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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
- -------------------------------- ------------------------- -------------------- ------------------------ -------------------
</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.
-----------------------------------
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 13, 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 January 9, 1998, the
closing price of the Common Stock as reported by the Nasdaq National Market was
$29.125.
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
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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 January 13, 1998
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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
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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 "forward-looking 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, restaurants and an
18,000 square
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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 Supercenters"). The Company believes that the addition of these
facilities expands on the Company's concept
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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.
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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. 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 and 10, 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 Number of
Amount of Shares of
Notes Number of Common
Beneficially Conversion Stock
Owned That Percentage of Shares Owned Number of Percentage of
May Be Notes That May Before the Shares Common Stock
Name Sold (1) Outstanding (1) Be Sold (2) Offering (4) Offered Outstanding (3)
---- -------- --------------- ----------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Allstate Insurance $1,250,000 1.09 33,557 0
Company
Massachusetts Mutual 1,225,000 1.07 32,885 0
Life Insurance
Company (6)
MassMutual Corporate 600,000 0.52 16,107 0
Value Partners Limited
(6)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Number of
Amount of Shares of
Notes Number of Common Percentage of
Beneficially Conversion Stock Common Stock
Owned That Shares Owned Number of Outstanding
May Be That May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- -------- ----------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
MassMutual High 725,000 19,463 0 19,463 0%
Yield Partners LLC (6)
MassMutual Corporate 300,000 8,054 0 8,054 0%
Investors (6)
MassMutual 150,000 4,027 0 4,027 0%
Participation Investors
(6)
Susquehanna Capital 1,150,000 30,872 0 30,872 0%
Group
Mainstay Convertible 6,650,000 178,524 39,100 178,524 .30%
Fund
Husic Capital 700,000 18,792 0 18,792 0%
Management as a
Discretionary Assets
Manager for the
Ameritech Pension
Plan under an
Investment
Management
Agreement dated
December 22, 1995
FJH Absolute Return 200,000 5,369 0 5,369 0%
Fund, L.P.
LLT Limited (7) 120,000 3,222 0 3,222 0%
Castle Convertible 200,000 5,369 0 5,369 0%
Fund, Inc.
Bond Fund Series - 3,000,000 80,537 0 80,537 0%
Oppenheimer Bond
Fund for Growth
TQA Vantage PWS 500,000 13,423 0 13,423 0%
Fund, Ltd.
TQA Arbitrage Fund, 500,000 13,423 0 13,423 0%
L.P.
TQA Leverage Fund, 500,000 13,423 0 13,423 0%
L.P.
ICI American Holdings 400,000 10,738 0 10,738 0%
Pension Trust
15
<PAGE>
Principal Number of
Amount of Shares of
Notes Number of Common Percentage of
Beneficially Conversion Stock Common Stock
Owned That Shares Owned Number of Outstanding
May Be That May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- -------- ----------- ------------ ------- ------------
ZENECA Holdings 400,000 10,738 0 10,738 0%
Delaware PERS 1,000,000 26,846 0 26,846 0%
Nalco Chemical 200,000 5,369 0 5,369 0%
Retirement Trust
Vista Growth and 2,250,000 60,403 0 60,403 0%
Income Fund
Zazove Convertible 750,000 20,134 0 20,134 0%
Fund, L.P. (8)
AAM/Zavove 500,000 13,423 0 13,423 0%
Convertible Fund, L.P.
(8)
Davis Convertible 1,000,000 26,846 0 26,846 0%
Securities Fund
Pacific Life Insurance 500,000 13,423 0 13,423 0%
Delta Airlines Master 1,125,000 30,201 0 30,201 0%
Trust
Associated Electric Gas 300,000 8,054 0 8,054 0%
& Insurance Services
RJR Nabisco, Inc. 450,000 12,081 0 12,081 0%
Defined Benefit Master
Trust
The Dow Chemical 825,000 22,148 0 22,148 0%
Company Employees'
Retirement Plan
Champion International 500,000 13,423 0 13,423 0%
Corp. Master
Retirement Trust
Port Authority of 600,000 16,107 0 16,107 0%
Allegheny County
Retirement and
Disability Allowance
Plan for the Employees
Represented by Local
85 of the Amalgamated
Transit Union
16
<PAGE>
Principal Number of
Amount of Shares of
Notes Number of Common Percentage of
Beneficially Conversion Stock Common Stock
Owned That Shares Owned Number of Outstanding
May Be That May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- -------- ----------- ------------ ------- ------------
Safeco Income Fund 19,500,000 523,490 0 523,490 0%
Bankers Trust Trustee 2,848,000 76,456 0 76,456 0%
for Chrysler Corp
Pension Plan dated
4/1/89
State Street Bank 1,528,000 41,020 0 41,020 0%
Custodian for GE
Pension Trust
Chase Manhattan NA 4,898,000 131,490 0 131,490 0%
Trustee for IBM
Retirement Plan Trust
dated 12/18/45
Franklin & Marshall 226,000 6,067 0 6,067 0%
College
Reserve Convertible 400,000 10,738 0 10,738 0%
Securities Fund
Retirement Plans of 5,000,000 134,228 0 134,228 0%
Atlantic Richfield Co.
and Certain of its
Subsidiaries Master
Trust
J.P. Morgan & Co., Inc. 4,000,000 107,383 8,900 107,383 .07%
(9)
KA Trading, L.P. 322,500 8,658 0 8,658 0%
KA Management Ltd. 427,500 11,477 0 11,477 0%
UPMC Guyasuta 150,000 4,027 0 4,027 0%
SMMH
University of 250,000 6,711 0 6,711 0%
Pittsburgh Medical
Center
United National 90,000 2,416 0 2,416 0%
Insurance
Lincoln National Life 1,045,000 28,054 0 28,054 0%
Insurance
17
<PAGE>
Principal Number of
Amount of Shares of
Notes Number of Common Percentage of
Beneficially Conversion Stock Common Stock
Owned That Shares Owned Number of Outstanding
May Be That May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- -------- ----------- ------------ ------- ------------
Lincoln National 1,890,000 50,738 0 50,738 0%
Convertible 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 1,200,000 32,215 0 32,215 0%
Fund Limited
Paloma Securities 1,800,000 48,322 0 48,322 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 6,050,000 162,416 0 162,416 0%
LP
LLT Ltd. 380,000 10,201 0 10,201 0%
Forest Global Convert 50,000 1,342 0 1,342 0%
A-1
Forest Global Convert 5,270,000 141,477 0 141,477 0%
A-5
Employee Benefit 130,000 3,490 0 3,490 0%
Convertible Securities
Fund
Bank of America 260,000 6,980 0 6,980 0%
Convertible Securities
Fund
Pacific Horizon Capital 4,400,000 118,121 0 118,121 0%
Income Fund
Pacific Innovation 140,000 3,758 0 3,758 0%
Trust Capital Income
Fund
Societe Generale 4,350,000 116,779 0 116,779 0%
Securities Corporation
18
<PAGE>
Principal Number of
Amount of Shares of
Notes Number of Common Percentage of
Beneficially Conversion Stock Common Stock
Owned That Shares Owned Number of Outstanding
May Be That May Before the Shares After the
Name Sold (1) Be Sold (2) Offering (4) Offered Offering (3)
---- -------- ----------- ------------ ------- ------------
BancAmerica 150,000 4,027 0 4,027 0%
Robertson Stephens
Janet Rudnick (10) 0 0 10,003 1,870 .06%
Joseph M. and 0 0 70,271 13,135 .44%
Doris Fitzgerald (10)
Edward J. Malek (10) 0 0 14,200 444 .11%
Air Dome Limited 0 0 5,000 5,000 0%
Partnership (5)
Golf Masters 0 0 5,000 5,000 0%
Limited
Partnership (5)
John J. Streitmarter (10)(11) 0 0 8,350 8,350 0%
Robert J. Williams (10) 0 0 20,426 20,426 0%
How & Co. 410,000 11,007 0 11,007 0%
Bear Stearns Securities 100,000 2,685 0 2,685 0%
JEFCO 690,000 18,524 0 18,524 0%
</TABLE>
(1) The information set forth herein is as of January 13, 1998 and is based
upon $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 $37.250 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.
19
<PAGE>
(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
upon conversion of the Notes.
(10) A stockholder of a company, the assets of which have been acquired by the
Company.
(11) Includes 8,350 Shares held in escrow.
The information concerning the Selling Security Holders 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.
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
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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.
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
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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. 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.
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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 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.
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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 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
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(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, 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."
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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 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
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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 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
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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.
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.
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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.
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
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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.
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."
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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 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
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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 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
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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 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
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(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 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.
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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 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
35
<PAGE>
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.
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.
36
<PAGE>
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 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>
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
jurisdiction. Neither the delivery of this Prospectus nor
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.
____________________
TABLE OF CONTENTS
Page
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
Description of Common Stock..................................30
Certain United States Federal Income
Tax Considerations........................................31
Limitation of Liability and Indemnification
of Directors and Officers.................................36
Legal Matters................................................36
Experts......................................................37
FAMILY GOLF
CENTERS, INC.
$115,000,000 AGGREGATE
PRINCIPAL AMOUNT
OF
5 3/4% CONVERTIBLE
SUBORDINATED NOTES DUE 2004
3,141,473 SHARES
OF
COMMON STOCK
_________________
PROSPECTUS
_________________
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby
(items marked with an asterisk (*) represent estimated expenses):
SEC Registration Fee .............................$ 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
II-II
<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.
II-III
<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
respect 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.
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).
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:
II-IV
<PAGE>
(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 lability 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.
II-V
<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 January 13, 1998.
FAMILY GOLF CENTERS, INC.
By: /s/ Krishan 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>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dominic Chang Chairman of the Board, January 13, 1998
------------------- President and Chief Executive
Dominic Chang Officer (Principal Executive Officer)
/s/ Krishan P. Thampi Chief Financial Officer, Chief January 13, 1998
--------------------- Operating Officer and Director
Krishnan P. Thampi (Principal
Financial and Accounting Officer)
/s/ James Ganley
------------------ Director January 13, 1998
James Ganley
/s/ Jimmy C.M. Hsu Director January 13, 1998
--------------------
Jimmy C.M. Hsu
/s/ Yupin Wang Director January 13, 1998
-------------------
Yupin Wang
</TABLE>
II-VI
<PAGE>
Index to Exhibits
Page In Sequential
Exhibit No. Numbering System
- ----------- ------------------
*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 herto.
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).
II-VII
<PAGE>
5 3/4% Convertible Subordinated Note due 2004
No. $
CUSIP No.
FAMILY GOLF CENTERS, INC.
promises to pay to
or registered assigns,
the principal sum of and xx/100
Dollars
on October 15, 2004.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
<PAGE>
Dated: October 16, 1997
FAMILY GOLF CENTERS, INC.
By: ___________________________
Name: Robert J. Krause
Title: Senior Vice President
Trustee's Certificate of Authentication
Dated: October 16, 1997
This is one of the Notes referred to in the within-mentioned Indenture:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By: __________________________
(Authorized Signatory)
<PAGE>
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND
THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY
IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE
UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE RE QUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, OR (c) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION RE QUIREMENTS OF THE SECURITIES ACT (AND BASED UPON
AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY
OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER PROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
Additional provisions of this Note are set forth on the other side of
this Note.
<PAGE>
(Back of Note)
FAMILY GOLF CENTERS, INC.
5 3/4% Convertible Subordinated Notes due 2004
1. Interest
Family Golf Centers, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. The Company shall pay interest semiannually on October 15
and April 15 of each year, commencing April 15, 1998. Interest on the Notes
shall accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of first issuance of the Notes under
the Indenture (as defined below); provided, however, that if there is not an
existing default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
interest payment date, interest shall accrue from such interest payment date.
Interest will be computed on the basis of a 360- day year of twelve 30-day
months.
2. Method of Payment
The Company shall pay interest on this Note (except defaulted
interest) to the person who is the Holder of this Note at the close of business
on the October 1 or April 1 next preceding the related interest payment date.
The Holder must surrender this Note to the Paying Agent to collect payment of
principal. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. The Company may, however, pay principal and interest by its
check payable in such money. It may mail an interest check to the Holder's
registered address.
3. Paying Agent, Registrar and Conversion Agent
Initially, United States Trust Company of New York (the "Trustee")
will act as Paying Agent, Registrar and Conversion Agent. The Company may
change any Paying Agent, Registrar or Conversion Agent without notice to the
Holder. The Company or any of its Subsidiaries may act as Paying Agent,
Registrar or Conversion Agent.
4. Indenture, Limitations
This Note is one of a duly authorized issue of Notes of the Company
designated as its 5 3/4% Convertible Subordinated Notes due 2004 (the "Notes"),
issued under an Indenture dated as of October
<PAGE>
16, 1997 (the "Indenture"), between the Company and the Trustee. The terms of
this Note include those stated in the Indenture and those required by or made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended, and as in effect on the date of the Indenture. This Note is subject to
all such terms, and the Holder of this Note is referred to the Indenture and
said Act for a statement of them.
The Notes are subordinated unsecured obligations of the Company
limited to up to $100,000,000 aggregate principal amount, subject to Section
2.2 of the Indenture. The Indenture does not limit other debt of the Company,
secured or unsecured, including Senior Indebtedness.
5. Optional Redemption
The Notes are subject to redemption, at any time on or after October
15, 2000, as a whole or in part, at the election of the Company. The Redemption
Prices (expressed as percentages of the principal amount) beginning October 15
of the years indicated are as follows:
Redemption
Year Price
---- ----------
2000 102.875%
2001 101.917%
2002 100.958%
and 100% at October 15, 2003 and thereafter in each case together with accrued
interest up to but not including the Redemption Date.
1
<PAGE>
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his or her registered address. Notes in denominations
larger than $1,000 may be redeemed in part, but only in whole multiples of
$1,000. On and after the Redemption Date, subject to the deposit with the
Paying Agent of funds sufficient to pay the Redemption Price, interest ceases
to accrue on Notes or portions of them called for redemption.
7. Purchase of Notes at Option of Holder Upon a Change of
Control
At the option of the Holder and subject to the terms and conditions of
the Indenture, the Company shall become obligated to purchase all or any part
specified by the Holder (so long as the principal amount of such part is $1,000
or an integral multiple thereof) of the Notes held by such Holder on the date
that is 30 days after notice of a Change of Control. The Holder shall have the
right to withdraw any Change of Control Purchase Notice by delivering a written
notice of withdrawal to the Paying Agent in accordance with the terms of the
Indenture. The obligation of the Company to pay the Repurchase Price will be
subject to the terms of agreements relating to borrowings which constitute
Senior Indebtedness.
8. Conversion
A Holder of a Note may convert such Note into shares of Common Stock
of the Company at any time prior to maturity; provided, however, that if the
Note is called for redemption, the conversion right will terminate at the close
of business on the redemption date for such Note (unless the Company shall
default in making the redemption payment when due, in which case the conversion
right shall terminate at the close of business on the date such default is
cured and such Note is redeemed); provided, further, that if the Holder of a
Note presents such Note for redemption prior to the close of business on the
redemption date for such Note, the right of conversion shall terminate upon
presentation of the Note to the Trustee (unless the Company shall default in
making the redemption payment when due, in which case the conversion right
shall terminate on the close of business on the date such default is cured and
such Note is redeemed). The initial conversion price is $37.25 per share,
subject to adjustment under certain circumstances. The number of shares
issuable upon conversion of a Note is determined by dividing the principal
amount converted by the conversion price in effect on the Conversion Date. No
payment or adjustment will be made for accrued interest on a converted Note or
for dividends or distributions on shares of Common Stock issued upon conversion
of
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<PAGE>
a Note. No fractional shares will be issued upon conversion; in lieu thereof,
an amount will be paid in cash based upon the closing sale price of the Common
Stock on the last Trading Day prior to the Conversion Date.
To convert a Note, a Holder must (a) complete and manually sign the
conversion notice set forth below and deliver such notice to the Conversion
Agent, (b) surrender the Note to the Conversion Agent, (c) furnish appropriate
endorsements or transfer documents if required by the Registrar or the
Conversion Agent, and (d) pay any transfer or similar tax, if required. If a
Holder surrenders a Note for conversion after the close of business on the
record date for the payment of an installment of interest and before the close
of business on the related interest payment date then, notwithstanding such
conversion, the interest payable on such interest payment date shall be paid to
the Holder of such Note on such record date. In such event, the Note must be
accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of the Note or portion thereof
then converted. A Holder may convert a portion of a Note equal to $1,000 or any
integral multiple thereof.
A Note in respect of which a Holder had delivered a Change of Control
Purchase Notice exercising the option of such Holder to require the Company to
purchase such Note may be converted only if the Change of Control Purchase
Notice is withdrawn as provided above and in accordance with the terms of the
Indenture.
3
<PAGE>
9. Conversion Arrangement on Call for Redemption
Any Securities called for redemption, unless surrendered for
conversion before the close of business on the Redemption Date, may be deemed
to be purchased from the Holders of such Securities at an amount not less than
the Redemption Price, together with accrued interest, if any, to, but not
including, the Redemption Date, by one or more investment bankers or other
purchasers who may agree with the Company to purchase such Securities from the
Holders, to convert them into Common Stock of the Company and to make payment
for such Securities to the Paying Agent in Trust for such Holders.
10. Subordination
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of all Senior Indebtedness of the Company. Any Holder
by accepting this Note agrees to and shall be bound by such subordination
provisions and authorizes the Trustee to give them effect.
In addition to all other rights of Senior Indebtedness described in
the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of
any amendment, modification or waiver of any terms of any instrument relating
to the Senior Indebtedness or any extension or renewal of the Senior
Indebtedness.
11. Denominations, Transfer, Exchange
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. A Holder may register the transfer of
or exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes or other governmental charges that may be
imposed by law or permitted by the Indenture.
12. Persons Deemed Owners
The Holder of a Note may be treated as the owner of it for all
purposes, subject to the provisions of the Indenture with respect to record
dates for the payment of interest.
13. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent will pay the money back to the
Company at its request, subject to applicable
4
<PAGE>
law. After that, Holders entitled to money must look to the
Company for payment.
14. Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of a majority in
principal amount of the Notes then outstanding and any past default or
compliance with any provision may be waived in a particular instance with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Without the consent of or notice to any Holder, the Company and
the Trustee may amend or supplement the Indenture or the Notes to, among other
things, provide for uncertificated Notes in addition to or in place of
certificated Notes, or to cure any ambiguity, defect or inconsistency or make
any other change that does not adversely affect the rights of any Holder.
15. Successor Corporation
When a successor corporation assumes all the obligations of its
predecessor under the Notes and the Indenture in accordance with the terms and
conditions of the Indenture, the predecessor corporation will be released from
those obligations.
16. Defaults and Remedies
An Event of Default is: default in payment of the principal of or
premium, if any, on the Notes when due; default for 30 days in payment of
interest on the Notes; failure by the Company for 30 days after notice to it to
perform any conversion of the Notes; failure by the Company for 60 days after
notice to it to comply with any of its other agreements contained in the
Indenture or the Notes; failure of the Company for 30 days after notice to it
to make any payment at maturity in respect of indebtedness for borrowed money,
which payment is in excess of $1,000,000; default by the Company for 30 days
after notice to it with respect to indebtedness for borrowed money, which
default results in acceleration of such indebtedness which is in excess of
$1,000,000 without such indebtedness having been paid on discharged; certain
events of bankruptcy, insolvency or reorganization of the Company; and the
acceleration of certain other indebtedness. If an Event of Default (other than
as a result of certain events of bankruptcy, insolvency or reorganization)
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding may declare all unpaid principal
of and accrued interest to the date of acceleration on the Notes then
outstanding to be due and payable immediately, all as and to the extent
provided in the Indenture. If an Event of Default occurs as a result of certain
events of bankruptcy, insolvency or reorganization, unpaid principal of and
accrued interest on the
5
<PAGE>
Notes then outstanding shall become due and payable immediately without any
declaration or other act on the part of the Trustee or any Holder, all as and
to the extent provided in the Indenture. Holders may not enforce the Indenture
or the Notes except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Notes.
Subject to certain limitations, Holders of a majority in principal amount of
the Notes then outstanding may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Company is required to file
periodic reports with the Trustee as to the absence of default.
17. Trustee Dealings With the Company
United States Trust Company of New York, the Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from and perform services for the Company or an Affiliate of the
Company, and may otherwise deal with the Company or an Affiliate of the
Company, as if it were not the Trustee.
18. No Recourse Against Others
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture nor for any claim based on, in respect of or by reason of such
obligations or their creation. The Holder of this Note by accepting this Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Note.
19. Discharge Prior to Maturity
If the Company deposits with the Trustee or the Paying Agent money or
U.S. Government Obligations sufficient to pay the principal of and interest on
the Notes to maturity, the Company will be discharged from the Indenture except
for certain sections thereof.
20. Authentication
This Note shall not be valid until the Trustee or an authenticating
agent signs the certificate of authentication on the other side of this Note.
6
<PAGE>
21. Abbreviations and Definitions
Customary abbreviations may be used in the name of the Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
All capitalized terms used in this Note and not specifically defined
herein are defined in the Indenture and are used herein as so defined.
22. Indenture to Control
In the case of any conflict between the provisions of this Note and
the Indenture, the provisions of the Indenture shall control.
The Company will furnish to any Holder, upon written request
and without charge, a copy of the Indenture. Requests may be
made to: Family Golf Centers, Inc., 225 Broadhollow Road,
Melville, New York 11747, Attention: Chief Financial Officer.
7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
- --------------------------------------------------
- --------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------
- --------------------------------------------------
- --------------------------------------------------
(Print or type assignee's name, address and
zip code)
and irrevocably appoint
- --------------------------------------------------
agent to transfer this Note on the books
of the Company. The Agent may substitute
another to act for him or her.
Date:_____________________________________________
Your signature:___________________________________
(Sign exactly as your name
appears on the other side of
this Note)
- --------------------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
*Signature guaranteed by:_________________________
By:_______________________________________________
- --------
* The signature must be guaranteed by a bank, a trust company or a
member firm of the New York Stock Exchange.
<PAGE>
CONVERSION NOTICE
To convert this Note into Common Stock of the Company, check the box:
[ ]
To convert only part of this Note, state the amount to be converted:
$__________________
If you want the stock certificate made out in another person's name, fill in
the form below:
- --------------------------------------------------
- --------------------------------------------------
(Insert other person's soc. sec. or tax I.D. no.)
