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Rule 424(b)(3)
Registration No. 333-69294
$172,500,000
[VECTOR LOGO]
VECTOR GROUP LTD.
6 1/4% CONVERTIBLE SUBORDINATED NOTES DUE JULY 15, 2008
AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
We issued the notes offered by this prospectus in a private placement
in July 2001. This prospectus will be used by selling securityholders to resell
their notes and the common stock issuable upon conversion of their notes. We
will not receive any proceeds from this offering.
The notes are convertible by securityholders prior to maturity (unless
we have previously redeemed or repurchased them) into common stock at a
conversion rate of 29.061 shares per each $1,000 principal amount of notes,
subject to adjustment if certain events occur. This is equivalent to a
conversion price of $34.41 per share. The initial conversion price of $36.531
per share and the initial conversion rate of 27.374 shares per each $1,000
principal amount of notes have been adjusted to reflect a cash dividend of $0.40
per share of common stock and a 5% stock dividend paid by us on September
28, 2001. We will pay interest on the notes at a rate of 6 1/4% per year on
January 15 and July 15 of each year, beginning on January 15, 2002. The notes
will mature on July 15, 2008, unless earlier converted or redeemed. The notes
are not secured and are subordinated to all of our present and future senior
debt and secured obligations and are effectively subordinated to all debt and
other liabilities of our subsidiaries.
We may redeem, under conditions described in this prospectus, some or
all of the notes at any time between July 15, 2003 and July 15, 2004 at a
redemption price of $1,000 per $1,000 principal amount of notes, plus accrued
and unpaid interest, if any, to, but excluding, the redemption date. We will
make an additional "make whole" payment in cash with respect to the notes so
called for redemption. On or after July 15, 2004, we have the option to redeem
all or a portion of the notes at the redemption prices set forth in this
prospectus. In the event of a change in control, as described in this
prospectus, you may require us to repurchase any notes held by you.
Our common stock is traded on the New York Stock Exchange under the
symbol "VGR". On September 27, 2001, the closing price of our common stock on
the New York Stock Exchange was $41.50 per share.
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THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 11.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS DATED SEPTEMBER 28, 2001
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YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR A PROSPECTUS SUPPLEMENT OR AMENDMENT. WE HAVE NOT
AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THE INFORMATION IN THIS PROSPECTUS OR A
PROSPECTUS SUPPLEMENT OR AMENDMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE
DATE ON THE FRONT OF THE DOCUMENTS.
TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION..............................................................................3
INCORPORATION BY REFERENCE.......................................................................................3
PROSPECTUS SUMMARY...............................................................................................5
RISK FACTORS....................................................................................................11
FORWARD LOOKING STATEMENTS......................................................................................20
USE OF PROCEEDS.................................................................................................21
RATIO OF EARNINGS TO FIXED CHARGES..............................................................................21
DESCRIPTION OF THE NOTES........................................................................................22
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.......................................................................38
DESCRIPTION OF CAPITAL STOCK....................................................................................42
SELLING SECURITYHOLDERS.........................................................................................44
PLAN OF DISTRIBUTION............................................................................................45
LEGAL MATTERS...................................................................................................48
EXPERTS.........................................................................................................48
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934 and file reports, proxy statements and other
information with the Securities and Exchange Commission. You can inspect and
copy all of this information at the Public Reference Room maintained by the SEC
at its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the SEC's regional offices located at the Northwestern Atrium
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511 and 7
World Trade Center, 13th Floor, New York, New York 10048. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a web site that contains reports,
proxy statements and other information regarding issuers, like us, that file
electronically with the SEC. The address of this web site is:
http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933 with respect to the notes and common stock offered by
this prospectus. This prospectus does not contain all of the information set
forth in the registration statement. We have omitted parts of the registration
statement as permitted by the rules and regulations of the SEC. Statements
contained in or incorporated by reference into this prospectus as to the
contents of any contract or other document are not necessarily complete. You
should refer to a copy of each contract or document filed as an exhibit to the
registration statement or incorporated by reference into this prospectus for
complete information. Copies of the registration statement, including exhibits
and information incorporated by reference into this prospectus, may be inspected
without charge at the SEC's public reference facilities or website.
