Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-50572
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 15, 2001)
12,000,000 Shares
[ARROW LOGO]
Arrow Electronics, Inc.
COMMON STOCK
---------------------
WE ARE OFFERING 12,000,000 SHARES OF OUR COMMON STOCK.
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OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"ARW." ON FEBRUARY 19, 2004, THE REPORTED LAST SALE PRICE OF OUR COMMON STOCK ON
THE NEW YORK STOCK EXCHANGE WAS $24.65 PER SHARE.
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PRICE $23.50 A SHARE
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO ARROW
PRICE TO PUBLIC COMMISSIONS ELECTRONICS, INC.(1)
--------------- ------------- --------------------
Per Share................................ $23.50 $.8225 $22.6775
Total.................................... $282,000,000 $9,870,000 $272,130,000
---------------
(1) Before deducting estimated expenses of approximately $350,000 payable by us.
We have granted the underwriters the right to purchase up to an additional
1,800,000 shares of our common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of our common stock to purchasers
on February 25, 2004.
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MORGAN STANLEY CREDIT SUISSE FIRST BOSTON GOLDMAN, SACHS & CO.
---------------------
BANC OF AMERICA SECURITIES LLC JPMORGAN
February 19, 2004
In making your investment decision, you should rely only on the information
contained in or incorporated by reference in this prospectus supplement and the
accompanying prospectus. We and the underwriters have not authorized anyone to
provide you with any additional information. If you receive any other
information, you should not rely on it. Any statement contained in this
prospectus supplement will be deemed to modify and supersede any previous
statement contained or incorporated by reference in the accompanying prospectus.
This prospectus supplement and accompanying prospectus do not constitute an
offer to sell, or the solicitation of an offer to buy, the shares offered by
this prospectus supplement and the accompanying prospectus in any jurisdiction
where the offer or sale is not permitted. Neither the delivery of this
prospectus supplement and the accompanying prospectus nor any distribution of
shares pursuant to this prospectus supplement and the accompanying prospectus
shall, under any circumstances, create any implication that there has been no
change in the information set forth in or incorporated by reference into this
prospectus supplement and the accompanying prospectus or in our affairs since
the date of this prospectus supplement.
As used in this prospectus supplement, the terms "Arrow," the "Company,"
"we," "us" and "our" refer to Arrow Electronics, Inc. and its subsidiaries,
unless the context indicates otherwise.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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PAGE
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Prospectus Supplement Summary........ S-3
Use of Proceeds...................... S-10
Price Range of Common Stock and
Dividend Policy.................... S-10
Capitalization....................... S-11
Selected Historical Financial Data... S-12
Underwriters......................... S-14
Validity of the Common Stock......... S-15
Experts.............................. S-15
Forward-Looking Information.......... S-16
Incorporation of Certain Documents by
Reference.......................... S-16
PROSPECTUS
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PAGE
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About this Prospectus................ 2
Where You Can Find More Information.. 2
Forward-Looking Statements........... 3
Arrow Electronics, Inc............... 3
Use of Proceeds...................... 4
Consolidated Ratios of Earnings to
Fixed Charges...................... 4
Description of Debt Securities....... 5
Description of Capital Stock......... 22
Description of Warrants.............. 24
Plan of Distribution................. 25
Validity of Securities............... 26
Experts.............................. 26
S-2
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this prospectus
supplement, the accompanying prospectus and the documents that we have
incorporated by reference and may not contain all the information that is
important to you. As a result, it does not contain all of the information that
you should consider before investing in our common stock. You should read the
following summary together with the more detailed information and financial
statements and notes to the financial statements contained elsewhere or
incorporated by reference in this prospectus supplement or the accompanying
prospectus, as described under the headings "Incorporation of certain documents
by reference" in this prospectus supplement and "Where you can find more
information" in the accompanying prospectus. To fully understand this offering,
you should read all these documents. Unless otherwise indicated, the information
in this prospectus supplement and the accompanying prospectus assumes the
underwriters have not exercised their over-allotment option.
ARROW ELECTRONICS, INC.
We are one of the world's largest providers of electronic components and
computer products to industrial and commercial customers and a leading provider
of services, including materials planning, programming and assembly services,
inventory management, a suite of online supply chain tools and design services
to the electronics industry. We believe we are one of the electronics
distribution industry's leaders in operating systems, employee productivity,
value-added programs, and total quality assurance. We are a leading distributor
for over 600 suppliers.
Our global distribution network spans the world's three largest electronics
markets--the Americas, Europe, and the Asia/Pacific region. We serve a
diversified base of original equipment manufacturers (OEMs), contract
manufacturers (CMs), and commercial customers worldwide. OEMs include
manufacturers of computer and office products, industrial equipment (including
machine tools, factory automation, and robotic equipment), telecommunications
products, aircraft and aerospace equipment, and scientific and medical devices.
Commercial customers are mainly value-added resellers and OEMs of computer
systems. We maintain over 200 sales facilities and 18 distribution centers in 41
countries and territories as of December 31, 2003. Through this network, we can
offer one of the broadest product offerings in the industry and a wide range of
value-added services to help customers reduce their time to market, lower their
total cost of ownership, and enhance their overall competitiveness.
We distribute a broad range of electronic components, computer products,
and related equipment. In 2003, about 54% of our consolidated sales were
comprised of semiconductor products. Industrial and commercial computer
products, including servers, workstations, storage products, microcomputer
boards and systems, design systems, desktop computer systems, software,
monitors, printers, flat panel displays, system chassis and enclosures,
controllers, and communication control equipment, account for about 29% of 2003
sales. The remaining sales are comprised of passive, electromechanical and
interconnect products, principally capacitors, resistors, potentiometers, power
supplies, relays, switches, and connectors.
Most suppliers of electronic components and computer products rely on
authorized distributors, such as us, to augment their sales and marketing
operations. As a stocking, marketing, and financial intermediary, the
distributor relieves suppliers of a portion of the costs and personnel
associated with stocking and selling their products (including otherwise sizable
investments in finished goods inventories, account receivable systems, and
distribution networks), while providing geographically dispersed selling, order
processing, and delivery capabilities. At the same time, the distributor offers
a broad range of customers the convenience of accessing from a single source
multiple products from multiple suppliers and rapid or scheduled deliveries, as
well as other value-added services such as kitting and memory programming
capabilities. The growth of the electronics distribution industry has been
fostered by the many suppliers who recognize their authorized distributors as
essential extensions of their marketing organizations.
S-3
We serve over 150,000 industrial and commercial customers as of December
31, 2003. Industrial customers range from major OEMs and CMs to small
engineering firms, while commercial customers include principally value-added
resellers and OEMs. No single customer accounted for more than 2% of our 2003
sales.
Most of our customers require delivery of the products they have ordered on
schedules that are generally not available on direct purchases from suppliers,
and frequently their orders are of insufficient size to be placed directly with
suppliers.
The electronic components and other products that we offer are sold by
field sales representatives, who regularly call on customers in assigned market
areas, and by telephone from our selling locations, by inside sales personnel
with access to pricing and stocking data provided by computers which accept and
process orders. Each of our North American selling locations, warehouses, and
primary distribution centers is electronically linked to our central computer
system, which provides fully integrated, online, real-time data with respect to
national inventory levels and facilitates control of purchasing, shipping, and
billing. Our international operations have similar online, real-time computer
systems and they can access our Worldwide Stock Check System, which provides
access to our online, real-time inventory system.
We sell products of over 600 suppliers. We do not regard any one supplier
of products to be essential to our operations and believe that many of the
products presently sold by us are available from other sources at competitive
prices. Most of our purchases are pursuant to authorized distributor agreements
which are typically cancelable by either party at any time or on short notice.
Approximately 61% of our inventory consists of semiconductors. It is the
policy of most suppliers to protect authorized distributors, such as us, against
the potential write-down of such inventories due to technological change or
suppliers' price reductions. Under the terms of the related distributor
agreements, and assuming the distributor complies with certain conditions, such
suppliers are required to credit the distributor for inventory losses incurred
through reductions in suppliers' list prices of the items. In addition, under
the terms of many such agreements, the distributor has the right to return to
the supplier for credit a defined portion of those inventory items purchased
within a designated period of time.
A supplier who elects to terminate a distributor agreement is generally
required to purchase from the distributor the total amount of its products
carried in inventory. As of December 31, 2003, this type of repurchase
arrangement covered approximately 85% of our inventory. While these industry
practices do not wholly protect us from inventory losses, we believe that they
currently provide substantial protection from such losses.
Our business is extremely competitive, particularly with respect to prices,
franchises, and, in certain instances, product availability. We compete with
several other large multi-national, national, and numerous regional and local
distributors. As one of the world's largest electronics distributors, we believe
our financial resources and sales are greater than most of our competitors.
We are a New York corporation with our principal offices located at 50
Marcus Drive, Melville, New York 11747. Our telephone number is (631) 847-2000.
We also have a website located at www.arrow.com. We have included our website
address as an inactive textual reference and do not intend it to be an active
link to our website. The information that appears on our website is not part of
this prospectus supplement or the accompanying prospectus.
S-4
RECENT DEVELOPMENTS
On February 17, 2004, we reported fourth quarter 2003 net income of $26.0
million ($.26 per share) on sales of $2.48 billion, compared with net income of
$7.6 million ($.08 per share) on sales of $1.89 billion in the fourth quarter of
2002. Our results for the fourth quarter of 2003 and 2002 include a number of
items outlined below that impact their comparability. Excluding those items, net
income for the quarter ended December 31, 2003 would have been $32.6 million
($.33 and $.31 per share on a basic and diluted basis, respectively) and net
income for the quarter ended December 31, 2002 would have been $8.9 million
($.09 per share).
Consolidated operating income, excluding the items impacting comparability,
was up 45% sequentially and up 83% over last year's fourth quarter, marking the
fifth consecutive sequential increase and the fourth consecutive year-on-year
quarterly increase. Operating income, excluding these items, as a percentage of
sales increased by 60 basis points sequentially and 90 basis points
year-on-year, marking the third consecutive increase for both.
In the fourth quarter, we generated over $151 million in cash flow from
operations and took further steps to strengthen our balance sheet by once again
purchasing debt prior to maturity. During the quarter, we paid $14.1 million to
repurchase a portion of our zero coupon bonds and repaid $192 million of senior
notes maturing in October 2003. Total cash flow from operations generated since
December 31, 2000 is $2.6 billion. During the same time, we reduced our net debt
from $3.5 billion to $1.4 billion.
Worldwide components sales of $1.78 billion were up 13% from $1.58 billion
in the September quarter and up 35% from $1.32 billion in last year's fourth
quarter. Operating income as a percentage of sales was 4.0%, up 10 basis points
sequentially and 100 basis points from last year's fourth quarter.
Sales in our North American Components group were up 9% sequentially and up
43% over last year. Both operating income dollars and operating income as a
percentage of sales were at the highest levels in ten quarters. Operating income
dollars were up 66% sequentially and were up more than five-fold from last
year's fourth quarter. Operating margin more than tripled from last year.
Our European sales increased by 12% sequentially, with operating income
dollars up 9% from the September quarter. Our European business posted a strong
sales advance in the midst of what is still a challenged macroeconomic
environment. Because of the generally weak macroeconomic environment in Europe
we remain cautious with regard to the first quarter of 2004.
Sales in the Asia/Pacific region increased by 27% sequentially and by 43%
from last year.
Our worldwide computer products sales totaled $705 million, up 37% from the
third quarter and up 23% over last year. Operating income as a percentage of
sales increased by 170 basis points sequentially and was 20 basis points ahead
of last year's record level.
Sales in our North American Computer Products group were up 42%
sequentially, and up 33% from last year. Operating income dollars were at the
highest level ever and experienced a year-over-year increase for the tenth
consecutive quarter. While we expected strong seasonal performance, these
results were well in excess of historical norms.
Over the past twelve months we have announced a series of initiatives to be
more efficiently organized. This has resulted in a $75 million reduction in our
cost structure. On February 17, we announced a series of additional steps to
make our organizational structure even more efficient, the net result of which
we estimate will reduce our cost structure by an additional $15 million
annually. Approximately 50% of this annual cost savings begins in the first
quarter, with the remaining 50% beginning late in the second quarter of 2004. We
will record a related restructuring charge spread over several quarters in 2004
of $2 million to $5 million, before taxes.