- --------------------------------------------------
- --------------------------------------------------
- --------------------------------------------------
(Print or type assignee's name, address and
zip code)
Date:_____________________________________________
Your signature:___________________________________
(Sign exactly as your name appears on the
other side of this Note)
- --------------------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
*Signature guaranteed by:_________________________
By:_______________________________________________
NOTICE OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 3.8 of the Indenture, check the box:
- --------
* The signature must be guaranteed by a bank, a trust company or a
member firm of the New York Stock Exchange.
<PAGE>
[ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 3.8 of the Indenture, state the amount to be
purchased: $_______
Date:_________________________________________________
Your signature________________________________________
(Sign exactly as your name appears on
the other side of this Note)
- ------------------------------------------------------
(Sign exactly as your name appears on
the other side of this Notes)
*Signature guaranteed by:_____________________________
By:___________________________________________________
* The signature must be guaranteed by a bank, a trust company or a
member firm of the New York Stock Exchange.
- --------
* The signature must be guaranteed by a bank, a trust company or a
member firm of the New York Stock Exchange.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of October 16, 1997, by and among Family Golf Centers, Inc., a
Delaware corporation (the "Company"), and Jefferies & Company, Inc.,
Oppenheimer & Co., Inc., Prudential Securities Incorporated and BancAmerica
Robertson Stephens (the "Initial Purchasers") pursuant to the Purchase
Agreement, dated as of October 9, 1997 (the "Purchase Agreement"), between the
Company and the Initial Purchasers. In order to induce the Initial Purchasers
to enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution of this
Agreement is a condition to the closing under the Purchase Agreement.
The Company agrees with the Initial Purchasers, (i) for their benefit
as Initial Purchasers and (ii) for the benefit of the holders from time to time
of the Notes (including the Initial Purchasers) and the holders from time to
time of the Common Stock issued upon conversion of the Notes (each of the
foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following terms shall have the following meanings:
Affiliate: "Affiliate" means, with respect to any specified
person, (i) any other person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, such specified person,
(ii) any officer or director of such other person, (iii) any spouse, immediate
family member or other relative who has the same principal residence as such
person, (iv) any trust in which any such person described above has a
beneficial interest, or (v) any corporation or other organization of which any
such person(s) described above collectively own 50% or more of the equity of
such entity. For purposes of this definition, the term "control" (including the
terms "controlling," "controlled by" and "under common control with") of a
person means the possession, direct or indirect, of the power (whether or not
exercised) to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or
otherwise.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
Common Stock: The shares of common stock, par value $0.01 per
share, of the Company and any other shares of common stock as may constitute
"Common Stock" for purposes of the Indenture, in each case, as issuable or
issued upon conversion of the Notes.
Damages Accrual Period: See Section 2(e) hereof.
<PAGE>
Damages Payment Date: Each of the semi-annual interest payment
dates provided in the Indenture, whether or not Liquidated Damages are payable
on such date.
Deferral Period: See Section 2(d) hereof.
Effectiveness Period: The period commencing with the date hereof
and ending on the earlier of (i) the date that is two years after the latest
date of original issuance of the Notes, (ii) the date that all Registrable
Securities have ceased to be Registrable Securities, or (iii) the date when all
outstanding Registrable Securities may be resold without registration pursuant
to Rule 144(k) under the Securities Act.
Event: See Section 2(e) hereof.
Event Date: See Section 2(e) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Filing Date: See Section 2(a) hereof.
Holder: See the second paragraph of this Agreement.
Indenture: The Indenture, dated as of October 16, 1997, between
the Company and United States Trust Company of New York, as trustee, pursuant
to which the Notes are being issued, as amended or supplemented from time to
time in accordance with the terms hereof.
Initial Purchasers: Jefferies & Company, Inc., Oppenheimer & Co.,
Inc., Prudential Securities Incorporated and BancAmerica Robertson Stephens.
Initial Shelf Registration: See Section 2(a) hereof.
Liquidated Damages: See Section 2(e) hereof.
Losses: See Section 6 hereof.
Notes: The 5.75% Convertible Subordinated Notes due 2004 of the
Company being issued and sold pursuant to the Purchase Agreement and the
Indenture.
Notice Holder: See Section 2(d)(i) hereof
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A
2
<PAGE>
promulgated under the Securities Act), as amended or supplemented by any
amendment or prospectus supplement, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
Purchase Agreement: See the first paragraph of this Agreement.
Record Holder: (i) with respect to any Damages Payment Date
relating to any Note as to which any Liquidated Damages have accrued, the
registered Holder of such Note on the record date with respect to the interest
payment date under the Indenture on which such Damages Payment Date shall occur
and (ii) with respect to any Damages Payment Date relating to any Common Stock
as to which any Liquidated Damages have accrued, the registered Holder of such
Common Stock 15 days prior to such Damages Payment Date.
Registrable Securities: The Notes and Common Stock of the Company
into which the Notes are convertible or converted, whether or not such Notes
have been converted (and associated rights), and at all times subsequent
thereto, and any Common Stock issued with respect thereto upon any stock
dividend, split or similar event until, in the case of any such Notes or Common
Stock, (i) it is effectively registered under the Securities Act and disposed
of in accordance with the Registration Statement covering it, (ii) it is
saleable by the holder thereof pursuant to Rule 144(k) or (iii) it is sold to
the public pursuant to Rule 144, and, as a result of the event or circumstance
described in any of the foregoing clauses (i) through (iii), the legends with
respect to transfer restrictions required under the Indenture (other than any
such legends required solely as the consequences of the fact that the
Registrable Securities (or the Notes, upon the conversion of which, such
Registrable Securities were issued or are issuable) are owned by, or were
previously owned by, the Company or an Affiliate of the Company) are removed or
removable in accordance with the terms of the Indenture.
Registration Expenses: See Section 5 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Rule 144A: Rule 144A under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
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<PAGE>
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Selling Period: See Section 2(d)(i) hereof.
Shelf Registration: See Section 2(a) hereof.
Special Counsel: Mayer, Brown & Platt, or such other successor
counsel as shall be specified by the holders of a majority of the Registerable
Securities, the fees and expenses of which will be paid by the Company pursuant
to Section 5 hereof.
Subsequent Shelf Registration: See Section 2(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The Trustee under the Indenture.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Shelf Registration.
(a) Shelf Registration. The Company shall prepare and file with
the SEC, as soon as practicable, but in any event on or prior to the date sixty
(60) days following the latest date of original issuance of the Notes (the
"Filing Date"), a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf
Registration") registering the resale from time to time by Holders thereof of
all of the Registrable Securities (the "Initial Shelf Registration") and shall
use its best efforts to cause such Shelf Registration to be declared effective
by the SEC on or prior to 120 days following the date of original issuance of
the Notes (the "Effectiveness Date"). The Initial Shelf Registration shall be
on Form S-3 or another appropriate form permitting registration of such
Registrable Securities for resale by such Holders in the manner or manners
designated by them (however, not including any Underwritten Offerings). The
Company shall use its reasonable efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act as soon as
practicable and to keep the Initial Shelf Registration continuously effective
under the Securities Act until the earlier of the expiration of the
Effectiveness Period or the date a Subsequent Shelf Registration, as defined
below, covering all of the Registrable Securities has been declared effective
under the Securities Act.
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration, as defined below, ceases to be effective for any reason as a
result of the issuance of a stop order by the SEC at any time during the
Effectiveness Period, the Company shall use its reasonable efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof, and in
any event shall within thirty (30) days of such cessation of effectiveness
amend the Shelf
4
<PAGE>
Registration in a manner reasonably expected to obtain the withdrawal of the
order suspending the effectiveness thereof, or file an additional Shelf
Registration covering all of the Registrable Securities (a "Subsequent Shelf
Registration"). If a Subsequent Shelf Registration is filed, the Company shall
use its reasonable efforts to cause the Subsequent Shelf Registration to be
declared effective as soon as practicable after such filing and to keep such
Registration Statement continuously effective until the end of the
Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration
if required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration, if required
by the Securities Act, or if reasonably requested by the Initial Purchasers or
by the Trustee on behalf of a majority of the Holders of the Registrable
Securities covered by such Registration Statement.
(d) Each Holder of Registrable Securities agrees that if the
Holder wishes to sell its Registrable Securities pursuant to a Shelf
Registration and related Prospectus, it will do so only in accordance with this
Section 2(d). Each Holder of Registrable Securities agrees to give notice to
the Company at least three Business Days (but no more than 30 Business Days)
prior to any intended distribution of Registrable Securities under the Shelf
Registration, which notice shall specify the date on which such Holder intends
to begin such distribution and such information with respect to such Holder and
the intended distribution of Registrable Securities by such Holder as may be
required to amend the Registration Statement or supplement the related
Prospectus with respect to such intended distribution of Registrable Securities
by such Holder. As soon as practicable after the date such notice is provided,
and in any event within two Business Days after such date, the Company shall
either:
(i) (A) If necessary, prepare and file with the Commission a
post effective amendment to the Shelf Registration or a supplement to the
related Prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that such
Registration Statement will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and so that, as thereafter delivered to purchasers
of the Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; (B)
provide the Notice Holder (as defined below) copies of any documents filed
pursuant to Section 2(d)(i)(A); and (C) inform the Notice Holder that the
Company has complied with its obligations in Section 2(d)(i)(A) (or that, if
the Company has filed a post-effective amendment to the Shelf Registration
which has not yet been declared effective, the Company will notify the Notice
Holder to that effect, will use its reasonable efforts to secure the
effectiveness of such post-effective amendment and will immediately notify the
Notice Holder when the amendment has become effective); each Holder who has
given notice of intention to distribute such Holder's Registrable Securities in
accordance with Section 2(d) hereof (a "Notice Holder") will sell all or any of
such Registrable Securities pursuant to the Shelf
5
<PAGE>
Registration and related Prospectus only during the 45-day period commencing
with the date on which the Company gives notice, pursuant to Section
2(d)(i)(C), that the Registration Statement and Prospectus may be used for such
purpose (such 45-day period is referred to as a "Selling Period"). The Notice
Holders will not sell any Registrable Securities pursuant to such Registration
Statement or Prospectus after such Selling Period without giving a new notice
of intention to sell pursuant to Section 2(d) hereof and receiving a further
notice from the Company pursuant to Section 2(d)(i)(C) hereof.
(ii) in the event (A) of the happening of any event of the
kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi)
hereof or (B) that, in the judgment of the Company, it is advisable to suspend
use of the Prospectus for a discrete period of time due to pending material
corporate developments or similar material events that have not yet been
publicly disclosed and as to which the Company believes public disclosure will
be prejudicial to the Company, the Company shall deliver a certificate in
writing, signed by an authorized executive officer of the Company, to the
Notice Holders and the Special Counsel, to the effect of the foregoing and,
upon receipt of such certificate, each such Notice Holder's Selling Period will
not commence until such Notice Holder's receipt of copies of the supplemented
or amended Prospectus provided for in Section 2(d)(i)(A) hereof, or until it is
advised in writing by the Company that the Prospectus may be used, and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus, if such copies are
requested by Holder in writing. The Company will use its reasonable efforts to
ensure that the use of the Prospectus may be resumed, and the Selling Period
will commence, as soon as practicable and, in the case of a pending development
or event referred to in Section 2(d)(ii)(B) hereof, as soon as the earlier of
(x) public disclosure of such pending material corporate development or similar
material event or (y) such time as in the judgment of the Company, public
disclosure of such material corporate development or similar material event
would not be prejudicial to the Company. Notwithstanding the foregoing, the
Company shall not under any circumstances be entitled to exercise its right
under this Section 2(d)(ii) to defer the commencement of a Selling Period
(whether as a result of events referred to in Section 2(d)(ii)(A) hereof or as
a result of the pending development or event referred to in Section 2(d)(ii)(B)
hereof) more than one (1) time in any three (3) month period or two (2) times
in any twelve (12) month period, and the period in which a Selling Period is
suspended shall not exceed forty-five (45) days. In no event shall the Company
be permitted to extend the period during which such Selling Period is deferred
from and after the date a Notice Holder provides notice to the Company in
accordance with this Section 2(d) of its intention to distribute Registrable
Securities (a "Deferral Period") beyond such forty-five (45) day period.
(e) The parties hereto agree that the Holders of Registrable
Securities will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if (i) the Initial Shelf
Registration has not been filed on or prior to the Filing Date, (ii) the
Initial Shelf Registration has not been declared effective by the SEC on or
prior to the Effectiveness Date, (iii) prior to the end of the Effectiveness
Period, the SEC shall have issued a stop order suspending the effectiveness of
the Shelf Registration or proceedings have
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been initiated with respect to the Shelf Registration under Section 8(d) or
8(e) of the Securities Act, (iv) the aggregate number of days in any one
Deferral Period exceeds the periods permitted pursuant to Section 2(d)(ii)
hereof or (v) the number of Deferral Periods exceeds the number permitted
pursuant to Section 2(d)(ii) hereof (each of the events of a type described in
any of the foregoing clauses (i) through (iv) are individually referred to
herein as an "Event," and each of the Filing Date in the case of clause (i),
the date on which the effectiveness of the Shelf Registration has been
suspended or proceedings with respect to the Shelf Registration under Section
8(d) or 8(e) of the Securities Act have been commenced in the case of clause
(ii), the date on which the duration of a Deferral Period exceeds the periods
permitted by Section 2(d)(ii) hereof in the case of clause (iii), and the date
of the commencement of a Deferral Period that causes the limit on the number of
Deferral Periods under Section 2(d)(ii) hereof to be exceeded in the case of
clause (iv), being referred to herein as an "Event Date"). Events shall be
deemed to continue until the date of the termination of such Event, which shall
be the following dates with respect to the respective types of Events: the date
the Initial Registration Statement is filed in the case of an Event of the type
described in clause (i), the date the Initial Registration Statement becomes
effective in the case of an Event of the type described in clause (ii), the
date that all stop orders suspending effectiveness of the Shelf Registration
have been removed and the proceedings initiated with respect to the Shelf
Registration under Section 8(d) or 8(e) of the Securities Act have terminated,
as the case may be, in the case of Events of the types described in clause
(iii), termination of the Deferral Period which caused the aggregate number of
days in any one Deferral Period to exceed the number permitted by Section
2(d)(ii) to be exceeded in the case of an Event of the type described in clause
(iv), and termination of the Deferral Period the commencement of which caused
the number of Deferral Periods permitted by Section 2(d)(ii) to be exceeded in
the case of an Event of the type described in clause (v).
Accordingly, upon the occurrence of any Event and until such time as
there are no Events which have occurred and are continuing (a "Damages Accrual
Period"), commencing on the Event Date on which such Damages Accrual Period
began, the Company agrees to pay, as liquidated damages, and not as a penalty,
an additional amount (the "Liquidated Damages"): (A)(i) to each Holder of a
Note that is a Notice Holder, accruing at a rate equal to one-quarter of one
percent per annum (25 basis points) on the aggregate principal amount of Notes
held by such Notice Holder and (ii) to each Holder of Common Stock that is a
Notice Holder, accruing at a rate equal to one-quarter of one percent per annum
(25 basis points) calculated on an amount equal to the product of (x) the
then-applicable Conversion Price (as defined in the Indenture), times (y) the
number of shares of Common Stock held by such Holder; and (B) if the Damages
Accrual Period continues for a period in excess of ninety (90) days from the
Event Date, from and after the end of such ninety (90) day period until such
time as there are no Events which have occurred and are continuing, (i) to each
Holder of a Note (whether or not a Notice Holder), accruing at a rate equal to
one-half of one percent per annum (50 basis points) on the aggregate principal
amount of Notes held by such Holder and (ii) to each holder of Common Stock
(whether or not a Notice Holder), accruing at a rate equal to one-half of one
percent per annum (50 basis points) calculated on an amount equal to the
product of (x) the then-applicable Conversion Price (as defined in the
Indenture),
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times (y) the number of shares of Common Stock held by such Holder.
Notwithstanding the foregoing, no Liquidated Damages shall accrue under clause
(A) for the preceding sentence during any period for which Liquidated Damages
accrue under clause (B) of the preceding sentence or as to any Registrable
Securities from and after the earlier of (x) the date such securities are no
longer Registrable Securities, and (y) the expiration of the Effectiveness
Period. The rate of accrual of the Liquidated Damages with respect to any
period shall not exceed the rate provided for in this paragraph notwithstanding
the occurrence of multiple concurrent Events.
The Company shall pay the Liquidated Damages due on any Notes or
Common Stock by depositing with the Trustee under the Indenture, in trust, for
the benefit of the Holders of Notes or Common Stock or Notice Holder, as the
case may be, entitled thereto, at least one Business Day prior to the
applicable Damages Payment Date, sums sufficient to pay the Liquidated Damages
accrued or accruing since the last preceding Damages Payment Date through such
Damages Payment Date. The Liquidated Damages shall be paid by the Company to
the Record Holders on each Damages Payment Date by wire transfer of immediately
available funds to the accounts specified by them or by mailing checks to their
registered addresses as they appear in the list of Securityholders (as defined
in the Indenture), in the case of the Notes, and in the register of the Company
for the Common Stock, in the case of the Common Stock, if no such accounts have
been specified on or before the Damage Payment Date; provided, however, that
any Liquidated Damages accrued with respect to any Note or portion thereof
called for redemption on a redemption date, or repurchased in connection with a
Change of Control (as defined in the Indenture) on a repurchase date, or
converted into Common Stock on a conversion date prior to the Damages Payment
Date, shall, in any such event, be paid instead to the Holder who submitted
such Note or portion thereof for redemption, repurchase or conversion on the
applicable redemption date, repurchase date or conversion date, as the case may
be, on such date (or promptly following the conversion date, in the case of
conversion of a Note). If a Holder of a Note submits a Note for conversion
during the period between a record date for the payment of Liquidated Damages
and the related Damages Payment Date, Liquidated Damages for the period from
the conversion date through the next succeeding Damages Payment Date shall
accrue and be payable to the Holder of Common Stock received on conversion on
the next succeeding Damages Payment Date, notwithstanding that such Holder was
not a Record Holder with respect to such Damages Payment Date. The Trustee
shall be entitled, on behalf of the Holders of Notes and Common Stock and
Notice Holders, to seek any available remedy for the enforcement of this
Agreement, including for the payment of such Liquidated Damages.
Notwithstanding the foregoing, the parties agree that the sole damages payable
for a violation of the terms of this Agreement with respect to which Liquidated
Damages are expressly provided shall be such Liquidated Damages. Nothing shall
preclude a Notice Holder or Holder of Registrable Securities from pursuing or
obtaining specific performance or other equitable relief with respect to this
Agreement.
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All of the Company's obligations set forth in this Section 2(e) which
are outstanding with respect to any Registrable Securities at the time such
security ceases to be a Registrable Security shall survive until such time as
all such obligations with respect to such security have been satisfied in full
(notwithstanding termination of the Agreement pursuant to Section 8(o)).
The parties hereto agree that the Liquidated Damages provided for in
this Section 2(e) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities (other than the Initial
Purchasers) by reason of the failure of the Shelf Registration to be filed or
declared effective or unavailable (absolutely or as a practical matter) for
effecting resales of Registrable Securities, as the case may be, in accordance
with the provisions hereof.
3. Registration Procedures. In connection with the Company's
registration obligations under Section 2 hereof, the Company shall effect such
registrations to permit the sale of the Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant
thereto the Company shall as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holders thereof in
accordance with the intended method or methods of distribution thereof, and use
its reasonable efforts to cause each such Registration Statement to become
effective and remain effective as provided herein; provided, that before filing
any such Registration Statement or Prospectus or any amendments or supplements
thereto (other than documents that would be incorporated or deemed to be
incorporated therein by reference and that the Company is required by
applicable securities laws or stock exchange requirements to file) the Company
shall furnish to the Initial Purchasers and the Special Counsel copies of all
such documents proposed to be filed, which documents will be subject to the
review of the Initial Purchasers and the Special Counsel and the Company shall
not file any such Registration Statement or amendment thereto or any Prospectus
or any supplement thereto (other than such documents which, upon filing, would
be incorporated or deemed to be incorporated by reference therein and that the
Company is required by applicable securities laws or stock exchange
requirements to file) to which the Holders of a majority of the Registrable
Securities covered by such Registration Statement, the Initial Purchasers or
the Special Counsel shall reasonably object in writing within two full Business
Days.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Section 2; cause the related Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the
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disposition of all securities covered by such Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement as so amended or such
Prospectus as so supplemented.
(c) Notify the Notice Holders, the Initial Purchasers and the
Special Counsel promptly, and (if requested by any such person) confirm such
notice in writing, (i) when a Prospectus, any Prospectus supplement, a
Registration Statement or a post-effective amendment to a Registration
Statement has been filed with the SEC, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC or any other federal or state governmental
authority for amendments or supplements to a Registration Statement or related
Prospectus or for additional information, (iii) of the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement or the initiation or threatening
of any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or happening of any event which makes
any statement of a material fact in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue or which would require the making of any changes in the
Registration Statement or Prospectus in order that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of the Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (vi) of the Company's determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use its reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement, or the lifting
of any suspension of the qualification (or exemption from qualification) of any
of the Registrable Securities for sale in any jurisdiction, at the earliest
possible moment.
(e) If reasonably requested by the Initial Purchasers or the
Holders of a majority of the Registrable Securities being sold, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment to a
Registration Statement such information as the Initial Purchaser and the
Special Counsel, or such Holders, in connection with any offering of
Registrable Securities, agree should be included therein as required by
applicable law, and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be
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incorporated in such Prospectus supplement or post-effective amendment;
provided, that the Company shall not be required to take any actions under this
Section 3(e) that are not, in the reasonable opinion of counsel for the
Company, in compliance with applicable law.
(f) Furnish to the Special Counsel and the Initial Purchasers,
without charge, at least one conformed copy of the Registration Statement or
Statements and any amendment thereto, including financial statements but
excluding schedules, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits (unless requested in writing by such
counsel or Initial Purchasers).
(g) Deliver to each selling Holder, the Special Counsel and the
Initial Purchasers in connection with any offering of Registrable Securities,
without charge, as many copies of the Prospectus or Prospectuses relating to
such Registrable Securities (including each preliminary prospectus) and any
amendment or supplement thereto as such persons may reasonably request; and the
Company hereby consents to the use of such Prospectus or each amendment or
supplement thereto by each of the selling Holders of Registrable Securities, in
connection with any offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the selling Holders, and the Special
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer
and sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any selling Holder reasonably requests in writing; keep each
such registration or qualification (or exemption therefrom) effective during
the period such Registration Statement is required to be kept effective and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
applicable Registration Statement; provided, that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
is not then so qualified or (ii) take any action that would subject it to
general service of process in suits or to taxation in any such jurisdiction
where it is not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such selling Holder, in which
case the Company will cooperate in all reasonable respects with the filing of
such Registration Statement and the granting of such approvals, as may be
necessary to enable the selling Holder or Holders thereof, to consummate the
disposition of such Registrable Securities.
