ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement, which describes the terms of the offering of common stock and also
adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference into the accompanying prospectus. The second part is the accompanying prospectus,
which provides more general information. To the extent there is a conflict between the information contained in this prospectus supplement, on one hand, and the information contained in the
accompanying prospectus or any document incorporated by reference therein, on the other hand, you should rely on the information in this prospectus supplement.
It
is important for you to read and consider all information contained in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference in the
prospectus in making your investment decision. You should also read and consider the information in the documents to
which we have referred in "Where You Can Find More Information" and "Incorporation by Reference," below.
You
should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than their respective dates, or that
the information contained in any document incorporated by reference in this prospectus is accurate as of any date other than the date on which that document was filed with the Securities and Exchange
Commission, or SEC.
We
and the placement agent are not making an offer to sell the common stock in jurisdictions where the offer or sale is not permitted. The distribution of this prospectus supplement and
the accompanying prospectus and the offer and sale of our common stock in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus
supplement and the accompanying prospectus must inform themselves about and observe any restrictions relating to the offering of the common stock and the distribution of this prospectus supplement and
the accompanying prospectus outside the United States. This prospectus supplement and the accompanying prospectus do not constitute an offer of, or an invitation to purchase, any shares of common
stock in any jurisdiction in which such offer or invitation would be unlawful.
You should rely only on the information contained in the prospectus supplement, the accompanying prospectus and the documents we incorporate by reference in this
prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with information that is different. We are offering our common stock only in jurisdictions where
such offers are permitted. The information contained in this prospectus supplement and the accompanying prospectus is accurate only as of their respective dates, regardless of the time of delivery of
this prospectus supplement, or of any sale of our common stock.
In
this prospectus supplement, "MoSys," "we," "us," and "our" refer to MoSys, Inc. and our subsidiaries on a consolidated basis.
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PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information related to our business. Since it is a summary, this section may not
contain all the information that you should consider before investing in our common stock. You should carefully read the entire prospectus supplement, the accompanying prospectus and the documents
incorporated by reference in each one, including the "Risk Factors" section.
Our Business
Overview
MoSys, Inc., together with its subsidiaries ("MoSys," the "Company," "we," "our" or "us"), is a fabless semiconductor company focused on
the development and sale of integrated circuits, or ICs, for the high-speed networking, communications, storage and data center markets. Our solutions deliver time-to-market, performance, power, area
and economic benefits for system original equipment manufacturers, or OEMs. We have developed two families of ICs under the Bandwidth Engine® and LineSpeed™ product
names. Bandwidth Engine ICs combine our proprietary 1T-SRAM® high-density embedded memory, integrated macro functions and high-speed serial interface, or SerDes, I/O, with our intelligent
access technology and a highly efficient interface protocol. The LineSpeed IC product line, which was announced in March 2013, is comprised of non-memory, high-speed SerDes I/O devices with clock data
recovery, gearbox and retimer functionality, which convert lanes of data received on line cards or by optical modules into different configurations and/or ensure signal integrity. Historically, our
primary business was the design, development, marketing, sale and support of differentiated intellectual property, or IP, including embedded memory and high-speed parallel and SerDes I/O used in
advanced systems-on-chips, or SoCs. Currently, we are focused on developing differentiated IP-rich IC products and are dedicating all our research and development, marketing and sales budget to these
IC products.
Our
future success and ability to achieve and maintain profitability are dependent on the marketing and sales of our IC products into networking, communications and other markets
requiring high-bandwidth memory access.
We
incurred a net loss of $4.4 million for the quarter ended March 31, 2017 and had an accumulated deficit of $218.4 million as of March 31, 2017. In
addition, we incurred net losses of approximately $32.0 million and $31.5 million for the years ended December 31, 2016 and 2015, respectively. These and prior year losses have
resulted in significant negative cash flows for almost a decade and have required us to raise substantial amounts of additional capital during this period. To date, we have primarily financed our
operations through multiple offerings of common stock to investors and affiliates, as well as asset sale transactions. In March 2016, we entered into a 10% Senior Secured Convertible Note Purchase
Agreement with the purchasers of $8.0 million principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the "Notes"), at par, in a private placement transaction. The
Notes bear interest at the annual rate of 10%. Accrued interest is payable semi-annually in cash or in-kind through the issuance of identical new Notes, or with a combination of the two, at our
option. Since issuance of the Notes, we have made the interest payments in-kind through the issuance of additional notes totaling approximately $0.8 million. Further, the Notes restrict our
ability to incur any indebtedness for borrowed money, unless such indebtedness by its terms is expressly subordinated to the Notes in right of payment and to the security interest of the Note
holder(s) in respect to the priority and enforcement of any security interest in our property securing such new debt; provided that the Note holder(s) security interest and cash payment rights under
the Notes shall be subordinate to a maximum of $5 million of indebtedness for a secured accounts receivable line of credit facility under certain conditions.
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We
expect to continue to incur operating losses for the foreseeable future as we secure customers for and continue to invest in the commercialization of our IC products. We will need to
increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising
additional capital from time to time. As a result of our expected operating losses and cash burn for the foreseeable future, recurring losses from operations, and the need to repay the Notes and
accrued interest in 2018, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient
to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern within one year from the date of issuance of this Prospectus Supplement. There can
be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered on terms and
conditions acceptable to us. In April 2017, we committed to effect a reduction in our workforce and associated operating expenses, net loss and cash burn as part of our efforts to sustain our
business. We will primarily focus our resources on producing and selling our existing products, and will substantially curtail new product development. If we are unsuccessful in these efforts, we will
need to implement additional cost reduction strategies, which could further affect
our near- and long-term business plan. These efforts may include, but are not limited to, further reducing headcount and curtailing business activities.
Our Strategy
Our primary business objective is to be an IP-rich fabless semiconductor company offering ICs that deliver unparalleled bandwidth performance
for next generation networking systems.
Our Products
Bandwidth Engine
The Bandwidth Engine is a memory-dominated IC that has been designed to be a high-performance companion IC to packet processors. While the
Bandwidth Engine primarily functions as a memory device with a high-performance and high-efficiency interface, it also can accelerate certain processing operations by serving as a co-processor
element. Our Bandwidth Engine ICs combine: (1) our proprietary high-density, high-speed, low latency embedded memory, (2) our high-speed serial interface technology, or SerDes,
(3) an open-standard interface protocol and (4) intelligent access technology. We believe an IC combining our 1T-SRAM memory and serial I/O with logic and other intelligence functions
provides a system-level solution and significantly improves overall system performance at lower cost, size and power consumption. Our Bandwidth Engine ICs can provide up to and over 4.5 billion
memory accesses per second, which is more than twice the performance of current memory-based solutions. They also can enable system designers to significantly narrow the gap between processor and
memory IC performance. Customers that design Bandwidth Engine ICs onto the line cards in their networking systems will re-architect their systems at the line-card level and use our product to replace
traditional memory solutions. When compared with existing commercially available solutions, our Bandwidth Engine ICs may:
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provide up to four times the performance;
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reduce power by approximately 50%;
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reduce cost by greater than 50%; and
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result in a dramatic reduction in IC pin counts on the line card.
Our
first generation Bandwidth Engine IC products contain 576 megabytes, or MB, of memory and use a serial I/O with up to 16 lanes operating at up to 10.3 Gbps per lane. Variations of
this IC can have up to two interface ports, with up to eight serial receiver and eight serial transmitter lanes per
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port
for a total of 16 lanes of 10.3 Gbps SerDes interface. These ICs include an ALU, which can perform read-modify-write operations. We have been shipping our initial Bandwidth Engine products since
2012.
Our
second generation Bandwidth Engine IC products contain 576 MB of memory and use serial I/O with up to 16 lanes operating at up to 15 Gbps per lane. In addition to a speed
improvement of up to
50%, the architecture will enable several family member parts with added specialized features. To date, we have announced three unique devices in this product
family:
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MSR620 with burst features optimized for oversubscription buffer applications;
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MSR720 with a write cache and memory coherency capability that allows for deterministic look-ups optimized for state and queue type
applications; and
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MSR820 with increased intelligence for lookup, metering and statistics applications by adding dual counters, atomic and extensive metering
functions.
We
have been shipping our Bandwidth Engine 2 IC products since 2013.
Our
third generation Bandwidth Engine IC products contain 1152 MB of memory and use serial I/O with up to 16 lanes operating at up to 30 Gbps per lane. Bandwidth Engine 3 targets
support for packet-processing applications with up to five billion memory single word accesses per second, as well as burst mode to enable full duplex buffering up to 400Gbps for ingress, egress and
oversubscription applications. To date, we have announced three unique devices in this product family:
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MSR630 enables high rate lookup or high-performance buffer capabilities; and
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MSR830 offers additional offload capabilities for functions such as statistics and metering to increase performance and add features for
next-generation networking and communications equipment; and
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MSRZ30 builds upon the capabilities and performance of the MSR830, with data rates, interface protocol and data structures that are optimized
for the EZchip NPS-400 network processing unit, or NPU, and can increase memory bandwidth by up to 50%.
We
commenced sampling of these products in the first quarter of 2016.
The
devices provide benefits of size, power, pin count and cost savings to our customers. We do not anticipate significant revenues from these products until 2019 or later.
Programmable Search Engine
We brought our Programmable Search Engine, or PSE, IC products to market in early 2016 to further leverage our proven serial interface
technology and high-density integrated memory with the processor engine architecture to enable high-speed customizable search, security, and data analysis functions for networking, security, and data
center applications. Our PSE architecture features 32 search-optimized processor engines, data flow schedulers, and over a terabit of internal access bandwidth. The device leverages our GCI technology
and high-density integrated memory (1152 Mb of 1T-SRAM® embedded memory). The PSE device's 32 processor elements have direct access to integrated table memory through an internal
interconnect and scheduler architecture. To date, we have not sold the PSE in significant quantities.
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LineSpeed
To date, we have announced four unique devices in this product family:
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MSH320, a 100Gbps Gearbox with RS-FEC: For adapting 10x10 to 4x25 from 100Gbps optical standards to a host ASIC, MAC/Framer, NPU or FPGA with
10x10G interfaces. The MSH320 includes an integrated Reed-Solomon forward error correction, or RS-FEC, option to enable systems to also support new electrical and optical standards. The device also
includes a 10x10Gbps retimer to allow seamless support of 10 and 40Gbps interfaces;
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MSH225, a 10 Lane Full-Duplex Retimer: For high-density retiming applications where the line rates may be up to 28Gbps per lane and connect to
host ASIC, framer, NPU or FPGA ICs equipped with 25Gbps interfaces. Each one of the 20 total independent lanes can be configured to support 10, 25, 40 or 100Gbps standards. The MSH225
integrates optional 100Gbps RS-FEC capability and includes a unique redundant link mode feature to support redundancy, scaling or monitoring features;
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MSH322, a 100Gbps Multi-Link Gearbox for Line Cards for support of high-density, independent 10GE and 40GE interfaces multiplexed into a 100GE
(4x25Gbps) host interface, while supporting the latest optical industry standards. The device enables line cards with high-density switches based on 25Gbps interfaces to support two times the density
of 10 and 40Gbps ports; and
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MSH321, a derivative Multi-Link Gearbox built into a highly compact package and optimized layout to support the MLG function in module and
compact daughter card applications.
To
date, less than 10% of our design wins claimed are for our LineSpeed products, and we expect these customers to take a minimum of 12 to 18 months to commence production. We do
not have adequate
capital to support production of the MHS321 and MSH322 devices, as we would need to incur significant mask fabrication and related expenditures.
IP Licensing and Distribution
Historically, we have offered our memory and I/O technologies on a worldwide basis to semiconductor companies, electronic product manufacturers,
foundries, intellectual property companies and design companies through product development, technology licensing and joint marketing relationships. We licensed our IP technology to semiconductor
companies who incorporated our technology into ICs that they sold to their customers. As a result of the change in our corporate strategy, since early 2012, our IP licensing activities have been
limited, and we expect this to continue. However, during 2016, 24% of our total revenues were generated from licensing and royalties related to our existing licensing arrangements, as we continued to
perform and deliver under outstanding license agreements and collect royalties from 1T- SRAM licensees. To date, we have completed our performance obligations under our existing licensing agreements,
and we expect licensing and royalty revenues to be minimal in future years.
Available Information
We were founded in 1991 and reincorporated in Delaware in September 2000. Our website address is www.mosys.com. The information in our website
is not incorporated by reference into this report. Through a link on the Investor section of our website, we make available our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission, or SEC. You can also read and obtain copies of any materials we file with the
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SEC,
at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC
at 1.800.SEC.0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC, including us. The information contained on the SEC's website is expressly not incorporated by reference into this prospectus supplement, other than documents that we file
with the SEC that are incorporated by reference in this prospectus supplement.
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THE OFFERING
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Common stock offered by MoSys, Inc.
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1,325,000 shares
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Common stock to be outstanding after this offering
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8,001,770 shares
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Use of proceeds
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We estimate that the net proceeds from the sale of the shares of our common stock in this offering will be approximately $2 million, after deducting placement agent commissions and expense
reimbursement and our estimated expenses related to this offering.
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We intend to use all the net proceeds we receive from our sale of shares in this offering for general corporate purposes. See "Use of Proceeds" below.
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NASDAQ Global Market symbol
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MOSY
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Risk Factors
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See "Risk Factors" beginning on page S-8 for a discussion of the factors you should consider before deciding to invest in shares of our common stock.
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Transfer agent and registrar
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Wells Fargo Bank, N.A.
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The
number of shares of our common stock to be outstanding after this offering is based upon 6,676,770 shares outstanding as of May 31, 2017. This number does not
include:
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972,859 shares of common stock issuable upon conversion 10% Subordinate Senior Secured Convertible Notes due August 15, 2018 (the
"Notes");
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206,364 shares of common stock issuable upon exercise of outstanding exercisable stock options with a weighted average exercise price of
approximately $21.1364 per share;
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144,479 shares of common stock issuable upon exercise of outstanding stock options that are not exercisable;
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56,885 shares of common stock issuable upon vesting of restricted stock units;
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373,256 shares of common stock available for future issuance under our equity incentive plans;
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146,712 shares of common stock available for sale under our employee stock purchase plan; and
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662,500 shares of common stock issuable upon exercise of the Warrants being sold in a concurrent private placement transaction.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus supplement or the accompanying prospectus constitute forward-looking statements. These statements
involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual 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. These factors include, among others, those factors incorporated by
reference under "Risk Factors" below.
In
some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential,"
or "continue" or similar terms.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or
achievements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors under the
heading "Risk Factors" below and a variety of other factors, including, without limitation, statements about our future business operations and results, the market for our technology, our strategy and
competition.
Moreover,
neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We undertake no obligation to update or revise any of the
forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking
events discussed or incorporated by reference in this prospectus supplement or the accompanying prospectus may not occur.
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RISK FACTORS
An investment in our common stock is risky. Prior to making a decision about investing in our common stock, you should
carefully consider the risks discussed below, together with all of the other information contained in this prospectus supplement and the accompanying prospectus, or otherwise incorporated by reference
in this prospectus supplement and the accompanying prospectus. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to
us, or that we currently see as immaterial, may also harm our business. If any of the risks or uncertainties described below or in our filings with the SEC or any such additional risks and
uncertainties actually occur, our business, results of operations, cash flows and financial condition could be materially and adversely affected. In that case, the trading price of our common stock
could decline, and you might lose all or part of your investment.
We have a history of losses and we will need to raise additional capital in the future and our inability to
do so may adversely impact our ability to continue as a going concern.
Our consolidated financial statements have been prepared on a going concern basis that assumes we will be able to realize our assets and
discharge our liabilities in the normal course of business for the foreseeable future. In the first quarter of 2017 ended March 31, 2017, we recorded an operating loss of $4.2 million
and an accumulated deficit of $218 million. We recorded an operating loss of approximately $31 million for the year ended December 31, 2016 and we ended the period with an
accumulated deficit of approximately $214 million. In addition, we recorded operating losses of approximately $31 million and $33 million for the years ended December 31,
2015 and 2014, respectively. These losses have resulted in significant negative cash flows from operations for more than a decade and have required us to raise substantial amounts of additional
capital during this period. We expect to continue to incur operating losses for the foreseeable future as we secure customers for and continue to invest in the commercialization of our IC products.
