e424b5
Filed Pursuant to Rule 424(b)(5).
A filing fee of $26,410, calculated in accordance with Rule
457(r),
has been transmitted to the SEC in connection with
the securities offered from the registration statement
(Registration
Number: 333-137803)
by means of this final prospectus.
PROSPECTUS
$200,000,000
2.25% Convertible Senior Notes due 2026
NOTES
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Ø |
We are offering $200,000,000
aggregate principal amount of our 2.25% convertible senior
notes due 2026. The notes will mature on October 1, 2026.
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Ø |
We will pay 2.25% interest per
annum on the principal amount of the notes, payable
semi-annually in arrears on April 1 and October 1 of
each year, beginning on April 1, 2007. Interest will accrue
on the notes from and including October 12, 2006 or from
and including the last date in respect of which interest has
been paid or provided for, as the case may be, to, but
excluding, the next interest payment date or maturity date, as
the case may be. Commencing with the six-month period beginning
October 1, 2011, and for each six-month period thereafter,
we will, on the interest payment date for such interest period,
pay contingent interest to the holders of the notes under
certain circumstances and in amounts described in this
prospectus. For U.S. federal income tax purposes, we will
treat, and each holder of the notes will agree under the
indenture to treat, the notes as contingent payment debt
instruments governed by special tax rules and to be bound by our
application of those rules to the notes. See Material
U.S. federal income tax considerations.
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CONVERSION
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Ø |
The notes will be convertible
into cash or, at our option, cash and shares of our common stock
based on an initial conversion rate, subject to adjustment, of
17.0946 shares per $1,000 principal amount of notes (which
represents an initial conversion price of approximately
$58.50 per share), in certain circumstances. In addition,
following a make-whole fundamental change that
occurs prior to October 1, 2011, the conversion rate for a
holder who elects to convert its notes in connection with such
make-whole fundamental change, will increase in
certain circumstances.
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Ø |
Holders may convert their notes
prior to stated maturity only under the following circumstances:
(1) during any calendar quarter after the calendar quarter
ending December 31, 2006, if the closing sale price of our
common stock for each of 20 or more trading days in a period of
30 consecutive trading days ending on the last trading day of
the immediately preceding calendar quarter exceeds 120% of the
conversion price in effect on the last trading day of the
immediately preceding calendar quarter; (2) during the five
consecutive business days immediately after any five consecutive
trading day period (we refer to this five consecutive trading
day period as the note measurement period) in which
the average trading price per $1,000 principal amount of notes
was equal to or less than 98% of the average conversion value of
the notes during the note measurement period; (3) upon the
occurrence of specified corporate transactions; (4) if we
have called the notes for redemption; and (5) at any time
from, and including, September 1, 2011 to, and including,
October 1, 2011 and at any time on or after October 1,
2024. Upon conversion, we will deliver cash equal to the lesser
of the aggregate principal amount of the notes to be converted
and the total conversion obligation. We will deliver, at our
option, cash, or shares of our common stock or a combination of
cash and shares of our common stock for the remainder, if any,
of the conversion obligation. The conversion obligation is based
on the sum of the daily settlement amounts described
in this prospectus for the 20 consecutive trading days that
begin on, and include, the second trading day after the day the
notes are tendered for conversion.
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REDEMPTION AND REPURCHASE
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Ø |
On or after October 1, 2011,
we may from time to time at our option redeem the notes, in
whole or in part, for cash, at a redemption price equal to 100%
of the principal amount of the notes we redeem, plus any accrued
and unpaid interest to, but excluding, the redemption date.
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Ø |
On each of October 1, 2011,
October 1, 2016 and October 1, 2021, holders may
require us to purchase all or a portion of their notes at a
purchase price in cash equal to 100% of the principal amount of
the notes to be purchased, plus any accrued and unpaid interest
to, but excluding, the purchase date.
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Ø |
Holders may require us to
repurchase all or a portion of their notes upon a fundamental
change, as described in this prospectus, at a repurchase price
in cash equal to 100% of the principal amount of the notes to be
repurchased, plus any accrued and unpaid interest to, but
excluding, the fundamental change repurchase date.
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RANKING
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Ø |
The notes will be our senior
unsecured obligations and will rank equally in right of payment
with all of our existing and future senior unsecured
indebtedness and junior to any of our existing and future
secured indebtedness to the extent of the security therefor
(including our senior secured credit facility). The notes will
not be guaranteed by our subsidiaries and, accordingly, will be
effectively subordinated to the indebtedness and other
liabilities of our subsidiaries (including trade payables).
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Ø |
As of August 31, 2006, we
had no senior indebtedness outstanding and we had the ability to
borrow approximately $20.0 million under our senior secured
credit facility, all of which would be secured by substantially
all of our assets; and our subsidiaries had approximately
$5.7 million of liabilities to which the notes will be
structurally subordinate.
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USE OF PROCEEDS
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Ø |
We intend to use the net proceeds
from this offering for working capital and other general
corporate purposes, including acquisitions.
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LISTING
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Ø |
The notes will not be listed on
any securities exchange or quoted in any automated quotation
system.
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Ø |
Our common stock is listed on the
Nasdaq Global Select Market under the ticker symbol
DIOD. On October 5, 2006, the last reported
sale price of our common stock on the Nasdaq Global Select
Market was $41.88 per share.
|
See Risk Factors beginning on page 13 of
this prospectus to read about important factors you should
consider before buying the notes.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
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Per Note | |
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Total | |
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Public offering price
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100.000 |
% |
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$ |
200,000,000 |
|
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Underwriting discounts and commissions
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2.625 |
% |
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$ |
5,250,000 |
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Proceeds, before expenses, to us
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97.375 |
% |
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$ |
194,750,000 |
|
|
We have granted to the underwriters the option to purchase,
during the 13-day
period beginning with the initial issuance of the notes, up to
an additional $30,000,000 aggregate principal amount of notes to
cover over-allotments, if any.
We expect that the notes will be ready for delivery in
book-entry-form only through The Depository Trust Company on or
about October 12, 2006.
Sole Book-Running Manager
UBS Investment Bank
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|
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A.G. Edwards |
C.E. Unterberg, Towbin |
Raymond James |
The date of this prospectus is October 5, 2006
You should rely only on the information contained in or
incorporated by reference in this prospectus and any free
writing prospectus we authorize to be delivered to you. We
have not, and the underwriters have not, authorized anyone to
provide you with additional information or information different
from that contained in or incorporated by reference in this
prospectus and any such free writing prospectus. We
are offering to sell, and seeking offers to buy, our
2.25% convertible senior notes due 2026 only in
jurisdictions where those offers and sales are permitted. The
information contained in or incorporated by reference in this
prospectus and any such free writing prospectus is
accurate only as of their respective dates. Our business,
financial condition, results of operations and prospects may
have changed since those dates.
TABLE OF CONTENTS
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i
Prospectus summary
This summary highlights selected information contained
elsewhere in this prospectus. This summary may not contain all
the information that you should consider before investing in our
notes. You should carefully read the entire prospectus,
including Risk factors and our historical
consolidated financial statements and related notes and the
other information incorporated by reference in the prospectus,
before making an investment decision.
Unless the context otherwise requires, the words
Diodes, we, us and
our refer to Diodes Incorporated and its
subsidiaries.
OUR BUSINESS
We are a global supplier of discrete and analog semiconductor
products. We design, manufacture and market semiconductors
focused on diverse end-use applications in the consumer
electronics, computing, industrial, communications and
automotive sectors. Discrete and analog semiconductors, which
provide electronic signal amplification and switching functions,
are basic building-block electronic components that are
incorporated into almost every electronic device. We believe
that our focus on discrete and analog semiconductors provides us
with a meaningful competitive advantage relative to broadline
semiconductor companies that provide a wider range of
semiconductor products.
Our portfolio of discrete and analog semiconductors addresses
the design needs of many advanced electronic devices, including
high-volume consumer devices such as digital audio players,
notebook computers, flat panel displays, mobile handsets,
digital cameras and set-top boxes. We believe that we have
particular strength in designing innovative surface-mount
discrete semiconductors for applications with critical need to
minimize product size while maximizing power and overall
performance, and at a lower cost than alternative solutions. Our
product portfolio includes over 4,000 products, and we shipped
over 10.2 billion units in 2005 and over 6.5 billion
units in the six months ended June 30, 2006.
We serve approximately 150 direct customers worldwide, which
consist of original equipment manufacturers, or OEMs, and
electronic manufacturing services, or EMS, providers.
Additionally, we have 17 distributor customers worldwide,
through which we indirectly serve over 10,000 customers. Our
customers include: (1) industry leading OEMs, in a broad
range of industries, such as Bose Corporation, Honeywell
International, Inc., LG Electronics, Inc., Logitech, Inc.,
Motorola, Inc., Quanta Computer Inc., Sagem Communication,
Samsung Electronics Co., Ltd. and Thompson, Inc.;
(2) leading EMS providers such as Celestica Inc.,
Flextronics International, Ltd., Hon Hai Precision Industry Co.,
Ltd., Inventec Corporation, Jabil Circuit, Inc.,
Sanmina-SCI Corporation
and Solectron Corporation who build end-market products
incorporating our semiconductors for companies such as Apple
Computer, Inc., Cisco Systems, Inc., Dell, Inc., EMC
Corporation, Intel Corporation, Microsoft Corporation and Roche
Diagnostics; and (3) leading distributors, such as Arrow
Electronics, Inc., Avnet, Inc., Future Electronics and Yosun
Industrial Corp.
For 2005 and for the six months ended June 30, 2006, our
OEM and EMS customers together accounted for 69.5% and 50.1%,
respectively, of our net sales.
We are headquartered in Westlake Village, near Los Angeles,
California. Our manufacturing facilities are located in
Shanghai, China; our wafer fabrication facility is in Kansas
City, Missouri; and our sales and marketing and logistical
centers are located in Taipei, Taiwan; Shanghai and Shenzhen,
China; Hong Kong. We also have regional sales offices or
representatives in: Derbyshire, England; Toulouse, France;
Frankfurt, Germany; and in various cities throughout the United
States. From 1998 to 2005, our net sales grew from
$60.1 million to $214.8 million, representing a
compound annual growth rate of 20.0%.
1
OUR STRATEGY
Our strategy is to continue to enhance our position as a global
supplier of discrete and analog semiconductor products. The
principal elements of this strategy include the following:
Continue to rapidly introduce innovative discrete and analog
semiconductor products We intend to maintain our rapid
pace of new discrete and analog product introductions,
especially for high-volume, growth applications with short
design cycles, such as digital audio players, notebook computes,
flat-panel displays, mobile handsets, digital cameras, set-top
boxes and other consumer electronics and computing devices.
During 2005, we introduced 231 new devices in 32 different
product families and achieved new design wins with over 100
OEMs. We believe that continued introduction of new and
differentiated product solutions is critically important in
maintaining and extending our market share in the highly
competitive semiconductor marketplace.
Expand our available market opportunities We intend
to aggressively maximize our opportunities in the discrete and
analog semiconductor market as well as in related markets where
we can apply our semiconductor design and manufacturing
expertise. A key element of this is leveraging our highly
integrated packaging expertise through our Application Specific
Multi-Chip Circuit (ASMCC) product platform, which consists
of standard arrays, function specific arrays and end-equipment
specific arrays. We intend to achieve this by:
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Continuing to focus on
increasing packaging integration, particularly with our existing
standard array and customer-specific array products, in order to
achieve products with increased circuit density, reduced
component count and lower overall product cost;
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Expanding existing products and
developing new products in our function specific array lines,
which combine multiple discrete semiconductor components to
achieve specific common electronic device functionality at a low
cost; and
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Ø |
Developing new product lines,
which we refer to as end-equipment specific arrays, which
combine discrete components with logic and/or standard analog
circuits to provide system-level solutions for high- volume,
high-growth applications;
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Maintain intense customer focus We intend to
strengthen and deepen our customer relationships. We believe
that continued focus on customer service would increase our net
sales, operating performance and overall market share. To
accomplish this, we intend to continue to closely collaborate
with our customers to design products that meet their specific
needs. A critical element of this strategy is to continue to
further reduce our design cycle time in order to quickly provide
our customers with innovative products. Additionally, to support
our customer-focused strategy, we are continuing to expand our
sales and field application engineers, particularly in Asia and
Europe.
Enhance cost competitiveness A key element of our
success is our overall low-cost base. While we believe that our
Shanghai manufacturing facilities are among the most efficient
in the industry, we will continue to refine our proprietary
manufacturing processes and technology to achieve additional
cost efficiencies. Additionally, we intend to continue to
operate our facilities at high utilization rates and to increase
product yields in order to achieve meaningful economies of scale.
Pursue selective strategic acquisition As part of
our strategy to expand our discrete and analog semiconductor
product offerings and to maximize our market opportunities, we
may acquire discrete, analog or mixed-signal technologies,
product lines or companies in order to support our ASMCC product
platform and enhance our standard and new product offerings.
As part of our growth strategy, in January 2006, we acquired
Anachip Corporation, or Anachip, a fabless Taiwanese
semiconductor company focused on analog semiconductors designed
for specific applications, and headquartered in the Hsinchu
Science Park in Taiwan. This acquisition fits in the center of
our long-term strategy. Anachips main product focus is
Power Management semiconductors. The analog devices they produce
are used in LCD monitors and televisions, wireless LAN 802.11
2
access points, brushless DC motor fans, portable DVD players,
datacom devices, ADSL modems, television and satellite set-top
boxes, and power supplies. Anachip brings a design team with
strong capabilities in a range of targeted analog and power
management technologies.
OUR CORPORATE INFORMATION
We were incorporated in California in 1959 and reincorporated in
Delaware in 1969. Our principal executive office is located at
3050 E. Hillcrest Drive, Westlake Village, CA 91362,
and our telephone number at that office is
(805) 446-4800.
Our website is located at www.diodes.com. Information
contained on or accessible through our website is not part of
this prospectus.
You should carefully consider the information contained in the
Risk factors section of this prospectus before you
decide to purchase our notes.
3
The offering
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Issuer |
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Diodes Incorporated. |
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Notes |
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$200,000,000 aggregate principal amount of
2.25% convertible senior notes due October 1, 2026. We
have granted to the underwriters an option to purchase up to
$30,000,000 aggregate principal amount of additional notes. |
|
Maturity |
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The notes will mature on October 1, 2026, unless earlier
redeemed, repurchased or converted. |
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Interest Payment Dates |
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We will pay 2.25% interest per annum on the principal amount of
the notes, payable semiannually in arrears on April 1 and
October 1 of each year, starting on April 1, 2007, to
holders of record at the close of business on the preceding
March 15 and September 15, respectively. Interest will
accrue on the notes from and including October 12, 2006 or
from and including the last date in respect of which interest
has been paid or provided for, as the case may be, to, but
excluding, the next interest payment date or maturity date, as
the case may be. |
|
Contingent Interest |
|
Contingent interest will accrue on the notes during each
six-month period from and including an interest payment date to,
but excluding, the next interest payment date, commencing with
the six-month period beginning October 1, 2011, if the
average trading price of the notes for the five consecutive
trading day period (the measurement period)
preceding the first day of such six-month period equals 120% or
more of the principal amount of the notes. The rate of
contingent interest payable in respect of any such six-month
interest period will equal 0.215% (0.430% per year payable
semi-annually) of the average trading price of the notes over
the measurement period that triggered the contingent interest
payment. |
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Ranking |
|
The notes will be our senior unsecured obligations and will rank
equally in right of payment to all of our existing and future
senior unsecured indebtedness and junior to any of our existing
and future secured indebtedness to the extent of any security
therefor (including our senior secured credit facility). The
notes will not be guaranteed by our subsidiaries and,
accordingly, will be effectively subordinated to the existing
and future indebtedness and other liabilities of our
subsidiaries (including trade payables). |
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As of August 31, 2006, we had no senior indebtedness
outstanding, and we had the ability to borrow approximately
$20.0 million under our senior credit facility, all of
which would be secured by substantially all of our assets; and
our subsidiaries had approximately $5.7 million of
liabilities to which the notes would be structurally subordinate. |
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Conversion Rights |
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The notes will be convertible into cash or, at our option, cash
and shares of our common stock, par value
$0.662/3
per share, |
4
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based on an initial conversion rate, subject to adjustment, of
17.0946 shares per $1,000 principal amount of notes (which
represents an initial conversion price of approximately
$58.50 per share), only in the following circumstances and
to the following extent: |
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Ø during any calendar
quarter after the calendar quarter ending December 31,
2006, if the closing sale price of our common stock for each of
20 or more trading days in a period of 30 consecutive trading
days ending on the last trading day of the immediately preceding
calendar quarter exceeds 120% of the conversion price in effect
on the last trading day of the immediately preceding calendar
quarter; |
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Ø during the five
consecutive business days immediately after any five consecutive
trading day period (we refer to this five consecutive trading
day period as the note measurement period) in which
the average trading price per $1,000 principal amount of notes
was equal to or less than 98% of the average conversion value of
the notes during the note measurement period; |
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Ø if we make certain
distributions on our common stock or engage in certain
transactions; |
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Ø if we call the notes
for redemption; and |
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Ø at any time from, and
including, September 1, 2011 to, and including,
October 1, 2011 and at any time on or after October 1,
2024. |
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Upon conversion, holders will receive, per $1,000 principal
amount being converted, a settlement amount that is
equal to the sum of the daily settlement amounts for
each of the 20 trading days during the cash settlement
averaging period. |
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See Description of notesConversion Rights. |
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The cash settlement averaging period with respect to
any note means the 20 consecutive trading-day period that begins
on, and includes, the second trading day after the day the notes
are tendered for conversion. |
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The daily settlement amount for a given trading day
consists of: |
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Ø cash equal to the
lesser of $50 and the daily conversion value (we
refer to this cash amount as the daily principal
return); and |
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Ø to the extent the
daily conversion value exceeds $50, a number of whole shares of
our common stock equal to the daily share amount,
subject to our right to deliver cash in lieu of all or a portion
of such shares, as described under Description of
notesConversion Rights Payment upon conversion. |
5
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The daily share amount on a given trading day means
the excess of the daily conversion value over $50, divided by
the closing sale price of our common stock on that trading day. |
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The daily conversion value on a given trading day
means one-twentieth of the product of the conversion rate of the
notes in effect on that trading day and the closing sale price
of our common stock on that trading day. |
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See Description of notes Conversion Rights
Payment upon conversion. |
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A holder that surrenders notes for conversion in connection with
a make-whole fundamental change that occurs before
October 1, 2011 will in certain circumstances be entitled
to an increased conversion rate. See Description of
notes Conversion rights Adjustment to the conversion
rate upon the occurrence for a make-whole fundamental
change. However, in lieu of increasing the conversion rate
applicable to those notes, we may in certain circumstances elect
to adjust the conversion rate and our related conversion
obligation so that the notes will be convertible into shares of
the acquiring companys common stock, provided, however,
that the principal return due upon conversion will continue to
be payable in cash and the remainder of the conversion
obligation, if any, will be payable, at our option, in cash,
shares of the acquiring companys common stock or a
combination of cash and shares of the acquiring companys
common stock. See Description of notes Conversion
Rights Fundamental changes involving an acquisition of us
by a public acquirer. |
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Sinking Fund |
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None. |
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Redemption of Notes at Our Option |
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On or after October 1, 2011, we may from time to time at
our option redeem the notes, in whole or in part, at a
redemption price in cash equal to 100% of the principal amount
of the notes we redeem, plus any accrued and unpaid interest to,
but excluding, the redemption date. See Description of
notes Redemption of Notes at Our Option. |
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Purchase of Notes by Us at the Option of the Holder |
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On each of October 1, 2011, October 1, 2016 and
October 1, 2021, holders may require us to purchase all or
a portion of their notes at a purchase price in cash equal to
100% of the principal amount of the notes to be purchased, plus
any accrued and unpaid interest to, but excluding, the purchase
date. See Description of notes Purchase of Notes by
Us at the Option of the Holder. |
|
Right of Holder to Require Us to Repurchase Notes if a
Fundamental Change Occurs |
|
If a fundamental change, as described in this prospectus,
occurs, holders may require us to repurchase all or a portion of
their notes for cash at a repurchase price equal to 100% of the
principal amount of the notes to be repurchased, plus any |
6
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accrued and unpaid interest to, but excluding, the repurchase
date. See Description of notes Holders May Require
Us to Repurchase Their Notes Upon a Fundamental Change. |
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Events of Default |
|
If an event of default on the notes has occurred and is
continuing, the principal amount of the notes plus any accrued
and unpaid interest may become immediately due and payable.
These amounts automatically become due and payable upon certain
events of default. See Description of notes Events
of Default. |
|
Important United States Federal Income Tax Consequences |
|
We and each holder of notes will agree to treat the notes, for
United States federal income tax purposes, as debt instruments
that are subject to the Treasury regulations that govern
contingent payment debt instruments and to be bound by our
applications of such regulations to the notes, including our
determination that the rate at which interest will be deemed to
accrue for United States federal income tax purposes will be
8.5% compounded semi-annually. Accordingly, taxable
U.S. holders will recognize taxable income significantly in
excess of cash received while the notes are outstanding. In
addition, taxable U.S. holders will recognize ordinary
income upon a sale, exchange, conversion, redemption, or
repurchase of the notes at a gain. In particular, a holder will
recognize ordinary income upon a conversion of a note equal to
the excess, if any, of the cash received plus the value of any
common stock received on the conversion over the holders
adjusted tax basis in the note. The proper U.S. federal
income tax treatment of a holder of a note is uncertain in
various respects. Holders are urged to consult their own tax
advisors with respect to the federal, state, local and foreign
tax consequences of purchasing, owning and disposing of the
notes and common stock issuable upon conversion or
otherwise of the notes. See Material U.S. federal
income tax considerations. |
|
Use of Proceeds |
|
The net proceeds to us from this offering are expected to be
approximately $194,248,590 (or approximately $223,461,090 if the
underwriters exercise in full their option to purchase
additional notes) after the payment of underwriting discounts
and commissions and the estimated offering expenses payable by
us. We intend to use the net proceeds from this offering for
working capital and other general corporate purposes, including
acquisitions. We have no current agreements or commitments with
respect to any material acquisition. Accordingly, our management
will have broad discretion in applying the net proceeds of this
offering. Pending application of the net proceeds, as described
above, we intend to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities. See
Use of proceeds. |
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DTC Eligibility |
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The notes will be issued in book-entry-only form and will be
represented by one or more global certificates, without interest |
7
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coupons, deposited with, or on behalf of, DTC and registered in
the name of a nominee of DTC. Beneficial interests in the notes
will be shown on, and transfers will be effected only through,
records maintained by DTC and its direct and indirect
participants. Except in limited circumstances, holders may not
exchange interests in their notes for certificated securities.
See Description of notes Form, Denomination and
Registration of Notes. |
|
Listing |
|
Our common stock is traded on the Nasdaq Global Select Market
under the symbol DIOD. We do not intend to apply for
listing of the notes on any securities exchange or for inclusion
of the notes in any automated quotation system. |
|
Risk Factors |
|
Investment in the notes involves risks. You should carefully
consider the information under Risk factors and all
other information included in, or incorporated by reference
into, this prospectus before investing in the notes. |
8
Summary historical consolidated financial data
The following table presents our summary historical consolidated
financial data for the years ended, December 31, 2001,
2002, 2003, 2004 and 2005, and for the six months ended
June 30, 2005 and 2006. Our consolidated statements of
income data for the years ended December 31, 2003, 2004 and
2005 have been derived from our audited consolidated financial
statements which are incorporated by reference in this
prospectus. Our consolidated statements of income data for the
years ended December 31, 2001 and 2002 have been derived
from our audited consolidated financial statements not
incorporated by reference in this prospectus. Our consolidated
balance sheet data as of June 30, 2006 and our consolidated
statement of income for each of the six-month periods ended
June 30, 2005 and 2006 have been derived from our unaudited
consolidated financial statements which are incorporated by
reference herein and which, in our opinion, have been prepared
on the same basis as our audited consolidated financial
statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation
of our results of operations and financial position for these
periods. These historical results are not necessarily indicative
of results to be expected for any future period. You should read
this summary data together with our audited consolidated
financial statements and related notes and the related
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual
Report on
Form 10-K for the
year ended December 31, 2005 and our Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 2006, incorporated by
reference herein. See Where you can find additional
information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended | |
|
|
Year ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
| |
|
|
(unaudited) | |
|
|
(in thousands, except per share data) | |
Consolidated statement of income data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
93,210 |
|
|
$ |
115,821 |
|
|
$ |
136,905 |
|
|
$ |
185,703 |
|
|
$ |
214,765 |
|
|
$ |
99,198 |
|
|
$ |
156,301 |
|
Cost of goods sold
|
|
|
79,031 |
|
|
|
89,111 |
|
|
|
100,377 |
|
|
|
124,968 |
|
|
|
140,388 |
|
|
|
65,105 |
|
|
|
104,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,179 |
|
|
|
26,710 |
|
|
|
36,528 |
|
|
|
60,735 |
|
|
|
74,377 |
|
|
|
34,093 |
|
|
|
51,647 |
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
13,711 |
|
|
|
16,228 |
|
|
|
19,586 |
|
|
|
23,503 |
|
|
|
30,285 |
|
|
|
13,888 |
|
|
|
23,000 |
|
|
|
Research and development
|
|
|
592 |
|
|
|
1,472 |
|
|
|
2,049 |
|
|
|
3,422 |
|
|
|
3,713 |
|
|
|
1,750 |
|
|
|
4,043 |
|
|
|
Impairment of fixed assets
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of fixed assets
|
|
|
8 |
|
|
|
43 |
|
|
|
37 |
|
|
|
14 |
|
|
|
(102 |
) |
|
|
(105 |
) |
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
14,311 |
|
|
|
17,743 |
|
|
|
22,672 |
|
|
|
26,939 |
|
|
|
33,896 |
|
|
|
15,533 |
|
|
|
27,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(132 |
) |
|
|
8,967 |
|
|
|
13,856 |
|
|
|
33,796 |
|
|
|
40,481 |
|
|
|
18,560 |
|
|
|
24,484 |
|
Interest income (expense), net
|
|
|
(2,074 |
) |
|
|
(1,183 |
) |
|
|
(860 |
) |
|
|
(637 |
) |
|
|
221 |
|
|
|
(234 |
) |
|
|
1,465 |
|
Other income (expense)
|
|
|
785 |
|
|
|
67 |
|
|
|
(5 |
) |
|
|
(418 |
) |
|
|
406 |
|
|
|
(21 |
) |
|
|
(195 |
) |
Income (loss before taxes and minority interest
|
|
|
(1,421 |
) |
|
|
7,851 |
|
|
|
12,991 |
|
|
|
32,741 |
|
|
|
41,108 |
|
|
|
18,305 |
|
|
|
25,754 |
|
Income tax benefit (provision)
|
|
|
1,769 |
|
|
|
(1,729 |
) |
|
|
(2,460 |
) |
|
|
(6,514 |
) |
|
|
(6,685 |
) |
|
|
(2,903 |
) |
|
|
(4,575 |
) |
Minority interest in earnings of joint venture
|
|
|
(224 |
) |
|
|
(320 |
) |
|
|
(436 |
) |
|
|
(676 |
) |
|
|
(1,094 |
) |
|
|
(497 |
) |
|
|
(482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income(1)
|
|
$ |
124 |
|
|
$ |
5,802 |
|
|
$ |
10,095 |
|
|
$ |
25,551 |
|
|
$ |
33,329 |
|
|
$ |
14,905 |
|
|
$ |
20,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share(1)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.01 |
|
|
$ |
0.32 |
|
|
$ |
0.53 |
|
|
$ |
1.27 |
|
|
$ |
1.44 |
|
|
$ |
0.69 |
|
|
$ |
0.81 |
|
|
|
Diluted
|
|
$ |
0.01 |
|
|
$ |
0.29 |
|
|
$ |
0.47 |
|
|
$ |
1.10 |
|
|
$ |
1.29 |
|
|
$ |
0.62 |
|
|
$ |
0.74 |
|
Number of shares used in
computation(1)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,324 |
|
|
|
18,415 |
|
|
|
19,096 |
|
|
|
20,106 |
|
|
|
23,168 |
|
|
|
21,478 |
|
|
|
25,435 |
|
|
Diluted
|
|
|
19,932 |
|
|
|
19,946 |
|
|
|
21,609 |
|
|
|
23,207 |
|
|
|
25,894 |
|
|
|
24,107 |
|
|
|
27,862 |
|
Footnotes on following page
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended | |
|
|
Year ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
| |
|
|
(unaudited) | |
|
|
(in thousands) | |
Consolidated statement of cash flows data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities
|
|
$ |
14,938 |
|
|
$ |
19,990 |
|
|
$ |
18,821 |
|
|
$ |
29,300 |
|
|
$ |
50,555 |
|
|
$ |
21,937 |
|
|
$ |
35,153 |
|
Cash used in investing activities
|
|
|
(8,477 |
) |
|
|
(6,774 |
) |
|
|
(15,289 |
) |
|
|
(26,133 |
) |
|
|
(65,803 |
) |
|
|
(6,845 |
) |
|
|
(59,622 |
) |
Cash flow from (used in) financing activities
|
|
|
(2,485 |
) |
|
|
(13,995 |
) |
|
|
1,862 |
|
|
|
2,163 |
|
|
|
70,829 |
|
|
|
(1,276 |
) |
|
|
(341 |
) |
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(3)
|
|
$ |
9,099 |
|
|
$ |
18,461 |
|
|
$ |
24,488 |
|
|
$ |
45,875 |
|
|
$ |
56,021 |
|
|
$ |
25,855 |
|
|
$ |
33,477 |
|
The following table presents a summary of our balance sheet data
as of June 30, 2006:
|
|
Ø |
on an actual basis; and
|
|
Ø |
on an as adjusted basis to give
effect to the sale of the notes by us in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
Actual | |
|
As adjusted | |
| |
|
|
(in thousands) | |
|
|
(unaudited) | |
Consolidated balance sheet data:
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
100,332 |
|
|
$ |
294,581 |
|
Working capital
|
|
|
140,890 |
|
|
|
335,139 |
|
Total assets
|
|
|
339,947 |
|
|
|
534,196 |
|
Current portion of long-term debt
|
|
|
1,870 |
|
|
|
1,870 |
|
Long-term debt, net of current portion
|
|
|
4,043 |
|
|
|
204,043 |
|
Total liabilities
|
|
|
84,706 |
|
|
|
284,706 |
|
Total stockholders equity
|
|
$ |
255,241 |
|
|
$ |
255,241 |
|
|
|
(1) |
Net income for the six months ended June 30, 2006
includes $3.3 million, or approximately $0.08 per
diluted share, of equity based compensation expense under
Statement of Financial Accounting Standards 123(R) which we
adopted on January 1, 2006. |
|
(2) |
Adjusted for the effect of 3-for-2 stock splits in July 2000,
November 2003 and December 2005. |
Footnotes continued on following page
10
|
|
(3) |
EBITDA represents earnings before net interest expense,
income tax provision, depreciation and amortization. Our
management believes EBITDA is useful to investors because it is
frequently used by securities analysts, investors and other
interested parties in evaluating companies in our industry. In
addition, our management believes that EBITDA is useful in
evaluating our operating performance compared to that of other
companies in our industry because the calculation of EBITDA
generally eliminates the effects of financing and income taxes
and the accounting effects of capital spending, which items may
vary for different companies for reasons unrelated to overall
operating performance. As a result, our management uses EBITDA
as a measure to evaluate the performance of our business.