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference into this prospectus
information we have filed with the SEC. This means that we can disclose
important information by referring you to those documents containing the other
information. The information incorporated by reference is considered to be a
part of this prospectus. Information that we file later with the SEC will
automatically update and supercede this information. We incorporate by reference
the documents listed below and any filings made by us with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and before the termination of this offering:
o Our Annual Report on Form 10-K for the fiscal year ended December
31, 2000, filed with the SEC on April 2, 2001;
o Our Quarterly Reports on Form 10-Q for the quarter ended March 31,
2001, filed with the SEC on May 15, 2001, and for the quarter
ended June 30, 2001, filed with the SEC on August 14, 2001; and
o Our Current Reports on Form 8-K, filed with the SEC on May 17,
2001, June 29, 2001, July 2, 2001, July 16, 2001, July 25, 2001
and August 22, 2001.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superceded
for purposes of this prospectus to the extent that a statement contained herein
or in any other document subsequently filed which is also incorporated by
reference herein modifies or supercedes such statement. Any such statement so
modified or superceded shall not be deemed, except as so modified, to constitute
a part of this prospectus.
You can obtain any of the documents incorporated by reference through
us or the SEC. Documents incorporated by reference are available from us without
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charge. You may obtain documents incorporated by reference in this prospectus by
requesting them in writing to the following address or by telephone:
Vector Group Ltd.
Attention: Investor Relations
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
(305) 579-8000
You should rely only on the information provided or incorporated by
reference in this prospectus or a prospectus supplement or amendment. We have
not authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume the information in this prospectus or a
prospectus supplement or amendment is accurate as of any date other than the
date on the front of the documents.
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because
it is a summary, it does not contain all of the information that you should
consider before investing. You should read the entire prospectus carefully,
including the "Risk Factors" section and the financial statements and the notes
to those statements incorporated by reference into this prospectus. As used in
this prospectus, the terms "Vector", "we", "our" and "us" and similar terms
refer to Vector Group Ltd. and all of our consolidated subsidiaries, including
VGR Holding Inc. (formerly known as BGLS Inc.), Liggett Group Inc., Vector
Tobacco (USA) Ltd. and New Valley Corporation, except with respect to the
section entitled "Description of Notes" and where it is clear that these terms
mean only Vector Group Ltd. All information in this prospectus concerning our
common stock has been adjusted to give effect to the 5% stock dividend paid to
stockholders on September 28, 2001.
VECTOR GROUP
We are a holding company for a number of businesses. We are engaged
principally in:
o the development of new, less hazardous cigarette products through
our Vector Tobacco subsidiaries,
o the manufacture and sale of cigarettes in the United States through
our subsidiary Liggett Group Inc., and
o the investment banking and brokerage business and the real estate
business through our majority-owned subsidiary New Valley
Corporation.
VECTOR TOBACCO
Vector Tobacco has developed two new, less hazardous cigarettes that we
expect to market under the brand names OMNI and OMNI Nicotine Free. We believe
that, while there is no "safe cigarette", these new products may address the two
greatest concerns of the health community about smoking, which are cancer
causing agents and addiction.
Vector Tobacco has developed a new proprietary technology which
significantly reduces carcinogenic polycyclic aromatic hydrocarbon (PAH)
compounds from cigarette smoke. The PAHs are reduced below the level that has
been shown to produce carcinomas in animal experiments. PAHs are considered by
many in the health community to be the most severe cancer-causing agent in
cigarettes. An article in the May 2000 Journal of the National Cancer Institute
stated that PAHs are prominent among the causative agents for lung cancer in
smokers and that avoiding exposure to PAHs is an important key to decreasing
lung cancer incidence. The proprietary process, which employs the use of a
complex catalytic system, was developed by Dr. Robert Bereman, Vice President of
Chemical Research at Vector Tobacco and former North Carolina State University
Chemistry Professor. Subject to independent laboratory verification of the
reduction of the PAHs and tobacco specific nitrosamines (TSNAs) in this product,
we expect to introduce this product to market in late 2001 under the OMNI brand
name.