(j) During any Selling Period (other than during a Deferral
Period), immediately upon the existence of any fact or the occurrence of any
event as a result of which a Registration Statement shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements
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therein not misleading, or a Prospectus shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, promptly prepare and file a
post-effective amendment to each Registration Statement or a supplement to the
related Prospectus or any document incorporated therein by reference or file
any other required document (such as a Current Report on Form 8-K) that would
be incorporated by reference into the Registration Statement so that the
Registration Statement shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and so that the
Prospectus will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, and, in the case of a post-effective
amendment to a Registration Statement, use its best efforts to cause it to
become effective as soon as practicable.
(k) Intentionally Omitted.
(l) If requested in connection with a disposition of Registrable
Securities pursuant to a Registration Statement, make available for inspection
by a representative of the Holders of Registrable Securities being sold, and
any attorney or accountant retained by such selling Holders or underwriter,
financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries, and cause the executive officers, directors
and employees of the Company and its subsidiaries to supply all information
reasonably requested by any such representative, attorney or accountant in
connection with such disposition; subject to reasonable assurances by each such
person that such information will only be used in connection with matters
relating to such Registration Statement, provided, however, that such persons
shall first agree in writing with the Company that any information that is
reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information is
required by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of any Registration Statement or
the use of any prospectus referred to in this Agreement), (iii) such
information becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person or (iv) such
information becomes available to any such person from a source other than the
Company and such source is not bound by a confidentiality agreement.
(m) Comply with all applicable rules and regulations of the SEC
and make generally available to its Securityholders earning statements (which
need not be audited) satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated under
the Securities Act) no later than 45 days after the end of any 12-month period
(or 90 days after the end of any 12-month period if such period is a
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fiscal year) commencing on the first day of the first fiscal quarter of the
Company commencing after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(n) Cooperate with the selling Holders of Registrable Securities
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations and registered
in such names as the Holders may request.
(o) Provide the transfer agent for the Common Stock with
certificates for the Registrable Securities which are in a form eligible for
deposit with The Depository Trust Company.
(p) Cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange or quotation system on which
the Company's Common Stock is then listed no later than the date the
Registration Statement is declared effective and, in connection therewith, to
the extent applicable, to make such filings under the Exchange Act (e.g., the
filing of a Registration Statement on Form 8-A) and to have such filings
declared effective thereunder.
(q) Cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc.
4. Holder's Obligations. Each Holder agrees, by acquisition of the
Notes and Registrable Securities, that no Holder of Registrable Securities
shall be entitled to sell any of such Registrable Securities pursuant to a
Registration Statement or to receive a Prospectus relating thereto, unless such
Holder has furnished the Company with the notice required pursuant to Section
2(d) hereof, such notice to include such other information regarding such
Holder and the distribution of such Registrable Securities as may be required
to be included in the Registration Statement or the Prospectus or as the
Company may from time to time reasonably request. The Company may exclude from
such registration the Registrable Securities of any Holder who does not furnish
such information provided above for so long as such information is not so
furnished. Each Holder of Registrable Securities as to which any Registration
Statement is being effected agrees promptly to furnish to the Company all
information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not misleading. Any sale of
any Registrable Securities by any Holder shall constitute a representation and
warranty by such Holder that the information relating to such Holder and its
plan of distribution is as set forth in the Prospectus delivered by such Holder
in connection with such disposition, that such Prospectus does not as of the
time of such sale contain any untrue statement of a material fact relating to
such Holder or its plan of distribution and that such Prospectus does not as of
the time of such sale omit to state any material fact relating to such Holder
or its plan of distribution necessary to make the statements in such
Prospectus, in light of the circumstances under which they were made, not
misleading.
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5. Registration Expenses. All fees and expenses incident to the
Company's performance of or compliance with this Agreement shall be borne by
the Company whether or not any of the Registration Statements become effective.
Such fees and expenses shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses (x) with
respect to filings required to be made with the National Association of
Securities Dealers, Inc. and (y) of compliance with federal securities or Blue
Sky laws (including, without limitation, fees and disbursements of Special
Counsel in connection with Blue Sky qualifications of the Registrable
Securities laws of such jurisdictions as the Managing Underwriters, if any, or
Holders of a majority of the Registrable Securities being sold may designate)),
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by the Special Counsel or the Holders of a majority
of the Registrable Securities included in any Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) reasonable fees and
disbursements of counsel for the Company and the Special Counsel in connection
with the Shelf Registration (provided that the Company shall not be liable for
the fees and expenses of more than one separate firm for all parties
participating in any transaction hereunder), (v) fees and disbursements of all
independent certified public accountants referred to in Section 3(k)(iii)
hereof (including the expenses of any special audit and "cold comfort" letters
required by or incident to such performance) and (vi) Securities Act liability
insurance obtained by the Company in its sole discretion. In addition, the
Company shall pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange on which similar securities issued by the Company are
then listed and the fees and expenses of any person, including special experts,
retained by the Company. Notwithstanding the provisions of this Section 5, each
seller of Registrable Securities shall pay all selling expenses (including all
broker's commissions and discounts) and all registration expenses to the extent
that the Company is prohibited by applicable Blue Sky laws from paying for or
on behalf of such seller of Registrable Securities.
6. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify
and hold harmless each Holder and each person, if any, who controls any Holder
(within the meaning of either Section 15 of the Securities Act or Section 20(a)
of the Exchange Act) from and against all losses, liabilities, damages and
expenses (including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or
claim) (collectively, "Losses"), arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such Losses arise out of or are based upon the information
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relating to any Holder furnished to the Company in writing by such Holder
expressly for use therein; provided, that the Company shall not be liable to
any Holder of Registrable Securities (or any person controlling such Holder) to
the extent that any such Losses arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus if either (A)(i) such Holder failed to send or
deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such Holder to the person asserting the claims from
which such Losses arise and (ii) the Prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, or (B)(x) such untrue statement or alleged untrue statement, omission
or alleged omission is corrected in an amendment or supplement to the
Prospectus and (y) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, such
Holder thereafter fails to deliver such Prospectus as so amended or
supplemented, with or prior to the delivery of written confirmation of the sale
of a Registrable Security to the person asserting the claim from which such
Losses arise. The Company shall also indemnify each underwriter and each person
who controls such person (within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act) to the same extent and with the same
limitations as provided above with respect to the indemnification of the
Holders of Registrable Securities.
(b) Indemnification by Holder of Registrable Securities. Each
Holder agrees severally and not jointly to indemnify and hold harmless the
Company, its directors, its officers who sign a Registration Statement, and
each person, if any, who controls the Company (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act), from and
against all losses arising out of or based upon any untrue statement of a
material fact contained in any Registration Statement, Prospectus or
preliminary prospectus or arising out of or based upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information relating to such Holder
so furnished in writing by such Holder to the Company expressly for use in such
Registration Statement or Prospectus. In no event shall the liability of any
selling Holder of Registrable Securities hereunder be greater in amount than
the dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
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expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood that
the indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for (a) the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Holders and all
persons, if any, who control any Holder within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign a Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified party or
parties on the other hand or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the indemnifying party or parties on the one hand
and of the indemnified party or parties on the other hand in connection with
the statements or omissions that resulted
16
<PAGE>
in such Losses, as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the initial placement (before deducting expenses) of the Notes
pursuant to the Purchase Agreement. Benefits received by the Initial Purchasers
shall be deemed to be equal to the total purchase discounts and commissions
received by them pursuant to the Purchase Agreement and benefits received by
any other Holders shall be deemed to be equal to the value of receiving Notes
registered under the Securities Act. Benefits received by any underwriter shall
be deemed to be equal to the total underwriting discounts and commissions, as
set forth on the cover page of the Prospectus forming a part of the
Registration Statement which resulted in such Losses. The relative fault of the
Holders on the one hand and the Company on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Holders or by the Company
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this paragraph are several in
proportion to the respective number of Registrable Securities they have sold
pursuant to a Registration Statement, and not joint.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the Losses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding this
Section 6(d), an indemnifying party that is a selling Holder of Registrable
Securities shall not be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities sold by
such indemnifying party and distributed to the public were offered to the
public exceeds the amount of any damages which such indemnifying party has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Purchase Agreement or otherwise. The
provisions of this Section 6 shall survive so long as Registrable Securities
remain outstanding, notwithstanding any transfer of the Registrable Securities
by any Holder or any termination of this Agreement.
The indemnity and contribution provisions contained in this Section 6
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Holder or any person controlling any Holder,
17
<PAGE>
or the Company, its officers or directors or any person controlling the Company
and (iii) the sale of any Registrable Securities by any Holder.
7. Information Requirements.
(a) The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act, and if at any time the Company
is not required to file such reports, it will, upon the request of any Holder
of Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. The Company further covenants that it will cooperate with any
Holder of Registrable Securities and take such further reasonable action as any
Holder of Registrable Securities may reasonably request (including, without
limitation, making such reasonable representations as any such Holder may
reasonably request), all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144 and
Rule 144A under the Securities Act. Upon the request of any Holder of
Registrable Securities, the Company shall deliver to such Holder a written
statement as to whether it has complied with such filing requirements.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Company to register any of its securities under any section of the
Exchange Act.
(b) The Company shall file the reports required to be filed by it
under the Exchange Act and shall comply with all other requirements set forth
in the instructions to Form S-3 in order to allow the Company to be eligible to
file registration statements on Form S-3.
8. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement, provided that the sole damages payable for a violation of
the terms of this Agreement for which Liquidated Damages are expressly provided
pursuant to Section 2(e) hereof shall be such Liquidated Damages. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.
(b) No Conflicting Agreements. The Company has not, as of the
date hereof, and shall not, on or after the date of this Agreement, enter into
any agreement with respect to its securities which conflicts with the rights
granted to the Holders of Registrable Securities in this Agreement. The Company
represents and warrants that the rights granted to
18
<PAGE>
the Holders of Registrable Securities hereunder do not in any way conflict with
the rights granted to the Holders of the Company's securities under any other
agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of
Holders of a majority of the then outstanding Common Stock constituting
Registrable Securities (with Holders of Notes deemed to be the Holders, for
purposes of this Section, of the number of outstanding shares of Common Stock
into which such Notes are convertible). Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does
not directly or indirectly affect the rights of other Holders of Registrable
Securities may be given by Holders of at least a majority of the Registrable
Securities being sold by such Holders; provided, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier
or (iii) one business day after being deposited with a reputable next-day
courier, postage prepaid, to the parties as follows:
(x) if to a Holder of Registrable Securities, at the most
current address given by such Holder to the Company in accordance with
the provisions of Section 8(e);
(y) if to the Company, to:
Family Golf Centers, Inc.
225 Broadhollow Road
Melville, New York 11747
Attention: Pamela S. Charles, Esq.,
Vice President and General Counsel
Telecopy No.: (516) 694-1935
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue, 22nd Floor
New York, New York 10176
Attention: Kenneth R. Koch, Esq.
Telecopy No.: (212) 682-9213
19
<PAGE>
and
(z) if to the Special Counsel to:
Mayer, Brown & Platt
190 South LaSalle Street, Suite 3900
Chicago, Illinois 60603
Attention: Paul W. Theiss, Esq.
Telecopy No.: (312) 701-7711
or to such other address as such person may have furnished to the other persons
identified in this Section 8(d) in writing in accordance herewith.
(e) Owner of Registrable Securities. The Company will maintain,
or will cause its registrar and transfer agent to maintain, a register with
respect to the Registrable Securities in which all transfers of Registrable
Securities of which the Company has received notice will be recorded. The
Company may deem and treat the person in whose name Registrable Securities are
registered in such register of the Company as the owner thereof for all
purposes, including, without limitation, the giving of notices under this
Agreement
(f) Approval of Holders. Whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) (other than the
Initial Purchasers or subsequent Holders of Registrable Securities if such
subsequent Holders are deemed to be such affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(g) Successors and Assigns. Any person who purchases any
Registerable Securities from an Initial Purchaser shall be deemed, for purposes
of this Agreement, to be an assignee of such Initial Purchaser. The Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties and shall inure to the benefit of and be binding upon each
Holder of any Registrable Securities.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
20
<PAGE>
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(k) Severability. If any term, provision, covenant or restriction
of this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such which may be hereafter
declared invalid, illegal, void or unenforceable.
(l) Entire Agreement This Agreement is intended by the parties as
a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Common Stock of the Company into
which Notes are convertible sold pursuant to the Purchase Agreement. Except as
provided in the Purchase Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Common Stock of the Company into which the Notes are convertible. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such registration rights.
(m) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the
court, shall be entitled to recover reasonable attorneys' fees in addition to
any other available remedy.
(n) Further Assurances. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the
transactions contemplated hereby.
(o) Termination. This Agreement and the obligations of the
parties hereunder shall terminate upon the end of the Effectiveness Period,
except for any liabilities or obligations under Sections 4, 5 or 6 hereof and
the obligations to make payments of and
21
<PAGE>
provide for Liquidated Damages under Section 2(e) hereof to the extent such
damages accrue prior to the end of the Effectiveness Period, each of which
shall remain in effect in accordance with their terms.
SIGNATURE PAGE FOLLOWS
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
FAMILY GOLF CENTERS, INC.
By: /s/ Dominic Chang
--------------------------------
Name: Dominic Chang
Title: President and Chief
Executive Officer
Accepted as of the date first above written:
JEFFERIES & COMPANY, INC.
OPPENHEIMER & CO., INC.
PRUDENTIAL SECURITIES INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
By: JEFFERIES & COMPANY, INC.
By: /s/ David Handler
-------------------------------
<PAGE>
---------------------
FAMILY GOLF CENTERS, INC.
5 3/4% Convertible Subordinated Notes
due 2004
-----------------
INDENTURE
Dated as of October 16, 1997
-----------------
United States Trust Company of New York,
Trustee
---------------------
<PAGE>
CROSS-REFERENCE TABLE*
Indenture
TIA Section Section
- ----------- -------
ss.310(a)(1)......................................................... 9.10
(a)(2)......................................................... 9.10
(a)(3)......................................................... N.A.**
(a)(4)......................................................... N.A.
(a)(5)......................................................... 9.10
(b)............................................................ 9.8; 9.10
(c)............................................................ N.A.
ss.311(a)............................................................ 9.11
(b)............................................................ 9.11
(c)............................................................ N.A.
ss.312(a)............................................................ 2.5
(b)............................................................ 12.3
(c)............................................................ 12.3
ss.313(a)............................................................ 9.6
(b)(1)......................................................... N.A.
(b)(2)......................................................... 9.6
(c)............................................................ 9.6; 12.2
(d)............................................................ 9.6
ss.314(a)............................................................ 6.2; 6.4;
12.2
(b)............................................................ N.A.
(c)(1)......................................................... 12.4(a)
(c)(2)......................................................... 12.4(a)
(c)(3)......................................................... N.A.
(d)............................................................ N.A.
(e)............................................................ 12.4(b)
(f)............................................................ N.A.
ss.315(a)............................................................ 9.1(b)
(b)............................................................ 9.5; 12.2
(c)............................................................ 9.1(a)
(d)............................................................ 9.1(c)
(e)............................................................ 8.11
ss.316(a)(last sentence)............................................. 2.9
(a)(1)(A)...................................................... 8.5
(a)(1)(B)...................................................... 8.4
(a)(2)......................................................... N.A.
(b)............................................................ 8.7
(c)............................................................ 12.5
ss.317(a)(1)......................................................... 8.8
(a)(2)......................................................... 8.9
(b)............................................................ 2.4
ss.318(a)............................................................ 12.1
* This Cross-Reference Table shall not, for any purpose, be deemed a part
of this Indenture.
** N.A. means Not Applicable.
-i-
<PAGE>
TABLE OF CONTENTS
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE................................1
SECTION 1.1 Definitions................................................1
SECTION 1.2 Other Definitions..........................................7
SECTION 1.3 Trust Indenture Act Provisions.............................7
SECTION 1.4 Rules of Construction......................................8
ARTICLE 2.
THE SECURITIES............................................................9
SECTION 2.1 Form and Dating............................................9
SECTION 2.2 Execution and Authentication...............................9
SECTION 2.3 Registrar, Paying Agent and Conversion Agent..............10
SECTION 2.4 Paying Agent to Hold Money In Trust.......................10
SECTION 2.5 Securityholder Lists......................................11
SECTION 2.6 Transfer and Exchange.....................................11
SECTION 2.7 Replacement Securities....................................12
SECTION 2.8 Outstanding Securities....................................13
SECTION 2.9 Treasury Securities.......................................13
SECTION 2.10 Temporary Securities......................................13
SECTION 2.11 Cancellation..............................................14
ARTICLE 3.
REDEMPTION AND PURCHASES.................................................14
SECTION 3.1 Right to Redeem; Notice to Trustee........................14
SECTION 3.2 Selection of Securities to Be Redeemed....................14
SECTION 3.3 Notice of Redemption......................................15
SECTION 3.4 Effect of Notice of Redemption............................16
SECTION 3.5 Deposit of Redemption Price...............................16
SECTION 3.6 Securities Redeemed in Part...............................16
SECTION 3.7 Conversion Arrangement on Call for Redemption.............16
SECTION 3.8 Purchase of Securities at Option of the Holder
Upon Change of Control....................................17
SECTION 3.9 Effect of Change of Control Purchase Notice...............21
SECTION 3.10 Deposit of Repurchase Price...............................22
SECTION 3.11 Securities Purchased In Part..............................22
SECTION 3.12 Compliance With Securities Laws Upon Purchase of
Securities................................................22
SECTION 3.13 Repayment to the Company..................................23
ARTICLE 4.
CONVERSION...............................................................23
SECTION 4.1 Conversion Privilege......................................23
SECTION 4.2 Conversion Procedure......................................24
SECTION 4.3 Fractional Shares.........................................25
SECTION 4.4 Taxes on Conversion.......................................25
SECTION 4.5 Company to Provide Stock..................................26
SECTION 4.6 Adjustment of Conversion Price............................26
1
<PAGE>
SECTION 4.7 No Adjustment.............................................31
SECTION 4.8 Adjustment for Tax Purposes...............................31
SECTION 4.9 Notice of Adjustment......................................31
SECTION 4.10 Notice of Certain Transactions............................32
SECTION 4.11 Effect of Reclassification, Consolidation, Merger
or Sale on Conversion Privilege...........................32
SECTION 4.12 Trustee's Disclaimer......................................33
SECTION 4.13 Voluntary Reduction.......................................34
ARTICLE 5.
SUBORDINATION............................................................34
SECTION 5.1 Securities Subordinated to Senior Indebtedness............34
SECTION 5.2 Securities Subordinated to Prior Payment of All
Senior Indebtedness on Dissolution, Liquidation,
Reorganization, Etc., of the Company......................34
SECTION 5.3 Securityholders to Be Subrogated to Right of
Holders of Senior Indebtedness............................36
SECTION 5.4 Obligations of the Company Unconditional..................37
SECTION 5.5 Company Not to Make Payment With Respect to
Securities in Certain Circumstances.......................37
SECTION 5.6 Notice to Trustee.........................................39
SECTION 5.7 Application by Trustee of Monies
Deposited With It.........................................40
SECTION 5.8 Subordination Rights Not Impaired by Acts or
Omissions of Company or Holders of Senior
Indebtedness..............................................40
SECTION 5.9 Trustee to Effectuate Subordination.......................41
SECTION 5.10 Right of Trustee to Hold Senior Indebtedness..............41
SECTION 5.11 Article 5 Not to Prevent Events of Default................41
SECTION 5.12 No Fiduciary Duty Created to Holders of Senior
Indebtedness..............................................42
SECTION 5.13 Article Applicable to Paying Agents.......................42
ARTICLE 6.
COVENANTS................................................................42
SECTION 6.1 Payment of Securities.....................................42
SECTION 6.2 SEC Reports...............................................42
SECTION 6.3 Liquidation...............................................43
SECTION 6.4 Limitation on Transactions with Affiliates................44
SECTION 6.5 Compliance Certificates...................................45
SECTION 6.6 Notice of Defaults........................................45
SECTION 6.7 Further Instruments and Acts..............................46
ARTICLE 7.
SUCCESSOR CORPORATION....................................................46
SECTION 7.1 When Company May Merge, Etc...............................46
SECTION 7.2 Successor Corporation Substituted.........................47
2
<PAGE>
ARTICLE 8.
DEFAULT AND REMEDIES.....................................................47
SECTION 8.1 Events of Default.........................................47
SECTION 8.2 Acceleration..............................................49
SECTION 8.3 Other Remedies............................................50
SECTION 8.4 Waiver of Defaults and Events of Default..................50
SECTION 8.5 Control by Majority.......................................50
SECTION 8.6 Limitations on Suits......................................50
SECTION 8.7 Rights of Holders to Receive Payment......................51
SECTION 8.8 Collection Suit by Trustee................................51
SECTION 8.9 Trustee May File Proofs of Claim..........................52
SECTION 8.10 Priorities................................................52
SECTION 8.11 Undertaking for Costs.....................................53
SECTION 8.12 Waiver of Usury, Stay or Extension Laws...................53
ARTICLE 9.
TRUSTEE..................................................................53
SECTION 9.1 Duties of Trustee.........................................53
SECTION 9.2 Rights of Trustee.........................................55
SECTION 9.3 Individual Rights of Trustee..............................55
SECTION 9.4 Trustee's Disclaimer......................................56
SECTION 9.5 Notice of Default or Events of Default....................56
SECTION 9.6 Reports by Trustee to Holders.............................56
SECTION 9.7 Compensation and Indemnity................................56
SECTION 9.8 Replacement of Trustee....................................57
SECTION 9.9 Successor Trustee by Merger, Etc..........................58
SECTION 9.10 Eligibility; Disqualification.............................59
SECTION 9.11 Preferential Collection of Claims
Against Company...........................................59
ARTICLE 10.
SATISFACTION AND DISCHARGE OF INDENTURE..................................59
SECTION 10.1 Termination of Company's Obligations......................59
SECTION 10.2 Application of Trust Money................................60
SECTION 10.3 Repayment to Company......................................60
SECTION 10.4 Reinstatement.............................................61
ARTICLE 11.
AMENDMENTS, SUPPLEMENTS AND WAIVERS......................................61
SECTION 11.1 Without Consent of Holders................................61
SECTION 11.2 With Consent of Holders...................................61
SECTION 11.3 Compliance With Trust Indenture Act.......................63
SECTION 11.4 Revocation and Effect of Consents.........................63
SECTION 11.5 Notation on or Exchange of Securities.....................63
SECTION 11.6 Trustee to Sign Amendments, etc...........................63
ARTICLE 12.