S-5
Our results for the fourth quarter of 2003 and 2002 include a number of
items outlined below that impact their comparability:
-- Throughout 2003, we implemented actions to become more effectively
organized and to improve our operating efficiencies, with annual
savings of $75 million. The estimated restructuring charges
associated with these actions total $42.4 million, of which $30.3
million ($20.7 million net of taxes or $.20 per share) was recorded
through September 30, 2003 and $7.6 million ($6.4 million net of
taxes or $.07 and $.05 per share on a basic and diluted basis,
respectively) was recorded in the fourth quarter of 2003. It is
anticipated that the remaining $4.5 million will be recorded over the
next several quarters.
-- During the fourth quarter of 2003, we paid $14.1 million to
repurchase a portion of our zero coupon bonds resulting in a charge
of $.3 million ($.2 million net of taxes). During the fourth quarter
of 2002, we repurchased $79.0 million of our 8.2% senior notes due in
October 2003. The premium paid, along with the write-off of related
deferred issuance costs, resulted in a charge of $2.1 million ($1.3
million net of taxes or $.01 per share).
Our net income in 2003 was $25.7 million ($.26 and $.25 per share on a
basic and diluted basis, respectively) on sales of $8.68 billion, compared with
a net loss of $610.5 million ($6.12 per share) on sales of $7.39 billion in
2002.
Net income for 2003 includes $38 million ($27.1 million net of taxes or
$.27 per share) of the aforementioned restructuring charges, an acquisition
indemnification charge of $13 million ($.13 per share) related to the
acquisition of a French company in 2000, an integration charge of $6.9 million
($4.8 million net of taxes or $.05 per share) related to the acquisition and
integration of Pioneer-Standard's IED business, and a charge of $6.6 million
($3.9 million net of taxes or $.04 per share) related to the repurchase of
$253.8 million of our debt. Excluding these items, net income would have been
$74.6 million ($.75 and $.74 per share on a basic and diluted basis,
respectively) for 2003.
Effective January 1, 2002 we adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets." As a result of this
new rule, we recorded an impairment charge of $603.7 million ($6.05 per share)
for 2002, which has been recorded as a cumulative effect of a change in
accounting principle. In the second quarter of 2002, we sold the Gates/Arrow
commodity computer products business, and in accordance with Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," accounted for the transaction as a discontinued
operation. The net loss of $5.9 million ($.06 per share), including the loss on
the sale of Gates/Arrow, was accounted for in a single line item on the
statement of operations. Net loss for 2002 also included a charge of $20.9
million ($12.9 million net of taxes or $.13 per share) related to the repurchase
of $398.2 million of senior notes, and a $5.4 million ($3.2 million net of taxes
or $.03 per share) severance charge associated with the resignation of our chief
executive officer. Excluding the aforementioned loss from discontinued
operations, severance charge, loss on the prepayment of debt, and the cumulative
effect of change in accounting principle, net income for 2002 would have been
$15.3 million ($.15 per share).
The discussion above includes references to operating income, net income,
and net income per basic and diluted share, each as adjusted for certain charges
and losses that impact the comparability of our results of operations. This
financial information has not been prepared in accordance with generally
accepted accounting principles (GAAP). These charges and losses arise out of our
acquisitions of other companies, our efficiency enhancement initiatives, the
severance of a former chief executive officer, the prepayment of debt, the
operations of discontinued businesses, and required changes in accounting
principles. The following table sets forth reconciliations of operating income,
net income, and net income per basic and diluted share, each as adjusted, to
operating income, net income (loss), and net income (loss) per basic and diluted
share, prepared in accordance with GAAP.
S-6
We believe that such non-GAAP financial information is useful to investors
to assist in assessing and understanding our operating performance and
underlying trends in our business because management considers the charges and
losses referred to above to be outside our core operating results. This non-GAAP
financial information is among the primary indicators management uses as a basis
for evaluating our financial and operating performance. In addition, our Board
of Directors uses this non-GAAP financial information in evaluating management
performance and setting management compensation.
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
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2003 2002 2003 2002
------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating income................................ $74,231 $44,621 $184,045 $ 167,530
Restructuring charges......................... 7,623 -- 37,965 --
Acquisition indemnification charge............ -- -- 13,002 --
Integration charge............................ -- -- 6,904 --
Severance charge.............................. -- -- -- 5,375
------- ------- -------- ---------
Operating income, as adjusted................... $81,854 $44,621 $241,916 $ 172,905
======= ======= ======== =========
Net income (loss)............................... $26,012 $ 7,594 $ 25,700 $(610,482)
Restructuring charges......................... 6,412 -- 27,144 --
Acquisition indemnification charge............ -- -- 13,002 --
Integration charge............................ -- -- 4,822 --
Severance charge.............................. -- -- -- 3,214
Loss on prepayment of debt.................... 202 1,308 3,930 12,949
Loss from discontinued operations............. -- -- -- 5,911
Cumulative effect of change in accounting
principle.................................. -- -- -- 603,709
------- ------- -------- ---------
Net income, as adjusted......................... $32,626 $ 8,902 $ 74,598 $ 15,301
======= ======= ======== =========
Net income (loss) per basic share............... $ .26 $ .08 $ .26 $ (6.12)
Restructuring charges......................... .07 -- .27 --
Acquisition indemnification charge............ -- -- .13 --
Integration charge............................ -- -- .05 --
Severance charge.............................. -- -- -- .03
Loss on prepayment of debt.................... -- .01 .04 .13
Loss from discontinued operations............. -- -- -- .06
Cumulative effect of change in accounting
principle.................................. -- -- -- 6.05
------- ------- -------- ---------
Net income per basic share, as adjusted......... $ .33 $ .09 $ .75 $ .15
======= ======= ======== =========
Net income (loss) per diluted share............. $ .26 $ .08 $ .25 $ (6.12)
Restructuring charges......................... .05 -- .27 --
Acquisition indemnification charge............ -- -- .13 --
Integration charge............................ -- -- .05 --
Severance charge.............................. -- -- -- .03
Loss on prepayment of debt.................... -- .01 .04 .13
Loss from discontinued operations............. -- -- -- .06
Cumulative effect of change in accounting
principle.................................. -- -- -- 6.05
------- ------- -------- ---------
Net income per diluted share, as adjusted....... $ .31 $ .09 $ .74 $ .15
S-7
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------- --------------------
2003 2002 2003 2002
------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
======= ======= ======== =========
Average number of shares outstanding:
Basic......................................... 100,329 99,921 100,142 99,786
Diluted, as adjusted.......................... 115,839 100,441 100,917 99,786
You should not consider the non-GAAP information set forth in the table
above to be an alternative to operating income, net income (loss), or net income
(loss) per basic and diluted share prepared in accordance with GAAP. The
presentation of this additional non-GAAP financial information is not meant to
be considered in isolation or as a substitute for operating income, net income,
and net income per share determined in accordance with GAAP. Analysis of results
and outlook on a non-GAAP basis should be used as a complement to, and in
conjunction with, data presented in accordance with GAAP.
S-8
THE OFFERING
Common stock offered................ 12,000,000 shares
Common stock to be outstanding after
this offering....................... 112,517,000 shares(1)(2)
Over-allotment option............... We have granted the underwriters an
option to purchase an additional
1,800,000 shares of our common stock,
exercisable solely to cover over-
allotments, if any, at the public
offering price less the underwriting
discount shown on the cover page of
this prospectus supplement. The
underwriters may exercise the option at
any time, in whole or from time to time
in part, until 30 days from the date of
this prospectus supplement.
Use of Proceeds..................... We intend to use a portion of the net
proceeds from this offering to redeem
our outstanding 8.70% senior notes due
2005 ($208.5 million outstanding as of
February 19, 2004). Until the
redemption of our 8.70% senior notes,
the net proceeds will be maintained as
cash and short-term investments. We
expect to use the remainder of the net
proceeds for general corporate
purposes, which may include the
redemption or repurchase of other
outstanding indebtedness from time to
time.
New York Stock Exchange Symbol...... "ARW"
------------
(1) Assumes the underwriters' over-allotment option is not exercised. See
"Underwriters."
(2) Based on 100,517,000 shares of common stock outstanding as of December 31,
2003. Excludes 7,724,000 shares of common stock issuable pursuant to
immediately exercisable stock options.
S-9
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of our
common stock will be approximately $271.8 million (approximately $312.6 million
if the underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and our estimated offering expenses. We
intend to use a portion of the net proceeds from this offering to redeem our
8.70% senior notes due 2005 ($208.5 million outstanding as of February 19,
2004). Until the redemption of our 8.70% senior notes due 2005, the net proceeds
from this sale of our common stock will be maintained as cash and short-term
investments. We expect to use the remainder of the net proceeds for general
corporate purposes, which may include the redemption or repurchase of other
outstanding indebtedness from time to time.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The following table sets forth the range of high and low sales prices per
share for our common stock for the periods indicated as reported on the New York
Stock Exchange composite transactions reporting system, where our stock trades
under the symbol "ARW."
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------ ------
2004
First Quarter (through February 19, 2004)................. $27.98 $23.02
2003
First Quarter............................................. $16.04 $11.45
Second Quarter............................................ 18.13 14.23
Third Quarter............................................. 21.49 14.75
Fourth Quarter............................................ 24.36 17.85
2002
First Quarter............................................. $32.97 $26.08
Second Quarter............................................ 28.56 18.61
Third Quarter............................................. 20.85 12.30
Fourth Quarter............................................ 16.78 8.60
On February 19, 2004, the reported last sale price of our common stock on
the New York Stock Exchange was $24.65 per share. As of January 31, 2004, there
were approximately 3,000 stockholders of record of our common stock.
We have not paid cash dividends on our common stock since 1986. While our
board of directors considers the payment of dividends on the common stock from
time to time, the declaration of future dividends will be dependent upon our
earnings, financial condition, and other relevant factors, including debt
covenants.
S-10
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 2003, on an actual basis and as adjusted to give effect to (i)
repayments and repurchases of our outstanding long-term indebtedness since
September 30, 2003 described in the footnotes to the table and (ii) this
offering, assuming the over-allotment option is not exercised, and the
application of a portion of the net proceeds therefrom to redeem our 8.70%
senior notes due 2005, as described under "Use of Proceeds."
You should read the information in this table together with our
consolidated financial statements and the related notes incorporated by
reference herein along with the other information in this prospectus supplement.
AS OF
SEPTEMBER 30, 2003
--------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN MILLIONS)
Short-term debt:
Various borrowings, including current maturities of
long-term debt(a)...................................... $ 203 $ 11
Long-term debt:
8.2% senior notes due 2003(a)............................. 192 --
8.70% senior notes due 2005(b)............................ 250 --
7% senior notes due 2007.................................. 199 199
9.15% senior notes due 2010............................... 200 200
6 7/8% senior notes due 2013.............................. 349 349
6 7/8% senior debentures due 2018......................... 197 197
Zero coupon convertible debentures due 2021(c)............ 610 596
7 1/2% senior debentures due 2027......................... 197 197
Interest rate swaps....................................... 11 11
Other obligations with various interest rates and due
dates.................................................. 13 13
------ ------
Total long-term debt................................... 2,218 1,762
------ ------
Less current maturities of long-term debt(a)........... 192 --
------ ------
Total debt............................................. $2,229 $1,773
====== ======
Shareholders' equity:
Common stock, par value $1:
Authorized--160,000,000 shares
Issued--103,877,000 shares, actual and 115,877,000 shares,
as adjusted............................................ $ 104 $ 116
Capital in excess of par value............................ 505 765
Retained earnings(d)...................................... 912 901
Foreign currency translation adjustment................... (34) (34)
------ ------
1,487 1,748
Less: Treasury stock--3,069,000 shares, at cost........... (82) (82)
Unamortized employee stock awards...................... (10) (10)
Other.................................................. (42) (42)
------ ------
Total shareholders' equity............................. 1,353 1,614
------ ------
Total capitalization................................... $3,582 $3,387
====== ======
------------
(a) "As Adjusted" column reflects the repayment of $192.0 million of our 8.2%
senior notes due 2003 in October 2003.
(b) "As Adjusted" column reflects repurchases of $41.5 million in January 2004
and the application of a portion of the net proceeds from the sale of our
common stock pursuant to this offering to redeem the remaining balance of
$208.5 million.
(c) "As Adjusted" column reflects repurchases of $14.1 million during the fourth
quarter of 2003.
(d) "As Adjusted" column reflects a charge of $11.0 million related to the
redemption of our 8.70% senior notes due 2005.