In addition, Vector Tobacco has the rights to a proprietary process
that enables the production of a tobacco cigarette that is virtually free of
nicotine and virtually free of TSNAs, another potent carcinogen found in
tobacco. The process, developed by Dr. Mark A. Conkling, Vice President of
Genetic Research at Vector Tobacco and former North Carolina State University
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Genetics Professor, genetically modifies the tobacco seed to produce a virtually
nicotine-free and TSNA-free tobacco. Cigarettes containing tobacco produced with
this process have been tested in focus groups in the United States and overseas,
with such tests indicating that these cigarettes smoke and taste like a
conventional cigarette. It is anticipated that this product will be introduced
to market in 2002 under the OMNI Nicotine Free brand name. Both OMNI Nicotine
Free and OMNI will be priced as premium cigarettes.
Vector Tobacco has recently conducted market research with respect to
its planned OMNI and OMNI Nicotine Free products. Of the smokers that
participated in the OMNI study, 76% stated that they would "probably try" the
product. Of the smokers that participated in the OMNI Nicotine Free study, 80%
stated that they would "likely try" the product. In addition, we believe, based
on published sources, that 70-75% of the 45 million U.S. smokers express a
desire to quit smoking and 30-35% of smokers actually attempt to do so each
year. However, less than 5% of all smokers are successful in quitting each year.
The majority of smokers that participated in a Vector Tobacco test panel for the
OMNI Nicotine Free product experienced a decline in their cigarette consumption
and little to no nicotine withdrawal symptoms.
LIGGETT
Liggett is the successor to the Liggett & Myers Tobacco Company, which
was founded in 1873. Liggett was the sixth largest manufacturer of cigarettes in
the United States in terms of unit sales in 2000. Liggett shipped approximately
6.44 billion cigarettes during 2000, an increase of 22.9% over the approximately
5.2 billion cigarettes shipped in 1999. Liggett believes, based on published
industry sources, that this accounted for 1.5% of the total cigarettes shipped
in the United States during 2000. During the six months ended June 30, 2001,
Liggett's shipments of cigarettes increased 35.5% over the amounts shipped
during the first six month of 2000.
Liggett has a history of introducing innovative products to improve its
competitive position in the discount cigarette segment. In 1980, Liggett was the
first major domestic cigarette manufacturer to successfully introduce discount
cigarettes as an alternative to premium priced cigarettes. In 1989, Liggett
established a new price point within the discount market segment by introducing
Pyramid, a branded discount product which, at that time, sold for less than most
other discount cigarettes. These product introductions allowed Liggett to
increase its market share through greater penetration of the discount segment.
Liggett believes, based on published industry sources, that Liggett's discount
cigarette shipments represented 5.3% of this market segment for 2000.
Liggett has also taken a unique approach to the litigation proceedings
against U.S. cigarette manufacturers concerning the harmful effects of cigarette
consumption. Beginning in 1996, Liggett settled - independently of its four
major competitors - the tobacco litigation brought by various state attorneys
general against it and the other major cigarette manufacturers.
Liggett believes that it has gained a sustainable cost advantage over
its competitors through these settlement initiatives. Under the Master
Settlement Agreement reached in November 1998 with 46 state attorneys general,
the four largest manufacturers must make settlement payments to the 46 states
based on how many cigarettes are sold annually. Liggett, however, is not
required to make litigation settlement payments unless its market share exceeds
1.65% of the U.S. cigarette market.
NEW VALLEY
We currently own 56.3% of New Valley (NASDAQ: NVAL), which is engaged
in:
o the investment banking and securities brokerage business through its
53.6% interest in its subsidiary Ladenburg Thalmann Financial
Services Inc., and
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o the real estate business in Russia through BrookeMil Ltd. and
Western Realty Development.
INVESTMENT BANK AND SECURITIES BROKERAGE. Ladenburg Thalmann Financial
Services Inc. (AMEX: LTS) operates as a full service broker-dealer through its
two wholly-owned subsidiaries, Ladenburg Thalmann & Co. Inc., a member of The
New York Stock Exchange since 1876, and GBI Capital Partners Inc. Ladenburg is a
full service investment banking and brokerage firm based in New York City, with
regional offices in Los Angeles, San Francisco, Boca Raton, Ft. Lauderdale,
Great Neck, Bethpage, Cleveland and Las Vegas. The research division's strategic
focus is on the cable, media, entertainment, telecommunications and retail
sectors. Ladenburg's corporate finance department specializes in middle market
companies and emerging growth businesses. The firm's retail brokerage division,
Private Client Services, leverages the firm's research and asset management
capabilities. At June 30, 2001, Ladenburg had approximately 500 brokers and more
than $1.5 billion of assets under management.