MISCELLANEOUS............................................................64
SECTION 12.1 Trust Indenture Act Controls..............................64
3
<PAGE>
SECTION 12.2 Notices...................................................64
SECTION 12.3 Communications by Holders With Other Holders..............65
SECTION 12.4 Certificate and Opinion as to Conditions Precedent........65
SECTION 12.5 Record Date for Vote or Consent of Securityholders........66
SECTION 12.6 Rules by Trustee, Paying Agent, Registrar,
Conversion Agent..........................................66
SECTION 12.7 Legal Holidays............................................66
SECTION 12.8 Governing Law.............................................66
SECTION 12.9 No Adverse Interpretation of Other Agreements.............67
SECTION 12.10 No Recourse Against Others................................67
SECTION 12.11 Successors................................................67
SECTION 12.12 Multiple Counterparts.....................................67
SECTION 12.13 Separability..............................................67
SECTION 12.14 Table of Contents, Headings, etc..........................67
4
<PAGE>
INDENTURE dated as of October 16, 1997 between FAMILY GOLF CENTERS,
INC, a Delaware corporation (the "Company"), and UNITED STATES TRUST COMPANY OF
NEW YORK, a banking and trust company duly organized and existing under the
laws of the state of New York, as Trustee (the "Trustee").
Both parties agree as follows for the benefit of the other and for the
equal and ratable benefit of the registered holders of the Company's 5 3/4%
Convertible Subordinated Notes due 2004.
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions
"Affiliate" of any specified person means (i) any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person, (ii) any spouse, immediate family
member or other relative who has the same principal residence as the 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. For the purposes of
this definition, "control" when used with respect to any person means the power
to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or Conversion
Agent.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors.
"Business Day" means a day that is not a Legal Holiday.
"Capitalized Lease Obligation" means indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles;
the amount of such indebtedness shall be the capitalized amount of such
obligations determined in accordance with such principles.
"Cash" or "cash" means such coin or currency of the United States as
at any time of payment is legal tender for the payment of public and private
debts.
<PAGE>
"Common Stock" means the common stock of the Company, $.01 par value,
as it exists on the date of this Indenture or as it may be constituted from
time to time.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means the
successor.
"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: (a) the amortization of all write-ups of inventory, (b)
the amortization of all intangible assets (including amortization of goodwill,
debt and financing costs), (c) 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), (d) 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, (e) 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
recapitalization charges incurred in connection with redeeming or retiring any
Indebtedness prior to its stated maturity, and (f) any extraordinary or
non-recurring charge arising out of the implementation of SFAS 106 or SFAS 109;
provided, however, that Consolidated Net Worth shall be calculated on a pro
forma basis.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at the date of the execution of this Indenture is located at 114
West 47th Street, New York, New York 10036, Attention: Corporate Trust Division
or at any other time at such other address as the Trustee may designate from
time to time by notice to the Company.
"Credit Facility" means the credit agreement entered into by the
Company and the Designated Senior Lender dated as of June 30, 1997, providing
for a two-year $20 million revolving credit facility converting to a four-year
term loan on July 1, 1999, together with all loan documents and instruments
thereunder (including, without limitation, any guarantee or pledge
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agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder,
and all obligations with respect thereto, in adding Subsidiaries of the Company
as additional borrowers or guarantors thereunder and in receiving or releasing
collateral therefor) all or any portion of the Indebtedness under any such
agreement or any successor or replacement agreement and whether by the same or
any other lender or group of lenders.
"Default" or "default" means any event which is, or after notice or
passage of time, or both, would be an Event of Default.
"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 shall not, as long as any indebtedness remains outstanding under the
Credit Facility, the Term Debt or any other instrument with the Designated
Senior Lender, create any other Indebtedness which provides that it is
Designated Senior Indebtedness without the written consent of the Designated
Senior Lender.
"Designated Senior Lender" means The Chase Manhattan Bank.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indebtedness" means, with respect to any Person and without
duplication, (a) all indebtedness, obligations and other liabilities
(contingent or otherwise) of such Person for borrowed money (including
obligations of the Company in respect of overdrafts, settlement of funds,
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 instrument) 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), (b) all reimbursement
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obligations and other liabilities (contingent or otherwise) of such Person with
respect to letters of credit, bank guarantees or bankers' acceptances, (c) 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, (d) 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, (e) 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
(a) through (d), (f) any indebtedness or other obligations described in clauses
(a) through (d) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such Person, regardless of
whether the indebtedness or other obligation secured thereby shall have been
assumed by such Person and (g) 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 (a)
through (f).
"Indenture" means this Indenture as amended or supplemented from time
to time pursuant to the terms of this Indenture.
"Offering" means the offer and sale of the Securities as
contemplated by the Offering Circular.
"Offering Circular" means the Offering Circular, dated October 9,
1997, relating to the Company's offering and placement of the Securities.
"Officer" means the Chairman or any Co-Chairman of the Board, any Vice
Chairman of the Board, the President, any Vice President, the Chief Financial
Officer, the Secretary or any Assistant Secretary of the Company.
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"Officers' Certificate" means a certificate signed by two Officers;
provided, however, that for purposes of Section 6.5, "Officers' Certificate"
means a certificate signed by the principal executive officer, principal
financial officer or principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of or counsel to the Company or the Trustee.
"Person" or "person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock
company, trust, or any other entity or organization, including a government or
political subdivision or instrumentality thereof.
"Principal" or "principal" of a debt security, including the
Securities, means the principal of the security plus, when appropriate, the
premium, if any, on the security.
"Principal Stockholder" means (i) Dominic Chang, and/or his heirs,
executors and administrators, (ii) any trusts established by Dominic Chang
whose beneficiaries are Dominic Chang and/or his lineal descendants or other
relatives and (iii) any family members or other affiliated Persons of Dominic
Chang.
"Redemption Date" or "redemption date," when used with respect to any
Security to be redeemed, means the date fixed for such redemption pursuant to
this Indenture.
"Redemption Price" or "redemption price," when used with respect to
any Security to be redeemed, means the price fixed for such redemption pursuant
to this Indenture, as set forth in the form of Security annexed as Exhibit A
hereto.
"SEC" or "Commission" means the Securities and Exchange
Commission.
"Securities" means the 5 3/4% Convertible Subordinated Notes due 2004
or any of them (each, a "Security"), as amended or supplemented from time to
time, that are issued under this Indenture.
"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 of the Company, whether outstanding
on the date of this Indenture or thereafter created,
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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 Securities 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.
"Subsidiary" means any corporation of which at least a majority of the
outstanding capital stock having voting power under ordinary circumstances to
elect directors of such corporation shall at the time be held, directly or
indirectly, by the Company, by the Company and one or more Subsidiaries, or by
one or more Subsidiaries.
"Term Debt" means the indebtedness evidenced by certain promissory
notes described in and modified by the First Note Modification Agreement dated
July 25, 1997 entered into by the Company and the Designated Senior Lender in
an aggregate principal amount of $26.9 million due August 2002, together with
all loan documents and instruments thereunder (including, without limitation,
any guarantee or pledge agreements and security documents), in each case as
such agreements have been or may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including, without limitation, increasing the amount
of available borrowings thereunder, and all obligations with respect thereto,
in adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder and in receiving or releasing collateral therefor) all or any
portion of the Indebtedness under any such agreement or any successor or
replacement agreement and whether by the same or any other lender or group of
lenders.
"TIA" means the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 and as in effect on the date of this Indenture,
except as provided in Section 11.3, and except to the extent any amendment to
the Trust Indenture Act expressly provides for application of the Trust
Indenture Act as in effect on another date.
"Trading Day" means, with respect to any security, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any
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day on which securities are not generally traded on the exchange or market in
which such security is traded.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture, and
thereafter means the successor.
"Trust Officer" means, with respect to the Trustee, any officer within
the Corporate Trust Division of the Trustee, including any managing director,
vice president, assistant vice president, assistant treasurer, assistant
secretary or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above-designated officers, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
SECTION 1.2 Other Definitions
TERM DEFINED IN SECTION
"Affiliate Transaction" 6.4
"Bankruptcy Law" 8.1
"Change of Control" 3.8
"Company Notice" 3.8
"Company Order" 2.2
"Conversion Agent" 2.3
"Conversion Date" 4.2
"Conversion Price" 4.6
"Conversion Shares" 4.6
"Custodian" 8.1
"Determination Date" 4.6
"Disposition" 7.1
"Distribution Date" 4.6
"Event of Default" 8.1
"Exchange Act" 3.8
"Legal Holiday" 12.7
"Payment Blockage Notice" 5.5
"Paying Agent" 2.3
"Registrar" 2.3
"Repurchase Date" 3.8
"Repurchase Price" 3.8
"Rights" 4.6
"Subordinated Indebtedness" 5.1
"Triggering Distribution" 4.6
"Unissued Shares" 3.8
"U.S. Government Obligations" 10.1
SECTION 1.3 Trust Indenture Act Provisions
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Whenever this Indenture refers to a provision of the TIA, that
provision is incorporated by reference in and made a part of this Indenture.
The Indenture shall also include those provisions of the TIA required to be
included herein by the provisions of the Trust Indenture Reform Act of 1990.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company or
any other obligor on the Securities.
All other terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.4 Rules of Construction
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in effect on the date hereof, and any other reference in
this Indenture to "generally accepted accounting principles" refers to
generally accepted accounting principles in effect on the date hereof;
(3) words in the singular include the plural, and words in
the plural include the singular;
(4) provisions apply to successive events and transactions;
and
(5) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
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ARTICLE 2.
THE SECURITIES
SECTION 2.1 Form and Dating
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A, which is incorporated in and made
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company shall
approve, with the consent of the Trustee, any notation, legend or endorsement
on the Securities. Each Security shall be dated the date of its authentication.
SECTION 2.2 Execution and Authentication
An Officer shall sign the Securities for the Company by manual or
facsimile signature. Typographic and other minor errors or defects in any
signature shall not affect the validity or enforceability of any Security which
has been authenticated and delivered by the Trustee.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate and make available for delivery
Securities for original issue in the aggregate principal amount of up to
$100,000,000 (plus up to an additional $15,000,000 issued pursuant to the
exercise of the over-allotment option described in Section 2(b) of that certain
Purchase Agreement dated October 9, 1997 among the Company and Jefferies &
Company, Inc., Oppenheimer & Co., Inc., Prudential Securities Incorporated and
BancAmerica Robertson Stephens upon a written order or orders of the Company
signed by two Officers of the Company (a "Company Order"). The Company Order
shall specify the amount of Securities to be authenticated and the date on
which the original issue of Securities is to be authenticated. The aggregate
principal amount of Securities outstanding at any time may not exceed
$100,000,000, except as provided above and in Section 2.7.
The Trustee shall act as the initial authenticating agent.
Thereafter, the Trustee may appoint an authenticating agent
acceptable to the Company to authenticate Securities. An
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authenticating agent may authenticate Securities whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3 Registrar, Paying Agent and Conversion Agent
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the "Registrar"), an
office or agency where Securities may be presented for payment (the "Paying
Agent"), an office or agency where Securities may be presented for conversion
(the "Conversion Agent") and an office or agency where notices and demands to
or upon the Company in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any Agent not a party to this
Indenture. If the Company fails to maintain a Registrar, Paying Agent,
Conversion Agent or agent for service of notices and demands, or fails to give
the foregoing notice, the Trustee shall act as such. The Company or any
Affiliate of the Company may act as Paying Agent (except for the purposes of
Section 6.1 and Article 10), Registrar or Conversion Agent.
The Company initially appoints the Trustee as Registrar, Paying Agent,
Conversion Agent and agent for service of notices and demands in connection
with the Securities.
SECTION 2.4 Paying Agent to Hold Money In Trust
On or prior to 12:00 noon New York time on each due date of the
principal of or interest on any Securities, the Company shall deposit with the
Paying Agent a sum sufficient to pay such principal or interest so becoming
due. Subject to Section 5.7, the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent
for the payment of principal of or interest on the Securities, and shall notify
the Trustee of any default by the Company (or any other obligor on the
Securities) in making any such payment. If the Company or an Affiliate of the
Company acts as Paying Agent, it shall, on or before each due date of the
principal of
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or interest on any Securities, segregate the money and hold it as a separate
trust fund. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and the Trustee may at any time during the
continuance of any default, upon written request to a Paying Agent, require
such Paying Agent to forthwith pay to the Trustee all sums so held in trust by
such Paying Agent. Upon doing so, the Paying Agent (other than the Company)
shall have no further liability for the money.
SECTION 2.5 Securityholder Lists
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee on or before the fifth Business Day preceding each semiannual
interest payment date and at such other times as the Trustee may request in
writing a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Securityholders.
SECTION 2.6 Transfer and Exchange
When a Security is presented to the Registrar with a request to
register a transfer thereof or to exchange such Security for an equal principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested; provided, however,
that every Security presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed by the Holder
thereof or his or her attorney duly authorized in writing. To permit
registration of transfers and exchanges, upon surrender of any Security for
registration of transfer or exchange at the office or agency maintained
pursuant to Section 2.3, the Company shall execute and the Trustee shall
authenticate Securities of a like aggregate principal amount at the Registrar's
request. Any exchange or transfer shall be without charge, except that the
Company or the Registrar may require payment of a sum sufficient to cover any
tax, assessment or other governmental charge that may be imposed in relation
thereto, and provided further that this sentence shall not apply to any
exchange pursuant to Section 2.10, 3.6, 3.11, 4.2 (last paragraph) or 11.5.
Neither the Company, the Registrar nor the Trustee shall be required
to exchange or register a transfer of (a) any Securities for a period of 15
days next preceding the date of any selection of Securities to be redeemed, (b)
any Securities or portions thereof selected or called for redemption (except,
in the case of redemption of a Security in part, the portion not to be
redeemed)
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or (c) any Securities or portions thereof in respect of which a Change of
Control Purchase Notice has been delivered and not withdrawn by the Holder
thereof (except, in the case of the purchase of a Security in part, the portion
not to be purchased).
All Securities issued upon any transfer or exchange of Securities
shall be valid obligations of the Company, evidencing the same debt and
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
SECTION 2.7 Replacement Securities
If any mutilated Security is surrendered to the Company, the Registrar
or the Trustee, or the Company, the Registrar and the Trustee receive evidence
to their satisfaction of the destruc tion, loss or theft of any Security, and
there is delivered to the Company, the Registrar and the Trustee such Security
or indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Company, the Registrar or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute,
and upon its written request the Trustee shall authenticate and deliver, in
exchange for any such mutilated Security or in lieu of any such destroyed, lost
or stolen Security, a new Security of like tenor and principal amount, bearing
a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be redeemed or
purchased by the Company pursuant to Article 3, the Company in its discretion
may, instead of issuing a new Security, pay, redeem or purchase such Security,
as the case may be.
Upon the issuance of any new Securities under this Section 2.7, the
Company may require the payment of a sum sufficient to cover any tax,
assessment or other governmental charge that may be imposed in relation thereto
and any other expenses (including the fees and expenses of the Trustee or the
Registrar) in connection therewith.
Every new Security issued pursuant to this Section 2.7 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
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The provisions of this Section 2.7 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.8 Outstanding Securities
Securities outstanding at any time are all Securities authenticated by
the Trustee, except for those canceled by it, those delivered to it for
cancellation and those described in this Section 2.8 as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Company receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company) holds on a redemption
date or maturity date money sufficient to pay the principal of, and premium, if
any, and accrued interest on, Securities payable on that date, then on and
after that date such Securities cease to be outstanding and interest on them
ceases to accrue.
Subject to the restrictions contained in Section 2.9, a Security does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Security.
SECTION 2.9 Treasury Securities
In determining whether the Holders of the required principal amount of
Securities have concurred in any notice, direction, waiver or consent,
Securities owned by the Company or any other obligor on the Securities or by
any Affiliate of the Company or of such other obligor shall be disregarded,
except that, for purposes of determining whether the Trustee shall be protected
in relying on any such notice, direction, waiver or consent, only Securities
which the Trustee knows are so owned shall be so disregarded. Securities so
owned which have been pledged in good faith shall not be disregarded if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to the Securities and that the pledgee is not the Company
or any other obligor on the Securities or any Affiliate of the Company or of
such other obligor.
SECTION 2.10 Temporary Securities
Until definitive Securities are ready for delivery, the Company may
prepare and execute, and, upon the order of the Company, the Trustee shall
authenticate and deliver, temporary Securities. Temporary Securities shall be
substantially in the
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form of definitive Securities but may have variations that the Company with the
consent of the Trustee considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate and deliver definitive Securities in exchange for temporary
Securities.
SECTION 2.11 Cancellation
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, the Paying Agent and the Conversion Agent shall
forward to the Trustee or its agent any Securities surrendered to them for
transfer, exchange, payment or conversion. The Trustee and no one else shall
cancel, in accordance with its standard procedures, all Securities surrendered
for transfer, exchange, redemption, payment, conversion or cancellation and
shall deliver the canceled Securities to the Company. The Company may not issue
new Securities to replace Securities it has paid or delivered to the Trustee
for cancellation or that any Holder has converted pursuant to Article 4.
ARTICLE 3.
REDEMPTION AND PURCHASES
SECTION 3.1 Right to Redeem; Notice to Trustee
The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time on or after October 15, 2000,
at the redemption prices specified in paragraph 5 of the form of Security
attached hereto as Exhibit A, together with accrued interest up to but not
including the Redemption Date.
If the Company elects to redeem Securities pursuant to this Section
3.1 and paragraph 5 of the Securities, it shall deliver to the Trustee an
Officers' Certificate at least 45 days prior to the redemption date as fixed by
the Company (unless a shorter period shall be satisfactory to the Trustee)
specifying the redemption date and the principal amount of Securities to be
redeemed. If fewer than all of the Securities are to be redeemed, the record
date relating to such redemption shall be selected by the Company and given to
the Trustee, which record date shall not be less than ten days after the date
of delivery of such Officers' Certificate to the Trustee.
SECTION 3.2 Selection of Securities to Be Redeemed
If less than all of the Securities are to be redeemed, the Trustee
shall, not more than 60 days prior to the redemption date, select the
Securities to be redeemed by lot, on a pro rata
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basis or by such other method as the Trustee shall determine to be fair and
appropriate. The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption. Securities in
denominations of $1,000 may only be redeemed in whole. The Trustee may select
for redemption portions (equal to $1,000 or any integral multiple thereof) of
the principal of Securities that have denominations larger than $1,000.
Provisions of this Indenture that apply to Securities called for redemption
also apply to portions of Securities called for redemption.
SECTION 3.3 Notice of Redemption
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause to be mailed a notice of redemption by
first-class mail to each Holder of Securities to be redeemed at such Holder's
address as it appears on the Registrar's books.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the then current Conversion Price;
(4) the name and address of the Paying Agent and the Conversion
Agent;
(5) that Securities called for redemption must be presented and
surrendered to the Paying Agent to collect the Redemption Price;
(6) that the Securities called for redemption may be converted at
any time before the close of business on the Redemption Date;
(7) that Holders who wish to convert Securities must satisfy the
requirements in paragraph 8 of the Securities;
(8) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption shall cease
accruing on and after the redemption date and the only remaining right
of the Holder shall be to receive payment of the redemption price upon
presentation and surrender to the Paying Agent of the Securities; and
(9) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be
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redeemed and that, after the redemption date, upon presentation and
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be
issued.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.4 Effect of Notice of Redemption
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption price
stated in the notice, except for Securities that are converted in accordance
with the provisions of Section 4.1. Upon presentation and surrender to the
Paying Agent, Securities called for redemption shall be paid at the Redemption
Price, plus accrued interest up to but not including the Redemption Date.
SECTION 3.5 Deposit of Redemption Price
On or prior to 12:00 noon New York time on the Redemption Date, the
Company shall deposit with the Paying Agent (or, if the Company acts as Paying
Agent, shall segregate and hold in trust) money sufficient to pay the
redemption price of and accrued interest on all Securities to be redeemed on
that date, other than Securities or portions thereof called for redemption on
that date which have been delivered by the Company to the Trustee for
cancellation or have been converted. The Paying Agent shall return to the
Company any money not required for that purpose because of the conversion of
Securities pursuant to Article 4 or otherwise. If such money is then held by
the Company in trust and is not required for such purpose, it shall be
discharged from the trust.
SECTION 3.6 Securities Redeemed in Part
Upon presentation and surrender of a Security that is redeemed in
part, the Company shall execute and the Trustee shall authenticate and deliver
to the Holder a new Security equal in principal amount to the unredeemed
portion of the Security surrendered.
SECTION 3.7 Conversion Arrangement on Call for Redemption
In connection with any redemption of Securities, the Company may
arrange for the purchase and conversion of any Securities called for redemption
by an agreement with one or more investment bankers or other purchasers to
purchase such Securities by paying to the Paying Agent in trust for the
Securityholders, on or before the close of business on the Redemption Date, an
amount
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that, together with any amounts deposited with the Paying Agent by the Company
for the redemption of such Securities, is not less than the Redemption Price,
together with interest, if any, accrued to, but not including, the Redemption
Date, of such Securities. Notwithstanding anything to the contrary contained in
this Article 3, the obligation of the Company to pay the Redemption Price of
such Securities, including all accrued interest, if any, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, any Securities not duly
surrendered for conversion by the Holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such Holders and (notwithstanding anything to the contrary
contained in Article 4) surrendered by such purchasers for conversion, all as
of immediately prior to the close of business on the Redemption Date, subject
to payment of the above amount as aforesaid. The Paying Agent shall hold and
pay to the Holders whose Securities are selected for redemption any such amount
paid to it for purchase and conversion in the same manner as it would moneys
deposited with it by the Company for the redemption of Securities. Without the
Paying Agent's prior written consent, no arrangement between the Company and
such purchasers for the purchase and conversion of any Securities shall
increase or otherwise affect any of the powers, duties, responsibilities or
obligations of the Paying Agent and the Trustee as set forth in this Indenture,
and the Company agrees to indemnify the Paying Agent and the Trustee from, and
hold them harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers, including the costs and
expenses incurred by the Paying Agent and the Trustee in the defense of any
claim or liability arising out of or in connection with the exercise or
performance of any of its powers, duties, responsibilities or obligations under
this Indenture.