S-11
SELECTED HISTORICAL FINANCIAL DATA
The following table contains our selected historical financial data as of
and for each of the years in the five-year period ended December 31, 2002, and
for the nine-month periods ended September 30, 2003 and September 30, 2002. We
have derived the selected historical financial data as of and for each of the
years in the five-year period ended December 31, 2002, from our audited
consolidated financial statements. We have derived the selected historical
financial data as of September 30, 2003 and for the nine-month periods ended
September 30, 2003 and September 30, 2002 from our unaudited consolidated
interim financial statements which, in the opinion of management, include all
adjustments necessary to fairly present our results for the unaudited interim
periods. The results for interim periods, however, are not necessarily
indicative of the results that may be expected for a full year.
You should read the following data together with the other information
presented in this prospectus supplement and the accompanying prospectus and our
other historical financial information and statements (including related notes)
and other information incorporated by reference in this prospectus supplement
and the accompanying prospectus. Please also read "Capitalization" included in
this prospectus supplement.
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------------------
2003(A) 2002(B)(D) 2002(B)(D) 2001(C)(E) 2000(C) 1999(C)(F) 1998(C)
-------- ---------- ---------- ---------- --------- ---------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Sales.................. $6,198.5 $5,499.2 $7,390.2 $9,487.3 $12,065.3 $8,325.4 $7,235.6
Operating income....... 109.8 122.9 167.5 152.7 773.2 326.2 328.2
Interest expense,
net.................. 101.4 120.4 152.6 210.6 169.9 106.9 81.0
Income (loss) from
continuing
operations........... (0.3) (8.5) (0.9) (75.6) 351.9 115.4 135.0
Net income (loss)...... (0.3) (618.1) (610.5) (73.8) 357.9 124.2 145.8
Basic earnings (loss)
per share............ $ -- $ (6.20) $ (6.12) $ (0.75) $ 3.70 $ 1.31 $ 1.53
Diluted earnings (loss)
per share............ -- (6.20) (6.12) (0.75) 3.62 1.29 1.50
Average shares
outstanding for basic
earnings (loss) per
share................ 100,073 99,737 99,786 98,384 96,707 95,123 95,397
Average shares
outstanding for
diluted earnings
(loss) per share..... 100,073 99,737 99,786 98,384 98,833 96,045 97,113
CONSOLIDATED BALANCE
SHEET DATA (AT PERIOD
END)
Cash and short-term
investments.......... $ 677.9 $ 717.8 $ 694.1 $ 556.9 $ 55.5 $ 44.9 $ 158.3
Accounts receivable and
inventory............ 2,858.0 2,533.8 2,579.8 2,762.7 5,419.5 2,890.4 2,431.8
Total assets........... 5,036.4 4,694.5 4,667.6 5,359.0 7,604.5 4,483.3 3,839.9
Long-term debt......... 2,026.3 2,145.8 1,807.1 2,442.0 3,027.7 1,553.4 1,047.0
Shareholders' equity... 1,353.7 1,220.0 1,235.2 1,766.5 1,913.7 1,550.5 1,487.3
S-12
(a) The acquisition of substantially all of the assets of the Industrial
Electronics Division (IED) of Pioneer-Standard Electronics, Inc. in February
2003 is accounted for as a purchase transaction in accordance with Financial
Accounting Standards Board (FASB) Statement No. 141, Business Combinations.
Accordingly, our consolidated results in 2003 include IED's performance from
the date of acquisition.
Operating income, loss from continuing operations, net loss, and basic and
diluted loss per share include integration costs of $6.9 million ($4.8
million net of related taxes) related to the acquisition of IED,
restructuring charges of $30.3 million ($20.7 million net of related taxes),
and an acquisition indemnification charge of $13.0 million. Loss from
continuing operations, net loss, and basic and diluted loss per share also
include a loss on the prepayment of debt of $6.2 million ($3.7 million net
of related taxes).
(b) Net loss and basic and diluted loss per share include the impact of our
adoption of FASB Statement No. 142, "Goodwill and Other Intangible Assets,"
on January 1, 2002. As a result of this new rule, which requires that
ratable amortization of goodwill be replaced with periodic tests for
goodwill impairment, we recorded in an impairment charge and a reduction of
shareholders' equity of $603.7 million.
(c) The disposition of the Gates/Arrow operations in May 2002 represents a
disposal of a component of an entity as defined in FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."
Accordingly the years ended December 31, 1998 through 2001 have been
restated to exclude Gates/Arrow.
(d) Operating income, loss from continuing operations, net loss, and basic and
diluted loss per share include a severance charge of $5.4 million ($3.2
million net of related taxes). Income (loss) from continuing operations, net
loss, and basic and diluted loss per share also include a loss on the
prepayment of debt of $20.9 million ($12.9 million net of related taxes) and
$18.8 million ($11.6 million net of related taxes) for the year ended
December 31, 2002 and nine months ended September 30, 2002, respectively.
(e) Operating income, loss from continuing operations, net loss, and basic and
diluted loss per share include restructuring costs and other special charges
of $227.6 million (of which $174.6 million is in operating income) or $145.1
million net of related taxes, and an integration charge associated with the
acquisition of Wyle Electronics and Wyle Systems of $9.4 million ($5.7
million net of related taxes).
(f) Operating income, income from continuing operations, net income, and basic
and diluted earnings per share include a special charge of $24.6 million
($16.5 million net of related taxes) associated with the acquisition and
integration of Richey Electronics, Inc. and the electronics distribution
group of Bell Industries, Inc.
S-13
UNDERWRITERS
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston LLC are
acting as joint book-running managers of this offering. Under the terms and
subject to the conditions contained in an underwriting agreement dated the date
of this prospectus, each underwriter named below has agreed to purchase, and we
have agreed to sell to them the number of shares indicated below:
NUMBER OF
NAME SHARES
---- ----------
Morgan Stanley & Co. Incorporated........................... 3,120,000
Credit Suisse First Boston LLC.............................. 3,120,000
Goldman, Sachs & Co. ....................................... 3,120,000
Banc of America Securities LLC.............................. 1,320,000
J.P. Morgan Securities Inc. ................................ 1,320,000
----------
Total.................................................. 12,000,000
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus
supplement are subject to the approval of certain legal matters by their counsel
and to certain other conditions. The underwriters are obligated to take and pay
for all of the shares of common stock offered by this prospectus supplement if
any such shares are taken. However, the underwriters are not required to take or
pay for the shares covered by the underwriters' over-allotment option described
below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus supplement and part to certain dealers at a price that
represents a concession not in excess of $0.4935 a share under the public
offering price. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
joint book running managers.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to an aggregate of
1,800,000 additional shares of common stock at the public offering price set
forth on the cover page of this prospectus supplement, less underwriting
discounts and commissions. The underwriters may exercise this option solely for
the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered by this prospectus supplement. To
the extent the option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase about the same percentage of the
additional shares of common stock as the number listed next to the underwriter's
name in the preceding table bears to the total number of shares of common stock
listed next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to the public would
be $324,300,000, the total underwriters' discounts and commissions would be
$11,350,500 and the total proceeds to us would be $312,949,500.
The estimated offering expenses payable by us, in addition to the
underwriting discounts and commissions, are approximately $350,000, which
includes legal, accounting and printing costs and various other fees associated
with registering and listing the common stock.
We and our directors and executive officers have agreed that, without the
prior written consent of each of Morgan Stanley & Co. Incorporated and Credit
Suisse First Boston LLC on behalf of the underwriters, we will not during the
period ending 90 days, and our directors and executive officers will not during
the period ending 60 days, after the date of this prospectus supplement (in each
case subject to certain exceptions):
-- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise
S-14
transfer or dispose of directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or
exchangeable for common stock; or
-- enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of
the common stock;
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may sell more shares
than they are obligated to purchase under the underwriting agreement, creating a
short position. A short sale is covered if the short position is no greater than
the number of shares available for purchase by the underwriters under the
over-allotment option. The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing shares in the open market. In
determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of shares
compared to the price available under the over-allotment option. The
underwriters may also sell shares in excess of the over-allotment option,
creating a naked short position. The underwriters must close out any naked short
position by purchasing shares 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 common stock in the open market after
pricing that could adversely affect investors who purchase in the offering. As
an additional means of facilitating the offering, the underwriters may bid for,
and purchase, shares of common stock in the open market to stabilize the price
of the common stock. The underwriting syndicate may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the common
stock in the offering, if the syndicate repurchases previously distributed
common stock to cover syndicate short positions or to stabilize the price of the
common stock. These activities may raise or maintain the market price of the
common stock above independent market levels or prevent or retard a decline in
the market price of the common stock. The underwriters are not required to
engage in these activities, and may end any of these activities at any time.
From time to time, the underwriters and their affiliates have provided, and
continue to provide, investment banking, lending and other commercial banking
services to us.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF THE COMMON STOCK
The validity of the shares of common stock offered and sold in this
offering will be passed upon for us by Milbank, Tweed, Hadley & McCloy LLP, and
for the underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements of Arrow Electronics, Inc. appearing
in Arrow Electronics, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 2002, as amended by our Form 10-K/A filed with the SEC on February
17, 2004, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
S-15
FORWARD-LOOKING INFORMATION
This prospectus supplement includes or incorporates by reference
forward-looking statements that are subject to certain risks and uncertainties
which could cause actual results or facts to differ materially from such
statements for a variety of reasons, including, but not limited to:
-- industry conditions;
-- changes in product supply, pricing, and customer demand;
-- competition;
-- other vagaries in the electronic components and commercial computer
products markets;
-- changes in relationships with key suppliers;
-- the effects of additional actions taken to lower costs; and
-- our ability to generate additional cash flow.
Forward-looking statements are those statements which are not statements of
historical fact. You can identify these forward-looking statements by
forward-looking words such as "expects," "anticipates," "intends," "plans,"
"may," "will," "believes," "seeks," "estimates," and similar expressions. You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. We undertake no
obligation to update publicly or revise any of the forward-looking statements.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission (SEC) allows us to "incorporate by
reference" information that we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference or deemed incorporated by reference is an
important part of this prospectus supplement, and certain information that we
file later with the SEC will be deemed to automatically update and supersede
this incorporated information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the
termination of the offering hereunder.
-- Our Annual Report on Form 10-K for the year ended December 31, 2002,
as amended by our Form 10-K/A filed with the SEC on February 17,
2004;
-- Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2003 and June 30, 2003 and our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003, as amended by our Form 10-Q/A filed
with the SEC on February 17, 2004; and
-- Our Current Reports on Form 8-K filed with the SEC on October 17,
2003 and January 20, 2004 and our Current Report on Form 8-K filed
with the SEC on February 17, 2004 under Item 5.
These documents supersede the documents previously incorporated by reference
into the accompanying prospectus.
You may obtain a copy of any of our filings with the SEC, or any of the
agreements or other documents that constitute exhibits to those filings, without
charge, by request directed to us at the following address and telephone number:
Arrow Electronics, Inc.
50 Marcus Drive
Melville, New York 11747
(631) 847-2000
Attention: Secretary
S-16
PROSPECTUS
$2,000,000,000
------------------------
ARROW ELECTRONICS, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
We may offer and sell the securities from time to time in one or more offerings.
This prospectus provides you with a general description of the securities we may
offer.
Each time we sell securities, we will provide a supplement to this prospectus
that contains specific information about the offering and the terms of the
securities. The supplement may also add, update or change information contained
in this prospectus. You should carefully read this prospectus and any supplement
before you invest in any of our securities.
We may offer and sell the following securities:
- debt securities, in one or more series, consisting of notes, debentures
or other evidences of indebtedness;
- preferred stock;
- common stock; and
- warrants.
Our common stock is traded on the New York Stock Exchange under the symbol
"ARW." Any common stock sold pursuant to this prospectus or any prospectus
supplement will be listed on that exchange, subject to official notice of
issuance. The prospectus supplement will state whether any other securities
offered thereby will be listed on a securities exchange.
Neither the Securities and Exchange Commission nor any other Regulatory Body has
approved or disapproved of these Securities or passed upon the adequacy or
accuracy of this Prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is February 15, 2001.
ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that we filed
with the United States Securities and Exchange Commission, or the "SEC." By
using a shelf registration statement, we may sell up to $2,000,000,000 in
aggregate offering price of any combination of the securities described in this
prospectus (or in the other prospectus included in the shelf registration
statement) from time to time and in one or more offerings. This prospectus only
provides you with a general description of the securities that we may offer.
