<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-44165
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
------------------
FAMILY GOLF CENTERS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-3223246
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Family Golf Centers, Inc.
225 Broadhollow Road
Melville, New York 11747
(516) 694-1666
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Dominic Chang, Chief Executive Officer
Family Golf Centers, Inc.
225 Broadhollow Road
Melville, New York 11747
(516) 694-1666 / (516) 694-0918 (Fax)
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
Kenneth R. Koch, Esq.
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
(212) 661-6500 / (212) 697-6686 (Fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR
INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ] _____________
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ] _______________.
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
- -------------------------------- ------------------------- -------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
5 3/4% Convertible Subordinated $115,000,000 100% $115,000,000 $33,925
Notes
- -------------------------------- ------------------------- -------------------- ------------------------ -------------------
Common Stock, par value $.01 3,087,248 shares(2) Not Applicable Not Applicable None
per share
- -------------------------------- ------------------------- -------------------- ------------------------ -------------------
Common Stock, par value $.01 54,225 shares $29.46875(3) $1,597,943 $471
per share
- -------------------------------- ------------------------- -------------------- ------------------------ -------------------
TOTAL 3,141,473 shares $116,597,943 $34,396(4)
===
- -------------------------------- ------------------------- -------------------- ------------------------ -------------------
</TABLE>
(1) Determined pursuant to Rule 457(i) under the Securities Act of 1933,
as amended (the "Securities Act"), solely for the purpose of
calculating the registration fee.
(2) Includes the number of shares of Common Stock into which the Notes
being registered hereunder may be converted at the initial conversion
price, together with such additional indeterminate number of shares as
may become issuable upon conversion by reason of adjustments to the
conversion price. No registration fee is required for Common Stock
reserved for conversion because such shares will be issued for no
additional consideration.
(3) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act on the basis of high
and low bid prices of the registrant's Common Stock on the Nasdaq
National Market on January 9, 1998.
(4) A registration fee of $34,396 was paid upon the filing of the
registrant's Registration Statement on Form S-3 (Registration
Statement No. 333-44165).
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
PROSPECTUS DATED FEBRUARY 6, 1998
FAMILY GOLF CENTERS, INC.
$115,000,000
5 3/4% Convertible Subordinated Notes due 2004
3,141,473 Shares of Common Stock
This Prospectus relates to the resale of $115 million aggregate
principal amount of 5 3/4% Convertible Subordinated Notes due 2004 (the
"Notes") of Family Golf Centers, Inc., a Delaware corporation (the "Company"),
issued to the initial purchasers of the Notes (the "Initial Purchasers") in
private placements consummated on October 16, 1997 and November 14, 1997 (the
"Offering"), the resale of up to 3,087,248 shares of the common stock, par
value $.01 per share (the "Shares" or "Common Stock"), of the Company which are
initially issuable upon conversion of the Notes by any holders thereof and to
the offering that may be made from time to time of up to 54,225 Shares, by, or
for the accounts of, the holders thereof. The Notes and such Shares may be
offered from time to time for the accounts of holders named herein or in
supplements to this Prospectus (the "Selling Security Holders"). See "Plan of
Distribution." Information concerning the Selling Security Holders may change
from time to time and will be set forth in supplements to this Prospectus. The
Company will not receive any proceeds from the sale of the Notes and shares of
Common Stock offered under this Prospectus.
The Notes are convertible into Common Stock of the Company at any time
after January 13, 1998 and prior to maturity, unless previously redeemed or
repurchased, at a conversion price of $37.25 per share, subject to adjustment
under certain conditions. The Common Stock of the Company is traded on the
Nasdaq National Market under the symbol "FGCI". On February 4, 1998, the
closing price of the Common Stock as reported by the Nasdaq National Market was
$35.75.
The Notes do not provide for a sinking fund. The Notes are not
redeemable by the Company prior to October 15, 2000. Thereafter, the Notes are
redeemable at the option of the Company, in whole or in part, at any time, at
declining redemption prices set forth in this Prospectus, together with accrued
and unpaid interest. Upon a Change of Control (as defined herein), each holder
may require the Company to repurchase all or a portion of such holder's Notes
for cash at a repurchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the repurchase date. See "Description of
Notes--Repurchase at Option of Holders Upon a Change of Control."
The Notes are unsecured obligations of the Company and are
subordinated to all present and future Senior Indebtedness (as defined herein)
of the Company, and effectively subordinated to all liabilities of the
Company's subsidiaries. As of October 31, 1997, the Company had approximately
$31.3 million of Senior Indebtedness and other liabilities to which the Notes
would have been effectively subordinated. The Indenture (as defined herein)
contains no limitation on the incurrence of any other indebtedness or
liabilities by the Company or its subsidiaries. See "Description of
Notes--Subordination of Notes."
All of the Notes were issued initially pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) thereof or Regulation D thereunder
and, to the Company's knowledge, were transferred to the Selling Security
Holders pursuant to Rule 144A or to Selling Security Holders meeting the
definition of institutional accredited investors under Rule
<PAGE>
501(a)(1), (2), (3) or (7) under the Securities Act. The Notes currently trade
in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") market. However, Notes registered for resale pursuant to the
Registration Statement (of which this Prospectus is a part) will no longer be
eligible for trading on PORTAL.
The Selling Security Holders, acting as principals for their own
account, directly, through agents designated from time to time, or through
brokers, dealers or agents also to be designated, may sell all or a portion of
the Notes or Shares which may be offered by them from time to time on terms to
be determined at the time of sale. The aggregate proceeds to the Selling
Security Holders from the sale of Notes and Shares which may be offered hereby
by the Selling Security Holders will be the purchase price of such Notes or
Common Stock less commissions, if any. For information concerning
indemnification arrangements between the Company and the Selling Security
Holders see "Plan of Distribution."
The Selling Security Holders and any brokers, dealers or agents that
participate with the Selling Security Holders in the distribution of the Notes
or shares of Common Stock may be deemed to be "underwriters" within the meaning
of the Securities Act, in which case any commissions received by such
broker-dealers, agents or underwriters and any profit on the resale of the
Notes or shares of Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company intends that the Registration Statement of which this
Prospectus is a part will remain effective until November 14, 1999. The Company
has agreed to bear certain expenses in connection with the registration and
sale of the Notes and Common Stock being offered by the Selling Security
Holders.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREIN FOR A DISCUSSION
OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL
INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information and representations
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy the securities described herein by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making the
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. Under no circumstances shall the
delivery of this Prospectus or any sale made pursuant to this Prospectus create
any implication that the information contained in this Prospectus is correct as
of any time subsequent to the date of this Prospectus.
The date of this Prospectus is February 6, 1998
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement (the "Registration Statement") under the Securities Act with respect
to the offering and sale from time to time of the Shares. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto, as permitted by the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement and to
the exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed or incorporated
by reference as an exhibit to the Registration Statement are qualified in their
entirety by reference to such exhibits for a complete statement of their terms
and conditions. Additionally, the Company is subject to the informational
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, files reports, proxy statements,
and other information statements with the Commission. Copies of such materials
may be inspected without charge at the offices of the Commission, and copies of
all or any part thereof may be obtained from the Commission's public reference
facilities at 450 Fifth Street, N.W., Washington D.C. 20549 or at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon
payment of the fees prescribed by the Commission. In addition, the Commission
maintains a Web Site that contains reports, proxy and information statements
and other information regarding the Company (http://www.sec.gov). The Common
Stock is quoted on the Nasdaq National Market under the symbol "FGCI." Reports
and other information concerning the Company may be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference and made a part of this Prospectus
are the following: (1) the Company's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1996; (2) the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997; (3) the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997; (4) the Company's Current Report
on Form 8-K, dated June 30, 1997; (5) the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997; (6) the Company's Current Report
on Form 8-K dated July 25, 1997, as amended; (7) the Company's Current Report
on form 8-K dated October 16, 1997 and (8) the description of the Common Stock
which is registered under Section 12 of the Exchange Act, contained in the
Company's Registration Statement on Form 8-A dated November 8, 1994. All
documents subsequently filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering made hereby will be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in any document incorporated by reference shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus. All information appearing in this Prospectus is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference, except to
the extent set forth in the immediately preceding statement.
3
<PAGE>
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of the
information that is incorporated by reference herein (not including exhibits to
the information that is incorporated by reference herein). Requests for such
information should be directed to: Family Golf Centers, Inc., 225 Broadhollow
Road, Melville, New York 11747; Attention: Chief Executive Officer. The
Company's telephone number is: (516) 694-1666.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements included or incorporated by reference into this
Prospectus constitute "forwardlooking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following general economic
and business conditions: the Company's indebtedness; changes in business
strategy or development plans; competitive factors in the industry, including
additional competition from existing competitors or future entrants to the
industry; social and economic conditions; availability, terms and deployment of
capital; local, state and federal regulations; availability of qualified
personnel; and other factors referenced in this Prospectus and in the Company's
filings with the Commission.
4
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THE COMPANY
The following summary is qualified in its entirety by reference to the
more detailed information and the financial statements and the related notes
appearing elsewhere in this Prospectus or incorporated herein by reference.
Each prospective investor is urged to read this Prospectus in its entirety.
Investment in the securities offered hereby involves a high degree of risk. See
"Risk Factors."
The Company is a leading consolidator and operator of golf centers in
the United States. The Company's golf centers are designed to provide a wide
variety of practice opportunities, including facilities for driving, chipping,
putting, pitching and sand play. In addition, the Company's golf centers
typically offer full-line pro shops, golf lessons instructed by PGA-certified
golf professionals and other amenities such as miniature golf and snack bars to
encourage family participation. The Company has a proven track record of
successfully identifying, acquiring and integrating golf centers, having grown
from one golf facility in 1992 to 52 as of October 31, 1997. As a result, the
Company has increased revenues from $2.6 million in 1993 to $55.5 million for
the twelve months ended September 30, 1997, and increased earnings per share
from a loss of $0.23 in 1993 to a profit of $0.75 for the twelve months ended
September 30, 1997.
According to a 1996 study by the National Golf Foundation ("NGF"),
there were 25 million golfers in the United States. Based on the most recently
published information from the Golf Range and Recreational Foundation, there
were between 1,900 and 2,300 stand-alone driving ranges in the United States in
1993. The average number of tee stations per range in the industry in 1993, as
estimated by the NGF, was 40, with 50% of all stand-alone ranges offering 35 or
fewer tee stations. Large stand-alone ranges, defined as ranges with more than
50 tee stations, accounted for approximately 21% of all facilities. In
addition, the NGF estimates that, in 1993, 92% of all stand-alone driving
ranges were managed by owner-operators. The Company believes that as a result
of the highly fragmented nature of the industry and the lack of experience,
expertise and financial resources of the existing owner-operators, the industry
presents significant opportunities for the Company to acquire, upgrade and
renovate golf centers and driving ranges.
The Company's golf centers are typically larger, more attractive and
offer more amenities than the average golf center in the industry. The Company
believes that it attracts customers to its golf centers due to the quality,
convenience and comfort of its facilities and their appeal to the whole family.
The Company's golf centers are designed around a driving range with target
greens, bunkers and sand traps to simulate golf course conditions. Generally,
the Company's ranges are lighted to permit night play and the hitting tees are
enclosed or sheltered from above and from the rear in a climate-controlled
environment. In four cases, all or a portion of the range is enclosed under an
air inflated dome to permit all-weather play. There are approximately 80 to 100
hitting tees in facilities with the two-tier design and approximately 30 to 60
hitting tees at smaller golf centers. In addition to a driving range, the
Company's golf centers typically include a number of amenities designed to
appeal to golfers and their families, such as a 4,000-6,000 square foot
clubhouse (including a full-line pro shop, locker facilities, a restaurant or
snack bar and video games), PGA-certified golf instructors, landscaped 18-hole
miniature golf courses and a short game practice area (including a putting
green and sand traps). The Company's pro shops are stocked with clubs, bags,
shoes, apparel, videos and related accessories from a number of suppliers,
including leading brand name manufacturers, and the Company's private label
products.
In July 1997, the Company acquired Leisure Complexes, Inc. ("LCI"),
the operator of a family sports and entertainment supercenter, located in Lake
Grove, New York, which includes a golf center, an 18-hole executive golf
course, an ice rink and additional family amusements, such as video and virtual
reality games, a Lasertag arena, children's rides, batting cages, an I-werks
Motion Master Theatre, a 48-lane bowling center,
5
<PAGE>
restaurants and an 18,000 square foot conference center. LCI also owned and
operated seven stand-alone bowling centers. In addition, in September 1997, the
Company acquired an ice rink facility which includes a National Hockey League
regulation-size ice rink and an additional half rink. More recently, on
December 31, 1997, the Company acquired another indoor family sports and
entertainment supercenter, located in Cincinnati, Ohio, which includes two
National Hockey League regulation-size ice rinks, two soccer fields and
additional family amusements.