Due to the strong commitment of our resources to research and development and expansion of our product offerings to customers, we will need to increase revenues substantially beyond levels that we
have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time. Given our history
of fluctuating revenues and operating losses, the expected reduction in royalty and licensing revenues and challenges we face in securing customers for our IC products, we cannot be certain that we
will be able to achieve profitability on either a quarterly or annual basis in the future. The possibility that we will not be able to meet our obligations as and when they become due over the next
twelve months raises substantial doubt about our ability to continue as a going concern.
Accordingly,
we have been pursuing, and will continue to pursue, the implementation of certain cost reduction strategies. Additionally, we are seeking additional financing and evaluating
financing alternatives in order to meet our cash requirements for the next 12 months. We may not be able to obtain additional financing, as needed, on acceptable terms, or at all, which may
require us to further reduce our operating costs and other expenditures, including additional reductions of personnel and capital expenditures. Alternatively, or in addition to such potential
measures, we may elect to implement other cost reduction actions as we may determine are necessary and in our best interests, including the possible sale or cessation of certain of our business
segments. Any such actions undertaken might limit our opportunities to realize plans for revenue growth, and we might not be able to reduce our costs in amounts sufficient to achieve break-even or
profitable operations. If we issue additional equity or convertible debt securities to raise funds, the ownership percentage of our existing stockholders would be reduced and they may experience
significant dilution. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock. If we are not successful in these actions, we may be forced to
cease operations.
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Our auditor has expressed substantial doubt about our ability to continue as a going concern and, absent
additional financing, we may be unable to remain a going concern.
In light of our recurring losses, accumulated deficit and negative cash flow, as described in the notes to our consolidated financial
statements, the report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2016 contains an explanatory paragraph raising
substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that may be necessary in the event we are unable to continue as
a going concern. If we do not raise enough additional capital sufficient to allow for the removal of this going concern uncertainty, we will need to significantly modify our operational plans for us
to continue as a going concern.
Our failure to raise additional capital or generate the significant capital necessary to expand our
operations and invest in the new products could reduce our ability to compete and could harm our business.
We intend to continue spending substantial amounts to grow our business. In March 2016, we issued $8 million aggregate principal amount
of 10% Subordinate Senior Secured Convertible Notes due August 15, 2018 (the Notes). The Note principal is convertible into our common stock, as well as the interest on the Notes, as we have
the option of paying the interest in-kind by converting such interest into additional note principal. In addition, the Notes also include limited anti-dilution protection, such that the conversion
price will be reset to a lower conversion price in some situations. As a result, our stockholders may experience significant dilution of these Notes and any additional paid-in-kind principal are
converted into our common stock and the conversion price is reset. We will still need to obtain additional financing to pursue our business strategy, develop new products, respond to competition and
market opportunities and acquire complementary businesses or technologies. There can be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient
or available and, if available, that such capital will be offered on terms and conditions acceptable to us. We are exploring various alternatives, and expect to implement cost reductions to
successfully sustain the business. If we are unsuccessful in these efforts, we will need to implement significant cost reduction strategies that could affect our near- and long-term business plan.
These efforts may include, but are not limited to reducing headcount and curtailing business activities, especially around new product development.
If
we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in a subsequent debt
financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our stock or making investments, and force us
to maintain specified liquidity or other ratios, any of which could harm our business, operating results and financial condition. If we need additional capital and cannot raise it on acceptable terms,
we may not be able to, among other things:
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Develop or enhance our products;
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Continue to expand our product development and sales and marketing organizations;
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Acquire complementary technologies, products or businesses;
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Expand operations, in the United States or internationally;
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Hire, train and retain employees; or
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Respond to competitive pressures or unanticipated working capital requirements.
Our
failure to do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our research and development plans or existing
operations.
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We currently lack the funds to repay the convertible notes due in August 2018.
In March 2016, we entered into a 10% Senior Secured Convertible Note Purchase Agreement with the purchasers of the Notes. Accrued interest is
payable semi-annually in cash or in kind through the issuance of identical new Notes, or with a combination of the two, at our option. Through February 2017, we have made the interest payments in-kind
through the issuance of additional notes totaling approximately $765,000. The notes are secured by substantially all of our assets. If we fail to pay the Notes, including accrued interest, in full
when due, the holders of the Notes, acting through their agent, will be entitled to pursue all of their remedies as secured creditors, including taking possession of the collateral securing the Notes
and effecting a private sale of some or all of our assets securing the Notes. After the holders of the Notes take such actions, we may not have enough assets to make payments owed to other creditors,
to continue operating our business, or distribute any funds to stockholders.
Our success depends upon the networking and communications systems markets' acceptance of our ICs.
The future prospects of our business depend on the adoption and acceptance by our target markets, networking communications and data center
equipment providers, of our Bandwidth Engine and LineSpeed ICs. In 2011, we began focusing our engineering, marketing and sales efforts on our IC products and de-emphasizing our technology licensing
activities, which historically have been our primary revenue source. Our prospective customers may be unwilling to adopt and design-in our ICs due to the uncertainties and risks surrounding designing
a new IC into their systems and relying on a supplier that has almost no history of manufacturing such ICs. In addition, our Bandwidth Engine IC products require our customers and their other IC
suppliers to implement our new and proprietary chip-to-chip communication protocol, GCI, which they may be unwilling to do. We have determined and negotiated prices with a few customers for our ICs
and have gained only limited experience with the cost of making and selling these products. Thus, currently, we do not know whether we will be able to profitably make and sell these products. We are
investing significant resources to develop our next generation IC products, but may not introduce these new products successfully or obtain significant revenue from them.
An
important part of our strategy to gain market acceptance is to penetrate new markets by targeting market leaders to accept our IC solutions. This strategy is designed to encourage
other participants in those markets to follow these leaders in adopting our solutions. If a high-profile industry participant adopts our ICs for one or more of its products but fails to achieve
success with those products, or is unable to successfully implement our ICs, other industry participants' perception of our solutions could be harmed. Any such event could reduce the amount of future
sales of our IC products.
Our future revenue depends on our winning designs with our customers, and those customers designing our
solutions into their product offerings and successfully selling and marketing such products. If we do not continue to win designs in the short term, our product revenue in the following years will not
grow.
We sell our ICs to original equipment manufacturer (OEM) customers that include our ICs in their products. Our technology is generally
incorporated into products at the design stage, which we refer to as a design win, and which we define as the point at which a customer has made a commitment to build a board against a fixed schematic
for his system, and this board will utilize our ICs. As a result, our future revenue depends on our OEM customers designing our ICs into their products, and on those products being produced in volume
and successfully commercialized. If we fail to convince our current or prospective customers to include our ICs in their products and fail to achieve a consistent number of design wins, our results of
operations and business will be harmed. In addition, if a current or prospective customer designs a competitor's offering into its product, it becomes significantly more difficult for us to sell our
IC solutions to that customer because changing suppliers involves significant cost, time, effort and risk for the OEM. Even if a customer designs one of
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our
ICs into its product, we cannot be assured that the OEM's product will be commercially successful over time or at all or that we will receive or continue to receive any revenue from that customer.
Furthermore, the customer product for which we obtain a design win may be canceled before the product enters production or is introduced into the market. Because of our extended sales cycle, our
revenue in future years is highly dependent on design wins we are awarded today. Our lack of capital and uncertainty about our future technology roadmap also may limit our success in achieving
additional design wins, as discussed under,
"Our auditor has expressed substantial doubt about our ability to continue as a going concern, and, absent additional financing, we
may be unable to remain a going concern,"
and
"We may experience difficulties in transitioning to new wafer fabrication process technologies or in
achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased costs."
The design win process is generally a lengthy, expensive and competitive process, with no guarantee of
revenue, and if we fail to generate sufficient revenue to offset our expenses, our business and operating results would suffer.
Achieving a design win is typically a lengthy, expensive and competitive process because our customers generally take a considerable amount of
time to evaluate our ICs. In the markets we serve, the time from initial customer engagement to design win to production volume shipments can range from two to three years, though it may take longer
for new customers or markets
we intend to address. In order to win designs, we are required to both incur design and development costs and dedicate substantial engineering resources in pursuit of a single customer opportunity.
Even though we incur these costs, we may not prevail in the competitive selection process and, even if we do achieve a design win, we may never generate sufficient, or any, revenue to offset our
development expenditures. Our customers have the option to decide whether or not to put our solutions into production after initially designing our products in the specification. The customer can make
changes to its product after a design win has been awarded to us, which can have the effect of canceling a previous design win. The delays inherent in our protracted sales cycle increase the risk that
a customer will decide to cancel, curtail, reduce or delay its product plans, causing us to lose anticipated revenue. In addition, any change, delay or cancellation of a customer's plans could harm
our financial results, as we may have incurred significant expense while generating no revenue.
If our foundries do not achieve satisfactory yields or quality, our cost of goods sold will increase, our
operating margins will decline, and our reputation and customer relationships could be harmed.
We depend not only on sufficient foundry manufacturing capacity and wafer prices, but also on good production yields (the number of good die per
wafer) and timely wafer delivery to meet customer demand and maintain profit margins. The fabrication of our products is a complex and technically demanding process. Minor deviations in the
manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be suspended. Our foundry, Taiwan Semiconductor Manufacturing Company (TSMC), from time to time,
experiences manufacturing defects and reduced manufacturing yields. Changes in manufacturing processes or the inadvertent use of defective or contaminated materials by our foundries could result in
lower than anticipated manufacturing yields, which would harm our revenue or increase our costs. For example, recently, our foundry produced ICs and met its process specification range but did not
meet our customer's specifications causing us to write off a portion of our production lot. Many of these problems are difficult to detect at an early stage of the manufacturing process and may be
time consuming and expensive to correct. Poor yields from our foundry, or defects, integration issues or other performance problems in our ICs, could cause us significant customer relations and
business reputation problems, harm our operating results and give rise to financial or other damages to our customers. Our customers might consequently seek damages from us for their losses. A product
liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.
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We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving
higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased costs.
We aim to use the most advanced manufacturing process technology appropriate for our solutions that is available from TSMC. As a result, we
periodically evaluate the benefits of migrating our solutions to other technologies in order to improve performance and reduce costs. These ongoing efforts require us from time to time to modify the
manufacturing processes for our products and to redesign some products, which in turn may result in delays in product deliveries. We are dependent on TSMC to support the production of wafers for
future versions of our ICs, as TSMC is our sole foundry. Such production may require changes to TSMC's existing process technology. If TSMC elects to not alter their process technology to support
future versions of our ICs, we would need to identify a new foundry.
In
addition, specifically with regard to our Bandwidth Engine products, our 1T-SRAM technology is not available at process nodes below 40 nanometers. To date, we have not developed any
memory products below the 40 nanometer process node. To continue the product roadmap for our Bandwidth Engine and PSE products, we will need to identify a new foundry and/or no longer use our 1T-SRAM
technology. We do not consider this to adversely affect our current product offerings, but we expect to face difficulties, delays and increased expense as we transition our products to new processes,
and potentially to new foundries for future products. For example, we believe our next generation of products will need to be designed using a FinFET process, which will require us to incur
significantly high development costs for mask tooling and computer-aided design software. We currently lack the funds to pay for such development costs. Moreover, an inability to continue our product
roadmap can adversely affect, and has in the past affected our efforts to win new customers, secure additional design wins and significantly grow our future revenues.
Because
the manufacturing of integrated circuits is extremely complex, the process of qualifying a new foundry is a lengthy process and there can be no assurance that we will be able to
find and qualify replacement suppliers without materially adversely affecting our business, financial condition, results of operations and prospects for future growth. We cannot assure you that we
will be able to maintain our relationship with our foundries or develop relationships with new foundries. If we or TSMC experience significant delays in transitioning to smaller geometries or fail to
efficiently implement transitions, we could experience reduced manufacturing yields, delays in product deliveries and increased costs, any of which could harm our relationships with our customers and
our operating results.
We may not achieve the anticipated benefits of becoming a fabless semiconductor company by developing and
bringing to market the Bandwidth Engine and LineSpeed IC product lines.
In 2010, we expanded our business model to become a fabless semiconductor company through the development of a product line of memory ICs called
the Bandwidth Engine. In March 2013, we announced a product line of SerDes ICs called LineSpeed. Our goal is to increase our total available market by creating high-performance ICs for networking
communications and data center systems, using our proprietary technology and design expertise. This development effort required that we add headcount and design resources, such as expensive software
tools, which has increased our losses from and cash used in operations. We may not be successful in our development efforts to bring our ICs to market successfully nor be successful in selling ICs due
to various risks and uncertainties, including, but not limited to:
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Our lack of working capital;
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customer acceptance;
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adoption of the GCI protocol, without which our Bandwidth Engine products cannot function;
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difficulties and delays in our product development, manufacturing, testing and marketing activities;
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timeliness of new product introductions;
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the anticipated costs and technological risks of developing and bringing ICs to market;
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the willingness of our manufacturing partners to assist successfully with fabrication;
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our ability to qualify our products for mass production and achieve wafer yield levels and the final test results necessary to be price
competitive;
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the availability of quantities of ICs supplied by our manufacturing partners at a competitive cost;
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our ability to generate the desired gross margin percentages and return on our product development investment;
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competition from established IC suppliers;
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the adequacy of our intellectual property protection for our proprietary IC designs and technologies;
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customer concerns over our financial condition and viability to be a long-term profitable supplier;
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the vigor and growth of markets served by our current and prospective customers; and
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our lack of recent experience as a fabless semiconductor company making and selling proprietary ICs.
If
we experience significant delays in bringing our IC products to market or if customer adoption of our products is delayed, this could have a material adverse effect on our anticipated
revenues in upcoming years due to the potential loss of design wins and future revenues. For example, we have experienced significant delays in bringing our third generation LineSpeed products to
market, which has prevented us from achieving design wins and resulted in us introducing products after our competitors. We may continue to experience significant delays in the future.
Our main objective is the development and sale of our products to networking communications and data center
systems providers and their subsystem and component vendors, and, if demand for these products does not grow, we may not achieve revenue growth and our strategic objectives.
We market and sell our ICs to networking communications and data center equipment providers and their subsystem and component vendors. We
believe our future business and financial success depends on market acceptance and increasing sales of these products. In order to meet our growth and strategic objectives, networking infrastructure
OEMs must incorporate our products into their systems, and the demand for their systems must grow as well. We cannot provide assurance that sales of our products to these OEMs will
increase substantially in the future or that the demand for our customers' systems will increase. Our future revenues from these products may not increase in accordance with our growth and strategic
objectives if instead our OEM customers modify their product designs, select products sold by our competitors or develop their own proprietary ICs. Moreover, demand for their products that incorporate
our ICs may not grow or result in significant sales of such products due to factors affecting the customers and their business, such as industry downturns, declines in capital
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spending
in the enterprise and carrier markets and unfavorable macroeconomic conditions. Thus, the future success of our business depends in large part on factors outside our control, and sales of our
products may not meet our revenue growth and strategic objectives.
Our failure to continue to develop new products and enhance our products on a timely basis could diminish our
ability to attract and retain customers.
The existing and potential markets for our products are characterized by ever-increasing performance requirements, evolving industry standards,
rapid technological change and product obsolescence. These characteristics lead to frequent new product introductions and enhancements, shorter product life cycles and changes in industry demands. In
order to attain and maintain a significant position in the market, we will need to continue to enhance and evolve our products and the underlying proprietary technologies in anticipation of these
market trends.
Our
future performance depends on a number of factors, including our ability to:
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identify target markets and relevant emerging technological trends;
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develop and maintain competitive technology by improving performance and adding innovative features that differentiate our products from
alternative technologies;
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enable the incorporation of our products into the customers' products on a timely basis and at competitive prices;
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develop our products to be manufactured at smaller process geometries; and
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respond effectively to new technological developments or new product introductions by others.
