock purchase contract may include anti-dilution provisions to adjust the
number of shares issuable pursuant to such stock purchase contract upon the
occurrence of certain events.
The stock purchase contracts may be issued separately or as a part of
units, which we refer to as stock purchase units, consisting of a stock purchase
contract and debt securities, preferred stock or debt obligations of third
parties, including U.S. Treasury securities, in each case securing holders'
obligations to purchase common stock or preferred stock under the stock purchase
contracts. The stock purchase contracts may require us to make periodic or
deferred payments to holders of the stock purchase units, or vice versa, and
such payments may be unsecured. Holders of the stock purchase contracts may be
required to pay their payment obligations at the time the stock purchase
contracts are issued or at the time of settlement. Additionally, holders of the
stock purchase contracts may be required to secure their obligations thereunder
in a specified manner. A copy of each stock purchase contract entered into by us
will be subsequently filed by us in Current Reports on Form 8-K, which will be
incorporated herein by reference, or by amendment to the registration statement
of which this prospectus forms a part.
PLAN OF DISTRIBUTION
These securities may be distributed under this prospectus from time to time
in one or more transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to prevailing market prices; or
- at negotiated prices.
Each time we sell securities, we will describe the method of distribution
of the securities in the prospectus supplement relating to the transaction.
We may offer and sell these securities in any one or more of the following
ways:
- through underwriters or dealers;
- through agents;
- directly to purchasers; or
- through a combination of such methods of sale.
Each time we sell securities, we will provide a prospectus supplement that
will name any underwriter, dealer or agent involved in the offer and sale of the
securities. The prospectus supplement will also set forth the terms of the
offering, including the purchase price of the securities and the proceeds we
will receive from the sale of the securities, any underwriting discounts and
other items constituting underwriters' compensation, public offering or purchase
price and any discounts or commissions allowed or paid to dealers, any
commissions allowed or paid to agents and any securities exchanges on which the
securities may be listed. The maximum underwriting commission or discount to be
received by any member of the National Association of Securities Dealers Inc.,
or NASD, or independent broker-dealer will not be greater than 8% for any sale
of securities offered under this prospectus.
If underwriters or dealers are used in the sale, the securities will be
acquired by the underwriters or dealers for their own account and may be resold
from time to time in one or more transactions, at a fixed price
23
or prices, which may be changed, or at market prices prevailing at the time of
sale, or at prices related to such prevailing market prices, or at negotiated
prices. The securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more of such firms. Unless otherwise set forth in the prospectus supplement,
the obligations of underwriters or dealers to purchase the securities offered
will be subject to certain conditions precedent and the underwriters or dealers
will be obligated to purchase all the offered securities if any are purchased.
Any public offering price and any discounts or concessions allowed or reallowed
or paid by underwriters or dealers to other dealers may be changed from time to
time.
The securities may be sold directly by us or through agents designated by
us from time to time. Any agent involved in the offer or sale of the securities
in respect of which this prospectus is delivered will be named, and any
commissions payable by us to such agent will be set forth in, the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, any such
agent will be acting on a best efforts basis for the period of its appointment.
Underwriters or agents in any distribution contemplated hereby may from
time to time include Bear, Stearns & Co. Inc., BNY Capital Markets, Inc.,
Deutsche Bank Securities Inc., HSBC Securities (USA) Inc., J.P. Morgan
Securities Inc., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc. or
UBS Warburg LLC.