However, EBITDA is not a recognized measurement under generally
accepted accounting principles, or GAAP, and when analyzing our
operating performance, investors should use EBITDA in addition
to, and not as an alternative for, income from operations and
net income, each as determined in accordance with GAAP. Because
not all companies use identical calculations, our presentation
of EBITDA may not be comparable to similarly titled measures of
other companies. Furthermore, EBITDA is not intended to be a
measure of free cash flow for our managements
discretionary use, as it does not consider certain cash
requirement such as a tax and debt service payments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended | |
|
|
Year ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
| |
|
|
(unaudited) | |
|
|
(in thousands) | |
Reconciliation of net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income(a)
|
|
$ |
124 |
|
|
$ |
5,802 |
|
|
$ |
10,095 |
|
|
$ |
25,551 |
|
|
$ |
33,329 |
|
|
$ |
14,905 |
|
|
$ |
20,697 |
|
plus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
2,074 |
|
|
|
1,183 |
|
|
|
860 |
|
|
|
637 |
|
|
|
(221 |
) |
|
|
234 |
|
|
|
(1,465 |
) |
|
Income tax provision (benefit)
|
|
|
(1,769 |
) |
|
|
1,729 |
|
|
|
2,460 |
|
|
|
6,514 |
|
|
|
6,685 |
|
|
|
2,903 |
|
|
|
4,575 |
|
|
Depreciation and amortization
|
|
|
8,670 |
|
|
|
9,747 |
|
|
|
11,073 |
|
|
|
13,173 |
|
|
|
16,228 |
|
|
|
7,813 |
|
|
|
9,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
9,099 |
|
|
$ |
18,461 |
|
|
$ |
24,488 |
|
|
$ |
45,875 |
|
|
$ |
56,021 |
|
|
$ |
25,855 |
|
|
$ |
33,477 |
|
|
|
(a) |
Net income for the six months ended June 30, 2006
includes $3.3 million, or approximately $0.08 per diluted
share, of equity based compensation expense under Statement of
Financial Accounting Standards 123(R) which we adopted on
January 1, 2006. |
Adjustments to share-based expense and other expense
Management believes two errors existed in our accounting
treatment for certain transactions related to prior reporting
periods. Management assessed the impact of these errors and
determined such errors were immaterial, and did not,
individually and in the aggregate, materially impact the
financial position, net income or earnings per share for any of
the affected annual and quarterly results. These errors were:
(i) an overstatement of operating expense for the year
ended December 31, 2005 in the amount of $0.8 million
relating to the expensing of restricted share grants resulted
when we incorrectly marked-to-market the quarterly share grant
expense rather than fixing the expense based on the market price
of our common stock on the date the award was granted, and
(ii) an understatement of other expense in the amounts of
$0.1 million, $0.1 million, $0.2 million, and
$0.7 million for the years ended December 31, 2002,
2003, 2004, and 2005, respectively, which arose when we
incorrectly assessed the long-term nature of our intercompany
accounts, and eliminated intercompany foreign currency exchange
losses by recording the losses directly to shareholders
equity via other comprehensive loss, rather than recording to
shareholders equity through the income statement. In the
quarter ended September 30, 2006, we will make a one-time
adjustment to the relevant accounts in such quarter, and the tax
adjusted net result will be a decrease to net income of
approximately $0.6 million.
11
Consolidated ratio of earnings to fixed charges
The following table sets forth our consolidated ratio of
earnings to fixed charges for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months | |
|
|
Year ended December 31, | |
|
ended | |
|
|
| |
|
June 30, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2006 | |
| |
Ratio of earnings to fixed charges
|
|
|
0.2 |
x |
|
|
7.2 |
x |
|
|
15.3x |
|
|
|
49.3 |
x |
|
|
67.9 |
x |
|
|
82.5x |
|
Earnings are defined as pre-tax income from
continuing operations adjusted for fixed charges excluding
capitalized interest. Fixed charges are defined as
interest on borrowings (whether expensed or capitalized) and the
portion of rental expense applicable to interest.
12
Risk factors
Your investment in the notes involves certain risks. Before
deciding to invest, you should consider carefully, among other
matters, the following discussion of risks and other information
contained or incorporated by reference in this prospectus.
If any of these risks are realized, our business, prospects,
financial condition, results of operations and ability to
service debt could be materially adversely affected.
RISKS RELATED TO OUR BUSINESS
Downturns in the highly cyclical semiconductor industry or
changes in end-market demand could affect our operating results
and financial condition.
The semiconductor industry is highly cyclical, and periodically
experiences significant economic downturns characterized by
diminished product demand, production overcapacity and excess
inventory, which can result in rapid erosion in average selling
prices. For example, beginning in the fourth quarter of 2000 and
continuing into 2003, the semiconductor industry experienced
order cancellations and reduced demand for products, resulting
in significant revenue declines, due to excess inventories at
computer and telecommunications equipment manufacturers and
general economic conditions, especially in the technology
sector. The market for semiconductors may experience renewed,
and possibly more severe and prolonged downturns in the future,
which may harm our results of operations and reduce the value of
our business.
In addition, we operate in the discrete (and now analog)
semiconductor segment of the broader semiconductor market and,
as a result, cyclical fluctuations may affect this segment to a
greater extent than they do the broader semiconductor market.
This may cause us to experience greater fluctuations in our
results of operations than compared to some of our broadline
semiconductor manufacturer competitors. In addition, we may
experience significant changes in our profitability as a result
of variations in sales, changes in product mix, changes in
end-user markets and the costs associated with the introduction
of new products. The markets for our products depend on
continued demand in the consumer electronics, computer,
industrial, communications and automotive sectors. These
end-user markets also tend to be cyclical and may also
experience changes in demand that could adversely affect our
operating results and financial condition.
The semiconductor business is highly competitive, and
increased competition may harm our business and our operating
results.
The sectors of the semiconductor industry in which we operate
are highly competitive. We expect intensified competition from
existing competitors and new entrants. Competition is based on
price, product performance, product availability, quality,
reliability and customer service. We compete in various markets
with companies of various sizes, many of which are larger and
have greater resources or capabilities as it relates to
financial, marketing, distribution, brand name recognition,
research and development, manufacturing and other resources than
we have. As a result, they may be better able to develop new
products, market their products, pursue acquisition candidates
and withstand adverse economic or market conditions. Most of our
current major competitors are broadline semiconductor
manufacturers who often have a wider range of product types and
technologies than we do. In addition, companies not currently in
direct competition with us may introduce competing products in
the future. Some of our current major competitors are Fairchild
Semiconductor Corporation, International Rectifier Corporation,
ON Semiconductor Corporation, Philips Electronics N.V., Rohm
Electronics USA LLC, and Vishay Intertechnology, Inc. We may not
be able to compete successfully in the future, and competitive
pressures may harm our financial condition or our operating
results.
13
Risk factors
We receive a significant portion of our net sales from a
single customer. In addition, this customer is also our largest
external supplier and is a related party. The loss of this
customer or supplier could harm our business and results of
operations.
In 2005 and the six months ended June 30, 2006, Lite-On
Semiconductor Corporation, or LSC, our largest stockholder and
our largest customer, accounted for 9.6% and 6.5%, respectively,
of our net sales. LSC is also our largest supplier, providing us
with discrete semiconductor products for subsequent sale by us,
which represented approximately 14.7% and 13.6%, respectively,
of our net sales, in 2005 and the six months ended June 30,
2006. The loss of LSC as either a customer or a supplier, or any
significant reduction in either the amount of product it
supplies to us, or the volume of orders it places with us, could
materially harm our business and results of operations.
Delays in initiation of production at new facilities,
implementing new production techniques or resolving problems
associated with technical equipment malfunctions could adversely
affect our manufacturing efficiencies.
Our manufacturing efficiency has been and will be an important
factor in our future profitability, and we may not be able to
maintain or increase our manufacturing efficiency. Our
manufacturing and testing processes are complex, require
advanced and costly equipment and are continually being modified
in our efforts to improve yields and product performance.
Difficulties in the manufacturing process can lower yields.
Technical or other problems could lead to production delays,
order cancellations and lost revenue. In addition, any problems
in achieving acceptable yields, construction delays, or other
problems in upgrading or expanding existing facilities, building
new facilities, problems in bringing other new manufacturing
capacity to full production or changing our process
technologies, could also result in capacity constraints,
production delays and a loss of future revenues and customers.
Our operating results also could be adversely affected by any
increase in fixed costs and operating expenses related to
increases in production capacity if net sales do not increase
proportionately, or in the event of a decline in demand for our
products.
Our wafer fabrication facility is located in Kansas City,
Missouri, while our facilities in Shanghai, China provide
assembly, test and packaging capabilities. Any disruption of
operations at these facilities could have a material adverse
effect on our business, financial condition and results of
operations.
We are and will continue to be under continuous pressure from
our customers and competitors to reduce the price of our
products, which could adversely affect our growth and profit
margins.
Prices for our products tend to decrease over their life cycle.
There is substantial and continuing pressure from customers to
reduce the total cost of purchasing our products. To remain
competitive and retain our customers and gain new ones, we must
continue to reduce our costs through product and manufacturing
improvements. We must also strive to minimize our
customers shipping and inventory financing costs and to
meet their other goals for rationalization of supply and
production. We experienced an annual decrease in average selling
prices for our products of 3.1% and 15.0% for 2004 and 2005,
respectively. At times, average selling prices for some of our
standard discrete semiconductors have been below our costs. Our
growth and the profit margins of our products will suffer if we
cannot effectively continue to reduce our costs and keep our
product prices competitive.
14
Risk factors
Our customer orders are subject to cancellation or
modification usually with no penalty. High volumes of order
cancellation or reductions in quantities ordered could adversely
affect our results of operations and financial condition.
All of our customer orders are subject to cancellation or
modification, usually with no penalty to the customer. Orders
are generally made on a purchase order basis, rather than
pursuant to long-term supply contracts, and are booked from one
to twelve months in advance of delivery. The rate of booking new
orders can vary significantly from month to month. We, and the
semiconductor industry as a whole, are experiencing a trend
towards shorter lead-times, which is the amount of time between
the date a customer places an order and the date the customer
requires shipment. Furthermore, our industry is subject to rapid
changes in customer outlook and periods of excess inventory due
to changes in demand in the end markets our industry serves. As
a result, many of our purchase orders are revised, and may be
cancelled, with little or no penalty and with little or no
notice. However, we must still commit production and other
resources to fulfilling these orders even though they may
ultimately be cancelled. If a significant number of orders are
cancelled or product quantities ordered are reduced, and we are
unable to timely generate replacement orders, we may build up
excess inventory and our results of operations and financial
condition may suffer.
New technologies could result in the development of new
products by our competitors and a decrease in demand for our
products, and we may not be able to develop new products to
satisfy changes in demand, which could result in a decrease in
net sales and loss of market share.
Our product range and new product development program is focused
on discrete and analog semiconductor products. Our failure to
develop new technologies, or anticipate or react to changes in
existing technologies, either within or outside of the discrete
semiconductor market, could materially delay development of new
products, which could result in a decrease in our net sales and
a loss of market share to our competitors. The semiconductor
industry is characterized by rapidly changing technologies and
industry standards, together with frequent new product
introductions. This includes the development of new types of
technology or the improvement of existing technologies, such as
analog and digital technologies that compete with, or seek to
replace discrete semiconductor technology. Our financial
performance depends on our ability to design, develop,
manufacture, assemble, test, market and support new products and
product enhancements on a timely and cost-effective basis. New
products often command higher prices and, as a result, higher
profit margins. We may not successfully identify new product
opportunities or develop and bring new products to market or
succeed in selling them into new customer applications in a
timely and cost-effective manner.
Products or technologies developed by other companies may render
our products or technologies obsolete or noncompetitive and,
since we operate primarily in the discrete segment of the
broader semiconductor industry, this may have a greater effect
on us than it would if we were a broad-line semiconductor
manufacturer with a wider range of product types and
technologies. Many of our competitors are larger and more
established international companies with greater engineering and
research and development resources than us. Our failure to
identify or capitalize on any fundamental shifts in technologies
in our product markets, relative to our competitors, could harm
our business, have a material adverse effect on our competitive
position within our industry and harm our relationships with our
customers. In addition, to remain competitive, we must continue
to reduce package sizes, improve manufacturing yields and expand
our sales. We may not be able to accomplish these goals, which
could harm our business.
15
Risk factors
We may be subject to claims of infringement of third-party
intellectual property rights or demands that we license
third-party technology, which could result in significant
expense and reduction in our intellectual property rights.
The semiconductor industry is characterized by vigorous
protection and pursuit of intellectual property rights. From
time to time, third parties have asserted, and may in the future
assert, patent, copyright, trademark and other intellectual
property rights to technologies that are important to our
business and have demanded, and may in the future demand, that
we license their patents and technology. Any litigation to
determine the validity of allegations that our products infringe
or may infringe these rights, including claims arising through
our contractual indemnification of our customers, or claims
challenging the validity of our patents, regardless of its merit
or resolution, could be costly and divert the efforts and
attention of our management and technical personnel. We may not
prevail in litigation given the complex technical issues and
inherent uncertainties in intellectual property litigation. If
litigation results in an adverse ruling we could be required to:
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pay substantial damages for
past, present and future use of the infringing technology;
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cease the manufacture, use or
sale of infringing products;
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discontinue the use of
infringing technology;
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expend significant resources to
develop non-infringing technology;
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pay substantial damages to our
customers or end-users to discontinue use or replace infringing
technology with noninfringing technology;
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license technology from the
third party claiming infringement, which license may not be
available on commercially reasonable terms, or at all; or
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relinquish intellectual property
rights associated with one or more of our patent claims, if such
claims are held invalid or otherwise unenforceable.
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We depend on third party suppliers for timely deliveries of
raw materials, parts and equipment, as well as finished products
from other manufacturers, and our results of operations could be
adversely affected if we are unable to obtain adequate supplies
in a timely manner.
Our manufacturing operations depend upon obtaining adequate
supplies of raw materials, parts and equipment on a timely basis
from third parties. Our results of operations could be adversely
affected if we are unable to obtain adequate supplies of raw
materials, parts and equipment in a timely manner or if the
costs of raw materials, parts or equipment were to increase
significantly. Our business could also be adversely affected if
there is a significant degradation in the quality of raw
materials used in our products, or if the raw materials give
rise to compatibility or performance issues in our products, any
of which could lead to an increase in customer returns or
product warranty claims. Although we maintain rigorous quality
control systems, errors or defects may arise from a supplied raw
material and be beyond our detection or control. Any
interruption in, or change in quality of, the supply of raw
materials, parts or equipment needed to manufacture our products
could adversely affect our business and harm our results of
operations and our reputation with our customers.
In addition, we sell finished products from other manufacturers.
Our business could also be adversely affected if there is a
significant degradation in the quality of these products. From
time to time, such manufacturers may extend lead-times, limit
supplies or increase prices due to capacity constraints or other
factors. We have no long-term purchase contracts with any of
these manufacturers and, therefore, have no contractual
assurances of continued supply, pricing or access to finished
products that we sell, and any such manufacturer could
discontinue supplying to us at any time. Additionally,
16
Risk factors
some of our suppliers of finished products or wafers compete
directly with us and may in the future choose not to supply
products to us.
If we do not succeed in continuing to vertically integrate
our business, we will not realize the cost and other
efficiencies we anticipate and our ability to compete, profit
margins and results of operations may suffer.
We are continuing to vertically integrate our business. Key
elements of this strategy include continuing to expand the reach
of our sales organization, expand our manufacturing capacity,
expand our wafer foundry and research and development capability
and expand our marketing, product development, package
development and assembly/testing operations in company-owned
facilities or through the acquisition of established
contractors. There are certain risks associated with our
vertical integration strategy, including:
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difficulties associated with
owning a manufacturing business, including, but not limited to,
the maintenance and management of manufacturing facilities,
equipment, employees and inventories and limitations on the
flexibility of controlling overhead;
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difficulties in continuing
expansion of our operations in Asia and Europe, because of the
distance from our U.S. headquarters and differing
regulatory and cultural environments;
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the need for skills and
techniques that are outside our traditional core expertise;
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less flexibility in shifting
manufacturing or supply sources from one region to another;
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even when independent suppliers
offer lower prices, we would continue to acquire wafers from our
captive manufacturing facility, which may result in us having
higher costs than our competitors;
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difficulties developing and
implementing a successful research and development team; and
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difficulties developing,
protecting, and gaining market acceptance of, our proprietary
technology.
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The risks of becoming a fully integrated manufacturer are
amplified in an industry-wide slowdown because of the fixed
costs associated with manufacturing facilities. In addition, we
may not realize the cost, operating and other efficiencies that
we expect from continued vertical integration. If we fail to
successfully vertically integrate our business, our ability to
compete, profit margins and results of operations may suffer.
Part of our growth strategy involves identifying and
acquiring companies with complementary product lines or
customers. We may be unable to identify suitable acquisition
candidates or consummate desired acquisitions and, if we do make
any acquisitions, we may be unable to successfully integrate any
acquired companies with our operations.
A significant part of our growth strategy involves acquiring
companies with complementary product lines, customers or other
capabilities. For example, (i) in fiscal year 2000, we
acquired FabTech Inc., or FabTech, a wafer fabrication company,
in order to have our own wafer manufacturing capabilities, and
(ii) in January 2006, we acquired Anachip as an entry into
standard logic markets. While we do not currently have any
agreements or commitments with respect to any material
acquisition, we intend to continue to expand and diversify our
operations by making further acquisitions. However, we may be
unsuccessful in identifying suitable acquisition candidates, or
we may be unable to consummate a desired acquisition. To the
extent we do make acquisitions, if we are unsuccessful in
integrating these companies or their operations or product lines
with our operations, or if integration is more difficult than
anticipated, we may experience disruptions that could have a
material adverse effect on our business, financial condition and
results of operations. In addition, we may not realize all of
the benefits we anticipate from any such acquisitions. Some of
the risks that may affect our ability to
17
Risk factors
integrate or realize any anticipated benefits from acquisitions
that we may make include those associated with:
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unexpected losses of key
employees or customers of the acquired company;
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bringing the acquired
companys standards, processes, procedures and controls
into conformance with our operations;
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coordinating our new product and
process development;
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hiring additional management and
other critical personnel;
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increasing the scope, geographic
diversity and complexity of our operations;
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difficulties in consolidating
facilities and transferring processes and know-how; difficulties
in reducing costs of the acquired entitys business;
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diversion of managements
attention from the management of our business; and
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adverse effects on existing
business relationships with customers.
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We are subject to many environmental laws and regulations
that could affect our operations or result in significant
expenses.
We are subject to a variety of U.S. federal, state, local
and foreign governmental laws, rules and regulations related to
the use, storage, handling, discharge or disposal of certain
toxic, volatile or otherwise hazardous chemicals used in our
manufacturing process both in the United States where our wafer
fabrication facility is located, and in China where our
assembly, test and packaging facilities are located. Some of
these regulations in the United States include the Federal Clean
Water Act, Clean Air Act, Resource Conservation and Recovery
Act, Comprehensive Environmental Response, Compensation, and
Liability Act and similar state statutes and regulations. Any of
these regulations could require us to acquire equipment or to
incur substantial other expenses to comply with environmental
regulations. If we were to incur such additional expenses, our
product costs could significantly increase, materially affecting
our business, financial condition and results of operations. Any
failure to comply with present or future environmental laws,
rules and regulations could result in fines, suspension of
production or cessation of operations, any of which could have a
material adverse effect on our business, financial condition and
results of operations. Our operations affected by such
requirements include, among others: the disposal of wastewater
containing residues from our manufacturing operations through
publicly operated treatment works or sewer systems, and which
may be subject to volume and chemical discharge limits and may
also require discharge permits; and the use, storage and
disposal of materials that may be classified as toxic or
hazardous. Any of these may result in, or may have resulted in,
environmental conditions for which we could be liable.
Some environmental laws impose liability, sometimes without
fault, for investigating or cleaning up contamination on, or
emanating from, our currently or formerly owned, leased or
operated properties, as well as for damages to property or
natural resources and for personal injury arising out of such
contamination. Such liability may also be joint and several,
meaning that we could be held responsible for more than our
share of the liability involved, or even the entire share. In
addition, the presence of environmental contamination could also
interfere with ongoing operations or adversely affect our
ability to sell or lease our properties. Environmental
requirements may also limit our ability to identify suitable
sites for new or expanded plants. Although we conduct
environmental due diligence on properties that we operate, our
diligence may not have revealed all environmental conditions on
those properties. Discovery of additional contamination for
which we are responsible, the enactment of new laws and
regulations, or changes in how existing requirements are
enforced, could require us to incur additional costs for
compliance or subject us to unexpected liabilities.
18
Risk factors
Our products may be found to be defective and, as a result,
product liability claims may be asserted against us, which may
harm our business and our reputation with our customers.
Our products are typically sold at prices that are significantly
lower than the cost of the equipment or other goods in which
they are incorporated. For example, our products that are
incorporated into a personal computer may be sold for several
cents, whereas the computer maker might sell the personal
computer for several hundred dollars. Although we maintain
rigorous quality control systems, we shipped approximately
10.2 billion individual semiconductor devices in 2005 to
customers around the world, and in the ordinary course of our
business, we receive warranty claims for some of these products
that are defective, or that do not perform to published
specifications. Since a defect or failure in our products could
give rise to failures in the end products that incorporate them
(and consequential claims for damages against our customers from
their customers), we may face claims for damages that are
disproportionate to the revenues and profits we receive from the
products involved. In addition, our ability to reduce such
liabilities may be limited by the laws or the customary business
practices of the countries where we do business. Even in cases
where we do not believe we have legal liability for such claims,
we may choose to pay for them to retain a customers
business or goodwill or to settle claims to avoid protracted
litigation. Our results of operations and business could be
adversely affected as a result of a significant quality or
performance issue in our products, if we are required or choose
to pay for the damages that result. Although we currently have
product liability insurance, we may not have sufficient
insurance coverage, and we may not have sufficient resources, to
satisfy all possible product liability claims. In addition, any
perception that our products are defective would likely result
in reduced sales of our products, loss of customers and harm to
our business and reputation.
We may fail to attract or retain the qualified technical,
sales, marketing and management personnel required to operate
our business successfully.
Our future success depends, in part, upon our ability to attract
and retain highly qualified technical, sales, marketing and
managerial personnel. Personnel with the necessary expertise are
scarce and competition for personnel with these skills is
intense. We may not be able to retain existing key technical,
sales, marketing and managerial employees or be successful in
attracting, assimilating or retaining other highly qualified
technical, sales, marketing and managerial personnel in the
future. For example, we have faced, and continue to face,
intense competition for qualified technical and other personnel
in Shanghai, China, where our assembly, test and packaging
facilities are located. A number of U.S. and multi-national
corporations, both in the semiconductor industry and in other
industries, have recently established and are continuing to
establish factories and plants in Shanghai, China, and the
competition for qualified personnel has increased significantly
as a result. If we are unable to retain existing key employees
or are unsuccessful in attracting new highly qualified
employees, our business, financial condition and results of
operations could be materially and adversely affected.
We may not be able to maintain our growth or achieve future
growth and such growth may place a strain on our management and
on our systems and resources.