Our
failure to develop future products that achieve market acceptance could harm our competitive position and impede our future growth.
Our ICs have a lengthy sales cycle, which makes it difficult to predict success in this market and the timing
of future revenue.
Our ICs have a lengthy sales cycle, ranging from six to 24 months from the date of our initial proposal to a prospective customer until
the date on which the customer confirms that it has designed our product into its system. As lengthy, or an even lengthier period, could ensue before we would know the volume of products that such
customer will, or is likely to, order. A number of factors can contribute to the length of the sales cycle, including technical evaluations of our products by the customers, the design process
required to integrate our products into the customers' products and the timing of the customers' new product announcements. In anticipation of product orders, we may incur substantial costs before the
sales cycle is complete and before we receive any customer payments. As a result, in the event that a sale is not completed or is cancelled or delayed, we may have incurred substantial expenses,
making it more difficult for us to become profitable or otherwise negatively impacting our financial results. Furthermore, because of this lengthy sales cycle, the recording of revenues from our
selling efforts may be substantially delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter. We cannot provide any
assurances that our efforts to build a strong and profitable business based on the sale of ICs will succeed. If these efforts are not successful, in light of the substantial resources that we have
invested, our future operating results and cash flows could be materially and adversely affected.
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The semiconductor industry is cyclical in nature and subject to periodic downturns, which can negatively
affect our revenue.
The semiconductor industry is cyclical and has experienced pronounced downturns for sustained periods of up to several years. To respond to any
downturn, many semiconductor manufacturers and their customers will slow their research and development activities, cancel or delay new product developments, reduce their workforces and inventories
and take a cautious approach to acquiring new equipment and technologies. As a result, our business has been in the past and could be adversely affected in the future by an industry downturn, which
could negatively impact our future revenue and profitability. Also, the cyclical nature of the semiconductor industry may cause our operating results to fluctuate significantly from year-to-year,
which may tend to increase the volatility of the price of our common stock.
We expect our licensing and royalty revenues to decrease compared with our historical results, and there is
no guarantee revenues from our IC products will replace these lost revenues in the near future.
In 2011, we began to place greater emphasis on our IC business and re-deploy engineering, marketing and sales resources from IP to IC
activities. We are no longer actively pursuing new license arrangements, and, as a result, our license and royalty revenues in 2016 declined when compared with prior years. We do not expect to
generate sufficient revenues from our IC business to allow us to achieve profitability in 2017. In addition, the production volumes of the current royalty-bearing products shipped by our licensees are
expected to decrease; therefore we expect our royalty revenue to decrease in 2017 and future periods. Historically, royalties have generated a 100% gross margin, and any decrease in royalties
adversely affects our gross margin, operating results and cash flows.
Our revenue has been highly concentrated among a small number of licensees and customers, and our results of
operations could be harmed if we lose a key revenue source and fail to replace it.
Our overall revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue. For the
three months ended March 31, 2017, our three largest customers represented 46%, 11%, and 11% of total revenue, respectively. For the year ended December 31, 2016, our three largest
customers represented 47%, 21% and 13% of total revenue, respectively. For the year ended December 31, 2015, our three largest customers represented 34%, 31% and 12% of total revenue,
respectively. For the year ended December 31, 2014, our three largest customers represented 34%, 31% and 11% of total revenue, respectively. We expect that a relatively small number of
customers will continue to account for a substantial portion of our revenue for the foreseeable future.
As
a result of this revenue concentration, our results of operations could be adversely affected by the decision of a single key licensee or customer to cease using our technology or
products or by a decline in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small group of licensees or customers.
Our revenue concentration may also pose credit risks, which could negatively affect our cash flow and
financial condition.
We might also face credit risks associated with the concentration of our revenue among a small number of licensees and customers. As of
March 31, 2017, one customer represented
76% of total trade receivables. As of December 31, 2016, four customers represented 88% of total trade receivables. Our failure to collect receivables from any customer that represents a large
percentage of receivables on a timely basis, or at all, could adversely affect our cash flow or results of operations and might cause our stock price to fall.
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Our products must meet exact specifications, and defects and failures may occur, which may cause customers to
return or stop buying our products.
Our customers generally establish demanding specifications for quality, performance and reliability that our products must meet. However, our
products are highly complex and may contain defects and failures when they are first introduced or as new versions are released. If defects and failures occur in our products during the design phase
or after, we could experience lost revenues, increased costs, including warranty and customer support expenses and penalties for non-performance stipulated in customer purchase agreements, delays in
or cancellations or rescheduling of orders or shipments, product returns or discounts, diversion of management resources or damage to our reputation and brand equity, and in some cases consequential
damages, any of which would harm our operating results. In addition, delays in our ability to fill product orders as a result of quality control issues may negatively impact our relationship with our
customers. We cannot assure you that we will have sufficient resources to satisfy any asserted claims. Furthermore, any such defects, failures or delays may be particularly damaging to us as we
attempt to establish our reputation as a reliable provider of IC products.
Because we sell our products on a purchase order basis and rely on estimated forecasts of our customers'
needs, inaccurate forecasts could adversely affect our business.
We expect to sell our IC products pursuant to individual purchase orders, rather than long-term purchase commitments. Therefore, we will rely on
estimated demand forecasts, based upon input from our customers, to determine how much product to manufacture. Because our sales will be based primarily on purchase orders, our customers may cancel,
delay or otherwise modify their purchase commitments with little or no notice to us. For these reasons, we will generally have limited visibility regarding our customers' product needs. In addition,
the product design cycle for networking OEMs is lengthy, and it may be difficult for us to accurately anticipate when they will commence commercial shipments of products that include our ICs.
Furthermore,
if we experience substantial warranty claims, our customers may cancel existing orders or cease to place future orders. Any cancellation, delay or other modification in our
customers' orders could significantly reduce our revenue, cause our operating results to fluctuate from period to period and make it more difficult for us to predict our revenue. In the event of a
cancellation or reduction of an order, we may not have enough time to reduce operating expenses to mitigate the effect of the lost revenue on our business.
If
we overestimate customer demand for our products, we may purchase products from our manufacturers that we cannot sell. Conversely, if we underestimate customer demand or if sufficient
manufacturing and testing capacity were unavailable, we would forego revenue opportunities and could lose market share in the markets served by our products and could incur penalty payments under our
customer purchase agreements. In addition, our inability to meet customer requirements for our products could lead to delays in product shipments, force customers to identify alternative sources and
otherwise adversely affect our ongoing relationships with our customers.
We depend on contract manufacturers for a significant portion of our revenue from the sale of our IC
products.
Many of our current and prospective OEM customers use third party contract manufacturers to manufacture their systems, and these contract
manufacturers purchase our products directly from us on behalf of the OEMs. Although we expect to work with our OEM customers in the design and development phases of their systems, these
OEMs often give contract manufacturers some authority in product purchasing decisions. If we cannot compete effectively for the business of these contract manufacturers, or, if any of the
contract manufacturers that work with our OEM customers experience
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financial
or other difficulties in their businesses, our revenue and our business could be adversely affected. For example, if a contract manufacturer becomes subject to bankruptcy proceedings, we may
not be able to obtain our products held by the contract manufacturer or recover payments owed to us by the contract manufacturer for products already delivered to the contract manufacturer. If we are
unable to persuade contract manufacturers to purchase our products, or if the contract manufacturers are unable to deliver systems with our products to OEMs on a timely basis, our business
would be adversely affected.
We rely on independent foundries and contractors for the manufacture, assembly, testing and packaging of our
integrated circuits, and the failure of any of these third parties to deliver products or otherwise perform as requested could damage our relationships with our customers and harm our sales and
financial results.
As a fabless semiconductor company, we rely on third parties for substantially all of our manufacturing operations. We depend on these parties
to supply us with material in a timely manner that meets our standards for yield, cost and quality. We do not have long-term supply contracts with any of our suppliers or manufacturing service
providers, and therefore they are not obligated to manufacture products for us for any specific period, in any specific quantity or at any specified price, except as may be provided in a particular
purchase order. Any problems with our manufacturing supply chain could adversely impact our ability to ship our products to our customers on time and in the quantity required, which in turn could
damage our customer relationships and impede market acceptance of our IC solutions.
Our third party wafer foundries, testing and assembly vendors and sales offices are located in regions at
high risk for earthquakes and other natural disasters. Any disruption to the operations of these foundries, vendors and offices resulting from earthquakes or other natural disasters could cause
significant delays in the development, production, shipment and sales of our IC products.
TSMC, which manufactures our products, is located in Asia, as are other foundries we may use in the future. EAG, which handles the testing of
our products, is headquartered in California. Our primary engineering design center is located in Santa Clara, California, and we have sales offices in Japan and China. The risk of an earthquake in
the Pacific Rim region is significant due to the proximity of major earthquake fault lines. In September 1999, a major earthquake in Taiwan affected the facilities of several major foundries and other
vendors. As a result of this earthquake, these vendors suffered power outages and disruptions that impaired their production capacity. In September 2003 and February 2016, additional disruptive
earthquakes occurred in Taiwan. The occurrence of additional earthquakes or other natural disasters could result in the disruption of the wafer foundry or assembly and test capacity of the third
parties that supply these services to us and may impede our research and development efforts, as well as our ability to market and sell our products. We may not be able to obtain alternate capacity on
favorable terms, if at all.
Any claim that our products or technology infringe third party intellectual property rights could increase
our costs of operation and distract management and could result in expensive settlement costs or the discontinuance of our technology licensing or product offerings. In addition, we may incur
substantial litigation expense, which would adversely affect our profitability.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which has resulted
in often protracted and expensive litigation. We are not aware of any third party intellectual property that our products or technology would infringe. However, like many companies of our size with
limited resources, we have not searched for all potentially applicable intellectual property in the public databases. It is possible that a third party now has, or may in the future obtain, patents or
other intellectual property rights that our products or technology may now, or in the future, infringe. Our licensees and IC customers, or we, might, from time to time, receive notice of claims that
we have infringed patents or other intellectual property rights of others.
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Litigation
against us can result in significant expense and divert the efforts of our technical and management personnel, whether or not the litigation has merit or results in a determination adverse
to us.
Royalty amounts owed to us might be difficult to verify, and we might find it difficult, expensive and
time-consuming to enforce our license agreements.
The standard terms of our 1T-SRAM license agreements require our licensees to document the manufacture and sale of products that incorporate our
technology and generally report this data to us after the end of each quarter. We have the right to audit these royalty reports periodically, although we have not conducted any such audits since 2010.
These audits can be expensive, time-consuming and potentially detrimental to our business relationships. A failure to fully enforce the royalty provisions of our license agreements could cause our
revenue to decrease and impede our ability to achieve and maintain profitability.
We might not be able to protect and enforce our intellectual property rights, which could impair our ability
to compete and reduce the value of our technology.
Our technology is complex and is intended for use in complex SoCs and networking systems. Our licensees' products utilize our embedded memory
and/or I/O technology, and a large number of companies manufacture and market these products. Because of these factors, policing the unauthorized use of our intellectual property is difficult and
expensive. We cannot be certain that we will be able to detect unauthorized use of our technology or prevent other parties from designing and marketing unauthorized products based on our technology.
In the event we identify any past or present infringement of our patents, copyrights or trademarks, or any violation of our trade secrets, confidentiality procedures or licensing agreements, we cannot
assure you that the steps taken by us to protect our proprietary information will be adequate to prevent misappropriation of our technology. Our inability to adequately protect our intellectual
property would reduce significantly the barriers of entry for directly competing technologies and could reduce the value of our technology. Furthermore, we might initiate claims or litigation against
third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation by us could result in significant expense and divert the efforts of our
technical and management personnel, whether or not such litigation results in a determination favorable to us.
Our existing patents might not provide us with sufficient protection of our intellectual property, and our
patent applications might not result in the issuance of patents, either of which could reduce the value of our core technology and harm our business.
We rely on a combination of patents, trademarks, copyrights, trade secret laws and confidentiality procedures to protect our intellectual
property rights. As of December 31, 2016, we held 67 patents in the United States, and approximately 36 foreign patents, which expire at various times from 2018 to 2035. In addition, as of
December 31, 2016, we also held 18 pending patent applications worldwide. We cannot be sure that any patents will be issued from any of our pending applications or that any claims allowed from
pending applications will be of sufficient scope or strength, or issued in all countries where our products can be sold, to provide meaningful protection or any commercial advantage to us. In December
2011, we sold 43 United States and 30 related foreign patents, which reduced the size of our patent portfolio and diminishes our ability to assert counterclaims in the defense of actions against us
that may arise. Also, competitors might be able to design around our patents. Failure of our patents or patent applications to provide meaningful protection might allow others to utilize our
technology without any compensation to us.
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The discovery of defects in our technology and products could expose us to liability for damages.
The discovery of a defect in our technologies and products could lead our customers to seek damages from us. Many of our agreements with
customers include provisions waiving implied warranties regarding our technology and products and limiting our liability to our customers. We cannot be certain, however, that the waivers or
limitations of liability contained in our agreements with customers will be enforceable.
If we fail to retain key personnel, our business and growth could be negatively affected.
Our business has been dependent to a significant degree upon the services of a small number of executive officers and technical employees. The
loss of key personnel could negatively impact our technology development efforts, our ability to deliver under our existing agreements, maintain strategic relationships with our partners, and obtain
new customers. We generally have not entered into employment or non-competition agreements with any of our employees and do not maintain key-man life insurance on the lives of any of our key
personnel.
We may incur additional debt in the future, subject to certain limitations contained in our senior secured
convertible notes.
The degree to which we are leveraged and the restrictions governing our indebtedness could have important consequences including, but not
limited to:
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limiting our ability to service all of our debt obligations;
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impacting our ability to incur additional indebtedness or obtain additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate or other purposes;
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increasing our vulnerability to general economic downturns and adverse industry conditions;
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limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
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limiting our ability to engage in certain transactions or capitalize on acquisition or other business opportunities.
If
we are in violation of the terms of the Notes in the future and do not receive a waiver, the note holders could choose to accelerate payment on all outstanding loan balances. If we
needed to obtain replacement financing, we may not be able to quickly obtain equivalent or suitable replacement financing. If we are unable to secure alternative sources of funding, such acceleration
would have a material adverse impact on our financial condition.
Our failure to successfully address the potential difficulties associated with our international operations
could increase our costs of operation and negatively impact our revenue.
We are subject to many difficulties posed by doing business internationally, including:
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foreign currency exchange fluctuations;
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unanticipated changes in local regulation;
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potentially adverse tax consequences, such as withholding taxes and transfer pricing issues;
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political and economic instability; and
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reduced or limited protection of our intellectual property.
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Because
we anticipate that integrated circuit sales to companies that operate primarily outside the United States may account for a substantial portion of our revenue in future periods,
the occurrence of any of these circumstances could significantly increase our costs of operation, delay the timing of our revenue and harm our profitability.
Provisions of our certificate of incorporation and bylaws or Delaware law might delay or prevent a change of
control transaction and depress the market price of our stock.
Various provisions of our certificate of incorporation and bylaws might have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from attempting to acquire, control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for
shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, limit the right of stockholders to call special meetings and establish specific
procedures for director nominations by stockholders and the submission of other proposals for consideration at stockholder meetings.
We
are also subject to provisions of Delaware law which could delay or make more difficult a merger, tender offer or proxy contest involving our company. In particular,
Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless specific conditions are met. Any of these provisions could have the effect of delaying, deferring or preventing a change in control, including
without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock.
Under
our certificate of incorporation, our board of directors may issue up to 20,000,000 shares of preferred stock without stockholder approval on such terms as the board might
determine. The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders of any preferred stock that might be issued in the future.
Our stockholder rights plan could prevent stockholders from receiving a premium over the market price for
their shares from a potential acquirer.