BUSINESS STRATEGY
The Company's strategy is to continue to build upon its leadership
position in the golf center industry and expand its concept of family-oriented
sports entertainment as follows:
o Consolidation of Golf Centers. The Company will continue to
consolidate the golf center industry by increasing the number of golf centers
it owns, leases or manages by (i) identifying and acquiring well-located, under
performing ranges that have the potential for improvement through better
management and facility enhancements and (ii) building new centers in locations
where suitable acquisition opportunities are not available. The Company's
principal acquisition strategy is to target stand-alone ranges or golf centers
in stable communities with favorable demographics, generally in close proximity
to upscale urban and suburban areas, which generally contain the highest
concentration of golfers. In determining which facilities may be suitable
acquisition candidates, management conducts demographic and competitive
analyses and considers such factors as ease of access, visibility from major
thoroughfares and potential for improvement in revenues and operating cash flow
through capital improvements.
o Facility and Service Enhancement. The Company typically initiates a
capital improvement plan after each acquisition to broaden the scope of
services and products offered. Such improvements have historically increased
revenues and improved operating performance at the golf centers. Improvements
may include enclosing, heating or lighting play areas to lengthen the season
and hours of operation, adding tiers of hitting tees, offering lessons from
PGA-certified golf professionals and adding amenities, such as batting cages,
miniature golf, restaurants, snack bars and video games, designed to appeal to
the whole family, generate additional revenues and increase the frequency and
duration of facility visitation. In addition, employees undergo a comprehensive
training program emphasizing customer service. The Company believes that the
quality of its facilities and its emphasis on customer service differentiates
the Company from its competitors.
o Leverage Centralized Operations. All purchasing, accounting,
insurance, cash management, finance and human resource functions are managed
centrally at the Company's headquarters. Centralization improves facility
performance by reducing expenses and administrative burdens, allowing
management to focus on customer service and facility operations. In addition,
each facility receives the benefits of the Company's purchasing power, enabling
it to take advantage of quantity discounts on merchandise sold through its pro
shops and equipment used at its facilities.
o Development of Complementary Sports and Family Entertainment
Facilities. The Company has identified the ice rink industry as having a number
of industry and operational dynamics similar to those of the golf center
industry. The Company intends to apply the skills and resources it has used in
the golf center industry to capitalize on such similarities by selectively
constructing, or acquiring and enhancing, ice rinks over the next twelve
months. In addition, the Company expects to selectively augment certain of its
existing golf centers with sports and entertainment amenities including ice
rinks, video and virtual reality games, children's rides, batting cages and
other entertainment activities to create family sports supercenters (the
"Family Sports
6
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Supercenters"). The Company believes that the addition of these facilities
expands on the Company's concept of family-oriented sports entertainment,
improves utilization by adding additional sources of revenues, attracts a more
diversified base of customers, increases visitation and per capita spending and
has the added benefit of being counter-seasonal to the Company's core golf
business.
RECENT DEVELOPMENTS
Subsequent to September 30, 1997, the Company acquired a family sports
and entertainment supercenter, two additional golf facilities, two properties
upon which golf facilities will be developed, a golf club manufacturer and
entered into an agreement to acquire three additional golf facilities.
In addition, pursuant to an Agreement and Plan of Merger, dated
December 23, 1997, the Company is currently seeking to acquire MetroGolf
Incorporated ("Metro"), a publicly traded company which operates eight golf
facilities, through a tender offer for all of Metro's Common Stock at $1.50 per
share in cash, to be followed (subject to consummation of the Offer) by a
merger to acquire any remaining shares of Metro at $1.50 per share in cash.
There can be no assurance that the Company will acquire Metro or that such
acquisition will prove advantageous to the Company.
The Company's principal executive offices are located at 225
Broadhollow Road, Melville, New York 11747 and its telephone number is (516)
694-1666. The Company's World Wide Web address is http://www.familygolf.com.
7
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RISK FACTORS
Prospective investors should carefully consider the specific factors
set forth below, as well as the other information included in this Prospectus,
before deciding to invest in the securities offered hereby.
LEVERAGE, DEBT SERVICE AND COVENANTS
As of October 31, 1997, the Company had approximately $131.3 million
aggregate principal amount of indebtedness outstanding. Additionally, in
November of 1997, the Company issued an additional $15 million aggregate
principal amount of Notes. The Company's level of indebtedness requires that a
significant amount of its cash flow from operations be applied to debt service,
and there can be no assurance that the Company's operations will generate
sufficient cash flow to service this indebtedness. Approximately $27.0 million
of term debt (the "Term Debt") incurred in connection with the Company's
acquisition of LCI, is at a variable rate of interest, which subjects the
Company to fluctuations in interest rates. Subsequently, the Company paid down
$10 million of term debt in connection with the sale of six bowling centers.
The Credit Facility and the Term Debt include covenants that restrict
the operational and financial flexibility of the Company, including a limit on
the number of facilities that the Company may construct in any rolling twelve
month period and restrictions on indebtedness, liens, acquisitions and other
significant actions. Failure to comply with certain covenants would, among
other things, permit the Company's lenders to accelerate the maturity of the
obligations thereunder and could result in cross-defaults permitting the
acceleration of debt under other Company agreements. In addition, the Company
is required to maintain certain financial ratios.
SUBORDINATION OF NOTES
The Notes are subordinated in right of payment to all existing and
future senior indebtedness of the Company. Senior indebtedness ("Senior
Indebtedness") includes all secured indebtedness of the Company, whether now
existing or created or incurred hereafter, that is not made subordinate to or
pari passu with the Notes by the instrument creating the indebtedness. As of
October 31, 1997, the Company had approximately $31.3 million aggregate
principal amount of Senior Indebtedness outstanding. The indenture dated as of
October 16, 1997 (the "Indenture") between the Company and the United States
Trust Company of New York (the "Trustee") does not limit the amount of
additional indebtedness, including Senior Indebtedness, which the Company can
create, incur, assume or guarantee. By reason of such subordination of the
Notes, in the event of insolvency, receivership, liquidation, reorganization,
dissolution or winding up of the business of the Company or upon a default in
payment with respect to any Senior Indebtedness of the Company or an event of
default with respect to such indebtedness resulting in the acceleration
thereof, the assets of the Company will be available to pay the amounts due on
the Notes only after all of the Senior Indebtedness of the Company has been
paid in full.
EXPANSION STRATEGY AND NEW STRATEGY
The Company's ability to significantly increase revenues, operating
cash flow and net income over time depends in large part upon its success in
acquiring and improving or leasing or constructing additional facilities at
suitable locations upon satisfactory terms. There can be no assurance that
suitable facility acquisition or lease opportunities will be available or that
the Company will be able to consummate acquisition or leasing transactions on
satisfactory terms. The acquisition of facilities may become more expensive in
the future to the extent that demand and competition increase. The likelihood
of the success of the Company must be
8
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considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the construction and opening
of new facilities and improvements to existing facilities, including delays in
obtaining required permits.
To successfully implement its expansion strategy, the Company must
integrate acquired or newly opened facilities into its existing operations,
which may necessitate the implementation of enhanced operational and financial
systems and may require additional employees and management, operational,
financial and other resources. As part of its strategy, the Company has
recently entered the ice rink and Family Sports Supercenter industries, in
which the Company has only limited experience and which involve all the risks
commonly associated with the establishment of new lines of business. As the
Company grows, there can be no assurance that additional facilities can be
readily assimilated into the Company's operating structure. The Company's
inability to efficiently integrate facilities or to successfully enter the ice
rink and Family Sports Supercenter industries could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, a number of the facilities which the Company has acquired have, and
facilities it may acquire in the future may have, experienced losses. On a pro
forma basis, giving effect to the acquisitions consummated after January 1,
1996 as if they had occurred as of January 1, 1996, the Company had net income
of $2.4 million (as compared to net income of $5.2 million on a historical
basis) for the year ended December 31, 1996 and pro forma net income of $8.9
million (as compared to net income of $8.9 million on a historical basis) for
the nine months ended September 30, 1997. As a result of the timing of the
Company's acquisitions, the seasonality of the acquired businesses, the
expansion of the Company's business to include ice rinks and Family Sports
Supercenters and other factors, the Company's historical, pro forma and
trailing twelve month results of operations referred to herein are not
necessarily indicative of future results. There can be no assurance that
facilities recently acquired by the Company or those that the Company may
acquire in the future will operate profitably and will not adversely affect the
Company's results of operations.
DEPENDENCE ON THE GOLF INDUSTRY
Although the Company has begun expanding its business outside the golf
industry, the Company is highly dependent on the golf industry, and the
public's interest in utilizing golf practice centers, for the generation of its
revenues and earnings. Activities such as golf have, in the past, been
susceptible to increases and decreases in popularity that have materially
affected the financial condition and results of operations of companies
dependent on such activities, and there can be no assurance that the golf
industry will not suffer a material decrease in popularity, which would result
in a material adverse effect on the Company's business and operations. In
addition, customer spending on activities such as golf is generally considered
to be discretionary spending, which may be significantly decreased as a result
of regional or national economic downturns.
VULNERABILITY TO WEATHER CONDITIONS AND SEASONAL RESULTS
Historically, the second and third quarters of the year have accounted
for a greater portion of the Company's revenues than have the first and fourth
quarters of the year. This is primarily due to an outdoor playing season
limited by weather. Although most of the Company's driving ranges are designed
to be all-weather facilities, portions of the Company's facilities, including
the miniature golf courses, are outdoors and vulnerable to weather conditions.
In addition, golfers are less inclined to practice when weather conditions
limit their ability to play golf on outdoor courses. The Company expects its
expansion into ice rink facilities and Family Sports Supercenters to partially
offset such seasonality. The timing of new center openings and acquisitions may
also cause the Company's results of operations to vary significantly from
quarter to quarter. Accordingly, period-to-period comparisons are not
necessarily meaningful and should not be relied on as
9
<PAGE>
indicative of future results. In addition, variability in the Company's results
of operations could cause the price of the Common Stock and Notes to fluctuate
following the release of interim results of operations or other information and
may have a material adverse effect on the price of the Common Stock and Notes.
COMPETITION
The golf center, ice rink and family entertainment industries are each
highly competitive and include competition from other golf centers, traditional
golf ranges, golf courses, other ice rinks and family entertainment outlets and
other recreational pursuits. The Company may face imitation and other forms of
competition and the Company cannot prevent or restrain others from utilizing a
similar operational strategy. Many of the Company's competitors and potential
competitors have considerably greater financial and other resources, experience
and customer recognition than does the Company. The Company operates seven of
its golf centers under the name "Golden Bear" pursuant to a non-exclusive
license agreement (the "License Agreement") with Golden Bear Golf Centers, Inc.
(the "Licensor"). Golden Bear Golf, Inc., an affiliate of the Licensor, is a
competitor of the Company. The Licensor is permitted to establish, or license
others to establish, "Golden Bear" golf centers that compete with the Company's
golf centers, including the Company's Golden Bear Golf Centers. There can be no
assurance that competition will not adversely affect the Company's business or
ability to acquire additional properties. In addition, the Company's pro shop
business faces competition from pro shops at golf courses and other golf
centers or ice rinks, as the case may be, specialty retailers devoted to golf
or skating equipment and apparel, sporting goods and department stores.
DEPENDENCE ON CERTAIN AGREEMENTS
The future success of the business and operations of the Company is
dependent, in part, upon certain key operating agreements, including its real
property leases, management agreements with respect to certain municipal
facilities and the License Agreement. The termination of any of these
agreements may have a material adverse effect on the Company.
After giving effect to renewal options none of the Company's leases,
as of October 31, 1997, is expected to expire until October 31, 2001. However,
the leases may be terminated prior to their scheduled expiration should the
Company default in its obligations thereunder. The termination of any of the
Company's leases could have an adverse effect on the Company. If any of the
Company's leases were to be terminated, there can be no assurance that the
Company would be able to enter into leases for comparable properties on
favorable terms, or at all.
The Company manages several facilities for municipalities pursuant to
concession licenses, three of which are terminable at will by the licensor. The
Company's concession license with the City of New York (the "City") for the
Douglaston, New York golf center, which was entered into in 1994 and which
expires on December 31, 2006, the concession license with the City for the
Randall's Island, New York golf center, which was entered into in 1992 and
which expires on March 1, 2007 and the concession license with the Metropolitan
Transportation Authority for the Bronx, New York golf center, currently under
construction, which was entered into in 1997 and which expires on December 31,
2009 (respectively, the "Douglaston License," "Randall's Island License" and
"Bronx License"), are terminable at will. Pursuant to the Douglaston License
and the Randall's Island License, the Company has made approximately $3.1
million and $774,000, respectively, of capital improvements. Pursuant to the
Bronx License, the Company is obligated to make a minimum of $3.0 million of
capital improvements. If any of these concession licenses are terminated, the
licensor may retain, and is not obligated to pay the Company for the value of,
such capital improvements. Unless reimbursed, for accounting purposes the
Company would immediately have to write off the
10
<PAGE>
undepreciated value of these capital improvements and the goodwill related to
its purchase of the limited partners' minority interest in the partnership
which was party to the Douglaston License, both of which are currently being
depreciated and amortized over the life of the relevant concession license. In
addition, the Company's management agreement with the City of El Segundo for
the El Segundo golf facility terminates on February 14, 1999. The Company
intends to seek a renewal of this agreement.
As of October 31, 1997, the Company operated seven of its 52 golf
centers under the name "Golden Bear" pursuant to the License Agreement,
expiring August 2002, with the Licensor. The License Agreement is terminable by
the Licensor prior to August 2002 under certain circumstances, including if the
current directors of the Company at any time constitute less than 50% of the
Company's directors. The Company agreed to cure, and believes it has cured, an
alleged default of the License Agreement (principally by making certain capital
improvements by November 1996). Failure by the Company to cure the alleged
default could result in the termination of the License Agreement. Termination
of the License Agreement could adversely affect the Company's Golden Bear Golf
Centers and, possibly, the Company. In addition, the value of the "Golden Bear"
name is dependent, in part, upon the continued popularity of Jack Nicklaus.
Accordingly, the occurrence of any event which diminishes the reputation of Mr.
Nicklaus and the related "Golden Bear" symbol could adversely affect the
Company's Golden Bear Golf Centers.
ADDITIONAL FINANCING REQUIREMENTS
The Company anticipates, based on its currently proposed expansion
plans and assumptions relating to its operations, that the net proceeds from
its sale of the Notes, together with availability under the Credit Facility and
cash flow from operations, will be sufficient to permit the Company to conduct
its operations and to carry on its contemplated expansion through at least the
next twelve months. The Company also anticipates that it will need to raise
additional capital in the future to continue its longer term expansion plans.
There can be no assurance that the Company will be able to obtain additional
financing on favorable terms or at all.