SECTION 3.8 Purchase of Securities at Option of the Holder Upon Change
of Control
(a) If at any time that Securities remain outstanding there shall have
occurred a Change of Control, Securities shall be purchased by the Company at
the option of the Holder thereof, on the date that is 30 days after the Company
Notice of the occurrence of the Change of Control (the "Repurchase Date") at a
purchase price (the "Repurchase Price") equal to 101% of the principal amount
thereof plus accrued interest up to but not including the Repurchase Date,
subject to satisfaction by or on behalf of any Holder of the requirements set
forth in subsection (c) of this Section 3.8.
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A "Change of Control" shall be deemed to have occurred at such time
after the original issuance of the Securities as there shall occur:
(1) 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 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;
(2) 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
(3) 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 (i) who is a member of such Board on the date of the
Indenture or (ii) 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
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would occur even though the present Board of Directors would
thereafter cease to be in office.
A "beneficial owner" shall be determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act, as in effect on the date
of execution of this Indenture, except that, for purposes of this subsection
(a), the number of shares of capital stock of the Company entitling the holders
thereof to vote generally in elections of directors shall be deemed to include,
in addition to all outstanding shares of capital stock of the Company entitling
the holders thereof to vote generally in the election of directors and Unissued
Shares deemed to be held by the Person with respect to which the Change of
Control determination is being made, all Unissued Shares deemed to be held by
all other Persons. As used herein, "Unissued Shares" shall mean shares of
capital stock of the Company not outstanding that are subject to options,
warrants, rights to purchase or conversion privileges exercisable within 60
days following the date of determination of a Change of Control and that, upon
issuance, shall entitle the holders thereof to vote generally in the election
of directors.
(b) Within 30 days after the occurrence of a Change of Control, the
Company shall mail a written notice of Change of Control (the "Company Notice")
by first-class mail to the Trustee and to each Holder (and to beneficial owners
as required by applicable law) and shall cause a copy of such notice to be
published in a daily newspaper of national circulation. The notice shall
include the form of a Change of Control Purchase Notice to be completed by the
Holder and shall state:
(1) the date of such Change of Control and, briefly, the
events causing such Change of Control;
(2) the date by which the Change of Control Purchase Notice
pursuant to this Section 3.8 must be given;
(3) the Repurchase Date;
(4) the Repurchase Price;
(5) the maximum principal amount of Securities that will be
accepted for repurchase;
(6) briefly, the conversion rights of the Securities;
(7) the name and address of the Paying Agent and the
Conversion Agent;
(8) the then current Conversion Price;
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(9) that Securities as to which a Change of Control Purchase
Notice has been given may be converted into Common Stock only to the
extent that the Change of Control Purchase Notice has been withdrawn
in accordance with the terms of this Indenture;
(10) the procedures that the Holder must follow to exercise
rights under this Section 3.8;
(11) the procedures for withdrawing a Change of Control
Purchase Notice, including a form of notice of withdrawal; and
(12) that the Holder must satisfy the requirements set forth
in the Securities in order to convert the Securities.
(c) A Holder may exercise his or her rights specified in subsection
(a) of this Section 3.8 upon delivery of a written notice of the exercise of
such rights (a "Change of Control Purchase Notice") to the Paying Agent at any
time prior to the close of business on the Repurchase Date, stating:
(1) the certificate number of each Security that the Holder
will deliver to be purchased;
(2) the portion of the principal amount of each Security
that the Holder will deliver to be purchased, which portion must be
$1,000 or an integral multiple thereof; and
(3) that such Security shall be purchased pursuant to the
terms and conditions specified in this Indenture.
The delivery of such Security to the Paying Agent (together with all
necessary endorsements) at the office of the Paying Agent shall be a condition
to the receipt by the Holder of the Repurchase Price therefor; provided,
however, that such Repurchase Price shall be so paid pursuant to this Section
3.8 only if the Security so delivered to the Paying Agent shall conform in all
respects to the description thereof set forth in the related Change of Control
Purchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.8, a portion of a Security if the principal amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Security pursuant to Sections 3.8 through
3.13 also apply to the purchase of such portion of such Security.
Notwithstanding anything herein to the contrary, any Holder delivering
to the Paying Agent the Change of Control Purchase Notice contemplated by this
subsection (c) shall have the right
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to withdraw such Change of Control Purchase Notice in whole or in a portion
thereof that is $1,000 or in an integral multiple thereof at any time prior to
the close of business on the Repurchase Date by delivery of a written notice of
withdrawal to the Paying Agent in accordance with Section 3.9.
The Paying Agent shall promptly notify the Company of the receipt by
it of any Change of Control Purchase Notice or written withdrawal thereof.
SECTION 3.9 Effect of Change of Control Purchase Notice
Upon receipt by the Paying Agent of the Change of Control Purchase
Notice specified in Section 3.8(c), the Holder of the Security in respect of
which such Change of Control Purchase Notice was given shall (unless such
Change of Control Purchase Notice is withdrawn as specified below) thereafter
be entitled to receive solely the Repurchase Price with respect to such
Security. Such Repurchase Price shall be paid to such Holder promptly following
the later of (a) the Repurchase Date with respect to such Security (provided
the conditions in Section 3.8(c) have been satisfied) and (b) the time of
delivery of such Security to the Paying Agent by the Holder thereof in the
manner required by Section 3.8(c). Securities in respect of which a Change of
Control Purchase Notice has been given by the Holder thereof may not be
converted into shares of Common Stock on or after the date of the delivery of
such Change of Control Purchase Notice unless such Change of Control Purchase
Notice has first been validly withdrawn.
A Change of Control Purchase Notice may be withdrawn by means of a
written notice of withdrawal delivered by the Holder to the office of the
Paying Agent at any time prior to the close of business on the Repurchase Date,
specifying:
(1) the certificate number of each Security in respect of
which such notice of withdrawal is being submitted;
(2) the principal amount of the Security or portion thereof
with respect to which such notice of withdrawal is being submitted;
and
(3) the principal amount, if any, of such Security that
remains subject to the original Change of Control Purchase Notice and
that has been or will be delivered for purchase by the Company.
There shall be no purchase of any Securities pursuant to Section 3.8
if there has occurred (prior to, on or after, as the case may be, the giving,
by the Holders of such Securities, of the required Change of Control Purchase
Notice) and is continuing
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an Event of Default (other than a default in the payment of the Repurchase
Price with respect to such Securities).
SECTION 3.10 Deposit of Repurchase Price
On or before the second Business Day immediately following a
Repurchase Date, the Company shall deposit with the Trustee or with the Paying
Agent (or, if the Company is acting as the Paying Agent, shall segregate and
hold in trust as provided in Section 2.4) an amount of money sufficient to pay
the aggregate Repurchase Price of all the Securities or portions thereof that
are to be purchased as of such Repurchase Date. The manner in which the deposit
required by this Section 3.10 is made by the Company shall be at the option of
the Company, provided that such deposit shall be made in a manner such that the
Trustee or the Paying Agent shall have immediately available funds on the
second Business Day immediately following the Repurchase Date.
If the Paying Agent holds, in accordance with the terms hereof, money
sufficient to pay the Repurchase Price of any Security tendered for purchase,
then, on the second Business Day immediately following to the Repurchase Date,
such Security will cease to be outstanding and will be deemed paid, whether or
not such Security is delivered to the Paying Agent, and all other rights of the
Holder in respect thereof shall terminate (other than the right to receive the
Repurchase Price upon delivery of such Security).
SECTION 3.11 Securities Purchased In Part
Any Security that is to be purchased only in part shall be surrendered
at the office of the Paying Agent (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing), and promptly
after the Repurchase Date the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service
charge, a new Security or Securities, of such authorized denomination or
denominations as may be requested by such Holder, in aggregate principal amount
equal to, and in exchange for, the portion of the principal amount of the
Security so surrendered that is not purchased.
SECTION 3.12 Compliance With Securities Laws Upon Purchase of Securities
In connection with any offer to purchase or purchase of Securities
under Section 3.8 (provided that such offer or purchase constitutes an "issuer
tender offer" for purposes of Rule 13e-4 under the Exchange Act (which term, as
used herein,
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includes any successor provision thereto) at the time of such offer or
purchase), the Company shall (a) comply with Rule 13e-4 and Rule 14e-1 under
the Exchange Act, (b) file the related Schedule 13E-4 (or any successor
schedule, form or report) under the Exchange Act, and (c) otherwise comply with
all federal and state securities laws so as to permit the rights of the Holders
and obligations of the Company under Sections 3.8 through 3.11 to be exercised
in the time and in the manner specified therein. If necessary the time periods
referred to in Sections 3.8 through 3.11 will be extended to permit compliance
with such laws.
SECTION 3.13 Repayment to the Company
Subject to the provisions of Section 5.7, to the extent that the
aggregate amount of cash deposited by the Company pursuant to Section 3.10
exceeds the aggregate Repurchase Price of the Securities or portions thereof
that the Company is obligated to purchase, then promptly after the second
Business Day immediately following the Repurchase Date the Trustee or the
Paying Agent, as the case may be, shall return any such excess to the Company.
ARTICLE 4.
CONVERSION
SECTION 4.1 Conversion Privilege
Subject to the further provisions of this Section 4.1, a Holder of a
Security may convert such Security into Common Stock at any time after 60 days
following the date of this Indenture and prior to maturity, at the Conversion
Price then in effect; provided, however, that, if such Security is called for
redemption pursuant to Article 3, such conversion right shall terminate at the
close of business on the business day preceding the Redemption Date for such
Security (unless the Company shall default in making the redemption payment
when due, in which case the conversion right shall terminate at the close of
business on the date such default is cured and such Security is redeemed);
provided, further, that, if the Holder of a Security presents such Security for
redemption prior to the close of business on the Redemption Date for such
Security, the right of conversion shall terminate upon presentation of the
Security to the Trustee (unless the Company shall default in making the
redemption payment when due, in which case the conversion right shall terminate
at the close of business on the date such default is cured and such Security is
redeemed). The number of shares of Common Stock issuable upon conversion of a
Security shall be determined by dividing the principal amount of the Security
or portion thereof surrendered for conversion by the Conversion Price in effect
on the Conversion Date. The initial Conversion
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Price is set forth in paragraph 8 of the Securities and is subject to
adjustment as provided in this Article 4.
A Holder may convert a portion of a Security equal to $1,000 or any
integral multiple thereof. Provisions of this Indenture that apply to
conversion of all of a Security also apply to conversion of a portion of a
Security.
A Security in respect of which a Holder has delivered a Change of
Control Purchase Notice pursuant to Section 3.8(c) exercising the option of
such Holder to require the Company to purchase such Security may be converted
only if such Change of Control Purchase Notice is withdrawn by a written notice
of withdrawal delivered to the Paying Agent prior to the close of business on
the Repurchase Date in accordance with Section 3.9.
A Holder of Securities is not entitled to any rights of a holder of
Common Stock until such Holder has converted his or her Securities to Common
Stock, and only to the extent such Securities are deemed to have been converted
into Common Stock pursuant to this Article 4.
SECTION 4.2 Conversion Procedure
To convert a Security, a Holder must (a) complete and manually sign
the conversion notice on the back of the Security and deliver such notice to
the Conversion Agent, (b) surrender the Security to the Conversion Agent, (c)
furnish appropriate endorsements and transfer documents if required by the
Registrar or the Conversion Agent, and (d) pay any transfer or similar tax, if
required. The date on which the Holder satisfies all of those requirements is
the "Conversion Date." As soon as practicable after the Conversion Date, the
Company shall deliver to the Holder through the Conversion Agent a certificate
for the number of whole shares of Common Stock issuable upon the conversion and
cash in lieu of any fractional shares pursuant to Section 4.3.
The person in whose name the certificate is registered shall be deemed
to be a shareholder of record on the Conversion Date; provided, however, that
no surrender of a Security on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the person or persons
entitled to receive the shares of Common Stock upon such conversion as the
record holder or holders of such shares of Common Stock on such date, but such
surrender shall be effective to constitute the person or persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes at the close of business on the next succeeding day on which such
stock transfer books are open; provided, further, that such conversion shall be
at the Conversion Price in effect on the Conversion Date as if the stock
transfer books of the Company had not been
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closed. Upon conversion of a Security, such person shall no longer be a Holder
of such Security. No payment or adjustment will be made for dividends or
distributions on shares of Common Stock issued upon conversion of a Security.
No payment or adjustment will be made for accrued interest on a
converted Security. If any Holder surrenders a Security for conversion after
the close of business on the record date for the payment of an installment of
interest and before the close of business on the related interest payment date,
then, notwithstanding such conversion, the interest payable on such interest
payment date shall be paid to the Holder of such Security on such record date.
In such event, such Security, when surrendered for conversion, must be
accompanied by delivery of a check or draft payable to the Conversion Agent in
an amount equal to the interest payable on such interest payment date on the
portion so converted. If such payment does not accompany such Security, the
Security shall not be converted. If the Company defaults in the payment of
interest payable on the interest payment date, the Conversion Agent shall repay
such funds to the Holder.
If a Holder converts more than one Security at the same time, the
number of shares of Common Stock issuable upon the conversion shall be based on
the aggregate principal amount of Securities converted.
Upon surrender of a Security that is converted in part, the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder, a
new Security equal in principal amount to the unconverted portion of the
Security surrendered.
SECTION 4.3 Fractional Shares
The Company will not issue fractional shares of Common Stock upon
conversion of Securities. In lieu thereof, the Company will pay an amount in
cash based upon the closing sale price of the Common Stock on the Trading Day
immediately prior to the date of conversion.
SECTION 4.4 Taxes on Conversion
If a Holder converts a Security, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon such conversion. However, the Holder shall pay any such
tax which is due because the Holder requests the shares to be issued in a name
other than the Holder's name. The Conversion Agent may refuse to deliver the
certificate representing the Common Stock being issued in a name other than the
Holder's name until the Conversion Agent receives a sum sufficient to pay any
tax which will be due because the
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shares are to be issued in a name other than the Holder's name. Nothing herein
shall preclude any tax withholding required by law or regulation.
SECTION 4.5 Company to Provide Stock
The Company shall, prior to issuance of any Securities hereunder, and
from time to time as it may be necessary, reserve, out of its authorized but
unissued Common Stock, a sufficient number of shares of Common Stock to permit
the conversion of all outstanding Securities into shares of Common Stock.
All shares of Common Stock delivered upon conversion of the Securities
shall be newly issued shares or treasury shares, shall be duly authorized,
validly issued, fully paid and nonassessable and shall be free from preemptive
rights and free of any lien or adverse claim.
The Company will endeavor promptly to comply with all federal and
state securities laws regulating the offer and delivery of shares of Common
Stock upon conversion of Securities, if any, and will list or cause to have
quoted such shares of Common Stock on each national securities exchange or in
the over-the-counter market or such other market on which the Common Stock is
then listed or quoted.
SECTION 4.6 Adjustment of Conversion Price
The conversion price as stated in paragraph 8 of the Securities (the
"Conversion Price") shall be adjusted from time to time by the Company as
follows:
(a) In case the Company shall (i) pay a dividend in shares of Common
Stock to all holders of Common Stock, (ii) make a distribution in shares of
Common Stock to all holders of Common Stock, (iii) subdivide its outstanding
Common Stock into a greater number of shares, or (iv) combine its outstanding
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the Holder of any Security
thereafter surrendered for conversion shall be entitled to receive that number
of shares of Common Stock which he or she would have owned had such Security
been converted immediately prior to the happening of such event. An adjustment
made pursuant to this subsection (a) shall become effective immediately after
the record date in the case of a dividend in shares or distribution and shall
become effective immediately after the effective date in the case of
subdivision or combination.
(b) In case the Company shall issue rights or warrants to all or
substantially all holders of its Common Stock entitling
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them (for a period commencing no earlier than the record date described below
and expiring not more than 60 days after such record date) to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock)
at a price per share less than the current market price per share of Common
Stock (as determined in accordance with subsection (f) of this Section 4.6) at
the record date for the determination of shareholders entitled to receive such
rights or warrants, the Conversion Price in effect immediately prior thereto
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to such record
date by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on such record date, plus the number of shares which
the aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate Conversion Price of the convertible securities so
offered) would purchase at such current market price, and of which the
denominator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock offered (or
into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever any such rights or warrants are
issued, and shall become effective immediately after such record date. If at
the end of the period during which such rights or warrants are exercisable not
all rights or warrants shall have been exercised, the adjusted Conversion Price
shall be immediately readjusted to what it would have been based upon the
number of additional shares of Common Stock actually issued (or the number of
shares of Common Stock issuable upon conversion of convertible securities
actually issued).
(c) In case the Company shall distribute to all or substantially all
holders of its Common Stock any shares of capital stock of the Company (other
than Common Stock), evidences of indebtedness or other non-cash assets
(including securities of any company other than the Company), or shall
distribute to all or substantially all holders of its Common Stock rights or
warrants to subscribe for or purchase any of its securities (excluding those
referred to in subsection (b) of this Section 4.6), then in each such case the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of such distribution by a fraction of which the numerator shall be the
current market price per share (as defined in subsection (f) of this Section
4.6) of the Common Stock on the record date mentioned below less the fair
market value on such record date (as determined by the Board of Directors,
whose determination shall be conclusive evidence of such fair market value) of
the portion of the capital stock or assets or evidences of indebtedness so
distributed or of such rights or warrants applicable to one share of Common
Stock (determined on the basis
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of the number of shares of Common Stock outstanding on the record date), and of
which the denominator shall be the current market price per share (as defined
in subsection (f) of this Section 4.6) of the Common Stock on such record date.
Such adjustment shall become effective immediately after the record date for
the determination of shareholders entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the Company shall distribute
rights or warrants (other than those referred to in subsection (b) of this
Section 4.6) ("Rights") pro rata to holders of Common Stock, the Company may,
in lieu of making any adjustment pursuant to this Section 4.6, make proper
provision so that each holder of a Security who converts such Security (or any
portion thereof) after the record date for such distribution and prior to the
expiration or redemption of the Rights shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon such
conversion (the "Conversion Shares"), a number of Rights to be determined as
follows: (i) if such conversion occurs on or prior to the date for the
distribution to the holders of Rights of separate certificates evidencing such
Rights (the "Distribution Date"), the same number of Rights to which a holder
of a number of shares of Common Stock equal to the number of Conversion Shares
is entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the Rights and (ii) if such conversion occurs
after the Distribution Date, the same number of Rights to which a holder of the
number of shares of Common Stock into which the principal amount of the
Security so converted was convertible immediately prior to the Distribution
Date would have been entitled on the Distribution Date in accordance with the
terms and provisions of and applicable to the Rights.
(d) In case the Company shall, by dividend or otherwise, at any time
distribute (a "Triggering Distribution") to all or substantially all holders of
its Common Stock cash (other than in connection with the liquidation or
dissolution of the Company) in an aggregate amount that, together with the
aggregate amount of any other cash distributions to all or substantially all
holders of its Common Stock made within the 12 months preceding the date of
payment of the Triggering Distribution and in respect of which no Conversion
Price adjustment pursuant to this Section 4.6 has been made, exceeds 10% of the
product of the current market price per share of Common Stock (as determined in
accordance with subsection (f) of this Section 4.6) on the Business Day (the
"Determination Date") immediately preceding the day on which such Triggering
Distribution is declared by the Company multiplied by the number of shares of
Common Stock outstanding on such date (excluding shares held in the Treasury of
the Company), the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying such Conversion Price in effect
immediately prior to the Determination Date by a fraction
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of which the numerator shall be the current market price per share of the
Common Stock (as determined in accordance with subsection (f) of this Section
4.6) on the Determination Date less the amount of cash so distributed within
such 12 months (including, without limitation, the Triggering Distribution)
applicable to one share of Common Stock (determined on the basis of the number
of shares of Common Stock outstanding on the Determination Date) and the
denominator shall be such current market price per share of the Common Stock
(as determined in accordance with subsection (f) of this Section 4.6) on the
Determination Date, such reduction to become effective immediately prior to the
opening of business on the day following the date on which the Triggering
Distribution is paid.
(e) In case the Company shall make a Triggering Distribution of cash
or other consideration to all or substantially all holders of its Common Stock
in respect of a tender or exchange offer by the Company or any subsidiary for
the Common Stock ("Tender Offer") in an aggregate amount that, together with
the aggregate amount of any other cash distributions to all or substantially
all holders of its Common Stock made within the 12 months preceding the date of
payment of the Triggering Distribution and in respect of which no Conversion
Price adjustment pursuant to this Section 4.6 has been made, exceeds 10% of the
product of the current market price per share of Common Stock (as determined in
accordance with subsection (f) of this Section 4.6) on the Determination Date
multiplied by the number of shares of Common Stock outstanding on such date
(excluding shares held in the Treasury of the Company), the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying such Conversion Price in effect immediately prior to the
Determination Date by a fraction of which the numerator shall be the current
market price per share of the Common Stock (as determined in accordance with
subsection (f) of this Section 4.6) on the Determination Date less the amount
of cash or other consideration so distributed within such 12 months (including,
without limitation, the Triggering Distribution) applicable to one share of
Common Stock (determined on the basis of the number of shares of Common Stock
outstanding on the Determination Date) and the denominator shall be such
current market price per share of the Common Stock (as determined in accordance
with subsection (f) of this Section 4.6) on the Determination Date, such
reduction to become effective immediately prior to the opening of business on
the day following the date on which the Triggering Distribution is paid.
(f) For the purpose of any computation under subsections (b), (c), (d)
and (e) of this Section 4.6, the current market price per share of Common Stock
on any date shall be deemed to be the average of the daily closing prices for
the 30 consecutive Trading Days commencing 45 Trading Days before (i) the
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Determination Date with respect to distributions under subsections (d) and (e)
of this Section 4.6 or (ii) the record date with respect to distributions,
issuances or other events requiring such computation under subsection (b) or
(c) of this Section 4.6. The closing price for each day shall be the last
reported sales price or, in case no such reported sale takes place on such
date, the average of the reported closing bid and asked prices in either case
on the NASDAQ National Market System or, if the Common Stock is not listed or
admitted to trading on the NASDAQ National Market System, on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, the closing sales price of the Common Stock as quoted by NASDAQ or,
in case no reported sales takes place, the average of the closing bid and asked
prices as quoted by NASDAQ or any comparable system or, if the Common Stock is
not quoted on NASDAQ or any comparable system, the closing sales price or, in
case no reported sale takes place, the average of the closing bid and asked
prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose. If no such prices are available, the current market price per share
shall be the fair value of a share of Common Stock as determined by the Board
of Directors of the Company.