We adopted a stockholder rights plan that generally entitles our stockholders to rights to acquire additional shares of our common stock when a
third party acquires 15% of our common stock or commences or announces its intent to commence a tender offer for at least 15% of our common stock, other than for one group of related stockholders, as
to whom this threshold is 20%. The plan also includes an exception to permit the acquisition of shares representing more than 15% of our common stock by a brokerage firm that manages independent
customer accounts and generally does not have any discretionary voting power with respect to such shares. This plan could delay, deter or prevent an investor from acquiring us in a transaction that
could otherwise result in stockholders receiving a premium over the market price for their shares of common stock. Our intention is to maintain and enforce the terms of this plan, which could delay,
deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders receiving a premium over the market price for their shares of common stock.
Potential volatility of the price of our common stock could negatively affect your investment.
We cannot assure you that there will continue to be an active trading market for our common stock. Historically, the stock market, as well as
our common stock, has experienced significant price and volume fluctuations. Market prices of securities of technology companies have been highly volatile and frequently reach levels that bear no
relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject to wide variations. If our common stock trades to unsustainably high
levels, it is likely that the market price of our common stock will
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thereafter
experience a material decline. In the past, our board of directors approved stock repurchase programs, and any future program could impact the price of our common stock and increase
volatility.
In
the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We could be the target of
similar litigation in the future. Securities litigation could cause us to incur substantial costs, divert management's attention and resources, harm our reputation in the industry and the securities
markets and negatively impact our operating results.
Our stock price could drop, and there could be significantly less trading activity in our stock, if
securities or industry analysts downgrade our stock or do not publish research or reports about our business.
Our stock price and the trading market for our stock are likely to be affected significantly by the research and reports concerning our company
and our business which are published by industry and securities analysts. We do not have any influence or control over these analysts, their reports or their recommendations. Our stock price and the
trading market for our stock could be negatively affected if any analyst downgrades our stock, publishes a report which is critical of our business, or discontinues coverage of us.
We are a "smaller reporting company" and, as a result of the reduced disclosure and governance requirements
applicable to smaller reporting companies, our common stock may be less attractive to investors.
We are a "smaller reporting company," meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a
parent company that is not a "smaller reporting company," have a public float of less than $75 million and have annual revenues of less than $50 million during the most recently
completed fiscal year. As a "smaller reporting company," we are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically, "smaller reporting companies" are
able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered
public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations in their SEC filings,
including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status a "smaller
reporting company" may make it harder for investors to analyze our operating results and financial prospects.
If we fail to maintain compliance with the continued listing requirements of the Nasdaq Capital Market, our
common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
Our common stock currently trades on The NASDAQ Stock Market (Nasdaq) under the symbol "MOSY." This market has continued listing standards that
we must comply with in order to maintain the listing of our common stock. The continued listing standards include, among others, a minimum bid price requirement of $1.00 per share and any of:
(i) a minimum stockholders' equity of $2.5 million; (ii) a market value of listed securities of at least $35.0 million; or (iii) net income from continuing
operations of $500,000 in the most recently completed fiscal year or in the two of the last three fiscal years. Our results of operations and fluctuating stock price directly impact our ability to
satisfy these continued listing standards. In the event we are unable to maintain these continued listing standards, our common stock may be subject to delisting from the Nasdaq Capital Market.
On
July 14, 2016, we received a deficiency letter from the Listing Qualifications Department (the Staff) of Nasdaq providing notification that the Company was not in compliance
with Nasdaq's audit committee composition requirements pursuant to Nasdaq Listing Rule 5605(c)(2). Nasdaq Listing
S-21
Table of Contents
Rule 5605
requires a listed company to have an audit committee comprised of at least three independent members and, during 2016, the number of independent directors on our Audit Committee was
reduced from three to two. The letter also stated that we would be provided: (i) until the earlier of our next annual shareholders' meeting or June 24, 2017.
We
received a response from the Staff on June 2, 2017 to our request for an extension of time to comply with Nasdaq Listing Rule 5605(c)(2). In its response the Staff
granted us an extension until October 4, 2017, which represents the full extent of the Staff's discretion under the listing rules. If we do not regain compliance during this period, then the
Staff will provide notice that our securities will be subject to delisting. At such time, we may appeal the delisting determination to a Nasdaq Listing Qualifications Panel (Panel). We would remain
listed pending the Panel's decision. There can be no assurance that, if we do appeal a subsequent delisting determination by the Staff to the Panel, that such appeal would be successful.
In
addition, due to the recent resignation of a director, we no longer have at least two independent members serving on the compensation committee of the board of directors. We intend to
fill the vacant board of directors and committee seats prior to our next annual meeting of shareholders.
If
we are delisted, we would expect our common stock to be traded in the over-the-counter market, which could adversely affect the liquidity of our common stock. Additionally, we could
face significant material adverse consequences, including:
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•
-
a limited availability of market quotations for our common stock;
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•
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a reduced amount of analyst coverage;
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•
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a decreased ability to issue additional securities or obtain additional financing in the future;
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•
-
reduced liquidity for our stockholders;
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•
-
potential loss of confidence by customers, collaboration partners and employees; and
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•
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loss of institutional investor interest.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of our common stock in this offering will be approximately $2 million,
after deducting estimated placement agent fees and expense reimbursement and our estimated expenses related to this offering.
We
intend to use our net proceeds from this offering for general corporate purposes, which may include, among other things, increasing our working capital, financing of ongoing operating
expenses and overhead, repayment of debt and funding of capital expenditures. Pending the application of the net proceeds, we may invest the proceeds in marketable securities and short-term
investments.
PRICE RANGE OF OUR COMMON STOCK
On June 29, 2017, the closing price for our common stock as reported on The NASDAQ Capital Market was $2.32 per share. The following
table sets forth the ranges of high and law sales prices per share of our common stock as reported on The NASDAQ Capital Market for the periods indicated, as adjusted for a one-for-ten reverse stock
split in February 2017. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.
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Common Stock
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High
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Low
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Fiscal Year Ended December 31, 2017
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Second Quarter (through June 28, 2017)
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$
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2.30
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$
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0.61
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First Quarter
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$
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3.50
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$
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1.92
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Fiscal Year Ended December 31, 2016
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Fourth quarter
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$
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7.80
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$
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2.30
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Third quarter
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$
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8.03
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$
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4.10
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Second quarter
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$
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6.50
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$
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3.23
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First quarter
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$
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11.70
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$
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5.70
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Fiscal Year Ended December 31, 2015
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Fourth quarter
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$
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16.20
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$
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10.80
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Third quarter
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$
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20.30
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$
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13.80
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Second quarter
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$
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23.70
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$
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18.30
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First quarter
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$
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23.70
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$
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16.80
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As
of June 1, 2017, there were 16 stockholders of record of our common stock, which excludes stockholders whose shares were held in nominee or street name by brokers. The actual
number of common stockholders is greater than the number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
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DILUTION
Our unaudited net tangible book value as of March 31, 2017 was ($2.4) million, or ($0.36) per share. Net tangible book
value per share represents the total amount of our tangible assets reduced by the total amount of our liabilities and divided by the number of shares outstanding on March 31, 2017 of 6,676,770.
Our
unaudited net tangible book value at March 31, 2017, as adjusted after giving effect to the issuance and sale by us of 1,325,000 shares in this offering, would be
($0.4) million, or ($0.05) per share based on 8,001,770 shares outstanding upon completion of this offering.
Based
on the public offering price of $1.70 per share, this represents an immediate increase in pro forma net tangible book value at March 31, 2017 of $0.31 per share to existing
shareholders and an immediate dilution of $1.75 per share to new investors purchasing our shares in this offering.
Dilution
per share represents the difference between the price per share to be paid for the shares sold by us in this offering and the pro forma net tangible book value per share
immediately after this offering. The following table illustrates this per share dilution for purchasers of common stock in this offering:
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Public offering price per share
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1.70
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Net tangible book value per share as of March 31, 2017
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$
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(0.36
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)
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Increase in net tangible book value per share attributable to new investors
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$
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0.31
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Net tangible book value per share after the offering
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$
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(0.05
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)
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Dilution per share to new investors in this offering
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$
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1.75
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The
foregoing table excludes the following, each as of March 31, 2017:
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972,859 shares of common stock issuable upon conversion of the Notes;
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•
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209,301 shares of common stock issuable upon exercise of outstanding exercisable stock options with a weighted average exercise price of
approximately $23.20 per share;
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•
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298,651 shares of common stock issuable upon exercise of outstanding stock options that are not exercisable;
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•
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89,845 shares of common stock issuable vesting of restricted stock units;
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•
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183,187 shares of common stock available for future issuance under our equity incentive plan;
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•
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146,712 shares of common stock available for sale under our employee stock purchase plan; and
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•
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662,500 shares of common stock issuable upon exercise of the Warrants.
S-24
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DESCRIPTION OF CAPITAL STOCK
General
The following description of our capital stock and provisions of our certificate of incorporation and bylaws is a summary only and not a
complete description.
Our
authorized capital stock consists of 120,000,000 shares of common stock, $0.001 per value per share, and 20,000,000 shares of preferred stock, par value $0.01 per share.
Common Stock
As of May 31, 2017, 6,676,770 shares of our common stock were outstanding and held of record by 16 stockholders. Each holder of our
common stock is entitled to —
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•
-
one vote per share on all matters submitted to a vote of the stockholders;
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•
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dividends as may be declared by our board of directors out of funds legally available for that purpose, subject to the rights of any preferred
stock that may be outstanding; and
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•
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his, her or its pro rata share in any distribution of our assets after payment or providing for the payment of liabilities and the liquidation
preference of any outstanding preferred stock in the event of liquidation.
Holders
of common stock have no cumulative voting rights, redemption rights or preemptive rights to purchase or subscribe for any shares of our common stock or other securities. All of
the outstanding shares of common stock are fully paid and nonassessable. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
We have designated 120,000 shares of our preferred stock as Series AA preferred stock for issuance pursuant to the exercise of rights
under our rights plan, none of which are outstanding. For more information on the rights plan, see the discussion below under "Antitakeover Effects of Our Stockholder Rights Plan". We have no current
intention to issue any other shares of preferred stock.
Our
board of directors has the authority, subject to any limitations prescribed by Delaware law, to issue shares of preferred stock in one or more series and to fix and determine the
relative rights and preferences of the shares constituting any series to be established, without any further vote or action by the stockholders. Any shares of our preferred stock so issued may have
priority over our common stock with respect to dividend, liquidation and other rights.
Our
board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our
common stock. Although the issuance of preferred stock could provide us with flexibility in connection with possible acquisitions and other corporate purposes, under some circumstances, it could have
the effect of delaying, deferring or preventing a change of control.
Antitakeover Effects of Provisions of Our Certificate of Incorporation and Bylaws and of Delaware Law
Certain provisions of our charter documents and Delaware law could have an antitakeover effect and could delay, discourage or prevent a tender
offer or takeover attempt that a stockholder might
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consider
to be in its best interests, including attempts that might otherwise result in a premium being paid over the market price of our common stock.
Certificate of Incorporation and Bylaws.
Our certificate of incorporation provides that stockholders can take action only at a duly
called annual or
special meeting of the stockholders and not by written consent. At the same time, our bylaws provide that special meetings of stockholders may be called only by our chairman of the board, our chief
executive officer, any officer at the request in writing of a majority of the directors or by the holders of at least 25% of our outstanding shares. These provisions could delay consideration of a
stockholder proposal until the next annual meeting.
Our
bylaws provide for an advance notice procedure for the nomination, other than by or at the direction of our board of directors, of candidates for election as directors, as well as
for other stockholder proposals to be considered at annual meetings of stockholders. In addition, under our bylaws newly created directorships resulting from any increase in the number of directors or
any vacancies in the board resulting from death, resignation, retirement, disqualification, removal from office or other cause during a director's term in office can be filled by the vote of the
remaining directors in office, and the board is expressly authorized to amend the bylaws without stockholder consent. These provisions may preclude a third party from removing incumbent directors and
can control of our board of directors. Accordingly, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of
our company.
Delaware Takeover Statute.
Section 203 of the Delaware General Corporation Law, or DGCL, generally prohibits a publicly-held
Delaware
corporation from engaging in an acquisition, asset sale or other
transaction resulting in a financial benefit to any person who, together with affiliates and associates, owns, or within three years did own, 15% or more of a corporation's voting stock. The
prohibition continues for a period of three years after the date of the transaction in which the person becomes an owner of 15% or more of the corporation's voting stock, unless the business
combination is approved in a prescribed manner. The statute could prohibit, delay, defer or prevent a change in control with respect to our company.
Antitakeover Effects of Our Stockholder Rights Plan
On November 10, 2010, we executed a rights agreement in connection with the declaration by our board of directors of a dividend of one
preferred stock purchase right to be paid on November 10, 2010, referred to as the "record date," for each share of our common stock issued and outstanding at the close of business on the
record date. Each right entitles the registered holder to purchase one one-thousandth of a share of our Series AA Preferred Stock, $0.01 par value per share, at a price of $48.00 per one
one-thousandth of a share of such Series AA Preferred Stock, subject to adjustment, including as a result of our one-for-ten reverse stock split in February 2017 (which adjustment is not
reflected here). The rights will not be exercisable until a third party acquires 15% of our common stock or commences or announces its intent to commence a tender offer for at least 15% of our common
stock, other than holders of "grandfathered stock" as defined below.
"Grandfathered
stock" refers to stock held by Carl E. Berg, formerly a member of our board of directors for approximately 20 years, and his affiliates. The beneficial ownership
threshold for a holder of grandfathered stock is 20%, rather than 15%. In addition, under the rights agreement, the firm of Ingalls & Snyder, or I&S, and its managed account beneficial owners
collectively will not trigger the rights as long as none of their shares are held for the purpose of acquiring control or effecting change or influence in control of us. This exclusion applies only to
shares of common stock for which there is only shared dispositive power and I&S has only non-discretionary voting power.
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The
rights agreement could delay, deter or prevent an investor from acquiring us in a transaction that could otherwise result in our stockholders receiving a premium over the market
price for their shares of common stock.
Transfer Agent
The transfer agent and registrar for our common stock is Wells Fargo Bank, N.A.
S-27
Table of Contents
PRIVATE PLACEMENT TRANSACTION
In a concurrent private placement (the "Private Placement Transaction"), we are selling to purchasers of our Common Stock in this offering
warrants (the "Warrants") to purchase an aggregate of 662,500 shares of our Common Stock.
The
Warrants and the shares of our Common Stock issuable upon the exercise of the Warrants are not being registered under the Securities Act, are not being offered pursuant to this
prospectus supplement and the accompanying prospectus and are being offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated
thereunder. Accordingly, purchasers may only sell shares of Common Stock issued upon exercise of the Warrants pursuant to an effective registration statement under the Securities Act covering the
resale of those shares, an exemption under Rule 144 under the Securities Act or another applicable exemption under the Securities Act.
Description of warrants.
The warrants are exercisable on the six month anniversary of the date of issuance, and at any time thereafter
up to the date
that is five years from the date when first exercisable, at which time any unexercised warrants will expire and cease to be exercisable. The warrants will be exercisable, at the option of each holder,
in whole or in part by delivering to us a duly executed exercise notice and by payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. If
a registration statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act is not then effective or available, the holder may exercise the warrant
through a cashless exercise, in whole or in part, in which case the holder would receive upon such exercise the net number of shares of common
stock determined according to the formula set forth in the warrant. No fractional shares of common stock will be issued in connection with the exercise of a warrant. In lieu of fractional shares, we
will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
A
holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or on election of the
holder, 9.99%) of the number of shares of our stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the
warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice to us, provided that any increase in such percentage shall not be
effective until 61 days after such notice to us.
The
initial exercise price per share of common stock purchasable upon exercise of the warrants is $2.35 per share of common stock. The exercise price is subject to appropriate adjustment
in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock.
In
the event of a fundamental transaction, as described in the warrants and generally including any reorganization, recapitalization or reclassification of our common stock, the sale,
transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the holders of the warrants will be entitled to receive
upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental
transaction.
