As filed with the Securities and Exchange Commission on February 22, 2002
Registration No. 333-82080
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PHOTRONICS, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0854886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1061 East Indiantown Road
Jupiter, Florida 33477
(561) 745-1222
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
James A. Eder
Vice President, Secretary and General Counsel
1061 East Indiantown Road
Jupiter, Florida 33477
(561) 745-1222
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy To:
Jonathan Jewett
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
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Approximate date of commencement of proposed sale to the public: From time
to time after this registration statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities being offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the registration statement number of the earlier effective registration
statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the registration
statement number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
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Information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the
Securities and Exchange Commission Is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion
Dated February 22, 2002
PROSPECTUS
$200,000,000
Photronics, Inc.
4 3/4% Convertible Subordinated Notes Due 2006
and
Common Stock Issuable Upon Conversion of the Notes
We issued the notes in a private placement in December 2001. This prospectus
will be used by selling security holders to resell their notes and the common
stock issuable upon conversion of their notes.
The notes bear interest at an annual rate of 4 3/4% from December 12, 2001.
We will pay interest on June 15 and December 15 of each year, beginning June
15, 2002, to record holders at the close of business of the preceding June 1
and December 1, as the case may be.
Beginning December 17, 2004, we may redeem any of the notes at an initial
redemption price of 101.90% of their principal amount plus accrued interest.
Prior to December 17, 2004, we may redeem any of the notes if (1) the closing
price of the common stock has exceeded 150% of the conversion price for at
least 20 trading days in any consecutive 30-day trading period and (2) the
shelf registration statement covering resales of the notes and the common stock
is effective.
The notes are subordinated in right of payment to all of our senior
indebtedness and are structurally subordinated to all liabilities (including
trade payables) of our subsidiaries. As of October 31, 2001, we had $58.3
million of senior indebtedness outstanding and our subsidiaries had $283.1
million of liabilities outstanding, excluding liabilities owed to us and
minority interests.
Holders may convert the notes into shares of our common stock at a
conversion rate of 27.027 shares per $1,000 principal amount of notes, subject
to adjustment, before December 15, 2006. Our common stock is quoted on the
Nasdaq National Market under the symbol "PLAB." On February 21, 2002, the last
reported sale price of the common stock on the Nasdaq National Market was
$29.32 per share.
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Investing in the notes involves risks. See "Risk Factors" beginning on page
7.
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We will not receive any of the proceeds from the sale of the notes or shares
of common stock by any of the selling security holders. The notes and the
shares of common stock may be offered in negotiated transactions or otherwise,
at market prices prevailing at the time of sale or at negotiated prices. In
addition, our shares of common stock may be offered from time to time through
ordinary brokerage transactions on the Nasdaq National Market. See "Plan of
Distribution." The selling security holders may be deemed to be underwriters as
defined in the Securities Act of 1933, as amended. Any profits realized by the
selling security holders may be deemed to be underwriting commissions. If the
selling security holders use any broker-dealers, any commissions paid to
broker-dealers and, if broker-dealers purchase any notes or common stock as
principals, any profits received by such broker-dealers on the resale of the
notes or common stock, may be deemed to be underwriting discounts or
commissions under the Securities Act.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus February , 2002.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information.............. 3
Summary.......................................... 4
Risk Factors..................................... 7
Special Note Regarding Forward-Looking Statements 14
Use of Proceeds.................................. 15
Ratio of Earnings to Fixed Charges............... 15
Description of Notes............................. 16
Description of Capital Stock..................... 28
United States Federal Tax Considerations......... 30
Selling Security Holders......................... 36
Plan of Distribution............................. 39
Legal Matters.................................... 40
Experts.......................................... 40
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not and selling security holders have not
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. You should assume that the information appearing in this prospectus
or any documents incorporated by reference is accurate only as of the date on
the front cover of the applicable document. Our business, financial condition,
results of operations and prospects may have changed since that date.
2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
materials that we have filed with the Securities and Exchange Commission at the
following Securities and Exchange Commission public reference rooms:
450 Fifth Street, N.W. 233 Broadway 500 West Madison Street
Room 1024 New York, New York 10279 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms.
Our common stock is quoted on the Nasdaq National Market under the symbol
"PLAB," and our Securities and Exchange Commission filings can also be read at
the following Nasdaq address:
Nasdaq Operations, 1735 K Street, N.W. Washington, D.C. 20006
Our Securities and Exchange Commission filings are also available to the
public on the Securities and Exchange Commission's Internet website at
http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3 that
registers the securities we are offering by this prospectus. The registration
statement, including the attached exhibits and schedules, contains additional
relevant information about us and the securities offered. The rules and
regulations of the SEC allow us to omit certain information included in the
registration statement from this prospectus.
The SEC allows us to "incorporate by reference" information into this
prospectus that we have filed with it. This means that we can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is
considered to be part of this prospectus, except for any information that is
superseded by information that is included directly in this document or
incorporated by reference in documents subsequently filed with the SEC.
We incorporate by reference the documents listed 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 (i) after the date of the filing of this
registration statement and prior to its effectiveness and (ii) until all of the
notes and common stock to which this prospectus relates have been sold or the
offering is otherwise terminated:
. Our Annual Report on Form 10-K for our fiscal year ended October 31, 2001.
. Our Report on Form 8-K filed on December 13, 2001.
. The description of our common stock, par value $.01 per share, contained
in our registration statement on Form 8-A filed on March 3, 1987.
You may request a copy of these filings, at no cost, by writing to us at the
following address or telephoning us at (203) 775-9000 between the hours of 9:00
a.m. and 4:00 p.m., Eastern Standard Time:
Photronics, Inc.
Investors Relations Department
15 Secor Road
Brookfield, CT 06804
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different or additional information.
This prospectus is an offer to sell or to buy only the securities referred to
herein, but only under circumstances and in jurisdictions where it is lawful to
do so. The information contained in this prospectus is current only as of the
date hereof.
3
SUMMARY
This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and our financial statements and
the related notes thereto before making an investment decision.
Photronics
We are a leading manufacturer of photomasks, which are used primarily by the
semiconductor industry in the manufacture of integrated circuits. A photomask
is a high precision photographic quartz plate that is used as a master to
transfer microscopic circuit patterns onto semiconductor wafers during the
fabrication of integrated circuits.
We principally operated from 11 facilities at December 31, 2001, five of
which were located in the United States, three in Europe and one in each of
Korea, Singapore and Taiwan. Based upon available market information, we
believe that we have a larger share of the U. S. market for photomasks than any
other photomask manufacturer and are one of the largest photomask manufacturers
in the world.
Photomasks are a key element in the manufacture of semiconductors. They are
used to transfer integrated circuit patterns onto semiconductor wafers during
the fabrication of integrated circuits and, to a lesser extent, other types of
electronic components. Each integrated circuit consists of a series of separate
patterns, each of which is imaged onto a different photomask. The resulting
series of photomasks is then used to successively layer the circuit patterns
onto the semiconductor wafer. Both semiconductor design activity and increases
in the complexity of integrated circuits are driving the demand for photomasks.
As the complexity of integrated circuits has increased, so has the number and
complexity of photomasks used in the manufacture of a single circuit.
Photomasks are manufactured by independent manufacturers like us, and by
captive manufacturers, which are semiconductor manufacturers that produce
photomasks almost exclusively for their own use. Since the mid-1980s, there has
been a trend in the United States and Europe toward the divestiture or closing
of captive photomask operations by semiconductor manufacturers and an increase
in the share of the market served by independent manufacturers.
We sell our products primarily through a direct sales force. At December 31,
2001, we conducted our sales activities from seven sales locations in the
United States, seven in Europe, and one in each of Singapore, Korea and Taiwan.
We are a Connecticut corporation, organized in 1969. Our principal executive
offices are located at 1061 East Indiantown Road, Suite 310, Jupiter, Florida
33477, telephone (561) 745-1222.
4
The Offering
Securities Offered.......... $200,000,000 principal amount of 4 3/4%
Convertible Subordinated Notes due 2006.
Maturity Date............... December 15, 2006.
Interest.................... 4 3/4% per annum on the principal amount from
December 12, 2001, payable semi-annually in
arrears in cash on June 15 and December 15 of
each year, beginning June 15, 2002. Conversion
Conversion.................. You may convert the notes into shares of our
common stock at a conversion rate of 27.027
shares per $1,000 principal amount of notes,
subject to adjustment, prior to the final
maturity date.
Subordination............... The notes are subordinated to all of our existing
and future senior indebtedness and are
effectively subordinated to all debt and other
liabilities of our subsidiaries. As of October
31, 2001, we had $58.3 million of senior
indebtedness outstanding and our subsidiaries had
$283.1 million of liabilities outstanding,
excluding liabilities owed to us and minority
interests. The notes rank equally with our
existing 6.00% convertible subordinated notes due
2004. Neither we nor any of our subsidiaries are
prohibited from incurring debt, including senior
indebtedness, under the indenture.
Provisional Redemption...... We may redeem the notes in whole or in part at
any time prior to December 17, 2004 at a
redemption price equal to the principal amount of
the notes to be redeemed if:
. the closing price of the common stock has
exceeded 150% of the conversion price for any
20 trading days in the consecutive 30-day
trading period ending on the day before the
date of the notice of redemption; and
. the shelf registration statement covering
resales of the notes and the common stock is
effective and expected to remain effective for
the 30 days following the redemption date.
If we redeem the notes under these circumstances,
we will make an additional payment equal to the
aggregate amount of the interest otherwise
payable on the notes from the last day through
which interest was paid on the notes, or December
12, 2001 if no interest has been paid, through
December 17, 2004.
Non-Provisional Redemption.. We may redeem any of the notes beginning December
17, 2004, by giving you at least 30 days' notice.
We may redeem the notes either in whole or in
part at redemption prices declining from 101.90%
of their principal amount to 100% on December 15,
2006, plus accrued and unpaid interest.
5
Fundamental Change.......... If a fundamental change (as described under
"Description of Notes--Redemption at Option of
the Holder") occurs prior to maturity, you may
require us to purchase all or part of your notes
at a redemption price equal to 100% of their
principal amount, plus accrued and unpaid
interest.
Use of Proceeds............. We will not receive any of the proceeds from the
sale by any selling security holder of the notes
or of the shares of common stock issuable upon
conversion of the notes. See "Use of Proceeds."
Trading..................... The notes issued in the initial private placement
are eligible for trading in the PORTAL system.
However, notes sold pursuant to this prospectus
will no longer be eligible for trading in the
PORTAL system. We do not intend to list the notes
on any national securities exchange. Our common
stock is quoted on the Nasdaq National Market
under the symbol "PLAB."
6
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading price of the
notes and our common stock could decline due to any of these risks, and you may
lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of risks,
uncertainties and other factors, including the risks faced by us described
below and elsewhere in this prospectus.
Risks Relating to Our Business
We are dependent on the semiconductor industry and the semiconductor
industry as a whole is volatile and is currently experiencing a significant
downturn.
We sell substantially all of our photomasks to semiconductor designers and
manufacturers. We believe that the demand for photomasks primarily depends on
integrated circuit design activity rather than the volume of semiconductor
sales. Consequently, an increase in semiconductor sales does not necessarily
result in a corresponding increase in photomask sales. In addition, the reduced
use of customized integrated circuits, a reduction in design complexity or
other changes in the technology or methods of manufacturing semiconductors or a
slowdown in the introduction of new semiconductor designs could reduce demand
for photomasks even if demand for semiconductors increases. Further, advances
in semiconductor and photomask design and semiconductor production methods
could reduce the demand for photomasks. Historically, the semiconductor
industry has been volatile, with sharp periodic downturns and slowdowns. These
downturns have been characterized by, among other things, diminished product
demand, excess production capacity and accelerated erosion of selling prices.
The semiconductor industry is presently in a downturn, and we expect conditions
to remain weak in fiscal 2002. This downturn is among the worst we have
experienced and has had a significant impact on our net sales and operating
results. We cannot assure you as to when the current downturn will end or that
it will not continue to worsen and to materially and adversely affect our
business, financial condition and operating results in the near term.
Our quarterly operating results fluctuate significantly and may continue to
do so in the future.
We have experienced fluctuations in our quarterly operating results and we
anticipate that such fluctuations will continue and could intensify in the
future. Fluctuations in operating results may result in volatility in the
prices of our common stock and the notes. Operating results may fluctuate as a
result of many factors, including size and timing of orders and shipments, loss
of significant customers, product mix, technological change, fluctuations in
manufacturing yields, competition and general economic conditions. Our
customers generally order our products on an as-needed basis, and substantially
all of our net sales in any quarter are dependent on orders received during
that quarter. Since we operate with little backlog and the rate of new orders
may vary significantly from month to month, our capital expenditures and
expense levels are based primarily on sales forecasts. Consequently, if
anticipated sales in any quarter do not occur when expected, capital
expenditures and expense levels could be disproportionately high, and our
operating results would be adversely affected. Due to the foregoing factors, we
believe that period-to-period comparisons of our operating results are not
necessarily meaningful and that these comparisons cannot be relied upon as
indicators of future performance. In addition, in future quarters our operating
results could be below the expectations of public market analysts and
investors, which, in turn, could materially adversely affect the market prices
of our common stock and of the notes.