Each time we sell securities, we will provide a supplement to this prospectus
that contains specific information about the terms of the securities. The
supplement may also add, update or change information contained in this
prospectus. Before purchasing any securities, you should carefully read both
this prospectus and any supplement, together with the additional information
described under the heading "Where You Can Find More Information." Unless
otherwise indicated or unless the context requires otherwise, all references in
this prospectus to "Arrow", "we", "our", "us" or similar references mean Arrow
Electronics, Inc.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus and
the supplement to this prospectus is accurate only as of the dates of their
respective covers, regardless of the time of delivery of this prospectus or any
supplement to this prospectus or of any sale of our securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the securities or possession or distribution of this
prospectus or any supplement to this prospectus in that jurisdiction. Persons
who come into possession of this prospectus or any supplement to this prospectus
in jurisdictions outside the United States are required to inform themselves
about and to observe any restrictions as to this offering and the distribution
of this prospectus or any supplement to this prospectus applicable to that
jurisdiction.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
documents with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
You may read and copy any document we file at the SEC's public reference
room, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public on the SEC's Web site at
http://www.sec.gov and through the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, on which our common stock is listed.
You may obtain a copy of any of our filings with the SEC, or any of the
agreements or other documents that constitute exhibits to those filings, without
charge, by request directed to us at the following address and telephone number:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
(516) 391-1300
Attention: Secretary
The SEC allows us to "incorporate by reference" in this prospectus reports
that we file with them, which means that we can disclose important information
to you by referring you to those reports. Accordingly, we are incorporating by
reference in this prospectus the documents listed
2
below and any future filings we make with the SEC under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934:
(1) Our Annual Report on Form 10-K for the year ended December 31, 1999;
(2) Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000, June 30, 2000 and September 30, 2000;
(3) Our Current Reports on Form 8-K dated September 1, 2000, September 19,
2000, December 22, 2000 and February 13, 2001; and
(4) The description of our common stock set forth on our registration
statement filed with the Securities and Exchange Commission pursuant to
Section 12 of the Exchange Act, including any amendments or reports
filed for the purpose of updating such description.
The information incorporated by reference is deemed to be part of this
prospectus, except for any information superseded by information contained
directly in this prospectus. Any information that we file later with the SEC
will automatically update and supersede this information.
This prospectus constitutes a part of a registration statement on Form S-3
filed by us with the SEC under the Securities Act of 1933. This prospectus does
not contain all the information that is contained in the registration statement,
some of which we are allowed to omit in accordance with the rules and
regulations of the SEC. We refer you to the registration statement and to the
exhibits filed with the registration statement for further information with
respect to Arrow. Copies of the registration statement and the exhibits to the
registration statement are on file at the offices of the SEC and may be obtained
upon payment of the prescribed fee or may be examined without charge at the
public reference facilities of the SEC described above. Statements contained in
this prospectus concerning the provisions of documents are summaries of the
material provisions of those documents, and each of those statements is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. Since this prospectus may not contain all of the information
that you may find important, you should review the full text of these documents.
FORWARD LOOKING STATEMENTS
This prospectus includes forward-looking statements that are subject to
certain risks and uncertainties which could cause actual results or facts to
differ materially from the statements in this prospectus for a variety of
reasons, including, but not limited to: industry conditions, changes in product
supply, pricing, and customer demand, competition, other vagaries in the
electronic components and commercial computer products markets, and changes in
relationships with key suppliers. Forward-looking statements are those
statements which are not statements of historical fact. You can identify these
forward-looking statements by forward-looking words such as "expects,"
"anticipates," "intends," "plans," "may," "will," "believes," "seeks,"
"estimates," and similar expressions. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. We undertake no obligation to update publicly or revise any
of the forward-looking statements.
ARROW ELECTRONICS, INC.
We are the world's largest distributor of electronic components and
computer products to industrial and commercial customers. We believe we are one
of the global electronics distribution industry's leaders in state-of-the-art
operating systems, employee productivity, value-added programs, and total
quality assurance. We are a leading distributor for over 600 suppliers.
Our distribution network spans the world's three dominant electronics
markets: North America, Europe, and the Asia/Pacific region. Through our
business units in these vital industrialized regions, we serve a diversified
base of original equipment manufacturers and commercial customers
3
worldwide. Original equipment manufacturers, or OEMs, include manufacturers of
computer and office products, industrial equipment (including machine tools,
factory automation, and robotic equipment), telecommunications products,
aircraft and aerospace equipment, and scientific and medical devices. Commercial
customers are mainly value-added resellers of computer systems. Through a
network of more than 225 sales facilities and 19 distribution centers in 38
countries, we deliver to more than 175,000 OEMs and commercial customers the
products, inventory solutions, materials management services, and design and
technical support they need when, where and how they need them.
USE OF PROCEEDS
Except as otherwise described in the prospectus supplement relating to an
offering of securities, the net proceeds from the sale of securities offered
pursuant to this prospectus and any prospectus supplement will be used for
general corporate purposes.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratios of earnings to fixed
charges and our consolidated subsidiaries for the periods indicated:
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------
2000 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed
Charges........................ 4.6 2.9(a) 4.0 5.0(b) 8.6 7.7
------------
(a) Excluding the special pre-tax charge of $25 million associated with the
acquisition and integration of Richey Electronics, Inc. and the electronics
distribution group of Bell Industries, Inc., the ratio of earnings to fixed
charges would have been 3.1.
(b) Excluding special pre-tax charges totaling $59 million associated with the
realignment of our North American components operations and the acquisition
and integration of the volume electronic component distribution businesses
of Premier Farnell plc, the ratio of earnings to fixed charges would have
been 5.7.
4
DESCRIPTION OF DEBT SECURITIES
We have described below the general terms and provisions of the debt
securities to which a prospectus supplement may relate. We will describe the
particular terms of the debt securities offered by any prospectus supplement in
the prospectus supplement relating to the offered debt securities.
We may from time to time offer and sell debt securities, consisting of
debentures, notes and/or other unsecured evidences of indebtedness. The debt
securities will be either our unsecured senior debt securities or our unsecured
subordinated debt securities.
We will issue senior debt securities under an indenture, called the "senior
indenture", between us and The Bank of New York (as successor to Bank of
Montreal Trust Company), as trustee, in such capacity, called the "senior
trustee". We may also issue subordinated debt securities under a proposed
indenture, called the "subordinated indenture", between us and a trustee to be
named in any prospectus supplement relating to the subordinated debt securities,
called the "subordinated trustee". In this prospectus, we refer to the senior
indenture and the subordinated indenture together as the "indentures", to the
senior debt securities and the subordinated debt securities together as the
"debt securities" and to the senior trustee and the subordinated trustee
together as the "trustees". Unless otherwise indicated, section references in
this prospectus or in an accompanying prospectus supplement are to the relevant
provisions of both the senior indenture and the subordinated indenture. The
following summary of important provisions of the debt securities and the
indentures does not purport to be complete. This summary is subject to the
detailed provisions of the indentures, including the definition of certain terms
used in this prospectus and those terms made a part of the indentures by
reference to the Trust Indenture Act and the debt securities. Wherever
particular sections or defined terms of the indentures are referred to, those
sections or defined terms are incorporated by reference in this prospectus as
part of the statement made, and the statement is qualified in its entirety by
such reference. Numerical references in parentheses below are to sections in the
indentures. Capitalized terms that are used and not otherwise defined in this
prospectus will have the meanings assigned to them in the indentures.
GENERAL
The indentures provide for the issuance from time to time of debentures,
notes or other evidences of indebtedness by us in an unlimited amount pursuant
to a supplemental indenture, a board resolution, or an officer's certificate
pursuant to a supplemental indenture or board resolution. (Section 2.3)
Under each indenture, we may issue debt securities in one or more series
with the same or various maturities, at par, at a premium or with an original
issue discount. The applicable prospectus supplement relating to a particular
series of debt securities will describe the specific terms of the debt
securities we may offer, including:
(a) the designation of the debt securities of a particular series, which
will distinguish the debt securities of that series from the debt
securities of all other series;
(b) any limit upon the aggregate principal amount of the debt securities
of that series that may be authenticated and delivered under the
indentures and any limitation on our ability to increase the aggregate
principal amount after the initial issuance of the debt securities of
that series;
(c) the date or dates on which the principal of the debt securities of
that series is payable (which date or dates may be fixed or
extendible);
(d) the rate or rates (which may be fixed or variable) per year at which
the debt securities of that series will bear interest, if any;
5
(e) the date or dates from which interest will accrue, on which interest
will be payable and (in the case of registered securities (which is
defined as any debt security registered on the security register)) on
which a record will be taken for the determination of holders to whom
interest is payable and/or the method by which such rate or rates or
date or dates will be determined;
(f) if other than as provided in the indentures, the place or places where
(1) the principal of and any interest on debt securities will be
payable, (2) any registered securities may be surrendered for
exchange, (3) notices, demands to or upon us in respect of the debt
securities of that series or the indentures may be served and (4)
notice to holders may be published;
(g) our right, if any, to redeem debt securities of that series, in whole
or in part, at our option and the period or periods within which, the
price or prices at which and any terms and conditions upon which debt
securities of that series may be redeemed pursuant to any sinking fund
or otherwise;
(h) our obligation, if any, to redeem, purchase or repay debt securities
of that series pursuant to any mandatory redemption, sinking fund or
analogous provisions or at the option of a holder and the price or
prices at which and the period or periods within which and any of the
terms and conditions upon which debt securities of that series will be
redeemed, purchased or repaid, in whole or in part, pursuant to our
redemption obligation;
(i) if other than denominations of $1,000 and any integral multiple of
$1,000, the denominations in which debt securities of that series will
be issuable;
(j) if other than the principal amount of the debt securities, the portion
of the principal amount of debt securities of that series which will
be payable upon acceleration of the maturity of those securities;
(k) if other than the coin or currency in which the debt securities of
that series are denominated, the coin or currency in which payment of
the principal of or interest on the debt securities of that series
will be payable or if the amount of payments of principal of and/or
interest on the debt securities of that series may be determined with
reference to an index based on a coin or currency other than that in
which the debt securities of that series are denominated, the manner
in which those amounts will be determined;
(l) if other than the currency of the United States of America, the
currency or currencies, including composite currencies, in which
payment of the principal of and interest on the debt securities of
that series will be payable, and the manner in which any currencies
will be valued against other currencies in which any other debt
securities will be payable;
(m) whether the debt securities of that series or any portion thereof will
be issuable, with or without coupons, as registered securities (and if
so, whether those debt securities will be issuable as registered global
securities) or unregistered securities (which is defined as any debt
security other than a registered security), or any combination of the
foregoing, any restrictions applicable to the offer, sale or delivery
of unregistered securities or the payment of interest on those
securities and, if other than as provided in the indenture, the terms
upon which unregistered securities of any series may be exchanged for
registered securities of that series and vice versa;
(n) whether and under what circumstances we will pay additional amounts on
debt securities held by a person who is not a U.S. person in respect
of any tax, assessment or governmental charge withheld or deducted
and, if so, whether we will have the option to redeem the securities
rather than pay any additional amounts;
(o) if the debt securities of that series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary debt
security of that series) only upon
6
receipt of certain certificates or other documents or satisfaction of
other conditions, the form and terms of those certificates, documents
or conditions;
(p) any trustees, depositaries, authenticating or paying agents, transfer
agents or the registrar or any other agents with respect to the debt
securities of that series;
(q) provisions, if any, for the defeasance of the debt securities of that
series, including provisions permitting defeasance of less than all
the debt securities of that series, which provisions may be in
addition to, in substitution for, or in modification of (or any
combination of the foregoing) the provisions of the indentures;
(r) if the debt securities of that series are issuable in whole or in part
as one or more registered global securities, the identity of the
depositary (if other than The Depository Trust Company, or DTC) for
that registered global security or securities (which depositary will,
at the time of its designation as depositary and at all times while it
serves as depositary, be a clearing agency registered under the
Exchange Act and any other applicable statute or regulation);
(s) any other events of default or covenants with respect to the debt
securities of that series in addition to the events of default or
covenants set forth in the indentures;
(t) any other terms of the debt securities of that series, which terms
will not be inconsistent with the provisions of the indentures.
Neither indenture contains any restriction on the payment of dividends or
any financial covenants. Neither indenture contains provisions which would
afford you protection in the event of a transfer of assets to a subsidiary and
incurrence of unsecured debt by such subsidiary, or in the event of a decline in
our credit quality resulting from highly leveraged or other similar transactions
involving us.
The debt securities will be unsubordinated obligations of ours and the
senior debt securities will rank equal in right of payment with all of our
existing and future unsecured and unsubordinated obligations. The indebtedness
represented by the subordinated debt securities will be subordinated in right of
payment to the prior payment in full of our senior debt, as described below
under "Subordination". Claims of holders of the debt securities will be
effectively subordinated to the claims of holders of the debt of our
subsidiaries with respect to the assets of our subsidiaries. In addition, claims
of holders of the debt securities will be effectively subordinated to the claims
of holders of our secured debt and the secured debt of our subsidiaries with
respect to the collateral securing those claims. Our claims as the holder of
general unsecured intercompany debt will be similarly effectively subordinated
to claims of holders of secured debt of our subsidiaries.