Our ability to successfully grow our business within the
discrete and analog semiconductor markets requires effective
planning and management. Our past growth, and our targeted
future growth, may place a significant strain on our management
and on our systems and resources, including our financial and
managerial controls, reporting systems and procedures. In
addition, we will need to continue to train and manage our
workforce worldwide. If we are unable to effectively plan and
manage our growth effectively, our business and prospects will
be harmed and we will not be able to maintain our profit growth
or achieve future growth.
19
Risk factors
Our business may be adversely affected by obsolete
inventories as a result of changes in demand for our products
and change in life cycles of our products.
The life cycles of some of our products depend heavily upon the
life cycles of the end products into which devices are designed.
These types of end-market products with short life cycles
require us to manage closely our production and inventory
levels. Inventory may also become obsolete because of adverse
changes in end-market demand. We may in the future be adversely
affected by obsolete or excess inventories which may result from
unanticipated changes in the estimated total demand for our
products or the estimated life cycles of the end products into
which our products are designed. In addition, some customers
restrict how far back the date of manufacture for our products
can be, and therefore some of our products inventory may become
obsolete, and thus, adversely affect our results of operations.
If OEMs do not design our products into their applications, a
portion of our net sales may be adversely affected.
We expect an increasingly significant portion of net sales will
come from products we design specifically for our customers.
However, we may be unable to achieve these design wins. In
addition, a design win from a customer does not necessarily
guarantee future sales to that customer. Without design wins
from OEMs, we would only be able to sell our products to these
OEMs as a second source, which usually means we are only able to
sell a limited amount of product to them. Once an OEM designs
another suppliers semiconductors into one of its product
platforms, it is more difficult for us to achieve future design
wins with that OEMs product platform because changing
suppliers involves significant cost, time, effort and risk to an
OEM. Achieving a design win with a customer does not ensure that
we will receive significant revenues from that customer and we
may be unable to convert design into actual sales. Even after a
design win, the customer is not obligated to purchase our
products and can choose at any time to stop using our products,
if, for example, its own products are not commercially
successful.
We rely heavily on our internal electronic information and
communications systems, and any system outage could adversely
affect our business and results of operations.
All of our operations, other than FabTech and Anachip, operate
on a single technology platform. To manage our international
operations efficiently and effectively, we rely heavily on our
Enterprise Resource Planning (ERP) system, internal
electronic information and communications systems and on systems
or support services from third parties. Any of these systems are
subject to electrical or telecommunications outages, computer
hacking or other general system failure. Difficulties in
upgrading or expanding our ERP system or system-wide or local
failures that affect our information processing could have
material adverse effects on our business, financial condition,
results of operations and cash flows.
We are subject to interest rate risk that could have an
adverse effect on our cost of working capital and interest
expenses.
We have credit facilities with U.S. and Asian financial
institutions, as well as other debt instruments, with interest
rates equal to LIBOR or similar indices plus a negotiated
margin. A rise in interest rates could have an adverse impact
upon our cost of working capital and our interest expense. As of
June 30, 2006, our outstanding interest-bearing debt was
$10.8 million. An increase of 1.0% in interest rates would
increase our annual interest rate expense by approximately
$108,000.
20
Risk factors
If we fail to maintain an effective system of internal
controls or discover material weaknesses in our internal
controls over financial reporting, we may not be able to report
our financial results accurately or detect fraud, which could
harm our business and the trading price of our Common Stock.
Effective internal controls are necessary for us to produce
reliable financial reports and are important in our effort to
prevent financial fraud. We are required to periodically
evaluate the effectiveness of the design and operation of our
internal controls. These evaluations may result in the
conclusion that enhancements, modifications or changes to our
internal controls are necessary or desirable. While management
evaluates the effectiveness of our internal controls on a
regular basis, these controls may not always be effective. There
are inherent limitations on the effectiveness of internal
controls including collusion, management override, and failure
of human judgment. Because of this, control procedures are
designed to reduce rather than eliminate business risks. In
connection with their audit of our financial statements for
2005, our independent registered public accounting firm
identified two significant deficiencies in our internal
controls, as well as several other deficiencies including a need
for additional accounting personnel. If we fail to maintain an
effective system of internal controls or if management or our
independent registered public accounting firm were to discover
material weaknesses in our internal controls, we may be unable
to produce reliable financial reports or prevent fraud and it
could harm our financial condition and results of operations and
result in loss of investor confidence and a decline in our stock
price.
Terrorist attacks, or threats or occurrences of other
terrorist activities whether in the United States or
internationally may affect the markets in which our Common Stock
trades, the markets in which we operate and our
profitability.
Terrorist attacks, or threats or occurrences of other terrorist
or related activities, whether in the United States or
internationally, may affect the markets in which our Common
Stock trades, the markets in which we operate and our
profitability. Future terrorist or related activities could
affect our domestic and international sales, disrupt our supply
chains and impair our ability to produce and deliver our
products. Such activities could affect our physical facilities
or those of our suppliers or customers. Such terrorist attacks
could cause ports or airports to or through which we ship to be
shut down, thereby preventing the delivery of raw materials and
finished goods to or from our manufacturing facilities in
Shanghai, China or Kansas City, Missouri, or to our regional
sales offices. Due to the broad and uncertain effects that
terrorist attacks have had on financial and economic markets
generally, we cannot provide any estimate of how these
activities might affect our future results.
Our early corporate records are incomplete. As a result, we
may have difficulty in assessing and defending against claims
relating to rights to our common stock purporting to arise
during periods for which our records are incomplete.
We were formed in 1959 under the laws of California and
reincorporated in Delaware in 1969. We have had several transfer
agents over the past 47 years. In addition, our early
corporate records, including our stock ledger, are incomplete.
As a result, we may have difficulty in assessing and defending
against claims relating to rights to our common stock purporting
to arise during periods for which our records are incomplete.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS
Our international operations subject us to risks that could
adversely affect our operations.
We expect net sales from foreign markets to continue to
represent a significant portion of our total net sales. In
addition, the majority of our manufacturing facilities are
located overseas in China. In 2005
21
Risk factors
and in the six months ended June 30, 2006, net sales to
customers outside the United States represented 74.4% and 76.0%,
respectively, of our net sales. There are risks inherent in
doing business internationally, and any or all of the following
factors could cause harm to our business:
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changes in, or impositions of,
legislative or regulatory requirements, including tax laws in
the United States and in the countries in which we manufacture
or sell our products;
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compliance with trade or other
laws in a variety of jurisdictions;
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trade restrictions,
transportation delays, work stoppages, and economic and
political instability;
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changes in import/export
regulations, tariffs and freight rates;
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difficulties in collecting
receivables and enforcing contracts;
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currency exchange rate
fluctuations;
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restrictions on the transfer of
funds from foreign subsidiaries to the United States;
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the possibility of international
conflict, particularly between or among China and Taiwan and the
United States;
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legal regulatory, political and
cultural differences among the countries in which we do
business; and
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longer customer payment terms.
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We have significant operations and assets in China, Taiwan
and Hong Kong and, as a result, will be subject to risks
inherent in doing business in those jurisdictions, which may
adversely affect our financial performance.
We have a significant portion of our assets in mainland China,
Taiwan and Hong Kong. Our ability to operate in China, Taiwan
and Hong Kong may be adversely affected by changes in those
jurisdictions laws and regulations, including those
relating to taxation, import and export tariffs, environmental
regulations, land use rights, property and other matters. In
addition, our results of operations in China, Taiwan and Hong
Kong are subject to the economic and political situation there.
We believe that our operations in China, Taiwan and Hong Kong
are in compliance with all applicable legal and regulatory
requirements. However, the central or local governments of these
jurisdictions may impose new, stricter regulations or
interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our
compliance with such regulations or interpretations.
Changes in the political environment or government policies in
those jurisdictions could result in revisions to laws or
regulations or their interpretation and enforcement, increased
taxation, restrictions on imports, import duties or currency
revaluations. In addition, a significant destabilization of
relations between or among China, Taiwan or Hong Kong and the
United States could result in restrictions or prohibitions on
our operations or the sale of our products or the forfeiture of
our assets in these jurisdictions. There can be no certainty as
to the application of the laws and regulations of these
jurisdictions in particular instances. Enforcement of existing
laws or agreements may be sporadic and implementation and
interpretation of laws inconsistent. Moreover, there is a high
degree of fragmentation among regulatory authorities, resulting
in uncertainties as to which authorities have jurisdiction over
particular parties or transactions. The possibility of political
conflict between these countries or with the United States could
have an adverse impact upon our ability to transact business in
these jurisdictions and to generate profits.
22
Risk factors
We are subject to foreign currency risk as a result of our
international operations.
We face exposure to adverse movements in foreign currency
exchange rates, primarily to some Asian currencies and, to a
lesser extent, the Euro. For example, many of our employees, who
are located in China are paid in the Chinese Yuan and,
accordingly, an increase in the value of the Yuan compared to
the U.S. dollar could increase our operating expenses. In
addition, we sell our products in various currencies and,
accordingly, a decline in the value of any such currency against
the U.S. dollar, which is our primary functional currency,
could create a decrease in our net sales. Our foreign currency
risk may change over time as the level of activity in foreign
markets grows and could have an adverse impact upon our
financial results. These currencies are principally the Chinese
Yuan, the Taiwanese dollar, the Japanese Yen, the Euro and the
Hong Kong dollar. The Chinese government has recently taken
action to permit the Yuan to U.S. dollar exchange rate to
fluctuate, which may exacerbate our exposure to foreign currency
risk and harm our results of operations. We do not usually
employ hedging techniques designed to mitigate foreign currency
exposures and, therefore, we could experience currency losses as
these currencies fluctuate against the U.S. dollar.
We may not continue to receive preferential tax treatment in
China, thereby increasing our income tax expense and reducing
our net income.
As an incentive for establishing our first Shanghai-based
manufacturing subsidiary, which we refer to as Diodes-China, in
1996 and in accordance with the taxation policies of China,
Diodes-China, received preferential tax treatment for the years
ended December 31, 1996 through December 31, 2005.
Diodes-China is located in the Songjiang district, where the
standard central government tax rate is 24.0%. However, as an
incentive for establishing Diodes-China, the earnings of
Diodes-China were subject to a 0% tax rate by the central
government from 1996 through 2000, and to a 12.0% tax rate from
2001 through 2005. For 2006 and future years,
Diodes-Chinas earnings will continue to be subject to a
12.0% tax rate provided it exports at least 70.0% of its net
sales. In addition, due to an $18.5 million permanent
re-investment of Diodes-China earnings in 2004, Diodes-China has
applied to the Chinese government for additional preferential
tax treatment on earnings that are generated by this
$18.5 million investment. If approved, those earnings will
be exempted from central government income tax for two years,
and then subject to a 12.0% tax rate for the following three
years.
In addition, the earnings of Diodes-China would ordinarily be
subject to a standard local government tax rate of 3.0%.
However, as an incentive for establishing Diodes-China the local
government waived this tax from 1996 through 2005. Management
expects this tax to be waived for the year of 2006; however, the
local government can re-impose this tax at any time at its
discretion.
In 2004, we established our second Shanghai-based manufacturing
facility, Diodes-Shanghai, located in the Songjiang Export Zone
of Shanghai, China. In the Songjiang Export Zone, the central
government standard tax rate is 15.0%. There is no local
government tax. During 2004, Diodes-Shanghai earnings were
subject to the standard 15.0% central government tax rate. As an
incentive for establishing Diodes-Shanghai, for 2005 and 2006
the earnings of Diodes-Shanghai are exempted from central
government income tax, and for the years 2007 through 2009 its
earnings will be subject to a 7.5% tax rate. From 2010 onward,
provided that Diodes-Shanghai exports over 70% of its net sales,
its earnings will be subject to a 10.0% tax rate.
We may not be able to continue receiving this preferential tax
treatment, which may cause an increase in our income tax
expense, thereby reducing our net income.
23
Risk factors
The distribution of any earnings of our foreign subsidiaries
to the United States may be subject to U.S. income taxes,
thus reducing our net income.
We are currently planning, and may in the future plan, to
distribute earnings of our foreign subsidiaries from Asia to the
United States. We may be required to pay U.S. income taxes
on these earnings to the extent we have not previously recorded
deferred U.S. taxes on such earnings. Any such taxes would
reduce our net income in the period in which these earnings are
distributed.
On October 22, 2004, the American Jobs Creation Act, or
AJCA, was signed into law. Among other items, the AJCA
establishes a phased repeal of the extraterritorial income
exclusion, a new incentive tax deduction for
U.S. corporations to repatriate cash from foreign
subsidiaries equal to 85% of cash dividends received in the year
elected that exceeds a base-period amount, and significantly
revises the taxation of U.S. companies doing business
abroad.
At December 31, 2004, we made a minimum estimate for
repatriating cash from our subsidiaries in China and Hong Kong
of $8.0 million under the AJCA, and recorded an income tax
expense of approximately $1.3 million. Under the guidelines
of the AJCA, we developed a required domestic reinvestment plan,
covering items such as U.S. bank debt repayment,
U.S. capital expenditures and U.S. research and
development activities, among others, to cover the dividend
repatriation. During 2005, we completed a quantitative analysis
of the benefits of the AJCA, the foreign tax credit
implications, and state and local tax consequences of the impact
of the AJCA on our plans for repatriation. Based on the
analysis, we repatriated $24.0 million from our foreign
subsidiaries in 2005.
We are evaluating the need to provide additional deferred taxes
for the future earnings of our foreign subsidiaries to the
extent such earnings may be appropriated for distribution to our
corporate office in North America, and as further investment
strategies with respect to foreign earnings are determined.
Should our North American cash requirements exceed the cash that
is provided through the domestic credit facilities, cash can be
obtained from our foreign subsidiaries. However, the
distribution of any unappropriated funds to the U.S. will
require the recording of income tax provisions on the
U.S. entity, thus reducing net income. As of June 30,
2006, we have recorded approximately $1.0 million in
deferred taxes for earnings of our foreign subsidiaries.
RISKS RELATED TO AN INVESTMENT IN THE NOTES
We will have a significant amount of debt following this
offering. Our substantial indebtedness could adversely affect
our business, financial condition and results of operations and
our ability to meet our payment obligations under the notes and
our other debt.
Following this offering, we will have a significant amount of
debt and substantial debt service requirements. As of
August 31, 2006, we had no outstanding debt, and, after
giving effect to this offering, we would have had approximately
$200.0 million of outstanding debt ($230.0 million, if
the underwriters exercise their over-allotment option in full).
In addition, $20.0 million is available for future
borrowings under our senior secured credit facility, and we are
permitted under the terms of our debt agreements to incur
substantial additional debt.
This level of debt could have significant consequences on our
future operations, including:
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making it more difficult for us
to meet our payment and other obligations under the notes and
our other outstanding debt;
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resulting in an event of default
if we fail to comply with the financial and other restrictive
covenants contained in our debt agreements, which event of
default could result in all of our debt becoming immediately due
and payable and, in the case of an event of default under our
secured
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24
Risk factors
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debt, such as our senior secured credit facility, could permit
the lenders to foreclose on our assets securing that debt; |
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reducing the availability of our cash flow to fund working
capital, capital expenditures, acquisitions and other general
corporate purposes, and limiting our ability to obtain
additional financing for these purposes; |
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subjecting us to the risk of increased sensitivity to interest
rate increases on our indebtedness with variable interest rates,
including borrowings under our senior secured credit facility; |
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limiting our flexibility in planning for, or reacting to, and
increasing our vulnerability to, changes in our business, the
industry in which we operate and the general economy; and |
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placing us at a competitive disadvantage compared to our
competitors that have less debt or are less leveraged. |
Any of the above-listed factors could have an adverse effect on
our business, financial condition and results of operations and
our ability to meet our payment obligations under the notes and
our other debt.
The notes will not be secured by any of our assets, and our
secured debt will have claims with respect to our assets
superior to the notes.
The notes are our senior, unsecured obligations and will rank
equally in right of payment with all of our existing and future
senior unsecured indebtedness and junior to any of our existing
and future secured indebtedness to the extent of the security
therefor (including our senior secured credit facility).
However, the indebtedness we incur under our senior secured
credit facility is secured by substantially all of our assets.
As of August 31, 2006, we had no senior indebtedness
outstanding, and $20.0 million was available for future
borrowings under our senior secured credit facility. In
addition, future indebtedness that we incur may be secured by
our assets. If we become insolvent or are liquidated, or if
payment of any secured indebtedness is accelerated, the holders
of the secured indebtedness will be entitled to exercise the
remedies available to secured lenders under applicable law,
including the ability to foreclose on and sell the assets
securing such indebtedness in order to satisfy such
indebtedness. In any such case, any remaining assets may be
insufficient to repay the notes.
The notes will be structurally subordinated to the
indebtedness of our subsidiaries.
The notes will not be guaranteed by our subsidiaries and,
accordingly, will be effectively subordinated to all
indebtedness and other liabilities of our subsidiaries
(including trade payables). As of August 31, 2006, our
subsidiaries had approximately $5.7 million of liabilities
outstanding to which the notes will be structurally subordinate.
Upon any distribution to creditors in a bankruptcy, liquidation,
reorganization or similar proceeding relating to any of our
subsidiaries or their property, the creditors of that subsidiary
will be entitled to be paid in full before the subsidiary will
be able to distribute any assets to us to satisfy our
obligations, including our obligations under the notes. The
assets of that subsidiary may not be sufficient to pay all of
its creditors, in which case holders of the notes would not be
entitled to receive any payments on their notes from the assets
of that subsidiary. In addition, our subsidiaries may, from time
to time, be subject to certain contractual or other restrictions
on their ability to make distributions or loans to us, including
restrictions contained in our senior secured credit facility,
which in turn could adversely affect our ability to make
payments on the notes. The indenture for the notes will not
prohibit us or limit any of our subsidiaries from incurring any
indebtedness or other liabilities. In the event of a bankruptcy,
liquidation or dissolution of a subsidiary, following payment by
the subsidiary of its liabilities, the subsidiary may not have
sufficient assets to make payments to us.
25
Risk factors
We may be unable to pay interest on the notes, repurchase the
notes for cash when required by the holders, including following
a fundamental change, or to pay the cash portion of the
conversion value upon conversion of any notes by the holders.
The notes bear interest semi-annually at a rate of
2.25% per year, and in certain circumstances, we are
required to pay contingent interest to holders of the notes.
Holders of the notes have the right to require us to repurchase
the notes on October 1, 2011, October 1, 2016 and
October 1, 2021 or upon the occurrence of a fundamental
change prior to maturity as described under Description of
notesPurchase of Notes by Us at the Option of the
Holder and Holders May Require Us to
Repurchase Their Notes Upon a Fundamental Change.
Moreover, upon conversion of the notes, we are required to
settle a portion of the conversion value in cash. Any of our
future debt agreements may contain, similar repurchase and cash
settlement provisions. We may not have sufficient funds to make
the required cash payment upon conversion or to purchase or
repurchase the notes in cash at such time or the ability to
arrange necessary financing on acceptable terms. In addition,
our ability to pay cash upon conversion or to purchase or
repurchase the notes in cash may be limited by law or the terms
of agreements relating to our debt outstanding at the time.
However, if we fail to pay interest on the notes, repurchase or
purchase the notes or pay cash upon conversion as required by
the indenture, it would constitute an event of default under the
indenture governing the notes, which, in turn, would constitute
an event of default under our senior secured credit facility and
could cause an event of default under our other debt agreements.
An event of default under our senior secured credit facility or
our other debt agreements would permit the lenders to accelerate
the repayment of such indebtedness, and we may not have
sufficient funds to repay such indebtedness and the notes, and
we may not be able to find alternative financing on acceptable
terms, if at all. In addition, in the case of an event of
default under our secured indebtedness such as our senior
secured credit facility, the lenders may be permitted to
foreclose on our assets securing that indebtedness.
The make whole amount payable on notes converted in
connection with certain fundamental changes may not adequately
compensate you for the lost option time value of your notes as a
result of such transaction.
If certain transactions that constitute a fundamental change
occur prior to October 1, 2011, under certain
circumstances, we will increase, for the time period described
herein, the conversion rate by a number of additional shares for
any conversions of notes in connection with such transaction.
The number of additional shares will be determined based on the
date on which the fundamental change becomes effective and the
price paid per share of our common stock in the transaction
constituting a fundamental change, as described below under
Description of notesConversion
RightsAdjustment to the conversion rate upon the
occurrence of a make-whole fundamental change. Although
the number of additional shares is designed to compensate you
for the lost option time value of your notes as a result of such
transaction, the make whole amount is only an approximation of
such lost value and may not adequately compensate you for such
loss. In addition, if such transaction occurs on or after
October 1, 2011, or if the price of our common stock on the
conversion date is less than $41.88 or greater than $200.00, the
conversion rate will not be increased. Moreover, in no event
will the total number of shares of common stock issuable upon
conversion as a result of this adjustment exceed 23.8777 per
$1,000 principal amount of notes, subject to adjustments in the
same manner as the conversion rate set forth under
Description of notesConversion RightsThe
increase in the conversion rate. Our obligation to
increase the conversion rate in connection with any such
specified corporate transaction could be considered a penalty,
in which case the enforceability thereof would be subject to
general principles of reasonableness of economic remedies.
26
Risk factors
Some significant restructuring transactions may not
constitute a fundamental change, in which case we would not be
obligated to offer to repurchase the notes.
Upon the occurrence of a fundamental change, you have the right
to convert your notes or require us to offer to repurchase the
notes. However, the fundamental change provisions will not
afford protection to holders of notes in the event of certain
transactions. For example, transactions such as leveraged
recapitalizations, refinancings, restructurings or acquisitions
initiated by us would not constitute a fundamental change
requiring us to repurchase the notes or enabling you to convert
your notes. In the event of any such transaction, the holders
would not have the right to convert their notes or require us to
repurchase their notes, even though each of these transactions
could increase the amount of our indebtedness, or otherwise
adversely affect our capital structure or any credit ratings,
thereby adversely affecting the holders of notes.
There is currently no public market for the notes, and an
active trading market may not develop for the notes. The failure
of a market to develop for the notes could adversely affect the
liquidity and value of your notes.
The notes are a new issue of securities, and there is no
existing market for the notes. Moreover, the notes will not be
listed on any securities exchange or quoted on any automated
quotation system. A market may not develop for the notes, and
there can be no assurance as to the liquidity of any market that
may develop for the notes. If an active, liquid market does not
develop for the notes, the market price and liquidity of the
notes may be adversely affected. If any of the notes are traded
after their initial issuance, they may trade at a discount from
their initial offering price.
The liquidity of the trading market, if any, and future trading
prices of the notes will depend on many factors, including,
among other things, the market price of our common stock, our
ability to register the resale of the notes and the shares of
common stock issuable upon conversion of the notes, prevailing
interest rates, our operating results, financial performance and
prospects, the market for similar securities and the overall
securities market, and may be adversely affected by unfavorable
changes in these factors. Historically, the market for
convertible debt has been subject to disruptions that have
caused volatility in prices. It is possible that the market for
the notes will be subject to disruptions which may have a
negative effect on the holders of the notes, regardless of our
operating results, financial performance or prospects.
The conditional conversion feature of the notes could result
in your receiving less than the value of the common stock into
which a note is convertible.
The notes are convertible into shares of our common stock only
if specified conditions are met. If these conditions are not
met, you will not be able to convert your notes, and you may not
be able to receive the value of the common stock into which the
notes would otherwise be convertible.
Upon conversion of the notes, we will pay a settlement amount
consisting of cash and, at our option, cash or shares of our
common stock or a combination of cash and shares of our common
stock, if any, based upon a specified observation period, and
you may receive less proceeds than expected because the value of
our common stock may decline after you exercise your conversion
right.
The conversion value that you will receive upon conversion of
your notes is based on a daily conversion value, as described in
this prospectus, calculated on a proportionate basis for each
day of the relevant 20 trading-day observation period.
Generally, we will satisfy our conversion obligation to holders
by paying cash equal to the principal amount of a note and by
delivering, at our option, cash or shares of our common stock or
a combination of cash and shares of our common stock, based on a
27
Risk factors
daily conversion value calculated on a proportionate basis for
each day of the 20 trading-day observation period, in excess of
such principal amount. Accordingly, upon conversion of a note,
holders might not receive any shares of our common stock, or
they might receive fewer shares of common stock relative to the
conversion value of the note as of the conversion date. In
addition, because of the 20 trading-day observation period,
settlement will be delayed until at least the 23rd trading
day following the related conversion date. See Description
of notes. In addition, upon conversion of the notes, you
may receive less proceeds than expected because the price of our
common stock may decrease (or not appreciate as much as you may
expect) between the conversion date and the day the settlement
amount of your notes is determined.
The notes do not restrict our ability to take certain actions
that could negatively impact holders of the notes.
We are not restricted under the terms of the notes from
incurring additional debt, including secured debt that would
rank senior to the notes or any debt that would be equal in
right of payment to the notes. In addition, the limited
covenants applicable to the notes do not require us to achieve
or maintain any minimum financial results relating to our
financial position or results of operations. Our ability to
recapitalize, incur additional debt and take a number of other
actions that are not limited by the terms of the notes could
have the effect of diminishing our ability to make payments on
the notes when due. Certain of our other debt instruments may,
however, restrict these and other actions.
The price of our common stock, and therefore of the notes,
may fluctuate significantly, and this may make it difficult for
you to resell the notes or common stock issuable upon conversion
of the notes when you want or at prices you find attractive.
The price of our common stock on the Nasdaq Global Select Market
constantly changes. During 2005, the closing sale price of our
common stock ranged from $13.05 to $34.94 (in each case adjusted
for a three-for-two stock split we effected in December 2005),
and during the first three quarters of 2006, the closing sale
price of our common stock ranged from $31.02 to $47.58. The
closing sale price on October 5, 2006 was $41.88. We expect
that the market price of our common stock will continue to
fluctuate. In addition, because the notes are convertible into
our common stock, volatility or depressed prices for our common
stock could have a similar effect on the trading price of the
notes.
Our stock price may fluctuate as a result of a variety of
factors, many of which are beyond our control. These factors
include:
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quarterly variations in our
operating results;
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operating results that vary from
the expectations of management, securities analysts and
investors;
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changes in expectations as to
our future financial performance;
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announcements of innovations,
new products and technology, strategic developments, significant
contracts, acquisitions and other material events by us or our
competitors;
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the operating and securities
price performance of other companies that investors believe are
comparable to us;
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future sales of our equity or
equity-related securities;
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changes in general conditions in
our industry and in the economy, the financial markets and the
domestic or international political situation;
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developments or disputes
(including lawsuits); and
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departures of key personnel.
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28
Risk factors
In addition, in recent years, the stock market in general has
experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market price of
securities issued by many companies for reasons often unrelated
to their operating performance. These broad market fluctuations
may adversely affect our stock price, regardless of our
operating results.
Furthermore, the price of our common stock also could be
affected by possible sales of our common stock by investors who
view the notes as a more attractive means of equity
participation in us and by hedging or arbitrage trading activity
that we expect to develop involving our common stock. The
hedging or arbitrage could, in turn, affect the trading prices
of the notes.
We may enter into future acquisitions and take certain
actions in connection with such acquisitions that could affect
the price of our common stock, and therefore the price of the
notes.
As part of our growth strategy, we expect to review acquisition
prospects that would implement our vertical integration strategy
or offer other growth opportunities. While we have no current
agreements or commitments with respect to any material
acquisitions, we may acquire businesses, products or
technologies in the future. In the event of future acquisitions,
we could:
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use a significant portion of our
available cash;
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issue equity securities, which
would dilute current stockholders percentage ownership;
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incur substantial debt;
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incur or assume contingent
liabilities, known or unknown;
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incur amortization expenses
related to intangibles; and
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incur large, immediate
accounting write-offs.