ENVIRONMENTAL REGULATION
Operations at the Company's facilities involve the use and limited
storage of various hazardous materials such as pesticides, herbicides, motor
oil, gasoline, heating oil and paint, as well as various chemicals used to
create, refrigerate and maintain the ice at its ice rinks. Under various
federal, state and local laws, ordinances and regulations, an owner or operator
of real property is generally liable for the costs of removal or remediation of
hazardous substances that are released on or in its property regardless of
whether the property owner or operator knew of, or was responsible for, the
release of hazardous materials. The Company has not been informed by any
governmental authority of any non-compliance or violation of any environmental
laws, ordinances or regulations and the Company believes that it is in
substantial compliance with all such laws, ordinances and regulations
applicable to its properties or operations. However, the Company is aware of
one notice of violation issued by the New York State Department of
Environmental Conservation against the owner of the land leased by the Company
in Elmsford, New York alleging that certain hazardous materials were placed on
the site. The owner has taken remedial action and the Company does not believe
it will be affected by the alleged violation. As of October 31, 1997, the
Company had not incurred material costs of remediation and the Company knows of
no material environmental liability to which it may become subject. Although
the Company usually hires environmental consultants to conduct environmental
studies, including invasive procedures such as soil sampling or ground water
analysis on facilities it owns, operates or intends to acquire, in some cases
only limited invasive procedures are conducted on such properties and in a
limited number of instances no environmental studies are conducted.
Accordingly, there may be potential environmental liabilities or conditions of
which the Company is not aware.
11
<PAGE>
DEPENDENCE UPON KEY EMPLOYEE; RECRUITMENT OF ADDITIONAL PERSONNEL
The Company is heavily dependent on the services of Dominic Chang, its
Chairman of the Board, Chief Executive Officer and President. The loss of the
services of Mr. Chang could materially adversely affect the Company. Mr. Chang
has entered into an employment agreement with the Company which terminates on
December 31, 1999. The Company owns, and is the sole beneficiary of, key person
life insurance in the amount of $1.5 million on the life of Mr. Chang. In
addition, it is an event of default under the Company's Credit Facility and
Term Debt if Mr. Chang is not the Chairman of the Board and Chief Executive
Officer of the Company and if he does not own at least 5% of the Company's
outstanding Common Stock. The Company will also be required to hire additional
personnel and professionals to staff the additional facilities it intends to
acquire, lease or construct. There can be no assurance that the Company will be
able to attract and retain qualified personnel.
CONTROL BY CURRENT STOCKHOLDER
As of January 6, 1998, Dominic Chang beneficially owned 2,519,334
shares of Common Stock, constituting approximately 19.6% of such outstanding
shares. Mr. Chang is, therefore, able to exercise significant influence with
respect to the election of the directors of the Company and all matters
submitted to a vote of the stockholders of the Company.
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BY-LAW AND
CONTRACTUAL PROVISIONS
The Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 2,000,000 shares of preferred stock, $0.10 par value
per share. The preferred stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by stockholders. Although no preferred stock is
currently outstanding and the Company currently has no plans for the issuance
of any preferred stock, there can be no assurance that the Company will not do
so in the future. The ability of the Board of Directors to issue preferred
stock could have the effect of delaying, deferring or preventing a change of
control of the Company or the removal of existing management and, as a result,
could prevent the stockholders of the Company from being paid a premium over
the market value for their shares of Common Stock. The Company's By-Laws
contain provisions requiring advance notice of stockholder proposals and
imposing certain procedural restrictions on stockholders wishing to call a
special meeting of stockholders. Under the Credit Facility and the Term Debt,
it is an event of default if Mr. Chang is not the Chairman of the Board, Chief
Executive Officer and beneficial owner of at least 5% of the outstanding Common
Stock of the Company. In addition, the Indenture with respect to the Notes
gives the holders of the Notes the right to have such Notes redeemed if there
is a Change of Control. The License Agreement may be terminated by the Licensor
if members of the Company's Board of Directors, as of September 1995, do not
constitute at least 50% of the Company's Board of Directors. Accordingly, such
provisions could discourage possible future attempts to gain control of the
Company (which attempts, if stockholders were offered a premium over the market
value of their Common Stock, might be viewed as beneficial to stockholders).
ABSENCE OF PUBLIC MARKET FOR THE NOTES; TRANSFER RESTRICTIONS
The Notes are a new issue of securities for which there is currently
no trading market. Although the Notes are eligible for trading on the PORTAL
market (except for Notes registered for resale pursuant to the Registration
Statement of which this Prospectus forms a part), the Company does not intend
to apply for listing
12
<PAGE>
of the Notes on a national securities exchange or quotation of the Notes on
Nasdaq. The Initial Purchasers of the Notes have advised the Company that they
currently intend to make a market in the Notes, although the Initial Purchasers
are not obligated to do so, and any such market making activities with respect
to the Notes may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market that may
develop for the Notes, the ability of the holders of the Notes to sell their
Notes or the price at which such holders would be able to sell their Notes. If
such a market were to exist, the Notes could trade at prices that may be lower
than the initial offering price thereof, depending on many factors, including
prevailing interest rates and the markets for similar securities, general
economic conditions and the financial condition and performance of, and
prospects for, the Company. Transfer of the Notes and Common Stock issuable
upon conversion thereof are subject to certain restrictions.
VOLATILITY OF PRICE OF COMMON STOCK AND NOTES
The trading price of the Company's Common Stock and the Notes could be
subject to fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management,
future announcements concerning the Company, general trends in the industry and
other events or factors. In addition, the volatility of the prices of the
Company's Common Stock, changes in prevailing interest rates and changes in
perceptions of the Company's creditworthiness may adversely affect the price of
the Notes offered hereby.
LIMITATIONS ON REPURCHASE UPON CHANGE OF CONTROL
In the event of a Change of Control of the Company, each holder of the
Notes will have the right, at the holder's option, to require the Company to
repurchase all or a portion of such holder's Notes at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest to the
repurchase date. The Company's ability to repurchase the Notes upon a Change of
Control may be limited by the terms of the Company's Senior Indebtedness and
the subordination provisions of the Indenture. In addition, it is an event of
default under the Credit Facility and the Term Debt if there is a change of
control. Further, the ability of the Company to repurchase the Notes upon a
change of control will be dependent on the availability of sufficient funds and
compliance with applicable securities laws. Accordingly, there can be no
assurance that the Company will be able to repurchase the Notes upon a Change
of Control. The term "Change of Control" is limited to certain specified
transactions and may not include other events that might adversely affect the
financial condition of the Company or result in a downgrade of any credit
rating of the Notes, nor would the requirement that the Company offer to
repurchase the Notes upon a Change of Control necessarily afford holders of the
Notes protection in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving the Company.
USE OF PROCEEDS
The Notes and shares of Common Stock offered by the Selling Security
Holders are not being sold by the Company, and the Company will not receive any
proceeds from the sale thereof.
13
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth the computation of the ratio of earnings to
fixed charges of the Company for the periods indicated.
<TABLE>
<CAPTION>
Nine months ended Year ended December, 31
September 30, 1997 September 30, 1996 1996 1995 1994 1993 1992
------------------ ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
6.7x 6.5x 4.7x 1.8x 1.4x --- ---
</TABLE>
SELLING SECURITY HOLDERS
The following table sets forth (i) information concerning the
principal amount of Notes beneficially owned by each Selling Security Holder or
record holder of Notes and the number of Shares issuable upon conversion of the
Notes (the "Conversion Shares") which may be offered from time to time pursuant
to this Prospectus and (ii) the ownership of Shares as of the date such
information was provided to the Company. Since the dates such information was
provided to the Company, such information may have changed. The respective
amounts set forth may have increased or decreased due to trading on PORTAL
or otherwise since the date such information was provided and there may be
additional Selling Security Holders of which the Company is not aware. The
Notes and Shares of Common Stock offered pursuant to the Registration
Statement, of which this Prospectus forms a part, may be offered from
time-to-time in whole or in part by the Selling Security Holders named below.
The Prospectus may be supplemented from time-to-time to reflect the identity
and holdings of certain of the Selling Security Holders. Any or all of the
Shares of Common Stock listed below may be offered for sale by the Selling
Security Holders from time to time and therefore no estimate can be given as
to the number of Shares that will be held by the Selling Security Holders upon
termination of this offering (except that in each case, such number will
represent less than 1% of the Common Stock outstanding, unless otherwise
indicated). Other than their ownership of the Company's securities and except
as set forth in footnotes 5, 10 and 12, none of the Selling Security
Holders has had any material relationship with the Company within the past
three years, other than BancAmerica Robertson Stephens, which has acted as an
Initial Purchaser and/or underwriter for the Company. The percentage of Notes
outstanding after the Offering is 0% for each of the Selling Security Holders.
The table has been prepared based on information furnished to the Company by
the United States Trust Company of New York and/or by or on behalf of the
Selling Security Holders.
<TABLE>
<CAPTION>
Principal
Amount of Number of
Notes Number of Shares of Percentage of
Beneficially Conversion Common Common Stock
Owned That Shares That Stock Owned Number of Outstanding
May Be May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- --------- ----------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
Allstate Insurance Company $1,250,000 33,557 0 33,557 0%
Massachusetts Mutual Life Insurance 1,225,000 32,885 0 32,885 0%
Company (6)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount of Number of
Notes Number of Shares of Percentage of
Beneficially Conversion Common Common Stock
Owned That Shares That Stock Owned Number of Outstanding
May Be May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- --------- ----------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
MassMutual Corporate Value Partners 600,000 16,107 0 16,107 0%
Limited (6)
MassMutual High Yield Partners LLC 725,000 19,463 0 19,463 0%
(6)
MassMutual Corporate 300,000 8,054 0 8,054 0%
Investors (6)
MassMutual Participation Investors 150,000 4,027 0 4,027 0%
(6)
Susquehanna Capital Group 1,150,000 30,872 0 30,872 0%
Mainstay Convertible Fund 6,650,000 178,524 39,100 178,524 .30%
Husic Capital Management as a 700,000 18,792 0 18,792 0%
Discretionary Assets Manager for the
Ameritech Pension Plan under an
Investment Management Agreement
dated December 22, 1995
FJH Absolute Return Fund, L.P. 200,000 5,369 0 5,369 0%
Castle Convertible Fund, Inc. 200,000 5,369 0 5,369 0%
Bond Fund Series - Oppenheimer 3,000,000 80,537 0 80,537 0%
Bond Fund for Growth
TQA Vantage Plus Fund, Ltd. 500,000 13,423 0 13,423 0%
TQA Arbitrage Fund, L.P. 500,000 13,423 0 13,423 0%
TQA Leverage Fund, L.P. 500,000 13,423 0 13,423 0%
TQA Vantage Fund, Ltd. 500,000 13,423 0 13,423 0%
ICI American Holdings Pension 400,000 10,738 0 10,738 0%
Trust
ZENECA Holdings 400,000 10,738 0 10,738 0%
Delaware PERS 1,000,000 26,846 0 26,846 0%
Nalco Chemical Retirement Trust 200,000 5,369 0 5,369 0%
Vista Growth and Income Fund 2,250,000 60,403 0 60,403 0%
AAM/Zavove Institutional 1,500,000 40,269 0 40,269 0%
Income Fund, L.P. (8)
Davis Convertible Securities 1,000,000 26,846 0 26,846 0%
Fund
Pacific Life Insurance 500,000 13,423 0 13,423 0%
15
<PAGE>
Principal
Amount of Number of
Notes Number of Shares of Percentage of
Beneficially Conversion Common Common Stock
Owned That Shares That Stock Owned Number of Outstanding
May Be May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- --------- ----------- ------------ ------- ------------
Delta Airlines Master Trust 1,125,000 30,201 0 30,201 0%
Associated Electric Gas & 300,000 8,054 0 8,054 0%
Insurance Services
RJR Nabisco, Inc. Defined 450,000 12,081 0 12,081 0%
Benefit Master Trust
The Dow Chemical Company 825,000 22,148 0 22,148 0%
Employees' Retirement Plan
Champion International Corp. 500,000 13,423 0 13,423 0%
Master Retirement Trust
Port Authority of Allegheny 600,000 16,107 0 16,107 0%
County Retirement and Disability
Allowance Plan for the
Employees Represented by Local
85 of the Amalgamated Transit
Union
Safeco Income Fund 536,913 0 536,913 0%
20,000,000
Bankers Trust Trustee for 2,848,000 76,456 0 76,456 0%
Chrysler Corp Pension Plan dated
4/1/89
State Street Bank Custodian for 1,528,000 41,020 0 41,020 0%
GE Pension Trust
Chase Manhattan NA Trustee for 4,898,000 131,490 0 131,490 0%
IBM Retirement Plan Trust dated
12/18/45
Franklin & Marshall College 226,000 6,067 0 6,067 0%
Reserve Convertible Securities 400,000 10,738 0 10,738 0%
Fund
Retirement Plans of Atlantic 5,000,000 134,228 0 134,228 0%
Richfield Co. and Certain of its
Subsidiaries Master Trust
J.P. Morgan & Co., Inc. (9) 4,000,000 107,383 8,900 107,383 .07%
KA Trading, L.P. 277,511 7,450 0 7,450 0%
KA Management Ltd. 472,489 12,684 0 12,684 0%
UPMC Guyasuta SMMH 150,000 4,027 0 4,027 0%
16
<PAGE>
Principal
Amount of Number of
Notes Number of Shares of Percentage of
Beneficially Conversion Common Common Stock
Owned That Shares That Stock Owned Number of Outstanding
May Be May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- --------- ----------- ------------ ------- ------------
University of Pittsburgh Medical 250,000 6,711 0 6,711 0%
Center
United National Insurance 90,000 2,416 0 2,416 0%
Lincoln National Life Insurance 1,045,000 28,054 0 28,054 0%
Lincoln National Convertible 1,890,000 50,738 0 50,738 0%
Securities Fund
Weirton Trust 560,000 15,034 0 15,034 0%
Walker Art Center 215,000 5,772 0 5,772 0%
Silverton International Fund 1,700,000 45,638 0 45,638 0%
Limited
Paloma Securities 2,550,000 68,456 0 68,456 0%
Stark Investment 2,000,000 53,691 0 53,691 0%
Shepherd Investments 2,000,000 53,691 0 53,691 0%
International Ltd.