7
Our industry is subject to rapid technological change and we might fail to
remain competitive.
The photomask industry has been and is expected to continue to be
characterized by technological change and evolving industry standards. In order
to remain competitive, we will be required to continually anticipate, respond
to and utilize changing technologies. In particular, we believe that as
semiconductor geometries continue to become smaller, we will be required to
manufacture complex optically enhanced reticles, including optical proximity
correction and phase-shift photomasks. In addition, demand for photomasks has
been and could in the future be adversely affected by changes in methods of
semiconductor manufacturing (which could affect the type or quantity of
photomasks utilized) or increased market acceptance of alternative methods of
transferring circuit designs onto semiconductor wafers, which could reduce or
eliminate the need for photomasks. If we are unable, due to resource,
technological or other constraints, to anticipate, respond to or utilize these
or other changing technologies, our business and results of operations could be
materially adversely affected.
We may not be able to obtain a new bank facility.
As of the end of the fourth quarter of fiscal 2001, we were not in
compliance with the covenant in our revolving credit agreement that requires us
to maintain a minimum interest coverage ratio for a trailing four-quarter
period. As a result, on December 12, 2001, we repaid all outstanding loans
under the revolving credit agreement, which totaled $57.7 million, out of the
proceeds of the private placement of the notes and terminated the revolving
credit agreement. We are seeking to replace the revolving credit agreement with
a new bank facility. However, we can give you no assurance that we will be able
to obtain a new bank facility on reasonable terms, if at all. If we are unable
to obtain a replacement bank facility or an alternative short-term liquidity
facility, our operational flexibility and short and intermediate term liquidity
may be materially adversely affected.
Our operations will continue to require significant capital, which we may
not be able to obtain.
The manufacture of photomasks requires a significant investment in fixed
assets. We expect that we will be required to continue to make significant
capital expenditures in connection with our operations. We also must make
capital expenditures in order to maintain technological leadership. Our planned
capital expenditures for fiscal 2002 are $125 million. At October 31, 2001, we
had commitments outstanding for capital expenditures of approximately $81
million.
There can be no assurance that we will be able to obtain the additional
capital required in connection with our operations on reasonable terms, if at
all, or that any such expenditures will not have a material adverse effect on
our business and results of operations.
We have been dependent on sales to a limited number of large customers; the
loss of any of these customers or any reduction in orders from these customers
could materially affect our sales.
Historically, we have sold a significant proportion of our products and
services to a limited number of fabricators of semiconductor products. During
fiscal 2000 and 2001, no single customer accounted for more than 10% of our
sales, but our five largest customers, in the aggregate, accounted for 36% of
our net sales in 2000 and 32% in 2001. During fiscal 1999, two customers each
accounted for approximately 10% of our net sales. None of our customers has
entered into a long-term agreement requiring it to purchase our products. The
loss of a significant customer or any reduction or delays in orders from any
significant customer, including reductions or delays due to customer departures
from recent buying patterns, or market, economic or competitive conditions in
the semiconductor industry, could adversely affect us. The ongoing
consolidation of semiconductor manufacturers may increase the likelihood and
adverse effect of losing a significant customer.
We depend on a small number of suppliers for equipment and raw materials
and, if our suppliers do not deliver their products to us, we may be unable to
deliver our products to our customers.
8
We rely on a limited number of photomask equipment manufacturers to develop
and supply the equipment we use. These equipment manufacturers currently
require lead times of approximately 10 to 14 months between the order and the
delivery of certain photomask imaging and inspection equipment. The failure of
such manufacturers to develop or deliver such equipment on a timely basis could
have a material adverse effect on our business and results of operations.
Further, we rely on equipment manufacturers to develop future generations of
manufacturing equipment to meet our requirements. In addition, the
manufacturing equipment necessary to produce advanced photomasks could become
prohibitively expensive.
We use high precision quartz photomask blanks, pellicles (which are
protective transparent cellulose membranes) and electronic grade chemicals in
our manufacturing processes. There are a limited number of suppliers of these
raw materials, and we have no long-term contracts for the supply of these raw
materials. Any delays or quality problems in connection with significant raw
materials, particularly photomask blanks, could cause delays in shipments of
photomasks, which could adversely affect our business and results of
operations. The fluctuation of exchange rates with respect to prices of
significant raw materials used in manufacturing also could have a material
adverse effect on our business and results of operations, although they have
not been material to date.
We face risks associated with manufacturing difficulties.
Our complex manufacturing processes require the use of expensive and
technologically sophisticated equipment and materials and are continuously
modified in an effort to improve manufacturing yields and product quality.
Minute impurities or other difficulties in the manufacturing process can lower
manufacturing yields and make products unmarketable.
Moreover, manufacturing leading-edge photomasks is more complex and time
consuming than manufacturing less advanced photomasks, and may lead to general
delays in the manufacturing of all levels of photomasks. We have, on occasion,
experienced manufacturing difficulties and capacity limitations that have
delayed our ability to deliver products within the time frames contracted for
by our customers. We cannot assure you that we will not experience these or
other manufacturing difficulties, or be subject to increased costs or
production capacity constraints in the future, any of which could result in a
loss of customers or could otherwise have a material adverse effect on our
business and results of operations.
We are expanding and diversifying our operations, and if we fail to manage
our expanding and more diverse operations successfully, our business and
financial results may be materially and adversely affected.
We have recently experienced rapid expansion of our operations, primarily
due to our acquisitions of existing photomask manufacturing operations. In
particular, in 2000 we completed our merger with Align-Rite International, Inc.
and acquired a majority share of PSMC, a photomask manufacturer based in
Taiwan. In August 2001, we acquired a controlling equity interest in PKL Co.,
Ltd., a leading supplier of photomasks in Korea, and we purchased the photomask
manufacturing assets of Conexant Systems, Inc., a semiconductor manufacturer
based in Newport Beach, California. We may make additional acquisitions in the
future.
This expansion has placed, and is expected to continue to place, significant
demands on our administrative, operational and financial personnel and systems.
Managing acquired operations entails numerous operational and financial risks,
including difficulties in the assimilation of acquired operations, diversion of
management's attention to other business concerns, amortization of acquired
intangible assets and potential loss of key employees of acquired operations.
Sales of acquired operations also may decline following an acquisition,
particularly if there is an overlap of customers served by us and the acquired
operation, and these customers transition to another vendor in order to ensure
a second source of supply. Furthermore, in connection with any future
acquisitions, we would be required to utilize our cash reserves and/or issue
new securities, which could have a dilutive effect on our earnings per share,
particularly during the initial integration of the acquired operations into our
operations. In addition, we have experienced in the past, and could experience
in the future, difficulties and delays in ramping up new production facilities.
If we fail to successfully manage our expanding operations, it could have a
material adverse effect on our business and results of operations.
9
We operate in a highly competitive industry.
The photomask industry is highly competitive, and most of our customers
utilize more than one photomask supplier. In the United States, we compete
primarily with DuPont Photomasks, Inc. and, to a lesser extent, with other
independent photomask suppliers. Internationally, our competitors include
Compugraphics, Dai Nippon Printing, DuPont Photomasks, Hoya, Taiwan Mask Corp.
and Toppan. We also compete with semiconductor manufacturers' captive photomask
manufacturing operations. We expect to face continued competition from these
and other suppliers in the future. Certain competitors have substantially
greater financial, technical, sales, marketing and other resources than we do.
We believe that consistency of product quality and timeliness of delivery are
the principal factors considered by customers in selecting their photomask
suppliers. Our inability to meet these requirements could adversely affect our
sales. In the past, competition led to pressure to reduce prices which, we
believe, contributed to the decrease in the number of independent
manufacturers. This pressure to reduce prices may continue in the future.
Our substantial international operations are subject to additional risks.
International sales, which exclude export sales, accounted for approximately
27.5% of our net sales in fiscal 2000 and 36.0% in 2001. We believe that
maintaining significant international operations requires us to have, among
other things, a local presence in the markets in which we operate. This
requires a significant investment of financial, management, operational and
other resources. Since 1996, we have significantly expanded our operations in
international markets by acquiring existing operations in the United Kingdom,
Germany and Switzerland, establishing manufacturing operations in Singapore and
acquiring majority equity interests in photomask manufacturing operations in
Korea and Taiwan. In international markets, existing independent photomask
suppliers, including, in certain markets, DuPont Photomasks, have significant
local presences and market share.
Operations outside the United States are subject to inherent risks,
including fluctuations in exchange rates, political and economic conditions in
various countries, unexpected changes in regulatory requirements, tariffs and
other trade barriers, difficulties in staffing and managing foreign operations,
longer accounts receivable payment cycles and potentially adverse tax
consequences. These factors may have a material adverse effect on our ability
to generate sales outside the United States and, consequently, on our business
and results of operations.
Our operating results are influenced by the performance of Asian economies.
In recent years, Asian economies have been highly volatile and recessionary,
resulting in significant fluctuations in local currencies and other
instabilities. These instabilities may continue or worsen, which could have a
material adverse impact on our financial position and results of operations.
Approximately 18.9% of our sales in fiscal 2001 were derived from this region.
We expect this percentage to be higher in fiscal 2002. Our exposure to the
business risks presented by Asian economies will increase to the extent that we
continue to expand our operations in that region.
Our business depends on management and technical personnel, who are in great
demand.
Our success, in part, depends upon key managerial, engineering and technical
personnel, as well as our ability to continue to attract and retain additional
personnel. The loss of certain key personnel could have a material adverse
effect upon our business and results of operations. There can be no assurance
that we can retain our key managerial, engineering and technical employees or
that we can attract similar additional employees in the future. We believe that
we provide competitive compensation and incentive packages to our employees.
10
We may be unable to enforce or defend our ownership and use of proprietary
technology.
We believe that the success of our business depends more on our proprietary
technology, information and processes and know-how than on patents or
trademarks. Much of our proprietary information and technology relating to
manufacturing processes is not patented and may not be patentable. We cannot
assure you that:
. we will be able to adequately protect our technology;
. competitors will not independently develop similar technology; or
. foreign intellectual property laws will adequately protect our
intellectual property rights.
We may become the subject of infringement claims or legal proceedings by
third parties with respect to current or future products or processes. Any such
claims or litigation, with or without merit, to enforce or protect our
intellectual property rights or to defend our company against claimed
infringement of the rights of others could result in substantial costs,
diversion of resources and product shipment delays or could force us to enter
into royalty or license agreements rather than dispute the merits of these
claims. Any of the foregoing could have a material adverse effect on our
business, results of operations and financial position.
We may be unprepared for changes to environmental laws and regulations and
we may have liabilities arising from environmental matters. We are subject to
numerous environmental laws and regulations that impose various environmental
controls on, among other things, the discharge of pollutants into the air and
water and the handling, use, storage, disposal and clean-up of solid and
hazardous wastes. Changes in these laws and regulations may have a material
adverse effect on our financial position and results of operations. Any failure
by us to adequately comply with these laws and regulations could subject us to
significant future liabilities.
In addition, these laws and regulations may impose clean-up liabilities on
current and former owners and operators of real property without regard to
fault and these liabilities may be joint and several with other parties. In the
past, we have been involved in remediation activities relating to our
properties. We believe, based upon current information, that environmental
liabilities relating to these activities or other matters will not be material
to our financial position or results of operations. However, there can be no
assurances that we will not incur any material environmental liabilities in the
future.
Our production facilities could be damaged or disrupted by a natural
disaster, labor strike, war or political unrest.
A number of our facilities are in seismically active areas. Although we have
obtained property damage and business interruption insurance, a major
catastrophe such as an earthquake or other natural disaster at any of our
sites, or political unrest, war, labor strikes or work stoppages in any of the
areas where we conduct operations, could result in a prolonged interruption of
our business. Any disruption resulting from these events could cause
significant delays in shipments of our products and the loss of sales and
customers, and we do not know whether our insurance would adequately compensate
us for any of these events.
Regional electric shortages may harm our operations.
Recently, California experienced an electric power supply shortage that
resulted in the intermittent loss of power in some areas in the form of rolling
blackouts. While we have not experienced any power failures to date, a blackout
could affect our ability to manufacture photomasks and meet scheduled
deliveries at this part of our network. If blackouts were to interrupt our
power supply, we would be temporarily unable to continue operations at one of
our facilities. Any such interruption in our ability to continue operations at
our facilities could damage our reputation, harming our ability to retain
existing customers.
Events of September 11, 2001
Fortunately, none of our employees was lost or injured and none of our
properties or records were damaged as a result of the terrorist attacks that
occurred in the United States on September 11, 2001. Although our operations
during that week were hampered by the temporary disruption of the
transportation and
11
communications infrastructure, the impact was not material. However, at this
time, we are unable to predict the long-term impact of these events, or of the
domestic and foreign response, on either our industry as a whole or on our
operations and financial condition in particular.
Risks of Investing in These Notes
The notes are subordinated in right of payment to other indebtedness and
structurally subordinated.