(g) In any case in which this Section 4.6 shall require that an
adjustment be made following a record date or a Determination Date, as the case
may be, established for purposes of this Section 4.6, the Company may elect to
defer (but only until five Business Days following the filing by the Company
with the Trustee of the certificate described in Section 4.9) issuing to the
holder of any Security converted after such record date or Determination Date
the shares of Common Stock and other capital stock of the Company issuable upon
such conversion over and above the shares of Common Stock and other capital
stock of the Company issuable upon such conversion only on the basis of the
Conversion Price prior to adjustment; and, in lieu of the shares the issuance
of which is so deferred, the Company shall issue or cause its transfer agents
to issue due bills or other appropriate evidence prepared by the Company of the
right to receive such shares. If any distribution in respect of which an
adjustment to the Conversion Price is required to be made as of the record
date, effective date or Determination Date therefor is not thereafter made or
paid by the Company for any reason, the Conversion Price shall be readjusted to
the Conversion Price which would then be in effect if such record date had not
been fixed or such effective date or Determination Date had not occurred.
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SECTION 4.7 No Adjustment
No adjustment in the Conversion Price shall be required unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price as last adjusted; provided, however, that any adjustments
which by reason of this Section 4.7 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article 4 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
No adjustment need be made for a transaction referred to in Section
4.6 if all Securityholders are entitled to participate in the transaction on a
basis and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction. The Company shall give notice to the Trustee of
any such determination.
No adjustment need be made for rights to purchase Common Stock or
issuances of Common Stock pursuant to a Company plan for reinvestment of
dividends or interest.
No adjustment need be made for a change in the par value or a change
to no par value of the Common Stock.
To the extent that the Securities become convertible into the right to
receive cash, no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
SECTION 4.8 Adjustment for Tax Purposes
The Company shall be entitled to make such reductions in the
Conversion Price, in addition to those required by Section 4.6, as it in its
discretion shall determine to be advisable in order that any stock dividends,
subdivisions of shares, distributions of rights to purchase stock or securities
or distributions of securities convertible into or exchangeable for stock
hereafter made by the Company to its shareholders shall not be taxable.
SECTION 4.9 Notice of Adjustment
Whenever the Conversion Price is adjusted, the Company shall promptly
mail to Securityholders a notice of the adjustment and file with the Trustee an
Officers' Certificate briefly stating the facts requiring the adjustment and
the manner of computing it. The certificate shall be conclusive evidence of the
correctness of such adjustment.
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SECTION 4.10 Notice of Certain Transactions
In the event that:
(1) the Company takes any action which would require an
adjustment in the Conversion Price;
(2) the Company consolidates or merges with, or transfers
all or substantially all of its assets to, another corporation and
shareholders of the Company must approve the transaction; or
(3) there is a dissolution or liquidation of the Company,
the Company shall mail to Securityholders and file with the Trustee a notice
stating the proposed record or effective date, as the case may be. The Company
shall mail the notice at least ten days before such date. Failure to mail such
notice or any defect therein shall not affect the validity of any transaction
referred to in clause (1), (2) or (3) of this Section 4.10.
SECTION 4.11 Effect of Reclassification, Consolidation, Merger or Sale on
Conversion Privilege
If any of the following shall occur, namely: (a) any reclassification
or change of shares of Common Stock issuable upon conversion of the Securities
(other than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or combination, or
any other change for which an adjustment is provided in Section 4.6); (b) any
consolidation or merger to which the Company is a party other than a merger in
which the Company is the continuing corporation and which does not result in
any reclassification of, or change (other than a change in name, or in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination) in, outstanding shares of Common
Stock; or (c) any sale or conveyance of all or substantially all of the assets
of the Company as an entirety, then the Company, or such successor or
purchasing corporation, as the case may be, shall, as a condition precedent to
such reclassification, change, consolidation, merger, sale or conveyance,
execute and deliver to the Trustee a supplemental indenture providing that the
Holder of each Security then outstanding shall have the right to convert such
Security into the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock deliverable upon conversion of such Security immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance.
Such
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supplemental indenture shall provide for adjustments of the Conversion Price
which shall be as nearly equivalent as may be practicable to the adjustments of
the Conversion Price provided for in this Article 4. If, in the case of any
such consolidation, merger, sale or conveyance, the stock or other securities
and property(including cash) receivable thereupon by a holder of Common Stock
include shares of stock or other securities and property of a corporation other
than the successor or purchasing corporation, as the case may be, in such
consolidation, merger, sale or conveyance, then such supplemental indenture
shall also be executed by such other corporation and shall contain such
additional provisions to protect the interests of the Holders of the Securities
as the Board of Directors shall reasonably consider necessary by reason of the
foregoing. The provisions of this Section 4.11 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
In the event the Company shall execute a supplemental indenture
pursuant to this Section 4.11, the Company shall promptly file with the Trustee
(x) an Officers' Certificate briefly stating the reasons therefor, the kind or
amount of shares of stock or securities or property (including cash) receivable
by Holders of the Securities upon the conversion of their Securities after any
such reclassification, change, consolidation, merger, sale or conveyance, any
adjustment to be made with respect thereto and that all conditions precedent
have been complied with and (y) an Opinion of Counsel that all conditions
precedent have been complied with.
SECTION 4.12 Trustee's Disclaimer
The Trustee has no duty to determine if the conditions precedent to
the Company's redemption rights under Section 3 have been satisfied or to
determine when an adjustment under this Article 4 should be made, how it should
be made or what such adjustment should be, but may accept as conclusive
evidence of that fact or the correctness of any such adjustment, and shall be
protected in relying upon, an Officers' Certificate including the Officers'
Certificate with respect thereto which the Company is obligated to file with
the Trustee pursuant to Section 4.9. The Trustee makes no representation as to
the validity or value of any securities or assets issued upon conversion of
Securities, and the Trustee shall not be responsible for the Company's failure
to comply with any provisions of this Article 4.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 4.11, but may accept as conclusive evidence of the
correctness thereof, and shall be fully protected in relying upon, the
Officers'
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Certificate with respect thereto which the Company is obligated to file with
the Trustee pursuant to Section 4.11.
SECTION 4.13 Voluntary Reduction
The Company, upon the determination by the Board of Directors, and the
giving of at least 15 days notice to the Trustee and Holders of Securities,
from time to time may reduce the Conversion Price by any amount for any period
of time if the period is at least 20 days or such longer period as may be
required by law and if the reduction is irrevocable during the period;
provided, however, that in no event may the Conversion Price be less than the
par value of a share of Common Stock.
ARTICLE 5.
SUBORDINATION
SECTION 5.1 Securities Subordinated to Senior Indebtedness
The Company covenants and agrees, and each holder of Securities issued
hereunder by his or her acceptance thereof likewise covenants and agrees, that
all Securities shall be issued subject to the provisions of this Article 5; and
each person holding any Security, whether upon original issue or upon transfer
or assignment thereof, accepts and agrees to be bound by such provisions.
The payment of the principal of and interest, and premiums, if any, on
all Securities issued hereunder (including, without limitation, in connection
with any redemption of Securities) and all other amounts payable in respect
thereof now or hereafter existing under the Securities and this Indenture
(collectively, the "Subordinated Indebtedness") shall, to the extent and in the
manner hereinafter set forth, be subordinated and subject in right of payment
to the prior payment in full of all Senior Indebtedness, whether outstanding at
the date of this Indenture or thereafter created, assumed or guaranteed.
SECTION 5.2 Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation, Reorganization, Etc.,
of the Company
Upon the payment or distribution of the assets of the Company of any
kind or character, whether in cash, property or securities (including any
collateral at any time securing the Securities), to creditors upon any
dissolution, winding-up, total or partial liquidation or reorganization of the
Company or its debts (whether voluntary or involuntary, or in bankruptcy,
insolvency, reorganization, liquidation, receivership proceedings, or upon an
assignment for the benefit of creditors,
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or any other marshaling of the assets and liabilities of the Company, or
otherwise), then in such event:
(a) all Senior Indebtedness (including principal thereof, interest
thereon and fees and expenses relating thereto) shall first be paid in full in
cash before any payment is made on account of the Subordinated Indebtedness,
upon any of the circumstances referred to in the preceding paragraph or any
deposit is made pursuant to Section 6.3;
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than securities of
the Company as reorganized or readjusted, or securities of the Company or any
other company, trust or corporation provided for by a plan of reorganization or
readjustment, junior, or the payment of which is otherwise subordinate, at
least to the extent provided in this Article 5, with respect to the
Subordinated Indebtedness, to the payment of all Senior Indebtedness at that
time outstanding and to the payment of all securities issued in exchange
therefor to the holders of the Senior Indebtedness at the time outstanding), to
which the Holders or the Trustee on behalf of the Holders would be entitled
except for the provisions of this Article 5, including any such payment or
distribution which may be payable or deliverable by reason of the payment of
another debt of the Company being subordinated to the payment of the
Subordinated Indebtedness, shall be paid or delivered by any debtor, Custodian
or other person making such payment or distribution, directly to the holders of
the Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness have been issued, ratably according
to the aggregate amounts remaining unpaid on account of the principal of,
interest on and fees and expenses relating to the Senior Indebtedness held or
represented by each, for application to payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of
this Section 5.2, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted, or securities of the
Company or any other Company, trust or corporation provided for by a plan of
reorganization or readjustment, junior, or the payment of which is otherwise
subordinate, at least to the extent provided for in this Article 5, with
respect to the Subordinated Indebtedness, to the payment of all Senior
Indebtedness at the time outstanding and to the payment of all securities
issued in exchange thereof
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to the holders of Senior Indebtedness at the time outstanding), shall be
received by the Trustee or the Holders before all Senior Indebtedness is paid
in full in cash, such payment or distribution (subject to the provisions of
Sections 5.6 and 5.7) shall be held in trust for the benefit of, and shall be
immediately paid or delivered by the Trustee or such Holders, as the case may
be, to, the holders of Senior Indebtedness remaining unpaid, or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the principal of, interest on and fees and
expenses relating to the Senior Indebtedness held or represented by each, for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of the Company.
Upon any distribution of assets of the Company referred to in this
Article 5, the Trustee, subject to the provisions of Sections 9.1 and 9.2, and
the Holders shall be entitled to rely conclusively upon any order or decree by
any court of competent jurisdiction in which such dissolution, winding-up,
liquidation or reorganization proceeding is pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Trustee or to the Holders, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 5.
SECTION 5.3 Securityholders to Be Subrogated to Right of Holders of Senior
Indebtedness
Subject to the prior payment in full of all Senior Indebtedness then
due, the Holders shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the Subordinated Indebtedness shall
be paid in full in cash, and, for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of assets, whether in cash,
property or securities, distributable to the holders of Senior Indebtedness
under the provisions hereof to which the Holders would be entitled except for
the provisions of this Article 5, and no payment pursuant to the provisions of
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this Article 5 to the holders of Senior Indebtedness by the Holders shall, as
among the Company, its creditors other than the holders of Senior Indebtedness,
and the Holders, be deemed to be a payment by the Company to or on account of
Senior Indebtedness, it being understood that the provisions of this Article 5
are, and are intended, solely for the purpose of defining the relative rights
of the Holders, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
SECTION 5.4 Obligations of the Company Unconditional
Nothing contained in this Article 5 or elsewhere in this Indenture or
in any Security is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders the principal of and interest on the Securities, as and when the same
shall become due and payable in accordance with the terms of the Securities, or
to affect the relative rights of the Holders and other creditors of the Company
other than the holders of Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon the happening of an Event of Default
under this Indenture, subject to the provisions of Article 8, and the rights,
if any, under this Article 5 of the holders of Senior Indebtedness in respect
of assets, whether in cash, property or securities of the Company received upon
the exercise of any such remedy.
SECTION 5.5 Company Not to Make Payment With Respect to Securities in
Certain Circumstances
(a) Upon the happening of a default in payment (whether at maturity or
at a date fixed for payment or prepayment or by acceleration or otherwise) of
the principal of or interest on any Senior Indebtedness, as such default is
defined under or in respect of such Senior Indebtedness or in any agreement
pursuant to which such Senior Indebtedness has been incurred, then, unless and
until the amount of such Senior Indebtedness then due shall have been paid in
full or provision made therefor in a manner satisfactory to the holders of such
Senior Indebtedness, or such default shall have been cured or waived or shall
have ceased to exist, the Company shall not pay principal of or interest or
make any payment with respect to the Subordinated Indebtedness or make any
deposit pursuant to Section 6.3 or 10.1 and shall not repurchase, redeem or
otherwise retire any Subordinated Indebtedness (collectively, "pay the
Subordinated Indebtedness").
(b) Upon the happening of an event of default with respect to any
Designated Senior Indebtedness (other than under circumstances when the terms
of subsection (a) of this Section
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5.5 are applicable), as such event of default is defined under or in respect of
such Designated Senior Indebtedness or in any agreement pursuant to which such
Designated Senior Indebtedness has been incurred, permitting the holders
thereof to accelerate the maturity thereof, and upon written notice thereof
given to the Trustee by any holders of such Designated Senior Indebtedness or
their representative or representatives or by the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Designated
Senior Indebtedness have been issued (a "Payment Blockage Notice"), then,
unless and until such event of default shall have been cured or waived in
writing by the holders of such Designated Senior Indebtedness or shall have
ceased to exist, from and after the date of such Payment Blockage Notice
subject to Section 5.7, no direct or indirect payment shall be made with
respect to the Subordinated Indebtedness or to acquire any of the Securities or
on account of the redemption or mandatory repurchase provisions of the
Securities. Payments on the Subordinated Indebtedness 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
nonpayment default shall have been cured or waived for a period of not less
than 90 consecutive days and subsequently recurs.
(c) In the event that, notwithstanding the foregoing provisions of
this Section 5.5, any payment or distribution on account of the Subordinated
Indebtedness shall be made by or on behalf of the Company and received by the
Trustee, any Holder or any Paying Agent (or, if the Company is acting as its
own Paying Agent, money for any such payment shall be segregated and held in
trust), after the happening of a default under any Senior Indebtedness of the
type specified in subsections (a) and (b) of this Section 5.5, then, unless and
until the amount of such Senior Indebtedness then due shall have been paid in
full, or provision made therefor or such default shall have been cured or
waived, such payment (subject, in each case, to the provisions of Sections 5.6
and 5.7 and the proviso contained in subsection (b) of this Section 5.5) shall
be held in trust for the benefit of, and shall be immediately paid over to, the
holders of Senior Indebtedness or their representative or representatives or
the trustee or trustees under any indenture under which any instruments
evidencing any of the Senior Indebtedness may have
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been issued ratably according to the aggregate amounts remaining unpaid on
account of the principal of and interest on, and fees and other charges in
respect of, the Senior Indebtedness held or represented by each, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all Senior Indebtedness in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
benefit of the holders of Senior Indebtedness.
SECTION 5.6 Notice to Trustee
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article 5 or any other provision of this Indenture, the Trustee shall not
at any time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee, unless and until the
Trustee shall have received written notice thereof from the Company or from the
holder or holders of Senior Indebtedness or from their representative or
representatives or from the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness have been
issued; and, prior to the receipt of any such written notice, the Trustee,
subject to the provisions of Sections 9.1 and 9.2, shall be entitled to assume
conclusively that such facts do not exist.
The Trustee shall be entitled to rely conclusively on the delivery to
it of a written notice by a person representing himself or herself to be a
holder of Senior Indebtedness (or a representative of such holder or the
trustee under any indenture pursuant to which any instruments evidencing any of
such Senior Indebtedness have been issued) to establish that such notice has
been given by a holder of Senior Indebtedness or a representative of any such
holder. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 5, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
each person under this Article 5, and, if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
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SECTION 5.7 Application by Trustee of Monies Deposited With It
Money or U.S. Government Obligations deposited in trust with the
Trustee pursuant to Sections 6.3 and 10.1 and not in violation of this Article
5 shall be for the sole benefit of Securityholders and shall thereafter not be
subject to the subordination provisions of this Article 5. However, money or
U.S. Government Obligations may only be deposited in trust with the Trustee
pursuant to Sections 6.3 and 10.1 if all Designated Senior Indebtedness has
been paid in full in cash or if the Designated Senior Lender has given prior
written approval of such deposit. Otherwise, any deposit of monies by the
Company with the Trustee or any Paying Agent (whether or not in trust) for the
payment of the Subordinated Indebtedness shall be subject to the provisions of
Sections 5.1, 5.2, 5.3 and 5.5; except that, if two Business Days prior to the
date on which by the terms of this Indenture any such monies may become payable
for any purpose (including, without limitation, the payment of either the
principal of or interest on any Security) the Trustee shall not have received
with respect to such monies the notice provided for in Section 5.6, then the
Trustee or any Paying Agent shall have full power and authority to receive such
monies and to apply such monies to the purpose for which they were received,
and shall not be affected by any notice to the contrary which may be received
by it on or after such date. This Section 5.7 shall be construed solely for the
benefit of the Trustee and the Paying Agent and shall not otherwise affect the
rights that holders of Senior Indebtedness may have to recover any such
payments from the Holders in accordance with the provisions of this Article 5.
SECTION 5.8 Subordination Rights Not Impaired by Acts or Omissions of Company
or Holders of Senior Indebtedness
(a) No right of any present or future holders of any Senior
Indebtedness to enforce subordination, as herein provided, shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof which any such holder
may have or be otherwise charged with. In the event any Designated Senior
Indebtedness is outstanding, the provisions of Article 5 shall not be amended
in any manner adverse to the interests of the holders of the Designated Senior
Indebtedness without the consent of the Designated Senior Lender. No provision
in any supplemental indenture which affects Senior Indebtedness shall be
effective against the holders of the Senior Indebtedness unless the holders of
such Senior Indebtedness (required pursuant to the terms of such Senior
Indebtedness to give such consent) have consented thereto.
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(b) Without in any way limiting the generality of Section 5.8(a), the
holders, from time to time, of the Senior Indebtedness may, at any time, and
from time to time, without the consent or notice to the holders of the
Securities and without impairing or releasing the subordination provided in
this Article 5 or the obligations hereunder of the holders of the Securities to
the holders, from time to time, of Senior Indebtedness, do any one or more of
the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property,
pledge, mortgage or other instrument securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person, provided, however, that this clause (iv)
shall not impair the obligations of the Trustee pursuant to the second sentence
of Section 5.5(b).
SECTION 5.9 Trustee to Effectuate Subordination
Each holder of a Security by his or her acceptance thereof authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 5 and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
SECTION 5.10 Right of Trustee to Hold Senior Indebtedness
The Trustee, in its individual capacity, shall be entitled to all of
the rights set forth in this Article 5 in respect of any Senior Indebtedness at
any time held by it to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 9.7.
SECTION 5.11 Article 5 Not to Prevent Events of Default
The failure to make a payment on account of the Subordinated
Indebtedness by reason of any provision in this Article 5 shall not be
construed as preventing the occurrence of an Event of Default under Section
8.1.
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SECTION 5.12 No Fiduciary Duty Created to Holders of Senior Indebtedness
Notwithstanding any other provision in this Article 5, the Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness by virtue of the provisions of this Article 5.
SECTION 5.13 Article Applicable to Paying Agents
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 5 shall in such case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying
Agent were named in this Article 5 in addition to or in place of the Trustee;
provided, however, that Sections 5.6, 5.10 and 5.12 shall not apply to the
Company if it acts as Paying Agent.
ARTICLE 6.
COVENANTS
SECTION 6.1 Payment of Securities
The Company shall promptly make all payments in respect of the
Securities on the dates and in the manner provided in the Securities and this
Indenture. An installment of principal or interest shall be considered paid on
the date it is due if the Paying Agent (other than the Company) holds on that
date money, deposited by the Company or an Affiliate thereof, sufficient to pay
the installment. The Company shall pay interest on overdue principal at the
rate borne by the Securities per annum; it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 6.2 SEC Reports
The Company shall file all reports and other information and documents
which it is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act, and within 15 days after it files them with the SEC, the
Company shall file copies of all such reports, information and other documents
with the Trustee. The Company will cause any quarterly and annual reports which
it mails to its shareholders to be mailed to the Holders of the Securities.
In the event the Company is at any time no longer subject to the
reporting requirements of Section 13 or 15(d) of the Exchange
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Act, the Company will prepare, for the first three quarters of each fiscal
year, quarterly financial statements substantially equivalent to the financial
statements required to be included in a report on Form 10-Q under the Exchange
Act. The Company will also prepare, on an annual basis, complete audited
consolidated financial statements, including, but not limited to, a balance
sheet, a statement of operations, a statement of cash flows and all appropriate
notes. All such financial statements will be prepared in accordance with
generally accepted accounting principles. The Company will cause a copy of such
financial statements to be filed with the Trustee and mailed to the Holders of
the Securities within 50 days after the end of each of the first three quarters
of each fiscal year and within 95 days after the close of each fiscal year. The
Company will also comply with the other provisions of TIA ss. 314(a).
SECTION 6.3 Liquidation
Subject to the provisions of Article 5, so far as they may be
applicable hereto, the Board of Directors or the shareholders of the Company
may not adopt a plan of liquidation, which plan provides for, contemplates or
the effectuation of which is preceded by (a) the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company
otherwise than substantially as an entirety (any such sale, lease, conveyance
or other disposition substantially as an entirety being governed by Article 7)
and (b) the distribution of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and of the remaining assets of the
Company to the holders of the capital stock of the Company, unless the Company
shall in connection with the adoption of such plan make provision for, or agree
that prior to making any liquidating distributions it will make provision for,
the satisfaction of the Company's obligations hereunder and under the
Securities as to the payment of the principal and interest thereof. The Company
shall be deemed to make provision for such payments only if (1) the Company
irrevocably deposits in trust with the Trustee money or U.S. Government
Obligations maturing as to principal and interest in such amounts and at such
times as are sufficient, without consideration of any reinvestment of such
interest, to pay the principal of and interest on the Securities then
outstanding to maturity and to pay all other sums payable by it hereunder or
(2) there is an express assumption of the due and punctual payment of the
Company's obligations hereunder and under the Securities and the performance
and observance of all cove nants and conditions to be performed by the Company
hereunder, by the execution and delivery of a supplemental indenture in form
satisfactory to the Trustee by a person who acquires, or will acquire
(otherwise than pursuant to a lease), a portion of the assets of the Company,
and which person will have assets (im mediately after the acquisition) and
aggregate earnings (for such
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person's four full fiscal quarters immediately preceding the acquisition) equal
to not less than the assets of the Company (immediately preceding such
acquisition) and the aggregate earnings of the Company (for its four full
fiscal quarters immediately preceding the acquisition), respectively, and which
is a corporation organized under the laws of the United States, any State
thereof or the District of Columbia; provided, however, that the Company shall
not make any such deposit with the Trustee until (i) it has paid in full in
cash all Designated Senior Indebtedness or obtained prior written consent of
the Designated Senior Lender to make such deposit and (ii) it is not prohibited
from doing so under the provisions of Article 5; and provided, further, the
Company shall not make any liquidating distribution until after the Company (x)
has certified to the Trustee with an Officers' Certificate at least five days
prior to the making of any liquidating distribution that it has complied with
the provisions of this Section 6.3 and (y) delivered to the Trustee an Opinion
of Counsel that all conditions precedent to such liquidation have been complied
with.