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Such actions by us could harm our results from operations and
adversely affect the price of our common stock. Since the notes
are convertible into our common stock, an adverse effect on the
price of our common stock could have a similar effect on the
trading price of our notes.
Our directors, executive officers and significant
stockholders hold a substantial portion of our common stock,
which may lead to conflicts with other stockholders over
corporate transactions and other corporate matters.
Our directors, executive officers and our affiliate, LSC,
beneficially own approximately 32.4% of our outstanding common
stock, including options to purchase shares of our common stock
that are exercisable within 60 days of October 3,
2006. These stockholders, acting together, will be able to
influence significantly all matters requiring stockholder
approval, including the election of directors and significant
corporate transactions such as mergers or other business
combinations. This control may delay, deter or prevent a third
party from acquiring or merging with us, which could adversely
affect the market price of our common stock.
LSC, our largest stockholder, owns approximately 22.3% of our
common stock as of October 3, 2006. Some of our directors
and executive officers may have potential conflicts of interest
because of their positions with LSC or their ownership of LSC
Common Stock. Some of our directors are LSC directors and
officers, and our non-employee Chairman of our Board of
Directors is Chairman of the board of LSC. Several of our
directors and executive officers own LSC Common Stock and hold
options to purchase LSC Common Stock. Service on our Board of
Directors and as a director or officer of LSC, or ownership of
LSC Common Stock by our directors and executive officers, could
create, or appear to create, actual or potential conflicts of
interest when directors and officers are faced
29
Risk factors
with decisions that could have different implications for LSC
and us. For example, potential conflicts could arise in
connection with decisions involving the Common Stock owned by
LSC, or under the other agreements we may enter into with LSC.
LSC was our largest external supplier of discrete semiconductor
products for subsequent sale by us. In 2005 and the six months
ended June 30, 2006, approximately 17.2% and 13.6%,
respectively, of our net sales were from products manufactured
by LSC. In addition to being our largest external supplier of
finished products in each of these periods, we sold silicon
wafers to LSC totaling 9.6% and 6.5%, respectively, of our net
sales during such periods, making LSC our largest customer.
We may have difficulty resolving any potential conflicts of
interest with LSC, and even if we do, the resolution may be less
favorable than if we were dealing with an entirely unrelated
third party.
Future sales of our common stock in the public market or the
issuance of securities senior to our common stock could
adversely affect the trading price of our common stock and the
value of the notes and our ability to raise funds in new stock
offerings.
Future sales of substantial amounts of our common stock or
equity-related securities in the public market, or the
perception that such sales could occur, could adversely affect
prevailing trading prices of our common stock and the value of
the notes and could impair our ability to raise capital through
future offerings of equity or equity-related securities. We may
issue common stock or equity securities senior to our common
stock in the future for a number of reasons, including to
finance our operations and business strategy, to adjust our
ratio of debt to equity, to satisfy our obligations upon the
exercise of options or for other reasons. LSC, our largest
stockholder, owned approximately 22.3% of our common stock as at
October 3, 2006. Any future sales of our common stock by
Lite-On Semiconductor, or a perception among investors that such
sales may occur, could negatively affect the trading price of
our common stock and the value of the notes. No prediction can
be made as to the effect, if any, that future sales or issuance
of shares of our common stock or other equity securities, or the
availability of shares of common stock or such other equity
securities for future sale or issuance, will have on the trading
price of our common stock or the value of the notes.
If you hold notes, 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 notes, 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 our common stock. You will have rights
with respect to our common stock only if you convert your notes,
which you are permitted to do only in limited circumstances
described herein. For example, in the event that an amendment is
proposed to our articles of incorporation or bylaws requiring
shareholder approval and the record date for determining the
shareholders of record entitled to vote on the amendment occurs
prior to delivery of our common stock to you, 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.
The conversion rate of the notes may not be adjusted for all
dilutive events, including third-party tender or exchange offers
that may adversely affect the trading price of the notes or the
common stock issuable upon conversion of the notes.
The conversion rate of the notes is subject to adjustment upon
certain events, including the issuance of stock dividends on our
common stock, the issuance of rights or warrants, subdivisions,
combinations, distributions of capital stock, indebtedness or
assets, cash dividends and issuer tender or exchange offers as
described under Description of notesConversion
RightsAdjustments to the conversion
30
Risk factors
rate. The conversion rate will not be adjusted for certain
other events, such as third-party tender or exchange offers,
that may adversely affect the trading price of the notes or the
common stock issuable upon conversion of the notes.
In addition, in no event will the conversion rate be adjusted to
an amount that exceeds 23.8777 shares per $1,000 principal
amount of notes, subject to adjustments in the same manner as
the conversion rate. See Description of
notesConversion RightsAdjustments to the conversion
rate.
Conversion of the notes will dilute the ownership interest of
existing shareholders, including holders who had previously
converted their notes.
To the extent we issue common stock upon conversion of the
notes, the conversion of some or all of the notes will dilute
the ownership interests of existing shareholders, including
holders who have received common stock upon prior conversion of
the notes. Any sales in the public market of the common stock
issuable upon such conversion could adversely affect prevailing
market prices of our common stock. In addition, the existence of
the notes may encourage short selling by market participants
because the conversion of the notes could depress the price of
our common stock.
The repurchase rights and the increased conversion rate
triggered by a make-whole fundamental change could discourage a
potential acquiror.
The repurchase rights in the notes triggered by a fundamental
change, as described under the heading Description of
notesHolders May Require Us to Repurchase Their
Notes Upon a Fundamental Change, and the increased
conversion rate triggered by a make-whole fundamental change, as
described under the heading Description of
notesConversion RightsAdjustment to the conversion
rate upon the occurrence of a make-whole fundamental
change, could discourage a potential acquiror.
The notes may not be rated or may receive a lower rating than
anticipated.
We do not intend to seek a rating on the notes. However, if one
or more rating agencies rates the notes and assigns the notes a
rating lower than the rating expected by investors, or reduces
their rating in the future the market price of the notes and our
common stock could be harmed.
You are urged to consider the United States federal income
tax consequences of owning the notes.
We and each holder will agree in the indenture to treat the
notes for United States federal income tax purposes as
contingent payment debt instruments subject to United States
federal income tax rules applicable to contingent payment debt
instruments and, for purposes of those rules, to treat the fair
market value of any stock received upon any conversion or
otherwise of the notes as a contingent payment. Under that
treatment, a taxable U.S. holder (as defined herein) will
be required to include interest in taxable income in each year
significantly in excess of the amount of interest payments,
including contingent interest payments, actually received by it
in that year. You will recognize gain or loss on the sale,
repurchase, exchange, conversion or redemption of a note in an
amount equal to the difference between the amount realized,
including the fair market value of any of our common stock
received, and your adjusted tax basis in the note. Any gain
recognized by you on the sale, repurchase, exchange, conversion
or redemption of a note generally will be treated as ordinary
interest income and any loss will be treated as ordinary loss to
the extent of the interest previously included in income and,
thereafter, as capital loss. A discussion of the United States
federal income tax consequences of the purchase, ownership,
conversion and other disposition of the notes is included in
this prospectus under the heading Material
U.S. federal income tax considerations.
31
Risk factors
If we pay a cash dividend on our common stock, we are required
under the indenture, subject to certain exceptions, to adjust
the conversion rate. As a result of the adjustment to the
conversion rate, you may be deemed to have received a taxable
dividend subject to United States federal income tax without the
receipt of any cash. In addition, if you are a
non-U.S. holder
(as defined herein), such deemed dividend may be subject to
United States federal withholding tax at a 30% rate or such
lower rate as may be specified by an applicable treaty. See
Material U.S. federal income tax considerations.
Anti-takeover effects of certain provisions of Delaware law
and our certificate of incorporation and by-laws
Some provisions of Delaware law, our certificate of
incorporation and by-laws may be deemed to have an anti-takeover
effect and may delay or prevent a tender offer to takeover
attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the
market price for the shares held by stockholders.
Section 203 of Delaware General Corporation
Law
Section 203 of the Delaware General Corporation Law
prohibits transactions between a Delaware corporation and an
interested stockholder, which is defined as a person
who, together with any affiliates or associates, beneficially
owns, directly or indirectly, 15.0% or more of the outstanding
voting shares of a Delaware corporation. This provision
prohibits certain business combinations between an interested
stockholder and a Delaware corporation for a period of three
years after the date the stockholder becomes an interested
stockholder, unless:
|
|
Ø |
either the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder is approved by the corporations
board of directors prior to the date the interested stockholder
becomes an interested stockholder;
|
|
Ø |
the interested stockholder
acquired at least 85.0% of the voting stock of the corporation
(other than stock held by directors who are also officers or be
certain employee stock plans) in the transaction in which the
stockholder became an interested stockholder; or
|
|
Ø |
the business combination is
approved by a majority of the board of directors and by the
affirmative vote of 66.66% of the outstanding voting stock that
is not owned by the interested stockholder.
|
For this purpose, business combinations include mergers,
consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10.0% of the aggregate market value
of the consolidated assets or outstanding stock of the
corporation, and certain transactions that would increase the
interested stockholders proportionate share ownership in
the corporation.
Certificate of Incorporation and Bylaw
Provisions
Provisions of our certificate of incorporation and bylaws may
have the effect of making it more difficult for a third party to
acquire control of our company. In particular, our bylaws
authorize our board of directors to issue, without further
action by the stockholders, up to 1,000,000 shares of
undesignated preferred stock with rights and preferences,
including voting rights, designated from time to time by the
board of directors. The existence of authorized but unissued
shares of preferred stock enables our board of directors to
render more difficult or to discourage an attempt to obtain
control of us by means of a merger, tender offer, proxy contest
or otherwise.
32
Special note regarding forward-looking statements
Many of the statements included in this prospectus or
incorporated by reference in this prospectus contain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the
Exchange Act) and information relating to our
company. We generally identify forward-looking statements by the
use of terminology such as may, will,
could, should, potential,
continue, expect, intend,
plan, estimate, anticipate,
believe, or similar phrases or the negatives of such
terms. We base these statements on our beliefs as well as
assumptions we made using information currently available to us.
Such statements are subject to risks, uncertainties and
assumptions, including those identified in Risk
factors, as well as other matters not yet known to us or
not currently considered material by us. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those anticipated, estimated or projected. Given these
risks and uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements.
Forward-looking statements do not guarantee future performance
and should not be considered as statements of fact.
You should not unduly rely on these forward-looking statements,
which speak only as of the date of this prospectus. Unless
required by law, we undertake no obligation to publicly update
or revise any forward-looking statements to reflect new
information or future events or otherwise. You should, however,
review the factors and risks we describe in our annual,
quarterly and other reports we will file with the Securities and
Exchange Commission, or SEC, after the date of this prospectus.
See Where you can find additional information.
33
Use of proceeds
We estimate that the net proceeds to us from the sale of the
notes that we are offering will be approximately $194,248,590
after the payment of underwriting discounts and commissions and
the estimated offering expenses payable by us. If the
underwriters exercise their over-allotment option in full, we
estimate the net proceeds to us from this offering to be
approximately $223,461,090.
We intend to use the net proceeds from this offering for working
capital and other general corporate purposes, including
acquisitions. We have no current agreements or commitments with
respect to any material acquisition. Accordingly, our management
will have broad discretion in applying the net proceeds of this
offering.
Pending application of the net proceeds, as described above, we
intend to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
Market price of common stock
Our common stock is listed on the Nasdaq Global Select Market
under the symbol DIOD. The following table sets
forth the quarterly range of high and low reported sale prices
of our common stock on the Nasdaq Global Select Market for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Common stock price | |
|
|
| |
|
|
High | |
|
Low | |
| |
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
16.78 |
|
|
$ |
12.68 |
|
Second quarter
|
|
|
16.53 |
|
|
|
13.89 |
|
Third quarter
|
|
|
17.24 |
|
|
|
11.22 |
|
Fourth quarter
|
|
|
19.49 |
|
|
|
14.39 |
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
18.31 |
|
|
$ |
13.05 |
|
Second quarter
|
|
|
22.34 |
|
|
|
16.79 |
|
Third quarter
|
|
|
25.93 |
|
|
|
20.63 |
|
Fourth quarter
|
|
|
34.94 |
|
|
|
23.09 |
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
41.50 |
|
|
|
31.02 |
|
Second quarter
|
|
|
43.84 |
|
|
|
31.65 |
|
Third Quarter
|
|
|
47.58 |
|
|
|
32.46 |
|
Fourth Quarter (through October 5, 2006)
|
|
|
45.35 |
|
|
|
41.14 |
|
In December 2005, we effected a three-for-two stock split in the
form of a 50% stock dividend. The sales prices above prior to
such date have been adjusted to reflect the stock split.
On October 5, 2006, the last sale price per share for our
common stock as reported on the Nasdaq Global Select Market was
$41.88 per share. As of October 3, 2006, there were
approximately 540 holders of record of our common stock.
34
Dividend policy
We have never declared or paid cash dividends on our common
stock. Our senior secured credit facility permits us to pay
dividends to our stockholders to the extent that any such
dividends declared or paid in any fiscal year do not exceed 50%
of our net profit after taxes for such fiscal year. The payment
of dividends is within the discretion of our Board of Directors,
and will depend upon, among other things, our earnings,
financial condition, capital requirements, and general business
conditions.
35
Capitalization
The following table sets forth our cash and capitalization as of
June 30, 2006:
|
|
Ø |
on an actual basis; and
|
|
Ø |
on an as adjusted basis to give
effect to the sale of the notes by us in this offering resulting
in estimated proceeds of $194,248,590, after deducting
underwriting discounts and commissions and the estimated
offering expenses payable by us.
|
You should read this table together with our consolidated
financial statements and related notes contained in our
Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 2006, which is incorporated
by reference in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
Actual | |
|
As adjusted | |
| |
|
|
(unaudited) | |
|
|
(in thousands, except | |
|
|
share and per share data) | |
Cash, cash equivalents and short-term investments
|
|
$ |
100,332 |
|
|
$ |
294,581 |
|
|
|
|
|
|
|
|
2.25% Convertible Senior Notes due 2026
|
|
|
|
|
|
|
200,000 |
|
Other long-term debt
|
|
|
4,043 |
|
|
|
4,043 |
|
|
|
|
Total long-term debt
|
|
$ |
4,043 |
|
|
$ |
204,043 |
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $1.00 per share,
1,000,000 shares authorized, no shares issued and
outstanding, actual and as adjusted
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value
$0.662/3 per
share, 70,000,000 shares authorized, 25,541,588 shares
issued, actual and as adjusted
|
|
|
17,059 |
|
|
|
17,059 |
|
|
Additional paid-in capital
|
|
|
103,078 |
|
|
|
103,078 |
|
|
Retained earnings
|
|
|
135,356 |
|
|
|
135,356 |
|
Less: Accumulated other comprehensive loss
|
|
|
(252 |
) |
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
255,241 |
|
|
|
255,241 |
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
259,284 |
|
|
$ |
459,284 |
|
|
|
|
|
|
|
|
The table above excludes:
|
|
Ø |
2,031,163 shares of common
stock issuable under our stock incentive plans under which
(i) options to purchase 3,601,194 shares of
common stock at a weighted average exercise price of
$12.62 per share and (ii) unvested awards of
543,868 shares of restricted common stock, were
outstanding; and
|
|
Ø |
shares of common stock initially
issuable upon conversion of the notes offered hereby.
|
36
Description of notes
We will issue the notes under an indenture to be dated as of
October 12, 2006, between us and Union Bank of California,
N.A., as trustee. The trustees main role is to enforce
your rights against us if there is a default under the
indenture. We describe some of the limitations on the extent to
which the trustee acts on your behalf under Events
of Default below. We have appointed the trustee to act as
the initial conversion agent, registrar and paying agent, and
the trustee has agreed to perform administrative duties for us,
such as arranging for interest payments and mailing notices
under the indenture.
The following summary of the terms of the notes and the
indenture does not purport to be complete and is subject, and
qualified in its entirety by reference, to the detailed
provisions of the notes and the indenture. We will provide
copies of the indenture to you upon request, and the indenture
is also available for inspection at the office of the trustee.
The notes and the indenture, and not this description, define
your legal rights as a holder of the notes.
For purposes of this summary, the terms Diodes,
we, us and our refer only to
Diodes Incorporated and not to any of its subsidiaries, unless
we specify otherwise. Unless the context requires otherwise, the
term interest includes contingent
interest.
GENERAL
The notes we are offering:
|
|
Ø |
will be limited to
$200.0 million aggregate principal amount, or
$230.0 million if the underwriters exercise their
over-allotment option in full;
|
|
Ø |
will bear interest at a rate of
2.25% per annum, payable semi-annually in arrears on
April 1 and October 1 of each year, beginning on
April 1, 2007, to holders of record at the close of
business on the immediately preceding March 15 and
September 15, respectively, except as described under
Interest Payments;
|
|
Ø |
will pay contingent interest as
described under Contingent Interest;
|
|
Ø |
will be issued in denominations
of integral multiples of $1,000 principal amount;
|
|
Ø |
will be our senior unsecured
indebtedness and will rank equally in right of payment to all of
our existing and future senior unsecured indebtedness and junior
to any of our existing and future secured indebtedness to the
extent of the security therefor (including our senior secured
credit facility), will not be guaranteed by our subsidiaries
and, accordingly, will be effectively subordinated to the
existing and future indebtedness and other liabilities of our
subsidiaries (including trade payables);
|
|
Ø |
will be convertible into cash
or, at our option, cash and shares of our common stock, based on
an initial conversion rate of 17.0946 shares per $1,000
principal amount of notes (which represents an initial
conversion price of approximately $58.50 per share) under
the conditions and subject to the adjustments described under
Conversion rights;
|
|
Ø |
will be redeemable by us, in
whole or in part, by us at any time on or after October 1,
2011, at a redemption price in cash equal to 100% of the
principal amount of the notes we redeem, plus accrued and unpaid
interest to, but excluding, the redemption date, as described
under Redemption of Notes at our Option;
provided that we must make at least 10 semi-annual interest
payments (including the interest payments on April 1, 2007
and October 1, 2011) in the full amount required by the
indenture before redeeming any notes at our option;
|
37
Description of notes
|
|
Ø |
will be subject to purchase by
us at the option of the holder on each of October 1, 2011,
October 1, 2016 and October 1, 2021, at a purchase
price in cash equal to 100% of the principal amount of the notes
to be purchased, plus accrued and unpaid interest to, but
excluding, the purchase date, as described under
Purchase of Notes by Us at the Option of the
Holder;
|
|
Ø |
will be subject to repurchase by
us at the option of the holder upon a fundamental change, as
described under Holders May Require Us to Repurchase
Their Notes Upon a Fundamental Change, at a
repurchase price in cash equal to 100% of the principal amount
of the notes to be repurchased, plus accrued and unpaid interest
to, but excluding, the fundamental change repurchase
date; and
|
|
Ø |
will mature on October 1,
2026, unless previously redeemed, repurchased or purchased by us
or converted.
|
All cash payments on the notes will be made in U.S. dollars.
We will issue the notes in denominations of integral multiples
of $1,000 principal amount, without coupons. We will initially
issue the notes as global securities in book-entry form. We will
make payments in respect of notes represented by global
securities by wire transfer of immediately available funds to
DTC or its nominee as registered owner of the global securities.
We will make payments in respect of notes that are issued in
certificated form by wire transfer of immediately available
funds to the accounts specified by each holder of more than
$5.0 million aggregate principal amount of notes. However,
if a holder of a certificated note does not specify an account,
or holds $5.0 million or less in aggregate principal amount
of notes, then we will mail a check to that holders
registered address.
You may convert notes at the office of the conversion agent,
present notes for registration of transfer at the office of the
registrar for the notes and present notes for payment at
maturity at the office of the paying agent. We have appointed
the trustee as the initial conversion agent, registrar and
paying agent for the notes.
We will not provide a sinking fund for the notes. The indenture
does not contain any financial covenants and will not limit our
ability to incur additional indebtedness, including senior or
secured indebtedness, pay dividends or repurchase our
securities. The indenture also does not limit the ability of our
subsidiaries to incur indebtedness, and the notes will be
structurally subordinated to any indebtedness incurred by our
subsidiaries. In addition, the indenture does not provide any
protection to holders of notes in the event of a highly
leveraged transaction or a change in control, except as, and
only to the limited extent, described under Holders
May Require Us to Repurchase Their Notes Upon a Fundamental
Change and Consolidation, Merger and Sale of
Assets.
If any payment date with respect to the notes falls on a day
that is not a business day, we will make the payment on the next
business day. The payment made on the next business day will be
treated as though it had been made on the original payment date,
and no interest will accrue on the payment for the additional
period of time.
INTEREST PAYMENTS
We will pay interest on the notes at a rate of 2.25% per
annum, payable semi-annually in arrears on each April 1 and
October 1 of each year, beginning on April 1, 2007.
Except as described in the immediately following bullet points,
we will pay interest that is due on an interest payment date to
38
Description of notes
holders of record at the close of business on the immediately
preceding March 15 and September 15, respectively. However:
|
|
Ø |
We will not make any payment or
other adjustment upon conversion with respect to any accrued
interest on the notes, and we will not adjust the conversion
rate to account for accrued and unpaid interest, in each case,
except as described under Conversion rights.
|
|
Ø |
On the maturity date, we will
pay accrued and unpaid interest to the person to whom we pay the
principal amount, instead of to the holder of record on the
record date.
|
|
Ø |
If we redeem a note, or if a
holder surrenders a note for repurchase upon a fundamental
change as described under Holders May Require Us to
Repurchase Their Notes Upon a Fundamental Change, we
will pay accrued and unpaid interest, if any, to the holder that
surrenders the note for redemption or repurchase, as the case
may be, unless the redemption or repurchase date is after the
close of business on a record date for the payment of an
installment of interest and on or before the related interest
payment date. In this instance (1) we will pay accrued
interest payable on such interest payment date only to the
holder of record at the close of business on the related record
date, and (2) the redemption or repurchase price payable on
the applicable redemption or repurchase date, as the case may
be, will include only the principal amount of the notes, but
will not include any amount in respect of interest payable on
such related interest payment date.
|
Interest will accrue on the notes from and including
October 12, 2006 or from and including the last date in
respect of which interest has been paid or provided for, as the
case may be, to, but excluding, the next interest payment date
or maturity date, as the case may be. We will pay interest on
the notes on the basis of a
360-day year consisting
of twelve 30-day months.
If a holder surrenders a note for conversion after the close of
business on the record date for the payment of an installment of
interest and on or before the related interest payment date,
then, despite the conversion, we will, on the interest payment
date, pay the interest due with respect to the note to the
person who was the record holder of the note at the close of
business on the record date. Except as described in the
following sentence, the holder who surrenders the note for
conversion must pay to the conversion agent upon surrender of
the note an amount in cash equal to the interest payable on such
interest payment date on the portion of the note being
converted. However, a holder is not required to make such
payment:
|
|
Ø |
if a holder converts its notes
after they have been called for redemption and we have specified
a redemption date that is after a record date and on or before
the next interest payment date;
|
|
Ø |
if a holder converts its notes
in connection with a fundamental change and we have specified a
fundamental change repurchase date that is after a record date
and on or before to the next interest payment date; or
|
|
Ø |
to the extent of any overdue
interest, if overdue interest exists at the time of conversion
with respect to such note.
|
CONTINGENT INTEREST
Contingent interest will accrue on the notes during each
six-month period from and including an interest payment date to
but excluding the next interest payment date, commencing with
the six-month period beginning October 1, 2011, if the
average trading price of the notes for the five consecutive
trading day period (the measurement period)
immediately preceding the first day of such six-month period
equals 120% or more of the principal amount of the notes.
For purposes of determining whether contingent interest is
payable, the trading price of the notes on any
trading day means the average secondary market bid quotations
obtained by the bid solicitation
39
Description of notes
agent for $5,000,000 principal amount of notes at approximately
4:00 pm, New York City time, on such trading day from three
independent nationally recognized securities dealers we select.
However, if the bid solicitation agent reasonably determines
that it obtain only two such bids, then the average of the two
bids will instead be used, and if the bid solicitation agent
reasonably determines that it obtain only one such bid, then
that one bid will be used. If the bid solicitation agent
reasonably determines that it cannot obtain at least one such
bid, then the trading price per $1,000 principal amount of the
notes will be determined by a nationally recognized securities
dealer we retain for that purpose.
The rate of contingent interest payable in respect of any such
six-month interest period will equal 0.215% (0.430% per
year, payable semi-annually) of the average trading price of the
notes over the measurement period that triggered the contingent
interest payment. Contingent interest, if any, will accrue from
the first day of the applicable interest period through, but
excluding, the interest payment date at the end of the relevant
six-month period, and we will pay such accrued contingent
interest on that interest payment date. The contingent interest
will be paid in the same manner regular interest is paid to
holders.
Upon determining that the notes will begin to accrue contingent
interest during a relevant six-month period, we will, on or
before the start of that six-month period, publicly announce,
through a reputable national newswire service, and publish on
our website, the fact that contingent interest has become
payable.
The indenture provides that by accepting a note, each holder
agrees, for United States federal income tax purposes, to treat
the notes as contingent payment debt instruments and
to be bound by our application of the Treasury regulations that
govern contingent payment debt instruments, including our
determination that the rate at which interest will be deemed to
accrue for United States federal income tax purposes will be
8.5% compounded semi-annually, which is the rate we would pay on
a fixed-rate, noncontingent, nonconvertible debt instrument with
terms and conditions otherwise comparable to the notes. See
Material U.S. federal income tax consequences.
CONVERSION RIGHTS
If the conditions for conversion of the notes described below,
including those described under Conditions for
conversion and Conversion procedures,
are satisfied, holders of notes may, subject to prior maturity,
redemption, repurchase or purchase by us, convert their notes in
integral multiples of $1,000 principal amount into cash in an
amount described below or, at our option, cash and shares of our
common stock in the respective amounts described below, based on
an initial conversion rate of 17.0946 shares of our common
stock per $1,000 principal amount of notes, subject to
adjustment as described below. This rate results in an initial
conversion price of approximately $58.50 per share. We will
not issue fractional shares of common stock upon conversion of
the notes and instead will pay a cash adjustment for fractional
shares based on the closing sale price per share of our common
stock on the conversion date. Except as described below, we will
not make any payment or other adjustment on conversion with
respect to any accrued interest on the notes, and we will not
adjust the conversion rate to account for accrued and unpaid
interest. Upon the conversion of any note, the accrued but
unpaid interest attributable to the period from the issue date
of the note to the conversion date with respect to the converted
notes, shall not be cancelled, extinguished or forfeited, but
rather shall be deemed to be paid in full to the holder thereof
through delivery of cash and shares of common stock, if any, in
exchange for the notes being converted.
In certain circumstances, a holder must, upon conversion, pay
interest if the conversion occurs after the close of business on
a record date and before the opening of business on the related
interest payment date. See Interest payments
above.
40
Description of notes
The conversion right with respect to any notes we have called
for redemption will expire at the close of business on the
business day immediately preceding the redemption date, unless
we default in the payment of the redemption price. A note for
which a holder has delivered a purchase notice or a fundamental
change repurchase notice, as described below, requiring us to
purchase the note may be surrendered for conversion only if the
holder withdraws the notice in accordance with the indenture,
unless we default in the payment of the purchase price or the
fundamental change repurchase price, as the case may be.