The notes are unsecured and subordinated in right of payment in full to all
our existing and future senior indebtedness. As a result of this subordination,
in the event of our liquidation or insolvency, a payment default with respect
to senior indebtedness, a covenant default with respect to senior indebtedness
or upon acceleration of the notes due to an event of default, our assets will
be available to pay obligations on the notes only after all senior indebtedness
has been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the notes then outstanding. The indenture under
which the notes have been issued does not restrict our ability to incur
indebtedness constituting senior indebtedness. We conduct our operations
through our subsidiaries. Accordingly, our ability to meet our cash obligations
depends, in part, upon the ability of our subsidiaries to make distributions to
us, which is and will continue to be restricted by, among other limitations,
applicable provisions of law. The indenture does not restrict the ability of
our subsidiaries to enter into contractual restrictions on their ability to
make distributions to us. Our right to participate in the assets of any
subsidiary (and thus the ability of holders of the Notes to benefit indirectly
from these assets) is generally subject to the prior claims of creditors,
including trade creditors, of that subsidiary. The notes, therefore, are
structurally subordinated to the claims of creditors, including trade
creditors, of our subsidiaries. As of October 31, 2001, we had $58.3 million of
senior indebtedness outstanding. As of October 31, 2001, our subsidiaries had
outstanding liabilities of $283.1 million, excluding liabilities owed to us and
minority interests.
We may be unable to redeem the notes if we experience a fundamental change.
If we experience a fundamental change, you are entitled to redeem all or a
portion of your notes, but we may not have enough funds to pay the redemption
price for all tendered notes. Any future credit agreements or other agreements
relating to our indebtedness may:
. contain provisions requiring payment of indebtedness after a fundamental
change; or
. expressly prohibit our repurchase of the notes after a fundamental change.
If we experience a fundamental change at a time when we are prohibited from
purchasing or redeeming notes, we could seek the consent of our lenders to
redeem the notes or could attempt to refinance such debt. If we should fail to
obtain our lenders' consent or refinance such debt, we could not purchase or
redeem the notes. Our failure to redeem tendered notes would constitute an
event of default under the indenture which, in turn, might constitute a default
under the terms of other indebtedness. If this were to occur, or if a
fundamental change were to constitute an event of default under any senior
indebtedness, the indenture's subordination provisions would restrict us from
paying you.
The term "fundamental change" is limited to specified transactions and may
not include other events that might adversely affect our financial condition.
If we were to experience a fundamental change, our obligation to offer to
redeem the notes would not necessarily afford you protection. See "Description
of Notes--Redemption at Option of the Holder."
You may have difficulty selling the notes because no trading market exists
for the notes.
Currently, there is no existing trading market for the notes, and we cannot
assure you that a trading market will develop or that any trading market that
develops will continue or allow you to sell your notes quickly. We also cannot
assure you of the price at which you will be able to sell your notes if you are
able to sell them at all. The initial purchasers of the notes have advised us
that they intend to make a market in the notes, but they are not obligated to
do so, and their market making may be interrupted or discontinued without
notice.
12
Our notes may not be rated or may receive a lower rating than anticipated.
We believe it is likely that one or more rating agencies may rate the notes.
However, our notes may not be rated by all rating agencies. If one or more
rating agencies assigns the notes a rating lower than that expected by
investors, the market price of the notes and our common stock could be
materially and adversely affected.
Our stock price may continue to experience large short-term fluctuations
that may significantly affect the trading price of the notes.
In recent years, the price of our common stock has fluctuated greatly.
Fluctuations in the trading price of our common stock will affect the trading
price of the notes. These price fluctuations have been rapid and severe and
have left investors little time to react. The price of our common stock may
continue to fluctuate greatly in the future due to a variety of factors,
including:
. quarter to quarter variations in our operating results;
. shortfalls in our sales or earnings from levels expected by securities
analysts;
. announcements of technological innovations or new products by us or other
companies; and
. slowdowns or downturns in the semiconductor industry.
Future public sales of our common stock may decrease the market price of our
common stock.
In connection with our acquisition of a controlling interest in PKL Co.,
Ltd., our Korean subsidiary, we have granted the holders of 1,000,000 shares of
PKL common stock the option to require us to purchase these PKL shares for an
aggregate option exercise price equal to the cash value of 1,410,000 shares of
our common stock determined at the time of exercise or such other consideration
as the parties may agree to. This option may be exercised during the period
from February 2002 to August 2005. If we issue these shares, we must register
the shares for resale in the public market. Sales of these shares, or the
perception that sales will occur, may decrease the market price of our common
stock.
13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this prospectus, including the documents that are
incorporated by reference as set forth in "Where You Can Find More
Information", that are not historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933. Forward
looking statements are based on management's beliefs, as well as assumptions
made by and information currently available to management. These statements
involve known and unknown risks, uncertainties, and other factors that may
cause our or our industry's results, levels of activity, performance, or
achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those listed
under "Risk Factors" and elsewhere in this prospectus or the accompanying
prospectus supplement. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "intend," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," or
"continue" or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels
of activity, performance, or achievements. We do not assume responsibility for
the accuracy and completeness of the forward-looking statements. We do not
intend to update any of the forward-looking statements after the date of this
prospectus to conform them to actual results.
14
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling holders of the
notes and the common stock into which the notes are convertible.
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended
----------------------------------------------------------------------
Pro forma
November 2, November 1, October 31, October 31, October 31, October 31,
1997 1998 1999 2000 2001 2001 (1)
----------- ----------- ----------- ----------- ----------- -----------
Dollars in thousand
Ratio.............................. 19.4 7.4 4.0 2.2 -- --
Deficiency of earnings available to
cover fixed charges.............. -- -- -- -- $(3,027) $(6,902)
--------
(1) Calculated as if the proceeds from the issuance of the debt securities had
occurred at the beginning of the year.
For purposes of computing the ratio of earnings to fixed charges, earnings
consists of the sum of our pretax income from continuing operations and fixed
charges less capitalized interest. Fixed charges consist of interest expense,
amortization of debt discount, premium and expense, capitalized interest and a
portion of lease payments considered to represent an interest factor.
15
DESCRIPTION OF NOTES
The notes were issued under an indenture dated as of December 12, 2001,
between Photronics and The Bank of Nova Scotia Trust Company of New York,
trustee. The notes are covered by a registration rights agreement dated
December 12, 2001 among us and the initial purchasers listed in that agreement.
The following description is a summary of the material provisions of the
notes and the indenture. It does not purport to be complete. This summary is
subject to and is qualified by reference to all the provisions of the
indenture, including the definitions of certain terms used in the indenture.
Wherever particular provisions or defined terms of the indenture or form of
note are referred to, these provisions or defined terms are incorporated in
this prospectus by reference.
As used in this "Description of Notes" section, references to "Photronics,"
"we," "our" or "us" refer solely to Photronics and not to our subsidiaries.
General
In December 2001, we issued $200,000,000 aggregate principal amount of the
notes in a private placement. The notes were issued only in denominations of
$1,000 and multiples of $1,000. The notes will mature on December 15, 2006
unless earlier converted, redeemed at our option or redeemed at your option
upon a fundamental change.
The notes are general unsecured obligations of Photronics. Our payment
obligations under the notes are subordinated to our senior indebtedness as
described under "Subordination of Notes." The notes are convertible into common
stock as described under "Conversion of Notes."
Neither we nor any of our subsidiaries are subject to any financial
covenants under the indenture. In addition, neither we nor any of our
subsidiaries are restricted under the indenture from paying dividends,
incurring debt, or issuing or repurchasing our securities.
You are not afforded protection under the indenture in the event of a highly
leveraged transaction or a change in control of us except to the extent
described below under "Redemption at Option of the Holder."
The notes bear interest at an annual rate of 4 3/4% from December 12, 2001.
We will pay interest on June 15 and December 15 of each year, beginning June
15, 2002, to record holders at the close of business on the preceding June 1
and December 1, as the case may be.
We pay interest either:
. by check mailed to your address as it appears in the note register,
provided that if you are a holder with an aggregate principal amount in
excess of $2.0 million, you will be paid, at your written election, by
wire transfer in immediately available funds; or
. by transfer to an account maintained by you in the United States.
However, payments to The Depository Trust Company, New York, New York, which we
refer to as DTC, will be made by wire transfer of immediately available funds
to the account of DTC or its nominee. Interest will be computed on the basis of
a 360-day year composed of twelve 30-day months.
We will maintain an office in the Borough of Manhattan, The City of New
York, where we will pay the principal and premium, if any, on the notes and you
may present the notes for conversion, registration of transfer and exchange for
other denominations. This office will initially be an office or agency of the
trustee.
16
Conversion of Notes
You may convert your notes, in whole or in part, into common stock prior to
the final maturity date of the notes, subject to prior redemption of the notes.
If we call notes for redemption, you may convert the notes only until the close
of business on the business day prior to the redemption date unless we fail to
pay the redemption price. If you have submitted your notes for redemption upon
a fundamental change, you may convert your notes only if you withdraw your
redemption election. You may convert your notes in part so long as this part is
$1,000 principal amount or an integral multiple of $1,000.
The initial conversion rate for the notes is 27.027 shares of common stock
per $1,000 principal amount of notes, subject to adjustment as described below.
If any note is converted during the period from, but excluding, a record date
for an interest payment date, to that interest payment date, then unless that
note has been called for redemption on a redemption date that occurs during
such period (in which case we will not be required to pay interest on such
interest payment date with respect to such note), the notes must be accompanied
by funds equal to the interest payable on that interest payment date on the
principal amount so converted; provided that no such payment need be made to
the extent any overdue interest exists at the time of conversion with respect
to such note.
To convert your note into common stock you must:
. complete and manually sign the conversion notice on the back of the note
or facsimile of the conversion notice and deliver this notice to the
conversion agent;
. surrender the note to the conversion agent;
. if required, furnish appropriate endorsements and transfer documents;
. if required, pay all transfer or similar taxes; and
. if required, pay funds equal to interest payable on the next interest
payment date.
The date you comply with these requirements is the conversion date under the
indenture.
We will adjust the conversion rate if any of the following events occurs:
1. we issue common stock as a dividend or distribution on our common
stock;
2. we issue to all holders of common stock rights or warrants to
purchase our common stock at a price per share less than the current market
price of our common stock;
3. we subdivide or combine our common stock;
4. we distribute to all holders of our common stock, shares of our
capital stock, evidences of indebtedness or assets, including securities but
excluding:
. rights or warrants listed in (2) above;
. dividends or distributions listed in (1) above; and
. cash distributions;
5. we distribute cash, excluding any dividend or distribution in
connection with our liquidation, dissolution or winding up or any quarterly
cash dividend on our common stock to the extent that the aggregate cash
dividend per share of common stock in any quarter does not exceed the
greater of:
. the amount per share of common stock of the next preceding quarterly
cash dividend on the common stock to the extent that the preceding
quarterly dividend did not require an adjustment of the conversion
rate pursuant to this clause (5), as adjusted to reflect subdivisions
or combinations of the common stock; and
17
. 3.75% of the average of the last reported sale price of the common
stock during the ten trading days immediately prior to the declaration
date of the dividend.
. If an adjustment is required to be made under this clause (5) as a
result of a distribution that is a quarterly dividend, the adjustment
would be based upon the amount by which the distribution exceeds the
amount of the quarterly cash dividend permitted to be excluded
pursuant to this clause (5). If an adjustment is required to be made
under this clause (5) as a result of a distribution that is not a
quarterly dividend, the adjustment would be based upon the full amount
of the distribution;
6. we or one of our subsidiaries makes a payment in respect of a tender
offer or exchange offer for our common stock to the extent that the cash and
value of any other consideration included in the payment per share of common
stock exceeds the current market price per share of common stock on the
trading day next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer; and
7. someone other than us or one of our subsidiaries makes a payment in
respect of a tender offer or exchange offer in which, as of the closing date
of the offer, our board of directors is not recommending rejection of the
offer. The adjustment referred to in this clause (7) will only be made if:
. the tender offer or exchange offer is for an amount that increases the
offeror's ownership of common stock to more than 25% of the total
shares of common stock outstanding; and
. the cash and value of any other consideration included in the payment
per share of common stock exceeds the current market price per share
of common stock on the business day next succeeding the last date on
which tenders or exchanges may be made pursuant to the tender or
exchange offer.
However, the adjustment referred to in this clause (7) will generally
not be made if as of the closing of the offer, the offering documents
disclose a plan or an intention to cause us to engage in a
consolidation or merger or a sale of all or substantially all of our
assets.
To the extent that we have a rights plan in effect upon conversion of the
notes into common stock, you will receive, in addition to the common stock, the
rights under the rights plan whether or not the rights have separated from the
common stock at the time of conversion, subject to limited exceptions. In the
event of:
. any reclassification of our common stock;
. a consolidation, merger or combination involving us; or
. a sale or conveyance to another person or entity of all or substantially
all of our property and assets;
in which holders of our common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon
conversion of your notes you will be entitled to receive the same type of
consideration which you would have been entitled to receive if you had
converted the notes into our common stock immediately prior to any of these
events.
You may in certain situations be deemed to have received a distribution
subject to United States federal income tax as a dividend in the event of any
taxable distribution to holders of common stock or in certain other situations
requiring a conversion rate adjustment. See "United States Federal Tax
Considerations."