Forest Fulcrum Fund LP 6,050,000 162,416 0 162,416 0%
LLT Limited (7). 380,000 10,201 0 10,201 0%
Forest Global Convertible Fund 50,000 1,342 0 1,342 0%
Series A-1
Forest Global Convertible Fund 5,270,000 141,477 0 141,477 0%
Series A-5
Employee Benefit Convertible 130,000 3,490 0 3,490 0%
Securities Fund
Bank of America Convertible 260,000 6,980 0 6,980 0%
Securities Fund
Pacific Horizon Capital Income 4,400,000 118,121 0 118,121 0%
Fund
Pacific Innovation Trust Capital 140,000 3,758 0 3,758 0%
Income Fund
Societe Generale Securities 4,350,000 116,779 0 116,779 0%
Corporation
BancAmerica Robertson 150,000 4,027 0 4,027 0%
Stephens
BSIL 500,000 13,423 0 13,423 0%
17
<PAGE>
Principal
Amount of Number of
Notes Number of Shares of Percentage of
Beneficially Conversion Common Common Stock
Owned That Shares That Stock Owned Number of Outstanding
May Be May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- --------- ----------- ------------ ------- ------------
McMahan Securities Co. 500,000 13,423 0 13,423 0%
Bear Stearns International 1,000,000 26,846 0 26,846 0%
Customer Safe Custody
Investments
Bear Stearns International Ltd. 5,270,000 141,477 0 141,477 0%
LDG Limited 500,000 13,423 0 13,423 0%
Key Asset Management, Inc. 500,000 13,423 0 13,423 0%
BNP Arbitrage, SNC 3,000,000 80,537 5,600 80,537 .04%
Orrington International Fund Ltd. 395,000 10,604 0 10,604 0%
Orrington Investments L.P. 650,000 17,450 0 17,450 0%
Dunham & Associates Fund II 24,000 644 0 644 0%
San Diego City Retirement 1,200,000 32,215 0 32,215 0%
Dunham & Associates Fund III 10,000 268 0 268 0%
San Diego County 1,112,000 298,852 0 298,852 0%
Boston Museum of Fine Arts 36,000 966 0 966 0%
Engineers Joint Pension Fund 134,000 3,597 0 3,597 0%
Wake Forest University 263,000 7,060 0 7,060 0%
Nicholas-Applegate Income & 1,226,000 39,913 0 39,913 0%
Growth Fund
Baptist Health 85,000 2,282 0 2,282 0%
Janet Rudnick (10) 0 0 10,003 1,870 .06%
Joseph M. and Doris Fitzgerald 0 0 70,271 13,135 .44%
(10)
Edward J. Malek (10) 0 0 14,200 444 .11%
Air Dome Limited Partnership (5) 0 0 5,000 5,000 0%
John J. Streitmarter (10) (11) 0 0 8,350 8,350 0%
Robert J. Williams (10) 0 0 20,426 20,426 0%
Golf Masters Limited 0 0 5,000 5,000 0%
Partnership (5)
How & Co. 410,000 11,007 0 11,007 0%
18
<PAGE>
Principal
Amount of Number of
Notes Number of Shares of Percentage of
Beneficially Conversion Common Common Stock
Owned That Shares That Stock Owned Number of Outstanding
May Be May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- --------- ----------- ------------ ------- ------------
Bear Stearns Securities 100,000 2,685 0 2,685 0%
JEFCO (12) 690,000 18,524 0 18,524 0%
Robert M. Brotman IRA R/O (13) 35,000 940 0 940 0%
Frankhill Associates LP (13) 50,000 1,342 0 1,342 0%
Gustave J. Frerotte and
Ann M. Frerotte (13) 50,000 1,342 0 1,342 0%
David L. Frey (13) 25,000 671 0 671 0%
Lee H. Javitch (13) 50,000 1,342 0 1,342 0%
Frank E. Obryan and
Mary Ann Obryan (13) 25,000 671 0 671 0%
Benjamin M. Rosen (13) 50,000 1,342 0 1,342 0%
Robert L. Rosen and
Dale Atkins Rosen (13) 50,000 1,342 0 1,342 0%
Wayne C. Walker and
Terrilynne Walker (13) 15,000 403 0 403 0%
</TABLE>
(1) The information set forth herein is as of the date such information
was provided to the Company by the United States Trust Company of New
York and/or by the Selling Security Holders. Of the $115 million
aggregate principal amount of Notes, $113.57 million are held through
DTC in street names. Since the original issuance of the Notes, some of
the Notes have been traded on PORTAL and in some instances, Notes may
be listed for both the transferor and the transferee. Consequently,
the aggregate Principal Amount of Notes Beneficially Owned That May be
Sold exceeds the $115 million aggregate principal amount of Notes
outstanding.
(2) Assumes conversion of the full amount of Notes held by such holder at
the initial rate of $37.25 in principal amount of Notes per share of
Common Stock.
(3) Based upon the 12,847,127 shares of Common Stock outstanding as of
January 6, 1998.
(4) Does not include the Conversion Shares. Includes the following numbers
of shares of Common Stock held in escrow for the following Selling
Security Holders: Janet Rudnick - 886; Joseph M. and Doris Fitzgerald
- 6,223; and Edward J. Malek - 444. Includes the following numbers of
shares issuable upon exercise of warrants or options for the following
Selling Security Holders: Janet Rudnick - 984; and Joseph M. and Doris
Fitzgerald - 6,912.
(5) A company, the assets of which have been acquired by the Company. The
5,000 Shares of Common Stock were issued pursuant to options issued in
the acquisition which were exercised at a price of $25.00 per Share.
(6) Massachusetts Mutual Life Insurance Company, MassMutual Corporate
Value Partners Limited, MassMutual High Yield Partners LLC are
associates. Pursuant to an exemptive order issued under Section 17(d)
of the Investment Company Act of 1940, as amended, Massachusetts
Mutual Life Insurance Company, MassMutual Corporate Investors,
MassMutual Participation investors and MassMutual Corporate Value
Partners Limited must sell Shares in proportion to their respective
holdings unless the Joint Transactions Committees of the Boards of
Trustees of MassMutual Corporate Investors and MassMutual
Participation Investors approve a disproportionate disposition of such
Shares.
(7) Power to dispose or direct disposition of Notes or Shares is shared
with Forest Investment Management L.P.
(8) Power to dispose or direct disposition of Notes or Shares is shared
with Zazove Associates, LLC, a registered investment advisor with
discretionary authority.
(9) J.P. Morgan & Co., Inc. owns the Notes and Common Stock as a fiduciary
for its clients. JP Morgan's clients have the right to vote the 8,900
Shares .
(10) A stockholder of a company, the assets of which have been acquired by
the Company.
(11) Includes 8,350 Shares held in escrow.
(12) JEFCO is an affiliate of Jefferies & Company, Inc. which has acted as
an Initial Purchaser and/or underwriter for the Company.
(13) Power to dispose or direct disposition of shares is held by Delta
Capital Management, an investment advisor.
<PAGE>
The information concerning the Selling Security Holders or their
transferees may change from time to time and will be set forth in supplements
to this Prospectus. In addition, the per share conversion price and, therefore,
the number of shares of Common Stock issuable upon conversion of the Notes is
subject to adjustment under certain circumstances as specified in the
Indenture. Accordingly, the number of shares of Common Stock issuable upon
conversion of the Notes may change. In addition, the aggregate principal
amount of the Notes is subject to change as a result of redemptions and
conversions under the terms of the Indenture. As of the date of this
Prospectus, the aggregate principal amount of Notes outstanding is $115
million, which may be converted into 3,087,248 shares of Common Stock.
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Because the Selling Security Holders may offer all or some of the
Notes and shares of Common Stock issued upon conversion thereof pursuant to the
offering contemplated by this Prospectus, and to the Company's knowledge there
are currently no agreements, arrangements or understandings with respect to the
sale of any of the Notes or shares of Common Stock that may be held by the
Selling Security Holders after completion of this offering, no estimate can be
given as to the principal amount of the Notes or shares of Common Stock that
will be held by Selling Security Holders after completion of this offering. See
"Plan of Distribution."
PLAN OF DISTRIBUTION
The Selling Security Holders may sell all or a portion of the Notes
and shares of Common Stock beneficially owned by them and which may be offered
hereby from time to time on any exchange or market on which the securities are
listed or quoted, as applicable, on terms to be determined at the times of such
sales. The Selling Security Holders may also make private sales directly or
through a broker or brokers. Alternatively, any of the Selling Security Holders
may from time to time offer the Notes or shares of Common Stock which may be
offered hereby through dealers or agents, who may receive compensation in the
form of discounts, commissions or concessions from the Selling Security Holders
and the purchasers of the Notes or shares of Common Stock for whom they may act
as agent. Such dealers or agents may include the Initial Purchasers of the
Notes, which may perform investment banking or other services for or engage in
other transactions with the Company from time to time in the future.
To the extent required, the aggregate principal amount of Notes and
number of shares of Common Stock to be sold hereby, the names of the Selling
Security Holders, the purchase price, the name of any such agent or dealer and
any applicable commissions, discounts or other terms constituting compensation
with respect to a particular offer will be set forth in an accompanying
Prospectus Supplement. The aggregate proceeds to the Selling Security Holders
from the sale of the Notes or shares of Common Stock offered by them hereby
will be the purchase price of such Notes or shares of Common Stock less
discounts and commissions, if any.
The Notes and the shares of Common Stock which may be offered hereby
may be sold from time to time in one or more transactions at fixed offering
prices, which may be changed, or at varying prices determined at the time of
sale or at negotiated prices. Such prices will be determined by the holders of
such securities or by agreement between such holders and brokers or dealers who
receive fees or commissions in connection therewith.
The outstanding Common Stock is listed for trading on the Nasdaq
National Market, and the Company intends that the shares of Common Stock
issuable upon conversion of the Notes will be authorized for listing on the
Nasdaq National Market. There is no assurance as to the development or
liquidity of any trading market that may develop for the Notes.
In order to comply with the securities laws of certain states, if
applicable, the Notes and shares of Common Stock offered hereby will be sold in
such jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states, the Notes and shares of Common Stock offered
hereby may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and compliance with same is effected.
The Selling Security Holders and any broker-dealers or agents that
participate with the selling Security Holders in the distribution of the Notes
or shares of Common Stock offered hereby may be deemed to be "underwriters"
within the meaning of the Securities Act, in which event any commissions or
discounts received by such broker-dealers or agents and any profit on the
resale of the Notes or shares of Common Stock offered hereby and purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
The Company has agreed to indemnify the Selling Security Holders
against certain liabilities arising under the Securities Act. The Company has
agreed to pay all expenses incident to the offer and sale of the Notes and
Common Stock offered hereby by the Selling Security Holders to the public,
other than selling commissions and fees.
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DESCRIPTION OF NOTES
The Notes have been issued under an indenture dated as of October 16,
1997 (the "Indenture"), between the Company and the Trustee. A copy of the form
of the Indenture and the related registration rights agreement between the
Company and the Initial Purchasers (the "Registration Rights Agreement") is
available from the Trustee upon request by a registered holder of Notes. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of original issuance of the Notes. The Notes
are subject to all such terms, and holders of the Notes are referred to the
Indenture and the TIA for a statement thereof. The following summaries of
certain provisions of the Notes, the Indenture and the Registration Rights
Agreement do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Notes, the
Indenture and the Registration Rights Agreement, including the definitions
therein of certain terms which are not otherwise defined in this Prospectus.
Wherever particular provisions or defined terms of the Indenture (or the form
of Note which is a part thereof) or the TIA or the Registration Rights
Agreement are referred to, such provisions or defined terms are incorporated
herein by reference.
GENERAL
The Notes represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company,
including all existing and future Senior Indebtedness, as described under
"--Subordination of Notes" and convertible into Common Stock as described under
"--Conversion of Notes." The Notes are limited to $115 million in aggregate
principal amount, have been issued only in denominations of $1,000 or multiples
thereof and will mature on October 15, 2004, unless earlier converted, redeemed
at the option of the Company or repurchased by the Company at the option of the
holder upon a Change of Control (as defined below).
The Indenture does not contain any financial covenants or restrictions
on the payment of dividends, the incurrence of Senior Indebtedness or the
issuance or repurchase of securities of the Company. The Indenture contains no
covenants or other provisions to afford protection to holders of Notes in the
event of a highly leveraged transaction or a Change of Control of the Company
except to the extent described under "--Repurchase at Option of Holders Upon
Change of Control."
The Notes bear interest at 5 3/4 % per annum from October 16, 1997,
payable semi-annually on April 15 and October 15, commencing April 15, 1998, to
holders of record at the close of business on the preceding April 1 and October
1, respectively (other than with respect to a Note or portion thereof called
for redemption on a redemption date, or repurchased in connection with a Change
of Control on a Repurchase Date (as defined below) during the period from the
record date to (but excluding) the next succeeding interest payment date (in
which case accrued interest shall be payable to the extent required to the
holder of the Note or portion thereof redeemed or repurchased) or converted
after the record date and before the next succeeding interest payment date
except to the extent that at the time such Note or portion thereof is submitted
for conversion, such Note or portion thereof was required to be accompanied by
funds equal to interest payable on such succeeding interest payment date on the
principal amount so converted; see "--Conversion of Notes" below). Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal and premium, if any, will be payable, and the Notes may be
presented for conversion, registration of transfer and exchange, without
service charge, at the office of the Company maintained for such purpose in New
York, New York, which shall initially be an office or agency of the Trustee.
CONVERSION OF NOTES
The holders of Notes will be entitled at any time after January 13,
1998 through the close of business on October 15, 2004, subject to prior
redemption or repurchase, to convert any Notes or portions thereof (in
denominations of $1,000 or multiples thereof) into Common Stock of the Company,
at $37.25 per share, subject to adjustment as described below.