SUBORDINATION
If we issue subordinated debt securities, our obligations to make any
payment of the principal of and premium, if any, and interest on, any
subordinated debt securities to be issued will be subordinate and junior in
right of payment to the prior payment in full of all of our senior indebtedness,
whether outstanding on the date of the subordinated indenture or thereafter
incurred. (Article 10 of subordinated indenture)
We may not pay the principal of or interest or premium on the subordinated
debt securities if (i) we fail to make any of such payments on any senior
indebtedness (other than trade accounts payable) which has matured by lapse of
time, acceleration or otherwise, or (ii) a default occurs on the senior
indebtedness (other than trade accounts payable) that allows the holders of the
senior indebtedness to accelerate its maturity after lapse of time, the giving
of notice or both and that default continues.
If any payment or distribution of our assets occurs upon our dissolution,
winding-up, liquidation or reorganization, we may not pay the principal of or
interest or premium on the subordinated debt
7
securities until we have made such payments in full to the holders of all senior
indebtedness. If such dissolution, winding-up, liquidation or reorganization
occurs and the holders of the subordinated debt securities receive a payment or
distribution, then they must turn that payment or distribution over to the
holders of the senior indebtedness or a trustee for the benefit of the senior
indebtedness holders. Because of this subordination, if an insolvency occurs,
holders of the subordinated debt securities may recover less, proportionately,
than holders of senior debt and our general unsecured creditors.
CONVERSION
The terms, if any, on which debt securities are convertible into our common
stock will be set forth in the prospectus supplement for that series of debt
securities. These terms will include:
- the conversion price,
- the conversion period,
- provision as to whether conversion will be at our option or at the option
of the holder,
- the events requiring an adjustment of the conversion price, and
- provisions affecting conversion in the event of the redemption of such
series of debt securities.
REGISTERED GLOBAL SECURITIES
Unless otherwise specified in the applicable prospectus supplement, DTC
will act as securities depositary for the debt securities. The debt securities
will be issued only as registered global securities registered in the name of
DTC's nominee, which we expect will be Cede & Co. We will issue one or more
registered global securities for the debt securities representing the aggregate
principal amount of that series of debt securities and will deposit the
registered global securities with DTC.
The description of book-entry procedures in this prospectus includes
summaries of certain rules and operating procedures of DTC that affect transfers
of interests in the registered global securities issued in connection with sales
of debt securities made pursuant to this prospectus. The descriptions of the
operations and procedures of DTC that follow are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the DTC settlement system and are subject to change from time to time.
We understand that DTC 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 pursuant to the provisions of Section 17A of the
Exchange Act.
DTC holds securities that its participants (the "direct participants")
deposit with DTC. DTC also facilitates the settlement among direct participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly (the "indirect participants," and together with the direct
participants, the "participants").
Purchases of securities within DTC's system must be made by or through
direct participants. The direct participants receive a credit for the securities
on DTC's records. The ownership interest
8
of the actual purchaser of each security (a "beneficial owner") is in turn
recorded on the direct and indirect participants' records. Beneficial owners
will not receive written confirmation from DTC of their purchase. However,
beneficial owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the direct or indirect participant through which the beneficial owner
entered into the transaction. Transfers of ownership interest in the securities
are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in debt securities except in the event
that use of the book-entry system for the debt securities is discontinued.
To facilitate subsequent transfers of the debt securities, all securities
deposited by direct participants with DTC are registered in the name of a
nominee of DTC. The deposit of debt securities with DTC and their registration
in the name of the nominee do not change the beneficial ownership of the
securities. DTC has no knowledge of the actual beneficial owners of the debt
securities. DTC's records reflect only the identity of the direct participants
to whose accounts the debt securities are credited. The participants will remain
responsible for keeping account of their holdings on behalf of their customers.
As long as DTC or its nominee is the registered holder of the registered
global security, DTC or its nominee will be considered the sole owner and holder
of the debt securities represented by the registered global security for all
purposes under the indenture and the debt securities. Except in limited
circumstances, beneficial owners will not be entitled to have any portions of
the registered global security registered in their names, will not receive or be
entitled to receive physical delivery of debt securities in definitive form and
will not be considered the owners or holders of the registered global security
(or any debt securities represented thereby) under the indenture or the debt
securities.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a registered global security to those persons
may be limited. Because DTC can act only on behalf of its participants, which in
turn act on behalf of indirect participants and certain banks, the ability of a
beneficial owner to pledge their interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of their
interests, may be affected by the lack of a physical certificate evidencing
their interests.
DTC will send notices and other communications to its direct participants;
direct participants will send these communications to indirect participants. The
direct participants and indirect participants will send notices and other
communications to beneficial owners pursuant to arrangements among them, subject
to any statutory or regulatory requirements as may be in effect from time to
time.
We will send any redemption notices to the nominee of DTC. If less than all
of the debt securities of a particular series are being redeemed, DTC will
determine in accordance with its procedures the amount of the interest of each
direct participant in the particular series to be redeemed.
Neither DTC nor its nominee will consent or vote with respect to any debt
securities. Under its usual procedures, DTC mails an omnibus proxy to its direct
participants as soon as possible after the applicable record date. The omnibus
proxy assigns the nominee's consenting or voting rights to those direct
participants to whose accounts the applicable securities are credited on the
record date (identified in a listing attached to the omnibus proxy).
Principal, premium, if any, and interest payments on the debt securities
will be made to DTC or its nominee. We expect that DTC will credit direct
participants' accounts on the relevant payment date upon DTC's receipt of funds
in accordance with the respective holdings shown on DTC's records. We expect
that payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities for the
accounts of customers in
9
bearer form or registered in "street-name". These payments will be the
responsibility of the participant and not of DTC, any underwriters, or us,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions and other amounts to DTC is the
responsibility of the trustee. DTC is responsible for disbursing those payments
to the direct participants. The direct and indirect participants are responsible
for disbursing payments to the beneficial owners. We will not have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the registered
global security or for maintaining, supervising or reviewing any records
relating to those beneficial ownership interests.
Interests in the registered global security will trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC may discontinue providing its services as securities depositary with
respect to the debt securities at any time by giving reasonable notice to us and
the trustee. In the event that a successor securities depositary is not
obtained, definitive debt securities certificates representing the debt
securities will be required to be printed and delivered.
We will not have any responsibility or obligation to participants or the
persons for whom they act as nominees with respect to the accuracy of the
records of DTC, its nominee or any participant with respect to any ownership
interest in the debt securities, or with respect to payments to or providing of
notice for the participants or the beneficial owners.
So long as DTC's nominee is the registered owner of the debt securities,
references herein to a holder of the debt securities means DTC or its nominee
and not the beneficial owners of the debt securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from DTC. Neither we, the trustees nor the underwriters,
dealers or agents, if any, take responsibility for the accuracy or completeness
of this description.
CERTAIN COVENANTS
Except as specified below or in the applicable prospectus supplement, the
following covenants apply to all series of senior debt securities.
Restrictions on Liens. The senior indenture provides that we will not, and
will not permit any Restricted Subsidiary to, create or incur any Lien on any
shares of stock, indebtedness or other obligations of a Restricted Subsidiary or
any Principal Property of ours or of a Restricted Subsidiary, whether those
shares of stock, indebtedness or other obligations of a Restricted Subsidiary or
Principal Property are owned at the date of such indenture or acquired
afterwards, unless we secure or cause the applicable Restricted Subsidiary to
secure the outstanding debt securities equally and ratably with (or, at our
option, prior to) all indebtedness secured by the particular Lien, so long as
the indebtedness is so secured. This covenant does not apply in the case of:
(a) the creation of any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property acquired after
the date of such indenture (including acquisitions by way of merger or
consolidation) by us or a Restricted Subsidiary, contemporaneously with
that acquisition, or within 180 days thereafter, to secure or provide
for the payment or financing of any part of the purchase price, or the
assumption of any Lien upon any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property acquired after
the date of such indenture existing at the time of the acquisition, or
the acquisition of any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property subject to any
Lien without the assumption of that
10
Lien, provided that every Lien referred to in this clause will attach
only to the shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property so acquired and fixed improvements
on that Principal Property;
(b) any Lien on any shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property existing on the date of such
indenture;
(c) any Lien on any shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property in favor of us or any Restricted
Subsidiary;
(d) any Lien on any Principal Property being constructed or improved
securing loans to finance the construction or improvements of that
property;
(e) any Lien on shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property incurred in connection with the
issuance of tax-exempt governmental obligations, including, without
limitation, industrial revenue bonds and similar financings;
(f) any mechanics', materialmen's, carriers' or other similar Liens
arising in the ordinary course of business with respect to obligations
that are not yet due or that are being contested in good faith;
(g) any Lien on any shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property for taxes, assessments or
governmental charges or levies not yet delinquent, or already
delinquent but the validity of which is being contested in good faith;
(h) any Lien on any shares of stock, indebtedness or other obligations of
a Subsidiary or any Principal Property arising in connection with
legal proceedings being contested in good faith, including any
judgment Lien so long as execution on the Lien is stayed;
(i) any landlord's Lien on fixtures located on premises leased by us or a
Restricted Subsidiary in the ordinary course of business, and tenants'
rights under leases, easements and similar Liens not materially
impairing the use or value of the property involved;
(j) any Lien arising by reason of deposits necessary to qualify us or any
Restricted Subsidiary to conduct business, maintain self-insurance, or
obtain the benefit of, or comply with, any law;
(k) Liens on our current assets to secure loans to us that mature within
twelve months from their creation and that are made in the ordinary
course of business; and
(l) any renewal of or substitution for any Lien permitted by any of the
preceding clauses, provided, in the case of a Lien permitted under
clauses (a), (b) or (d), the indebtedness secured is not increased nor
the Lien extended to any additional assets. (Section 4.3(a) of senior
indenture)
Notwithstanding the foregoing, we or any Restricted Subsidiary may create
or assume Liens in addition to those permitted by the preceding sentence of this
paragraph, and renew, extend or replace those Liens, provided that at the time
of and after giving effect to the creation, assumption, renewal, extension or
replacement, Exempted Debt does not exceed 15 percent of Consolidated Net
Tangible Assets. (Section 4.3(b) of senior indenture)
Restrictions on Sale and Lease-Back Transactions. The senior indenture
provides that we will not, and will not permit any Restricted Subsidiary to,
sell or transfer, directly or indirectly, except to us or to a Restricted
Subsidiary, any Principal Property as an entirety, or any substantial portion of
that Principal Property, with the intention of taking back a lease of such
property, except a lease for a period of three years or less at the end of which
it is intended that the use of that property by the
11
lessee will be discontinued. Notwithstanding the foregoing, we or any Restricted
Subsidiary may sell any Principal Property and lease it back for a longer
period:
(a) if we or such applicable Restricted Subsidiary would be entitled,
pursuant to the provisions of Section 4.3(a) of the senior indenture, to
create a Lien on the property to be leased securing Funded Debt in an
amount equal to the Attributable Debt with respect to the sale and
lease-back transaction without equally and ratably securing the outstanding
debt securities; or
(b) if we promptly inform the trustee of the transaction, and we cause
an amount equal to the fair value (as determined by resolution of our board
of directors) of the property to be applied (1) to the purchase of other
property that will constitute Principal Property having a fair value at
least equal to the fair value of the property sold, or (2) to the
retirement within 120 days after receipt of the proceeds of Funded Debt
incurred or assumed by us or a Restricted Subsidiary, including the senior
debt securities;
provided, further that, in lieu of applying all of or any part of such net
proceeds to such retirement, we may, within 75 days after the sale, deliver or
cause to be delivered to the applicable trustee for cancellation either
debentures or debt securities evidencing Funded Debt of ours (which may include
the senior debt securities) or of a Restricted Subsidiary previously
authenticated and delivered by the applicable trustee, and not yet tendered for
sinking fund purposes or called for a sinking fund or otherwise applied as a
credit against an obligation to redeem or retire such debt securities or
debentures, and an officer's certificate (which will be delivered to the
trustee) stating that we elect to deliver or cause to be delivered the
debentures or debt securities in lieu of retiring Funded Debt as provided in
such indenture.