We may, from time to time, increase the conversion rate for a period of at
least 20 days if our board of directors has made a determination that this
increase would be in our best interests. Any such determination by our board
will be conclusive. We would give holders at least 15 days' notice of any
increase in the conversion rate. In addition, we may increase the conversion
rate if our board of directors deems it advisable to avoid or diminish any
income tax to holders of common stock resulting from any stock or rights
distribution. See "United States Federal Tax Considerations."
18
We will not be required to make an adjustment in the conversion rate unless
the adjustment would require a change of at least 1% in the conversion rate.
However, we will carry forward any adjustments that are less than 1% of the
conversion rate. Except as described above in this section, we will not adjust
the conversion rate for any issuance of our common stock or convertible or
exchangeable securities or rights to purchase our common stock or convertible
or exchangeable securities.
Optional Redemption by Photronics
We may not optionally redeem the notes if we have failed to pay any interest
on the notes and such failure to pay is continuing. We will issue a press
release if we redeem the notes.
Provisional Redemption
We may redeem the notes in whole or in part at any time prior to December
17, 2004 at a redemption price equal to the principal amount of the notes to be
redeemed plus accrued and unpaid interest to the redemption date if:
. the closing price of the common stock has exceeded 150% of the conversion
price for 20 trading days in the consecutive 30-day trading period ending
on the trading day before the date of the notice of redemption; and
. the shelf registration statement covering resales of the notes and the
common stock is effective and expected to remain effective for the 30 days
following the redemption date and the redemption date would occur before
December 12, 2003.
If the redemption date is an interest payment date, then the interest
payable on such date will be paid to the holder of record on the applicable
record date.
If we redeem the notes under these circumstances, we will make an additional
payment equal to the aggregate amount of the interest otherwise payable on the
notes from the last day through which interest was paid on the notes, or
December 12, 2001 if no interest has been paid, through December 17, 2004. We
must make these payments on all notes called for redemption, including notes
converted after the date we mailed the notice.
Non-Provisional Redemption
Beginning December 17, 2004, we may redeem the notes in whole or in part at
the following prices expressed as a percentage of the principal amount,
together with accrued interest to, but excluding the date fixed for redemption:
Redemption Redemption
Period Price
------ ----------
Beginning on December 17, 2004 and ending on December 14, 2005 101.90%
12-month period beginning December 15, 2005................... 100.95
and 100% if redeemed on December 15, 2006; provided that if the redemption date
is an interest payment date, then the interest payable to such date will be
paid to the holder of record of the notes on the applicable record date. We are
required to give notice of redemption by mail to holders not more than 60 but
not less than 30 days prior to the redemption date.
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed in principal amounts of $1,000 or
multiples of $1,000 by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of your notes is selected for partial
redemption and you convert a portion of your notes, the converted portion will
be deemed to be of the portion selected for redemption.
19
Redemption at Option of the Holder
If a fundamental change of Photronics occurs at any time prior to the
maturity of the notes, you may require us to redeem your notes, in whole or in
part, on a repurchase date that is 30 days after the date of our notice of the
fundamental change. The notes will be redeemable in integral multiples of
$1,000 principal amount.
We will redeem the notes at a price equal to 100% of the principal amount to
be redeemed, plus accrued interest to, but excluding, the repurchase date. If
the repurchase date is an interest payment date, we will pay interest to the
record holder on the applicable record date.
We will mail to all record holders a notice of a fundamental change of
Photronics within 10 days after it has occurred. We are also required to
deliver to the trustee a copy of the fundamental change notice. If you elect to
redeem your notes, you must deliver to us or our designated agent, on or before
the 30th day after the date of our fundamental change notice, your redemption
notice and any notes to be redeemed, duly endorsed for transfer. We will
promptly pay the redemption price for notes surrendered for redemption
following the repurchase date.
A "fundamental change" of Photronics is any transaction or event (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) in connection
with which all or substantially all of our common stock is exchanged for,
converted into, acquired for or constitutes solely the right to receive,
consideration which is not all or substantially all common stock that:
. is listed on, or immediately after the transaction or event will be listed
on, a United States national securities exchange, or
. is approved, or immediately after the transaction or event will be
approved, for quotation on the NASDAQ National Market or any similar
United States system of automated dissemination of quotations of
securities prices.
We will comply with any applicable provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act in the event of a fundamental change.
These fundamental change redemption rights could discourage a potential
acquiror of Photronics. However, this fundamental change redemption feature is
not the result of management's knowledge of any specific effort to obtain
control of Photronics by means of a merger, tender offer or solicitation, or
part of a plan by management to adopt a series of anti-takeover provisions. The
term "fundamental change" is limited to specified transactions and may not
include other events that might adversely affect our financial condition or
business operations. Our obligation to offer to redeem the notes upon a
fundamental change would not necessarily afford you protection in the event of
a highly leveraged transaction, reorganization, merger or similar transaction
involving Photronics.
We may be unable to redeem the notes in the event of a fundamental change.
If a fundamental change were to occur, we may not have enough funds to pay the
redemption price for all tendered notes. Any future credit agreements or other
agreements relating to our indebtedness may contain provisions prohibiting
redemption of the notes under certain circumstances, or expressly prohibit our
repurchase of the notes upon a fundamental change or may provide that a
fundamental change constitutes an event of default under that agreement. If a
fundamental change occurs at a time when we are prohibited from purchasing or
redeeming notes, we could seek the consent of our lenders to redeem the notes
or attempt to refinance this debt. If we do not obtain consent, we would not be
permitted to purchase or redeem the notes. Our failure to redeem tendered notes
would constitute an event of default under the indenture, which might
constitute a default under the terms of our other indebtedness. In these
circumstances, or if a fundamental change would constitute an event of default
under our senior indebtedness, the subordination provisions of the indenture
would restrict payments to the holders of notes.
Subordination of Notes
Payment on the notes will, to the extent provided in the indenture, be
subordinated in right of payment to the prior payment in full of all of our
senior indebtedness. The notes also are effectively subordinated to all debt
and other liabilities, including trade payables and lease obligations, if any,
of our subsidiaries.
20
Upon any acceleration of the principal due on the notes or payment or
distribution of our assets to creditors upon any dissolution, winding up,
liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other similar proceedings, all
principal, premium, if any, and interest or other amounts due on all senior
indebtedness must be paid in full before the holders of the notes are entitled
to receive any payment.
We may not make any payment on the notes if there has occurred (i) a default
in the payment of principal, premium, if any, or interest on (including a
default under any repurchase or redemption obligation with respect to) any
senior indebtedness (ii) any other event of default with respect to any senior
indebtedness, permitting the holders thereof to accelerate the maturity
thereof, and such event of default has not been cured or waived or ceased to
exist after written notice of such event of default has been given to us and
the trustee by any holder of senior indebtedness. In the event that,
notwithstanding the foregoing, we make any payment to the trustee or any holder
of notes prohibited by the foregoing provisions and this fact has been made
actually known, at or prior to the time of payment, to the trustee or the
holder, as the case may be, such payment must be paid over forthwith to us or
our trustee in bankruptcy, as the case may be.
We may resume payments and distributions on the notes upon the date on which
such default is cured or waived or ceases to exist.
Because of the subordination provisions discussed above, in the event of our
bankruptcy, dissolution or reorganization, holders of senior indebtedness may
receive more, ratably, and holders of the notes may receive less, ratably, than
our other creditors. This subordination will not prevent the occurrence of any
event of default under the indenture.
The notes are exclusively obligations of Photronics. A substantial portion
of our operations is conducted through our subsidiaries. As a result, our cash
flow and our ability to service our debt, including the notes, is dependent
upon the earnings of our subsidiaries. In addition, we are dependent on the
distribution of earnings, loans or other payments from our subsidiaries. Any
payment of dividends, distributions, loans or advances by our subsidiaries to
us could be subject to statutory or contractual restrictions. Payments to us by
our subsidiaries will also be contingent upon our subsidiaries' earnings and
business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors. In addition, even if we
were a creditor to any of our subsidiaries, our rights as a creditor would be
subordinate to any security interest in the assets of our subsidiaries and any
indebtedness of our subsidiaries senior to that held by us.
The term "senior indebtedness" is defined in the indenture to mean the
principal of (and premium, if any) and interest (including all interest
accruing subsequent to the commencement of any bankruptcy or similar
proceeding, whether or not a claim for post-petition interest is allowable as a
claim in any such proceeding) on, and all fees and other amounts payable in
connection with, the following, whether absolute or contingent, secured or
unsecured, due or to become due, outstanding on the date of the indenture or
thereafter created, incurred or assumed:
(a) our indebtedness to banks, insurance companies and other financial
institutions evidenced by credit or loan agreements, notes or other written
obligations,
(b) all of our other indebtedness (including indebtedness of others
guaranteed by us) other than the notes, which is (i) for money borrowed or
(ii) evidenced by a note, security, debenture, bond or similar instrument,
(c) our obligations as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting
principles,
(d) our obligations under interest rate and currency swaps, caps, floors,
collars or similar agreements or arrangements,
21
(e) obligations of Photronics issued or assumed as the deferred purchase
price of property,
(f) obligations of Photronics for the reimbursement of letters of credit
to the extent such obligations are senior indebtedness under clauses through
(c) of this paragraph, and
(g) renewals, extensions, amendments, modifications, restatements and
refundings of, or any indebtedness or obligation issued in exchange for, any
such indebtedness or obligation described in clauses (a) through (f) of this
paragraph;
provided, however, that senior indebtedness does not include any such
indebtedness or obligation if the terms of such indebtedness or obligation (or
the terms of the instrument under which, or pursuant to which, it is issued)
expressly provide that such indebtedness or obligation is not senior in right
of payment to the notes, or expressly provide that such indebtedness or
obligation is pari passu with or junior to the notes. The term does not include
our 6.00% convertible subordinated notes due 2004, with which the notes will
rank pari passu.
As of October 31, 2001, we had $58.3 million of senior indebtedness
outstanding and our subsidiaries had $283.1 million of liabilities outstanding,
excluding liabilities owed to us and minority interests. Neither we nor our
subsidiaries are prohibited from incurring debt, including senior indebtedness,
under the indenture. We may from time to time incur additional debt, including
senior indebtedness. Our subsidiaries may also from time to time incur
additional debt and liabilities.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the notes. The
trustee's claims for these payments will generally be senior to those of
noteholders in respect of all funds collected or held by the trustee.
Merger and Sale of Assets by Photronics
The indenture provides that Photronics may not consolidate with or merge
with or into any other person or convey, transfer or lease its properties and
assets substantially as an entirety to another person, unless among other items:
. Photronics is the surviving person, or the resulting, surviving or
transferee person, if other than Photronics, is organized and existing
under the laws of the United States, any state thereof or the District of
Columbia, or any other country if the merger, consolidation or other
transaction would not impair the rights of holders;
. and othe successor person assumes all obligations of Photronics under the
notes and the indenture.
When such a person assumes Photronics' obligations in such circumstances,
subject to certain exceptions, Photronics will be discharged from all
obligations under the notes and the indenture.
Events of Default; Notice and Waiver
The following are events of default under the indenture:
. we fail to pay principal or premium, if any, when due upon redemption or
otherwise on the notes, whether or not the payment is prohibited by
subordination provisions;
. we fail to pay any interest and liquidated damages, if any, on the notes,
when due and such failure continues for a period of 30 days, whether or
not the payment is prohibited by subordination provisions of the indenture;
. we fail to perform or observe any of the covenants in the indenture for 60
days after notice;
. we fail to pay any indebtedness for money borrowed by us in an aggregate
principal amount in excess of $15 million at final maturity or upon
acceleration thereof and such default in payment or acceleration is not
cured or rescinded within 30 days after written notice as provided in the
indenture; or
22
. certain events involving our bankruptcy, insolvency or reorganization.
The trustee may withhold notice to the holders of the notes of any default,
except defaults in payment of principal, premium, interest or liquidated
damages, if any, on the notes. However, the trustee must consider it to be in
the interest of the holders of the notes to withhold this notice.
If an event of default occurs and continues, the trustee or the holders of
at least 25% in principal amount of the outstanding notes may declare the
principal, premium, if any, and accrued interest and liquidated damages, if
any, on the outstanding notes to be immediately due and payable. In case of
certain events of bankruptcy or insolvency involving us, the principal,
premium, if any, and accrued interest and liquidated damages, if any, on the
notes will automatically become due and payable. However, if we cure all
defaults, except the nonpayment of principal, premium, if any, interest or
liquidated damages, if any, that became due as a result of the acceleration,
and meet certain other conditions, with certain exceptions, this declaration
may be cancelled and the holders of a majority of the principal amount of
outstanding notes may waive these past defaults.
Payments of principal, premium, if any, or interest on the notes that are
not made when due will accrue interest at the annual rate of 4 3/4% from the
required payment date.
The holders of a majority of outstanding notes will have the right to direct
the time, method and place of any proceedings for any remedy available to the
trustee, subject to limitations specified in the indenture.
No holder of the notes may pursue any remedy under the indenture, except in
the case of a default in the payment of principal, premium, if any, or interest
on the notes, unless:
. the holder has given the trustee written notice of an event of default;
. the holders of at least 25% in principal amount of outstanding notes make
a written request, and offer reasonable indemnity, to the trustee to
pursue the remedy;
. the trustee does not receive an inconsistent direction from the holders of
a majority in principal amount of the notes; and
. the trustee fails to comply with the request within 60 days after receipt.