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Except as described below, no adjustment will be made on conversion of any
Notes for interest accrued thereon or for dividends on any Common Stock issued.
If any Notes not called for redemption are converted after a record date for
the payment of interest and prior to the next succeeding interest payment date,
such Notes must be accompanied by funds equal to the interest payable on such
succeeding interest payment date on the principal amount so converted. In the
case of Notes called for redemption, conversion rights will expire at the close
of business on the business day preceding the date fixed for redemption unless
the Company defaults in payment of the redemption price. A Note in respect of
which a holder is exercising its option to require repurchase upon a Change of
Control may be converted only if such holder withdraws its election to exercise
its option in accordance with the terms of the Indenture.
The initial conversion price of $37.25 per share of Common Stock is
subject to adjustment (under formulae set forth in the Indenture) in certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (ii) certain subdivisions and
combinations of the Common Stock; (iii) the issuance to all holders of Common
Stock of certain rights or warrants to purchase Common Stock; (iv) the
distribution to all holders of Common Stock of shares of capital stock of the
Company (other than Common Stock) or evidences of indebtedness of the Company
or assets (including securities, but excluding those rights, warrants,
dividends and distributions referred to above or paid in cash); (v)
distributions consisting of cash (other than in connection with the liquidation
or dissolution of the Company) to holders of Common Stock, or of a class or
series of capital stock convertible into or exchangeable or exercisable for
Common Stock, generally to the extent the amount of such cash, combined with
all such cash distributions made within the preceding twelve months with
respect to which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the current market price of the
Common Stock multiplied by the number of shares of Common Stock then
outstanding) on the record date for such distribution; and (vi) payment in
respect of a tender or exchange offer by the Company or any subsidiary of the
Company for the Common Stock to the extent that the cash and value of any other
consideration included in such payment per share of Common Stock exceeds 10% of
the Company's market capitalization.
In addition, the Indenture provides that if the Company implements a
stockholder rights plan, such rights plan must provide that upon conversion of
the Notes the holders will receive, in addition to the Common Stock issuable
upon such conversion, the rights issued under such plan (notwithstanding the
occurrence of an event causing such rights to separate from the Common Stock at
or prior to the time of conversion).
In the case of any reclassification of the Common Stock, or any
consolidation, merger or combination involving the Company, any sale or other
transfer or distribution of the assets of the Company as an entirety or
substantially as an entirety or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property, the holders
of the Notes then outstanding will be entitled thereafter to convert such Notes
into the kind and amount of shares of stock, other securities or other property
or assets which they would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale, disposition
or share exchange had such Notes been converted into Common Stock immediately
prior to such reclassification, change, consolidation, merger, combination,
sale, disposition or share exchange assuming that a holder of Notes would not
have exercised any rights of election as to the stock, other securities or
other property or assets receivable in connection therewith.
In the event of a distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain United States Federal
Income Tax Considerations."
The Company from time to time may to the extent permitted by law
reduce the conversion price by any amount for any period of at least 20 days,
in which case the Company shall give at least 15 days notice of such reduction,
if the Board of Directors has made a determination that such reduction would be
in the best interests of the Company, which determination shall be conclusive.
The Company may also, at its option, make such reductions in the conversion
price, in addition to those set forth above, as the Board of Directors deems
advisable to avoid or diminish any income tax to
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holders of Common Stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for income tax
purposes. See "Certain United States Federal Income Tax Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1.0% in the conversion price then
in effect; provided that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
Fractional shares of Common Stock will not be issued upon conversion.
A person otherwise entitled to a fractional share of Common Stock upon
conversion will receive cash equal to the equivalent fraction of the current
market price of a share of Common Stock on the business day prior to
conversion.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not entitled to any sinking fund. At any time on or
after October 15, 2000, during the twelve-month period beginning October 15 of
the years indicated below, the Notes will be redeemable at the Company's option
on at least 30 and not more than 60 days notice as a whole or, from time to
time, in part at the following prices (expressed as percentages of the
principal amount), together with accrued interest to, but excluding, the date
fixed for redemption:
YEAR REDEMPTION PRICE
2000 102.875%
2001 101.917%
2002 100.958%
and 100% at October 15, 2003 and thereafter; provided that any semi-annual
payment of interest becoming due on the date fixed for redemption shall be
payable to the holders of record on the relevant record date of the Notes being
redeemed.
If fewer than all the Notes are to be redeemed, the Trustee will
select the Notes to be redeemed by lot, on a pro rata basis or by such other
method as the Trustee shall determine to be fair and appropriate. If any Note
is to be redeemed in part only, a new Note or Notes in principal amount equal
to the unredeemed principal portion thereof will be issued. If a portion of a
holder's Notes are selected for partial redemption and such holder converts a
portion of such Notes, such converted portion shall be deemed to be taken from
the portion selected for redemption and, accordingly, such portion shall be
converted instead of redeemed.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE OF CONTROL
The Indenture provides that if a Change of Control occurs, each holder
of Notes shall have the right to require the Company to repurchase all of such
holder's Notes, or any portion of the principal amount thereof that is an
integral multiple of $1,000, on the date (the "Repurchase Date") that is 30
days after the date of the Company Notice (as defined), for cash at a price
equal to 101% of the principal amount thereof (the "Repurchase Price") plus
accrued and unpaid interest to, but excluding, the Repurchase Date; provided
that any semi-annual payment of interest becoming due on the Repurchase Date
shall be payable to the holders of record on the relevant record date of the
Notes being repurchased.
Procedures for Offers. Within 30 days following any Change of Control,
subject to the provisions of the Indenture, the Company shall mail a notice
(the "Company Notice") to each holder of Notes at such holder's registered
address stating: (i) that an offer ("Offer") is being made pursuant to a Change
of Control, the length of time the Offer shall remain open and the amount of
the Change of Control Offer, and the maximum principal amount of Notes that
will be accepted for payment pursuant to such Offer, (ii) the purchase price,
the amount of accrued and unpaid interest and
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Liquidated Damages (as defined), if any, at the Repurchase Date, and the
Repurchase Date and (iii) such other information required by the Indenture and
applicable law and regulations.
On any Repurchase Date, the Company will, to the extent lawful and
required by the Indenture and such Offer, (i) accept for payment all Notes or
portions thereof tendered pursuant to such Offer, (ii) deposit with the Trustee
the aggregate purchase price of all Notes or portions thereof accepted for
payment and any accrued and unpaid interest and Liquidated Damages, if any, on
such Notes as of the Repurchase Date and (iii) deliver or cause to be delivered
to the Trustee the Notes so accepted together with an officer's certificate
stating the aggregate principal amount of the Notes or portions thereof
tendered to the Company. The Trustee shall promptly mail to each holder of
Notes so accepted, payment in an amount equal to the purchase price for such
Notes and any accrued and unpaid interest and Liquidated Damages, if any, on
such Notes as of the Repurchase Date, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book-entry) to such holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, provided that each such new Note shall be in a principal amount of
$1,000 or integral multiples thereof. The Company will publicly announce the
results of the Offer on or as soon as practicable after the Repurchase Date.
A "Change of Control" will be deemed to have occurred at such time
after the original issuance of the Notes as:
(i) any "person" or "group" (as such items are used under Section
13(d) and 14(d) of the Exchange Act, other than the Company, any subsidiary of
the Company, any Principal Stockholders (as defined in the Indenture, which
definition includes Dominic Chang, members of his family and other persons or
entities affiliated with him) or any employee benefit plan of the Company or
any such subsidiary, is or becomes the beneficial owner, directly or
indirectly, through a purchase or other acquisition transaction or series of
transactions (other than a merger or consolidation involving the Company), of
shares of capital stock of the Company entitling such person to exercise in
excess of 50% of the total voting power of all shares of capital stock of the
Company entitled to vote generally in the election of directors;
(ii) there occurs any consolidation of the Company with, or merger of
the Company into, any other person, any merger of another person into the
Company, or any sale or transfer of all or substantially all of the assets of
the Company to another person (other than (a) any such transaction pursuant to
which the holders of the Common Stock immediately prior to such transaction
have, directly or indirectly, shares of capital stock of the continuing or
surviving corporation immediately after such transaction which entitle such
holders to exercise in excess of 50% of the total voting power of all shares of
capital stock of the continuing or surviving corporation entitled to vote
generally in the election of directors and (b) any merger (1) which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock or (2) which is effected solely to change
the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common Stock
solely into shares of common stock); or
(iii) at any time Continuing Directors do not constitute a majority of
the Board of Directors of the Company. "Continuing Director" means at any date
a member of the Company's Board of Directors (a) who is a member of such Board
of Directors on the date of the Indenture or (b) who was nominated or elected
by at least two-thirds of the directors who were Continuing Directors at the
time of such nomination or election or whose election to the Company's Board of
Directors was recommended or endorsed by at least two-thirds of the directors
who were Continuing Directors at the time of such election. Under this
definition, if the present Board of Directors of the Company were to approve a
new director or directors and then resign, no Change of Control would occur
even though the present Board of Directors would thereafter cease to be in
office.
The definition of Change of Control includes a phrase relating to the
sale, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of
a sale, lease,
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transfer, conveyance or other disposition of less than all of the assets of the
Company and its subsidiaries to another person may be uncertain.
To the extent applicable, the Company will comply with the provisions
of Rule 14e-1, Rule l3e-4 or any other tender offer rules, and will file a
Schedule 13E-4 or any other schedule required under such rules, in connection
with any offer by the Company to repurchase Notes at the option of the holders
thereof upon a Change of Control.
The Change of Control feature of the Notes may in certain
circumstances make it more difficult or discourage a takeover of the Company
and, thus, the removal of incumbent management. The repurchase right is not the
result of management's knowledge of any effort to accumulate any Common Stock
or to obtain control of the Company by means of a merger, tender offer,
solicitation, or otherwise, or part of a plan by management to adopt a series
of anti-takeover provisions. Instead, this right is the result of negotiations
between the Company and the Initial Purchasers.
The foregoing provisions would not necessarily afford holders of the
Notes protection in the event of a highly leveraged transaction, certain
changes in control of the Company or other transactions involving the Company
that may adversely affect holders.
The Company's ability to repurchase Notes upon the occurrence of a
Change of Control is subject to limitations. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing, to pay the
repurchase price for all Notes tendered by holders thereof. In addition, the
terms of certain of the Company's existing debt agreements (including the
Credit Facility and the Term Debt), prohibit the Company from purchasing any
Notes and such debt agreements, the License Agreement and several leases also
identify certain events that would constitute a change of control, as well as
certain other events with respect to the Company or certain of its
subsidiaries, which would constitute an event of default under such debt and
other agreements. Any future agreements, including agreements relating to other
indebtedness (including other Senior Indebtedness), to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of its lenders to
repurchase the Notes or could attempt to refinance the borrowings or otherwise
terminate the agreements that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings or otherwise terminate such
agreements, the Company would remain prohibited from repurchasing Notes. Any
failure by the Company to repurchase the Notes when required following a Change
of Control would result in an Event of Default (as defined in the Indenture)
under the Indenture whether or not such repurchase is permitted by the
subordination provisions of the Indenture. Any such default may, in turn, cause
a default under Senior Indebtedness of the Company. Moreover, the occurrence of
a Change of Control may cause an event of default under Senior Indebtedness of
the Company. As a result, in each case, any repurchase of the Notes would,
absent a waiver, be prohibited under the subordination provisions of the
Indenture until the Senior Indebtedness is paid in full. See "--Subordination
of Notes" below and "Risk Factors -- Subordination."
SUBORDINATION OF NOTES
The indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all existing and
future Senior Indebtedness. Upon any distribution of assets of the Company upon
any dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest on the Notes is to be
subordinated to the extent provided in the Indenture in right of payment to the
prior payment in full in cash of all Senior Indebtedness. In the event of any
acceleration of the Notes because of an Event of Default, the holders of any
Senior Indebtedness then outstanding would be entitled to payment in full in
cash of all obligations in respect of such Senior Indebtedness before the
holders of the Notes are entitled to receive any payment or distribution in
respect thereof. The Indenture will require that the Company promptly notify
holders of Senior Indebtedness if payment of the Notes is accelerated because
of an Event of Default.
The Company also may not make any payment upon or in respect of the
Notes if (i) a default in the payment of the principal of, premium, if any,
interest, rent or other obligations in respect of Senior Indebtedness occurs
and is
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continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness (as
defined) that permits holders of the Designated Senior Indebtedness as to which
such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or other
person permitted to give such notice under the Indenture. Payments on the Notes
may and shall be resumed (a) in case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received if the maturity of such Designated Senior Indebtedness has not been
accelerated. No new period of payment blockage may be commenced pursuant to a
Payment Blockage Notice unless and until (i) 365 days have elapsed since the
initial effectiveness of the immediately prior Payment Blockage Notice and (ii)
all scheduled payments of principal, premium, if any, and interest on the Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice, unless such default has been cured for a period of 90
consecutive days and subsequently recurs.
By reason of the subordination provisions described above, in the
event of the Company's bankruptcy, dissolution or reorganization, holders of
Senior Indebtedness may receive more, ratably, and holders of the Notes may
receive less, ratably, than the other creditors of the Company. Such
subordination will not prevent the occurrence of any Event of Default under the
Indenture.