Conversion procedures
To convert a certificated note, the holder must complete the
conversion notice on the back of the note and deliver it,
together with the note and any required interest payment, to the
office of the conversion agent for the notes, which initially
will be the office of the trustee. In addition, the holder must
pay any tax or duty payable as a result of any transfer
involving the issuance or delivery of the shares of common stock
in a name other than that of the registered holder of the note.
The note will be deemed to be converted on the date on which the
holder has satisfied all of these requirements. We refer to this
date as the conversion date. To convert interests in
a global note, the holder must comply with DTCs then
applicable conversion program procedures.
A holder that has delivered a purchase notice or a repurchase
notice with respect to a note, as described below, may convert
that note only if the holder withdraws the notice in accordance
with the indenture. See Purchase of Notes by Us at
the Option of the Holder and Holders May
Require Us to Repurchase Their Notes Upon a Fundamental
Change.
We will deliver, through the conversion agent, the cash and, if
applicable, shares of common stock issuable upon conversion as
soon as practicable after the conversion date, but in no event
more than three business days after the last trading day in the
cash settlement averaging period described below.
However, if a holder surrenders a note for conversion in
connection with a make-whole fundamental change
under circumstances in which we must increase the conversion
rate applicable to that note, then we will deliver, through the
conversion agent, the consideration that is payable on account
of the increase in the conversion rate as soon as practicable
after the effective date of such make-whole fundamental
change, but in no event after the later of:
|
|
Ø |
the date the holder surrenders
the note for conversion; and
|
|
Ø |
the third business day after the
effective date of the make-whole fundamental change.
|
See Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change.
For a discussion of certain tax considerations applicable to a
holder that converts notes, see Material U.S. federal
income tax consequences.
Payment upon conversion
Holders that tender their notes for conversion will receive, in
exchange for those notes, cash or, at our option, cash and
shares of our common stock, as follows. Upon conversion, holders
will receive, per $1,000 principal amount of notes being
converted, a settlement amount that is equal to the
sum of the daily settlement amounts (as described
below) for each of the 20 trading days during the cash
settlement averaging period (as described below).
The cash settlement averaging period with respect to
any note means the 20 consecutive trading-day period that begins
on, and includes, the second trading day after the day the notes
are tendered for conversion.
41
Description of notes
The daily settlement amount, for each of the 20
trading days during the cash settlement averaging period,
consists of:
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cash equal to the lesser of $50
and the daily conversion value (as described below),
which amount of cash we refer to as the daily principal
return; and
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to the extent the daily
conversion value exceeds $50, a number of whole shares of our
common stock equal to the daily share amount (as
described below) for such trading day, subject to our right to
deliver cash in lieu of all or a portion of such shares, as
described below.
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The daily share amount on a given trading day means:
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the excess of the daily
conversion value over $50, divided by;
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the closing sale price of our
common stock on that trading day.
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The daily conversion value on a given trading day
means one-twentieth of the product of:
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the conversion rate of the notes
in effect on that trading day; and
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the closing sale price of our
common stock on that trading day.
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Trading day generally means any day during which:
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trading in our common stock
generally occurs;
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there is no market
disruption event (as described below); and
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a closing sale price for our
common stock is provided on the Nasdaq Global Select Market or,
if our common stock is not then listed on the Nasdaq Global
Select Market, on the principal other U.S. national or
regional securities exchange on which our common stock is then
listed or, if our common stock is not then listed on a
U.S. national or regional securities exchange, on the
principal other market on which our common stock is then traded.
|
We refer to the cash due upon conversion as the principal
return, and we refer to the shares, if any, that are due
upon conversion as the net shares.
Market disruption event generally means the
occurrence or existence during the one-half hour period ending
on the scheduled close of trading on any trading day for our
common stock of any material suspension or limitation imposed on
trading (by reason of movements in price exceeding limits
permitted by the stock exchange or otherwise) in our common
stock or in any options, contracts or future contracts relating
solely to our common stock.
By the close of business on the business day prior to the first
scheduled trading day of the applicable cash settlement
averaging period, we may specify a percentage of the daily share
amount that will be settled in cash (the cash
percentage) and we will notify holders of such cash
percentage by notifying the trustee (the cash percentage
notice). If we elect to specify a cash percentage, the
amount of cash that we will deliver in respect of each trading
day in the applicable cash settlement averaging period will
equal the product of: (i) the cash percentage,
(ii) the daily share amount for such trading day and
(iii) the closing sale price of our common stock for such
trading day. The number of shares deliverable in respect of each
trading day in the applicable cash settlement averaging period
will be a percentage of the daily share amount equal to 100%
minus the cash percentage. If we do not specify a cash
percentage by the close of business on the trading day prior to
the scheduled first trading day of the applicable cash
settlement averaging period, we must settle 100% of the daily
share amount for each trading day in the applicable cash
settlement averaging period with shares of our common stock;
provided, however, that we will pay cash in lieu of fractional
shares as described below. We may, at our option, revoke any
cash percentage notice by notifying the trustee; provided that
we revoke such
42
Description of notes
notice by the close of business on the trading day prior to the
scheduled first trading day of the applicable cash settlement
averaging period.
We will deliver cash in lieu of any fractional shares of common
stock based on the closing sale price per share of our common
stock on the conversion date.
We may be unable to pay the cash portion of the conversion value
upon conversion of any notes by holders. Our ability to settle
our conversion obligation with respect to the notes in cash may
be limited by law or by our debt agreements in existence at the
time of such conversion. Accordingly, we cannot assure you that
we would have the financial resources, or would be able to
arrange financing, to pay any portion of the conversion value in
cash. See Risk factorsRisks related to an investment
in the notesWe may be unable to pay interest on the notes,
repurchase the notes for cash when required by the holders,
including following a fundamental change, or to pay the cash
portion of the conversion value upon conversion of any notes by
the holders.
Conditions for conversion
The notes will become convertible only in certain circumstances,
which we describe below. If the notes become convertible, we
will provide written notice to each registered holder, at its
address appearing in the security register, and we will publicly
announce, through a reputable national newswire service, and
publish on our website, that the notes have become convertible,
stating, among other things:
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the event causing the notes to
become convertible;
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the time during which the notes
will be convertible as a result of that event;
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if that event is a transaction
described under Conversion upon the occurrence of
certain corporate transactions, the anticipated effective
date of the transaction; and
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the procedures holders must
follow to convert their notes, including the name and address of
the conversion agent.
|
We will mail the notice, and make the public announcement and
publication, as soon as practicable, but in no event later than
the open of business on the second business day following the
date the notes become convertible as a result of the event.
Holders may surrender their notes for conversion prior to
maturity or earlier redemption, repurchase or purchase by us
only in the following circumstances:
Conversion based on price of common stock
During any calendar quarter after the calendar quarter ending
December 31, 2006, if the closing sale price
(as defined in the indenture) of our common stock for each of 20
or more trading days in a period of 30 consecutive trading days
ending on the last trading day of the immediately preceding
calendar quarter exceeds 120% of the conversion price in effect
on the last trading day of the immediately preceding calendar
quarter. Our board of directors will make appropriate
adjustments, in its good faith determination, to account for any
adjustment to the conversion rate that becomes effective, or any
event requiring an adjustment to the conversion rate where the
ex date (as defined below) of the event occurs,
during that 30 consecutive trading day period.
The closing sale price of our common stock on any
trading day generally means the closing sale price per share of
our common stock (or, if no closing sale price per share is
reported, the average of the bid and ask prices per share or, if
more than one in either case, the average of the average bid and
the average ask prices per share) on such trading day on the
Nasdaq Global Select Market or, if our common stock is not then
listed on the Nasdaq Global Select Market, as reported by the
U.S. principal national securities exchange on which our
common stock is listed or as otherwise provided in the
43
Description of notes
indenture, (provided that after the consummation of a
fundamental change in which the consideration is comprised
entirely of cash, the closing sale price shall be the cash price
per share received by holders of common stock in such
fundamental change).
Conversion upon satisfaction of the trading price
condition
During the five consecutive business days immediately after any
five consecutive trading day period (we refer to this five
consecutive trading day period as the note measurement
period) in which the average trading price per $1,000
principal amount of notes, as determined following a request by
a holder of notes in accordance with the procedures described
below, was equal to or less than 98% of the average conversion
value of the notes during the note measurement period. We refer
to this condition as the trading price condition.
For purposes of the trading price condition, the
conversion value per $1,000 principal amount of
notes on a trading day is the product of the closing sale price
per share of our common stock and the conversion rate of the
notes in effect on that trading day.
Except as described below, the trading price of the
notes on any day means the average secondary market bid
quotations obtained by the bid solicitation agent for
$5.0 million principal amount of notes at approximately
4:00 pm, New York City time, on such day from three independent
nationally recognized securities dealers we select. However, if
the bid solicitation agent reasonably determines that it can
obtain only two such bids, then the average of the two bids will
instead be used, and if the bid solicitation agent reasonably
determines that it can obtain only one such bid, then that one
bid will be used. If on a given day:
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the bid solicitation agent
reasonably determines that it cannot obtain at least one bid for
$5.0 million principal amount of notes from an independent
nationally recognized securities dealer; or
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in the reasonable, good faith
judgment of our board of directors, the bid quotation or
quotations that the bid solicitation agent has obtained are not
indicative of the secondary market value of the notes,
|
then the trading price per $1,000 principal amount of notes will
be deemed to be equal to 98% of the product of the closing sale
price of our common stock on that day and the conversion rate in
effect on that day.
The bid solicitation agent will have no obligation to determine
the trading price of the notes unless we have requested it to do
so, and we will have no obligation to make such request unless a
holder provides us with reasonable evidence that the trading
price per $1,000 principal amount of notes would be equal to or
less than 98% of the conversion value of the notes. At such
time, we will instruct the bid solicitation agent to determine
the trading price of the notes for each of the next five trading
days and on each following trading day until the trading price
condition is no longer satisfied.
Conversion based on redemption
If we call a note for redemption, the holder of that note may
surrender the note for conversion at any time before the close
of business on the business day immediately preceding the
redemption date.
Conversion upon the occurrence of certain corporate
transactions
If:
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a fundamental
change, as described under Holders May Require
Us to Repurchase Their Notes Upon a Fundamental
Change, or a make-whole fundamental change, as
described under
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44
Description of notes
|
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Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change occurs; or |
|
Ø |
we are party to a consolidation, merger, binding share exchange,
sale of all or substantially all of our properties and assets or
other similar transaction, in each case, pursuant to which our
common stock would be converted into or exchanged for, or would
constitute solely the right to receive, cash, securities or
other property, |
then a holder may surrender its notes for conversion at any time
during the period that begins on, and includes, the
30th day before the date we originally announce as the
anticipated effective date of the transaction and ends on, and
includes, the 30th day after the actual effective date of
the transaction. In addition, if the transaction is a
make-whole fundamental change, then the notes may
also be surrendered for conversion at any time during the
make-whole conversion period described under
Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change, and if the
transaction is a fundamental change, then the notes
may also be surrendered for conversion at any time until, and
including, the fundamental change repurchase date for that
fundamental change. Holders that convert their notes in
connection with a make-whole fundamental change will
in some circumstances also be entitled to an increased
conversion rate. See Adjustment to the conversion
rate upon the occurrence of a make-whole fundamental
change.
In addition, if we take any action, or become aware of any
event, that would require an adjustment to the conversion rate
as described in the third, fourth, fifth or sixth bullet point
under Adjustments to the conversion rate
below, then we must mail to registered holders written notice of
the action or event at least 20 days before the record,
effective or expiration date, as the case may be, of the
transaction. Holders may surrender their notes for conversion
beginning on the date we mail the notice (or, if earlier, the
date the indenture requires us to mail the notice) until the
close of business on the business day immediately preceding the
ex date of the transaction or until we announce that the
transaction will not take place.
Conversion during specified periods
The notes may be surrendered for conversion at any time from,
and including, September 1, 2011 to, and including,
October 1, 2011 and at any time on or after October 1,
2024 and before maturity or earlier redemption, repurchase or
purchase by us.
Change in the conversion right upon certain
reclassifications, business combinations and asset sales
Except as provided in the indenture and as described below, if
we reclassify our common stock (other than a change only in par
value or a change as a result of a subdivision or combination of
our common stock) or are party to a consolidation, merger or
binding share exchange, or if we sell, transfer, lease, convey
or otherwise dispose of all or substantially all of our property
or assets, or consummate a similar transaction, in each case
pursuant to which our common stock would be converted into or
exchanged for, or would constitute solely the right to receive,
cash, securities or other property, then, at the effective time
of the transaction, the right to convert a note will be changed
into a right to convert it into the kind and amount of cash,
securities or other property (the reference
property), which a holder of such note would have received
(assuming, if applicable, that the holder would have made the
applicable election referred to in the immediately following
paragraph) if the holder had converted the note and, upon such
conversion, received, immediately before the transaction, a
number of shares of our common stock equal to the conversion
rate then applicable multiplied by the principal amount
(expressed in thousands) of the note. However, at and after the
effective time of the transaction, the principal return payable
upon conversion of the notes will continue to be payable in cash
(instead of reference property), the daily conversion value and
the
45
Description of notes
daily share amount will be calculated based on the fair value of
the reference property and the daily share amount will be
payable, at our option, in cash, reference property or a
combination thereof. A change in the conversion right such as
this could substantially lessen or eliminate the value of the
conversion right. For example, if a third party acquires us in a
cash merger, each note would be convertible solely into cash and
would no longer be potentially convertible into securities whose
value could increase depending on our future financial
performance, prospects and other factors. There is no precise,
established definition of the phrase all or substantially
all of our property or assets under applicable law.
Accordingly, there may be uncertainty as to whether the
provisions above would apply to a sale, transfer, lease,
conveyance or other disposition of less than all of our property
or assets.
If a transaction described above occurs and holders of our
common stock have the opportunity to elect the form of
consideration to receive in that transaction, then we will make
adequate provision to give holders of the notes, treated as a
single class, a reasonable opportunity to elect the form of such
consideration for purposes of determining the composition of the
reference property described above. Once the
election is made, it will apply to all holders of our notes
after the effective time of the transaction.
If the transaction described in the second preceding paragraph
also constitutes a public acquirer fundamental
change, then we may in certain circumstances elect to
change the conversion right in the manner described under
Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental changeFundamental
changes involving an acquisition of us by a public
acquirer in lieu of changing the conversion right in the
manner described in the above two paragraphs.
Adjustments to the conversion rate
Subject to the terms of the indenture, we will adjust the
conversion rate for:
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dividends or distributions on
our common stock payable in shares of our common stock to all
holders of our common stock;
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subdivisions, combinations or
certain reclassifications of our common stock;
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distributions to all or
substantially all holders of our common stock of certain rights
or warrants (other than, as described below, rights distributed
pursuant to a shareholder rights plan) entitling them, for a
period expiring not more than 60 days immediately following
the record date for the distribution, to purchase or subscribe
for shares of our common stock, or securities convertible into
or exchangeable or exercisable for shares of our common stock,
at a price per share that is less than the current market
price (as defined in the indenture) per share of our
common stock on the record date for the distribution;
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dividends or other distributions
to all or substantially all holders of our common stock of
shares of our or any of our existing or future
subsidiaries capital stock (other than our common stock),
evidences of indebtedness or other assets (other than dividends
or distributions covered by the two bullet points below) or the
dividend or distribution to all or substantially all holders of
our common stock of certain rights or warrants (other than those
covered in the immediately preceding bullet point or, as
described below, certain rights or warrants distributed pursuant
to a shareholder rights plan) to purchase or subscribe for our
securities; provided, however, that we will not adjust the
conversion rate pursuant to this provision for distributions of
certain rights or warrants, if, in accordance with the
indenture, we make adequate arrangements for holders of notes to
receive those rights and warrants upon conversion of the notes;
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cash dividends or other cash
distributions by us to all or substantially all holders of our
common stock, other than distributions described in the
immediately following bullet point; and
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46
Description of notes
|
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distributions of cash or other
consideration by us or any of our subsidiaries in respect of a
tender offer or exchange offer for our common stock, where such
cash and the value of any such other consideration per share of
our common stock validly tendered or exchanged exceeds the
current market price (as defined in the indenture)
per share of our common stock on the last date on which tenders
or exchanges may be made pursuant to the tender or exchange
offer.
|
However, in no event will we adjust the conversion rate pursuant
to the events described in the fifth or sixth bullet points
above to an amount that exceeds 23.8777 shares per $1,000
principal amount of notes. We will adjust this maximum
conversion rate in the same manner in which we must adjust the
conversion rate for stock splits and combinations, stock
dividends, reclassifications and similar events.
Subject to the provisions of the indenture, if we distribute
cash in accordance with the fifth bullet point above, then we
will generally increase the conversion rate so that it equals
the rate determined by multiplying the conversion rate in effect
immediately before the close of business on the record date for
the cash distribution by a fraction whose numerator is the
current market price (as defined in the indenture)
per share of our common stock on the record date and whose
denominator is that current market price less the
per share amount of the distribution. However, we will not
adjust the conversion rate to the extent that the adjustment
would reduce the conversion price below
$0.662/3.
Current market price per share of our common stock
on a date generally means the average of the closing sale prices
of our common stock for the 10 consecutive trading days ending
on, and including, the earlier of that date and the ex-date with
respect to the distribution requiring such computation. We will
make adjustments to the current market price in accordance with
the indenture to account for the occurrence of certain events
during the 10 consecutive trading day period.
If we issue rights, options or warrants that are only
exercisable upon the occurrence of certain triggering events,
then:
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we will not adjust the
conversion rate pursuant to the bullet points above until the
earliest of these triggering events occurs; and
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we will readjust the conversion
rate to the extent any of these rights, options or warrants are
not exercised before they expire.
|
The indenture does not require us to adjust the conversion rate
for any of the transactions described in the bullet points above
if we make provision for holders of notes to participate in the
transaction without conversion on a basis and with notice that
our board of directors determines in good faith to be fair and
appropriate, as provided in the indenture.
We will not adjust the conversion rate pursuant to the bullet
points above unless the adjustment would result in a change of
at least 1% in the then effective conversion rate. However, we
will carry forward any adjustment that we would otherwise have
to make and take that adjustment into account in any subsequent
adjustment. However, if we mail a notice of redemption or a
fundamental change or make whole fundamental change, or any
transaction described under Conversion upon the
occurrence of certain corporate transactions above,
occurs, then we will give effect to all adjustments that we have
otherwise deferred pursuant to this provision, and those
adjustments will no longer be carried forward and taken into
account in any subsequent adjustment. In addition, we will make
such carried forward adjustments, regardless of whether the
aggregate adjustment is less than 1% within one year of the
first such adjustment carried forward, and upon maturity.
To the extent permitted by law and the continued listing
requirements of the Nasdaq Global Select Market, we may, from
time to time, increase the conversion rate by any amount for a
period of at least 20 days or any longer period permitted
by law, so long as the increase is irrevocable during that
period and our board of directors determines that the increase
is in our best interests. We will mail a
47
Description of notes
notice of the increase to registered holders at least
15 days before the day the increase commences. In addition,
we may, but are not obligated to, also increase the conversion
rate as we determine to be advisable in order to avoid or
diminish taxes to recipients of certain distributions.
On conversion, the holders of notes will also receive, to the
extent they receive shares of our common stock, the associated
rights under any future shareholder rights plan (i.e., a poison
pill) we may establish unless prior to any conversion such
rights have separated from our common stock, in which case upon
such separation the conversion rate shall be adjusted pursuant
to the third or fourth bullet points above, as applicable,
subject to readjustment in the event of the expiration,
termination or redemption of such rights.
In the event of:
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a taxable distribution to
holders of common stock which results in an adjustment to the
conversion rate; or
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an increase in the conversion
rate at our discretion,
|
the holders of the notes may, in certain circumstances, be
deemed to have received a distribution subject to
U.S. federal income tax as a dividend. This generally would
occur, for example, if we adjust the conversion rate to
compensate holders for cash dividends on our common stock and
could also occur if we make other distributions of cash or
property to our shareholders. See Material
U.S. federal income tax consequences.
Adjustment to the conversion rate upon the occurrence of a
make-whole fundamental change
If, prior to October 1, 2011:
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there occurs a sale, transfer,
lease, conveyance or other disposition of all or substantially
all of our property or assets to any person or
group (as those terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934), 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 Securities Exchange Act of 1934 (we refer to such a
transaction as an asset sale make-whole fundamental
change); or |
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there occurs any transaction or
series of related transactions (other than a listed stock
business combination as described under
Holders May Require Us to Repurchase Their
Notes Upon a Fundamental Change), in connection with
which (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination,
reclassification, recapitalization, asset sale, lease of assets
or otherwise) our common stock is exchanged for, converted into,
acquired for or constitutes solely the right to receive other
securities, other property, assets or cash (we refer to such any
transaction described in this and the immediately preceding
bullet point as a make-whole fundamental change),
|
then we will increase, as described below under The
increase in the conversion rate, the conversion rate
applicable to notes that are surrendered for conversion at any
time from, and including, the 30th day before the date we
originally announced as the anticipated effective date of the
make-whole fundamental change to, and including, the
30th business day after the actual effective date of the
make-whole fundamental change (or, if the make-whole fundamental
change also constitutes a fundamental change, as
described under Holders May Require Us to Repurchase
Their Notes Upon a Fundamental Change, to, and
including, the fundamental change repurchase date for that
fundamental change). We refer to this period as the
make-whole conversion period.
However, if the make-whole fundamental change is a public
acquirer fundamental change, as described below, then, in
lieu of increasing the conversion rate as described above, we
may elect to
48
Description of notes
change the conversion right in the manner described under
Fundamental changes involving an acquisition of us
by a public acquirer.
We will mail to registered holders, at their addresses appearing
in the security register, notice of, and we will publicly
announce, through a reputable national newswire service, and
publish on our website, the anticipated effective date of any
proposed make-whole fundamental change. We must make this
mailing, announcement and publication at least 30 days
before the first anticipated effective date of the make-whole
fundamental change. We must also state, in the notice,
announcement and publication, whether we have made the election
referred to in the immediately preceding paragraph to change the
conversion right in lieu of increasing the conversion rate. In
addition, no later than the third business day after the
completion of the make-whole fundamental change, we must make an
additional notice, announcement and publication announcing such
completion.
If a holder surrenders a note for conversion in connection with
a make-whole fundamental change we have announced, but the
make-whole fundamental change is not consummated, then the
holder will not be entitled to the increased conversion rate
referred to above in connection with the conversion.
The increase in the conversion rate
In connection with the make-whole fundamental change, we will
increase the conversion rate by reference to the table below,
based on the date when the make-whole fundamental change becomes
effective, which we refer to as the effective date,
and the applicable price. If the make-whole
fundamental change is a transaction or series of related
transactions described in the second bullet point under
Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change and the
consideration (excluding cash payments for fractional shares or
pursuant to statutory appraisal rights) for our common stock in
the make-whole fundamental change consists solely of cash, then
the applicable price will be the cash amount paid
per share of our common stock in the make-whole fundamental
change. If the make-whole fundamental change is an asset sale
make-whole fundamental change and the consideration paid for our
property and assets consists solely of cash, then the
applicable price will be the cash amount paid for
our property and assets, expressed as an amount per share of our
common stock outstanding on the effective date of the asset sale
make-whole fundamental change. In all other cases, the
applicable price will be the average of the
closing sale prices (as defined in the indenture)
per share of our common stock for the five consecutive trading
days immediately preceding the effective date. Our board of
directors will make appropriate adjustments, in its good faith
determination, to account for any adjustment to the conversion
rate that becomes effective, or any event requiring an
adjustment to the conversion rate where the ex date
(as defined in the indenture) of the event occurs, at any time
during those five consecutive trading days.
The following table sets forth the number of additional shares
per $1,000 principal amount of notes that will be added to the
conversion rate applicable to notes that are converted during
the make-whole conversion period. The increased conversion rate
will be used to determine the amount of cash and, if applicable,
shares that are due upon conversion, as described under
Payment upon conversion above. If an event
occurs that requires an adjustment to the conversion rate, we
will, on the date we must adjust the conversion rate, adjust
each applicable price set forth in the first column of the table
below by multiplying the applicable price in effect immediately
before the adjustment by a fraction:
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whose numerator is the
conversion rate in effect immediately before the adjustment; and
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whose denominator is the
adjusted conversion rate.
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In addition, we will adjust the number of additional shares in
the table below in the same manner in which, and for the same
events for which, we must adjust the conversion rate as
described under Adjustments to the conversion
rate.
49
Description of notes
Number of additional shares (per $1,000 principal amount of
notes)
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Effective date | |
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October 5, | |
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October 1, | |
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October 1, | |
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October 1, | |
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October 1, | |
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October 1, | |
Applicable price |
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2006 | |
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2007 | |
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2008 | |
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2009 | |
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2010 | |
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2011 | |
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$41.88
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6.59 |
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6.78 |
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6.78 |
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6.77 |
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6.65 |
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6.78 |
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$45.00
|
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5.77 |
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6.01 |
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5.89 |
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5.71 |
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5.41 |
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5.38 |
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$50.00
|
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4.73 |
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4.88 |
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4.68 |
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4.39 |
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3.89 |
|
|
|
3.13 |
|
$55.00
|
|
|
3.94 |
|
|
|
4.02 |
|
|
|
3.78 |
|
|
|
3.42 |
|
|
|
2.82 |
|
|
|
1.29 |
|
$60.00
|
|
|
3.32 |
|
|
|
3.36 |
|
|
|
3.09 |
|
|
|
2.70 |
|
|
|
2.05 |
|
|
|
|
|
$65.00
|
|
|
2.83 |
|
|
|
2.84 |
|
|
|
2.56 |
|
|
|
2.16 |
|
|
|
1.51 |
|
|
|
|
|
$70.00
|
|
|
2.44 |
|
|
|
2.43 |
|
|
|
2.15 |
|
|
|
1.75 |
|
|
|
1.13 |
|
|
|
|
|
$75.00
|
|
|
2.12 |
|
|
|
2.10 |
|
|
|
1.82 |
|
|
|
1.44 |
|
|
|
0.85 |
|
|
|
|
|
$80.00
|
|
|
1.86 |
|
|
|
1.83 |
|
|
|
1.56 |
|
|
|
1.19 |
|
|
|
0.66 |
|
|
|
|
|
$85.00
|
|
|
1.64 |
|
|
|
1.60 |
|
|
|
1.35 |
|
|
|
1.00 |
|
|
|
0.52 |
|
|
|
|
|
$90.00
|
|
|
1.46 |
|
|
|
1.42 |
|
|
|
1.17 |
|
|
|
0.85 |
|
|
|
0.42 |
|
|
|
|
|
$95.00
|
|
|
1.30 |
|
|
|
1.26 |
|
|
|
1.03 |
|
|
|
0.73 |
|
|
|
0.35 |
|
|
|
|
|
$100.00
|
|
|
1.17 |
|
|
|
1.13 |
|
|
|
0.91 |
|
|
|
0.64 |
|
|
|
0.29 |
|
|
|
|
|
$110.00
|
|
|
0.95 |
|
|
|
0.92 |
|
|
|
0.73 |
|
|
|
0.49 |
|
|
|
0.22 |
|
|
|
|
|
$120.00
|
|
|
0.79 |
|
|
|
0.76 |
|
|
|
0.60 |
|
|
|
0.40 |
|
|
|
0.18 |
|
|
|
|
|
$130.00
|
|
|
0.67 |
|
|
|
0.64 |
|
|
|
0.50 |
|
|
|
0.33 |
|
|
|
0.16 |
|
|
|
|
|
$140.00
|
|
|
0.57 |
|
|
|
0.55 |
|
|
|
0.42 |
|
|
|
0.28 |
|
|
|
0.14 |
|
|
|
|
|
$150.00
|
|
|
0.49 |
|
|
|
0.48 |
|
|
|
0.36 |
|
|
|
0.24 |
|
|
|
0.12 |
|
|
|
|
|
$160.00
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
0.32 |
|
|
|
0.21 |
|
|
|
0.11 |
|
|
|
|
|
$170.00
|
|
|
0.37 |
|
|
|
0.37 |
|
|
|
0.28 |
|
|
|
0.19 |
|
|
|
0.10 |
|
|
|
|
|
$180.00
|
|
|
0.33 |
|
|
|
0.33 |
|
|
|
0.25 |
|
|
|
0.17 |
|
|
|
0.10 |
|
|
|
|
|
$190.00
|
|
|
0.29 |
|
|
|
0.29 |
|
|
|
0.22 |
|
|
|
0.16 |
|
|
|
0.09 |
|
|
|
|
|
$200.00
|
|
|
0.26 |
|
|
|
0.26 |
|
|
|
0.20 |
|
|
|
0.14 |
|
|
|
0.08 |
|
|
|
|
|
The exact applicable price and effective date may not be as set
forth in the table above, in which case:
|
|
Ø |
if the actual applicable price
is between two applicable prices listed in the table above, or
the actual effective date is between two dates listed in the
table above, we will determine the number of additional shares
by linear interpolation between the numbers of additional shares
set forth for the two applicable prices, or for the two dates
based on a 365-day
year, as applicable; |
|
Ø |
if the actual applicable price
is greater than $200.00 per share (subject to adjustment),
we will not increase the conversion rate; and
|
|
Ø |
if the actual applicable price
is less than $41.88 per share (subject to adjustment), we
will not increase the conversion rate.
|
However, we will not increase the conversion rate as described
above to the extent the increase will cause the conversion rate
to exceed 23.8777 shares per $1,000 principal amount. We
will adjust this maximum conversion rate in the same manner in
which, and for the same events for which, we must adjust the
conversion rate as described under Adjustments to
the conversion rate.