Modification and Waiver
The consent of the holders of a majority in principal amount of the
outstanding notes is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder of each
outstanding note if it would:
. extend the fixed maturity of any note;
. reduce the rate or extend the time for payment of interest of any note;
. reduce the principal amount or premium of any note;
. reduce any amount payable upon redemption or repurchase of any note;
. adversely change our obligation to redeem any note upon a fundamental
change;
. impair the right of a holder to institute suit for payment on any note;
. change the currency in which any note is payable;
. impair the right of a holder to convert any note;
. adversely modify, in any material respect, the subordination provisions of
the indenture;
. reduce the quorum or voting requirements under the indenture;
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. change any obligation of Photronics to maintain an office or agency in the
places and for the purposes specified in the indenture;
. subject to specified exceptions, modify certain of the provisions of the
indenture relating to modification or waiver of provisions of the
indenture; or
. reduce the percentage of notes required for consent to any modification of
the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of the notes.
Form, Denomination and Registration
We issued the notes in in fully registered form, without interest coupons,
and in denominations of $1,000 principal amount and integral multiples of
$1,000.
Global Note, Book-Entry Form
Notes that were sold to "qualified institutional buyers" as defined in Rule
144A under the Securities Act, whom we refer to as QIBs, were evidenced by
global notes which were deposited with, or on behalf of, DTC and registered in
the name of Cede & Co. as DTC's nominee. Except as set forth below, a global
note may be transferred, in whole or in part, only to another nominee of DTC or
to a successor of DTC or its nominee.
You may hold your interests in a global note directly through DTC if you are
a participant in DTC, or indirectly through organizations that are participants
in DTC (called "participants"). Transfers between participants will be effected
in the ordinary way in accordance with DTC rules and will be settled in
clearing house funds. The laws of some states require that certain persons take
physical delivery of securities in definitive form. As a result, the ability to
transfer beneficial interests in the global note to such persons may be limited.
If you are not a participant, you may beneficially own interests in a global
note held by DTC only through participants, or certain banks, brokers, dealers,
trust companies and other parties that clear through or maintain a custodial
relationship with a participant, either directly or indirectly (called
"indirect participants"). So long as Cede & Co., as the nominee of DTC, is the
registered owner of a global note, Cede & Co. for all purposes will be
considered the sole holder of such global note. Except as provided below,
owners of beneficial interests in a global note will:
. not be entitled to have certificates registered in their names;
. not receive physical delivery of certificates in definitive registered
form; and
. not be considered holders of the global note.
We will pay interest on and the redemption price of a global note to Cede &
Co., as the registered owner of the global note, by wire transfer of
immediately available funds on each interest payment date or the redemption or
repurchase date, as the case may be. Neither we, the trustee nor any paying
agent will be responsible or liable:
. for the records relating to, or payments made on account of, beneficial
ownership interests in a global note; or
. for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
We have been informed that DTC's practice is to credit participants'
accounts on that payment date with payments in amounts proportionate to their
respective beneficial interests in the principal amount represented by a global
note as shown in the records of DTC, unless DTC has reason to believe that it
will not receive payment on that payment date. Payments by participants to
owners of beneficial interests in the principal amount represented by a global
note held through participants will be the responsibility of the participants,
as is now the case with securities held for the accounts of customers
registered in "street name."
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Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the lack
of a physical certificate evidencing its interest.
Neither we, the trustee, registrar, paying agent nor conversion agent will
have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. DTC has advised us that it will take any
action permitted to be taken by a holder of notes, including the presentation
of notes for exchange, only at the direction of one or more participants to
whose account with DTC interests in the global note are credited, and only in
respect of the principal amount of the notes represented by the global note as
to which the participant or participants has or have given such direction.
DTC has advised us that it is:
. a limited purpose trust company organized under the laws of the State of
New York, and a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
. a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants.
Participants include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the participants or
their representatives, together with other entities, own DTC. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of
interests in a global note among participants. However, DTC is under no
obligation to perform or continue to perform these procedures, and may
discontinue these procedures at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will issue notes in certificated form in exchange for
global notes.
Certificated Notes
QIBs may request that certificated notes be issued in exchange for notes
represented by a global note.
Registration Rights of the Noteholders
We entered into a registration rights agreement with the initial purchasers
under which we are required to use our reasonable best efforts to keep the
shelf registration statement of which this prospectus is a part effective until
the earlier of:
. the time when all of the registrable securities have been sold pursuant to
the shelf registration statement; or
. the expiration of the holding period under Rule 144(k) under the
Securities Act, or any successor provision.
When we use the term "registrable securities" in this section, we are
referring to the notes and the common stock issuable upon conversion of the
notes until the earliest of:
. the effective registration under the Securities Act and the resale of the
securities in accordance with the registration statement;
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. the expiration of the holding period under Rule 144(k) under the
Securities Act; and
. the sale to the public pursuant to Rule 144 under the Securities Act, or
any similar provision then in force, but not Rule 144A.
We may suspend the use of this prospectus under certain circumstances
relating to pending corporate developments, public filings with the SEC and
similar events. Any suspension period may not:
. exceed 30 days in any three-month period; or
. an aggregate of 90 days for all periods in any 12-month period.
Notwithstanding the foregoing, we will be permitted to suspend the use of
this prospectus for up to 60 days in any three-month period under certain
circumstances, relating to possible acquisitions, financings or other similar
transactions.
We will pay predetermined liquidated damages if the shelf registration
statement is not timely made effective or if this prospectus is unavailable for
periods in excess of those permitted above:
. on the notes at an annual rate equal to 0.5% of the aggregate principal
amount of the notes outstanding until the registration statement is filed
or made effective or during the additional period this prospectus is
unavailable; and
. on the common stock that has been converted, at an annual rate equal to
0.5% of an amount equal to $1,000 divided by the conversion rate during
such periods.
A holder who elects to sell registrable securities pursuant to the shelf
registration statement will be required to:
. be named as a selling security holder in the related prospectus;
. deliver a prospectus to purchasers; and
. be subject to the provisions of the registration rights agreement,
including indemnification provisions.
Under the registration rights agreement, we will:
. pay all expenses of the shelf registration statement;
. provide each registered holder copies of the prospectus;
. notify holders when the shelf registration statement has become effective;
and
. take other reasonable actions as are required to permit unrestricted
resales of the registrable securities in accordance with the terms and
conditions of the registration rights agreement.
In order to sell your registrable securities, you must complete the
questionnaire that was attached to the offering memorandum for the private
placement of the notes, and deliver it to us prior to your intended
distribution. In order to be named as a selling security holder in the
prospectus at the time of effectiveness of the shelf registration statement,
you must complete and deliver the questionnaire to us on or prior to the tenth
business day before the effectiveness of the registration statement. Upon
receipt of a completed questionnaire after that time, together with any other
information we may reasonably request following the effectiveness, we will file
any amendments to the shelf registration statement or supplements to the
related prospectus as are necessary to permit you to deliver your prospectus to
purchasers of registrable securities, subject to our right to suspend the use
of the prospectus. We will pay the predetermined liquidated damages described
above to the holder if we fail to make the filing in the time required or, if
such filing is a post-effective amendment to the shelf registration statement
required to be declared effective under the Securities Act, if such amendment
is not declared effective within 45 days of the filing. If you do not complete
and deliver a questionnaire or provide the
26
other information we may request, you will not be named as a selling security
holder in the prospectus and will not be permitted to sell your registrable
securities pursuant to the shelf registration statement. This summary of the
registration rights agreement is not complete. This summary is subject to, and
is qualified in its entirety by reference to, all the provisions of the
registration rights agreement.
Rule 144A Information Request
We will furnish to the holders or beneficial holders of the notes or the
underlying common stock and prospective purchasers, upon their request, the
information required under Rule 144A(d)(4) under the Securities Act until such
time as such securities are no longer "restricted securities" within the
meaning of Rule 144 under the Securities Act, assuming these securities have
not been owned by an affiliate of Photronics.
Information Concerning the Trustee
We have appointed The Bank of Nova Scotia Trust Company of New York, the
trustee under the indenture, as paying agent, conversion agent and note
registrar for the notes. The trustee or its affiliates may in the future
provide banking and other services to us in the ordinary course of their
business. The indenture contains certain limitations on the rights of the
trustee, if it or any of its affiliates is then our creditor, to obtain payment
of claims in certain cases or to realize on certain property received on any
claim as security or otherwise. The trustee and its affiliates will be
permitted to engage in other transactions with us. However, if the trustee or
any affiliate continues to have any conflicting interest and a default occurs
with respect to the notes, the trustee must eliminate such conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 2,000,000 shares of preferred
stock, $.01 par value, of which no shares are issued and outstanding, and
75,000,000 shares of common stock, $.01 par value per share, of which
30,315,494 shares were issued and outstanding as of December 31, 2001.
Common Stock
The holders of shares of common stock are entitled to one vote per share on
all matters to be voted upon by shareholders. At a meeting of shareholders at
which a quorum is present, a majority of the votes cast decides all questions,
unless the matter is one upon which, by express provision of the certificate of
incorporation, the bylaws or statute, a different vote is required. There is no
cumulative voting with respect to the election of directors, which means that
the holders of a majority of the shares can elect all the directors if they
choose to do so, and in such event, the holders of the remaining shares would
not be able to elect any directors.
The holders of common stock have no preemptive rights, nor are there any
redemption rights provisions with respect to common stock. The shares offered
hereby, when issued and paid for, will be fully paid and nonassessable and not
subject to further call or assessment by us.
The holders of common stock are entitled to such dividends, if any, as may
be declared by our board of directors in its discretion out of funds legally
available for that purpose. In the event of our liquidation, dissolution or
winding up, the holders of our common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to the priority of
preferred stock, if any, then outstanding.
At December 31, 2001, we had reserved 3,128,571 shares of common stock for
issuance under our stock option plans, 151,546 shares of common stock for
issuance under our employee stock purchase plan and 3,693,243 shares of common
stock issuable upon conversion of our 6.00% convertible subordinated notes due
June 1, 2004, up to 1,410,000 shares that may be issued to increase our equity
interest in PKL Co., Ltd. and 5,405,400 shares of common stock issuable upon
conversion of the notes offered hereby.
Preferred Stock
Our board of directors has the authority by resolution to issue up to
2,000,000 shares of preferred stock in one or more series and to fix the number
of shares constituting any such series, the voting powers, designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including the dividend
rights, dividend rate, terms of redemption (including sinking fund provisions),
redemption price or prices, conversion rights and liquidation preferences of
the shares constituting any series, without any further vote or action by the
shareholders. For example, our board of directors is authorized to issue a
series of preferred stock that would have the right to vote separately or with
any other series of preferred stock on any proposed amendment to our
certificate of incorporation or any other proposed corporate action including
business combinations and other transactions. However, our board of directors
currently does not contemplate the issuance of any preferred stock.
Certain Effects of Authorized but Unissued Stock
At December 31, 2001, there were 30,895,746 shares of common stock that were
not outstanding or reserved for issuance and 2,000,000 shares of unissued and
undesignated Preferred Stock. These additional shares may be utilized for a
variety of proper corporate purposes, including future public offerings to
raise additional capital or facilitate corporate acquisitions. We do not
currently have any plan to issue additional shares of common stock or preferred
stock, other than shares of common stock issuable under our employee stock
purchase plan or upon the exercise of options issued under our stock option
plans or, reserved for issuance upon conversion of our 6.00% convertible
subordinated notes due 2004 or the notes offered hereby.
28
One of the effects of the existence of unissued and unreserved common stock
and undesignated preferred stock may be to enable our board of directors to
issue shares to persons friendly to current management, which could render more
difficult or discourage an attempt to obtain control of us by means of a
merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management. Our board of directors can issue the preferred
stock without shareholders approval, with voting and conversion rights that
could adversely affect the voting rights of the common shareholders.
Transfer Agent
The transfer agent and registrar for the common stock is Registrar &
Transfer Company, Cranford, New Jersey.
Listing
The common stock is quoted on The Nasdaq National Market under the symbol
"PLAB."
29
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the notes
and common stock into which the notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating
thereto. This summary is generally limited to holders who will hold the notes
and the shares of common stock as capital assets and does not deal with special
situations including those that may apply to particular holders such as
tax-exempt organizations, holders subject to the U.S. federal alternative
minimum tax, dealers in securities, traders in securities who elect to apply a
mark-to-market method of accounting, financial institutions, banks, insurance
companies, regulated investment companies, certain former citizens or former
long-term residents of the United States, partnerships or other pass-through
entities, holders whose "functional currency" is not the U.S. dollar and
persons who hold the notes or shares of common stock in connection with a
"straddle," "hedging," "conversion" or other risk reduction transaction. This
discussion does not address the tax consequences to non-U.S. holders of notes
or our common stock that are engaged in a trade or business within the United
States and does not discuss the tax consequences under any state, local or
foreign law. In addition, this summary does not consider the effect of the U.S.
federal estate or gift tax laws.