If we deliver debentures or debt securities to the trustee and we duly
deliver the officer's certificate, the amount of cash that we will be required
to apply to the retirement of Funded Debt under this provision of the senior
indenture will be reduced by an amount equal to the aggregate of the then
applicable optional redemption prices (not including any optional sinking fund
redemption prices) of the applicable debentures or debt securities, or, if there
are no such redemption prices, the principal amount of those debentures or debt
securities. If the applicable debentures or debt securities provide for an
amount less than the principal amount to be due and payable upon a declaration
of the maturity, then the amount of cash will be reduced by the amount of
principal of those debentures or debt securities that would be due and payable
as of the date of the application upon a declaration of acceleration of the
maturity pursuant to the terms of the indenture pursuant to which those
debentures or debt securities were issued. (Section 4.4(a) of senior indenture)
Notwithstanding the foregoing, we or any Restricted Subsidiary may enter
into sale and lease-back transactions in addition to those permitted by this
paragraph, without any obligation to retire any outstanding debt securities or
other Funded Debt, provided that at the time of entering into and giving effect
to such sale and lease-back transactions, Exempted Debt does not exceed 15
percent of Consolidated Net Tangible Assets. (Section 4.4(b) of senior
indenture)
CERTAIN DEFINITIONS
The term "Attributable Debt" as defined in the senior indenture means when
used in connection with a sale and leaseback transaction referred to above under
"-- Certain Covenants -- Restrictions on Sale and Lease-Back Transactions," on
any date as of which the amount of Attributable Debt is to be determined, the
product of (a) the net proceeds from the sale and lease-back transaction
multiplied by (b) a fraction, the numerator of which is the number of full years
of the term of the lease relating to the property involved in the sale and
lease-back transaction (without regard to any options to renew or extend such
term) remaining on the date of the making of the computation, and the
denominator of which is the number of full years of the term of the lease
measured from the first day of the term.
12
The term "Consolidated Net Tangible Assets" as defined in the senior
indenture means total assets after deducting all current liabilities and
intangible assets as set forth in our most recent balance sheet and our
consolidated Subsidiaries and computed in accordance with GAAP.
The term "Exempted Debt" as defined in the senior indenture means the sum,
without duplication, of the following items outstanding as of the date Exempted
Debt is being determined:
(a) indebtedness of ours and our Restricted Subsidiaries incurred
after the date of such indenture and secured by liens created or assumed or
permitted to exist pursuant to Section 4.3(b) of such indenture described
above under "--Certain Covenants--Restrictions on Liens"; and
(b) Attributable Debt of ours and our Restricted Subsidiaries in
respect of all sale and lease-back transactions with regard to any
Principal Property entered into pursuant to Section 4.4(b) of such
indenture described above under "--Certain Covenants--Restrictions on Sales
and Lease-Back Transactions".
The term "Funded Debt" as defined in the senior indenture means all
indebtedness for money borrowed, including purchase money indebtedness, having a
maturity of more than one year from the date of its creation or having a
maturity of less than one year but by its terms being renewable or extendible at
the option of the obligor, beyond one year from the date of its creation.
The terms "Holder" or "Securityholder" as defined in the applicable
indenture mean the registered holder of any debt security with respect to
registered securities and the bearer of any unregistered security or any coupon
appertaining to it, as the case may be.
The term "Lien" as defined in the senior indenture means, with respect to
any asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind, or any other type of preferential arrangement that has the
practical effect of creating a security interest in respect of such asset. For
the purposes of such indenture, we or any Subsidiary will be deemed to own,
subject to a Lien, any asset that we have acquired or hold subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
The term "Original Issue Discount Security" as defined in the applicable
indenture means any debt security that provides for an amount less than the
principal amount of a particular security to be due and payable upon a
declaration of acceleration of the maturity of that security pursuant to Section
6.2 of such indenture.
The term "Principal Property" as defined in the senior indenture means any
manufacturing or processing plant or warehouse owned at the date of such
indenture or acquired after that date by us or any of our Restricted
Subsidiaries which is located within the United States and the gross book value
of which (including related land and improvements and all machinery and
equipment without deduction of any depreciation reserves) on the date as of
which the determination is being made exceeds 2 percent of Consolidated Net
Tangible Assets, other than:
(a) any manufacturing or processing plant or warehouse or any portion
of the same (together with the land on which it is erected and fixtures
that are a part of that land) which is financed by industrial development
bonds which are tax exempt pursuant to Section 103 of the Internal Revenue
Code (or which receive similar tax treatment under any subsequent
amendments or any successor laws or under any other similar statute of the
United States);
(b) any property which in the opinion of our board of directors is not
of material importance to the total business conducted by us as an
entirety; or
(c) any portion of a particular property which is similarly found not
to be of material importance to the use or operation of such property.
13
The term "Restricted Subsidiary" as defined in the applicable indenture
means a Subsidiary of ours (a) of which substantially all the property is
located, or substantially all the business is carried on, within the United
States, and (b) which owns Principal Property; provided, however, that any
Subsidiary may be declared a Restricted Subsidiary by board resolution,
effective as of the date such board resolution is adopted; provided further,
that any such declaration may be rescinded by further board resolution,
effective as of the date that further board resolution is adopted.
The term "Senior Indebtedness" as defined in the subordinated indenture
shall mean (a) the principal of, premium, if any, and interest on all
indebtedness, whether outstanding on the date of the subordinated indenture as
originally executed or thereafter created or incurred, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such indebtedness is not superior in right of payment to the
subordinated debt securities; and (b) any amendments, modifications, deferrals,
renewals or extensions of any such Senior Indebtedness, or debentures, notes or
other evidences of indebtedness issued in exchange for any such Senior
Indebtedness; provided, however, that Senior Indebtedness shall not be deemed to
include (i) indebtedness which constitutes subordinated indebtedness and (ii)
any other debt securities issued pursuant to the subordinated indenture.
The term "Subsidiary" as defined in the applicable indenture means, with
respect to any person, any corporation, association or other business entity of
which more than 50% of the outstanding Voting Stock is owned, directly or
indirectly, by that person and one or more other Subsidiaries of that person.
RESTRICTIONS ON MERGERS AND SALES OF ASSETS
Under each indenture, we may not consolidate with, merge with or into, or
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of our property and assets (in one transaction or a series of related
transactions) to, any person (other than a consolidation with or merger with or
into a Subsidiary or a sale, conveyance, transfer, lease or other disposition to
a Subsidiary) or permit any person to merge with or into us unless (a) either
(1) we will be the continuing person or (2) the person (if other than ourselves)
formed by the consolidation or into which we are merged or that acquired or
leased such property and assets of ours will be a corporation organized and
validly existing under the laws of the United States of America or any of its
jurisdictions and will expressly assume, by a supplemental indenture, executed
and delivered to the trustee, all of our obligations on all of the debt
securities under such indenture, and we will have delivered to the trustee an
opinion of counsel stating that the consolidation, merger or transfer and the
supplemental indenture complies with such indenture and that all conditions
precedent provided for in such indenture relating to the transaction have been
complied with and that the supplemental indenture constitutes a legal, valid and
binding obligation of ours or the successor enforceable against such entity in
accordance with its terms, subject to customary exceptions; and (b) an officer's
certificate to the effect that immediately after giving effect to such
transaction, no default will have occurred and be continuing and an opinion of
counsel as to the matters set forth in clause (a) will have been delivered to
the trustee. (Section 5.1)
EVENTS OF DEFAULT
Events of default defined in the indentures with respect to the debt
securities of any series are:
(a) we default in the payment of the principal of any debt securities of a
series when the same becomes due and payable at maturity, upon
acceleration, redemption or mandatory repurchase, including as a
sinking fund installment, or otherwise;
(b) we default in the payment of interest on any debt securities of a
series when the same becomes due and payable, and that default
continues for a period of 30 days;
14
(c) we default in the performance of or breach any other covenant or
agreement of ours in the applicable indenture with respect to the debt
securities of a series and that default or breach continues for a
period of 30 consecutive days (or, in the case of the subordinated
indenture, 60 consecutive days) after written notice to us by the
trustee or to us and the trustee by the Holders of 25 percent or more
in aggregate principal amount of the debt securities of all series
affected thereby;
(d) an involuntary case or other proceeding is commenced against us or any
Restricted Subsidiary with respect to our debts or our Restricted
Subsidiary's debts under any bankruptcy, insolvency or other similar
law now or in the future in effect seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official
relating to us or a substantial part of our property, and the
involuntary case or other proceeding remains undismissed and unstayed
for a period of 60 days; or an order for relief is entered against us
or any Restricted Subsidiary under the federal bankruptcy laws as now
or in the future in effect;
(e) we or any Restricted Subsidiary (1) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or in the
future in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (2) consent to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of us or any Restricted
Subsidiary or for all or substantially all of our property and assets
or any Restricted Subsidiary's property and assets or (3) effect any
general assignment for the benefit of creditors; and
(f) any other event of default established with respect to any series of
debt securities issued pursuant to the applicable indenture occurs.
(Section 6.1)
The indentures provide that if an event of default described in clauses (a)
or (b) above, with respect to the debt securities of any series then
outstanding, occurs and is continuing, then, and in each and every such case,
except for any series of debt securities the principal of which has already
become due and payable, either the trustee or the Holders of not less than 25
percent in aggregate principal amount of the debt securities of any such
affected series then outstanding under the applicable indenture (each series
being treated as a separate class) by notice in writing to us (and to the
trustee if given by Securityholders), may declare the entire principal (or, if
the debt securities of any such series are Original Issue Discount Securities,
the applicable portion of the principal amount as may be specified in the terms
of the particular series established pursuant to that indenture) of all debt
securities of the affected series, and the interest accrued on that series, if
any, to be due and payable immediately, and upon any such declaration the same
will become immediately due and payable.
If an event of default described clauses (c) or (f) above, with respect to
the debt securities of one or more but not all series then outstanding, or with
respect to the debt securities of all series then outstanding, occurs and is
continuing, then, and in each and every such case, except for any series of debt
securities the principal of which has already become due and payable, either the
trustee or the Holders of not less than 25 percent in aggregate principal amount
(or, if the debt securities of any such series are Original Issue Discount
Securities, the amount of which is accelerable as described in this paragraph)
of the debt securities of all the affected series then outstanding under the
applicable indenture (treated as a single class) by notice in writing to us (and
to the trustee if given by Securityholders) may declare the entire principal
(or, if the debt securities of any such series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all debt securities of all the affected series, and the
interest accrued on those series, if any, to be due and payable immediately, and
upon any such declaration the same will become immediately due and payable.
If an event of default described in clauses (d) or (e) above occurs and is
continuing, then the principal amount (or, if any debt securities are Original
Issue Discount Securities, the portion of the
15
principal as may be specified in the terms of that series) of all the debt
securities then outstanding and interest accrued on those debt securities, if
any, will be and become immediately due and payable without any notice or other
action by any Holder or the trustee to the full extent permitted by applicable
law.