RUSSIAN REAL ESTATE. In 1998, New Valley entered into two separate
joint venture agreements with Apollo Real Estate Investment Fund III, L.P. to
make real estate investments in Russia. New Valley and Apollo developed and
currently manage a 150,000 square foot class A office building located in
downtown Moscow. Its tenants include Motorola, Conoco and Morgan Stanley. If
economic conditions improve in Russia, an adjacent site owned by New Valley and
Apollo is expected to be developed into additional commercial office space,
subject to available financing.
Another New Valley and Apollo joint venture owns two adjoining sites
totaling 10.5 acres located across the Moscow River from the Kremlin in downtown
Moscow. This unique site is expected to be developed as a residential and hotel
complex, subject to market conditions and the availability of financing.
STRATEGY
Our strategy is to maximize shareholder value by increasing the
profitability of our subsidiaries in the following ways:
VECTOR TOBACCO
o To capitalize on the market of smokers wishing to smoke less
hazardous cigarettes by introducing Omni, and
o To introduce our Omni Nicotine Free cigarette in an effort to
address the large population of current smokers who desire to quit
or smoke less.
LIGGETT
o To capitalize upon Liggett's cost advantage in the U.S. cigarette
market due to favorable treatment received under settlement
agreements,
o To focus its marketing efforts on the discount segment,
o To increase its profitability by reorganizing manufacturing at its
new site and by better targeting of marketing and selling costs
using market research and analysis,
o To reinvest a portion of the price increases and cost savings in
marketing to grow its volume and income in the discount segment,
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o To maintain or improve profitability of its remaining premium brand,
Eve, through improved operating efficiencies, targeted promotional
strategies and extension of the brand,
o To pursue opportunities in the premium market to bring niche-driven
premium brands to market in the near future, and
o To pursue strategic acquisitions of smaller tobacco manufacturers.
NEW VALLEY
o To increase Ladenburg's distribution capabilities and trading
volume, and grow its customer business through an expanded broker
base,
o To improve the profitability of Ladenburg through continued cost
reductions and management of trading risk and by focusing on
selected areas of expertise, including investment banking services
for middle-market companies and retail sales to high net worth
individuals,
o To leverage our expertise as direct investors by actively pursuing
real estate investments in the United States and abroad which we
believe will generate above-market returns, and
o To invest New Valley's excess funds opportunistically in situations
that we believe can maximize shareholder value.
The mailing address of our principal executive offices is 100 S.E.
Second Street, Miami, Florida 33131. Our telephone number at that address is
(305) 579-8000.
RECENT DEVELOPMENTS
CONVERTIBLE NOTE OFFERING. In July 2001, we completed the private
placement of $172.5 million of the notes and received net proceeds of
approximately $166.4 million. We intend to use the net proceeds of the note
offering, together with the proceeds from the placement of VGR Holding's senior
secured notes and the investment in our common stock by an entity affiliated
with Carl C. Icahn, for general corporate purposes, including to fund the
planned advertising and promotion of Vector Tobacco's new OMNI and OMNI Nicotine
Free cigarette products and to pursue strategic acquisitions by Liggett of
smaller tobacco manufacturers.
SALE OF STOCK TO ICAHN. On May 16, 2001, we entered into a stock
purchase agreement with High River Limited Partnership, an investment entity
owned by Carl C. Icahn, in which High River agreed to purchase for $50 million
1,721,311 shares of our common stock at a price of $29.05 per share, the market
price when negotiations with Mr. Icahn were completed. The closing of the
purchase of the shares occurred on May 31, 2001.
VGR HOLDING PRIVATE PLACEMENT. On May 14, 2001, VGR Holding, our
wholly-owned subsidiary, issued at a discount $60 million principal amount of
10% senior secured notes due March 31, 2006 in a private placement to
institutional investors. VGR Holding received net proceeds from the offering of
approximately $49.7 million before fees and expenses of $3.2 million.