S-28
Table of Contents
Lock-Up Agreements
We have agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any any shares of our common
stock or any securities convertible into or exercisable or exchangeable for our common stock for a period of 45 days following the closing date pursuant to the securities purchase agreement
with investors, subject to certain exceptions.
In
addition, each of our directors and executive officers has entered into a lock-up agreement with Roth Capital Partners, LLC for a period of 90 days following the date of this
prospectus supplement (the "Lock-up Period"). Under the lock-up agreements, the directors and executive officers may not, directly or indirectly, sell, offer to sell, contract to sell, or grant any
option for the sale (including any short sale), grant any security interest in, pledge, hypothecate, hedge, establish an open "put equivalent position" (within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act), or otherwise dispose of, or enter into any transaction which is designed to or could be expected to result in the
disposition of, any shares of our common stock or securities convertible into or exchangeable for shares of our common stock, or publicly announce any intention to do any of the foregoing, without the
prior written consent of Roth Capital Partners, except for sales of shares to satisfy tax witholding obligations upon settlement of restricted stock units outstanding as of the date of the lock-up
agreement. This consent may be given at any time without public notice. Each officer and director shall be immediately and automatically released from all restrictions and obligations under the lock
up agreement in the event that he or she ceases to be a director or officer of our company and has no further reporting obligations under Section 16 of the Exchange Act.
S-29
Table of Contents
PLAN OF DISTRIBUTION
Roth Capital Partners, LLC has agreed to act as sole placement agent with this offering subject to the terms and conditions of the placement
agent agreement dated June 30, 2017. We refer to Roth Capital Partners, LLC as the placement agent. The placement agent is not purchasing or selling any of the shares of our common stock
offered by this prospectus supplement, nor is it required to arrange the purchase or sale of any specific number or dollar amount of shares of our common stock, but has agreed to use its reasonable
best efforts to arrange for the sale of all of the shares of our common stock offered hereby. Therefore, we will enter into a securities purchase agreement directly with each investor in connection
with this offering, and we may not sell the entire amount of shares of our common stock offered pursuant to this prospectus supplement. We will make offers only to a limited number of qualified
institutional buyers and institutional accredited investors. The placement agent may retain selected dealers or sub-agents in connection with this offering.
We
have agreed to indemnify Roth Capital Partners, LLC against specified liabilities, including liabilities under the Securities Act, and to contribute to payments Roth Capital Partners,
LLC may be required to make in respect thereof.
Fees and Expenses
We have agreed to pay the placement agents a placement agents fee equal to 6.0% of the aggregate purchase price of the shares of our common
stock sold in this offering. The following table shows the per share and total cash placement agents fees we will pay to the placement agents in connection with the sale of the shares of our common
stock offered pursuant to this prospectus supplement and the accompanying prospectus, assuming the purchase of all of the shares offered hereby.
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|
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|
Per Share
|
|
Total
|
|
|
Public offering price
|
|
$
|
1.700
|
|
$
|
2,252,500
|
|
|
Placement agent fees
|
|
$
|
0.102
|
|
$
|
135,150
|
|
|
Proceeds, before expenses, to us
|
|
$
|
1.598
|
|
$
|
2,117,350
|
|
In
addition, we have agreed to reimburse Roth Capital Partners, LLC's actual out-of-pocket expenses up to $25,000, in the aggregate.
We
estimate that the total expenses of the offering payable by us, excluding the placement agent fees, will be approximately $100,000.
The
placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profit realized on
the resale of the shares sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the placement agent would be
required to comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities Act and Rule 10b-5 and
Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares by the placement agent acting as principal. Under these rules and
regulations, the placement agent:
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•
-
may not engage in any stabilization activity in connection with our securities; and
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•
-
may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted
under the Exchange Act, until they have completed their participation in the distribution.
S-30
Table of Contents
Our
common stock is traded on the Nasdaq Capital Market under the symbol "MOSY." The warrants to purchase common stock issued to the investors in this offering are not expected to be
eligible for trading on any market.
Selling Restrictions
European Economic Area
This prospectus supplement and the accompanying prospectus does not constitute an approved prospectus under Directive 2003/71/EC and no such
prospectus is intended to be prepared and approved in connection with this offering. Accordingly, in relation to each Member State of the European Economic Area which has implemented Directive
2003/71/EC (each, a "Relevant Member State") an offer to the public of any shares of common stock which are the subject of the offering contemplated by this prospectus supplement and the accompanying
prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any shares of common stock may be made at any time under the following
exemptions under the Prospectus Directive, if and to the extent that they have been implemented in that Relevant Member State:
(a) to
any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b) to
fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than
qualified investors as defined in
the Prospectus Directive), subject to obtaining the prior consent of the representatives of the underwriter for any such offer; or
(c) in
any other circumstances which do not require any person to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For
the purposes of this provision, the expression an "offer to the public" in relation to any shares of common stock in any Relevant Member State means the communication in any form and
by any means of sufficient information on the terms of the offer and any shares of common stock to be offered so as to enable an investor to decide to purchase any shares of common stock, as the
expression may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC (and any
amendments thereto including the 2010 PD Amending Directive to the extent implemented in each Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and
the expression "2010 PD Amending Directive" means Directive 2010/73/EU.
United Kingdom
This prospectus supplement and the accompanying prospectus are not an approved prospectus for purposes of the UK Prospectus Rules, as
implemented under the EU Prospectus Directive (2003/71/EC), and have not been approved under section 21 of the Financial Services and Markets Act 2000 (as amended) (the "FSMA") by a person
authorized under FSMA. The financial promotions contained in this prospectus supplement and the accompanying prospectus are directed at, and this prospectus supplement and the accompanying prospectus
are only being distributed to, (1) persons who receive this prospectus supplement and the accompanying prospectus outside of the United Kingdom, and (2) persons in the United Kingdom who
fall within the exemptions under articles 19 (investment professionals) and 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 (all such persons together being referred to as "Relevant Persons"). This prospectus supplement and the accompanying prospectus must not be acted upon
or relied upon by any person who is not a Relevant Person. Any investment or investment activity to which this prospectus supplement and the accompanying prospectus relate is
S-31
Table of Contents
available
only to Relevant Persons and will be engaged in only with Relevant Persons. This prospectus supplement and the accompanying prospectus and their contents are confidential and should not be
distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person that is not a Relevant Person.
The
placement agent has represented, warranted and agreed that:
(a) it
has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity
(within the meaning of section 21 of the FSMA in connection with the issue or sale of any of the shares of common stock in circumstances in which section 21(1) of the FSMA does not apply
to the issuer; and
(b) it
has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of common stock in, from or
otherwise involving the United Kingdom.
LEGAL MATTERS
The validity of the issuance of shares of common stock offered hereby will be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP,
Palo Alto, California. Ellenoff Grossman & Schole LLP, New York, New York is acting as counsel for the placement agent in connection with this offering.
EXPERTS
The consolidated financial statements of MoSys, Inc. as of December 31, 2016 and 2015 and for each of the three years in the period ended
December 31, 2016, incorporated in this prospectus supplement by reference to MoSys, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016, have been so incorporated in
reliance on the report (which contains an explanatory paragraph relating to the Company's ability to continue as a going concern as described in Note 1 to the consolidated financial statements)
of BPM LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with the SEC. In addition, we have filed with the SEC a Registration
Statement on Form S-3, of which this prospectus supplement and the accompanying prospectus is a part, under the Securities Act, with respect to the shares of common stock offered hereby. You
may read and obtain copies at prescribed rates of any document that we file with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our SEC filings are also available to you free of charge at the SEC's web site at http://www.sec.gov, which
contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Our
common stock is traded on The NASDAQ Capital Market. Material filed by us can be inspected at the offices of the Financial Industry Regulatory Authority, 1735 K Street, N.W.,
Washington, D.C. 20006.
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Table of Contents
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is considered to be part of the accompanying prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents listed below:
-
(a)
-
our
Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 30, 2017;
-
(b)
-
our
Current Report on Form 8-K filed with the SEC on April 12, 2017;
-
(c)
-
our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2017, filed with the SEC on May 12, 2017; and
-
(d)
-
the
description of our capital stock set forth in our Registration Statement on Form 8-A, filed with the SEC on June 26, 2001, as amended by Amendment
No. 2 to Registration Statement on Form 8-A/A, filed with the SEC on November 12, 2010, Amendment No. 3 on Form 8-A/A, filed on July 27, 2011, and Amendment
No. 4 on Form 8-A/A, filed on May 24, 2012.
In
addition, all filed information contained in reports and documents filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of filing the registration statement that includes the accompanying prospectus and prior to the filing of a post-effective amendment to the registration statement containing the accompanying
prospectus, which indicates that all securities offered have been sold or which deregisters all of such securities then remaining unsold, shall be deemed to be incorporated by reference in this
prospectus supplement and the accompanying prospectus and to be a part thereof from the respective dates of filing of such documents.
You
may request a copy of these filings, at no cost, by writing or telephoning us at the following address or telephone number:
MoSys, Inc.
3301 Olcott Street
Santa Clara, CA 95054
(408) 418-7500
Attention: Chief Financial Officer
In
addition, you may obtain a copy of these filings from the SEC as described above in the section entitled "Where You Can Find More Information."
S-33
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PROSPECTUS
$50,000,000
Debt Securities
Preferred Stock
Common Stock
Warrants
MoSys, Inc.
3301 Olcott Street
Santa Clara, CA 95054
(408) 418-7500
We may offer from time to time:
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•
-
Debt securities;
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•
-
Shares of our Common Stock;
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•
-
Shares of our Preferred Stock; and
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•
-
Warrants to purchase any of the other securities that may be sold under this prospectus.
The
securities we offer will have an aggregate public offering price of up to $50 million. We will provide specific terms of any offering in supplements to this prospectus. The
securities may be offered separately or together in any combination and as separate series. You should read this prospectus and any prospectus supplement carefully before you invest.
We
may sell these securities on a continuous or delayed basis directly, through agents, dealers or underwriters as designated from time to time, or through a combination of these
methods. We reserve the sole right to accept, and together with any agents, dealers and underwriters, reserve the right to reject, in whole or in part, any proposed purchase of securities. If any
agents, dealers or underwriters are involved in the sale of any securities, the applicable prospectus supplement will set forth any applicable commissions or discounts. Our net proceeds from the sale
of securities also will be set forth in the applicable prospectus supplement.
Our
common stock is listed on the Global Market of the NASDAQ Stock Market under the symbol "MOSY."
INVESTING IN OUR SECURITIES INVOLVES RISKS.
SEE "
RISK FACTORS
" ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these
securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is September 9, 2014.
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TABLE OF CONTENTS
In
this prospectus, "MoSys," "we," "us," and "our" refer to MoSys, Inc. and its subsidiaries.
You
should rely only on information contained or incorporated by reference in this prospectus. We have not authorized any person to provide you with information that differs from what is
contained or incorporated by reference in this prospectus. If any person does provide you with information that differs from what is contained or incorporated by reference in this prospectus, you
should not rely on it. This prospectus is not an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates, or an offer of solicitation in any
jurisdiction where offers or sales are not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, even though this prospectus may be delivered or
shares may be sold under this prospectus on a later date.
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About This Prospectus
This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, or the SEC or the Commission,
using a "shelf" registration process. Under the shelf process, we may, from time to time, issue and sell to the public any or all of the securities described in the registration statement in one or
more offerings.
This
prospectus provides you with a general description of the securities we may offer. Each time we offer securities, we will provide a prospectus supplement that will describe the
specific amounts, prices, and terms of the securities we offer. The prospectus supplement also may add, update, or change information contained in this prospectus. This prospectus, together with
applicable prospectus supplements, includes all material information relating to this offering. If there is any inconsistency between the information in this prospectus and the information in the
accompanying prospectus supplement, you should rely on the information in the prospectus supplement. Please carefully read
both this prospectus and any prospectus supplement together with the additional information described below under the section entitled "Where You Can Find More Information."
We
may sell the securities to or through underwriters, dealers, or agents or directly to purchasers. We and our agents reserve the sole right to accept and to reject in whole or in part
any proposed purchase of securities. A prospectus supplement, which we will provide each time we offer securities, will provide the names of any underwriters, dealers or agents involved in the sale of
the securities, and any applicable fee, commission, or discount arrangements with them.
Special Note Regarding Forward-Looking Statements
Some of the statements in this prospectus constitute forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual 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. These factors include, among others, those incorporated by reference under "Risk Factors" below.
In
some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential,"
or "continue" or similar terms.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or
achievements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors incorporated by
reference under the heading "Risk Factors" below and a variety of other factors, including, without limitation, statements about our future business operations and results, the market for our
technology, our strategy and competition.
Moreover,
neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We undertake no obligation to update or revise any of the
forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking
events discussed or incorporated by reference in this prospectus may not occur.
Our Company
We are a fabless semiconductor company focused on the development and sale of integrated circuits, or ICs, for the high-speed networking,
communications, storage and computing markets. Our technology delivers time-to-market, performance, power and economic benefits for system original
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equipment
manufacturers, or OEMs. We have developed a family of ICs, called Bandwidth Engine, which combines our proprietary 1T-SRAM high-density embedded memory and high-speed 10 gigabits per
second, or Gbps, and higher serial interface, or I/O, with our intelligent access technology and a highly efficient interface protocol, which we call the Gigachip™ Interface, or GCI. As
the bandwidth requirements and amount of packet processing increase in high-speed networking systems, critical memory access bottlenecks can occur. Our Bandwidth Engine IC, with its combination of
serial I/O, high-speed memory, and efficient, intelligent access, drastically increases memory accesses per second, removing these bottlenecks. We also market and sell another IC product line under
the LineSpeed product name. LineSpeed ICs are non-memory, high-speed SerDes I/O devices with gearbox and retimer functionality, which convert lanes of data received on line cards into different
configurations and/or ensure signal integrity.
We
have developed our Bandwidth Engine and LineSpeed family of ICs to synergistically address the need for high-speed data access and throughput currently confronting networking system
designers. We believe that our IC products meet the increasing demands placed on conventional memory technology used on the line cards in high-bandwidth networking systems.
Historically,
our primary business was the design, development, marketing, sale and support of differentiated intellectual property, or IP, including embedded memory and high-speed
parallel and serial I/O used in advanced systems-on-chips, or SoCs. We are focused on developing differentiated IP-rich IC products and are dedicating substantially all of our research and
development, marketing and sales budget to these IC products. Due to the shift in our engineering and research and development focus and the decline in major consumer electronics applications
utilizing customized versions of our 1T-SRAM technology, the competitiveness of, and demand for, licenses of our IP have declined since the beginning of 2011. We expect royalty revenue to continue to
represent a significant portion of our revenues in 2014, although at a reduced level, revenue from sales of our IC products has been increasing. We expect our revenue from IC product sales to
represent a majority of our revenues beginning in 2014. We are currently supporting existing design-win customers and actively pursuing additional design wins for the use of our ICs in networking and
communication equipment. Our future success and ability to achieve and maintain profitability will be dependent on the manufacturing,
marketing and sales of our IC products into networking, communications and other end-customer applications markets requiring high performance.
Our Strategy
Our primary business objective is to become an IP-rich fabless semiconductor company offering ICs that deliver unparalleled bandwidth
performance for next generation networking systems. The key components of the expansion of our strategic plan to become an IC supplier include the following strategies:
Target Large and Growing Markets
Our initial strategy is to target the multi-billion dollar networking and telecommunications equipment market, and to date, we have secured
multiple design wins with networking and telecommunications OEMs.
Leverage Technologies to Create New Products
Our strategy also is to combine our proprietary IP and design and applications expertise to address the needs of several upcoming generations of
advanced networking equipment. To date, we have leveraged our serial I/O and analog design capabilities to bring our initial LineSpeed IC product family to market in 2013.
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Expand Adoption of the GigaChip Interface Protocol
Our goal is for our GCI interface protocol to become an open industry standard that is designed into other ICs in the system, as we believe this
will further enable serial communication on network line cards and encourage adoption of our Bandwidth Engine IC products. A number of IC providers have publicly announced their intention to support
GCI. In addition, multiple network equipment companies, including actual and prospective customers, have adopted GCI.