Upon certain conditions such declarations may be rescinded and annulled and
past defaults may be waived by the Holders of a majority in principal of the
then outstanding debt securities of all series that have been accelerated,
voting as a single class. (Section 6.2)
TRUSTEE'S RIGHTS
The indentures contain a provision under which, subject to the duty of the
trustee during a default to act with the required standard of care:
(a) the trustee may rely and will be protected in acting or refraining from
acting upon any resolution, certificate, officer's certificate, opinion
of counsel, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence or
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper person or persons,
and the trustee need not investigate any fact or matter stated in the
document, but the trustee, in its discretion, may make any further
inquiry or investigation into any facts or matters as it may see fit;
(b) before the trustee acts or refrains from acting, it may require an
officer's certificate and/or an opinion of counsel, which will conform
to the requirements of the applicable indenture, and the trustee will
not be liable for any action it takes or omits to take in good faith in
reliance on that certificate or opinion; subject to the terms of such
indenture, whenever in the administration of the trusts of such
indenture the trustee deems it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any
action under such indenture, that matter (unless other evidence in
respect thereof be specifically prescribed in such indenture) may, in
the absence of negligence or bad faith on the part of the trustee, be
deemed to be conclusively proved and established by an officer's
certificate delivered to the trustee, and that certificate, in the
absence of negligence or bad faith on the part of the trustee, will be
full warrant to the trustee for any action taken, suffered or omitted
by it under the provisions of such indenture upon the faith of the
officer's certificate;
(c) the trustee may act through its attorneys and agents not regularly in
its employ and will not be responsible for the misconduct or negligence
of any agent or attorney appointed with due care by it under the
applicable indenture;
(d) any request, direction, order or demand of us mentioned in the
applicable indenture will be sufficiently evidenced by an officer's
certificate (unless other evidence is specifically prescribed in such
indenture); and any board resolution may be evidenced to the trustee by
a copy of the resolution certified by our Secretary or an Assistant
Secretary;
(e) the trustee will be under no obligation to exercise any of the rights
or powers vested in it by the applicable indenture at the request,
order or direction of any of the Holders, unless the Holders have
offered the trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance
with the request or direction;
(f) the trustee will not be liable for any action it takes or omits to take
in good faith that it believes to be authorized or within its rights or
powers or for any action it takes or omits to take in accordance with
the direction of the Holders in accordance with the applicable
indenture relating to the time, method and place of conducting any
proceeding for any remedy available to the trustee, or exercising any
trust or power conferred upon the trustee, under such indenture;
16
(g) the trustee may consult with counsel, and the written advice of its
counsel or any opinion of counsel will be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it under the applicable indenture in good faith and in
reliance on that opinion of counsel; and
(h) prior to the occurrence of an event of default under each indenture and
after the curing or waiving of all events of default, the trustee will
not be bound to make any investigation into the facts or matters stated
in any resolution, certificate, officer's certificate, opinion of
counsel, board resolution, statement, instrument, opinion, report,
notice, request, consent, order, approval, appraisal, bond, debenture,
note, coupon, security, or other paper or document, but the trustee, in
its discretion, may make any further inquiry or investigation into any
facts or matters as it may see fit and, if the trustee decides to make
such further inquiry or investigation, it will be entitled to examine,
during normal business hours and upon prior written notice, our books,
records and premises, personally or by agent or attorney. (Section 7.2)
Subject to various provisions in the indentures, the Holders of at least a
majority in principal amount (or, if the debt securities are Original Issue
Discount Securities, such portion of the principal as is then accelerable under
the applicable indenture) of the applicable outstanding debt securities of all
series affected (voting as a single class) by notice to the trustee, may waive,
on behalf of the Holders of all the debt securities of that series, an existing
default or event of default with respect to such debt securities of that series
and its consequences, except a default in the payment of principal of or
interest on any debt security as specified in clauses of the "Events of Default"
section above or in respect of a covenant or provision of such indenture which
cannot be modified or amended without the consent of the Holder of each
outstanding debt security affected by the default. Upon any waiver, the default
will cease to exist, and any event of default with respect to the debt
securities of that series will be deemed to have been cured, for every purpose
of such indenture. However, no waiver will extend to any subsequent or other
default or event of default or impair any right in relation to any subsequent or
other default or event of default. (Section 6.4)
Subject to provisions in the indentures for the indemnification of the
trustee and certain other limitations, the Holders of at least a majority in
aggregate principal amount (or, if any debt securities are Original Issue
Discount Securities, the portion of the principal as is then accelerable under
the applicable indenture) of the applicable outstanding debt securities of all
series affected (voting as a single class), may direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to the debt
securities of such series by such indenture, provided that the trustee may
refuse to follow any direction that conflicts with law or such indenture that
may involve the trustee in personal liability, or that the trustee determines in
good faith may be unduly prejudicial to the rights of Holders not joining in the
giving of such direction; and provided, further that the trustee may take any
other action it deems proper that is not inconsistent with any directions
received from such Holders of debt securities pursuant to such indenture.
(Section 6.5)
The indentures provide that no Holder of any applicable debt securities of
any series may institute any proceeding, judicial or otherwise, with respect to
the applicable indenture or the debt securities of that series, or for the
appointment of a receiver or trustee, or for any other remedy under the
indentures, unless:
(a) such Holder has previously given to the trustee written notice of a
continuing event of default with respect to the debt securities of that
series;
(b) such Holders of at least 25 percent in aggregate principal amount of
applicable outstanding debt securities of the affected series have made
written request to the trustee to institute proceedings in respect of
the event of default in its own name as trustee under such indenture;
17
(c) the Holder or Holders have offered to the trustee indemnity reasonably
satisfactory to the trustee against any costs, liabilities or expenses
to be incurred in compliance with the request;
(d) the trustee for 60 days after its receipt of the notice, request and
offer of indemnity has failed to institute any such proceeding; and
(e) during the 60-day period, the Holders of a majority in aggregate
principal amount of the applicable outstanding debt securities of the
affected series have not given the trustee a direction that is
inconsistent with such written request. A Holder may not use such
indenture to prejudice the rights of another Holder or to obtain a
preference or priority over any other Holder. (Section 6.6)
The indentures contain a covenant that we will file with the trustee,
within 15 days after we are required to file the same with the SEC, copies of
the annual reports and of the information, documents and other reports that we
may be required to file with the SEC pursuant to Section 13 or Section 15(d) of
the Exchange Act. (Section 4.6)
DISCHARGE, LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Each indenture provides with respect to each series of applicable debt
securities that, except as otherwise provided in this paragraph, we may
terminate our obligations under such debt securities of a series and the
applicable indenture with respect to debt securities of that series if:
(a) all debt securities of that series previously authenticated and
delivered, with certain exceptions, have been delivered to the trustee for
cancellation, and we have paid all sums payable by us under such indenture
with respect to that series; or
(b) (1) the debt securities of that series mature within one year or
all of them are to be called for redemption within one year under
arrangements satisfactory to the trustee for giving the notice of
redemption;
(2) we irrevocably deposit in trust with the trustee, as trust funds
solely for the benefit of the Holders of those debt securities, for that
purpose, money or U.S. Government obligations or a combination of money or
U.S. Government obligations sufficient (unless such funds consist solely of
money, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification delivered to the trustee),
without consideration of any reinvestment, to pay principal of and interest
on the debt securities of that series to maturity or redemption, as the
case may be, and to pay all other sums payable by us under such indenture;
and
(3) we deliver to the trustee an officer's certificate and an opinion
of counsel, in each case stating that all conditions precedent provided for
in such indenture relating to the satisfaction and discharge of such
indenture with respect to the debt securities of that series have been
complied with.
With respect to the foregoing clause (a), only our obligations to
compensate and indemnify the trustee will survive. With respect to the foregoing
clause (b), only our obligations to execute and deliver debt securities of that
series for authentication, to set the terms of the debt securities of that
series, to maintain an office or agency in respect of the debt securities of
that series, to have moneys held for payment in trust, to register the transfer
or exchange of debt securities of that series, to deliver debt securities of
that series for replacement or to be canceled, to compensate and indemnify the
trustee and to appoint a successor trustee, and our right to recover excess
money held by the trustee will survive until those debt securities are no longer
outstanding. Thereafter, only our obligations to compensate and indemnify the
trustee and its right to recover excess money held by the trustee will survive.
(Section 8.1)
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Each indenture provides that, except as otherwise provided in this
paragraph, we:
(a) will be deemed to have paid and will be discharged from any and
all obligation, in respect of the debt securities of any series, and the
provisions of such indenture will no longer be in effect with respect to
the debt securities of that series (a "legal defeasance"); and
(b) may omit to comply with any specific covenant relating to such
series provided for in a board resolution or supplemental indenture or
officer's certificate that may by its terms be defeased pursuant to the
applicable indenture (or any term, provision or condition of the senior
indenture described above under "-- Certain Covenants", in the case of the
senior indenture) and our omission will be deemed not to be an event of
default under clauses (c) and (f) under "Events of Default" above with
respect to the outstanding debt securities of a series (a "covenant
defeasance");
provided that the following conditions will have been satisfied:
(a) we have irrevocably deposited in trust with the trustee as trust
funds solely for the benefit of the Holders of the debt securities of that
series, for payment of the principal of and interest on those debt
securities, money or U.S. Government obligations or a combination of the
foregoing sufficient (unless such funds consist solely of money, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the trustee)
without consideration of any reinvestment and after payment of all federal,
state and local taxes or other charges and assessments in respect of those
payments payable by the trustee, to pay and discharge the principal of and
accrued interest on the outstanding debt securities of such series to
maturity or earlier redemption (irrevocably provided for under arrangements
satisfactory to the trustee), as the case may be;
(b) our deposit will not result in a breach or violation of, or
constitute a default under, such indenture or any other material agreement
or instrument to which we are a party or by which we are bound;
(c) no default with respect to those debt securities will have
occurred and be continuing on the date of the deposit;
(d) we will have delivered to the trustee an opinion of counsel that
the Holders of the debt securities of that series have a valid security
interest in the trust funds subject to no prior liens under such Uniform
Commercial Code; and
(e) we will have delivered to the trustee an officer's certificate and
an opinion of counsel, in each case stating that all conditions precedent
provided for in such indenture relating to the defeasance contemplated have
been complied with.
In the case of a legal defeasance, we will have delivered to the trustee an
opinion of counsel (based on a change in law) or a ruling directed to the
trustee from the United States Internal Revenue Service that the Holders of the
debt securities of that series will not recognize income, gain or loss for
federal income tax purposes as a result of our exercise of our option under this
provision of the applicable indenture and will be subject to federal income tax
on the same amount and in the same manner and at the same times as could have
been the case if the deposit and defeasance had not occurred, or an instrument,
in form reasonably satisfactory to the trustee, where we, notwithstanding a
legal defeasance of our indebtedness in respect of debt securities of any
series, or any portion of the principal amount thereof, will assume the
obligation which will be absolute and unconditional) to irrevocably deposit with
the trustee any additional sums of money or additional U.S. Government
obligations or any combination of money or U.S. Government obligations, at such
time or times as necessary, together with the money and/or U.S. Government
obligations so deposited, to pay when due the principal of and premium, if any,
and interest due and to become due on the applicable debt securities; provided,
however, that the instrument may state that our obligation to make additional
deposits as aforesaid will be subject to the delivery to us by the trustee
19
of a notice asserting the deficiency accompanied by an opinion of an independent
public accountant of nationally recognized standing selected by the trustee,
showing the applicable calculation.
Subsequent to a legal defeasance, our obligations to execute and deliver
debt securities of that series for authentication, to set the terms of the debt
securities of that series, to maintain an office or agency in respect of the
debt securities of that series, to have moneys held for payment in trust, to
register the transfer or exchange of debt securities of that series, to deliver
debt securities of that series for replacement or to be canceled, to compensate
and indemnify the trustee and to appoint a successor trustee, and our right to
recover excess money held by the trustee will survive until those debt
securities are no longer outstanding. After those debt securities are no longer
outstanding, in the case of a legal defeasance, only our obligations to
compensate and indemnify the trustee and our right to recover excess money held
by the trustee will survive. (Sections 8.2 and 8.3)
MODIFICATION OF THE INDENTURE
Each indenture provides that we and the trustee may amend or supplement
such indenture or the applicable debt securities of any series without notice to
or the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency in such indenture,
provided that such amendments or supplements do not materially and
adversely affect the interests of the Holders;
(b) to comply with Article 5 (which relates to the covenant discussed under
"-- Restrictions on Mergers and Sales of Assets") of such indenture;
(c) to comply with any requirements of the SEC in connection with the
qualification of such indenture under the Trust Indenture Act;
(d) to evidence and provide for the acceptance of appointment under such
indenture with respect to the debt securities of any or all series by a
successor trustee;
(e) to establish the form or forms or terms of debt securities of any
series or of the coupons appertaining to such debt securities as
permitted under such indenture;
(f) to provide for uncertificated or unregistered debt securities and to
make all appropriate changes for such purpose;
(g) to change or eliminate any provisions of such indenture with respect to
all or any series of the debt securities not then outstanding (and, if
the change is applicable to fewer than all those series of the
applicable debt securities, specifying the series to which the change
is applicable), and to specify the rights and remedies of the trustee
and the Holders of those debt securities; and
(h) to make any change that does not materially and adversely affect the
rights of any Holder. (Section 9.1)
Each indenture also contains provisions that allow us and the trustee,
subject to certain conditions, without prior notice to any Holders, to amend
such indenture and the outstanding debt securities of any series with the
written consent of the Holders of a majority in aggregate principal amount of
the applicable debt securities then outstanding of all series affected by such
supplemental indenture (all such series voting as one class). The Holders of a
majority in aggregate principal amount of the applicable outstanding debt
securities of all series affected (all such series voting as one class) by
written notice to the trustee may waive future compliance by us with any
provision of such indenture or the debt securities of that series.