SECTION 6.4 Limitation on Transactions with Affiliates
Except as otherwise set forth herein, neither the Company nor any of
its Subsidiaries shall 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 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 Company shall not, and shall not permit any Subsidiary to, engage
in any Affiliate Transactions involving aggregate payments or other transfers
by the Company and its Subsidiaries in excess of $2,000,000 (including cash and
non-cash payments and benefits valued at their fair market value by the Board
of Directors in good faith), unless the Company delivers to the Trustee: (i) a
resolution of the Board of Directors 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 this Inden ture (which resolution shall also be required for all Affiliate
Transactions involving aggregate payments or other transfers by the Company and
its Subsidiaries which are less than $2,000,000 as long as they are in excess
of $500,000); and (ii)(A) with respect to any Affiliate Transaction involving
the incurrence of
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Indebtedness, a written opinion of a nationally recognized in vestment 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% or
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 Affili ate Transaction not otherwise described in (A) or
(B) above, or in lieu of the opinions and appraisals referred to in (A) and (B)
above, a written certification from a nationally recognized pro fessional 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, and the Holders of the Securities from a
financial point of view.
Notwithstanding Sections 4.8(a) and (b), this Section 4.8 shall 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.
SECTION 6.5 Compliance Certificates
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, an Officers' Certificate complying with TIA
ss. 314(a)(4) as to the signer's knowledge of the Company's compliance with all
conditions and covenants on its part contained in this Indenture and stating
whether or not the signer knows of any default or Event of Default. If such
signer knows of such a default or Event of Default, the Officers' Certificate
shall describe the default or Event of Default and the efforts to remedy the
same. For the purposes of this Section 6.4, compliance shall be determined
without regard to any grace period or requirement of notice provided pursuant
to the terms of this Indenture. The Officers' Certificate need not comply with
Section 12.4 hereof.
SECTION 6.6 Notice of Defaults
In the event (a) that Indebtedness of the Company in an aggregate
amount in excess of $1,000,000 is declared due and payable before its maturity
because of the occurrence of any default under such Indebtedness, or (b) of the
occurrence of any event which entitles the holder or holders of such
Indebtedness to declare such Indebtedness due and payable before its maturity
and with respect to which any applicable grace period has lapsed
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or expired, the Company will promptly give written notice to the Trustee of
such declaration or event.
SECTION 6.7 Further Instruments and Acts
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purposes of this Indenture.
ARTICLE 7.
SUCCESSOR CORPORATION
SECTION 7.1 When Company May Merge, Etc.
The Company shall not consolidate with or merge with or into, or
transfer all or substantially all of its assets to, any person, (any such
consolidation, merger or sale being a "Disposition") unless:
(a) either the Company shall be the resulting or surviving entity of
such Disposition or such person is a corporation organized and existing under
the laws of the United States, a State thereof or the District of Columbia, and
such person expressly assumes by supplemental indenture executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Securities and this Indenture (in which case all such
obligations of the Company shall terminate); and
(b) immediately before and immediately after giving effect to such
Disposition and treating any indebtedness which becomes an obligation of the
Company as a result of such Disposition as having been incurred by the Company
at the time of such transaction, no default or Event of Default shall have
occurred and be continuing; and
(c) the entity formed by or surviving such Disposition, or the person
to which such Disposition shall have been made shall have Consolidated Net
Worth (immediately after the Disposition but prior to giving effect on a pro
forma basis to any purchase accounting adjustments or restructuring changes
resulting from the Disposition) equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the Disposition.
The Company shall deliver to the Trustee prior to the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each of which
shall comply with Section 12.4 and shall state that such consolidation, merger
or transfer and such supplemental indenture comply with this Article 7 and that
all
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conditions precedent herein provided for relating to such transaction have been
complied with; provided, however, that such Opinion of Counsel shall not
address Events of Default, except where such counsel has actual knowledge of
any such Event of Default.
SECTION 7.2 Successor Corporation Substituted
Upon any Disposition in accordance with Section 7.1, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture with
the same effect as if such successor corporation had been named as the Company
herein.
ARTICLE 8.
DEFAULT AND REMEDIES
SECTION 8.1 Events of Default
An "Event of Default" shall occur if:
(1) the Company defaults in the payment of interest on any
Security when the same becomes due and payable and the default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable at maturity, upon
redemption or otherwise;
(3) failure by the Company to perform any conversion of
Securities required under this Indenture and the continuance of such
failure for 30 days;
(4) the Company fails to comply with any of its other
agreements contained in the Securities or this Indenture and the
default continues for the period and after the notice specified below;
(5) failure of the Company to make any payment at maturity
in respect of Indebtedness, which payment is in an amount in excess of
$1,000,000 and continuance of such failure for 30 days after notice of
such failure;
(6) a default shall occur under any bond, debenture, note or
other indebtedness for money borrowed by the Company having an
aggregate outstanding principal amount of in excess of $1,000,000,
which default shall have resulted in such indebtedness becoming or
being declared due and payable
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prior to the date on which it would otherwise have been due and
payable, without such indebtedness having been discharged, such
acceleration having been rescinded or annulled or there having been
deposited in trust a sum of money sufficient to discharge in full such
indebtedness, in each case within a period of 30 days following the
occurrence of such acceleration;
(7) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(C) consents to the appointment of a Custodian of
it or for all or substantially all of its property; or
(D) makes a general assignment for the benefit of
its creditors; or
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company in an
involuntary case or proceeding;
(B) appoints a Custodian of the Company or for all
or substantially all of its property; or
(C) orders the liquidation of the Company;
and in each case the order or decree remains unstayed and in
effect for 60 days.
The term "Bankruptcy Law" means Title 11 of the United States Code or
any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
A default under clause (4) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the Securities then outstanding notify the Company and the Trustee,
of the default, and the Company does not cure the default within 60 days after
receipt of such notice. The notice given pursuant to this Section 8.1 must
specify the default, demand that it be remedied and state that the notice is a
"Notice of Default." When a default is cured, it ceases.
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SECTION 8.2 Acceleration
If an Event of Default (other than an Event of Default specified in
clause (7) or (8) of Section 8.1) occurs and is continuing, the Trustee may, by
notice to the Company, or the Holders of at least 25% in principal amount of
the Securities then outstanding may, by written notice to the Company, the
Trustee, and the Designated Senior Lender, and the Trustee shall, upon the
request of such Holders, declare all unpaid principal of and accrued interest
to the date of acceleration on the Securities then outstanding (if not then due
and payable) to be due and payable (A) if no Designated Senior Indebtedness is
outstanding upon any such declaration or (B) if Designated Senior Indebtedness
is outstanding, upon the first to occur of (i) an acceleration of all
Designated Senior Indebtedness or (ii) the 15th day after receipt by the
Company and the Designated Senior Lender of such written notice given
hereunder, and the same shall become and be immediately due and payable. If an
Event of Default specified in clause (7) or (8) of Section 8.1 occurs, all
unpaid principal of and accrued interest on the Securities then outstanding
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholder. The
Holders of a majority in principal amount of the Securities then outstanding by
notice to the Trustee may rescind an acceleration and its consequences if (a)
all existing Events of Default, other than the nonpayment of the principal of
and accrued interest on the Securities which has become due solely by such
declaration of acceleration, have been cured or waived; (b) to the extent the
payment of such interest is lawful, interest on overdue installments of
interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid; (c) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction; and
(d) all payments due to the Trustee and any predecessor Trustee under Section
9.7 have been made. Anything herein contained to the contrary notwithstanding,
in the event of any acceleration pursuant to this Section 8.2, the Company
shall not be obligated to pay any premium which it would have had to pay if it
had then elected to redeem the Securities pursuant to paragraph 5 of the
Securities, except in the case of any Event of Default occurring by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium which it would
have had to pay if it had then elected to redeem the Securities pursuant to
paragraph 5 of the Securities, in which case an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law.
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SECTION 8.3 Other Remedies
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of the principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 8.4 Waiver of Defaults and Events of Default
Subject to Sections 8.7 and 11.2, the Holders of a majority in
principal amount of the Securities then outstanding by notice to the Trustee
may waive an existing default or Event of Default and its consequence, except a
default in the payment of the principal of or interest on any Security as
specified in clauses (1) and (2) of Section 8.1. When a default or Event of
Default is waived, it is cured and ceases.
SECTION 8.5 Control by Majority
The Holders of a majority in principal amount of the Securities then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of another Securityholder or the Trustee, or that may
involve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
SECTION 8.6 Limitations on Suits
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities (except actions for payment of overdue principal or
interest or for the conversion of the Securities pursuant to Article 4) unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
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(2) the Holders of at least 25% in principal amount of the
then outstanding Securities make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
a majority in principal amount of the Securities then outstanding.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 8.7 Rights of Holders to Receive Payment
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of the principal of and interest on
the Security, on or after the respective due dates expressed in the Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.
SECTION 8.8 Collection Suit by Trustee
If an Event of Default in the payment of principal or interest
specified in clause (1) or (2) of Section 8.1 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or another obligor on the Securities for the whole amount
of principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per
annum borne by the Securities and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
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SECTION 8.9 Trustee May File Proofs of Claim
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor on the Securities), its creditors or its property and shall
be entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceeding is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 9.7, and to
the extent that such payment of the reasonable compensation, expenses,
disbursements and advances in any such proceedings shall be denied for any
reason, payment of the same shall be secured by a lien on, and shall be paid
out of, any and all distributions, dividends, monies, securities and other
property which the Securityholders may be entitled to receive in such
proceedings, whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to, or, on behalf of any Securityholder, to
authorize, accept or adopt any plan of reorganization, arrangement, adjustment
or composition affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Securityholder
in any such proceeding.
SECTION 8.10 Priorities
If the Trustee collects any money pursuant to this Article 8, it shall
pay out the money in the following order:
First, to the Trustee for amounts due under Section 9.7;
Second, to the holders of Senior Indebtedness to the extent
required by Article 5;
Third, to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for principal
and interest, respectively; and
Fourth, to the Company.
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The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section 8.10.
SECTION 8.11 Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 8.11 does not apply to a suit made by the Trustee, a suit by a
Holder pursuant to Section 8.7, or a suit by Holders of more than 10% in
principal amount of the Securities then outstanding.
SECTION 8.12 Waiver of Usury, Stay or Extension Laws
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any usury, stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
ARTICLE 9.
TRUSTEE
SECTION 9.1 Duties of Trustee
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. The Trustee, however, shall examine any
certificates and opinions which by any provision hereof are
specifically required to be delivered to the Trustee to determine
whether or not they conform to the requirements of this Indenture.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of subsection
(b) of this Section 9.1;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 8.5.
(d) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability, expense or fee.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money or
other assets held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
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SECTION 9.2 Rights of Trustee
Subject to Section 9.1:
(a) The Trustee may rely conclusively on any document believed by it
to be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both, which shall conform to
Section 12.4(b). The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Certificate or Opinion.
(c) The Trustee may act through its agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights
or powers.
(e) The Trustee may consult with counsel, and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization and
protection in respect of any such action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall have no duty to inquire as to the performance of
the Company's covenants herein. In addition, the Trustee shall not be deemed to
have knowledge of any default or Event of Default except (i) any Event of
Default occurring pursuant to Section 8.1(1) or 8.1(2) or (ii) any default or
Event of Default of which the Trustee shall have received written notification
or of which a Trust Officer shall have obtained actual knowledge.
SECTION 9.3 Individual Rights of Trustee
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 9.10 and 9.11.
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SECTION 9.4 Trustee's Disclaimer
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for
any statement in the Securities other than its certificate of authentication.
SECTION 9.5 Notice of Default or Events of Default
If a default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice
of the default or Event of Default within 90 days after it occurs. Except in
the case of a default or an Event of Default in payment of the principal of or
interest on any Security, the Trustee may withhold the notice if and so long as
a committee of its Trust Officers in good faith determines that withholding
notice is in the interest of Securityholders.
SECTION 9.6 Reports by Trustee to Holders
If such report is required by TIA ss. 313, within 60 days after each
April 15, beginning with the April 15 following the date of this Indenture, the
Trustee shall mail to each Securityholder a brief report dated as of such April
15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA
ss. 313(b)(2) and (c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed. The Company shall notify the
Trustee whenever the Securities become listed on any stock exchange and any
changes in the stock exchanges on which the Securities are listed.
SECTION 9.7 Compensation and Indemnity
The Company shall pay to the Trustee from time to time reasonable
compensation for its services (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust). The Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it. Such expenses may
include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company agrees to indemnify the Trustee and each of its officers,
directors, attorneys-in-fact and agents for, and hold it and each of them
harmless against, any claim, demand, expense (including but not limited to
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel),
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loss or liability incurred by it without negligence, bad faith or willful
misconduct on its part, arising out of or in connection with the administration
of this trust and its rights or duties hereunder, including the reasonable
costs and expenses of defending itself against any claim or liability in
connection therewith. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity, but failure
by the Trustee promptly to notify the Company shall not relieve the Company of
its obligations hereunder unless such failure prejudices the Company. The
Company need not pay for any settlement made without its written consent, which
consent shall not be unreasonably withheld. The Company need not reimburse any
expense or indemnify against any loss or liability to the extent incurred by
the Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 9.7, the
Trustee shall have a senior claim to which the Securities are hereby made
subordinate on all money or property held or collected by the Trustee, except
such money or property held in trust to pay the principal of and interest on
particular Securities. The obligations of the Company under this Section 9.7 to
compensate or indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall be secured by a lien prior to any
lien of the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the Holders of
particular Securities. The obligations of the Company under this Section 9.7
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (7) or (8) of Section 8.1 occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 9.8 Replacement of Trustee
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities then outstanding may remove the
Trustee by so notifying the Trustee and may, with the Company's written
consent, appoint a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 9.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
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(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.
If a successor Trustee does not take office within 45 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of 10% in principal amount of the Securities then outstanding may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 9.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee and be released from its obligations (exclusive of any
liabilities that the retiring Trustee may have incurred while acting as
Trustee) hereunder, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Securityholder.
A retiring Trustee shall not be liable for the acts or omissions of
any successor Trustee after its succession.
Notwithstanding replacement of the Trustee pursuant to this Section
9.8, the Company's obligations under Section 9.7 shall continue for the benefit
of the retiring Trustee.
SECTION 9.9 Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation, without any
further act, shall be the successor Trustee, provided such transferee
corporation shall qualify and be eligible under Section 9.10.
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SECTION 9.10 Eligibility; Disqualification
The Trustee shall always satisfy the requirements of paragraphs (1),
(2) and (5) of TIA ss. 310(a). If at any time the Trustee shall cease to
satisfy any such requirements, it shall resign immediately in the manner and
with the effect specified in this Article 9. The Trustee shall be subject to
the provisions of TIA ss. 310(b). Nothing herein shall prevent the Trustee from
filing with the SEC the application referred to in the penultimate paragraph of
TIA ss. 310(b).
SECTION 9.11 Preferential Collection of Claims Against Company
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The
provisions of TIA ss. 311 shall apply to the Company, as obligor on the
Securities.
ARTICLE 10.
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 10.1 Termination of Company's Obligations
Subject to applicable rules of any stock exchange or system on which
the Securities are listed or quoted, the Company may terminate all of its
obligations under the Securities and this Indenture (excepting those
obligations referred to in the immediately succeeding paragraph) if all
Securities previously authenticated and delivered (other than destroyed, lost
or stolen Securities which have been replaced or paid or Securities for whose
payment money has theretofore been held in trust and thereafter repaid to the
Company, as provided in Section 10.3) have been delivered to the Trustee or the
Paying Agent for cancellation and the Company has paid all sums payable by it
hereunder, or if the Company irrevocably deposits in trust with the Trustee or
the Paying Agent, pursuant to a written trust agreement satisfactory to the
Trustee, money or U.S. Government Obligations maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay the principal of and
interest on the Securities then outstanding to maturity or to the date fixed
for redemption and to pay all other sums payable by it hereunder. The Company
may make an irrevocable deposit pursuant to this Section 10.1 only if (i) it
has paid in full in cash all Designated Senior Indebtedness or obtained prior
written consent of the Designated Senior Lender to make such deposit and (ii)
at such time it is not prohibited from doing so under the provisions of Article
5 and the Company shall have delivered to the Trustee and any such Paying Agent
an Officers' Certificate and an Opinion
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of Counsel to that effect and that all other conditions to such deposit have
been complied with.
The Company's obligations in paragraph 13 of the Securities and in
Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.11, 6.1, 9.7, 9.8, 10.4 and Article 4 shall
survive until the Securities are no longer outstanding. Thereafter, the
Company's obligations in such paragraph 13 and in Section 9.7 shall survive.
After such irrevocable deposit, if in compliance with Section 5.7, the
Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Securities and this Indenture, except for those
surviving obligations specified above.
"U.S. Government Obligations" means direct noncallable obligations of,
or non-callable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States is pledged.
SECTION 10.2 Application of Trust Money
The Trustee or the Paying Agent shall hold in trust, for the benefit
of the Holders, money or U.S. Government Obligations deposited with it pursuant
to Section 10.1, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with this Indenture, to the payment of the
principal of and interest on the Securities. Money and U.S. Government
Obligations deposited in trust in accordance with Section 10.1 shall not be
subject to the subordination provisions of Article 5.
SECTION 10.3 Repayment to Company
Subject to Section 10.1, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess money or U.S. Government
Obligations held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal or interest that remains
unclaimed for two years after a right to such money has matured; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such payment, may at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and that
after a date specified therein, which shall be at least 30 days from the date
of such publication or mailing, any unclaimed balance of such money then
remaining will be repaid to the Company. After payment to the
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Company, Securityholders entitled to money must look to the Company for payment
as general creditors unless otherwise prohibited by law.
SECTION 10.4 Reinstatement
If the Trustee or the Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 10.1 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 10.1 until such time as the Trustee or the Paying Agent is permitted to
apply all such money or U.S. Government Obligation in accordance with Section
10.1; provided, however, that if the Company has made any payment of the
principal of or interest on any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive any such payment from the money or U.S. Government
Obligations held by the Trustee or the Paying Agent.
ARTICLE 11.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.1 Without Consent of Holders
The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
(a) to comply with Sections 4.11, 6.3 and 7.1;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(c) to cure any ambiguity, defect or inconsistency, or to make any
other change that does not adversely affect the rights of any
Securityholder;
(d) to comply with the provisions of the TIA; or
(e) to appoint a successor Trustee.
SECTION 11.2 With Consent of Holders
The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to any Securityholder with the written consent of
the Holders of a majority in
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principal amount of the Securities then outstanding. The Holders of a majority
in principal amount of the Securities then outstanding may waive compliance in
a particular instance by the Company with any provision of this Indenture or
the Securities without notice to any Securityholder. Subject to Section 11.4,
without the written consent of each Securityholder affected, however, an
amendment, supplement or waiver, including a waiver pursuant to Section 8.4,
may not:
(1) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of
interest on any Security;
(3) reduce the principal of or premium on or change the
fixed maturity of any Security or alter the redemption provisions with
respect thereto in a manner adverse to the Holder thereof;
(4) alter the conversion provisions with respect to any
Security in a manner adverse to the Holder thereof;
(5) waive a default in the payment of the principal of or
premium or interest on any Security;
(6) make any changes in Section 8.4 or 8.7 or in this
sentence;
(7) modify the provisions of Article 5 in a manner adverse
to the Holders; or
(8) make any Security payable in money other than that
stated in the Security.
It shall not be necessary for the consent of the Holders under this
Section 11.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 11.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
An amendment under this Section 11.2 may not make any change that
adversely affects the rights under Article 5 of any holder
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of an issue of Senior Indebtedness unless the holders of that issue, pursuant
to its terms, consent to the change.
SECTION 11.3 Compliance With Trust Indenture Act
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as in effect at the date of such amendment or
supplement.
SECTION 11.4 Revocation and Effect of Consents
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his or her Security or portion of a Security if the Trustee
receives the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 11.2. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security.
SECTION 11.5 Notation on or Exchange of Securities
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms.
SECTION 11.6 Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment or supplement authorized pursuant
to this Article 11 if the amendment or supplement does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, in its sole discretion, but need not sign it. In signing or
refusing to sign any amendment or supplement hereunder, the Trustee shall be
entitled to receive and, subject to Section 9.1, shall be fully protected in
relying upon, an Opinion of Counsel stating that such amendment or supplement
is
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authorized or permitted by this Indenture. The Company may not sign an
amendment or supplement until the Board of Directors approves it.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.1 Trust Indenture Act Controls
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through
operation of Section 318(c) thereof, such imposed duties shall control.
SECTION 12.2 Notices
Any notice, request or communication shall be given in writing and
delivered in person or mailed by first-class mail, postage prepaid, addressed
as follows:
If to the Company:
Family Golf Centers, Inc.
225 Broadhollow Road
Melville, New York 11747
Attention: Chief Financial Officer
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Division
If to the Designated Senior Lender:
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: Account Officer-Family Golf Centers
Such notices or communications shall be effective when received.
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
by first-class mail to him or her at his or her address shown on the register
kept by the Registrar.
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Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication to a Securityholder is mailed in
the manner provided above, it is duly given, whether or not the addressee
receives it.
SECTION 12.3 Communications by Holders With Other Holders
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA ss. 312(c).
SECTION 12.4 Certificate and Opinion as to Conditions Precedent
(a) Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent (including any covenants,
compliance with which constitutes a condition precedent), if any,
provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent (including any covenants,
compliance with which constitutes a condition precedent) have been
complied with.
(b) Each Officers' Certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture (other
than annual certificates provided pursuant to Section 6.5) shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or
she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
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(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public
officials.
SECTION 12.5 Record Date for Vote or Consent of Securityholders
The Company (or, in the event deposits have been made pursuant to
Section 6.3 or 10.1, the Trustee) may set a record date for purposes of
determining the identity of Securityholders entitled to vote or consent to any
action by vote or consent authorized or permitted under this Indenture, which
record date shall be the later of ten days prior to the first solicitation of
such vote or consent or the date of the most recent list of Securityholders
furnished to the Trustee pursuant to Section 2.5 prior to such solicitation.