Our obligation to increase the conversion rate as described
above could be considered a penalty, in which case its
enforceability would be subject to general principles of
reasonableness of economic remedies.
50
Description of notes
Fundamental changes involving an acquisition of us by a
public acquirer
If the make-whole fundamental change is a public acquirer
fundamental change, as described below, then we may elect
to change the conversion right in lieu of increasing the
conversion rate applicable to notes that are converted during
the make-whole conversion period for the public acquirer
fundamental change. If we make this election, then we will
adjust the conversion rate and our related conversion obligation
such that, from and after the effective time of the public
acquirer fundamental change, the right to convert a note into
cash and, if applicable, shares of our common stock will be
changed into a right to convert it into cash and, if applicable,
shares of public acquirer common stock, as described
below, based on an initial conversion rate equal to the
conversion rate in effect immediately before the effective time
of the public acquirer fundamental change multiplied by a
fraction:
|
|
Ø |
whose numerator is the fair
market value (as determined in good faith by our board of
directors), as of the effective time of the public acquirer
fundamental change, of the cash, securities and other property
paid or payable per share of our common stock pursuant to the
public acquirer fundamental change; and
|
|
Ø |
whose denominator is the average
of the last reported sale prices per share of the public
acquirer common stock for the five consecutive trading days
commencing on, and including, the trading day immediately after
the effective date of the public acquirer fundamental change
(subject to certain adjustments to be made in good faith by our
board of directors).
|
If we elect to change the conversion right as described above,
the change in the conversion right will apply to all holders
from and after the effective time of the public acquirer
fundamental change, and not just those holders, if any, that
convert their notes in connection with the public acquirer
fundamental change. Also, the principal return payable upon
conversion of the notes after we give effect to the election
will continue to be payable in cash, but the daily share amount,
if any, will be payable at our option in cash, shares of public
acquirer common stock (instead of our common stock) or a
combination thereof, and the daily conversion value will be
calculated based on the closing sale price per share of the
public acquirer common stock (instead of our common stock). If
the public acquirer fundamental change also is an event that
requires us to make another adjustment to the conversion rate as
described under Adjustments to the conversion
rate above, then we will also give effect to that
adjustment. However, if we make the election described above,
then we will not change the conversion right in the manner
described under Change in the conversion right upon
certain reclassifications, business combinations and asset
sales above in connection with the public acquirer
fundamental change.
A public acquirer fundamental change generally means
a make-whole fundamental change described in the second bullet
point under Adjustment to the conversion rate upon
the occurrence of a make-whole fundamental change where
the acquirer (or any entity that majority owns the
acquirer) has a class of common stock that is traded on a
national securities exchange or quoted on the Nasdaq Global
Select Market or that will be so traded or quoted when issued or
exchanged in connection with the make-whole fundamental change.
We refer to such common stock as the public acquirer
common stock. Majority ownership generally
means having beneficial ownership (within the
meaning of
Rule 13d-3 under
the Securities Exchange Act of 1934) of more than 50% of the
total outstanding voting power of all classes of an
entitys capital stock entitled to vote generally in the
election of directors.
We will state, in the first notice, public announcement and
publication described under Adjustment to the
conversion rate upon the occurrence of a make-whole fundamental
change above, whether we have elected to change the
conversion right in lieu of increasing the conversion rate. With
respect to each public acquirer fundamental change, our election
is irrevocable, and we cannot change that election once we have
first mailed any such notice or made any such public
announcement or
51
Description of notes
publication. However, if we elect to change the conversion right
as described above in connection with a public acquirer
fundamental change that is ultimately not consummated, then we
will not be obligated to give effect to that particular election.
REDEMPTION OF NOTES AT OUR OPTION
We may redeem the notes at our option, in whole or in part, at
any time, and from time to time, on or after October 1,
2011, on a date not less than 30 nor more than 60 days
after the day we mail a redemption notice to each registered
holder of notes to be redeemed at the address of the registered
holder appearing in the security register, at a redemption
price, payable in cash, equal to 100% of the principal amount of
the notes we redeem plus any accrued and unpaid interest to, but
excluding, the redemption date; provided that we must make at
least 10 semi-annual interest payments (including the interest
payments on April 1, 2007 and October 1, 2011) in the
full amount required by the indenture before redeeming any notes
at our option.
If a redemption date is after a record date for the payment of
an installment of interest and on or before the related interest
payment date, then the payment of interest becoming due on that
interest payment date will be payable, on that interest payment
date, to the holder of record at the close of business on the
record date. Therefore, the redemption price will include only
the principal amount of the notes redeemed, and will not include
any accrued and unpaid interest unless the holder of the notes
so redeemed was also the holder of record at the close of
business on the immediately preceding record date. The
redemption date must be a business day.
For a discussion of certain tax considerations applicable to a
holder upon a redemption of notes, see Material
U.S. federal income tax consequences.
If the paying agent holds money sufficient to pay the redemption
price due on a note on the redemption date in accordance with
the terms of the indenture, then, on and after the redemption
date, the note will cease to be outstanding and interest on the
note will cease to accrue, whether or not the holder delivers
the note to the paying agent. Thereafter, all other rights of
the holder terminate, other than the right to receive the
redemption price upon delivery of the note.
The conversion right with respect to any notes we have called
for redemption will expire at the close of business on the
business day immediately preceding the redemption date, unless
we default in the payment of the redemption price or accrued and
unpaid interest.
If we redeem less than all of the outstanding notes, the trustee
will select the notes to be redeemed in integral multiples of
$1,000 principal amount by lot, on a pro rata basis or in
accordance with any other method the trustee considers fair and
appropriate. However, we may redeem the notes only in integral
multiples of $1,000 principal amount. If a portion of a
holders notes is selected for partial redemption and the
holder converts a portion of the notes, the principal amount of
the note that is subject to redemption will be reduced by the
principal amount that the holder converted.
We may not have the financial resources, and we may not be able
to arrange for financing, to pay the redemption price for all
notes we have called for redemption. Furthermore, the terms of
our indebtedness may limit our ability to pay the redemption
price of the notes. See Risk factorsRisks related to
an investment in the notesWe may be unable to pay interest
on the notes, repurchase the notes for cash when required by the
holders, including following a fundamental change, or to pay the
cash portion of the conversion value upon conversion of any
notes by the holders. Our failure to redeem the notes when
required would result in an event of default with respect to the
notes. An event of default with respect to the notes could
result in an event of default under our other indebtedness,
including our senior secured credit facility, and could permit
the lenders of such indebtedness to
52
Description of notes
declare such indebtedness immediately due and payable and, in
the case of secured indebtedness such as our senior secured
credit facility, foreclose on the assets securing that
indebtedness.
We will not redeem any notes at our option if there has occurred
and is continuing an event of default with respect to the notes,
other than a default in the payment of the redemption price with
respect to those notes.
PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
On each of October 1, 2011, October 1, 2016 and
October 1, 2021 (each, a purchase date), a
holder may require us to purchase all or a portion of the
holders outstanding notes, at a price in cash equal to
100% of the principal amount of the notes to be purchased, plus
any accrued and unpaid interest to, but excluding, the purchase
date, subject to certain additional conditions. However, if the
purchase date is after the close of business on a record date
for the payment of interest and on or before the related
interest payment date, we will, on the purchase date, pay the
accrued and unpaid interest to, but excluding, the purchase date
to the holder of record at the close of business on the
immediately preceding record date. Accordingly, the holder
submitting the note for purchase will receive only the principal
amount of the note being repurchased and will not receive this
accrued and unpaid interest unless that holder was also the
holder of record at the close of business on the immediately
preceding record date.
On each purchase date, we will purchase all notes for which the
holder has delivered and not withdrawn a written purchase
notice. Registered holders may submit their written purchase
notice to the paying agent at any time from the opening of
business on the date that is 20 business days before the
purchase date until the close of business on the business day
immediately preceding the purchase date.
For a discussion of certain tax considerations applicable to a
holder receiving cash upon a purchase of the notes at the
holders option, see Material U.S. federal
income tax consequences.
We will give notice on a date that is at least 20 business days
before each purchase date to all registered holders at their
addresses shown on the register of the registrar, and to
beneficial owners as required by applicable law, stating, among
other things:
|
|
Ø |
the amount of the purchase price;
|
|
Ø |
that notes with respect to which
the holder has delivered a purchase notice may be converted, if
otherwise convertible, only if the holder withdraws the purchase
notice in accordance with the terms of the indenture; and
|
|
Ø |
the procedures that holders must
follow to require us to purchase their notes, including the name
and address of the paying agent.
|
To require us to purchase its notes, the holder must deliver a
purchase notice that states:
|
|
Ø |
the certificate numbers of the
holders notes to be delivered for purchase, if they are in
certificated form;
|
|
Ø |
the principal amount of the
notes to be purchased, which must be an integral multiple of
$1,000; and
|
|
Ø |
that the notes are to be
purchased by us pursuant to the applicable provisions of the
indenture.
|
53
Description of notes
A holder that has delivered a purchase notice may withdraw the
purchase notice by delivering a written notice of withdrawal to
the paying agent before the close of business on the business
day immediately preceding the purchase date. The notice of
withdrawal must state:
|
|
Ø |
the name of the holder;
|
|
Ø |
a statement that the holder is
withdrawing its election to require us to purchase its notes;
|
|
Ø |
the certificate numbers of the
notes being withdrawn, if they are in certificated form;
|
|
Ø |
the principal amount being
withdrawn, which must be an integral multiple of $1,000; and
|
|
Ø |
the principal amount, if any, of
the notes that remain subject to the purchase notice, which must
be an integral multiple of $1,000.
|
If the notes are not in certificated form, the above notices
must comply with appropriate DTC procedures.
To receive payment of the purchase price for a note for which
the holder has delivered and not validly withdrawn a purchase
notice, the holder must deliver the note, together with
necessary endorsements, to the paying agent at any time after
delivery of the purchase notice. We will pay the purchase price
for the note on or before the third business after the later of
the purchase date and the time of delivery of the note, together
with necessary endorsements.
If the paying agent holds on a purchase date money sufficient to
pay the purchase price due on a note in accordance with the
terms of the indenture, then, on and after that purchase date,
the note will cease to be outstanding and interest on the note
will cease to accrue, whether or not the holder delivers the
note to the paying agent. Thereafter, all other rights of the
holder terminate, other than the right to receive the purchase
price upon delivery of the note.
We may not have the financial resources, and we may not be able
to arrange for financing, to pay the purchase price for all
notes holders have elected to have us purchase. Furthermore, the
terms of our indebtedness may limit our ability to pay the
purchase price to purchase notes. See Risk factors
Risks related to an investment in the notes We may be
unable to pay interest on the notes, repurchase the notes for
cash when required by the holders, including following a
fundamental change, or to pay the cash portion of the conversion
value upon conversion of any notes by the holders. Our
failure to purchase the notes when required would result in an
event of default with respect to the notes. An event of default
with respect to the notes could result in an event of default
under our other indebtedness, including our senior secured
credit facility, and could permit the lenders of such
indebtedness to declare such indebtedness immediately due and
payable and, in the case of secured indebtedness such as our
senior secured credit facility, foreclose on the assets securing
that indebtedness.
We will not purchase any notes at the option of holders if there
has occurred and is continuing an event of default with respect
to the notes, other than a default in the payment of the
purchase price with respect to those notes or a default arising
from our failure to provide the notice described above.
In connection with any purchase offer, we will, to the extent
applicable:
|
|
Ø |
comply with the provisions of
Rule 13e-4 and
Regulation 14E and all other applicable laws; and |
|
Ø |
file a Schedule TO or any
other required schedule under the Securities Exchange Act of
1934 or other applicable laws.
|
54
Description of notes
HOLDERS MAY REQUIRE US TO REPURCHASE THEIR NOTES UPON A
FUNDAMENTAL CHANGE
If a fundamental change, as described below, occurs,
each holder will have the right, at its option, subject to the
terms and conditions of the indenture, to require us to
repurchase for cash all or any portion of the holders
notes in integral multiples of $1,000 principal amount, at a
price equal to 100% of the principal amount of the notes to be
repurchased, plus, except as described below, any accrued and
unpaid interest to, but excluding, the fundamental change
repurchase date, as described below.
However, if the fundamental change repurchase date is after the
close of business on a record date for the payment of an
installment of interest and on or before the related interest
payment date, then the payment of interest becoming due on that
interest payment date will be payable, on that interest payment
date, to the holder of record at the close of business on the
record date. Therefore, the repurchase price will include only
the principal amount of the notes repurchased, and will not
include any accrued and unpaid interest unless the holder of the
notes so repurchased was also the holder of record on the
immediately preceding record date.
We must repurchase the notes on a date of our choosing, which we
refer to as the fundamental change repurchase date.
However, the fundamental change repurchase date must be no later
than 35 days, and no earlier than 20 days, after the
date we have mailed a notice of the fundamental change, as
described below.
Within 20 business days after the occurrence of a fundamental
change, we must mail to all registered holders of notes at their
addresses shown on the register of the registrar, and to
beneficial owners as required by applicable law, a notice
regarding the fundamental change. We must also publicly release,
through a reputable national newswire service, and publish on
our website, a notice of the fundamental change. The notice must
state, among other things:
|
|
Ø |
the events causing the
fundamental change;
|
|
Ø |
the date of the fundamental
change;
|
|
Ø |
the fundamental change
repurchase date;
|
|
Ø |
the last date on which a holder
may exercise the repurchase right;
|
|
Ø |
the fundamental change
repurchase price;
|
|
Ø |
the names and addresses of the
paying agent and the conversion agent;
|
|
Ø |
the procedures that holders must
follow to exercise their repurchase right;
|
|
Ø |
the conversion rate and any
adjustments to the conversion rate that will result from the
fundamental change; and
|
|
Ø |
that notes with respect to which
a holder has delivered a fundamental change repurchase notice
may be converted, if otherwise convertible, only if the holder
withdraws the fundamental change repurchase notice in accordance
with the terms of the indenture.
|
To exercise the repurchase right, a holder must deliver a
written fundamental change repurchase notice to the paying agent
no later than the close of business on the business day
immediately preceding the fundamental change repurchase date.
This written notice must state:
|
|
Ø |
the certificate numbers of the
notes that the holder will deliver for repurchase, if they are
in certificated form;
|
|
Ø |
the principal amount of the
notes to be repurchased, which must be an integral multiple of
$1,000; and
|
55
Description of notes
|
|
Ø |
that the notes are to be
repurchased by us pursuant to the fundamental change provisions
of the indenture.
|
A holder may withdraw any fundamental change repurchase notice
by delivering to the paying agent a written notice of withdrawal
prior to the close of business on the business day immediately
preceding the fundamental change repurchase date. The notice of
withdrawal must state:
|
|
Ø |
the name of the holder;
|
|
Ø |
a statement that the holder is
withdrawing its election to require us to repurchase its notes;
|
|
Ø |
the certificate numbers of the
notes being withdrawn, if they are in certificated form;
|
|
Ø |
the principal amount of notes
being withdrawn, which must be an integral multiple of $1,000;
and
|
|
Ø |
the principal amount, if any, of
the notes that remain subject to the fundamental change
repurchase notice, which must be an integral multiple of $1,000.
|
If the notes are not in certificated form, the above notices
must comply with appropriate DTC procedures.
To receive payment of the fundamental change repurchase price
for a note for which the holder has delivered and not validly
withdrawn a fundamental change repurchase notice, the holder
must deliver the note, together with necessary endorsements, to
the paying agent at any time after delivery of the fundamental
change repurchase notice. We will pay the fundamental change
repurchase price for the note on or before the third business
day after the later of the fundamental change repurchase date
and the time of delivery of the note, together with necessary
endorsements.
For a discussion of certain tax considerations applicable to a
holder upon the exercise of the repurchase right, see
Material U.S. federal income tax consequences.
If the paying agent holds on the fundamental change repurchase
date money sufficient to pay the fundamental change repurchase
price due on a note in accordance with the terms of the
indenture, then, on and after the fundamental change repurchase
date, the note will cease to be outstanding and interest on such
note will cease to accrue, whether or not the holder delivers
the note to the paying agent. Thereafter, all other rights of
the holder terminate, other than the right to receive the
fundamental change repurchase price upon delivery of the note.
A fundamental change generally will be deemed to
occur upon the occurrence of a change in control or
a termination of trading.
A change in control generally will be deemed to
occur at such time as:
|
|
Ø |
any person or
group (as those terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934) is or becomes the beneficial owner (as that
term is used in
Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of
50% or more of the total outstanding voting power of all classes
of our capital stock entitled to vote generally in the election
of directors (voting stock); |
|
Ø |
there occurs a sale, transfer,
lease, conveyance or other disposition of all or substantially
all of our property or assets to any person or
group (as those terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934), 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 Securities Exchange Act of 1934; |
56
Description of notes
|
|
Ø |
we consolidate with, or merge
with or into, another person or any person consolidates with, or
merges with or into, us, unless either:
|
|
|
|
|
Ø |
the persons that
beneficially owned, directly or indirectly, the
shares of our voting stock immediately prior to such
consolidation or merger beneficially own, directly
or indirectly, immediately after such consolidation or merger,
shares of the surviving or continuing corporations voting
stock representing at least a majority of the total outstanding
voting power of all outstanding classes of voting stock of the
surviving or continuing corporation in substantially the same
proportion as such ownership immediately prior to such
consolidation or merger; or
|
|
|
Ø |
both of the following conditions
are satisfied (we refer to such a transaction as a listed
stock business combination):
|
|
|
|
|
Ø |
at least 90% of the
consideration (other than cash payments for fractional shares or
pursuant to statutory appraisal rights) in such consolidation or
merger consists of common stock and any associated rights traded
on a U.S. national securities exchange or quoted on the
Nasdaq Global Select Market (or which will be so traded or
quoted when issued or exchanged in connection with such
consolidation or merger); and
|
|
|
Ø |
as a result of such
consolidation or merger, the notes become convertible into cash
and the daily share amount, if any, which will be payable at our
option in cash, shares of such common stock and associated
rights or a combination thereof;
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the following persons cease for
any reason to constitute a majority of our board of directors:
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individuals who on the first
issue date of the notes constituted our board of directors; and
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any new directors whose election
to our board of directors or whose nomination for election by
our shareholders was approved by at least a majority of our
directors then still in office who either were directors whose
election or nomination for election was previously so approved
or were directors on such issue date of the notes; or
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we are liquidated or dissolved
or holders of our capital stock approve any plan or proposal for
our liquidation or dissolution.
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There is no precise, established definition of the phrase
all or substantially all of our property or assets
under applicable law. Accordingly, there may be uncertainty as
to whether a sale, transfer, lease, conveyance or other
disposition of less than all of our property or assets would
permit a holder to exercise its right to have us repurchase its
notes in accordance with the fundamental change provisions
described above.
A termination of trading is deemed to occur if our
common stock (or other common stock into which the notes are
then convertible) is neither listed for trading on a
U.S. national securities exchange nor approved for trading
on an established automated
over-the-counter
trading market in the United States.
We may in the future enter into transactions, including
recapitalizations, that would not constitute a fundamental
change but that would increase our debt or otherwise adversely
affect holders. The indenture for the notes does not restrict
our or our subsidiaries ability to incur indebtedness,
including senior or secured indebtedness. Our incurrence of
additional indebtedness could adversely affect our ability to
service our indebtedness, including the notes. See Risk
factorsRisks related to an investment in the notes.
57
Description of notes
In addition, the fundamental change repurchase feature of the
notes would not necessarily afford holders of the notes
protection in the event of highly leveraged or other
transactions involving us that may adversely affect holders of
the notes. Furthermore, the fundamental change repurchase
feature of the notes may in certain circumstances deter or
discourage a third party from acquiring us, even if the
acquisition may be beneficial to you.
We may not have the financial resources, and we may not be able
to arrange for financing, to pay the fundamental change
repurchase price for all notes holders have elected to have us
repurchase. Furthermore, the terms of our indebtedness may limit
our ability to pay the repurchase price to repurchase notes. See
Risk factorsRisks related to an investment in the
notesWe may be unable to pay interest on the notes,
repurchase the notes for cash when required by the holders,
including following a fundamental change, or to pay the cash
portion of the conversion value upon conversion of any notes by
the holders. Our failure to repurchase the notes when
required would result in an event of default with respect to the
notes and could result in an event of default under our other
outstanding indebtedness, including our senior secured credit
facility. The exercise by holders of the notes of their right to
require us to repurchase their notes upon a fundamental change
could cause a default under our other outstanding indebtedness,
including our senior secured credit facility, even if the
fundamental change itself does not. An event of default with
respect to our other indebtedness, including our senior secured
credit facility, could permit the lenders of such indebtedness
to declare such indebtedness immediately due and payable and, in
the case of secured indebtedness such as our senior secured
credit facility, foreclose on the assets securing that
indebtedness.
We will not repurchase any notes upon a fundamental change if
there has occurred and is continuing an event of default with
respect to the notes, other than a default in the payment of the
repurchase price with respect to those notes or a default
arising from our failure to provide the notice described above.
In connection with any fundamental change offer, we will, to the
extent applicable:
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comply with the provisions of
Rule 13e-4 and
Regulation 14E and all other applicable laws; and |
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file a Schedule TO or any
other required schedule under the Securities Exchange Act of
1934 or other applicable laws.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The indenture prohibits us from consolidating with or merging
with or into, or selling, transferring, leasing, conveying or
otherwise disposing of all or substantially all of our property
or assets to, another person, whether in a single transaction or
series of related transactions, unless, among other things:
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such other person is a
corporation organized and existing under the laws of the United
States, any state of the United States or the District of
Columbia;
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such person assumes all of our
obligations under the notes and the indenture; and
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no default or event of default
exists immediately after giving effect to the transaction or
series of transactions.
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When the successor assumes all of our obligations under the
indenture, except in the case of a lease, our obligations under
the indenture will terminate.
Some of the transactions described above could constitute a
fundamental change that permits holders to require us to
repurchase their notes, as described under Holders
May Require Us to Repurchase Their Notes Upon a Fundamental
Change.
58
Description of notes
There is no precise, established definition of the phrase
all or substantially all of our property or assets
under applicable law. Accordingly, there may be uncertainty as
to whether the provisions above would apply to a sale, transfer,
lease, conveyance or other disposition of less than all of our
property or assets.
An assumption by any person of our obligation under the notes
and the indenture might be deemed for United States federal
income tax purposes to be an exchange of the notes for new notes
by the holders thereof, resulting in recognition of gain or loss
for such purposes and possibly other adverse tax consequences to
the holders. Holders should consult their own tax advisors
regarding the tax consequences of such an assumption.
EVENTS OF DEFAULT
The following are events of default under the indenture for the
notes:
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our failure to pay the principal
of or premium, if any, on any note when due, whether at
maturity, upon redemption, on the purchase date with respect to
a purchase at the option of the holder, on a fundamental change
repurchase date with respect to a fundamental change, or
otherwise;
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our failure to pay an
installment of interest (including, without limitation,
contingent interest, if any) on any note when due, if the
failure continues for 30 days after the date when due;
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our failure to satisfy our
conversion obligations upon the exercise of a holders
conversion right;
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our failure to timely provide
notice as described under Conversion
rightsAdjustment to the conversion rate upon the
occurrence of a make-whole fundamental change,
Purchase of Notes by Us at the Option of the
Holder or Holders May Require Us to Repurchase
Their Notes Upon a Fundamental Change;
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our failure to comply with any
other term, covenant or agreement contained in the notes or the
indenture, if the failure is not cured within 90 days after
notice to us by the trustee or to the trustee and us by holders
of at least 25% in aggregate principal amount of the notes then
outstanding, in accordance with the indenture;
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a default by us or any of our
subsidiaries in the payment when due, after the expiration of
any applicable grace period, of principal of, or premium, if
any, or interest on, indebtedness for money borrowed in the
aggregate principal amount then outstanding of
$20.0 million or more, or acceleration of our or our
subsidiaries indebtedness for money borrowed in such
aggregate principal amount or more so that it becomes due and
payable before the date on which it would otherwise have become
due and payable, in each case if such default is not cured or
waived, or such acceleration is not rescinded, within
60 days after notice to us by the trustee or to us and the
trustee by holders of at least 25% in aggregate principal amount
of notes then outstanding, in accordance with the indenture;
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failure by us or any of our
subsidiaries, within 60 days, to pay, bond or otherwise
discharge any judgments or orders for the payment of money the
total uninsured amount of which for us or any of our
subsidiaries exceeds $20.0 million, which are not stayed on
appeal; and
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certain events of bankruptcy,
insolvency or reorganization with respect to us or any of our
subsidiaries that is a significant subsidiary (as
defined in
Regulation S-X
under the Securities Exchange Act of 1934) or any group of our
subsidiaries that in the aggregate would constitute a
significant subsidiary. |
If an event of default, other than an event of default referred
to in the last bullet point above with respect to us (but
including an event of default referred to in that bullet point
solely with respect to a
59
Description of notes
significant subsidiary, or group of subsidiaries that in the
aggregate would constitute a significant subsidiary, of ours),
has occurred and is continuing, either the trustee, by notice to
us, or the holders of at least 25% in aggregate principal amount
of the notes then outstanding, by notice to us and the trustee,
may declare the principal of, and any accrued and unpaid
interest (including, without limitation, contingent interest, if
any) on, all notes to be immediately due and payable. In the
case of an event of default referred to in the last bullet point
above with respect to us (and not solely with respect to a
significant subsidiary, or group of subsidiaries that in the
aggregate would constitute a significant subsidiary of ours),
the principal of, and accrued and unpaid interest (including,
without limitation, contingent interest, if any) on, all notes
will automatically become immediately due and payable.