The U. S. federal income tax considerations set forth below are based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations promulgated thereunder, court decisions, and rulings and
pronouncements of the Internal Revenue Service, referred to as the "IRS", now
in effect, all of which are subject to change. Prospective investors should
particularly note that any such change could have retroactive application so as
to result in U.S. federal income tax consequences different from those
discussed below. We have not sought any ruling from the IRS with respect to
statements made and conclusions reached in this discussion and there can be no
assurance that the IRS will agree with such statements and conclusions. This
summary also assumes that the IRS will respect the classification of the notes
as indebtedness for federal income tax purposes.
As used herein, the term "U.S. holder" means a beneficial owner of a note
(or our common stock acquired upon conversion of a note) that is for U.S.
federal income tax purposes:
. an individual who is a citizen or resident of the United States;
. a corporation, or other entity taxable as a corporation for U. S. federal
income tax purposes, created or organized in or under the laws of the
United States, any state thereof or the District of Columbia;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust, if a court within the United States is able to exercise primary
jurisdiction over its administration and one or more U.S. persons have
authority to control all it its substantial decisions, or if the trust has
a valid election in effect under applicable Treasury regulations to be
treated as a U.S. person.
As used herein, a "non-U.S. holder" means a holder that is not a U.S. holder
and that is not engaged in a U.S. trade or business. Non-U.S. holders are
subject to special U.S. federal income tax provisions, some of which are
discussed below.
If a partnership (including for this purpose any entity treated as a
partnership for U.S. tax purposes) is a beneficial owner of the notes or common
stock into which the notes may be converted, the U.S. tax treatment of a
partner in the partnership will generally depend on the status of the partner
and the activities of the partnership. A holder of the notes or common stock
into which the notes may be converted that is a partnership and partners in
such partnership should consult their individual tax advisors about the U.S.
federal income tax consequences of holding and disposing of the notes and the
common stock into which the notes may be converted.
30
U.S. Holders
Taxation of Interest
Interest paid on the notes will be included in the income of a U.S. holder
as ordinary income at the time it is treated as received or accrued, in
accordance with such holder's regular method of accounting for U.S. federal
income tax purposes.
Market Discount
A purchaser that acquires a note for an amount that is less than its stated
principal amount, plus accrued interest, may be subject to the market discount
rules. For this purpose, the market discount on a note generally will be equal
to the amount, if any, by which the stated principal amount of the note
immediately after its acquisition exceeds the U.S. holder's adjusted tax basis
in the note. Subject to a de minimis exception, these provisions generally
require a U.S. holder who acquires a note at a market discount to treat as
ordinary income any gain recognized on the disposition of the note to the
extent of the "accrued market discount" on the note at the time of disposition,
unless the U.S. holder elects to include accrued market discount in income
currently. This election to include market discount in income currently, once
made, applies to all market discount obligations acquired on or after the first
day of the first taxable year to which the election applies and may not be
revoked without the consent of the IRS. In general, market discount will be
treated as accruing on a straight-line basis over the remaining term of the
note at the time of acquisition, or, at the election of the U.S. holder, under
a constant yield method. A U.S. holder who acquires a note at a market discount
and who does not elect to include accrued market discount in income currently,
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the note until the
note is disposed of in a taxable transaction. If a U.S. holder acquires a note
with market discount and receives common stock upon conversion of the note, the
amount of accrued market discount not previously included in income with
respect to the converted note through the date of conversion will be treated as
ordinary income upon the disposition of the common stock.
Amortizable Premium
Subject to special rules for bonds callable before maturity, a U.S. holder
who purchases a note at a premium over its stated principal amount, plus
accrued interest, generally may elect to amortize such premium, referred to as
"Section 171 premium," from the purchase date to the note's maturity date under
a constant yield method that reflects semiannual compounding based on the
note's payment period. Amortizable premium, however, will not include any
premium attributable to a note's conversion feature. The premium attributable
to any conversion feature is the excess, if any, of the purchase price for the
notes over its fair market value without a conversion feature. Amortized
Section 171 premium is treated as an offset to interest income on a note and
not as a separate deduction. A U.S. holder who elects to amortize premium must
reduce his tax basis in the note as described below under "-- Sale, Redemption
or Repurchase for Cash." Bond premium on a note held by a U.S. holder that does
not make the election to amortize will decrease the gain or increase the loss
otherwise recognized upon a taxable disposition of the note. The election to
amortize premium on a constant yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing U.S. holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Constructive Dividends
Holders of convertible debt instruments such as the notes may, in some
circumstances, be deemed to have received distributions of stock if the
conversion price of such instruments is adjusted to the extent the adjustment
results in an increase in the holder's proportionate interest in the earnings
and profits or assets of Photronics. However, adjustments to the conversion
price made pursuant to a bona fide, reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments will generally
31
not be considered to result in a constructive distribution of stock. Some of
the possible adjustments provided in the notes (including, without limitation,
adjustments in respect of taxable dividends to our stockholders or adjustments
at our discretion) will not qualify as being pursuant to a bona fide reasonable
adjustment formula. If such adjustments are made, U.S. holders of notes will be
deemed to have received constructive distributions taxable as dividends to the
extent of our current and accumulated earnings and profits even though they
have not received any cash or property as a result of such adjustments. A
holder's tax basis in a note, however, generally will be increased by the
amount of any constructive dividend included in taxable income. In addition, in
some circumstances, an adjustment or the failure to provide for an adjustment
may result in taxable dividend income to the holders of common stock. The
consequences of distributions on common stock are described below under "U.S.
Holders--Distributions on Common Stock."
Conversion of the Notes for Common Stock
A U.S. holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock except with respect to cash received in
lieu of a fractional share of common stock or common stock that is attributable
to accrued interest not previously included in income. Cash received in lieu of
a fractional share of common stock upon conversion will be treated as a payment
in exchange for the fractional share of common stock. Accordingly, the receipt
of cash in lieu of a fractional share of common stock generally will result in
capital gain or loss (measured by the difference between the cash received for
the fractional share and the holder's adjusted tax basis in the fractional
share). Common stock received upon conversion that is attributable to accrued
interest not previously included in income will be subject to the rules
described above with respect to taxation of interest. See "U.S.
Holders--Taxation of Interest" above.
A U.S. holder's tax basis in the common stock received on conversion of a
note will be the same as such holder's adjusted tax basis in the note at the
time of conversion (reduced by any basis allocable to a fractional share
interest), and the holding period for the common stock received on conversion
will generally include the holding period of the note converted. However, a
U.S. holder's tax basis in shares of common stock considered attributable to
accrued interest not previously included in income (or to cash tendered with
notes converted after a record date for a particular interest payment date and
prior to such interest payment date) generally will equal the amount of such
accrued interest (and/or cash), and the holding period for such shares shall
begin on the date of conversion.
Distributions on Common Stock
If, contrary to our current dividend policy, distributions are made on the
common stock after a conversion, such distributions generally will be included
in the income of a U.S. holder as ordinary dividend income to the extent of our
current or accumulated earnings and profits as determined under U.S. federal
income tax principles. A dividend distribution to a corporate U.S. holder may
qualify for a dividends-received deduction; however, certain holding period
requirements, taxable income and other limitations may apply. Distributions in
excess of our current and accumulated earnings and profits will be treated as a
non-taxable return of capital that reduces the U.S. holder's basis in the
common stock dollar-for-dollar until the basis has been reduced to zero, and
thereafter as capital gain.
Sale, Redemption or Repurchase for Cash
U.S. holders generally will recognize capital gain or loss upon the sale,
redemption, including a repurchase by us for cash pursuant to the redemption
rights or upon a fundamental change, or other taxable disposition of the notes
or common stock in an amount equal to the difference between the sum of the
cash plus the fair market value of any property received for such disposition
(other than amounts attributable to accrued but unpaid interest on the notes
not previously included in income, which will be treated as interest for U.S.
federal income tax purposes) and the U.S. holder's adjusted tax basis in the
notes or common stock (as the case may be). A U.S. holder's adjusted tax basis
in a note generally will equal the cost of the note to such U.S. holder,
increased by
32
market discount previously included in income by the U.S. holder and reduced by
any amortized premium. (For a discussion of the holder's basis in shares of our
common stock, see "--Conversion of the Notes for Common Stock" above).
Prospective investors should consult their tax advisers regarding the
treatment of capital gains (which may be taxed at lower rates than ordinary
income for taxpayers who are individuals, trusts or estates and have held their
notes or common stock for more than one year) and losses (the deductibility of
which is subject to limitations).
Backup Withholding and Information Reporting
Certain noncorporate U.S. holders may be subject to IRS information
reporting and backup withholding on payments of interest on the notes,
dividends on common stock and proceeds from the sale or other disposition of
the notes or common stock. Backup withholding of U.S. federal income tax will
apply to payments made pursuant to the terms of a note or common stock
(including proceeds received upon the sale, exchange, redemption, retirement or
other disposition of the notes or common stock) to a U.S. holder that is not an
"exempt recipient" and that fails to provide required identifying information
(such as the holder's U.S. taxpayer identification number, or "TIN") in the
manner required. Payments made in respect of a note or common stock (including
proceeds received upon the sale, exchange, redemption, retirement or other
disposition of the notes or common stock) must be reported to the IRS, unless
the U.S. holder is an exempt recipient or otherwise establishes an exemption.
Any amounts withheld from a payment to a U.S. holder under the backup
withholding rules is allowable as a refund or credit against the holder's U.S.
federal income tax, provided that the required information is furnished to the
IRS in a timely manner.
Non-U.S. Holders
In general, subject to the discussion below concerning backup withholding:
Taxation of Interest
Payments of interest on the notes by us or any paying agent to a beneficial
owner of a note that is a non-U.S. holder generally will not be subject to U.S.
withholding tax, provided that (1) such non-U.S. holder does not own, actually
or constructively pursuant to the conversion feature of the notes or otherwise,
10 percent or more of the total combined voting power of all classes of our
stock entitled to vote (2) such non-U.S. holder is not a "controlled foreign
corporation" related to us through stock ownership and (3) the IRS
certification requirements summarized below are satisfied.
To satisfy the certification requirements referred to above either (1) the
beneficial owner of a note must certify, under penalties of perjury, to us or
our paying agent, as the case may be, that such owner is a non-U.S. holder and
must provide such owner's name and address, and TIN, if any, on Form W-8BEN (or
a suitable substitute form) or (2) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution") and holds the note
on behalf of the beneficial owner thereof must certify, under penalties of
perjury, to us or our paying agent, as the case may be, that a Form W-8BEN(or a
suitable substitute form) has been received from the beneficial owner or a
qualifying intermediary and must furnish the payor with a copy thereof.
Interest on notes not excluded from U.S. withholding tax as described above
and not effectively connected with a United States trade or business generally
will be subject to U.S. withholding tax at a 30 percent rate, except where a
non-U.S. holder can claim the benefits of an applicable U.S. income tax treaty
providing for the reduction or elimination of such withholding tax and
demonstrate such eligibility to the IRS.
Sale, Exchange or Redemption of the Notes or Common Stock
A non-U.S. holder of a note or common stock will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or redemption of
such note or common stock unless (1) such non-U.S. holder is an
33
individual who is present in the United States for 183 days or more in the
taxable year of sale, exchange or other disposition, and other required
conditions are met, or, (2) in certain circumstances, if we are, or have been
at any time within the shorter of the five-year period preceding such sale or
other disposition or the period such non-U.S. holder held the common stock or
note, a U.S. real property holding corporation (a "USRPHC") within the meaning
of Section 897(c)(2) of the Code for U.S. federal income tax purposes.
We believe that we are not a USRPHC for U.S. federal income tax purposes.
Although we consider it unlikely based in our current business plans and
operations, we may become a USRPHC in the future. If we were to become a
USRPHC, a non-U.S. holder might be subject to U.S. federal income tax with
respect to gain realized on the disposition of notes or shares of common stock.
However, in the case of a sale of our common stock or notes, such gain would
not be subject to U.S. federal income or withholding tax if (1) our common
stock is regularly traded on an established securities market and (2) the
non-U.S. holder disposing of our common stock or notes did not own, actually or
constructively (through exercise of the conversion feature in the case of the
notes), at any time during the five-year period preceding the disposition, more
than 5% of our common stock.
Constructive Dividends
The conversion price of the notes is subject to adjustment in certain
circumstances. Certain such adjustments would give rise to a deemed
distribution to non-U.S. holders of the notes. See "U.S. Holders--Constructive
Dividends" above. In such case, the deemed distribution would be subject to the
rules above regarding withholding of U.S. federal tax on dividends in respect
of common stock. See "--Distributions on Common Stock" below.
Conversion of the Notes
A non-U.S. holder generally should not be subject to U.S. federal income tax
on the conversion of a note into common stock. To the extent a non-U.S. holder
receives cash in lieu of a fractional share of common stock upon conversion,
such cash may give rise to gain that would be subject to the rules described
above with respect to the sale, exchange or redemption of a note or common
stock. See "Non-U.S. holders--Sale, Exchange or Redemption of the Notes or
Common Stock" above. To the extent a non-U.S. holder receives upon conversion
common stock that is attributable to accrued interest not previously included
in income, such stock may give rise to income that would be subject to the
rules described above with respect to the taxation of interest. See "Non-U.S.
Holders--Taxation of Interest" above.