ACQUISITION OF LADENBURG THALMANN FINANCIAL SERVICES INC. On May 7,
2001, GBI Capital Management Corp. acquired all of the outstanding common stock
of New Valley's 80.1% subsidiary, Ladenburg Thalmann & Co. Inc. ("Ladenburg"),
for 23,218,599 GBI shares, $10 million cash and $10 million principal amount of
senior convertible notes due December 31, 2005, and the acquiring company name
was changed to Ladenburg Thalmann Financial Services Inc. ("LTS"). The notes
bear interest at 7.5% per annum and are convertible into 4,799,271 shares of LTS
common stock. Upon closing, New Valley also acquired an additional 3,945,060
shares of LTS from the former Chairman of LTS for $1.00 per share. Following
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completion of the transactions, New Valley owned 53.6% and 49.5% of the common
stock of LTS, an American Stock Exchange-listed company, on a basic and
fully-diluted basis.
To provide the funds for the acquisition of the common stock of
Ladenburg, LTS borrowed $10 million from Frost-Nevada, Limited Partnership and
issued to Frost-Nevada $10 million principal amount of senior convertible notes
due December 31, 2005. The notes bear interest at 8.5% per annum and are
convertible into 6,497,475 shares of LTS common stock. These notes, together
with the notes issued to the Ladenburg stockholders, are secured by a pledge of
the Ladenburg stock.
The transaction has been accounted for under the purchase method of
accounting as a reverse acquisition. For accounting purposes, Ladenburg has been
treated as the acquirer of LTS as Ladenburg's stockholders held a majority of
the LTS common stock following the closing of the transaction. As of May 7,
2001, LTS is accounted for as a consolidated subsidiary of New Valley.
THE OFFERING
Issuer................................. Vector Group Ltd.
Securities Offered..................... $172,500,000 in principal amount of 6 1/4% convertible subordinated
notes due 2008. This prospectus also relates to the offering of shares
of our common stock issuable upon conversion of the notes.
Maturity............................... July 15, 2008
Interest............................... Annual Rate: 6 1/4%
Payment frequency: Every six months on January 15 and July 15
First Payment: January 15, 2002
Conversion Rights...................... The notes are convertible, at your option, at any time following the date of
issuance until the maturity date, unless previously redeemed or repurchased as
described below, into our common stock, at a conversion price of $34.41 per
share of common stock, which is equivalent to 29.061 shares of common stock per
$1,000 principal amount of notes. The conversion price is subject to adjustment
for various events and any cash distribution on our common stock will result in
a corresponding decrease in the conversion price. The initial conversion price
of $36.531 per share of common stock and the initial conversion rate of 27.374
shares of common stock per $1,000 principal amount of notes have been adjusted
to reflect a cash dividend of $0.40 per share of common stock and a 5% stock
dividend paid by us on September 28, 2001.
Provisional Redemption................. The notes will be subject to redemption, at our option, in whole or in
part at any time between July 15, 2003 and July 15, 2004 if (a) the
closing price of our common stock exceeds 150% of the conversion price
then in effect for a period of at least 20 trading days in any consecutive
30 day trading period ending on the trading day prior to the date of the
mailing of the provisional redemption notice, and (b) the shelf
registration statement covering resales of the notes and the common stock
is effective and expected to remain effective and available for use for
the 30 days following the provisional redemption date, unless registration
is no longer required, at a price equal to 100% of the principal amount,
plus accrued and unpaid interest and a "make whole" payment.
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Optional Redemption.................... On or after July 15, 2004, we may redeem some or all of the notes at any
time at the redemption prices listed in the section "Description of Notes"
under the heading "Redemption at Our Option", together with accrued and
unpaid interest.
Change of Control...................... If a change of control (as defined in "Description of the Notes -
Repurchase of Notes at Your Option Upon a Change of Control") occurs,
subject to certain conditions and restrictions, we will be required to
repurchase the notes, at your option, at 101% of their principal amount,
plus accrued and unpaid interest and, under certain circumstances, a "make
whole" payment.