After any such acceleration, the holders of a majority in
aggregate principal amount of the notes, by written notice to
the trustee, may rescind or annul such acceleration in certain
circumstances, if:
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the rescission would not
conflict with any order or decree;
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all events of default, other
than the non-payment of accelerated principal or interest, have
been cured or waived; and
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certain amounts due to the
trustee are paid.
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The indenture does not obligate the trustee to exercise any of
its rights or powers at the request or demand of the holders,
unless the holders have offered to the trustee security or
indemnity that is reasonably satisfactory to the trustee against
the costs, expenses and liabilities that the trustee may incur
to comply with the request or demand. Subject to the indenture,
applicable law and the trustees rights to indemnification,
the holders of a majority in aggregate principal amount of the
outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for any remedy available
to the trustee or exercising any trust or power conferred on the
trustee.
No holder will have any right to institute any proceeding under
the indenture, or for the appointment of a receiver or a
trustee, or for any other remedy under the indenture, unless:
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the holder gives the trustee
written notice of a continuing event of default;
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the holders of at least 25% in
aggregate principal amount of the notes then outstanding make a
written request to the trustee to pursue the remedy;
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the holder or holders offer and,
if requested, provide the trustee indemnity reasonably
satisfactory to the trustee against any loss, liability or
expense; and
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the trustee fails to comply with
the request within 60 days after the trustee receives the
notice, request and offer of indemnity and does not receive,
during those 60 days, from holders of a majority in
aggregate principal amount of the notes then outstanding, a
direction that is inconsistent with the request.
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However, the above limitations do not apply to a suit by a
holder to enforce:
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the payment of any amounts due
on that holders notes after the applicable due date; or
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the right to convert that
holders notes in accordance with the indenture.
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60
Description of notes
Except as provided in the indenture, the holders of a majority
of the aggregate principal amount of outstanding notes may, by
notice to the trustee, waive any past default or event of
default and its consequences, other than a default or event of
default:
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in the payment of principal of,
or premium, if any, or interest (including, without limitation,
contingent interest, if any) on, any note or in the payment of
the redemption price, purchase price or fundamental change
repurchase price;
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arising from our failure to
convert any note in accordance with the indenture; or
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in respect of any provision
under the indenture that cannot be modified or amended without
the consent of the holders of each outstanding note affected.
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We will promptly notify the trustee upon our becoming aware of
the occurrence of any default or event of default. In addition,
the indenture requires us to furnish to the trustee, on an
annual basis, a statement by our officers stating whether they
have actual knowledge of any default or event of default by us
in performing any of our obligations under the indenture or the
notes and describing any such default or event of default. If a
default or event of default has occurred and the trustee has
received notice of the default or event of default in accordance
with the indenture, the trustee must mail to each registered
holder a notice of the default or event of default within
30 days after receipt of the notice. However, the trustee
need not mail the notice if the default or event of default:
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has been cured or waived; or
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is not in the payment of any
amounts due with respect to any note and the trustee in good
faith determines that withholding the notice is in the best
interests of holders.
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MODIFICATION AND WAIVER
We may amend or supplement the indenture or the notes with the
consent of the trustee and holders of at least a majority in
aggregate principal amount of the outstanding notes. In
addition, subject to certain exceptions, the holders of a
majority in aggregate principal amount of the outstanding notes
may waive our compliance with any provision of the indenture or
notes. However, without the consent of the holders of each
outstanding note affected, no amendment, supplement or waiver
may:
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change the stated maturity of
the principal of, or the payment date of any installment of
interest (including, without limitation, contingent interest, if
any) on, any note;
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reduce the principal amount of,
or any premium, or interest (including, without limitation,
contingent interest, if any) on, any note;
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change the place, manner or
currency of payment of principal of, or any premium or interest
(including, without limitation, contingent interest, if any) on,
any note;
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impair the right to institute a
suit for the enforcement of any payment on, or with respect to,
or of the conversion of, any note;
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modify, in a manner adverse to
the holders of the notes, the provisions of the indenture
relating to the right of the holders to require us to purchase
notes at their option or upon a fundamental change;
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adversely affect the right of
the holders of the notes to convert their notes in accordance
with the indenture;
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reduce the percentage in
aggregate principal amount of outstanding notes whose holders
must consent to a modification or amendment of the indenture or
the notes;
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61
Description of notes
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reduce the percentage in
aggregate principal amount of outstanding notes whose holders
must consent to a waiver of compliance with any provision of the
indenture or the notes or a waiver of any default or event of
default; or
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modify the provisions of the
indenture with respect to modification and waiver (including
waiver of a default or event of default), except to increase the
percentage required for modification or waiver or to provide for
the consent of each affected holder.
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We may, with the trustees consent, amend or supplement the
indenture or the notes without notice to or the consent of any
holder of the notes to:
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evidence the assumption of our
obligations under the indenture or the notes, as the case may
be, by a successor upon our consolidation or merger or the sale,
transfer, lease, conveyance or other disposition of all or
substantially all of our property or assets in accordance with
the indenture;
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give effect to the election, if
any, by us referred to under Conversion
RightsAdjustment to the conversion rate upon the
occurrence of a make-whole fundamental change or
Conversion RightsFundamental changes involving an
acquisition of us by a public acquirer;
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make adjustments in accordance
with the indenture to the right to convert the notes upon
certain reclassifications or changes in our common stock and
certain consolidations, mergers and binding share exchanges and
upon the sale, transfer, lease, conveyance or other disposition
of all or substantially all of our property or assets;
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secure our obligations in
respect of the notes;
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add to our covenants for the
benefit of the holders of the notes or to surrender any right or
power conferred upon us;
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make provision with respect to
adjustments to the conversion rate as required by the indenture
or to increase the conversion rate in accordance with the
indenture;
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to comply with the rules or
regulations of any securities exchange or automated quotation
system on which the notes may be listed or traded; or
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to add to, change or eliminate
any of the provisions of the indenture as shall be necessary or
desirable in accordance with any amendments to the Trust
Indenture Act of 1939, provided that such action does not
adversely affect the rights or interest of any holder of the
notes.
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In addition, we and the trustee may enter into a supplemental
indenture without the consent of holders of the notes in order
to cure any ambiguity, defect, omission or inconsistency in the
indenture in a manner that does not, individually or in the
aggregate with all other changes, adversely affect the rights of
any holder in any material respect.
Except as provided in the indenture, the holders of a majority
in aggregate principal amount of the outstanding notes, by
notice to the trustee, generally may:
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waive compliance by us with any
provision of the indenture or the notes, as detailed in the
indenture; and
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waive any past default or event
of default and its consequences, except a default or event of
default:
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in the payment of principal of,
or premium, if any, or interest (including, without limitation,
contingent interest, if any) on, any note or in the payment of
the redemption price, purchase price or fundamental change
repurchase price;
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arising from our failure to
convert any note in accordance with the indenture; or
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62
Description of notes
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in respect of any provision
under the indenture that cannot be modified or amended without
the consent of the holders of each outstanding note affected.
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DISCHARGE
We may generally satisfy and discharge our obligations under the
indenture by:
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delivering all outstanding notes
to the trustee for cancellation; or
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depositing with the trustee or
the paying agent after the notes have become due and payable,
whether at stated maturity or any redemption date, purchase date
or fundamental change repurchase date, cash sufficient to pay
all amounts due on all outstanding notes and paying all other
sums payable under the indenture.
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In addition, in the case of a deposit, there must not exist a
default or event of default on the date we make the deposit, and
the deposit must not result in a breach or violation of, or
constitute a default under, the indenture.
CALCULATIONS IN RESPECT OF NOTES
We and our agents are responsible for making all calculations
called for under the indenture and notes. These calculations
include, but are not limited to, determination of the trading
price of the notes, the current market price of our common
stock, the number of shares, if any, issuable upon conversion of
the notes and amount of interest payable on the notes. We and
our agents will make all of these calculations in good faith,
and, absent manifest error, these calculations will be final and
binding on all holders of notes. We will provide a copy of these
calculations to the trustee, as required, and, absent manifest
error, the trustee is entitled to rely on the accuracy of our
calculations without independent verification.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES OR
SHAREHOLDERS
None of our past, present or future directors, officers,
employees or shareholders, as such, will have any liability for
any of our obligations under the notes or the indenture or for
any claim based on, or in respect or by reason of, such
obligations or their creation. By accepting a note, each holder
waives and releases all such liability. This waiver and release
is part of the consideration for the issue of the notes.
However, this waiver and release may not be effective to waive
liabilities under U.S. federal securities laws, and it is
the view of the SEC that such a waiver is against public policy.
REPORTS TO TRUSTEE
We will furnish to the trustee copies of our annual report to
shareholders, containing audited financial statements, and any
other financial reports which we furnish to our shareholders.
UNCLAIMED MONEY
If money deposited with the trustee or paying agent for the
payment of principal of, premium, if any, or accrued and unpaid
interest on, the notes remains unclaimed for two years, the
trustee and paying agent will pay the money back to us upon our
written request. However, the trustee and paying agent have the
right to withhold paying the money back to us until they publish
(in no event later than 5 days after we request repayment)
in a newspaper of general circulation in the City of
New York, or mail to each registered holder, a notice
stating that the money will be paid back to us if unclaimed
after a date no less than 30 days from the publication or
mailing. After the trustee or paying agent pays the money back
to us, holders of notes entitled to the money must look to us
for payment as
63
Description of notes
general creditors, subject to applicable law, and all liability
of the trustee and the paying agent with respect to the money
will cease.
PURCHASE AND CANCELLATION
The registrar, paying agent and conversion agent will forward to
the trustee any notes surrendered to them for transfer,
exchange, payment or conversion, and the trustee will promptly
cancel those notes in accordance with its customary procedures.
We will not issue new notes to replace notes that we have paid
or delivered to the trustee for cancellation or that any holder
has converted.
We may, to the extent permitted by law, purchase notes in the
open market or by tender offer at any price or by private
agreement. We may, at our option and to the extent permitted by
law, reissue, resell or surrender to the trustee for
cancellation any notes we purchase in this manner. Notes
surrendered to the trustee for cancellation may not be reissued
or resold and will be promptly cancelled.
REPLACEMENT OF NOTES
We will replace mutilated, lost, destroyed or stolen notes at
the holders expense upon delivery to the trustee of the
mutilated notes or evidence of the loss, destruction or theft of
the notes satisfactory to the trustee and us. In the case of a
lost, destroyed or stolen note, we or the trustee may require,
at the expense of the holder, indemnity (including in the form
of a bond) reasonably satisfactory to us and the trustee.
TRUSTEE AND TRANSFER AGENT
The trustee for the notes is Union Bank of California, N.A., and
we have appointed the trustee as the initial paying agent,
registrar, conversion agent and custodian with regard to the
notes. The indenture permits the trustee to deal with us and any
of our affiliates with the same rights the trustee would have if
it were not trustee. However, under the Trust Indenture Act of
1939, if the trustee acquires any conflicting interest and there
exists a default with respect to the notes, the trustee must
eliminate the conflict or resign. Union Bank of California, N.A.
and its affiliates have in the past provided and may from time
to time in the future provide banking and other services to us
in the ordinary course of their business. Union Bank of
California, N.A. is also the lender under our secured credit
facility.
The holders of a majority in aggregate principal amount of the
notes then outstanding have the right to direct the time, method
and place of conducting any proceeding for any remedy available
to the trustee, subject to certain exceptions. If an event of
default occurs and is continuing, the trustee must exercise its
rights and powers under the indenture using the same degree of
care and skill as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs. The
indenture does not obligate the trustee to exercise any of its
rights or powers at the request or demand of the holders, unless
the holders have offered to the trustee security or indemnity
that is reasonably satisfactory to the trustee against the
costs, expenses and liabilities that the trustee may incur to
comply with the request or demand.
The transfer agent for our common stock is Continental Stock
Transfer and Trust Company.
LISTING AND TRADING
The notes will not be listed or quoted on any securities
exchange. Our common stock is listed on the Nasdaq Global Select
Market under the ticker symbol DIOD.
64
Description of notes
FORM, DENOMINATION AND REGISTRATION OF NOTES
General
The notes will be issued in registered form, without interest
coupons, in denominations of integral multiples of $1,000
principal amount, in the form of global securities, as further
provided below. See Global securities below
for more information. The trustee is not required to:
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register the transfer of or
exchange any note for a period of 20 days before selecting
notes to be redeemed;
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register the transfer of or
exchange any note during the period beginning at the opening of
business 20 days before the mailing of a notice of
redemption of notes selected for redemption and ending at the
close of business on the day of the mailing; or
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register the transfer of or
exchange any note that has been selected for redemption or for
which the holder has delivered, and not validly withdrawn, a
purchase notice or fundamental change repurchase notice, except,
in the case of a partial redemption, purchase or repurchase,
that portion of the notes not being redeemed, purchased or
repurchased.
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See Global securities and
Certificated securities for a description of
additional transfer restrictions that apply to the notes.
We will not impose a service charge in connection with any
transfer or exchange of any note, but we may in general require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge imposed in connection with the transfer or
exchange.
Global securities
Global securities will be deposited with the trustee as
custodian for The Depository Trust Company, or DTC, and
registered in the name of DTC or a nominee of DTC.
Investors may hold their interests in a global security directly
through DTC, if they are DTC participants, or indirectly through
organizations that are DTC participants.
Except in the limited circumstances described below and in
Certificated securities, holders of notes will
not be entitled to receive notes in certificated form. Unless
and until it is exchanged in whole or in part for certificated
securities, each global security may not be transferred except
as a whole by DTC to a nominee of DTC or by a nominee of DTC to
DTC or another nominee of DTC.
We will apply to DTC for acceptance of the global securities in
its book-entry settlement system. The custodian and DTC will
electronically record the principal amount of notes represented
by global securities held within DTC. Beneficial interests in
the global securities will be shown on records maintained by DTC
and its direct and indirect participants. So long as DTC or its
nominee is the registered owner or holder of a global security,
DTC or such nominee will be considered the sole owner or holder
of the notes represented by such global security for all
purposes under the indenture and the notes. No owner of a
beneficial interest in a global security will be able to
transfer such interest except in accordance with DTCs
applicable procedures and the applicable procedures of its
direct and indirect participants. The laws of some jurisdictions
may require that certain purchasers of securities take physical
delivery of such securities in definitive form. These
limitations and requirements may impair the ability to transfer
or pledge beneficial interests in a global security.
Payments of principal, premium, if any, and interest under each
global security will be made to DTC or its nominee as the
registered owner of such global security. We expect that DTC or
its nominee, upon receipt of any such payment, will immediately
credit DTC participants accounts with payments
proportional to their respective beneficial interests in the
principal amount of the relevant global
65
Description of notes
security as shown on the records of DTC. We also expect that
payments by DTC participants to owners of beneficial interests
will be governed by standing instructions and customary
practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for
such customers. Such payments will be the responsibility of such
participants, and none of us, the trustee, the custodian or any
paying agent or registrar will have any responsibility or
liability for any aspect of the records relating to or payments
made on account of beneficial interests in any global security
or for maintaining or reviewing any records relating to such
beneficial interests.
DTC has advised us that it is a limited-purpose trust company
organized under the New York Banking Law, a banking
organization within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform
Commercial Code and a clearing agency registered
under the Securities Exchange Act of 1934. DTC was created to
hold the securities of its participants and to facilitate the
clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry
changes in accounts of the participants, which eliminates the
need for physical movement of securities certificates.
DTCs participants include securities brokers and dealers
(including the underwriters), banks, trust companies, clearing
corporations and certain other organizations, some of whom
(and/or their representatives) own the depository. Access to
DTCs book-entry system is also available to others, such
as banks, brokers, dealers and trust companies, that clear
through or maintain a custodial relationship with a participant,
either directly or indirectly. The ownership interest and
transfer of ownership interests of each beneficial owner or
purchaser of each security held by or on behalf of DTC are
recorded on the records of the direct and indirect participants.
Certificated securities
The trustee will exchange each beneficial interest in a global
security for one or more certificated securities registered in
the name of the owner of the beneficial interest, as identified
by DTC, only if:
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DTC notifies us that it is
unwilling or unable to continue as depositary for that global
security or ceases to be a clearing agency registered under the
Securities Exchange Act of 1934 and, in either case, we do not
appoint a successor depositary within 90 days of such
notice or cessation; or
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an event of default has occurred
and is continuing and the trustee has received a request from
DTC to issue certificated securities.
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Settlement and payment
We will make payments in respect of notes represented by global
securities by wire transfer of immediately available funds to
DTC or its nominee as registered owner of the global securities.
We will make payments in respect of notes that are issued in
certificated form by wire transfer of immediately available
funds to the accounts specified by each holder of more than
$5.0 million aggregate principal amount of notes. However,
if a holder of a certificated note does not specify an account,
or holds $5.0 million or less in aggregate principal amount
of notes, then we will mail a check to that holders
registered address.
We expect the notes will trade in DTCs Same-Day Funds
Settlement System, and DTC will require all permitted secondary
market trading activity in the notes to be settled in
immediately available funds. We expect that secondary trading in
any certificated securities will also be settled in immediately
available funds.
Transfers between participants in DTC will be effected in the
ordinary way in accordance with DTC rules and will be settled in
same-day funds.
66
Description of notes
Although DTC has agreed to the above procedures to facilitate
transfers of interests in the global securities among DTC
participants, DTC is under no obligation to perform or to
continue those procedures, and those procedures may be
discontinued at any time. None of us, the underwriters or the
trustee will have any responsibility for the performance by DTC
or its direct or indirect participants of their respective
obligations under the rules and procedures governing their
operations.
We have obtained the information we describe in this prospectus
concerning DTC and it book-entry system from sources that we
believe to be reliable, but neither we nor the underwriters take
any responsibility for the accuracy of this information.
GOVERNING LAW
The indenture and the notes will be governed by and construed in
accordance with the laws of the State of New York.
67
Description of capital stock
The following is a summary of the rights of our common stock and
preferred stock and related provisions of our certificate of
incorporation and bylaws. Pursuant to our certificate of
incorporation, our authorized capital stock consists of
71,000,000 shares, of which:
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70,000,000 shares are
designated as common stock, each with a par value of
$0.662/3;
and
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1,000,000 shares are
designated as preferred stock, each with a par value of $1.00.
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COMMON STOCK
Each holder of common stock is entitled to one vote for each
share held of record on each matter submitted to a vote of
stockholders. Our stockholders currently may cumulate their
votes for the election of directors. Subject to preferences
which may be granted to the holders of preferred stock, each
holder of common stock is entitled to share ratably in
distributions to stockholders and to receive ratably such
dividends as may be declared by the Board of Directors out of
funds legally available, subject to any preferential dividend
rights of any outstanding preferred stock. In the event of our
liquidation, dissolution or winding up, each common stockholder
is entitled to share ratably in all our assets remaining after
payment of liabilities and the liquidation preference of any
shares of preferred stock that are outstanding at that time.
Holders of common stock have no conversion, preemptive or other
rights to subscribe for additional shares, and there are no
redemption rights or sinking fund provisions applicable to the
common stock. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected
by, the rights of holders of shares of any series of preferred
stock which we may designate and issue in the future without
further stockholder approval.
PREFERRED STOCK
Our Board of Directors is authorized to issue, without further
stockholder approval, shares of preferred stock in one or more
series, and may fix or alter the relative, participating,
optional or other rights, preferences, privileges and
restrictions, including the voting rights, redemption provisions
(including sinking fund provisions), dividend rights, dividend
rates, liquidation preferences and conversion rights, and the
description of and number of shares constituting any wholly
unissued series of preferred stock. Our Board of Directors,
without further stockholder approval, can issue preferred stock
with voting and conversion rights that could adversely affect
the voting power of the holders of common stock, including the
loss of voting control to the holder of preferred stock issued
in the future. No shares of preferred stock presently are
outstanding. The issuance of preferred stock in certain
circumstances may delay, defer or prevent a change in control of
us without further action by our stockholders, may discourage
bids for the common stock at a premium over the market price of
the common stock and may adversely affect the market price, and
the voting and other rights of the holders, of common stock.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE
LAW
Some provisions of Delaware law may be deemed to have an
anti-takeover effect and may delay or prevent a tender offer or
takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a
premium over the market price for the shares held by
stockholders.
68
Description of capital stock
Section 203 of Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law
prohibits certain transactions between a Delaware corporation
and an interested stockholder, which is defined as a
person who, together with any affiliates or associates,
beneficially owns, directly or indirectly, 15.0% or more of the
outstanding voting shares of a Delaware corporation. This
provision prohibits certain business combinations between an
interested stockholder and a Delaware corporation for a period
of three years after the date the stockholder becomes an
interested stockholder, unless:
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either the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder is approved by the corporations
board of directors prior to the date the interested stockholder
becomes an interested stockholder;
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the interested stockholder
acquired at least 85.0% of the voting stock of the corporation
(other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which the
stockholder became an interested stockholder; or
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the business combination is
approved by a majority of the board of directors and by the
affirmative vote of
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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For this purpose, business combinations include mergers,
consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10% of the aggregate market value
of the consolidated assets or outstanding stock of the
corporation, and certain transactions that would increase the
interested stockholders proportionate share ownership in
the corporation.
TRANSFER AGENT
The transfer agent and registrar for our common stock is
Continental Stock Transfer and Trust Company.
LISTING
Our common stock is listed on the Nasdaq Global Select Market
under the symbol DIOD.
69
Material U.S. federal income tax considerations
The following is a summary of the material U.S. federal
income tax considerations relating to the purchase, ownership
and disposition of the notes and the shares of our common stock
into which the notes may be converted, as of the date hereof.
This summary deals only with notes and shares of our common
stock held as capital assets by holders who acquire notes upon
their original issuance at the initial offering price.
Additionally, this summary does not deal with special
situations. For example, this summary does not address:
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tax consequences to holders who
may be subject to special tax treatment, such as dealers in
securities or currencies, financial institutions, regulated
investment companies, real estate investment trusts, United
States expatriates, tax-exempt entities, traders in securities
that elect to use a
mark-to-market method
of accounting for their securities or insurance companies; |
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tax consequences to persons
holding notes or shares of common stock as part of a hedging,
integrated, or conversion transaction or a straddle or persons
deemed to sell notes or shares of common stock under the
constructive sale provisions of the Internal Revenue Code of
1986, as amended (the Code);
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tax consequences to
U.S. holders of notes or shares of common stock whose
functional currency is not the U.S. dollar;
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tax consequences to partnerships
or other pass-through entities and investors in such entities; or
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alternative minimum tax
consequences, if any.
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Finally, this summary does not address other U.S. federal
tax consequences (such as estate and gift tax consequences) or
any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Code,
and regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in U.S. federal income tax consequences
different from those discussed below. Further, there can be no
assurances that the Internal Revenue Service (IRS)
will not challenge one or more of the tax consequences described
herein. This summary does not address all aspects of
U.S. federal income taxes and does not deal with all tax
consequences that may be relevant to holders in light of their
personal circumstances.
If a partnership holds our notes or shares of common stock, the
tax treatment of a partner in the partnership will generally
depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our
notes or shares of our common stock, you should consult your tax
advisor.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS
AND THE CONSEQUENCES OF U.S. FEDERAL ESTATE OR GIFT TAX
LAWS, FOREIGN, STATE AND LOCAL LAWS, AND TAX TREATIES.
CLASSIFICATION OF THE NOTES
Under the terms of the indenture governing the notes, we and
each holder of notes will agree (in the absence of
administrative pronouncement or judicial ruling to the contrary)
to treat the notes, for U.S. federal income tax purposes,
as debt instruments that are subject to the Treasury regulations
that govern contingent payment debt instruments (the
contingent debt regulations) and to be bound by our
application of the contingent debt regulations to the notes,
including our determination of the rate at which interest will
be deemed to accrue on the notes and the related projected
payment schedule
70
Material U.S. federal income tax considerations
(as defined below). The remainder of this discussion
describes the treatment of the notes in accordance with that
agreement and our determinations.
No authority directly addresses the treatment of all aspects of
the notes for U.S. federal income tax purposes. In
addition, no rulings are expected to be sought from the IRS with
respect to any of the U.S. federal income tax consequences
discussed below, and no assurance can be given that the IRS will
not take contrary positions. As a result, no assurance can be
given that the IRS will agree with the tax characterizations and
the tax consequences described below. A different treatment of
the notes for U.S. federal income tax purposes could
significantly alter the amount, timing, character, and treatment
of income, gain or loss recognized in respect of the notes from
that which is described below. In particular, a U.S. holder
might be required to accrue interest income at a rate different
from the comparable yield described below, might not
recognize income, gain or loss upon conversion of the notes to
the extent of common stock received, and might recognize capital
gain or loss upon a taxable disposition of its notes. Holders
should consult their tax advisors concerning the tax treatment
of holding the notes.
CONSEQUENCES TO U.S. HOLDERS
The following is a summary of the U.S. federal income tax
consequences that will apply to a U.S. holder of notes or
shares of our common stock. U.S. holder means a
beneficial owner of a note or common stock for U.S. federal
income tax purposes that is:
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an individual citizen or
resident of the United States;
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a corporation (or any other
entity treated as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia;
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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 (1) it is
subject to the primary supervision of a court within the United
States and one or more U.S. persons have the authority to
control all substantial decisions of the trust, or (2) it
has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a
U.S. person.
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Interest income
Under the contingent debt regulations, a U.S. holder
generally will be required to accrue interest income on the
notes on a constant yield to maturity basis based on the
adjusted issue price (as defined below) of the notes
and the comparable yield (as defined below),
regardless of whether the U.S. holder uses the cash or
accrual method of tax accounting. Accordingly, a
U.S. holder will be required to include interest in taxable
income in each year significantly in excess of the amount of
interest payments, including contingent interest payments,
actually received by it in that year.
The issue price of a note is the first price at
which a substantial amount of the notes is sold to investors,
excluding bond houses, brokers or similar persons or
organizations acting in the capacity or underwriters, placement
agents or wholesalers. The adjusted issue price of a
note on any particular date is its issue price increased by any
interest income previously accrued (determined without regard to
any adjustments to interest accruals described below) and
decreased by the amount of any noncontingent payments previously
made and the projected amount of any contingent payments
scheduled to be made on the note through the date on which the
adjusted issue price is being calculated (without regard to the
actual amount of the contingent payments made).
Under the contingent debt regulations, we are required to
establish the comparable yield for the notes. The
comparable yield for the notes is the annual yield we would
incur, as of the initial issue
71
Material U.S. federal income tax considerations
date, on a fixed rate nonconvertible debt instrument with no
contingent payments, but with terms and conditions otherwise
comparable to those of the notes. Accordingly, we have
determined the comparable yield to be 8.5% compounded
semi-annually.
We are required to provide to U.S. holders, solely for
U.S. federal income tax purposes, a schedule of the
projected amounts of payments on the notes. This schedule must
produce the comparable yield. Our determination of the projected
payment schedule for the notes includes estimates for payments
of contingent interest and an estimate for a payment at maturity
that takes into account the conversion feature.