Notwithstanding the provisions of Section 11.4, if a record date is fixed,
those persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to take such
action by vote or consent or to revoke any vote or consent previously given,
whether or not such persons continue to be Holders after such record date.
SECTION 12.6 Rules by Trustee, Paying Agent, Registrar, Conversion Agent
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar, Paying Agent or Conversion Agent may make reasonable
rules for its functions.
SECTION 12.7 Legal Holidays
A "Legal Holiday" is a Saturday, Sunday or a day on which state or
federally chartered banking institutions in New York, New York (or such other
city and state where the Trustee's corporate trust operations are then located)
are not required to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 12.8 Governing Law
Except as specifically provided in Section 3.8(a), the laws of the
State of New York shall govern this Indenture and the Securities without regard
to principles of conflicts of law.
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SECTION 12.9 No Adverse Interpretation of Other Agreements
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 12.10 No Recourse Against Others
All liability described in paragraph 18 of the Securities of any
director, officer, employee or shareholder, as such, of the Company is waived
and released.
SECTION 12.11 Successors
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 12.12 Multiple Counterparts
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent the same agreement.
SECTION 12.13 Separability
In case any provisions in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.14 Table of Contents, Headings, etc.
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
as of the 16th day of October, 1997.
FAMILY GOLF CENTERS, INC.
By: /s/ Robert J. Krause
--------------------------------
Name: Robert J. Krause
Title: Senior Vice President
[SEAL]
Attest:
/s/ Pamela S. Charles
- -----------------------------
Name: Pamela S. Charles
Title: Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: /s/ John Guiliano
--------------------------------
Name: John Guiliano
Title: Vice President
[SEAL]
Attest:
- -----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF FACE OF SECURITY]
5 3/4% Convertible Subordinated Note due 2004
No. G-1 $___________
CUSIP No. 30701A AA 4
FAMILY GOLF CENTERS, INC.
promises to pay to -- Cede & Co. --
or registered assigns,
the principal sum of ____________________ Dollars
Dollars on October 15, 2004.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
<PAGE>
Dated: October 16, 1997
FAMILY GOLF CENTERS, INC.
By:
---------------------------
Name: Dominic Chang
Title: President and Chief
Executive Officer
Trustee's Certificate of Authentication
Dated: October 16, 1997
This is one of the Global Notes referred to in the within-mentioned Indenture:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
--------------------------
(Authorized Signatory)
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Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representa tive of The Depository
Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or such other name
as may be requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND
THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY
IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE
UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE RE QUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, OR (c) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION RE QUIREMENTS OF THE SECURITIES ACT (AND BASED UPON
AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY
OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER PROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
Additional provisions of this Note are set forth on the other side of
this Note.
1
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
FAMILY GOLF CENTERS, INC.
5 3/4% Convertible Subordinated Notes due 2004
1. Interest
Family Golf Centers, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. The Company shall pay interest semiannually on October 15
and April 15 of each year, commencing April 15, 1998. Interest on the Notes
shall accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of first issuance of the Notes under
the Indenture (as defined below); provided, however, that if there is not an
existing default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
interest payment date, interest shall accrue from such interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment
The Company shall pay interest on this Note (except defaulted
interest) to the person who is the Holder of this Note at the close of business
on the October 1 or April 1 next preceding the related interest payment date.
The Holder must surrender this Note to the Paying Agent to collect payment of
principal. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. The Company may, however, pay principal and interest by its
check payable in such money. It may mail an interest check to the Holder's
registered address.
3. Paying Agent, Registrar and Conversion Agent
Initially, United States Trust Company of New York (the "Trustee")
will act as Paying Agent, Registrar and Conversion Agent. The Company may
change any Paying Agent, Registrar or Conversion Agent without notice to the
Holder. The Company or any of its Subsidiaries may act as Paying Agent,
Registrar or Conversion Agent.
4. Indenture, Limitations
This Note is one of a duly authorized issue of Notes of the Company
designated as its 5 3/4% Convertible Subordinated Notes due 2004 (the "Notes"),
issued under an Indenture dated as of October
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16, 1997 (the "Indenture"), between the Company and the Trustee. The terms of
this Note include those stated in the Indenture and those required by or made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended, and as in effect on the date of the Indenture. This Note is subject to
all such terms, and the Holder of this Note is referred to the Indenture and
said Act for a statement of them.
The Notes are subordinated unsecured obligations of the Company
limited to up to $100,000,000 aggregate principal amount, subject to Section
2.2 of the Indenture. The Indenture does not limit other debt of the Company,
secured or unsecured, including Senior Indebtedness.
5. Optional Redemption
The Notes are subject to redemption, at any time on or after October
15, 2000, as a whole or in part, at the election of the Company. The Redemption
Prices (expressed as percentages of the principal amount) beginning October 15
of the years indicated are as follows:
Redemption
Year Price
---- -----
2000 102.875%
2001 101.917%
2002 100.958%
and 100% at October 15, 2003 and thereafter in each case together with accrued
interest up to but not including the Redemption Date.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his or her registered address. Notes in denominations
larger than $1,000 may be redeemed in part, but only in whole multiples of
$1,000. On and after the Redemption Date, subject to the deposit with the
Paying Agent of funds sufficient to pay the Redemption Price, interest ceases
to accrue on Notes or portions of them called for redemption.
7. Purchase of Notes at Option of Holder Upon a Change of Control
At the option of the Holder and subject to the terms and conditions of
the Indenture, the Company shall become obligated to purchase all or any part
specified by the Holder (so long as the principal amount of such part is $1,000
or an integral
3
<PAGE>
multiple thereof) of the Notes held by such Holder on the date that is 30 days
after notice of a Change of Control. The Holder shall have the right to
withdraw any Change of Control Purchase Notice by delivering a written notice
of withdrawal to the Paying Agent in accordance with the terms of the
Indenture. The obligation of the Company to pay the Repurchase Price will be
subject to the terms of agreements relating to borrowings which constitute
Senior Indebtedness.
8. Conversion
A Holder of a Note may convert such Note into shares of Common Stock
of the Company at any time prior to maturity; provided, however, that if the
Note is called for redemption, the conversion right will terminate at the close
of business on the business day preceding the redemption date for such Note
(unless the Company shall default in making the redemption payment when due, in
which case the conversion right shall terminate at the close of business on the
date such default is cured and such Note is redeemed); provided, further, that
if the Holder of a Note presents such Note for redemption prior to the close of
business on the redemption date for such Note, the right of conversion shall
terminate upon presentation of the Note to the Trustee (unless the Company
shall default in making the redemption payment when due, in which case the
conversion right shall terminate on the close of business on the date such
default is cured and such Note is redeemed). The initial conversion price is
$37.25 per share, subject to adjustment under certain circumstances. The number
of shares issuable upon conversion of a Note is determined by dividing the
principal amount converted by the conversion price in effect on the Conversion
Date. No payment or adjustment will be made for accrued interest on a converted
Note or for dividends or distributions on shares of Common Stock issued upon
conversion of a Note. No fractional shares will be issued upon conversion; in
lieu thereof, an amount will be paid in cash based upon the closing sale price
of the Common Stock on the last Trading Day prior to the Conversion Date.
To convert a Note, a Holder must (a) complete and manually sign the
conversion notice set forth below and deliver such notice to the Conversion
Agent, (b) surrender the Note to the Conversion Agent, (c) furnish appropriate
endorsements or transfer documents if required by the Registrar or the
Conversion Agent, and (d) pay any transfer or similar tax, if required. If a
Holder surrenders a Note for conversion after the close of business on the
record date for the payment of an installment of interest and before the close
of business on the related interest payment date then, notwithstanding such
conversion, the interest payable on such interest payment date shall be paid to
the Holder of such Note on such record date. In such event, the Note must
4
<PAGE>
be accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of the Note or portion thereof
then converted. A Holder may convert a portion of a Note equal to $1,000 or any
integral multiple thereof.
A Note in respect of which a Holder had delivered a Change of Control
Purchase Notice exercising the option of such Holder to require the Company to
purchase such Note may be converted only if the Change of Control Purchase
Notice is withdrawn as provided above and in accordance with the terms of the
Indenture.
9. Conversion Arrangement on Call for Redemption
Any Securities called for redemption, unless surrendered for
conversion before the close of business on the Redemption Date, may be deemed
to be purchased from the Holders of such Securities at an amount not less than
the Redemption Price, together with accrued interest, if any, to, but not
including, the Redemption Date, by one or more investment bankers or other
purchasers who may agree with the Company to purchase such Securities from the
Holders, to convert them into Common Stock of the Company and to make payment
for such Securities to the Paying Agent in Trust for such Holders.
10. Subordination
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of all Senior Indebtedness of the Company. Any Holder
by accepting this Note agrees to and shall be bound by such subordination
provisions and authorizes the Trustee to give them effect.
In addition to all other rights of Senior Indebtedness described in
the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of
any amendment, modification or waiver of any terms of any instrument relating
to the Senior Indebtedness or any extension or renewal of the Senior
Indebtedness.
11. Denominations, Transfer, Exchange
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. A Holder may register the transfer of
or exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes or other governmental charges that may be
imposed by law or permitted by the Indenture.
5
<PAGE>
12. Persons Deemed Owners
The Holder of a Note may be treated as the owner of it for all
purposes, subject to the provisions of the Indenture with respect to record
dates for the payment of interest.
13. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent will pay the money back to the
Company at its request, subject to applicable law. After that, Holders entitled
to money must look to the Company for payment.
14. Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of a majority in
principal amount of the Notes then outstanding and any past default or
compliance with any provision may be waived in a particular instance with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Without the consent of or notice to any Holder, the Company and
the Trustee may amend or supplement the Indenture or the Notes to, among other
things, provide for uncertificated Notes in addition to or in place of
certificated Notes, or to cure any ambiguity, defect or inconsistency or make
any other change that does not adversely affect the rights of any Holder.
15. Successor Corporation
When a successor corporation assumes all the obligations of its
predecessor under the Notes and the Indenture in accordance with the terms and
conditions of the Indenture, the predecessor corporation will be released from
those obligations.
16. Defaults and Remedies
An Event of Default is: default in payment of the principal of or
premium, if any, on the Notes when due; default for 30 days in payment of
interest on the Notes; failure by the Company for 30 days after notice to it to
perform any conversion of the Notes; failure by the Company for 60 days after
notice to it to comply with any of its other agreements contained in the
Indenture or the Notes; failure of the Company for 30 days after notice to it
to make any payment at maturity in respect of indebtedness for borrowed money,
which payment is in excess of $1,000,000; default by the Company for 30 days
after notice to it with respect to indebtedness for borrowed money, which
default results in acceleration of such indebtedness which is in excess of
$1,000,000 without such indebtedness having been paid on
6
<PAGE>
discharged; certain events of bankruptcy, insolvency or reorganization of the
Company; and the acceleration of certain other indebtedness. If an Event of
Default (other than as a result of certain events of bankruptcy, insolvency or
reorganization) occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Notes then outstanding may declare all
unpaid principal of and accrued interest to the date of acceleration on the
Notes then outstanding to be due and payable immediately, all as and to the
extent provided in the Indenture. If an Event of Default occurs as a result of
certain events of bankruptcy, insolvency or reorganization, unpaid principal of
and accrued interest on the Notes then outstanding shall become due and payable
immediately without any declaration or other act on the part of the Trustee or
any Holder, all as and to the extent provided in the Indenture. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of a majority
in principal amount of the Notes then outstanding may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders notice of
any continuing default (except a default in payment of principal or interest)
if it determines that withholding notice is in their interests. The Company is
required to file periodic reports with the Trustee as to the absence of
default.
17. Trustee Dealings With the Company
United States Trust Company of New York, the Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from and perform services for the Company or an Affiliate of the
Company, and may otherwise deal with the Company or an Affiliate of the
Company, as if it were not the Trustee.
18. No Recourse Against Others
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture nor for any claim based on, in respect of or by reason of such
obligations or their creation. The Holder of this Note by accepting this Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Note.
19. Discharge Prior to Maturity
If the Company deposits with the Trustee or the Paying Agent money or
U.S. Government Obligations sufficient to pay the principal of and interest on
the Notes to maturity, the Company
7
<PAGE>
will be discharged from the Indenture except for certain sections thereof.
20. Authentication
This Note shall not be valid until the Trustee or an authenticating
agent signs the certificate of authentication on the other side of this Note.
21. Abbreviations and Definitions
Customary abbreviations may be used in the name of the Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
All capitalized terms used in this Note and not specifically defined
herein are defined in the Indenture and are used herein as so defined.
22. Indenture to Control
In the case of any conflict between the provisions of this Note and
the Indenture, the provisions of the Indenture shall control.
The Company will furnish to any Holder, upon written request
and without charge, a copy of the Indenture. Requests may be
made to: Family Golf Centers, Inc., 225 Broadhollow Road,
Melville, New York 11747, Attention: Chief Financial Officer.
8
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
- --------------------------------------------------
- --------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------
- --------------------------------------------------
- --------------------------------------------------
- --------------------------------------------------
(Print or type assignee's name, address and
zip code)
and irrevocably appoint
- --------------------------------------------------
agent to transfer this Note on the books
of the Company. The Agent may substitute
another to act for him or her.
Date:
---------------------------------------------
Your signature:
-----------------------------------
(Sign exactly as your name appears
on the other side of this Note)
- --------------------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
*Signature guaranteed by:
-------------------------
By:
-----------------------------------------------
- --------------
* The signature must be guaranteed by a bank, a trust company or a
member firm of the New York Stock Exchange.
<PAGE>
CONVERSION NOTICE
To convert this Note into Common Stock of the Company, check the box:
- -----
- -----
To convert only part of this Note, state the amount to be converted:
$
-----------------------
If you want the stock certificate made out in another person's name, fill in
the form below:
- --------------------------------------------------
- --------------------------------------------------
(Insert other person's soc. sec. or tax I.D. no.)
- --------------------------------------------------
- --------------------------------------------------
- --------------------------------------------------
- --------------------------------------------------
(Print or type assignee's name, address and
zip code)
Date:
---------------------------------------------
Your signature:
-----------------------------------
(Sign exactly as your name appears
on the side of this Note)
- --------------------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
*Signature guaranteed by:
-------------------------
By:
-----------------------------------------------
- --------------
* The signature must be guaranteed by a bank, a trust company or a
member firm of the New York Stock Exchange.
<PAGE>
NOTICE OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 3.8 of the Indenture, check the box:
- -----
- -----
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 3.8 of the Indenture, state the amount to be
purchased: $__________
Date: Your signature
------------------- -------------------------------
(Sign exactly as your name
appears on the other side of
this Notes)
-------------------------------
(Sign exactly as your name
appears on the other side of
this Notes)
*Signature guaranteed by:
-------------------
By:
-----------------------------------------
- --------------
* The signature must be guaranteed by a bank, a trust company or a
member firm of the New York Stock Exchange.
<PAGE>
Exhibit 5.1
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
(212) 661-6500
January 13, 1998
Family Golf Centers, Inc.
225 Broadhollow Road
Melville, New York 11747
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
You have requested our opinion, as counsel for Family Golf Centers, Inc., a
Delaware corporation (the "Company"), in connection with the registration
statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission under the Securities Act of 1933 (the "Act"). The
Registration Statement relates to an offering by certain selling stockholders
named therein (the "Security Holders") from time to time of up to (i)
$115,000,000 aggregate principal amount of 5 3/4% Convertible Subordinated
Notes due 2004 (the "Notes") and (ii) 3,087,248 shares (the "Shares") of common
stock, par value $.01 per share, of the Company (the "Common Stock") issuable
upon conversion of the Notes and (iii) 54,225 shares of Common Stock (the
"Additional Shares").
We have examined such records and documents and made such examinations of
law as we have deemed relevant in connection with this opinion. We have assumed
that there will be no changes in applicable law between the date of this
opinion and the date the Notes, the Shares or Additional Shares proposed to be
sold by the Security Holders pursuant to the Registration Statement are
actually sold. It is our opinion that (i) the Notes have been duly authorized,
validly issued and are fully-paid and non-assessable, and (ii) the Shares and
the Additional Shares have been duly authorized and, the Shares when issued and
delivered upon conversion of the Notes in accordance with the terms of the
Notes will be, and the Additional Shares are, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement. In so doing, we do not admit
that we are in the category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ Squadron, Ellenoff, Plesent
& Sheinfeld, LLP
<PAGE>
EXHIBIT 12.1
FAMILY GOLF CENTERS, INC.
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30,
1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations before provision for income
taxes per statement of operations 14,368 7,434 8,400 1,924 552 (775) (22)
Add:
Portion of rents representative of
the interest factor(1) 914 596 866 509 457 223 95
Interest on indebtedness 843 288 370 939 313 192 111
Amortization of deferred financing costs 55 59 49 142
------ ----- ----- ----- ----- ---- ----
Income as adjusted: 16,180 8,377 9,685 3,372 1,464 (360) 184
------ ----- ----- ----- ----- ----- ----
Fixed charges:
Portion of rents representative of
the interest factor(1) 914 596 866 509 457 223 95
Interest on indebtedness 1,462 638 1,148 1,326 463 247 111
Amortization of deferred financing costs 55 59 49 142
------ ----- ----- ----- ----- ----- ----
Fixed charges 2,431 1,293 2,063 1,835 1,062 470 206
------ ----- ----- ----- ----- ----- ----
Ratio of earnings to fixed charges 6.7 6.5 4.7 1.8 1.4 -(3) -(3)
------ ----- ----- ----- ----- ----- ----
</TABLE>
(1) Represents portion of rent expense under operating leases deemed by the
Company to be representative of the interest factor
(2) Inclusive of interest capitalized
(3) Earnings were not sufficient to cover fixed charges
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated March 22, 1997 on our audit of the financial
statements of Family Golf Centers, Inc. and subsidiaries as at December 31,
1996 and December 31, 1995 and for each of the years in the three-year period
ended December 31, 1996 included in the Form 10-K annual report for the year
ended December 31, 1996. We also consent to the reference to our firm under
the caption "Experts".
/s/Richard A. Eisner & Company, LLP
New York, New York
January 13, 1998
<PAGE>
[Goldberg & Davis, CPA's Letterhead]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated March 5, 1997 on our audit of the financial
statements of Carolina Capital Ventures, Ltd. as of December 31, 1996. We
also consent to the reference to our firm under the caption "Experts".
/s/ Goldberg & Davis
Charlotte, North Carolina
<PAGE>
[WEIL & COMPANY LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated May 13, 1997 of our audit of the financial
statements of San Bruno Practice Center as of December 31, 1996. We
also consent to the reference to our firm under the caption "Experts".
/s/ Weil & Company LLP
WEIL & COMPANY LLP
Santa Monica, California
<PAGE>
[WEIL & COMPANY LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated April 18, 1997 of our audit of the financial
statements of Randall's Island Practice Center as of December 31, 1996. We
also consent to the reference to our firm under the caption "Experts".
/s/ Weil & Company LLP
WEIL & COMPANY LLP
Santa Monica, California
<PAGE>
[WEIL & COMPANY LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated April 18, 1997 of our audit of the financial
statements of Darlington Driving Range as of December 31, 1996. We
also consent to the reference to our firm under the caption "Experts".
/s/ Weil & Company LLP
WEIL & COMPANY LLP
Santa Monica, California
<PAGE>
[GERARD McEVOY LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
I consent to the incorporation by reference in this Registration Statement
on Form S-3 of my report dated June 6, 1997 of my audit of the financial
statements of Green Oaks Golf Practice Center, Inc. as of December 31, 1996. I
also consent to the reference to my firm under the caption "Experts".
/s/ Gerard McEvoy
- ------------------
Gerard McEvoy, CPA
Dallas, Texas
<PAGE>
[HIRSCHHORN, FRY & ASSOCIATES LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated May 7, 1997 of our audit of the financial
statements of Southampton Family Golf Center, Inc. of as at December 31, 1996.
We also consent to the reference to our firm under the caption "Experts".
/s/ Hirschhorn, Fry & Associates
Philadelphia, PA
<PAGE>
[HIRSCHHORN, FRY & ASSOCIATES LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated May 7, 1997 of our audit of the financial
statements of Pinley Enterprises Ltd. of as at December 31, 1996.
We also consent to the reference to our firm under the caption "Experts".
/s/ Hirschhorn, Fry & Associates
Philadelphia, PA
<PAGE>
[Maryanov Madsen Gordon & Campbell Letterhead]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated June 9, 1997 of our audit of the financial
statements of Palm Royale Country Club Operations as at December 31, 1996. We
also consent to the reference to our firm under the caption "Experts".
/s/ Maryanov Madsen Gordon & Campbell
Indian Wells, California
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-3 of our report dated
April 3, 1997, on the financial statements of Divot City, L.P. as of
December 31, 1996 and for the two years then ended, and to the reference
to our firm under the caption "Experts".
/s/ Ireland San Filippo, LLP
IRELAND SAN FILIPPO, LLP
November 19, 1997
<PAGE>
[FGM & CO.'s LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated June 27, 1997 of our audit of the financial
statements of Leisure Complexes, Inc. as at December 31, 1996. We
also consent to the reference to our firm under the caption "Experts".
/s/ Feldman, Gutterman, Meinberg & Co.
Manhasset, New York
<PAGE>
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
Family Golf Centers, Inc.
(Exact name of obligor as specified in its charter)
Delaware 11-3223246
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
225 Broadhollow Road
Melville, NY 11747
(Address of principal executive offices) (Zip Code)
------------------
5 3/4% Convertible Subordinated Notes due 2004
(Title of the indenture securities)
==============================================
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14
and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the
State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of
New York, as amended, is incorporated by reference
to Exhibit T-1.4 to Form T-1 filed on September 15,
1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of January 8,1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
-------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 8th day
of January, 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /S/John Guiliano
Vice President
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
September 30, 1997
(IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 116,582
Short-Term Investments 183,652
Securities, Available for Sale 691,965
Loans 1,669,611
Less: Allowance for Credit Losses 16,067
----------
Net Loans 1,653,544
Premises and Equipment 61,796
Other Assets 125,121
----------
TOTAL ASSETS $2,832,660
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 541,619
Interest Bearing 1,617,028
---------
Total Deposits 2,158,647
Short-Term Credit Facilities 365,235
Accounts Payable and Accrued Liabilities 141,793
---------
TOTAL LIABILITIES $2,665,675
---------
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,542
Retained Earnings 99,601
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 2,847
------------
TOTAL STOCKHOLDER'S EQUITY 166,985
TOTAL LIABILITIES AND ------------
STOCKHOLDER'S EQUITY $2,832,660
============
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkman, SVP & Controller
November 13, 1997