Ranking................................ The notes are general unsecured obligations, junior to our senior debt and
secured obligations, and effectively junior to all of the liabilities of
our subsidiaries. Assuming we had completed the offering of notes on June
30, 2001, these notes would have been effectively junior to approximately
$109 million of indebtedness of our subsidiaries, including VGR Holding's
senior secured notes issued in May 2001.
Use of Proceeds........................ We will not receive any of the proceeds from the sale of the notes or the
underlying common stock offered by this prospectus.
Registration Rights.................... This prospectus is part of a registration statement filed pursuant to a
registration rights agreement entered into by us for the benefit of
holders of the notes. If we fail to comply with certain of our
obligations under the registration rights agreement, liquidated damages
will be payable on the notes. See "Description of the Notes -
Registration Rights."
Trading Market......................... The notes issued in the initial private placement are eligible for trading
in the PORTAL system. However, notes sold using this prospectus will no
longer be eligible for trading in the PORTAL system. We do not intend to
list the notes on any other national securities exchange or automated
quotation system. Our common stock trades on the New York Stock Exchange
under the symbol "VGR".
Risk Factors........................... Investment in the notes and the underlying common stock involves a high
degree of risk. Therefore, you should carefully consider all information
in this prospectus and in particular the matters set forth in the section
"Risk Factors".
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RISK FACTORS
Before you invest in our securities, you should be aware that we are
subject to various risks, including the ones listed below, the occurrence of any
of which could materially adversely affect our business, financial condition and
results of operations. You should carefully consider these risk factors as well
as the other information included and incorporated by reference in this
prospectus in evaluating an investment in our securities.
RISKS RELATING TO VECTOR
WE AND OUR SUBSIDIARIES WILL HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS, WHICH
COULD PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES
We and our subsidiaries have significant indebtedness and debt service
obligations. At June 30, 2001, after giving pro forma effect to the offering of
the notes, we and our subsidiaries would have had total outstanding indebtedness
of $281.9 million. The notes are junior to all of our senior indebtedness and
effectively junior to all liabilities of our subsidiaries. In addition, subject
to the terms of any future agreements, we and our subsidiaries will be able to
incur additional indebtedness in the future. There is a risk that we will not be
able to generate sufficient funds to repay our debts, including our obligations
under the notes. If we cannot service our fixed charges, it would significantly
harm us and the value of the notes and our common stock.
WE ARE A HOLDING COMPANY AND DEPEND ON CASH PAYMENTS FROM SUBSIDIARIES WHICH ARE
SUBJECT TO CONTRACTUAL AND OTHER RESTRICTIONS
We are a holding company and have no operations of our own. We hold our
interests in our various businesses through our wholly-owned subsidiary, VGR
Holding. In addition to our own cash resources, our ability to pay interest on
the notes depends on the ability of VGR Holding to make cash available to us.
The purchase agreement for the VGR Holding 10% senior secured notes due 2006
contains covenants which limit the ability of VGR Holding to make distributions
to us to 50% of VGR Holding's net income, unless VGR Holding holds cash of $50
million after giving effect to the payment of the distribution. VGR Holding's
ability to pay dividends to us depends primarily on the ability of Liggett, our
wholly owned subsidiary, and New Valley, in which we indirectly hold an
approximately 56% interest, to generate cash and make it available to VGR
Holding. Liggett's revolving credit agreement prohibits Liggett from paying cash
dividends to VGR Holding unless Liggett's borrowing availability exceeds $5
million for the thirty days prior to payment of the dividend, and immediately
after giving effect to the dividend, and it is in compliance with the covenants
in the credit facility, including an adjusted net worth and working capital
requirement.
As the controlling New Valley stockholder, we must deal fairly with New
Valley, which may limit its ability to enter into transactions with New Valley
that result in the receipt of cash from New Valley and to influence New Valley's
dividend policy. In addition, since we indirectly own only approximately 56% of
the common shares of New Valley, a significant portion of any cash and other
assets distributed by New Valley will be received by persons other than us and
our subsidiaries.
Our receipt of cash payments, as dividends or otherwise, from our
subsidiaries is an important source of our liquidity and capital resources. If
we do not have sufficient cash resources of our own and do not receive payments
from our subsidiaries in an amount sufficient to repay our debts, we must obtain
additional funds from other sources. There is a risk that we will not be able to
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obtain additional funds at all or on terms acceptable to us. Our inability to
service these obligations would significantly harm us and the value of the notes
and our common stock.