The term "Senior Indebtedness" means the principal of, premium, if
any, interest (including all interest accruing subsequent to the commencement
of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) and rent
payable on or in connection with, and all fees, costs, expenses and other
amounts accrued or due on or in connection with, Indebtedness (as defined) of
the Company, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by the Company
(including all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless in the case of any
particular Indebtedness the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes or expressly provides that such
Indebtedness is "pari passu" or "junior" to the Notes. Notwithstanding the
foregoing, the term Senior Indebtedness shall not include any Indebtedness of
the Company to any subsidiary of the Company, a majority of the voting stock of
which is owned, directly or indirectly, by the Company. The term "Indebtedness"
means, with respect to any Person (as defined in the Indenture), and without
duplication, (i) all indebtedness, obligations and other liabilities
(contingent or otherwise) of such Person for borrowed money (including
obligations of the Company in respect of overdrafts, foreign exchange
contracts, currency exchange agreements, interest rate protection agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, notes, debentures or similar
instruments (whether or not the recourse of the lender is to the whole of the
assets of such Person or to only a portion thereof) (other than any account
payable or other accrued current liability or obligation incurred in the
ordinary course of business in connection with the obtaining of materials or
services), (ii) all reimbursement obligations and other liabilities (contingent
or otherwise) of such Person with respect to letters of credit, bank guarantees
or bankers' acceptances, (iii) all obligations and liabilities (contingent or
otherwise) in respect of leases of such Person required, in conformity with
generally accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such Person and all obligations and
other liabilities (contingent or otherwise) under any lease or related document
(including a purchase agreement) in connection with the lease of real property
which provides that such Person is contractually obligated to purchase or cause
a third party to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and the obligations of such
Person under such lease or related document to purchase or to cause a third
party to purchase such leased property, (iv) all obligations of such Person
(contingent or otherwise) with respect to an interest rate or other swap, cap
or collar agreement or other similar instrument or agreement or foreign
currency hedge, exchange, purchase or similar instrument or agreement, (v) all
direct or indirect guaranties or similar agreements by such Person in respect
of, and obligations or liabilities (contingent or otherwise) of such Person to
purchase or otherwise acquire or otherwise assure a creditor against loss in
respect of, indebtedness, obligations or liabilities of another Person of the
kind described in clauses (i) through (iv), (vi) any indebtedness or other
obligations described in clauses (i) through (iv) secured by any mortgage,
pledge, lien or other encumbrance existing on property which is owned or held
by such Person, regardless of
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whether the indebtedness or other obligation secured thereby shall have been
assumed by such Person and (vii) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements to, any
indebtedness, obligation or liability of the kind described in clauses (i)
through (vi). The term "Designated Senior Indebtedness" means the Credit
Facility and Term Debt, and any particular Senior Indebtedness in which the
instrument creating or evidencing the same or the assumption or guarantee
thereof (or related agreements or documents to which the Company is a party)
expressly provides that such Senior Indebtedness shall be "Designated Senior
Indebtedness" for purposes of the Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the right
of such Senior Indebtedness to exercise the rights of Designated Senior
Indebtedness). The Company has agreed that so long as any indebtedness under
the Credit Facility, the Term Debt or any other indebtedness to The Chase
Manhattan Bank ("Chase") is outstanding, the Company will not designate any
other indebtedness as Designated Senior Indebtedness without the consent of
Chase.
The Notes are obligations exclusively of the Company and not of any
subsidiary of the Company. The Notes will be effectively subordinated to all
indebtedness and other liabilities and commitments of the Company's
subsidiaries. As a result, the cash flow and the consequent ability of the
Company to service debt, including the Notes, may be dependent upon the
earnings of its subsidiaries and the distribution of those earnings, or upon
loans or other payments of funds by those subsidiaries, to the Company. All
future subsidiaries will be separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by dividends,
distributions, loans or other payments. In addition, the payment of dividends
or distributions and the making of loans and advances to the Company by its
subsidiaries could be subject to statutory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of the Company to receive any assets of any of its
subsidiaries upon their liquidation or reorganization (and the consequent right
of the holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would
still be subordinate to any security interest in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by the Company.
As of October 31, 1997 the Company had approximately $31.3 million
aggregate principal amount of indebtedness outstanding that constitutes Senior
Indebtedness. The Indenture will not limit the amount of additional
indebtedness, including Senior Indebtedness, which the Company or any
subsidiaries can create, incur, assume or guarantee, nor will the Indenture
limit the amount of indebtedness which any subsidiary can create, incur, assume
or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any
holder of Notes receives any payment or distribution of assets of the Company
of any kind in contravention of any of the subordination provisions of the
Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness is paid in full, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior
Indebtedness or their representative or representatives to the extent necessary
to make payment in full of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution, or provision therefor,
to or for the holders of Senior Indebtedness. The Indenture provides that the
Company may not make any amendment to the subordination provisions of the
Indenture without the consent of the holders of all Designated Senior
Indebtedness.
The Company is obligated to pay reasonable compensation to the Trustee
and to indemnify the Trustee against any losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will be senior to those of holders of the
Notes in respect of all funds collected or held by the Trustee.
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LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither the Company nor any of its
subsidiaries may make any loan, advance, guarantee or capital contribution to,
or for the benefit of, or sell, lease, transfer or dispose of any properties or
assets to, or for the benefit of, or purchase or lease any property or assets
from, or enter into any or amend any contract, agreement or understanding with,
or for the benefit of, an Affiliate (each such transaction or series of related
transactions that are part of a common plan, an "Affiliate Transaction"),
except in good faith and on terms that are no less favorable to the Company or
the relevant subsidiary than those that would have been obtained in a
comparable transaction on an arm's length basis from an unrelated person.
The Indenture further provides that all Affiliate Transactions shall
be approved by:
(i)for transactions involving aggregate payments or other transfers by
the Company and its subsidiaries in excess of $0.5 million (including cash and
non-cash payments and benefits valued at their fair market value by the Board
of Directors in good faith), a resolution of the Board of Directors of the
Company stating that the Board of Directors (including a majority of the
disinterested directors, if any), has, in good faith, determined that such
Affiliate Transaction complies with the provisions of the Indenture; and
(ii)for all such transactions in excess of $2.0 million, (a) with
respect to any Affiliate Transaction involving the incurrence of Indebtedness,
a written opinion of a nationally recognized investment banking or accounting
firm experienced in the review of similar types of transactions, (b) with
respect to any Affiliate Transaction involving the transfer of real property,
fixed assets or equipment, either directly or by a transfer of 50% of more of
the capital stock of a subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized
appraiser, experienced in the review of similar types of transactions or (c)
with respect to any Affiliate Transaction not otherwise described in (a) and
(b) above, or in lieu of the opinions and appraisals referred to in (a) and (b)
above, a written certification from a nationally recognized professional or
firm experienced in evaluating similar types of transactions, in each case,
stating that the terms of such transaction are fair to the Company or such
subsidiary, as the case may be, from a financial point of view.
Notwithstanding the foregoing, this covenant will not apply to: (i)
transactions between the Company and any subsidiary or between subsidiaries,
(ii) reasonable compensation paid to officers, employees or consultants of the
Company or any subsidiary as determined in good faith by the Company's Board of
Directors or executives, or (iii) payments and transactions in connection with
the Offering.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any person described in clause
(i) above, (iii) any trust in which any such persons described in clause (i) or
(ii) above has a beneficial interest, and (iv) any corporation or other
organization of which any such persons described above collectively own 50% or
more of the equity of such entity.
MERGER OR CONSOLIDATION
The Indenture provides that the Company shall not consolidate or merge
with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person (any such consolidation, merger
or sale being a "Disposition") unless: (i) the successor entity of such
Disposition or the person to which such Disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia, (ii) the successor entity of such
Disposition or the person to which such Disposition shall have been made
expressly assumes the Obligations (as defined in the Indenture) of the Company,
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee, under such Indenture and the related Notes, (iii) immediately after
such Disposition, no Default (as defined in the Indenture) or Event of Default
shall exist and (iv) the entity formed by or surviving any such Disposition, or
the person to which such Disposition shall have been made, shall have
Consolidated Net Worth (as defined) (immediately after the Disposition but
prior to giving effect on a pro forma basis to any purchase accounting
adjustments or restructuring charges resulting from the Disposition) equal to
or greater than the Consolidated Net Worth of the Company immediately preceding
the Disposition.
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Prior to the consummation of any proposed Disposition, the Company
shall deliver to the Trustee an officers' certificate to the foregoing effect
and an opinion of counsel stating that the proposed Disposition and such
supplemental indenture comply with the Indenture.
"Consolidated Net Worth" with respect to any person means, as of any
date, the consolidated equity of the common stockholders of such person
(excluding the cumulated foreign currency translation adjustment), all
determined on a consolidated basis in accordance with GAAP, but without any
reduction in respect of the payment of dividends on any series of such person's
preferred stock if such dividends are paid in additional shares of capital
stock; provided, however, that Consolidated Net Worth shall also include,
without duplication: (i) the amortization of all write-ups of inventory, (ii)
the amortization of all intangible assets (including amortization of goodwill,
debt and financing costs), (iii) any non-capitalized transaction costs incurred
in connection, with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees), (iv) any
increased amortization or depreciation resulting from the write-up of assets
pursuant to Accounting Principles Board Opinion Nos. 16 and 17, as amended and
supplemented from time to time, (v) any extraordinary or nonrecurring charges
or expenses relating to any premium or penalty paid, write-off of deferred
financing costs, or other financial recapitalization charges incurred in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity and (vi) any extraordinary or non-recurring charges arising out of the
implementation of SFAS (as defined) 106 or SFAS 109; provided, however, that
Consolidated Net Worth shall be calculated on a pro forma basis to give effect
to the Disposition.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: (i) default
in payment of the principal of or premium, if any, on the Notes, (ii) default
for 30 days in payment of any installment of interest on the Notes, (iii)
failure by the Company to perform any conversion of Notes required under the
Indenture and continuance of such failure for 30 days, (iv) default by the
Company for 60 days after notice in the observance or performance, in any
material respect, of any other covenants in the Indenture; (v) failure of the
Company to make any payment at maturity, including any applicable grace period,
in respect of indebtedness for borrowed money of the Company, which payment is
in an amount in excess of $1.0 million, and continuance of such failure for 30
days after notice, (vi) default by the Company with respect to any indebtedness
for borrowed money of the Company, which default results in acceleration of any
such indebtedness which is in an amount of in excess of $1.0 million without
such indebtedness having been paid or discharged or such acceleration having
been rescinded or annulled for 30 days after notice or (vii) certain events
involving bankruptcy, insolvency or reorganization of the Company. The
Indenture provides that the Trustee may withhold notice to the holders of Notes
of any Default (except in payment of principal, premium, if any, or interest
with respect to the Notes) if the Trustee considers it in the interest of the
holders of the Notes to do so.
The Indenture provides that if an Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of principal of, premium, if
any, and interest on any of the Notes which shall have become due by
acceleration) and certain other conditions are met, with certain exceptions,
such declaration may be annulled and past defaults may be waived by the holders
of a majority of the principal amount of the Notes then outstanding. The
Indenture provides that the holders of Designated Senior Indebtedness must be
given 10 days advance notice prior to such acceleration of the payment of
principal and interest on the Notes, except in limited circumstances involving
the prior acceleration of Designated Senior Indebtedness or the bankruptcy or
insolvency of the Company. In the case of certain events of bankruptcy or
insolvency, the principal of and accrued interest on the Notes shall
automatically become and be immediately due and payable.
The holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
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PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF NOTES
So long as the Notes are outstanding, whether or not the Company is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall submit for filing with the Commission the annual
reports, quarterly reports and other documents that the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) if the
Company were subject to such reporting requirements. The Company will also
provide to all holders of Notes and file with the Trustees copies of such
annual reports, quarterly reports and other documents required to be furnished
to stockholders generally under the Exchange Act. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, they will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Notes at the time outstanding, to modify the Indenture
or any supplemental indenture or the rights of the holders of the Notes, except
that no such modification shall (i) extend the fixed maturity of any Note,
reduce the rate or extend the time for payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption thereof, change the obligation of the Company to repurchase any
Note upon the occurrence of any Change of Control in a manner adverse to
holders of Notes, impair the right of a holder to institute suit for the
payment thereof, change the currency in which the Notes are payable or impair
the right to convert the Notes into Common Stock subject to the terms set forth
in the Indenture, or modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the holders of the Notes in
any material respect, without the consent of each holder of a Note so affected,
or (ii) reduce the aforesaid percentage of Notes the holders of which are
required to consent to any such modifications, without the consent of the
holders of all of the Notes then outstanding.
CONCERNING THE TRUSTEE
United States Trust Company of New York, as Trustee under the
Indenture, has been appointed by the Company as the paying agent, conversion
agent, registrar and custodian with regard to the Notes. The Trustee or its
affiliates may from time to time in the future provide banking and other
services to the Company in the ordinary course of its business.
DESCRIPTION OF COMMON STOCK
A description of the Company's Common Stock is contained in the
Company's registration statement on Form 8-A, which is incorporated by
reference herein. See "Incorporation of Certain Documents by Reference."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain of the material
United States federal income tax considerations relevant to beneficial owners
("Owners") of the Notes or shares of Common Stock received upon conversion
thereof.
This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury Regulations and Internal
Revenue Service ("IRS") rulings, changes to any of which subsequent to the date
hereof may affect the tax considerations discussed herein.
This discussion is for general information only and does not address
all aspects of United States federal income taxation that may be relevant to
Owners of the Notes or shares of Common Stock. This discussion does not
describe the tax consequences arising under the laws of any foreign, state or
local jurisdiction, nor does it describe all of the tax consequences that may
be relevant to particular purchasers in light of their personal circumstances,
or to certain types
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of purchasers (such as certain financial institutions, insurance companies,
tax-exempt entities, dealers in securities or persons who hold the Notes or
Common Stock in connection with a straddle) who may be subject to special
rules. This discussion assumes that each Owner holds the Notes or the shares of
Common Stock received upon conversion thereof as capital assets within the
meaning of section 1221 of the Code.
For the purpose of this discussion, the term "U.S. Person" means a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in the United States or any state thereof, or an
estate or trust, the income of which is includible in income for United States
federal income tax purposes regardless of its source.
PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF THEIR PARTICIPATION IN THE OFFERING, OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
U.S. PERSONS
OWNERSHIP OF NOTES
Interest. Interest paid on a Note generally will be taxable to an
Owner who is a U.S. Person as ordinary interest income in accordance with the
Owner's method of tax accounting at the time that such interest is accrued or
actually or constructively received.
Market Discount. An Owner that purchases a Note at a "market discount"
(i.e., at a price less than its stated principal amount) will be required
(unless such difference is less than a specified de minimis amount) to treat
any principal payments on, or any gain realized upon the disposition or
retirement of, such Note as interest income to the extent of the market
discount that accrued while such Owner held such Note, unless the Owner elects
to include such market discount in income on a current basis. If such Note is
disposed of in a nontaxable transaction (other than conversion of the Note for
Common Stock or a nonrecognition transaction described in section 1276(d) of
the Code), accrued market discount will be includible as ordinary income to the
Owner as if such Owner had sold the Note at its then fair market value. An
Owner of a Note that acquired it at a market discount and that does not elect
to include market discount in income on a current basis also may be required to
defer the deduction for a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry the Note until the deferred income
is realized.
Premium. Except as noted below, an Owner that purchases a Note for an
amount in excess of its stated principal amount will be treated as having
premium with respect to such Note in the amount of such excess. If such an
Owner makes an election under section 171(c)(2) of the Code to treat such
premium as "amortizable bond premium," the amount of interest that must be
included in such Owner's income for each accrual period will be reduced by the
portion of the premium allocable to such period based on the Note's yield to
maturity. If the Note is in fact redeemed, any unamortized premium may be
deducted in the year of the redemption. If an Owner makes the election under
section 171(c)(2), the election also shall apply to all bonds the interest on
which is not excludible from gross income ("fully taxable bonds") held by the
Owner at the beginning of the first taxable year to which the election applies
and to all such fully taxable bonds thereafter acquired by it, and is
irrevocable without the consent of the IRS. If such an election is not made,
such an Owner must include the full amount of each interest payment in income
in accordance with its regular method of accounting and will receive a tax
benefit from the premium only in computing its gain or loss upon the sale or
other disposition or retirement of the Note.
Accrual Method Election. Under applicable Treasury regulations, an
Owner of a Note is permitted to elect to include in gross income its entire
return on a Note (i.e., the excess of all remaining payments to be received on
the Note
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over the amount paid for the Note by such Owner) based on the compounding of
interest at a constant rate. Such an election for a Note with amortizable bond
premium (or market discount) will result in a deemed election for all of the
Owner's debt instruments with amortizable bond premium (or market discount) and
may be revoked only with the permission of the IRS.
Conversion of Notes. An Owner of a Note will not recognize gain or
loss on the conversion of the Note into shares of Common Stock except to the
extent that the Common Stock issued upon the conversion is attributable to
accrued interest on the Note. The Owner's aggregate tax basis in the shares of
Common Stock received upon conversion of the Note will equal the Owner's
aggregate basis in the Note exchanged therefor (less any portion of that basis
allocable to cash received in lieu of a fractional share). The holding period
of the shares of Common Stock received by the Owner upon conversion of the Note
will include the period during which the Owner held the Note prior to the
conversion.
Cash received in lieu of a fractional share of Common Stock will be
treated as a payment in exchange for such fractional share. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will equal the difference between the amount of cash received and the
basis allocable to the fractional shares.
Adjustments in the conversion price of the Notes made pursuant to the
anti-dilution provisions thereof to reflect distributions to holders of Common
Stock or as a result of other transactions or events may result in constructive
distributions to Owners of Notes that could be taxable to them as dividends to
the extent of the Company's current or accumulated earnings and profits
(subject to a possible dividends received deduction in the case of corporate
Owners) pursuant to Section 305 of the Code. In certain circumstances, the
absence of such adjustments may result in taxable dividends to the holders of
the Common Stock.
If an Owner acquires the Note at a market discount and receives Common
Stock upon conversion of the Note, the amount of accrued market discount with
respect to the converted Note through the date of the conversion should be
treated as ordinary income on the disposition of the Common Stock.
Ownership of Shares of Common Stock. Distributions on shares of Common
Stock will constitute dividends for United States federal income tax purposes
to the extent of current or accumulated earnings and profits of the Company as
determined under United States federal income tax principles. Dividends paid to
Owners that are United States corporations may qualify for the
dividends-received deduction. Individuals, partnerships, trusts, and certain
corporations, including certain corporations that are not U.S. Persons, are not
entitled to the dividends-received deduction.
To the extent, if any, that an Owner receives a distribution on shares
of Common Stock that would otherwise constitute a dividend for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of the Company, such distribution will be treated first as a
non-taxable return of capital reducing the Owner's basis in the shares of
Common Stock. Any such distribution in excess of the Owner's basis in the
shares of Common Stock will be treated as a capital gain.
SALE OR EXCHANGE OF NOTES OR SHARES OF COMMON STOCK
In general, an Owner of a Note will recognize gain or loss upon the
sale, redemption, retirement or other disposition of the Note measured by the
difference between the amount of cash and the fair market value of any property
received (except to the extent attributable to the payment of accrued interest)
and the Owner's adjusted tax basis in the Note. An Owner's tax basis in a Note
generally will equal the cost of the Note to the Owner increased by the amount
of market discount previously taken into income by the Owner or decreased by
any bond premium applied to reduce interest payments as described above. In
general, each Owner of Common Stock into which the Notes are converted will
recognize gain or loss upon the sale, exchange, redemption or other disposition
of the Common Stock under rules similar
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to those applicable to the Notes. The basis and holding period of shares of
Common Stock is discussed above under "Conversion of Notes." Special rules may
apply to redemptions of Common Stock which may result in the amount paid being
treated as a dividend. Subject to the market discount rules discussed above,
the gain or loss on the disposition of the Notes or shares of Common Stock will
be capital gain or loss and will be long-term gain or loss if the Notes or
shares of Common Stock have been held for more than one year at the time of
such disposition. Under the recently enacted Taxpayer Relief Act of 1997, net
capital gain (i.e., generally, capital gain in excess of capital loss)
recognized by an individual upon the sale of a capital asset that has been held
for more than eighteen months will generally be subject to a tax at a rate not
to exceed 20.0%. Net capital gain recognized by an individual from the sale of
a capital asset that has been held for more than twelve months but not for more
than eighteen months will continue to be subject to federal tax at a rate not
to exceed 28.0%, and capital gain recognized from the sale of a capital asset
that has been held for twelve months or less will continue to be subject to tax
at ordinary income tax rates. In addition, capital gain recognized by a
corporate taxpayer will continue to be subject to tax at the ordinary income
tax rates applicable to corporations.
NON-U.S. PERSONS
Payments of Interest. Each payment of interest on a Note to an Owner
who is not a U.S. Person (a "Non-U.S. Person") will be subject to a 30.0% U.S.
income and withholding tax, unless one of the following three exemptions
applies.
Exemption for Non-U.S. Persons who Provide IRS Form W-8. Payment of
interest on a Note to any Non-U.S. Person will be exempt from U.S. federal
income and withholding taxes, provided the following conditions are satisfied:
(1) the last U.S. payor in the chain of payment prior to payment to a
Non-U.S. Person (the "Withholding Agent") has received in the year in which
such payment occurs, or in either of the two preceding years, a statement that
(a) is signed by the Owner of the Note under penalties of perjury, (b)
certifies that such Owner is not a U.S. Person and (c) provides the name,
address and taxpayer identification number, if any, of the Owner;
(2) neither the Withholding Agent nor any intermediary between the
Owner and the Withholding Agent has actual knowledge that such non-U.S.
beneficial ownership statement is false; and
(3) the Owner is not an "excluded person" (i.e., (a) a bank that
receives payments on the Notes that are described in section 881(c)(3)(A) of
the Code, (b) a 10.0% shareholder of the Company within the meaning of section
871(h)(3)(B) of the Code, or (c) a "controlled foreign corporation" related to
the Company within the meaning of section 881(c)(3)(C) of the Code).
The non-U.S. beneficial ownership statement referred to above may be
made on an IRS Form W-8 or a substantially similar substitute form. The Owner
must inform the Withholding Agent (or the last intermediary in the chain
between the Withholding Agent and the Owner) of any change in the information
on the statement within 30 days of such change. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent on behalf of the Owner. In such case, however, the signed statement must
be accompanied by a copy of a Form W-8 or substitute form provided by the Owner
to the organization or institution. In all cases, the Form W-8 or substitute
form must be filed by the Withholding Agent with the IRS. The U.S. Treasury
Department is empowered to publish a determination that a beneficial ownership
statement from any person or class of persons will not be sufficient to
preclude the imposition of federal withholding tax with respect to payments of
interest made at least one month after the publication of such determination.
Exemption or Reduced Rate for Non-U.S. Persons Entitled to the
Benefits of a Treaty (IRS Form 1001). An Owner that is a Non-U.S. Person
entitled to the benefit of an income tax treaty to which the United States is a
party can
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obtain an exemption from or reduction of income and withholding tax (depending
on the terms of the treaty) by providing to the Withholding Agent a properly
completed IRS Form 1001 prior to the payment of interest, unless the
Withholding Agent has actual knowledge that the form is false.
Exemption for Non-U.S. Persons with Effectively Connected Income (IRS
Form 4224). An Owner that is a Non-U.S. Person that conducts a trade or
business in the United States with which income on a Note is effectively
connected can obtain an exemption from withholding tax by providing to the
Withholding Agent a properly completed IRS Form 4224 prior to the payment of
interest, unless the Withholding Agent has actual knowledge that the form is
false. Payments of interest on a Note that are effectively connected with the
conduct of a trade or business in the United States by an Owner who is a
Non-U.S. Person, although exempt from the withholding tax, may be subject to
graduated U.S. federal income tax as if such amounts were earned by a U.S.
Person.
In certain circumstances, amounts not exempted from tax and withheld
may be allowed as a refund or as a credit against the Owner's U.S. federal
income tax.
Conversion of Notes. An Owner that is a Non-U.S. Person generally will
not be subject to United States federal income tax on the conversion of a Note
into shares of Common Stock. To the extent a Non-U.S. Person receives cash in
lieu of a fractional share on conversion, such cash may give rise to gain that
would be subject to the rules described below with respect to the sale or
exchange of a Note or shares of Common Stock.
Distributions on Shares of Common Stock. Generally, any distribution
on shares of Common Stock to an Owner that is a Non-U.S. Person will be subject
to United States federal income tax withholding at a rate of 30.0% unless one
of the following two exemptions applies:
Exemption or Reduced Rate for Non-U.S. Persons Entitled to the
Benefits of a Treaty (IRS Form 1001). An Owner that is a Non-U.S. Person
entitled to the benefit of an income tax treaty to which the United States is a
party can obtain an exemption from reduction of income and withholding tax
(depending on the terms of the treaty) by providing to the Withholding Agent a
properly completed IRS Form 1001 prior to the payment of a dividend, unless the
Withholding Agent has actual knowledge that the form is false.
Exemption for Non-U S. Persons with Effectively Connected Income (IRS
Form 4224). An Owner that is a Non-U.S. Person that conducts a trade or
business in the United States with which dividends on Common Stocks are
effectively connected can obtain an exemption from withholding tax by providing
to the Withholding Agent a properly completed IRS Form 4224 prior to the
payment of dividends, unless the Withholding Agent has actual knowledge that
the form is false. Payments of dividends that are effectively connected with
the conduct of a trade or business in the United States by an Owner who is a
Non-U.S. Person, although exempt from the withholding tax, may be subject to
graduated U.S. federal income tax as if such amounts were earned by a U.S.
Person.
In certain circumstances, amounts not exempted from tax and withheld
may be allowed as a refund or as a credit against the Owner's U.S. federal
income tax.
Sale or Exchange of Notes or Shares of Common Stock. An Owner that is
a Non-U.S. Person generally will not be subject to United States federal income
tax on gain recognized upon the sale or other disposition (including a
redemption) of a Note or shares of Common Stock received upon conversion
thereof (including the receipt of cash in lieu of a fractional share upon such
conversion) unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Person, or (ii) in
the case of an Owner who is a nonresident alien individual and holds the Common
Stock as a capital asset, such Owner is present in the United States for 183 or
more days in the taxable year and certain other circumstances are present. Any
amount withheld pursuant to these rules will
34
<PAGE>
be creditable against such Owner's United States federal income tax liability
and may entitle such Owner to a refund upon furnishing the required information
to the IRS. Owners should consult applicable income tax treaties, which may
provide different rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders or Owners. Information reporting and backup withholding
may apply to payments of interest or dividends on or the proceeds of the sale
or other disposition of the Notes or shares of Common Stock made by the Company
with respect to certain noncorporate U.S. holders or Owners. Such U.S. holders
or Owners generally will be subject to backup withholding at a rate of 31.0%
unless the recipient of such payment supplies a taxpayer identification number,
certified under penalties of perjury, as well as certain other information, or
otherwise establishes in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the Owner's federal income tax, upon furnishing the required
information.
Non-U.S. Holders or Owners. Generally, information reporting and
backup withholding of United States federal income tax at a rate of 31.0% may
apply to payments of principal, interest and premium (if any) to non-U.S.
holders if the payee fails to certify that he or she is not a U.S. Person or if
the Company or any of its paying agents has actual knowledge that the payee is
a U.S. Person.
The 31.0% backup withholding tax generally will not apply to dividends
paid to Non-U.S. holders or Owners outside the United States that are subject
to 30.0% withholding discussed above or that are not so subject because a tax
treaty applies that reduces or eliminates such withholding. In that regard,
under temporary regulations, dividends payable at an address located outside of
the United States to a Non-U.S. holder or Owners are not subject to the backup
withholding rules.
In addition, if a Note or share of Common Stock is sold before the
stated maturity to (or through) a "broker," the broker may be required to
withhold 31.0% of the entire sale price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a Non-U.S. Person, certifies that such seller is not a U.S.