Notwithstanding the foregoing provisions, without the consent of each applicable
Holder affected, an amendment or waiver, including a waiver pursuant to Section
6.4 of such indenture, may not:
(a) extend the stated maturity of the principal of, or any sinking fund
obligation or any installment of interest on, the Holder's debt
security or reduce the principal amount or the
20
rate of interest of that debt security (including any amount in respect
of original issue discount), or any premium payable with respect to
that debt security, or adversely affect the rights of that Holder under
any mandatory redemption or repurchase provision or any right of
redemption or repurchase at the option of that Holder, or reduce the
amount of the principal of an Original Issue Discount Security that
would be due and payable upon the acceleration of the maturity of that
debt security or any amount provable in bankruptcy, or change any place
of payment where, or the currency in which, any debt security or any
premium or the interest on that debt security is payable, or impair the
right to institute suit for the enforcement of any payment on or after
the due date of that payment;
(b) reduce the percentage in principal amount of outstanding debt
securities of the relevant series the consent of whose Holders is
required for any supplemental indenture or for any waiver of compliance
with certain provisions of such indenture or certain defaults and their
consequences provided for therein;
(c) waive a default in the payment of principal of or interest on any
applicable debt security of a Holder; or
(d) modify any of the provisions of such indenture governing supplemental
indentures with the consent of Securityholders, except to increase the
percentage or to provide that certain other provisions of such
indenture cannot be modified or waived without the consent of the
Holder of each outstanding debt security affected by the modification.
A supplemental indenture which changes or eliminates any covenant or other
provision of the applicable indenture which has expressly been included solely
for the benefit of one or more particular series of debt securities, or which
modifies the rights of Holders of applicable debt securities of that series with
respect to that covenant or provision, will be deemed not to affect the rights
under such indenture of the Holders of debt securities of any other series or of
the coupons appertaining to those debt securities. It will not be necessary for
the consent of any Holder under such indenture to approve the particular form of
any proposed amendment, supplement or waiver, but it will be sufficient if the
consent approves the substance of the amendment, supplement or waiver. After an
amendment, supplement or waiver under such indenture becomes effective, we or,
at our request, the trustee will give to the affected Holders a notice briefly
describing the amendment, supplement or waiver. We or, at our request, the
trustee will mail supplemental indentures to Holders upon request. Any failure
of us to mail such notice, or any defect in the notice, will not, however, in
any way impair or affect the validity of any supplemental indenture or waiver.
(Section 9.2)
INFORMATION CONCERNING THE TRUSTEE
An affiliate of The Bank of New York participates as a lender under certain
of our credit agreements.
21
DESCRIPTION OF CAPITAL STOCK
We have authority to issue 160,000,000 shares of common stock, par value
$1.00 per share and 2,000,000 shares of preferred stock, par value $1.00 per
share. As of September 30, 2000, we had outstanding 103,741,595 shares of common
stock and no shares of preferred stock. Our board of directors has authority,
without action by our shareholders, to issue authorized and unissued shares of
preferred stock in one or more series and, within certain limitations, to
determine the voting rights (including the right to vote as a series on
particular matters), preference as to dividends and in liquidation, conversion,
redemption and other rights of each series.
The following is a brief summary of the voting, dividend, liquidation and
certain other rights of the holders of the capital stock as set forth in our
by-laws and Restated Certificate of Incorporation, copies of which are filed
with the Commission.
COMMON STOCK
Voting Rights-Noncumulative Voting. The holders of common stock are
entitled to one vote per share on all matters to be voted on by shareholders,
including the election of directors. Shareholders are not entitled to cumulative
voting rights, and, accordingly, the holders of a majority of the shares voting
for the election of directors can elect the entire board of directors if they
choose to do so and, in that event, the holders of the remaining shares will not
be able to elect any person to the board of directors.
Our Restated Certificate of Incorporation requires the affirmative vote of
90% of our outstanding shares of common stock to authorize certain mergers,
sales of assets, corporate reorganizations and other transactions in the event
that any person or entity acquires 30% or more of our outstanding common stock.
Dividends; Restriction on Payment of Dividends. The holders of common
stock are entitled to receive such dividends, if any, as may be declared from
time to time by our board of directors, in its discretion, from funds legally
available for the purpose and subject to prior dividend rights of holders of any
shares of preferred stock which may be outstanding. Upon liquidation or
dissolution of Arrow, subject to prior liquidation rights of the holders of
preferred stock, the holders of common stock are entitled to receive on a pro
rata basis the remaining assets of Arrow available for distribution. Holders of
common stock have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to our
common stock.
In addition, the terms of our second amended and restated credit agreement,
as amended, and our amended and restated 364-day credit agreement require that
consolidated total debt, consolidated net worth, and the ratio of earnings to
cash interest expense be maintained at certain designated levels.
All outstanding shares of common stock are fully paid and not liable to
further calls or assessment by us.
PREFERRED STOCK
Our board of directors is authorized, without further vote or action by the
holders of our common stock, to issue by resolution an aggregate of 2,000,000
shares of preferred stock. These shares of preferred stock may be issued in one
or more series as established from time to time by our board of directors. Our
board also is authorized to fix the number of shares and the designation or
title of each series of preferred stock prior to the issuance of any shares of
that series. Regarding each class or series of preferred stock, our board will
fix the voting powers which may be full or limited, or there may be no voting
powers. Our board will also determine the preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions, of each series of preferred stock. Our board is further
authorized to increase or decrease the number
22
of shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of the class or series then outstanding.
No shares of preferred stock are presently outstanding and we have no plans
to issue a new series of preferred stock. It is not possible to state the effect
of the authorization and issuance of any series of preferred stock upon the
rights of the holders of common stock until our board of directors determines
the specific terms, rights and preferences of a series of preferred stock.
However, possible effects might include restricting dividends on the common
stock, diluting the voting power of the common stock or impairing the
liquidation rights of the common stock without further action by holders of
common stock. In addition, under some circumstances, the issuance of preferred
stock may render more difficult or tend to discourage a merger, tender offer or
proxy contest, the assumption of control by a holder of a large block of our
securities or the removal of incumbent management, which could thereby depress
the market price of our common stock.
RIGHTS AGREEMENT
In March 1988, we paid a dividend of one preferred share purchase right on
each outstanding share of common stock pursuant to a rights agreement. Each
right entitles the holder to purchase from us one one-hundredth of a share of
participating stock, $1.00 par value, for a price of $50, subject to adjustment.
Although the rights are not intended to prevent a takeover of Arrow at a full
and fair price, they may have certain anti-takeover effects. They may deter an
attempt to acquire Arrow in a manner which seeks to deprive our shareholders of
the full and fair value of their investment and may deter attempts by
significant shareholders to take advantage of Arrow and its shareholders through
certain self-dealing transactions. The rights may cause substantial dilution to
a person or group that acquires or attempts to acquire Arrow without the rights
being redeemed by the board of directors. Accordingly, the rights should
encourage any potential acquirer to negotiate with our board of directors.
Unless approval is first obtained from our board of directors, the rights may
deter transactions, including tender offers, which the majority of shareholders
may believe are beneficial to them.
23
DESCRIPTION OF WARRANTS
We have described below the general terms and provisions of the debt
warrants and equity warrants to which a prospectus supplement may relate. We
will describe the particular terms of any debt warrants and equity warrants
offered by any prospectus supplement in the prospectus supplement relating to
such debt warrants or equity warrants.
GENERAL
We may issue debt warrants and equity warrants, evidenced by warrant
certificates under a warrant agreement, independently or together with any debt
securities, preferred stock or common stock. The warrants may be transferable
with or separate from such securities. If we offer debt warrants, the applicable
prospectus supplement will describe the terms of the debt warrants, including
the following: (i) the offering price, if any, including the currency, or
currency unit in which such price will be payable; (ii) the designation,
aggregate principal amount and terms of the offered debt securities with which
the debt warrants are issued and the number of debt warrants issued with each
such offered debt security; (iii) if applicable, the date on or after which the
debt warrants and the related offered debt securities will be separately
transferable; (iv) the designation, aggregate principal amount and terms of debt
securities purchasable upon exercise of one debt warrant and the price or prices
at which, and the currency, or currency unit in which such principal amount of
debt securities may be purchased upon exercise; (v) the date on which the right
to exercise the debt warrants commences and the date on which such right
expires; (vi) any U.S. Federal income tax consequences; (vii) whether the debt
warrants represented by the warrant certificates will be issued in registered or
bearer form or both; and (viii) any other material terms of the debt warrants.
If we offer equity warrants, the applicable prospectus supplement will describe
the terms of the equity warrants, including the following: (i) the offering
price, if any, including the currency or currency unit in which such price will
be payable; (ii) the designation of any series of preferred stock purchasable
upon exercise of the equity warrants; (iii) the number of shares of preferred
stock or common stock purchasable upon exercise of one equity warrant, and the
price or prices at which, and the currency, or currency unit in which such
shares may be purchased upon exercise; (iv) the date on which the right to
exercise the equity warrants and the date on which such right expires; (v) any
U.S. Federal income tax consequences; (vi) whether the equity warrants
represented by the warrant certificate will be issued in registered or bearer
form or both; (vii) whether the equity warrants or the underlying preferred
stock or common stock will be listed on any national securities exchange; and
(viii) any other material terms of the equity warrants. In addition, if we sell
any debt warrants or equity warrants for any foreign currency or currency units,
the restrictions, elections, tax consequences, specific terms and other
information with respect to such issue will be specified in the applicable
prospectus supplement.
Warrant certificates, if any, may be exchanged for new warrant certificates
of different denominations and may (if in registered form) be presented for
registration of transfer at the corporate trust office of the warrant agent,
which will be listed in the applicable prospectus supplement, or at such other
office as may be set forth therein. Warrantholders do not have any of the rights
of holders of debt securities (except to the extent that the consent of
warrantholders may be required for certain modifications of the terms of the
indenture under which the series of offered debt securities issuable upon
exercise of the warrants to be issued) or preferred or common stockholders and
are not entitled to payments of principal and interest, if any, on debt
securities or to dividends or other distributions made with respect to preferred
stock or common stock.
Warrants may be exercised by surrendering the warrant certificate, if any,
at the corporate trust office or other designated office of the warrant agent,
with (i) the form of election to purchase on the reverse side of the warrant
certificate, if any, properly completed and executed, and (ii) payment in full
of the exercise price, as set forth in the applicable prospectus supplement.
Upon exercise of warrants, the warrant agent will, as soon as practicable,
deliver the debt securities, preferred stock or common stock issuable upon the
exercise of the warrants in authorized
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denominations in accordance with the instructions of the exercise warrantholder
and at the sole cost and risk of such holder. If less than all of the warrants
evidenced by the warrant certificate are exercised, a new warrant certificate
will be issued for the remaining amount of unexercised warrants, if sufficient
time exists prior to the expiration date.
PLAN OF DISTRIBUTION
GENERAL
Any of the securities offered hereby may be sold in any one or more of the
following ways from time to time:
- to or through underwriters;
- through dealers;
- directly to other purchasers; or
- through agents.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of securities, underwriters may receive
compensation from us or purchasers of securities for whom they may act as
agents, in the form of discounts, concessions or commissions. Underwriters,
dealers and agents that participate in the distribution of securities may be
deemed to be underwriters, and any discounts or commissions received by them
from us and any profit on the resale of securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Any person who
may be deemed to be an underwriter will be identified, and the compensation
received from us will be described, in the prospectus supplement.
During and after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters may also impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers for the securities sold for their
account may be reclaimed by the syndicate if those securities are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the securities,
which may be higher than the price that might otherwise prevail in the open
market, and, if commenced, may be discontinued at any time.
Except for our common stock, all securities, when first issued, will have
no established trading market. Any underwriters or agents to or through whom
securities are sold by us for public offering and sale may make a market in
those securities, but the underwriters or agents will not be obligated to do so
and may discontinue any market making at any time without notice. We cannot
assure you as to the liquidity of the trading market for any of our securities.
Under agreements which we may enter into, underwriters, dealers and agents
who participate in the distribution of securities may be entitled to
indemnification by us against or contribution toward certain liabilities,
including liabilities under the Securities Act.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by certain
institutions to purchase debt securities from us pursuant to contracts providing
for payment and delivery on a future date. Institutions with which those types
of contracts may be made include commercial and savings banks, insurance
25
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases will be subject to our approval. The
obligations of any purchaser under any of those types of contracts will be
subject to the condition that the purchase of the securities will not at the
time of delivery be prohibited under the laws of any jurisdiction to which the
purchaser is subject. The underwriters and agents will not have any
responsibility in respect of the validity or performance of those contracts.
VALIDITY OF SECURITIES
The validity of the securities offered by this prospectus will be passed
upon for us by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.
EXPERTS
The consolidated financial statements at December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999, appearing in
our Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and
incorporated by reference herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report dated February 16, 2000
incorporated in this prospectus by reference and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The audited historical financial statements of the Wyle Electronics Group
incorporated in this prospectus by reference to Arrow Electronics, Inc's Form
8-K dated September 1, 2000 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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