Distributions on Common Stock
If, contrary to our current dividend policy, distributions are made on
common stock after conversion these distributions will constitute a dividend
for U.S. federal income tax purposes to the extent of our current or
accumulated earnings and profits as determined under U.S. federal income tax
principles. Dividends paid on common stock held by a non-U.S. holder generally
will be subject to U.S. withholding tax at a 30 percent rate, except where an
applicable U.S. income tax treaty provides for the reduction or elimination of
such withholding tax. A non-U.S. holder generally will be required to satisfy
certain IRS certification requirements in order to claim a reduction of or
exemption from withholding under a tax treaty by filing IRS Form W-8 BEN upon
which the non-U.S. holder certifies, under penalties of perjury, its status as
a non-U.S. person and its entitlement to the lower treaty rate with respect to
such payments.
Distributions in excess of our current and accumulated earnings and profits
as determined under U.S. federal income tax principles will be treated as a
non-taxable return of capital that reduces the non-U.S. holder's basis in the
common stock dollar-for-dollar until the basis has been reduced to zero, and
thereafter as capital gain. Such capital gain will generally not be taxable to
a non-U.S. holder except under the circumstances described above under
"Non-U.S. Holders--Sale, Exchange or Redemption of the Notes or Common Stock."
34
Backup Withholding and Information Reporting
A non-U.S. holder may have to comply with specific certification procedures
to establish that he is not a U.S. person in order to avoid information
reporting and backup withholding tax requirements with respect to our payments
of principal and interest on the notes. In addition, we must report annually to
the IRS and to each non- U.S. holder the amount of any dividends paid to, and
the tax withheld with respect to, such holder, regardless of whether any tax
was actually withheld. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the non-U.S. holder resides.
The payment of the proceeds from the sale or other disposition of the notes
or common stock to or through a foreign office of a broker generally will not
be subject to information reporting or backup withholding. However, a sale or
disposition of the notes or common stock will be subject to information
reporting if it is to or through a foreign office of a broker that is a "U.S.
related broker" unless the broker does not have actual knowledge or reason to
know that the holder is a U.S. person and the documentation requirements
described above are met or the holder otherwise establishes an exemption.
Backup withholding will apply if the sale or disposition is subject to
information reporting and the broker has actual knowledge that you are a U.S.
person. Under applicable Treasury regulations, a broker is a "U.S. related
broker" if it is (1) a U.S. person, (2) a controlled foreign corporation for
U.S. federal income tax purposes, (3) a foreign person 50% or more of whose
gross income is effectively connected with the conduct of a U.S. trade or
business for a specified three-year period, or (4) a foreign partnership, if at
any time during its tax year one or more of its partners are U.S. persons, as
defined in Treasury regulations, who in the aggregate hold more than 50% of the
income or capital interest in the partnership, or such foreign partnership is
engaged in the conduct of a U.S. trade or business.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be allowed as a credit against such holder's U.S. federal
income tax liability, if any, or will otherwise be refundable, provided that
the prerequisite procedures are followed and the proper information is filed
with the IRS on a timely basis. Non-U.S. holders of the notes or common stock
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption, if applicable.
THE PRECEDING DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. EACH PROSPECTIVE INVESTOR
SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL, STATE, AND
LOCAL TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND
OUR COMMON STOCK. TAX ADVISORS SHOULD ALSO BE CONSULTED AS TO THE U.S. ESTATE
AND GIFT TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF PURCHASING,
HOLDING AND DISPOSING OF THE NOTES AND OUR COMMON STOCK, AS WELL AS THE
CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
35
SELLING SECURITY HOLDERS
We originally issued the notes in a private placement in December 2001. The
notes were resold by the initial purchasers of the notes to qualified
institutional buyers under Rule 144A under the Securities Act. Selling security
holders may offer and sell the notes and the underlying common stock pursuant
to this prospectus.
The following table sets forth information we have received as of February
, 2002 about the principal amount of notes and the underlying common stock
beneficially owned by each selling security holder that may be offered using
this prospectus.
Principal amount
of notes Number of shares
beneficially of common stock Percentage of
owned that may be Percentage of that may be sold common stock
Name sold notes outstanding (1)(4) outstanding (2)
---- ----------------- ----------------- ---------------- ---------------
Advent Convertible Master Cayman L.P........ $ 2,935,000 1.47% 79,324 *
Allentown City Firefighters Pension Plan.... 29,000 * 783 *
Allentown City Officer & Employees Pension
Fund...................................... 11,000 * 297 *
Allentown City Police Pension Plan.......... 54,000 * 1,459 *
Amaranth LLC................................ 13,800,000 6.90 372,972 1.21%
American Motorist Insurance Company......... 507,000 * 13,702 *
Arapahoe County Colorado.................... 49,000 * 1,324 *
Arkansas Teachers Retirement System......... 3,506,000 1.75 94,756 *
Aventis Pension Master Trust (6)............ 105,000 * 2,837 *
Bankers Trust Company Trustee for
DaimlerChrysler Corp. Emp. #1 Pension
Plan dtd. 4/1/89.......................... 3,465,000 1.73% 93,648 *
Baptist Health of South Florida............. 505,000 * 13,648 *
Black Diamond Offshore Ltd.................. 565,000 * 15,270 *
Boilermaker--Blacksmith Pension Trust (6)... 590,000 * 15,945 *
British Virgin Islands Social Security Board 38,000 * 1,027 *
CALAMOS(R) Convertible
Fund--CALAMOS(R) Investment Trust (6)..... 2,400,000 1.20 64,864 *
CALAMOS(R) Convertible Growth and
Income Fund-- CALAMOS(R)
Investment Trust (6)...................... 4,400,000 2.20 118,918 *
CALAMOS(R) Convertible
Portfolio--CALAMOS(R)
Advisors Trust (6)........................ 65,000 * 1,756 *
CALAMOS(R) Convertible Technology
Fund--CALAMOS(R) Investment Trust (6)..... 65,000 * 1,756 *
CALAMOS(R) Global Convertible
Fund--CALAMOS(R) Investment Trust (6)..... 70,000 * 1,891 *
CALAMOS(R) Market Neutral
Fund--CALAMOS(R) Investment Trust (6)..... 10,500,000 5.25 283,783 *
Chrysler Corporation Master
Retirement Trust.......................... 2,035,000 1.01 54,999 *
City of Albany Pension Plan (6)............. 50,000 * 1,351 *
City of Knoxville Pension
System (6)................................ 145,000 * 3,918 *
City of New Orleans......................... 203,000 * 5,486 *
City University of New York................. 122,000 * 3,297 *
36
Principal amount
of notes Number of shares
beneficially of common stock Percentage of
owned that may be Percentage of that may be sold common stock
Name sold notes outstanding (1)(4) outstanding (2)
---- ----------------- ----------------- ---------------- ---------------
Clarica Life Insurance Co.--U.S. (6)..... 145,000 * 3,918 *
Consulting Group Capital
Markets Funds (6)...................... 250,000 * 6,756 *
DeAm Convertible Arbitrage............... 3,300,000 1.65 89,189 *
Delta Air Lines Master Trust (c/o Oaktree
Capital Management LLC) (6)............ 490,000 * 13,243 *
Delta Pilots Disability and Survivorship
Trust (6).............................. 200,000 * 5,405 *
Delta Pilots D & S Trust (c/o Oaktree
Capital Management LLC) (6)............ 270,000 * 7,297 *
Deutsche Banc Alex Brown................. 15,624,000 7.81 422,269 1.37
Dorinco Reinsurance Company (6).......... 325,000 * 8,783 *
Double Black Diamond Offshore LDC........ 2,935,000 1.47 79,324 *
Drury University (6)..................... 35,000 * 945 *
Engineers Joint Pension Fund............. 468,000 * 12,648 *
Fidelity Financial Trust: Fidelity
Convertible Securities Fund (7)........ 11,680,000 5.84 315,675 1.03
Franklin and Marshall College............ 190,000 * 5,135 *
Grady Hospital Foundation................ 107,000 * 2,891 *
Granville Capital Corporation............ 2,000,000 1.00 54,054 *
HFR Convertible Arbitrage Account........ 190,000 * 5,135 *
HFR Master Fund, LTD. (6)................ 50,000 * 1,351 *
H.K. Porter Company, Inc................. 15,000 * 405 *
Independence Blue Cross.................. 64,000 * 1,729 *
JP Morgan Chase (6)...................... 950,000 * 25,675 *
KBC Financial Products USA Inc........... 250,000 * 6,756 *
Kettering Medical Center Funded
Depreciation Account (6)............... 35,000 * 945 *
Knoxville Utilities Board Retirement
System (6)............................. 120,000 * 3,243 *
Lipper Convertibles, L.P................. 1,500,000 * 40,540 *
Lipper Offshore Convertibles, L.P........ 1,500,000 * 40,540 *
Louisiana Workers' Compensation
Corporation (6)........................ 150,000 * 4,054 *
Lumbermans............................... 491,000 * 13,270 *
Macomb County Employees' Retirement
System (6)............................. 145,000 * 3,918* *
Microsoft Corporation.................... 410,000 * 11,081 *
Minnesota Power and Light................ 125,000 * 3,378 *
Motion Pictures Industry................. 545,000 * 14,729 *
Motion Picture Industry Health
Plan--Active Member Fund............... 190,000 * 5,135 *
Motion Picture Industry Retiree Member
Fund................................... 80,000 * 2,162 *
Municipal Employees...................... 183,000 * 4,945 *
New Orleans Firefighters Pension/Relief
Fund................................... 110,000 * 2,972 *
Nicholas Applegate Convertible Fund...... 1,395,000 * 37,702 *
37
Principal amount
of notes Number of shares
beneficially of common stock Percentage of
owned that may be Percentage of that may be sold common stock
Name sold notes outstanding (1)(4) outstanding (2)
---- ----------------- ----------------- ---------------- ---------------
1976 Distribution Trust FBO
A.R. Lauder/ Zinterhofer................ 7,000 * 189 *
1976 Distribution Trust FBO
Jane A. Lauder.......................... 13,000 * 351 *
Occidental Petroleum Corporation.......... 118,000 * 3,189 *
OCM Convertible Trust..................... 1,180,000 * 8,918 *
Onex Industrial Partners.................. 1,950,000 * 52,702 *
Palladin Securities LLC................... 1,200,000 * 32,432 *
Paloma Securities LLC..................... 5,000,000 2.50 135,135 *
Partner Reinsurance Company Ltd........... 330,000 * 8,918 *
Pebble Capital Inc........................ 650,000 * 17,567 *
Physician Life............................ 183,000 * 4,945 *
Policemen and Firemen Retirement System
of the City of Detroit.................. 503,000 * 13,594 *
Port Authority of Allegheny County
Retirement and Disability Allowance
Plan for the Employees Represented by
Local 85 of the Amalgamated Transit
Union (6)............................... 615,000 * 16,621 *
Pro-mutual................................ 603,000 * 16,297 *
Qwest Occupational Health Trust........... 55,000 * 1,486* *
RAM Trading Ltd........................... 1,750,000 * 47,297 *
Raytheon Master Pension Trust............. 200,000 * 5,405 *
Robertson Stephens........................ 5,000,000 2.50 135,135 *
San Diego City Retirement................. 1,097,000 * 29,648 *
San Diego County Convertible.............. 1,654,000 * 44,702 *
SCI Endowment Care Common Trust
Fund--First Union (6)................... 20,000 * 540 *
SCI Endowment Care Common Trust
Fund--National Fiduciary Services (6)... 70,000 * 1,891 *
SCI Endowment Care Common Trust
Fund--Suntrust (6)...................... 30,000 * 810 *
Screen Actors Guild Pension Convertible... 500,000 * 13,513 *
Shell Pension Trust....................... 320,000 * 8,648 *
Silvercreek Limited Partnership........... 1,100,000 * 29,729 *
Silvercreek II Limited.................... 900,000 * 24,324 *
Southdown Pension Plan (6)................ 60,000 * 1,621 *
SPT (6)................................... 710,000 * 19,189 *
State Employees' Retirement Fund of the
State of Delaware....................... 810,000 * 21,891 *
State of Connecticut Combined Investment
Fund.................................... 1,705,000 * 46,081 *
State of Maryland Retirement Agency....... 2,575,000 1.29 69,594 *
State Street Bank Custodian for GE Pension
Trust................................... 1,585,000 * 42,837 *
Sunrise Partners LLC...................... 9,200,000 4.60 248,648 *
The Dow Chemical Company Employees'
Retirement Plan (6)..................... 1,150,000 * 27,631 *
38
Principal amount
of notes Number of shares
beneficially of common stock Percentage of
owned that may be Percentage of that may be sold common stock
Name sold notes outstanding (1)(4) outstanding (2)
---- ----------------- ----------------- ---------------- ---------------
The Fondren Foundation (6)................ 35,000 * 945 *
The Grable Foundation..................... 95,000 * 2,567 *
Trustmark Insurance Company............... 280,000 * 7,567 *
2000 Revocable Trust FBO
A.R. Lauder/Zinterhofer................. 6,000 * 162 *
Union Carbide Retirement Account (6)...... 600,000 * 16,216 *
United Food and Commercial Workers
Local 1262 and Employee Pension
Fund (6)................................ 270,000 * 7,297 *
Vanguard Convertible Securities Fund, Inc. 1,945,000 * 52,567 *
Vopak USA Inc., Retirement Plan (f.k.a.