U.S. holders may obtain the projected payment schedule by
submitting a written request for it to us at the address set
forth under Where you can find additional
information. By purchasing the notes, you agree in the
indenture to be bound by our determination of the comparable
yield and projected payment schedule. For U.S. federal
income tax purposes, you must use the comparable yield and
schedule of projected payments in determining your interest
accruals, and adjustments thereto described below, in respect of
the notes.
The precise manner of calculating the comparable yield and
projected payment schedule is not entirely clear under the
contingent debt regulations. If the comparable yield or
projected payment schedule were successfully challenged by the
IRS, the redetermined comparable yield or projected payment
schedule could differ materially from the comparable yield or
projected payment schedule provided by us.
The comparable yield and the projected payment schedule are
solely for purposes of determining a U.S. holders
interest accruals and adjustments thereof in respect of the
notes for U.S. federal income tax purposes and do not
constitute a projection or representation regarding the actual
amounts payable to U.S. holders of the notes.
Adjustments to interest accruals on the notes
If a U.S. holder receives actual contingent payments with
respect to the notes in a tax year that in the aggregate exceed
the total amount of projected contingent payments for that tax
year, the U.S. holder will have a net positive
adjustment equal to the amount of such excess. The
U.S. holder will be required to treat the net
positive adjustment as additional interest income for the
tax year. For this purpose, the payments in a tax year include
the fair market value of any property received in that year.
If a U.S. holder receives actual contingent payments with
respect to the notes in a tax year that in the aggregate are
less than the amount of the projected contingent payments for
that tax year, the U.S. holder will have a net
negative adjustment equal to the amount of such deficit.
This adjustment will (a) reduce the U.S. holders
interest income accrual on the notes for that tax year, and
(b) to the extent of any excess after the application of
(a), give rise to an ordinary loss to the extent of the
U.S. holders interest income accrued on the notes
during prior tax years, reduced to the extent such interest
income was offset by prior net negative adjustments. Any
negative adjustment in excess of the amounts described in
(a) and (b) will be carried forward to offset future
interest income in respect of the notes or to reduce the amount
realized upon a sale, exchange, repurchase or redemption of the
notes.
Sale, exchange, conversion, repurchase, or redemption
Generally, the sale, exchange, repurchase, or redemption of a
note will result in gain or loss to a U.S. holder, which
will be subject to tax. As described above, our calculation of
the comparable yield and the schedule of projected payments for
the notes includes the receipt of shares of our common stock
upon conversion as a contingent payment with respect to the
notes. Accordingly, we intend, and each holder agrees in the
indenture, to treat the payment of shares of our common stock to
a U.S. holder upon the conversion of a note as a contingent
payment under the contingent debt
72
Material U.S. federal income tax considerations
regulations. As described above, U.S. holders generally are
bound by our determination of the comparable yield and the
schedule of projected payments. Under this treatment, a
conversion also will result in taxable gain or loss to a
U.S. holder. The amount of gain or loss on a taxable sale,
exchange, conversion, repurchase, or redemption will be equal to
the difference between (a) the amount of cash plus the fair
market value of any other property received by the
U.S. holder, including the fair market value of any shares
of our common stock received, reduced by any negative adjustment
carryforward (as described above under Adjustments to
interest accruals on the notes), and (b) the
U.S. holders adjusted tax basis in the note. A
U.S. holders adjusted tax basis in a note on any date
generally will be equal to its adjusted issue price, as
described above under Interest Income, on such
date.
Gain recognized upon a sale, exchange, conversion, repurchase,
or redemption of a note generally will be treated as additional
ordinary interest income. Any loss recognized upon a sale,
exchange, conversion, repurchase, or redemption of a note will
be treated as an ordinary loss to the extent of the excess of
previous interest inclusions over the total net negative
adjustments previously taken into account as ordinary loss, and
thereafter, as capital loss (which will be long-term if the note
is held for more than one year). The deductibility of capital
losses is subject to limitations.
A U.S. holders tax basis in shares of our common
stock received upon a conversion of a note will equal the fair
market value of the common stock received at the time of
conversion. The U.S. holders holding period for the
shares of our common stock received will commence on the day
immediately following the date of conversion.
In certain situations, we may be obligated to adjust the
conversion rate of the notes or, in lieu of such adjustment,
provide for the conversion of the notes into shares of a public
acquirer (as described above under Description of
notes Conversion Rights Fundamental changes
involving an acquisition of us by a public acquirer).
Depending on the circumstances, such adjustments could result in
a deemed taxable exchange to a holder and the modified note
could be treated as newly issued at that time.
Constructive distributions
The conversion rate of the notes will be adjusted in certain
circumstances, such as a stock split or stock dividend, a
distribution of cash or other assets to our stockholders
(including certain self-tender transactions), and certain
transactions that constitute a fundamental change. See
Description of notes Conversion rate
adjustments and Description of notes
Conversion rights Adjustments to shares delivered upon
conversion upon certain fundamental changes Under
Section 305(c) of the Code, adjustments (or failures to
make adjustments) that have the effect of increasing a
holders proportionate interest in our assets or earnings
may in some circumstances result in a deemed distribution to a
holder. Adjustments to the conversion rate made pursuant to a
bona fide reasonable adjustment formula that has the effect of
preventing the dilution of the interest of the holders of the
notes, however, will generally not be considered to result in a
deemed distribution. Conversion rate adjustments arising from a
stock split or a stock dividend are generally considered to be
pursuant to a bona fide reasonable adjustment formula and thus
will not give rise to a deemed dividend. However, certain of the
possible conversion rate adjustments (generally including
adjustments to the conversion rate to compensate holders for
distributions of cash or property to our stockholders) will not
qualify as being pursuant to a bona fide reasonable adjustment
formula. If such adjustments are made, the U.S. holders of
notes will be deemed to have received a distribution even though
they have not received any cash or property as a result of such
adjustments. Conversely, if an event occurs that increases the
interests of holders of the notes and the conversion rate is not
adjusted (or not adequately adjusted), the resulting increase in
the proportionate interests of holders of the notes could be
treated as a taxable stock dividend to such holders.
73
Material U.S. federal income tax considerations
It is unclear whether any such constructive dividend would be
eligible for the preferential rates of U.S. federal income
tax currently applicable to certain dividends received by
noncorporate holders. It is also unclear whether a corporate
holder would be entitled to claim the dividends received
deduction with respect to a constructive dividend. Any taxable
constructive stock dividends resulting from a change to, or a
failure to change, the conversion rate would in other respects
be treated in the same manner as dividends paid in cash or other
property. These dividends would result in dividend income to the
recipient, to the extent of our current or accumulated earnings
and profits, with any excess treated as a nontaxable return of
capital or as capital gain as more fully described below.
Holders should carefully review the conversion rate adjustment
provisions and consult their tax advisors with respect to the
tax consequences of any such adjustment, including any potential
consequences of a taxable stock dividend to basis and holding
period.
Distributions on the common stock
If a U.S. holder is issued common stock upon conversion of
a note and we make a distribution in respect of that stock, the
distribution generally will be treated as a dividend to the
extent it is paid from current or accumulated earnings and
profits, as determined under U.S. federal income tax
principles. If the distribution exceeds current and accumulated
earnings and profits, the excess will be treated as a nontaxable
return of capital reducing the U.S. holders tax basis
in the U.S. holders common stock to the extent of the
U.S. holders tax basis in that stock. Any remaining
excess will be treated as capital gain from the sale or exchange
of the common stock. Dividends received by individual holders
generally will be subject to a reduced maximum tax rate of 15%
through December 31, 2010, after which the rate applicable
to dividends is scheduled to return to the tax rate generally
applicable to ordinary income. The rate reduction will not apply
to dividends received to the extent that the U.S. holder
elects to treat dividends as investment income,
which may be offset by investment expense. Furthermore, the rate
reduction also will not apply to dividends that are paid to a
U.S. holder with respect to shares of our common stock that
are held by such holder for less than 61 days during the
121-day period
beginning on the date that is 60 days before the date on
which the shares of our common stock became ex-dividend with
respect to such dividend.
U.S. holders should consult their tax advisors regarding
the holding period and other requirements that must be satisfied
in order to qualify for the reduced maximum tax rate on
dividends.
Sale, exchange, redemption or other disposition of common
stock
A U.S. holder will generally recognize capital gain or loss
on a sale or exchange of our common stock. The
U.S. holders gain or loss will equal the difference
between the proceeds received by the U.S. holder and the
U.S. holders tax basis in the stock. The amount
realized by the U.S. holder will include the amount of any
cash and the fair market value of any other property received
for the stock. Gain or loss recognized by a U.S. holder on
a sale or exchange of stock generally will be long-term capital
gain or loss if the holder held the stock for more than one
year. Long-term capital gains of non-corporate taxpayers are
generally taxed at lower rates than those applicable to ordinary
income. Short-term capital gains are taxed at ordinary income
rates. The deductibility of capital losses is subject to certain
limitations.
Information reporting and backup withholding
When required, we or our paying agent will report to the holders
of the notes and our common stock and the IRS amounts paid on or
with respect to the notes and the common stock during each
calendar year (including proceeds from the sale of a note or
share of common stock) and the amount of tax, if any, withheld
from such payments. A U.S. holder will be subject to backup
withholding on interest payments made on the notes and dividends
paid on the common stock and proceeds from the sale of
74
Material U.S. federal income tax considerations
the common stock or the notes (including a redemption or
retirement) at the applicable rate (which is currently 28%) if
the U.S. holder (a) fails to provide us or our paying
agent with a correct taxpayer identification number or
certification of exempt status (such as a certification of
corporate status), (b) has been notified by the IRS that it
is subject to backup withholding as a result of the failure to
properly report payments of interest or dividends, or
(c) in certain circumstances, has failed to certify under
penalty of perjury that it is not subject to backup withholding.
A U.S. holder may be eligible for an exemption from backup
withholding by providing a properly completed IRS
Form W-9 to us or
our paying agent. Any amounts withheld under the backup
withholding rules will generally be allowed as a refund or a
credit against a U.S. holders U.S. federal
income tax liability provided the required information is
properly furnished to the IRS on a timely basis.
CONSEQUENCES TO
NON-U.S. HOLDERS
The following is a summary of the U.S. federal income tax
consequences that will apply to you if you are a
non-U.S. holder of
notes or shares of common stock. The term
non-U.S. holder
means a beneficial owner of a note or shares of common stock
that is, for U.S. federal income tax purposes, an
individual, corporation, trust or estate that is not a
U.S. holder. Special rules may apply to certain
non-U.S. holders
such as controlled foreign corporations or
passive foreign investment companies. Such entities
should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that
may be relevant to them.
Notes
All payments on the notes made to a
non-U.S. holder,
including a payment in our common stock pursuant to a
conversion, and any gain realized on a sale or exchange of the
notes, will be exempt from United States income and withholding
tax, provided that: (i) the
non-U.S. holder
does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of our stock entitled
to vote, (ii) the
non-U.S. holder is
not a controlled foreign corporation related, directly or
indirectly, to us through stock ownership, (iii) the
non-U.S. holder is
not a bank receiving certain types of interest, (iv) the
beneficial owner of the notes certifies, under penalties of
perjury, to us or our paying agent on IRS Form W-8BEN (or
appropriate substitute form) that it is not a United States
person and provides its name, address and certain other required
information or certain other certification requirements are
satisfied, (v) the payments and gain are not effectively
connected with the conduct by the
non-U.S. holder of
a trade or business in the United States, and (vi) to the
extent the payments on the notes are described in
section 871(h)(4)(A)(i), our common stock continues to be
actively traded within the meaning of
section 871(h)(4)(C)(v)(I) of the Code and we have not been
a U.S. real property holding corporation, as defined in the
Code, at any time within the five-year period preceding the
disposition or the
non-U.S. holders
holding period, whichever is shorter. We believe that we are
not, and do not anticipate becoming, a U.S. real property
holding corporation.
If a
non-U.S. holder
cannot satisfy the requirements described above, payments of
interest (including accrued interest) will be subject to the 30%
U.S. federal withholding tax, unless you provide us with a
properly executed (1) IRS Form W-8BEN (or appropriate
substitute form) claiming an exemption from or reduction in
withholding under the benefit of an applicable income tax treaty
or (2) IRS Form W-8ECI (or appropriate substitute
form) stating that interest (including accrued interest) paid on
the notes is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business
in the United States.
If a
non-U.S. holder of
a note were deemed to have received a constructive distribution
(see U.S. Holders Constructive
Distributions above), however, the
non-U.S. holder
generally would be subject to United States withholding tax at a
30% rate on the amount treated as a dividend, thereby
potentially reducing the amount of interest payable to it,
subject to reduction (i) by an applicable
75
Material U.S. federal income tax considerations
treaty if the
non-U.S. holder
provides an IRS Form W-8BEN (or appropriate substitute
form) certifying that it is entitled to such treaty benefits or
(ii) upon the receipt of an IRS Form W-8ECI (or
appropriate substitute form) from a non-US. holder claiming that
the constructive dividend on the notes is effectively connected
with the conduct of a United States trade or business.
If we pay any withholding taxes on behalf of a holder in the
case of a constructive distribution with respect to the notes,
we may reduce any payments to such holder of cash or shares of
common stock (including any common stock to be paid upon
conversion) on the notes by the amounts of any such withholding
taxes paid.
Common stock
Dividends paid to a
non-U.S. holder of
common stock generally will be subject to withholding tax at a
30% rate subject to reduction (a) by an applicable treaty
if the
non-U.S. holder
provides an IRS Form W-8BEN (or appropriate substitute
form) certifying that it is entitled to treaty benefits or
(b) upon the receipt of an IRS Form W-8ECI (or
appropriate substitute form) from a
non-U.S. holder
claiming that the payments are effectively connected with the
conduct of a United States trade or business.
A non-U.S. holder
generally will not be subject to U.S. federal income tax on
gain realized on the sale or exchange of the common stock
received upon a conversion of notes unless (a) the gain is
effectively connected with the conduct of a United States trade
or business of the
non-U.S. holder,
(and, if required by an applicable income tax treaty, is
attributable to a U.S. permanent establishment) (b) in
the case of a
non-U.S. holder
who is a nonresident alien individual, the individual is present
in the United States for 183 or more days in the taxable year of
the disposition and certain other conditions are met, or
(c) we will have been a U.S. real property holding
corporation at any time within the shorter of the five-year
period preceding the sale or exchange and the
non-U.S. holders
holding period in the common stock. We believe that we are not,
and do not anticipate becoming, a U.S. real property
holding corporation.
Income effectively connected with a United States trade or
business
If a
non-U.S. holder of
notes or our common stock is engaged in a trade or business in
the United States, and if interest on the notes, dividends on
our common stock, or gain realized on the sale, exchange,
conversion, or other disposition of the notes or gain realized
on the sale or exchange of our common stock is effectively
connected with the conduct of this trade or business (and, if
required by an applicable income tax treaty, is attributable to
a U.S. permanent establishment), the
non-U.S. holder,
although exempt from the withholding tax in the manner discussed
in the preceding paragraphs, provided that the appropriate
certifications are made generally will be subject to regular
U.S. federal income tax on the interest, dividends or gain
in the same manner as if it were a U.S. holder. In
addition, if a
non-U.S. holder is
a foreign corporation, the
non-U.S. holder
may be subject to a branch profits tax equal to 30% (or lower
rate provided by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to
certain adjustments.
Information reporting and backup withholding
Generally, we must report to the IRS and to
non-U.S. holders
the amount of interest and dividends paid to the holder and the
amount of tax, if any, withheld with respect to those payments.
Copies of the information returns reporting such interest and
dividend payments and any withholding may also be made available
to the tax authorities in the country in which the holder
resides under the provisions of an applicable income tax treaty.
76
Material U.S. federal income tax considerations
In general, a
non-U.S. holder
will not be subject to backup withholding with respect to
payments of interest or dividends that we make to the holder if
the
non-U.S. holder
complies with applicable certification requirements or otherwise
establishes an exemption. A
non-U.S. holder
will be subject to information reporting and, depending on the
circumstances, backup withholding with respect to the proceeds
of the sale or other disposition (including a redemption or
retirement) of a note or shares of our common stock within the
United States or conducted through certain
U.S.-related payors,
unless the payor of the proceeds receives the certification
described above or the holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against a holders
U.S. federal income tax liability provided the required
information is furnished to the IRS.
77
Underwriting
We are offering the notes described in this prospectus through
the underwriters named below. UBS Securities LLC is the
representative of the underwriters. We have entered into an
underwriting agreement with the representative on behalf of the
underwriters. Subject to the terms and conditions of the
underwriting agreement, each of the underwriters has severally
agreed to purchase the principal amount of notes listed next to
its name in the following table:
|
|
|
|
|
|
|
|
Principal amount | |
Underwriters |
|
of notes | |
| |
UBS Securities LLC
|
|
$ |
164,000,000 |
|
A.G. Edwards & Sons, Inc.
|
|
|
12,000,000 |
|
C.E. Unterberg, Towbin, LLC
|
|
|
12,000,000 |
|
Raymond James & Associates, Inc.
|
|
|
12,000,000 |
|
|
|
|
|
|
Total
|
|
$ |
200,000,000 |
|
|
|
|
|
The underwriting agreement provides that the underwriters must
buy all of the notes if they buy any of them. However, the
underwriters are not required to take or pay for the notes
covered by the underwriters over-allotment option
described below.
The notes are offered subject to a number of conditions,
including:
|
|
Ø |
receipt and acceptance of the
notes by the underwriters; and
|
|
Ø |
the underwriters right to
reject orders in whole or in part.
|
In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option to buy up to
$30,000,000 additional aggregate principal amount of notes. The
underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with this
offering. If the underwriters exercise this option, they will
each purchase an additional principal amount of notes
approximately in proportion to the amounts specified in the
table above. Such additional notes may be purchased at any time
during the 13-day
period beginning with, and including, the date of initial
issuance of the notes.
COMMISSIONS AND DISCOUNTS
Notes sold by the underwriters to the public will initially be
offered at the offering price set forth on the cover of this
prospectus. Any notes sold by the underwriters to securities
dealers may be sold at a discount from the public offering price
of up to 1.575% of the principal amount of notes. Any of these
securities dealers may resell any notes purchased from the
underwriters to other brokers or dealers at a discount from the
public offering price of up to 0.3% of the principal amount of
notes. Sales of notes made outside of the United States may be
made by affiliates of the underwriters. If all the notes are not
sold at the public offering price, the representatives may
change the offering price and the other selling terms. Upon
execution of the underwriting agreement, the underwriters will
be obligated to purchase the notes at the prices and upon the
terms stated therein and, as a result, will thereafter bear any
risk associated with changing the offering price to the public
or other selling terms.
78
Underwriting
The following table shows the per note (expressed as a
percentage of the principal amount of notes) and total
underwriting discounts and commissions we will pay to the
underwriters, assuming both no exercise and full exercise of the
underwriters option to purchase up to an additional
$30,000,000 aggregate principal amount of notes:
|
|
|
|
|
|
|
|
|
|
|
|
No exercise | |
|
Full exercise | |
| |
Per note
|
|
|
2.625 |
% |
|
|
2.625 |
% |
|
Total
|
|
$ |
5,250,000 |
|
|
$ |
6,037,500 |
|
We estimate that the total expenses of this offering payable by
us, not including the underwriting discounts and commissions,
will be approximately $501,410. The underwriters have agreed to
reimburse us, under certain circumstances, for a portion of our
out-of-pocket expenses
in connection with this offering.
In compliance with NASD guidelines, the maximum commission or
discount to be received by any NASD member or independent
broker-dealer may not exceed 8% of the aggregate amount of the
securities offered pursuant to this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and LSC, our largest
stockholder, have entered into
lock-up agreements with
the underwriters. Under these agreements, we and each of these
persons may not, without the prior written approval of UBS
Securities LLC, subject to limited exceptions, offer, sell,
contract or agree to sell, hypothecate, pledge, grant any option
to purchase or otherwise dispose of or agree to dispose of or
enter into any swap or other arrangement that transfers to
another any economic consequences of ownership of the notes
offered hereby, our common stock, any debt securities that are
substantially similar to the notes offered hereby, debt
securities or other securities that are substantially similar to
our common stock, or securities convertible into or exercisable
or exchangeable for or warrants or other rights to purchase the
notes offered hereby, our common stock and other such
securities. These restrictions will be in effect for a period of
90 days after the date of this prospectus. At any time and
without public notice, UBS Securities LLC may in its sole
discretion release all or some of the securities from these
lock-up agreements.
Notwithstanding the foregoing, if (1) during the last 15
calendar days plus the three business days of the
90-day
lock-up period we issue
an earnings release or material news or a material event
relating to us occurs or (2) prior to the expiration of the
90-day
lock-up period, we
announce that we will release earnings results during the
16-day period beginning
on the last day of the
90-day
lock-up period, then
the restrictions described above will continue to apply until
the expiration of the 15-calendar-day-plus-three-business-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
INDEMNIFICATION AND CONTRIBUTION
We have agreed to indemnify the underwriters and their
controlling persons against certain liabilities, including
liabilities under the Securities Act. If we are unable to
provide this indemnification, we will contribute to payments the
underwriters and their controlling persons may be required to
make in respect of those liabilities.
NASDAQ GLOBAL SELECT MARKET QUOTATION
Our common stock is quoted on The Nasdaq Global Select Market
under the symbol DIOD.
The notes are a new issue of securities with no established
market. We do not intend to apply for the notes to be listed on
any securities exchange or to arrange for the notes to be quoted
on any
79
Underwriting
quotations system. We have been advised by the underwriters that
the underwriters intend to make a market in the notes but none
of the underwriters is obligated to do so and may discontinue
market making at any time without notice. No assurance can be
given as to the liquidity of the trading market, if any, for the
notes.
PRICE STABILIZATION, SHORT POSITIONS, PASSIVE MARKET
MAKING
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of the notes and our common stock, including:
|
|
Ø |
stabilizing transactions;
|
|
Ø |
short sales;
|
|
Ø |
purchases to cover positions
created by short sales;
|
|
Ø |
imposition of penalty bids;
|
|
Ø |
syndicate covering transactions;
and
|
|
Ø |
passive market making.
|
Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of the notes while this offering is in progress. These
transactions may also include making short sales of the notes,
which involve the sale by the underwriters of a greater
aggregate principal amount of notes than they are required to
purchase in this offering. Short sales may be covered
short sales, which are short positions in an amount not
greater than the underwriters over-allotment option
referred to above, or may be naked short sales,
which are short positions in excess of that amount.
The underwriters may close out any covered short position either
by exercising their over-allotment option, in whole or in part,
or by purchasing notes in the open market. In making this
determination, the underwriters will consider, among other
things, the price of notes available for purchase in the open
market compared to the price at which they may purchase notes
through the over-allotment option.
Naked short sales are in sales in excess of the over-allotment
option. The underwriters must close out any naked short position
by purchasing notes in the open market. A naked short position
is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the notes in
the open market that could adversely affect investors who
purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representative has repurchased notes sold by or for the account
of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of the notes may be
higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions in the
over-the-counter market
or otherwise.
AFFILIATIONS
The underwriters and their affiliates have provided and may
provide in the future certain commercial banking, financial
advisory and investment banking services for us, including in
connection with
80
Underwriting
acquisitions, for which they receive fees. One of our directors,
Mr. Giordano, is an employee of UBS Financial Services
Inc., an affiliate of UBS Securities, LLC, one of the
underwriters. In that capacity, Mr. Giordano is the pension
consultant for our 401(k) plan. In addition, Mr. Giordano
has from time to time provided assistance to our directors,
executive officers and employees in connection with stock option
exercises and subsequent sales of our common stock, and has
provided them with investment management services.
The underwriters and their affiliates may from time to time in
the future engage in transactions with us and perform services
for us in the ordinary course of their business.
81
Legal matters
The validity of the notes offered hereby, will be passed upon
for us by Sheppard Mullin Richter & Hampton LLP, Los
Angeles, California. Certain legal matters in connection with
the notes will be passed upon for the underwriters by Simpson
Thacher & Bartlett LLP, Palo Alto, California.
Independent registered public accounting firm
The consolidated financial statements and schedule of Diodes as
of December 31, 2004 and 2005 and for each of the three
years in the period ended December 31, 2005 and
managements report on the effectiveness of internal
control over financial reporting as of December 31, 2005,
which are included in our Annual Report on
Form 10-K for the
fiscal year ended December 31, 2005 and incorporated by
reference in this prospectus, have been audited by Moss Adams
LLP, independent registered public accounting firm, as set forth
in their reports thereon, which are incorporated herein by
reference, and are so incorporated in reliance upon such
reports, given on the authority of such firm as experts in
auditing and accounting.
Where you can find additional information
We have filed with the SEC a registration statement on
Form S-3,
including exhibits, schedules and any amendments with respect to
the notes being offered hereby and the shares of common stock
issuable upon conclusion thereof. This prospectus is a part of
the registration statement and includes all of the information
which we believe is material to you in considering whether to
make an investment in our notes or common stock. We refer you to
the registration statement for additional information about us,
our notes, our common stock and this offering, including the
full texts of the exhibits, some of which have been summarized
in this prospectus. Statements contained in this prospectus as
to the contents of any contract or any other document referred
to are not necessarily complete. With respect to each such
contract or other document filed as a part of the registration
statement, reference is made to the exhibit for a more complete
description of the matters involved, and each such statement
shall be deemed qualified in its entirety by such reference. The
registration statement is available for inspection and copying
at the SECs Public Reference Room at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. The public may
obtain information about the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330. In
addition, the SEC maintains an Internet site that makes
available the registration statement. The address of the
SECs Internet site is www.sec.gov. We are required
to file reports and other information with the SEC pursuant to
the informational requirements of the Exchange Act.
82
Incorporation of certain documents by reference
We will incorporate by reference information into
this prospectus by disclosing important information to you by
referring you to another document that is filed separately with
the SEC. The information incorporated by reference is deemed to
be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede that
information. This prospectus incorporates by reference the
documents set forth below that have been previously filed with
the SEC. These documents contain important information about us.
|
|
Ø |
Our annual report on
Form 10-K for the
fiscal year ended December 31, 2005, including the
information incorporated therein from the proxy statement for
our 2006 annual meeting of stockholders); |
|
Ø |
Our quarterly reports on
Form 10-Q for the
fiscal quarters ended March 31, 2006 and June 30,
2006; and |
|
Ø |
Our current reports on
Form 8-K, filed on
January 12, 2006, July 14, 2006 (except Item 7.01
which is furnished to, but not filed with, the SEC) and
September 26, 2006. |
We are also incorporating by reference additional documents that
we file with the SEC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, between the date of this
prospectus until the offering is terminated; provided, however,
that nothing contained herein shall be deemed to incorporate
information furnished to, but not filed with, the SEC.
You may obtain any of the documents incorporated by reference
through the SEC at the address indicated above or through the
SECs website as described above. We will provide without
charge to each person, including any beneficial owner, to whom a
copy of this prospectus has been delivered, a copy of any and
all of these filings, other than exhibits (unless the
exhibit is specifically incorporated by reference into the
information that this prospectus incorporates). You may make a
written request for a copy of these filings by contacting us at:
Diodes Incorporated
3050 E. Hillcrest Drive
Westlake Village, CA 91362
Attn: Carl C. Wertz
83
2.25% Convertible Senior Notes due 2026
PROSPECTUS
October 5, 2006