Build Long-Term Relationships with Suppliers of Packet Processors
We believe that having long-term relationships with packet processor providers is critical to our success, as such relationships may enable us
to speed our time-to-market, provide us with a competitive advantage and expand our target markets. To obtain design wins for our Bandwidth Engine IC, we must demonstrate this interoperability, and
also show that our IC works optimally with the packet processor to achieve the performance requirements. In addition, packet processor suppliers must adopt our GCI interface. To that end, we have been
working closely with FPGA, ASIC and NPU providers, to enable interoperability between our Bandwidth Engine IC products and their high-performance products. To facilitate the acceptance of our
Bandwidth Engine ICs, we have made available development and characterization kits for system designers to evaluate and develop code for next-generation networking systems.
We
were founded in 1991. Our principal executive offices are located at 3301 Olcott Street, Santa Clara, CA 95054. Our telephone number at that address is (408) 418-7500.
Risk Factors
An investment in our common stock is risky. Prior to making a decision about investing in our common stock, you should carefully consider the
specific risks discussed in our other filings with the SEC, which are incorporated by reference in this prospectus, together with all of the other information contained in this prospectus, any
applicable prospectus supplement, or otherwise incorporated by reference in this prospectus. The risks and uncertainties described in our SEC filings are not the only ones facing us. Additional risks
and uncertainties not presently known to us, or that we currently see as immaterial, may also harm our business. If any of the risks or uncertainties described in the applicable prospectus supplement
or our SEC filings or any such additional risks and
uncertainties actually occur, our business, results of operations, cash flows and financial condition could be materially and adversely affected. In that case, the trading price of our common stock
could decline, and you might lose all or part of your investment.
Ratio of Earnings to Fixed Charges
If we offer debt securities and/or preference equity securities under this prospectus, then we will, at that time, provide a ratio of earnings
to fixed charges and/or ratio of combined fixed charges and preference dividends to earnings, respectively, in the applicable prospectus supplement for such offering.
Use of Proceeds
We intend to use the net proceeds for working capital and other general corporate purposes, including expanding sales and marketing, research
and development. We also might use a portion of the net proceeds for the acquisition of technologies, businesses or products that are complementary to our business, although no such acquisitions are
planned or being negotiated as of the date of this prospectus, and no portion of the net proceeds has been allocated for any specific acquisition.
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The
amounts we plan to spend on each area of our operations, including capital expenditures, as well as the timing of any expenditures, are determined by internal planning and budgeting
processes, and may change over time. Pending such uses, the net proceeds of this offering will be invested according to a cash management policy adopted by our board of directors, which includes
short-term, investment-grade securities.
General Description of Securities That We May Sell
We may offer and sell, at any time and from time to time:
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•
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Our debt securities, in one or more series, in each case consisting of notes or other unsecured evidences of indebtedness;
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•
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Shares of our common stock, par value $0.01 per share;
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•
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Shares of our preferred stock, par value $0.01 per share;
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•
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Warrants to purchase any of the other securities that may be sold under this prospectus; or
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•
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Any combination of these securities.
The
terms of any securities we offer will be determined at the time of sale. We may issue debt securities that are exchangeable for and/or convertible into common stock or any of the
other securities that may be sold under this prospectus. When particular securities are offered, a supplement to this prospectus will be filed with the SEC, which will describe the terms of the
offering and sale of the offered securities.
Description of Debt Securities
We may issue debt securities in one or more distinct series. This section summarizes the terms of the debt securities that are common to all
series. Most of the financial terms and other specific terms of any series of debt securities that we offer will be described in a prospectus supplement to be attached to the front of this prospectus.
Because the terms of specific debt securities may differ from the general information we have provided below, if any information contained in a prospectus supplement contradicts the information below,
you should rely on information in the prospectus supplement.
As
required by federal law for all bonds and notes of companies that are publicly offered, the debt securities are governed by a document called an "indenture." An indenture is a
contract between us and a financial institution acting as trustee of holders of the debt securities on behalf of the holders of the debt securities. The trustee has two main roles. First, the trustee
can enforce the rights of holders of the debt securities against us if we default. There are some limitations on the extent to which the trustee acts on behalf of holders of the debt securities,
described later under "—Events of Default." Second, the trustee performs certain administrative duties for us.
The
debt securities we offer will be issued under an indenture between us and the trustee named in the indenture. These debt securities that we may issue include senior debt securities,
subordinated debt securities, convertible debt securities and exchangeable debt securities. The following is a summary of the material provisions of the indenture filed as an exhibit to the
registration statement of which this prospectus is a part. For each series of debt securities, the applicable prospectus supplement for the series may change and supplement the summary below.
Because
this section is a summary, it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture because it, and not this description,
defines your rights as a holder of debt securities. For example, in this section, we use capitalized words to signify terms that are specifically defined in the indenture. Some of the definitions are
repeated in this prospectus, but
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for
the rest you will need to read the indenture. We have filed the form of the indenture as an exhibit to the registration statement that we have filed with the SEC. See "Where You Can Find More
Information," above, for information on how to obtain a copy of the indenture.
General
Each series of debt securities, unless specified otherwise in the prospectus supplement, will be unsecured obligations of MoSys. Any senior
unsecured debt securities that we may issue will rank equally with all other unsecured and unsubordinated indebtedness of ours. Any subordinated debt securities that we issue will be expressly
subordinated in right of payment to the prior payment in full of our senior indebtedness. In addition, unless otherwise specified in the applicable prospectus supplement the debt securities will be
structurally subordinated to all existing and future liabilities, including trade payables, of our subsidiaries, and the claims of creditors of those subsidiaries, including trade creditors, will have
priority as to the assets and cash flows of those subsidiaries.
The
indenture does not limit the amount of debt securities that we may issue. It provides that we may issue debt securities up to the principal amount that we may authorize and they may
be in any currency or currency unit that we may designate. Except for the limitations on consolidation, merger and sale of all or substantially all of our assets contained in the indenture, the terms
of the indenture do not contain any covenants or other provisions designed to give holders of any debt securities protection against changes in our operations, financial condition or transactions
involving us. For each series of debt securities, any restrictive covenants for those debt securities will be described in the applicable prospectus supplement for those debt securities.
You
should read the prospectus supplement for the terms of the offered debt securities, including the following:
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•
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the title and authorized denominations of those debt securities;
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•
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any limit on the aggregate principal amount of that series of debt securities;
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the date or dates on which principal and premium, if any, of the debt securities of that series is payable;
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•
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the price or prices at which MoSys will offer the debt securities;
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•
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the interest rate or rates, which may be fixed or variable, that the debt securities will bear, if any, or how the rate or rates will be
determined, the date or dates from which any interest will accrue or how the date or dates will be determined, the interest payment dates, any record dates for these payments and the basis upon which
interest will be calculated, if other than that of a 360-day year of twelve 30-day months;
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•
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the right, if any, to extend the interest payment periods and the duration of the extensions;
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•
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if the amount of payments of principal or interest is to be determined by reference to an index or formula, or based on a coin or currency
other than that in which the debt securities are stated to be payable, the manner in which these amounts are determined and the calculation agent, if any, with respect thereto;
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•
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the place or places where and the manner in which principal of, premium, if any, and interest, if any, on the debt securities of that series
will be payable and the place or places where those debt securities may be presented for transfer and, if applicable, conversion or exchange;
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•
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the period or periods within which, the price or prices at which, the currency or currencies in which, and other terms and conditions upon
which those debt securities may be redeemed, in whole or in part, at our option or the option of a holder of those securities, if we or a holder is to have that option;
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•
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our obligation or right, if any, to redeem, repay or purchase those debt securities pursuant to any sinking fund or analogous provision or at
the option of a holder of those securities, and the terms and conditions upon which the debt securities will be redeemed, repaid or purchased, in whole or in part, pursuant to that obligation;
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•
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the terms, if any, on which the debt securities of that series will be subordinate in right and priority of payment to our other debt;
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•
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the denominations in which those debt securities will be issuable;
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if other than the entire principal amount of the debt securities when issued, the portion of the principal amount payable upon acceleration of
maturity as a result of a default on our obligations;
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whether those debt securities will be issued in fully registered form without coupons or in a form registered as to principal only with coupons
or in bearer form with coupons;
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•
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whether any securities of that series are to be issued in whole or in part the form of one or more global securities and the depositary for
those global securities;
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if other than United States dollars, the currency or currencies in which payment of principal of or any premium or interest on those debt
securities will be payable;
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•
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if the principal of or any premium or interest on the debt securities of that series is to be payable, or is to be payable at our election or
the election of a holder of those securities, in securities or other property, the type and amount of those securities or other property, or the manner of determining that amount, and the period or
periods within which, and the terms and conditions upon which, any such election may be made;
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•
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the events of default and covenants relating to the debt securities that are in addition to, modify or delete those described in this
prospectus;
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•
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conversion or exchange provisions, if any, including conversion or exchange prices or rates and adjustments thereto;
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•
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whether and upon what terms the debt securities may be defeased, if different from the provisions set forth in the indenture;
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the nature and terms of any security for any secured debt securities;
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the terms applicable to any debt securities issued at a discount from their stated principal amount;
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any other specific terms of any debt securities;
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any sinking fund or other provisions that would obligate us to repurchase or otherwise redeem the debt securities;
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any provisions granting special rights to the holders of the debt securities upon the occurrence of specified events; and
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•
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subordination provisions, if any, that will apply.
The
applicable prospectus supplement will present material United States federal income tax considerations for holders of any debt securities and the securities exchange or quotation
system on which any debt securities are to be listed or quoted.
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Conversion or Exchange Rights
Debt securities may be convertible into or exchangeable for shares of our equity securities or other securities. The terms and conditions of
conversion or exchange will be stated in the applicable prospectus supplement. The terms will include, among others, the following:
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•
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the conversion or exchange price;
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the conversion or exchange period;
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provisions regarding our ability or the ability of any holder to convert or exchange the debt securities;
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events requiring adjustment to the conversion or exchange price; and
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provisions affecting conversion or exchange in the event of our redemption of the debt securities.
Consolidation, Merger or Sale
We cannot consolidate or merge with or into, or transfer or lease all or substantially all of our assets to, any person, unless the successor
corporation or person to which our assets are transferred or leased is organized under the laws of the United States, any state of the United States or the District of Columbia and it expressly
assumes our obligations under the debt securities and the indenture. In addition, we cannot complete such a transaction unless immediately after completing the transaction, no event of default under
the indenture, and no event that, after notice or lapse of time or both, would become an event of default under the indenture, has occurred and is continuing. When the person to whom our assets are
transferred or leased has assumed our obligations under the debt securities and the indenture, we will be discharged from all our obligations under the debt securities and the indenture except in
limited circumstances.
This
covenant would not apply to any recapitalization transaction, a change of control affecting us or a highly leveraged transaction, unless the transaction or change of control were
structured to include a merger or consolidation or transfer or lease of all or substantially all of our assets.
Events of Default
The indenture provides that the following will be "events of default" with respect to any series of debt
securities:
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•
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failure to pay interest for 30 days after the date payment is due and payable;
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•
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failure to pay principal or premium, if any, on any debt security when due, either at maturity, upon any redemption, by declaration or
otherwise and, in the case of technical or administrative difficulties, only if such default persists for a period of more than three business days;
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•
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failure to make sinking fund payments when due and continuance of such default for a period of 30 days;
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failure to perform other covenants for 90 days after notice that performance was required;
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events in bankruptcy, insolvency or reorganization relating to us; or
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•
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any other event of default provided in the applicable officer's certificate, resolution of our board of directors or the supplemental indenture
under which we issue a series of debt securities.
An
event of default for a particular series of debt securities does not necessarily constitute an event of default for any other series of debt securities issued under the indenture. For
each series of
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debt
securities, any modifications to the above events of default will be described in the applicable prospectus supplement for those debt securities.
The
indenture provides that if an event of default specified in the first, second, third, fourth or sixth bullets above occurs and is continuing, either the trustee or the holders of at
least 25% in aggregate principal amount of the outstanding debt securities of that series may declare the principal amount of all those debt securities (or, in the case of discount securities or
indexed securities, that portion of the principal amount as may be specified in the terms of that series) to be due and payable immediately. If an event of default specified in the fifth bullet above
occurs and is continuing, then the principal amount of all those debt securities (or, in the case of discount securities or indexed securities, that portion of the principal amount as may be specified
in the terms of that series) will be due and payable immediately, without any declaration or other act on the part of the trustee or any holder. In certain cases, holders of a majority in principal
amount of the outstanding debt securities of any series may, on behalf of holders of all those debt securities, rescind and annul a declaration of acceleration.
The
indenture imposes limitations on suits brought by holders of debt securities against us. Except for actions for payment of overdue principal or interest, no holder of debt securities
of any series may institute any action against us under the indenture unless:
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•
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the holder has previously given to the trustee written notice of default and continuance of such default;
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the holders of at least 25% in principal amount of the outstanding debt securities of the affected series have requested that the trustee
institute the action;
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•
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the requesting holders have offered the trustee indemnity for the reasonable expenses and liabilities that may be incurred by bringing the
action;
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the trustee has not instituted the action within 60 days of the request and offer of indemnity; and
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•
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the trustee has not received inconsistent direction by the holders of a majority in principal amount of the outstanding debt securities of the
affected series.
We
will be required to file annually with the trustee a certificate, signed by one of our officers, stating whether or not the officer knows of any default by us in the performance,
observance or fulfillment of any condition or covenant of the indenture.
Covenants
The supplemental indenture with respect to any particular series of debt securities may contain covenants including, without limitation,
covenants restricting or limiting:
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•
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the incurrence of additional debt, including guarantees, by us and our subsidiaries;
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the making of various payments by us and our subsidiaries;
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our business activities and those of our subsidiaries;
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the issuance of other securities by our subsidiaries;
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asset dispositions;
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sale-leaseback transactions;
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transactions with affiliates;
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a change of control;
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the incurrence of liens; and
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•
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mergers and consolidations involving us and our subsidiaries.
For
purposes of this prospectus, any reference to the payment of principal of, or premium or interest, if any, on, debt securities will include additional amounts if required by the
terms of the debt securities, subject to the maximum offering amount under this prospectus.
The
indenture does not limit the amount of debt securities that may be issued thereunder from time to time. The indenture also provides that there may be more than one trustee
thereunder, with respect to one or more different series of indenture securities. See "—Resignation of Trustee," below. At a time when two or more trustees are acting under the indenture,
each with respect to only certain series, the term "indenture securities" means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that
there is more than one trustee under the indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for
which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each trustee is acting would be treated as if issued under separate indentures.
We
have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof to reopen a
previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.
Methods of Calculating and Paying Interest on our Debt Securities
Each series of our debt securities will bear interest at a fixed or variable rate per annum shown on the front cover of the prospectus
supplement under which that series is issued.
Discharge, Defeasance and Covenant Defeasance
We can discharge or decrease our obligations under the indenture as stated below.
We
may discharge obligations to holders of any series of debt securities that have not already been delivered to the trustee for cancellation and that have either become due and payable
or are by their terms to become due and payable, or are scheduled for redemption, within one year. We may effect a discharge by irrevocably depositing with the trustee cash or government obligations
denominated in the currency of the debt securities, as trust funds, in an amount certified to be enough to pay when due, whether at maturity, upon redemption or otherwise, the principal of, and any
premium and interest on, the debt securities and any mandatory sinking fund payments.
Unless
otherwise provided in the applicable prospectus supplement, we may also discharge any and all of our obligations to holders of any series of debt securities at any time, which we
refer to as defeasance. We may also be released from the obligations imposed by any covenants of any outstanding series of debt securities and provisions of the indenture, and we may omit to comply
with those covenants without creating an event of default under the trust declaration, which we refer to as covenant defeasance. We may effect defeasance and covenant defeasance only if, among other
things:
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we irrevocably deposit with the trustee cash or government obligations denominated in the currency of the debt securities, as trust funds, in
an amount certified to be enough to pay at maturity, or upon redemption, the principal (including any mandatory sinking fund payments) of, and any premium and interest on, all outstanding debt
securities of the series; and
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we deliver to the trustee an opinion of counsel from a nationally recognized law firm to the effect that the holders of the series of debt
securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the defeasance or covenant defeasance and that
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In
the case of a defeasance by us, the opinion we deliver must be based on a ruling of the Internal Revenue Service issued, or a change in U.S. federal income tax law occurring, after
the date of the indenture, since such a result would not occur under the U.S. federal income tax laws in effect on that date.