To the extent that we make sales to or through one or more underwriters or
agents in at-the-market offerings, we will do so pursuant to the terms of a
distribution agreement between us and the underwriters or agents. If we engage
in at-the-market sales pursuant to a distribution agreement, we will issue and
sell shares of our common stock to or through one or more underwriters or
agents, which may act on an agency basis or on a principal basis. During the
term of any such agreement, we may sell shares on a daily basis in exchange
transactions or otherwise as we agree with the underwriters or agents. The
distribution agreement will provide that any shares of our common stock sold
will be sold at prices related to the then prevailing market prices for our
common stock. Therefore, exact figures regarding proceeds that will be raised or
commissions to be paid can not be determined at this time and will be described
in a prospectus supplement. Pursuant to the terms of the distribution agreement,
we also may agree to sell, and the relevant underwriters or agents may agree to
solicit offers to purchase, blocks of our common stock or other securities. The
terms of each such distribution agreement will be set forth in more detail in a
prospectus supplement to this prospectus. In the event that any underwriter or
agent acts as principal, or broker-dealer acts as underwriter, it may engage in
certain transactions that stabilize, maintain or otherwise affect the price of
our securities. We will describe any such activities in the prospectus
supplement relating to the transaction.
Offers to purchase the securities offered by this prospectus may be
solicited, and sales of the securities may be made, by us of those securities
directly to institutional investors or others, who may be deemed to be
underwriters within the meaning of the Securities Act with respect to any
resales of the securities. The terms of any offer made in this manner will be
included in the prospectus supplement relating to the offer.
If indicated in the applicable prospectus supplement, we will authorize
underwriters, dealers or agents to solicit offers by certain institutional
investors to purchase securities from us pursuant to contracts providing for
payment and delivery at a future date. Institutional investors with which these
contracts may be made include, among others:
- commercial and savings banks;
- insurance companies;
- pension funds;
- investment companies; and
- educational and charitable institutions.
In all cases, these purchasers must be approved by us. Unless otherwise set
forth in the applicable prospectus supplement, the obligations of any purchaser
under any of these contracts will not be subject to any conditions except that
(a) the purchase of the securities must not at the time of delivery be
prohibited under the laws of any jurisdiction to which that purchaser is subject
and (b) if the securities are also being sold to
24
underwriters, we must have sold to these underwriters the securities not subject
to delayed delivery. Underwriters and other agents will not have any
responsibility in respect of the validity or performance of these contracts.
Some of the underwriters, dealers or agents used by us in any offering of
securities under this prospectus may be customers of, engage in transactions
with, and perform services for us in the ordinary course of business.
Underwriters, dealers, agents and other persons may be entitled under
agreements which may be entered into with us to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act of 1933 and to be reimbursed by us for certain expenses.
Subject to any restrictions relating to debt securities in bearer form, any
securities initially sold outside the United States may be resold in the United
States through underwriters, dealers or otherwise.
Each series of securities other than common stock will be new issue of
securities with no established trading market. Any underwriters to whom offered
securities are sold by us for public offering and sale may make a market in such
securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time.
The anticipated date of delivery of the securities offered by this
prospectus will be described in the applicable prospectus supplement relating to
the offering. The securities offered by this prospectus may or may not be listed
on a national securities exchange or a foreign securities exchange. No assurance
can be given as to the liquidity or activity of any trading in the offered
securities.
If more than 10% of the net proceeds of any offering of securities made
under this prospectus will be received by NASD members participating in the
offering or affiliates or associated persons of such NASD members, the offering
will be conducted in accordance with NASD Conduct Rule 2710(c)(8).
VALIDITY OF SECURITIES
Unless otherwise disclosed in a prospectus supplement, the validity of
these securities will be passed upon for us by Richard J. Rawson, our Senior
Vice President, General Counsel and Secretary, and for any underwriters, dealers
or agents, if any, by counsel specified in a prospectus supplement. As of March
21, 2003, Richard J. Rawson owned 334,075 shares of our common stock and vested
options and stock units for 2,659,876 shares of our common stock. Our special
counsel, Cravath, Swaine & Moore, New York, New York, may pass upon certain
other legal matters in connection with any offering of these securities by us.
EXPERTS
Our consolidated financial statements as of September 30, 2002 and 2001 and
for each of the years during the three-year period ended September 30, 2002,
incorporated in this prospectus by reference to our Annual Report on Form 10-K,
filed on December 12, 2002, have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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