Person (and certain other conditions are met). Such a sale also must be
reported by the broker to the IRS, unless either (i) the broker determines that
the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the Owner's
non-U.S. status normally would be made on IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit certain other
signed forms. The term "broker," as defined by Treasury regulations, includes
all persons who, in the ordinary course of business, stand ready to effect
sales made by others. This information reporting requirement generally will
apply to a U.S. office of a broker and to a foreign office of a U.S. broker, as
well as to a foreign office of a foreign broker (i) that is a "controlled
foreign corporation" within the meaning of section 957(a) of the Code or (ii)
50.0% or more of whose gross income from all sources for the three-year period
ending with the close of its taxable year preceding the payment (or for such
part of the period that the foreign broker has been in existence) was
effectively connected with the conduct of a trade or business within the United
States, unless such foreign office has documentary evidence that the seller is
not a U.S. Person and has no actual knowledge that such evidence is false.
Any amounts withheld under the backup withholding rules from a payment
to a person would be allowed as a refund or a credit against such person's U.S.
federal income tax, provided that the required information is furnished to the
IRS. Furthermore, certain penalties may be imposed by the IRS on a holder or
Owner who is required to supply information but who does not do so in the
proper manner.
35
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a company will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability
for (i) any breach of their duty of loyalty to the company or its stockholders,
(ii) acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law, (iii) unlawful payment of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (iv) any transaction from which the director derived
an improper personal benefit.
The Company's Certificate of Incorporation provides that the Company
shall indemnify its officers, directors, employees and other agents to the
fullest extent permitted by Delaware law.
The Company maintains a policy of insurance under which the directors
and officers of the Company are insured, subject to the limits of the policy,
against certain losses arising from claims made against such directors and
officers by reason of any acts or omissions covered under such policy in their
respective capacities as directors or officers, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the Shares has been passed upon for the Company by
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York 10176. Kenneth R. Koch, Esq. a partner of Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, holds options to purchase shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of the Company as at December
31, 1996 and December 31, 1995 and for each of the years in the three year
period ended December 31, 1996, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 have been so incorporated in reliance on the report of Richard A. Eisner &
Company, LLP, independent auditors, given upon the authority of said firm as
experts in accounting and auditing. The audited financial statements of
Carolina Capital Ventures, Ltd. as of December 31, 1996, incorporated herein by
reference to the Company's Current Report on Form 8-K dated July 25, 1997, as
amended, have been so incorporated in reliance on the report of Goldberg &
Davis, CPA's, independent auditors, given upon the authority of said firm as
experts in accounting and auditing. The audited financial statements of Divot
City, L.P. as of December 31, 1996, incorporated herein by reference to the
Company's Current Report on Form 8-K dated July 25, 1997, as amended, have been
so incorporated in reliance on the report of Ireland San Filippo, LLP,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing. The audited financial statements of Darlington Driving
Range as of December 31, 1996, incorporated herein by reference to the
Company's Current Report on Form 8-K dated July 25, 1997, as amended, have been
so incorporated in reliance on the report of Weil & Company LLP, independent
auditors, given upon the authority of said firm as experts in accounting and
auditing. The audited financial statements of Randall's Island Practice Center
as of December 31, 1996, incorporated herein by reference to the Company's
Current Report on Form 8-K dated July 25, 1997, as amended, have been so
incorporated in reliance on the report of Weil & Company LLP, independent
auditors, given upon the authority of said firm as experts in accounting and
auditing. The audited financial statements of Green Oaks Golf Practice Center,
Inc. as of December 31, 1996, incorporated herein by reference to the Company's
Current Report on Form 8-K dated July 25, 1997, as amended, have been so
incorporated in reliance on the report of Gerard McEvoy, CPA, independent
auditors, given upon the authority of said firm as
36
<PAGE>
experts in accounting and auditing. The audited financial statements of San
Bruno Practice Center as of December 31, 1996, incorporated herein by reference
to the Company's Current Report on Form 8-K dated July 25, 1997, as amended,
have been so incorporated in reliance on the report of Weil & Company LLP,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing. The audited financial statements of Pinley Enterprises
Ltd. as of December 31, 1996, incorporated herein by reference to the Company's
Current Report on Form 8-K dated July 25, 1997, as amended, have been so
incorporated in reliance on the report of Hirschhorn, Fry & Associates,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing. The audited financial statements of Southampton Family
Golf Center, Inc. as of December 31, 1996, incorporated herein by reference to
the Company's Current Report on Form 8-K dated July 25, 1997, as amended, have
been so incorporated in reliance on the report of Hirschhorn, Fry & Associates,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing. The audited financial statements of Palm Royale
Country Club Operations as of December 31, 1996, incorporated herein by
reference to the Company's Current Report on Form 8-K dated July 25, 1997, as
amended, have been so incorporated in reliance on the report of Maryanov Madsen
Gordon & Campbell, independent auditors, given upon the authority of said firm
as experts in accounting and auditing. The audited financial statements of
Leisure Complexes, Inc. as of December 31, 1996, incorporated herein by
reference to the Company's Current Report on Form 8-K dated July 25, 1997, as
amended, have been so incorporated in reliance on the report of Feldman,
Gutterman, Meinberg and Company, CPA's, independent auditors, given upon the
authority of said firm as experts in accounting and auditing.
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesman, or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering made hereby, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the securities offered
hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such FAMILY GOLF
jurisdiction. Neither the delivery of this Prospectus nor CENTERS, INC.
any sale made hereunder shall under any circumstances _________________
create any implication that there has been no change in
the affairs of the Company since the date hereof or that
the information contained herein is correct as of any time
subsequent to the dates as of which such information is
furnished.
$115,000,000 AGGREGATE
PRINCIPAL AMOUNT
OF
____________________ 5 3/4% CONVERTIBLE
SUBORDINATED NOTES DUE 2004
TABLE OF CONTENTS
3,141,473 SHARES
Page OF
COMMON STOCK
Available Information.........................................3
Incorporation of Certain Documents by Reference...............3
Special Note Regarding Forward
Looking Statements.......................................4
The Company...................................................5
Risk Factors..................................................8
Use of Proceeds..............................................13
Ratio of Earnings to Fixed Charges...........................14
Selling Security Holders.....................................14 _________________
Plan of Distribution.........................................20
Description of Notes.........................................21 PROSPECTUS
Description of Common Stock..................................30
Certain United States Federal Income _________________
Tax Considerations...................................... 30
Limitation of Liability and Indemnification
of Directors and Officers...............................36
Legal Matters................................................36
Experts..................................................... 36
=============================================================== =====================================================
</TABLE>
38
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby
(items marked with an asterisk (*) represent estimated expenses):
SEC Registration Fee ...................................... $ 34,396
Legal Fees and Expenses.....................................$ 20,000
Accounting Fees and Expenses................................$ 7,000
Transfer Agent and Registrar Fees...........................$ 1,000
Trustee Fees................................................$ 20,000
Miscellaneous...............................................$ 7,604
--------
Total.......................................................$ 90,000
* Estimate
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation, or an amendment thereto validly
approved by stockholders, to eliminate or limit personal liability of members
of its Board of Directors for violations of a director's fiduciary duty of
care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, intentional
misconduct or a knowing violation of a law, the payment of a dividend or
approval of a stock repurchase which is deemed illegal or an improper personal
benefit is obtained. The Company's Certificate of Incorporation includes the
following language:
No director of the Corporation shall be liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision does not eliminate the liability of the
director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of Title 8 of the Delaware Code, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article Eighth of the Certificate of Incorporation of the Company permits
indemnification of, and advancement of expenses to, among others, officers and
directors of the Corporation. Such Article provides as follows:
"(a) Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director, officer , employee,
or agent of the Corporation or any of its direct or indirect subsidiaries or is
or was serving at the request of the Corporation as a director, officer,
employee, or agent of any other corporation of a partnership, joint venture,
trust, or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee, or agent or in any other capacity while serving as a director,
officer, employee, or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, excise or other taxes assessed with respect to an employee
benefit plan, penalties, and amounts paid in settlement) reasonable incurred or
suffered by
XXXIX
<PAGE>
such indemnitee in connection therewith, and such indemnification shall
continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that, except as provided in
paragraph (c) of this Article Eighth with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify and such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
(b) The right to indemnification conferred in paragraph (a) of this Article
Eighth shall include the right to be paid by the Corporation the expenses
incurred in defending any proceeding for which such right to indemnification is
applicable in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the Delaware General Corporation Law
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is not further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Article Eighth or
otherwise.
(c) The rights to indemnification and to the advancement of expenses
conferred in paragraphs (a) and (b) of this Article Eighth shall be contract
rights. If a claim under paragraph (a) or (b) of this Article Eighth is not
paid in full by the Corporation within sixty days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by an indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law, and (ii) any suit by the
Corporation to recover an advancement of expense pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by
the indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article Eighth or otherwise, shall be on the Corporation.
(d) The rights to indemnification and to the advancement of expenses
conferred in this Article Eighth shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors, or otherwise.
(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the Corporation or
another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability, or
loss under the Delaware General Corporation Law.
XL
<PAGE>
(f) The Corporation's obligation, if any, to indemnify any person who was or
is serving as a director, officer, employee, or agent of any direct or indirect
subsidiary of the Corporation or, at the request of the Corporation, of any
other corporation or of a partnership, joint venture, trust, or other
enterprise shall be reduced by an amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust
or other enterprise.
(g) Any repeal or modification of the foregoing provisions of this Article
Eighth shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification."
The Company maintains a policy of insurance under which the directors and
officers of the Company are insured, subject to the limits of the policy,
against certain losses arising from claims made against such directors and
officers by reason of any acts or omissions covered under such policy in their
respective capacities as directors and officers.
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith:
*3.1 Certificate of Incorporation, as amended.
**3.2 Amended and Restated Bylaws.
***4.1 Form of 5 3/4% Convertible Promissory Note due 2004 of the Company.
***4.2 Registration Rights Agreement, dated October 16, 1997, among the
Initial Purchasers and the Company.
***4.3 Indenture, dated October 16, 1997, between the Trustee and the Company.
***5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP.
***12.1 Computation of Ratios
***23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in
Opinion filed as Exhibit 5.1)
***23.3 Consent of Goldberg & Davis, CPA's
***23.4 Consent of Weil & Company, LLP
***23.5 Consent of Gerard McEvoy
***23.6 Consent of Hirschorn Fry & Associates
***23.7 Consent of Maryanov Madsen Gordon & Campbell
***23.8 Consent of Ireland San Filippo, LLP
***23.9 Consent of Feldman, Gutterman, Meinberg and Company
24.1 Power of Attorney, included on page II-IV, the signature page hereto.
XLI
<PAGE>
***25.1 Statement of Eligibility
- ----------
* Incorporated by reference to exhibit 3.1 filed in Amendment No. 1 to
the Company's Registration Statement on Form SB-2 filed on June 12,
1996 (Registration No. 333-4541).
** Incorporated by reference to exhibit 3.2 to the Company's Registration
Statement on Form SB-2 filed on May 24, 1996 (Registration Statement
No. 333-4541).
*** Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
XLII
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Registration Statement on Form S-3
("Registration Statement") and authorized this Registration Statement to be
signed on its behalf by the undersigned, in the City of Melville, State of New
York on February 6, 1998.
FAMILY GOLF CENTERS, INC.
By: /s/ Krishnan P. Thampi
----------------------------------------------
Krishnan P. Thampi
Chief Financial Officer, Chief Operating
Officer and Director (Principal Financial
and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dominic Chang and Krishnan P. Thampi, or
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign and file (i) any and all pre- or
post-effective amendments to this Registration Statement, and other documents
in connection therewith, and (ii) a Registration Statement, and any and all
amendments thereto, relating to the offering covered hereby filed pursuant to
Rule 462(b) under the Securities Act of 1933, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Dominic Chang Chairman of the Board, February 6, 1998
------------------- President and Chief Executive
Dominic Chang Officer (Principal Executive Officer)
/s/ Krishnan P. Thampi Chief Financial Officer, Chief February 6, 1998
------------------------ Operating Officer and Director
Krishnan P. Thampi (Principal Financial and Accounting
Officer)
/s/ James Ganley Director February 6, 1998
------------------
James Ganley
/s/ Jimmy C.M. Hsu Director February 6, 1998
--------------------
Jimmy C.M. Hsu
/s/ Yupin Wang Director February 6, 1998
----------------
Yupin Wang
</TABLE>
XLIII
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Page In Sequential
Exhibit No. Numbering System
- ----------- ------------------
<S> <C>
*3.1 Certificate of Incorporation, as amended.
**3.2 Amended and Restated Bylaws.
***4.1 Form of 5 3/4% Convertible Promissory Note due 2004 of the Company.
***4.2 Registration Rights Agreement, dated October 16, 1997, among the
Initial Purchasers and the Company.
***4.3 Indenture, dated October 16, 1997, between the Trustee and the Company.
***5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP.
***12.1 Computation of Ratios
***23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in
Opinion filed as Exhibit 5.1)
***23.3 Consent of Goldberg & Davis, CPA's
***23.4 Consent of Weil & Company, LLP
***23.5 Consent of Gerard McEvoy
***23.6 Consent of Hirschorn Fry & Associates
***23.7 Consent of Maryanov Madsen Gordon & Campbell
***23.8 Consent of Ireland San Filippo, LLP
***23.9 Consent of Feldman, Gutterman, Meinberg and Company
24.1 Power of Attorney, included on page II-IV, the signature page hereto.
***25.1 Statement of Eligibility
- ----------
</TABLE>
* Incorporated by reference to exhibit 3.1 filed in Amendment No. 1 to
the Company's Registration Statement on Form SB-2 filed on June 12,
1996 (Registration No. 333-4541).
** Incorporated by reference to exhibit 3.2 to the Company's Registration
Statement on Form SB-2 filed on May 24, 1996 (Registration Statement
No. 333-4541).
*** Previously filed.
XLIV