Although
we may discharge or decrease our obligations under the indenture as described in the two preceding paragraphs, we may not avoid, among other things, our duty to register the
transfer or exchange of any series of debt securities, to replace any temporary, mutilated, destroyed, lost or stolen series of debt securities or to maintain an office or agency in respect of any
series of debt securities.
Modification of the Indenture
The indenture provides that we and the trustee may enter into supplemental indentures without the consent of the holders of debt securities to,
among other things:
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evidence the assumption by a successor entity of our obligations;
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add to our covenants for the benefit of the holders of debt securities, or to surrender any rights or power conferred upon us;
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add any additional events of default;
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cure any ambiguity or correct any inconsistency or defect in the indenture;
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add to, change or eliminate any of the provisions of the indenture in a manner that will become effective only when there is no outstanding
debt security which is entitled to the benefit of the provision as to which the modification would apply;
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secure any debt securities;
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establish the forms or terms of debt securities of any series;
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evidence and provide for the acceptance of appointment by a successor trustee and add to or change any of the provisions of the indenture as is
necessary for the administration of the trusts by more than one trustee;
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modify, eliminate or add to the provisions of the indenture as shall be necessary to effect the qualification of the indenture under the Trust
Indenture Act of 1939 or under any similar federal statute later enacted, and to add to the indenture such other provisions as may be expressly required by the Trust Indenture Act; and
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make any other provisions with respect to matters or questions arising under the indenture that will not be inconsistent with any provision of
the indenture as long as the new provisions do not adversely affect the interests of the holders of any outstanding debt securities of any series created prior to the modification.
The
indenture also provides that we and the trustee may, with the consent of the holders of not less than a majority in aggregate principal amount of debt securities of each series of
debt securities affected by such supplemental indenture then outstanding, add any provisions to, or change in any manner, eliminate or modify in any way the provisions of, the indenture or any
supplemental indenture or modify in any manner the rights of the holders of the debt securities. We and the trustee may not,
however, without the consent of the holder of each outstanding debt security affected thereby:
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extend the final maturity of any debt security;
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reduce the principal amount or premium, if any;
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reduce the rate or extend the time of payment of interest;
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reduce the amount of the principal of any debt security issued with an original issue discount that is payable upon acceleration;
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change the currency in which the principal, and any premium or interest, is payable;
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impair the right to institute suit for the enforcement of any payment on any debt security when due;
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if applicable, adversely affect the right of a holder to convert or exchange a debt security; or
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reduce the percentage of holders of debt securities of any series whose consent is required for any modification of the indenture or for
waivers of compliance with or defaults under the indenture with respect to debt securities of that series.
The
indenture provides that the holders of not less than a majority in aggregate principal amount of the then outstanding debt securities of any series, by notice to the relevant
trustee, may on behalf of the holders of the debt securities of that series waive any default and its consequences under the indenture except:
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a default in the payment of, any premium and any interest on, or principal of, any such debt security held by a nonconsenting holder; or
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a default in respect of a covenant or provision of the indenture that cannot be modified or amended without the consent of the holder of each
outstanding debt security of each series affected.
Registered Global Securities and Book Entry System
The debt securities of a series may be issued in whole or in part in book-entry form and will be represented by one or more fully registered
global securities. We will deposit any registered global securities with a depositary or with a nominee for a depositary identified in the applicable prospectus supplement and registered in the name
of such depositary or nominee. In such case, we will issue one or more registered global securities denominated in an amount equal to the aggregate principal amount of all of the debt securities of
the series to be issued and represented by such registered global security or securities. This means that we will not issue certificates to each holder.
Unless
and until it is exchanged in whole or in part for debt securities in definitive registered form, a registered global security may not be transferred except as a
whole:
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by the depositary for the registered global security to its nominee;
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by a nominee of the depositary to the depositary or another nominee of the depositary; or
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by the depositary or its nominee to a successor of the depositary or a nominee of the successor.
The
prospectus supplement relating to a series of debt securities will describe the specific terms of the depositary arrangement involving any portion of the series represented by a
registered global security. We anticipate that the following provisions will apply to all depositary arrangements for debt securities:
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ownership of beneficial interests in a registered global security will be limited to persons that have accounts with the depositary for such
registered global security, these persons being referred to as "participants," or persons that may hold interests through participants;
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upon the issuance of a registered global security, the depositary for the registered global security will credit, on its book-entry
registration and transfer system, the participants' accounts with the
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The
laws of some states may require that specified purchasers of securities take physical delivery of the securities in definitive form. These laws may limit the ability of those persons
to own, transfer or pledge beneficial interests in registered global securities.
So
long as the depositary for a registered global security, or its nominee, is the registered owner of the registered global security, the depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the debt securities represented by the registered global security for all purposes under the indenture. Except as stated below, owners of beneficial
interests in a registered global security:
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will not be entitled to have the debt securities represented by a registered global security registered in their names;
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will not receive or be entitled to receive physical delivery of the debt securities in the definitive form; and
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will not be considered the owners or holders of the debt securities under the relevant indenture.
Accordingly,
each person owning a beneficial interest in a registered global security must rely on the procedures of the depositary for the registered global security and, if the person
is not a participant, on the procedures of a participant through which the person owns its interest, to exercise any rights of a holder under the indenture.
We
understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or take
any action that a holder is entitled to give or take under the indenture, the depositary for the registered global security would authorize the participants holding the relevant beneficial interests
to give or take the action, and the participants would authorize beneficial owners owning through the participants to give or take the action or would otherwise act upon the instructions of beneficial
owners holding through them.
We
will make payments of principal and premium, if any, and interest, if any, on debt securities represented by a registered global security registered in the name of a depositary or its
nominee to the depositary or its nominee, as the case may be, as the registered owners of the registered global security. Neither we nor the trustee, or any other agent of ours or the trustee will be
responsible or liable for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the registered global security or for maintaining, supervising or
reviewing any records relating to the beneficial ownership interests.
We
expect that the depositary for any debt securities represented by a registered global security, upon receipt of any payments of principal and premium, if any, and interest, if any, in
respect of the registered global security, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the registered global
security as shown on the records of the depositary. We also expect that standing customer instructions and customary practices will govern payments by participants to owners of beneficial interests in
the registered global security held through the participants, as is now the case with the securities held for the accounts of customers
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in
bearer form or registered in "street name." We also expect that any of these payments will be the responsibility of the participants.
If
the depositary for any debt securities represented by a registered global security is at any time unwilling or unable to continue as depositary or stops being a clearing agency
registered under the Exchange Act, we will appoint an eligible successor depositary. If we fail to appoint an eligible successor depositary within 90 days, we will issue the debt securities in
definitive form in exchange for the registered global security. In addition, we may at any time and in our sole discretion decide not to have any of the debt securities of a series represented by one
or more registered global securities. In that event, we will issue debt securities of the series in a definitive form in exchange for all of the registered global securities representing the debt
securities. The trustee will register any debt securities issued in definitive form in exchange for a registered global security in the name or names as the depositary, based upon instructions from
its participants, shall instruct the trustee.
We
may also issue bearer debt securities of a series in the form of one or more global securities, referred to as "bearer global securities." We will deposit these securities with a
depositary identified in the prospectus supplement relating to the series. The prospectus supplement relating to a series of debt securities represented by a bearer global security will describe the
applicable terms and procedures. These will include the specific terms of the depositary arrangement and any specific procedures for the issuance of debt securities in definitive form in exchange for
a bearer global security, in proportion to the series represented by a bearer global security.
If
debt securities are issued only in the form of a global security, an investor should be aware of the following:
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An investor cannot cause the debt securities to be registered in his or her name, and cannot obtain certificates for his or her interest in the
debt securities, except in the special situations we describe below.
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An investor will be an indirect holder and must look to his or her own bank or broker for payments on the debt securities and protection of his
or her legal rights relating to the debt securities.
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An investor may not be able to pledge his or her interest in a global security in circumstances where certificates representing the debt
securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective.
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The depositary's policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to an
investor's interest in a global security. We and the trustee have no responsibility for any aspect of the depositary's actions or for its records of ownership interests in a global security. We and
the trustee also do not supervise the depositary in any way.
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DTC requires that those who purchase and sell interests in a global security deposited in its book-entry system use immediately available
funds. Your broker or bank may also require you to use immediately available funds when purchasing or selling interests in a global security.
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Financial institutions that participate in the depositary's book-entry system, and through which an investor holds its interest in a global
security, may also have their own policies affecting payments, notices and other matters relating to the debt security. There may be more than one financial intermediary in the chain of ownership for
an investor. We do not monitor and are not responsible for the actions of any of those intermediaries.
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Payment and Paying Agent
Unless specified otherwise in a prospectus supplement, in the event certificated registered debt securities are issued, the holders of
certificated registered debt securities will be able to
receive payments of principal and of interest on their debt securities at the office of the paying agent. All payments of interest may be received at the offices of such paying agent upon presentation
of certificated debt securities and all payments of principal may be received at such offices upon surrender of the debt securities. We also have the option of mailing checks or making wire transfers
to the registered holders of the debt securities. Unless specified otherwise in a prospectus supplement, we will maintain a paying agent for the debt securities in the city of New York at all times
that payments are to be made in respect of the debt securities and, if and so long as the debt securities remain outstanding.
Concerning the Trustee
The indenture provides that there may be more than one trustee under the indenture, each for one or more series of debt securities. If there are
different trustees for different series of debt securities, each trustee will be a trustee of a trust under the indenture separate and apart from the trust administered by any other trustee under that
indenture. Except as otherwise indicated in this prospectus or any prospectus supplement, any action permitted to be taken by a trustee may be taken by such trustee only on the one or more series of
debt securities for which it is the trustee under the indenture. Any trustee under the indenture may resign or be removed from one or more series of debt securities. All payments of principal of, and
any premium and interest on, and all registration, transfer, exchange, authentication and delivery of, the debt securities of a series will be effected by the trustee for that series at an office
designated by the trustee in New York, New York.
The
indenture provides that, except during the continuance of an event of default, the trustee will perform only such duties as are specifically set forth in the indenture. During the
existence of an event of default, the trustee will exercise those rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
If
the trustee becomes a creditor of ours, the indenture places limitations on the right of the trustee to obtain payment of claims or to realize on property received in respect of any
such claim as security or otherwise. The trustee may engage in other transactions. If it acquires any conflicting interest relating to any duties concerning the debt securities, however, it must
eliminate the conflict or resign as trustee.
No Individual Liability of Incorporators, Stockholders, Officers or Directors
The indenture provides that no past, present or future director, officer, stockholder or employee of ours, any of our affiliates, or any
successor corporation, in their capacity as such, shall have any individual liability for any of our obligations, covenants or agreements under the debt securities or the indenture.
Governing Law
The indenture and the debt securities will be governed by, and construed in accordance with, the laws of the State of New York.
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Description of Capital Stock
General
The following description of our capital stock and provisions of our certificate of incorporation and bylaws is a summary only and not a
complete description.
Our
authorized capital stock consists of 120,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share.
Common Stock
As of August 1, 2014, 49,566,641 shares of our common stock were outstanding and held of record by 16 stockholders. Each holder of our
common stock is entitled to—
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one vote per share on all matters submitted to a vote of the stockholders;
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dividends as may be declared by our board of directors out of funds legally available for that purpose, subject to the rights of any preferred
stock that may be outstanding; and
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his, her or its pro rata share in any distribution of our assets after payment or providing for the payment of liabilities and the liquidation
preference of any outstanding preferred stock in the event of liquidation.
Holders
of common stock have no cumulative voting rights, redemption rights or preemptive rights to purchase or subscribe for any shares of our common stock or other securities. All of
the outstanding shares of common stock are fully paid and nonassessable. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may designate and issue in the future
Preferred Stock
We have designated 120,000 shares of our preferred stock as Series AA preferred stock for issuance pursuant to the exercise of rights
under our rights plan, none of which are outstanding. For more information on the rights plan, see the discussion below. We have no current intention to issue any other shares of preferred stock.
Our
board of directors has the authority, subject to any limitations prescribed by Delaware law, to issue shares of preferred stock in one or more series and to fix and determine the
relative rights and preferences of the shares constituting any series to be established, without any further vote or action by the stockholders. Any shares of our preferred stock so issued may have
priority over our common stock with respect to dividend, liquidation and other rights.
Our
board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our
common stock. Although the issuance of preferred stock could provide us with flexibility in connection with possible acquisitions and other corporate purposes, under some circumstances, it could have
the effect of delaying, deferring or preventing a change of control.
Our
board of directors may authorize the issuance of our preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of
our common stock. Although the issuance of our preferred stock could provide us with flexibility in connection with possible acquisitions and other corporate purposes, under some circumstances, it
could have the effect of delaying, deferring or preventing a change of control.
The
prospectus supplement will specify as to each issuance of preferred stock:
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the maximum number of shares;
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the designation of the shares;
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annual dividend rate, if any, whether the dividend rate is fixed or variable, the date dividends will accrue, the dividend payment dates and
whether dividends will be cumulative;
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the price and the terms and conditions for redemption, if any, including redemption at our option or at the option of the holders, including
the time period for redemption, and any accumulated dividends or premiums;
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the liquidation preference, if any, and any accumulated dividends upon the liquidation, dissolution or winding up of our affairs;
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any sinking fund or similar provision, and, if so, the terms and provisions relating to the purpose and operation of the fund;
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the terms and conditions, if any, for conversion or exchange of shares into or for any other class or classes of our capital stock or any
series of any other class or classes, or into or for any other series of the same class, or any other securities or assets, including the price or the rate of conversion or exchange and the method, if
any, of adjustment;
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the voting rights; and
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any or all other preferences and relative, participating, optional or other special rights, privileges or qualifications, limitations or
restrictions.
Preferred
stock will be fully paid and nonassessable upon issuance. The preferred stock or any series of preferred stock may be represented, in whole or in part, by one or more global
certificates, which will represent an aggregate number of shares equal to that of the preferred stock represented by the global certificate.
Each
global certificate will:
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be registered in the name of a depositary or a nominee of the depositary identified in the prospectus supplement;
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be deposited with such depositary or nominee or a custodian for the depositary; and
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bear a legend regarding any restrictions on exchanges and registration of transfer and any other matters as may be provided for under the
certificate of designations.
Antitakeover Effects of Provisions of Our Certificate of Incorporation and Bylaws and of Delaware Law.
Certain provisions of our charter documents and Delaware law could have an anti-takeover effect and could delay, discourage or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might otherwise result in a premium being paid over the market price of our common
stock.
Certificate of Incorporation and Bylaws.
Our certificate of incorporation provides that stockholders can take action only at a
duly called annual or
special meeting of the stockholders and not by written consent. At the same time, our bylaws provide that special meetings of stockholders may be called only by our chairman of the board, our chief
executive officer, a majority of the total number of authorized directors or any individual holder of 25% of the outstanding shares of common stock. These provisions could delay consideration of a
stockholder proposal until the next annual meeting.
Our
bylaws provide for an advance notice procedure for the nomination, other than by or at the direction of our board of directors, of candidates for election as directors, as well as
for other stockholder proposals to be considered at annual meetings of stockholders. In addition, under our
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bylaws
newly created directorships resulting from any increase in the number of directors or any vacancies in the board resulting from death, resignation, retirement, disqualification, removal from
office or other cause during a director's term in office can be filled by the vote of the remaining directors in office, and the board is expressly authorized to amend the bylaws without stockholder
consent. These provisions may preclude a third party from removing incumbent directors and can control of our board of directors. Accordingly, these provisions could discourage a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to gain control of our company.