Van Waters & Rogers, Inc. Retirement
Plan) (6)............................... 140,000 * 3,783 *
Wake Forest University.................... 686,000 * 18,540 *
Writers Guild Industry Health Fund........ 293,000 * 7,918 *
Wyoming State Treasurer................... 971,000 * 26,243 *
Any other holder of notes or future
transferee, pledgee, donee or successor
of any holder (3)....................... 59,605,000 29.80 1,610,944 5.05
------------ ------ --------- -----
Total..................................... $200,000,000 100.00% 5,405,400(5) 15.13%
============ ====== ========= =====
--------
* Less than 1%.
(1) Assumes conversion of all of the holder's notes at a conversion rate of
27.027 shares of common stock per $1,000 principal amount of notes.
However, this conversion rate will be subject to adjustment as described
under "Description of Notes--Conversion Rights." As a result, the amount
of common stock issuable upon conversion of the notes may increase or
decrease in the future.
(2) Calculated based on 30,315,494 shares of common stock outstanding as of
December 31, 2001. In calculating this amount for each selling security
holder, we treated as outstanding that number of shares of common stock
issuable upon conversion of all of that holder's notes. However, we did
not assume the conversion of any other holder's notes, except in
calculating the percentage for all selling security holders as a group
(3) Information about other selling security holders will be set forth in
prospectus supplements, if required.
(4) Assumes that the holders of notes, or any future transferees, pledgees,
donees or
successors of or from any such holder of notes, do not beneficially own any
common stock other than the common stock issuable upon conversion of
the notes at the initial conversion rate.
(5) Column does not add up correctly because the fractional shares to which
the holders would be entitled have been disregarded.
(6) Pursuant to the Investment Management Agreement, CALAMOS(R) Investments
is not acting individually, but solely as an Investment Manager for the
selling security holder.
(7) The entity is either an investment company or a portfolio of an
investment company registered under Section 8 of the Investment Company
Act of 1940, as amended, or a private investment account advised by
Fidelity Management and Research Company ("FMR Co."). FMR Co. is a
Massachusetts corporation and an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940, as amended, and
provides investment advisory services to each of such Fidelity entities
identified
39
above, and to other registered investment companies and to certain other
funds which are generally offered to a limited group of investors. FMR
Co. is a wholly owned subsidiary of FMR Corp. ("FMR"), a Massachusetts
corporation. The holdings are as of January 23, 2002.
We prepared this table based on the information supplied to us as of
February 21, 2002 by the selling security holders named in the table. The
selling security holders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their notes since the date on which the
information is presented in the above table. Information about the selling
security holders may change over time. Any changed information supplied to us
will be set forth in future prospectus supplements.
None of the selling security holders listed above has, or within the past
three years has had, any position, office or other material relationship with
us or any of our predecessors or affiliates.
Because the selling security holders may offer all or some of their notes or
the underlying common stock from time to time, we cannot estimate the amount of
the notes or the underlying common stock that will be held by the selling
security holders upon the termination of any particular offering. See "Plan of
Distribution."
40
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
underlying common stock offered by this prospectus. The notes and the
underlying common stock may be sold from time to time to purchasers:
. directly by the selling security holders; or
. through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from the
selling security holders or the purchasers of the notes and the underlying
common stock.
The selling security holders and any such broker-dealers or agents who
participate in the distribution of the notes and the underlying common stock
may be deemed to be underwriters. As a result, any profits on the sale of the
underlying common stock by selling security holders and any discounts,
commissions or concessions received by any such broker-dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
If the selling security holders were deemed to be underwriters, the selling
security holders may be subject to statutory liabilities including, but not
limited to, those of Sections 11, 12 and 17 of the Securities Act and Rule
10b-5 under the Exchange Act.
If the notes and the underlying common stock are sold through underwriters
or broker-dealers, the selling security holders will be responsible for
underwriting discounts or commissions or agent's commissions. The notes and the
underlying common stock may be sold in one or more transactions at:
. fixed prices;
. prevailing market prices at the time of sale;
. varying prices determined at the time of sale; or
. negotiated prices.
These sales may be effected in transactions:
. on any national securities exchange or quotation service on which the
notes or underlying common stock may be listed or quoted at the time of
the sale, including the Nasdaq National Market in the case of the common
stock;
. in the over-the-counter market;
. in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
. through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
transaction.
In connection with the sales of the notes or the underlying common stock or
otherwise, the selling security holders may enter into hedging transactions
with broker-dealers. These broker-dealers may in turn engage in short sales of
the notes or the underlying common stock in the course of hedging their
positions. The selling security holders may also sell the notes or the
underlying common stock short and deliver notes or the underlying common stock
to close out short positions, or loan or pledge notes or the underlying common
stock to broker-dealers that, in turn, may sell the notes or the underlying
common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling security holders and any underwriter,
broker-dealer or agent regarding the sale of the notes or the underlying common
stock by the selling security holders. Selling security holders may decide not
to sell all or a portion of the notes or the underlying common stock offered by
them pursuant to this prospectus or may decide not to sell notes or the
underlying common stock under this prospectus. In addition, any selling
security holder may transfer, devise or give the notes or the underlying common
stock by other means not described in this prospectus. Any notes or underlying
common stock covered by this prospectus that qualify for sale pursuant to Rule
144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
rather than pursuant to this prospectus.
41
Our common stock is quoted on the Nasdaq National Market under the symbol
"PLAB." We do not intend to apply for listing of the notes on any securities
exchange. Accordingly, no assurance can be given as to the development of
liquidity or any trading market for the notes.
The selling security holders and any other persons participating in the
distribution of the notes or underlying common stock will be subject to the
Exchange Act. The Exchange Act rules include, without limitation, Regulation M,
which may limit the timing of purchases and sales of any of the notes and the
underlying common stock by the selling security holders and any such other
person. In addition, Regulation M of the Exchange Act may restrict the ability
of any person engaged in the distribution of the notes and the underlying
common stock being distributed for a period of up to five business days prior
to the commencement of such distribution. This may affect the marketability of
the notes and the underlying common stock and the ability to engage in
market-making activities with respect to the notes and the underlying common
stock.
Under the registration rights agreement that has been filed as an exhibit to
the registration statement of which this prospectus is a part, we and the
selling security holders will each indemnify the other against certain
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection with these liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and the underlying common stock to
the public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
The validity of the notes offered hereby has been passed upon for us by
Shearman & Sterling, New York, New York. The validity of the shares of common
stock issuable upon conversion of the notes has been passed upon for us by
James A. Eder, our Vice President, Secretary and General Counsel. Mr. Eder
beneficially owns certain of our securities.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Photronics, Inc. Annual Report on Form 10-K for the year
ended October 31, 2001 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
42
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Photronics, Inc.
4 3/4% Convertible Notes Due 2006
and
Common Stock Issuable Upon Conversion of the Notes
-----------------
Prospectus
-----------------
February , 2002
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by us in
connection with the distribution of the securities being registered. All of the
amounts shown are estimates, except the Securities and Exchange Commission
registration fee.
Securities and Exchange Commission registration fee $ 18,400
Nasdaq listing fee................................. 30,000
Printing and engraving fees........................ 5,700
Accountant's fees and expenses..................... 20,000
Legal fees and expenses............................ 55,000
Trustee fees and expenses.......................... 7,500
Miscellaneous expenses............................. 13,400
--------
Total........................................... $150,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under applicable Connecticut law, the Company shall provide for
indemnification of its directors, officers, employees and agents. Applicable
Connecticut law requires the Company to indemnify a director against judgments
and other expenses of litigation when he is sued by reason of his being a
director in any proceeding brought, other than on behalf of the corporation, if
a director is successful on the merits in defense, or acted in good faith and
in a manner reasonably believed to be in the best interests of the corporation,
and in all other cases that his conduct was at least not opposed to the best
interests of the corporation, or in a criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In a proceeding brought
on behalf of a corporation (a derivative action), a director is entitled to be
indemnified by the corporation for reasonable expenses of litigation, if the
director is finally adjudged not to have breached his duty to the corporation.
In addition, a director is entitled to indemnification for both derivative and
non-derivative actions, if a court determines, upon application, that the
director is fairly and reasonably entitled to be indemnified. Finally, the
Company maintains director and officer liability insurance which provides
insurance for the Company's directors and officers in connection with claims
brought against them in their capacity as such with the Company.
Article Ninth of the Company's Certificate of Incorporation limits
directors' monetary liability for actions or omissions made in good faith,
which are later determined to be a breach of their duty as directors of the
Company. Article Ninth does not eliminate or limit a director's liability for
breaches of fiduciary duty for actions or omissions which (i) involved a
knowing and culpable violation of law; (ii) enabled a director or an associate
(as defined in the Act) to receive an improper personal economic gain; (iii)
showed a lack of good faith and conscious disregard for his duty as a director
under circumstances where the director was aware that his actions created an
unjustifiable risk of serious injury to the Company; (iv) constituted a
sustained and unexcused pattern of inattention that amounted to an abdication
of his duty; or (v) involved the improper distribution of Company assets to its
shareholders or an improper loan to an officer, director or 5% shareholder.
Article Ninth also does not preclude suits for equitable relief, such as an
injunction, nor would it shield directors from liability for violations of the
federal securities laws. Moreover, Article Ninth does not limit the liability
of directors for any act or omission that occurred prior to the date the
Article became effective and does not limit the potential liability of
officer-directors in their capacity as officers.
II-1
ITEM 16. EXHIBITS
Exhibit
-------
+4.1 Indenture dated as of December 12, 2001 between Photronics, Inc. and The Bank of Nova Scotia Trust
Company of New York, Trustee (incorporated by reference to Exhibit 4.2 of Photronic, Inc.'s Annual
Report on Form 10-K for the fiscal year ended October 31, 2001)
+4.2 Registration Rights Agreement dated December 12, 2001 between Photronics, Inc., Morgan Stanley
& Co. Incorporated and Merrill Lynch & Co. (incorporated by reference to Exhibit 4.3 of Photronic,
Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 2001)
+4.3 Certificate of Incorporation of Photronics, Inc. (Filed as an exhibit to the Company's Registration
Statement on Form S-1, File Number 33-11694, which was declared effective by the Commission on
March 10, 1987, and incorporated herein by reference.)
+4.4 Amended By-laws of Photronics, Inc. (Filed as an exhibit to the Company's Registration Statement on
Form S-1, File Number 33-11694, which was declared effective by the Commission on March 10, 1987,
and incorporated herein by reference).
+4.5 Amendment to Certificate of Incorporation, dated March 16, 1990 (Filed as an exhibit to the
Company's Registration Statement on Form S-2, File Number 33-34772 which was declared effective
by the Commission on June 22, 1990, and incorporated herein by reference).
+4.6 Amendment to Certificate of Incorporation, dated March 16, 1995 (Filed as an exhibit to the
Company's Current Report on Form 8-K, dated March 24, 1995, and incorporated herein by reference).
+4.7 Amendment to Certificate of Incorporation, dated November 13, 1997 (Filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended November 2, 1997, and incorporated
herein by reference).
+4.8 Form of 4 3/4 Convertible Subordinated Note due 2006 (Contained in the Indenture filed as Exhibit 4.2
to the Company's Annual Report of Form 10-K for the fiscal year ended October 31, 2001).
+4.9 Form of Common Stock Certificate (Filed as an exhibit to the Company's Registration Statement on
Form S-1, File Number 33-1694, which was declared effective by the Commission on March 10, 1987,
and incorporated herein by reference)
**5.1 Opinion of James A. Eder
**5.2 Opinion of Shearman & Sterling
**8 Opinion of Shearman & Sterling as to Certain United States Federal Income Tax Matters
**12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
*23.1 Consent of Deloitte & Touche LLP, Independent Auditors
**23.2 Consent of James A. Eder (included in Exhibit 5.1)
**23.3 Consent of Shearman & Sterling (included in Exhibit 5.2 and Exhibit 8)
**24 Powers of Attorney
**25 Statement of eligibility of Trustee on form T-1
--------
* Filed herewith
** Previously Filed
+ Incorporated by reference
II-2
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the Calculation
of Registration Fee table in the effective registration statement; and (iii)
to include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration statement; provided, however,
that paragraphs (1)(i) and (1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective and (ii) for the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions set forth in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Brookfield, State of Connecticut, on February
22, 2002.
PHOTRONICS, INC.
By: /S/ ROBERT J. BOLLO
-----------------------------
Robert J. Bollo
Senior Vice President
And Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the registration statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board and February 22, 2002
----------------------------- Chief Executive Officer
Constantine S. Macricostas
* Senior Vice President and February 22, 2002
----------------------------- Chief Financial Officer
Robert J. Bollo
* Vice President--Controller February 22, 2002
----------------------------- (Principal Accounting
Sean T. Smith Officer)
* Director February 22, 2002
-----------------------------
Walter M. Fiederowicz
* Director February 22, 2002
-----------------------------
Joseph A. Fiorita, Jr.
* Director February 22, 2002
-----------------------------
Willem D. Maris
* Director February 22, 2002
-----------------------------
Michael J. Yomazzo
*By: /s/ ROBERT J. BOLLO
-------------------------
Robert J. Bollo
For himself and as
Attorney-in-Fact
II-4