Delaware Takeover Statute.
Section 203 of the Delaware General Corporation Law, or DGCL, generally prohibits a publicly-held
Delaware
corporation from engaging in an acquisition, asset sale or other transaction resulting in a financial benefit to any person who, together with affiliates and associates, owns, or within three years
did own, 15.0% or more of a corporation's voting stock. The prohibition continues for a period of three years after the date of the transaction in which the person becomes an owner of 15.0% or more of
the corporation's voting stock, unless the business combination is approved in a prescribed manner. The statute could prohibit, delay, defer or prevent a change in control with respect to our company.
Antitakeover Effects of Our Rights Plan
We have adopted a rights plan that is intended to protect and maximize the value of our outstanding equity interests in the event of an
unsolicited attempt by an acquiror to take over our company in a manner or on terms not approved by the board of directors. The rights plan provides this protection by imposing economic disincentives
that are triggered by specified acquisitions of or offers for our common stock, as detailed below.
Under
the rights plan, we will issue as a dividend on each outstanding share of common stock one right to purchase one one-thousandth of a share of our Series AA preferred stock,
$0.01 par value per share, or the preferred shares, at a price of $48.00 per one one-thousandth of a preferred share, subject to adjustment.
The
preferred shares will have the following rights:
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preferred shares will not be redeemable;
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each one one-thousandth of a preferred share will be entitled to a minimum preferential dividend payment equal to the dividend declared on each
share of common stock;
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in the event of liquidation, the holders of the preferred shares will be entitled to a preferential liquidation payment per each one
one-thousandth of a preferred share equal to the greater of (1) the payment made per share of common stock and (2) $0.048, plus accrued and unpaid dividends;
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each one one-thousandth of a preferred share will have one vote, voting together with the common stock;
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in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each one one-thousandth of a
preferred share will be entitled to receive an amount equal to the amount received per share of common stock; and
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the rights of the preferred shares are protected by customary antidilution provisions.
Because
of the nature of the preferred shares' dividend, liquidation and voting rights, the value of the one one-thousandth interest in a preferred share purchasable upon exercise of
each right should approximate the value of one share of common stock.
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The
rights will not be exercisable until the distribution date, which will be defined as the date that is the earlier of:
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10 days after a public announcement that a person or group of affiliated or associated persons have acquired beneficial ownership of 15%
or more of the outstanding shares of common stock, other than a person or such a group that obtains the prior written approval of the board of directors or holders of grandfathered stock, as defined
below, which person or group is referred to as an acquiring person; or
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10 business days, or such later date as may be determined by action of the board of directors prior to such time as any person or group becomes
an acquiring person, after the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person
or group of 15% or more of such outstanding shares of common stock, unless our board of directors has approved the offer.
Certain
pre-initial public offering holders of grandfathered stock are subject to higher ownership thresholds prior to triggering a distribution date through their ownership of shares of
our common stock. Their share ownership must reach 20% rather than 15% as set forth above, before a distribution date would be deemed to occur. Under the plan, the firm of Ingalls & Snyder, or
I&S, and its managed account beneficial owners collectively are not deemed to be an acquiring person as long as none of their shares are held with a purpose or effect of changing or influencing
control our company. This exclusion applies only to shares of common stock for which there is only shared dispositive power and I&S has only non-discretionary voting power.
The
rights agreement provides that, until the distribution date, the rights will be transferred only with the shares of common stock, including the shares of common stock sold in the
offering. Until the distribution date or earlier redemption or expiration of the rights, new common stock certificates issued after the record date or upon transfer or new issuance of shares of common
stock will contain a notation incorporating the rights agreement by reference and the surrender for transfer of any certificates for shares of common stock outstanding as of the record date, even
without such notation, will also constitute the transfer of the rights associated with the shares of common stock represented by such certificate.
In
the event the rights become exercisable, the plan requires that proper provision shall be made so that each holder of a right will thereafter have the right to receive upon exercise
that number of shares of our common stock having a market value of two times the exercise price of the right, and rights beneficially owned by an acquiring person will automatically become void. In
the event there are insufficient authorized shares of common stock, we may substitute consideration such as cash, property, or other securities of our company. The plan also provides that, if we are
acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold after the distribution date, proper provision will be made so that
each holder of a right will thereafter have the right to receive, upon the exercise of the right at the then current exercise price of the right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two times the exercise price of the right.
The
plan also includes provisions that permit our board of directors to:
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exchange the rights, other than rights owned by an acquiring person which have become void, in whole or in part, at an exchange ratio of one
share of common stock, or one one-thousandth of a preferred share, per right, subject to adjustment at any time after a person becomes an acquiring person and before the acquiring person acquires 50%
or more of the outstanding shares of common stock;
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redeem the rights, in whole but not in part, at a price of $0.01 per right at any time prior to the date a person or group becomes an acquiring
person;
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reinstate the rights of redemption, if prior to completion of certain recapitalizations, mergers or other business combinations, an acquiring
person reduces its beneficial ownership to less than 10% of the outstanding shares of common stock in transactions that do not involve us; and
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amend the terms of the rights without the consent of the holders of the rights under certain circumstances, except that once a person or group
becomes an acquiring person, no such amendment may adversely affect the interests of the holders of the rights.
Until
a right is exercised, the holder of a right will not, by reason of being such a holder, have rights as a stockholder of our company, including, without limitation, the right to
vote or to receive dividends. The distribution of the rights will not be taxable to our stockholders, but stockholders might, depending on the circumstances, recognize taxable income if the rights
become exercisable or upon the commencement of certain events thereafter.
The
rights expire on November 10, 2020, which is the tenth anniversary of the adoption of the plan, unless the rights are earlier redeemed or exchanged by us.
Transfer Agent
The transfer agent and registrar for our common stock is Wells Fargo Bank, National Association. We plan to retain the same transfer agent and
registrar for any series of our preferred stock.
Description of Warrants
The following description, together with the additional information we include in any applicable prospectus supplement, summarizes the material
terms and provisions of the warrants that we may offer under this prospectus and any related warrant agreements and warrant certificates. While the terms we have summarized below will apply generally
to any warrants we may offer, we will describe the particular terms of any series of warrants in more detail in the applicable prospectus supplement, which may differ from the terms we describe below.
General
We may issue, together with other securities or separately, warrants to purchase our preferred stock, common stock or other securities. We may
issue the warrants directly to the purchasers of the warrants or under warrant agreements to be entered into between us and a bank or trust company, as warrant agent, all as set forth in the
applicable prospectus supplement. A warrant agent will act solely as our agent in connection with the warrants of the series being offered and will not assume any obligation or relationship of agency
or trust for or with any holders or beneficial owners of warrants.
The
prospectus supplement will describe the following terms, where applicable, of warrants that we may offer:
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the title of the warrants;
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the designation, amount and terms of the securities for which the warrants are exercisable and the procedures and conditions relating to the
exercise of such warrants;
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the designation and terms of the other securities, if any, with which the warrants are to be issued and the number of warrants issued with each
such security;
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the price or prices at which the warrants will be issued;
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the aggregate number of warrants;
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any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of the
warrants;
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the price or prices at which the securities purchasable upon exercise of the warrants may be purchased, including provisions for adjustment of
the exercise price of the warrant;
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•
-
if applicable, the date on and after which the warrants and the securities purchasable upon exercise of the warrants will be separately
transferable;
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•
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if applicable, a discussion of the material U.S. federal income tax considerations applicable to the exercise of the warrants;
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•
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any other terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants;
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•
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the date on which the right to exercise the warrants shall commence, and the date on which the right shall expire; and
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•
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the maximum or minimum number of warrants which may be exercised at any time.
Before
exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such exercise, including the right to receive
dividends, if any, or payments upon our liquidation, dissolution or winding up or to exercise voting rights, if any.
Exercise of Warrants
Each warrant will entitle the holder thereof to purchase for cash the amount of debt securities or number of shares of preferred stock or common
stock at the exercise price as will in each case be set forth in, or be determinable as set forth in, the applicable prospectus supplement. Warrants may be exercised at any time up to the close of
business on the expiration date set forth in
the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will become void.
Warrants
may be exercised as set forth in the applicable prospectus supplement relating to the warrants offered thereby. Upon receipt of payment and the warrant certificate properly
completed and duly executed at the corporate trust office of the warrant agent or any other office indicated in the applicable prospectus supplement, we will, as soon as practicable, forward the
purchased securities. If less than all of the warrants represented by the warrant certificate are exercised, a new warrant certificate will be issued for the remaining warrants.
Enforceability of Rights of Holders of Warrants
Each warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship of
agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue of warrants. A warrant agent will have no duty or responsibility in case
of any default by us under the applicable warrant agreement or warrant, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder
of a warrant may, without the consent of the related warrant agent or the holder of any other warrant, enforce by appropriate legal action its right to exercise, and receive the securities purchasable
upon exercise of, that holder's warrants.
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Plan of Distribution
We may sell the securities in and outside the United States through underwriters or dealers, directly to purchasers, including our affiliates,
through agents, or through a combination of any of these methods. The prospectus supplement will include the following information:
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•
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the terms of the offering;
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•
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the names of any underwriters, dealers or agents;
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•
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the name or names of any managing underwriter or underwriters;
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•
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the purchase price of the securities;
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•
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the net proceeds from the sale of the securities;
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•
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any delayed delivery arrangements;
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•
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any underwriting discounts, commissions and other items constituting underwriters' compensation;
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•
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any public offering price;
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•
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any discounts or concessions allowed or reallowed or paid to dealers;
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•
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any commissions paid to agents; and
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•
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any market or securities exchange on which the securities offered in the prospectus supplement may be listed.
Sale through Underwriters or Dealers
If underwriters are used in the sale of any of these securities, the underwriters will acquire the securities for their own account. The
underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of
sale. Underwriters may offer securities to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters.
Unless we inform you otherwise in any prospectus supplement, the obligations of the underwriters to purchase the securities will be subject to certain conditions, and the underwriters will be
obligated to purchase all the offered securities if they purchase any of them. The underwriters may change from time to time any public offering price and any discounts or concessions allowed or
reallowed or paid to dealers.
During
and after an offering through underwriters, the underwriters may purchase and sell the securities in the open market. These transactions may include overallotment and stabilizing
transactions and purchases to cover syndicate short positions created in connection with the offering. The underwriters may also impose a penalty bid, which means that selling concessions allowed to
syndicate members or other broker-dealers for the offered securities sold for their account may be reclaimed by the syndicate if the offered securities are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the offered securities, which may be higher than the price that might otherwise prevail in
the open market. If commenced, the underwriters may discontinue these activities at any time.
Some
or all of the securities that we offer though this prospectus may be new issues of securities with no established trading market. Any underwriters to whom we sell these securities
for public offering and sale may make a market in those securities, but they will not be obligated to and they may discontinue any market making at any time without notice. Accordingly, we cannot
assure you of the liquidity of, or continued trading markets for, any securities that we offer.
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Table of Contents
If
dealers are used in the sale of securities, we will sell the securities to them as principals. They may then resell those securities to the public at varying prices determined by the
dealers at the time of resale. We will include in the prospectus supplement the names of the dealers and the terms of the transaction.
Direct Sales and Sales through Agents
We may sell the securities directly, and not through underwriters or agents. We may also sell the securities through agents designated from time
to time. In the prospectus supplement, we will name any agent involved in the offer or sale of the offered securities, and we will describe any commissions payable to the agent. Unless we inform you
otherwise in the prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its appointment.
We
may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act of 1933, as amended, or the
Securities Act, with respect to any sale of those securities. We will describe the terms of any such sales in the prospectus supplement.
Delayed Delivery Contracts
If we so indicate in the prospectus supplement, we may authorize agents, underwriters or dealers to solicit offers from certain types of
institutions to purchase securities from us at the public offering price under delayed delivery contracts. These contracts would provide for payment and delivery on a specified date in the future. The
contracts would be subject only to those conditions described in the prospectus supplement. The prospectus supplement will describe the commission payable for solicitation of those contracts.
Issuance of Common Stock Pursuant to Certain Warrant Exercises
We may also offer and sell our common stock upon the exercise of warrants issued by us, pursuant to the exemption from the registration
requirements provided by Section 3(a)(10) of the Securities Act, in connection with a settlement of litigation against us. No underwriter would be used in connection with such offer and sale of
common stock or the exercise of such warrants. We would issue the shares of our common stock directly to the holders of such warrants, upon the exercise of such warrants, from time to time. We will
describe the terms of any such offers, sales and warrants in a prospectus supplement.
General Information
We may have agreements with the agents, dealers and underwriters to indemnify them against certain civil liabilities, including liabilities
under the Securities Act, or to contribute with respect to payments that the agents, dealers or underwriters may be required to make. Agents, dealers and underwriters may be customers of, engage in
transactions with or perform services for us in the ordinary course of their businesses.
Experts
The consolidated financial statements and financial statement schedule of MoSys, Inc. as of December 31, 2013 and 2012 and for
each of the three years in the period ended December 31, 2013, and the effectiveness of control over financial reporting, incorporated in this Registration Statement on Form S-3 by
reference to the Annual Report on Form 10-K for the year ended December 31, 2013, have been so incorporated in reliance on the reports of Burr Pilger Mayer, Inc., an independent
registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
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Table of Contents
Legal Matters
The validity of the issuance of shares of any securities offered hereby will be passed upon for us by Pillsbury Winthrop Shaw
Pittman LLP, Palo Alto, California.
Where You Can Find More Information
We file annual, quarterly and special reports and other information with the SEC. In addition, we have filed with the SEC a Registration
Statement on Form S-3, of which this prospectus is a part, under the Securities Act, with respect to the shares of common stock offered hereby. You may read and obtain copies at prescribed
rates of any document that we file with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. Our SEC filings are also available to you free of charge at the SEC's web site at http://www.sec.gov, which contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
Our
common stock is traded on the Global Market of the NASDAQ Stock Market. Material filed by us can be inspected at the offices of the Financial Industry Regulatory Authority, 1735 K
Street, N.W., Washington, D.C. 20006.
Incorporation by Reference
The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and
supersede the information that is either incorporated by reference, or contained in, this prospectus and will be considered a part of this prospectus from the date those documents are filed. We
incorporate by reference the documents listed below:
-
(a)
-
the
section entitled "Description of Capital Stock" in the Prospectus contained in Amendment No. 7 to the Registration Statement on Form S-1 we filed
with the SEC on June 26, 2001 (Registration No. 333-43122), in the Form 8-A/A we filed with the SEC on November 12, 2010 (Commission File No. 000-32929), and in the
Form 8-A/A we filed with the SEC on May 24, 2012 (Commission File No. 000-32929);
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(b)
-
our
Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 14, 2014;
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(c)
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our
Quarterly Report on Form 10-Q for the three months ended March 31, 2014, filed with the SEC on May 12, 2014;
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(d)
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our
definitive proxy statement on Schedule 14A filed with the SEC on April 29, 2014;
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(e)
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our
Current Report on Form 8-K filed with the SEC on June 4, 2014; and
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(f)
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our
Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014, filed with the SEC on August 8, 2014.
In
addition, all documents filed by us with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of filing the registration statement
that includes this prospectus and prior to the filing of a post-effective amendment to the registration statement containing this prospectus, which indicates that all securities offered have been sold
or which deregisters all of such securities then remaining unsold, shall be deemed to be incorporated by reference in this prospectus and to be a part hereof from the respective dates of filing of
such documents. However, we are not incorporating by reference, in each case, any information or documents that are deemed to be furnished and not filed in accordance with SEC rules.
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Table of Contents
You
may request a copy of these filings, at no cost, by writing or telephoning us at the following address or telephone number:
MoSys, Inc.
3301 Olcott Street
Santa Clara, CA 95054
(408) 418-7500
Attention: Chief Financial Officer
We
will not, however, send exhibits to these documents unless the exhibits are specifically incorporated by reference in those documents or deemed to be incorporated by reference in this
prospectus. In addition, you may obtain a copy of these filings from the SEC as described above in the section entitled "Where You Can Find More Information."
26
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