LIGGETT FACES INTENSE COMPETITION IN THE DOMESTIC TOBACCO INDUSTRY
Liggett is considerably smaller and has fewer resources than all its
major competitors and as a result has a more limited ability to respond to
market developments. Published industry sources indicate that the three largest
manufacturers control approximately 85.2% of the United States cigarette market.
Philip Morris Companies Inc. is the largest and most profitable manufacturer in
the market, and its profits are derived principally from its sale of premium
cigarettes. Based on published industry sources, Liggett's management believes
that Philip Morris had approximately 60.7% of the premium segment and 50.5% of
the total domestic market during 2000. During 2000, Liggett's share of the
premium cigarette segment was 0.2%, and its share of the total domestic
cigarette market was 1.5%. Philip Morris and RJR, the two largest cigarette
manufacturers, have historically, because of their dominant market share, been
able to determine cigarette prices for the various pricing tiers within the
industry. The other cigarette manufacturers historically have brought their
prices into line with the levels established by the two major manufacturers.
LIGGETT'S BUSINESS IS HIGHLY DEPENDENT ON THE DISCOUNT CIGARETTE SEGMENT
Liggett depends more on sales in the discount cigarette segment of the
market, relative to the full-price premium segment, than its major competitors.
Approximately 89% of Liggett's net sales in 2000 were generated in the discount
segment. The discount segment is highly competitive with consumers having less
brand loyalty and placing greater emphasis on price. While the four major
manufacturers all compete with Liggett in the discount segment of the market,
the strongest competition for market share has recently come from a group of
small manufacturers, most of which are producing low quality, deep discount
cigarettes. While Liggett's share of the discount market increased from 3.9% in
1999 to 5.3% in 2000, published industry sources indicate that these smaller
manufacturers' total market share increased from 8.8% to 13.8% due to their
increased competitive discounting. If the discount market pricing continues to
be impacted by these smaller manufacturers, margins in Liggett's largest market
segment could be negatively affected, which in turn could negatively affect our
ability to meet payment obligations under the notes and the value of our common
stock.
LIGGETT'S MARKET SHARE HAS DECLINED IN RECENT PERIODS
Liggett has suffered a substantial decline in unit sales and associated
market share in recent years, although Liggett's unit sales and market share
increased during 2000 and the first half of 2001. This market share erosion
resulted in part from its highly leveraged capital structure that existed until
December 1998 and Liggett's limited ability to match other competitors'
wholesale and retail trade programs, obtain retail shelf space for its products
and advertise its brands. The decline in recent years also resulted from adverse
developments in the tobacco industry, intense competition and changes in
consumer preferences. Based on published industry sources, Liggett's management
believes that Liggett's overall domestic market share during 2000 was 1.5%,
compared with 1.2% for 1999 and 1.3% for 1998. Based on published industry
sources, Liggett's management believes that Liggett's share of the premium
segment during 2000 was 0.2%, down from 0.3% in 1999 and 0.5% in 1998, and its
share of the discount segment during 2000 was 5.3%, up from 3.9% in 1999 and
3.5% for 1998. As adjusted for the Philip Morris brand transaction, Liggett's
share of the premium segment during 1998 was 0.2%. If Liggett's market share
declines, Liggett's sales volume, operating income and cash flows could be
negatively affected, which in turn could negatively affect our ability to meet
payment obligations under the notes and the value of our common stock.
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THE DOMESTIC CIGARETTE INDUSTRY HAS EXPERIENCED DECLINING UNIT SALES IN RECENT
PERIODS
Industry-wide shipments of cigarettes in the United States have been
steadily declining for a number of years, although published industry sources
estimate that domestic industry-wide shipments increased by approximately 0.1%
in 2000. Published industry sources estimate that domestic industry-wide
shipments decreased by approximately 9% in 1999 compared to 1998. While
Liggett's domestic shipments increased 22.9% in 2000, Liggett's unit sales
volume in 1999 decreased more significantly (11.3%) than the overall domestic
market without giving effect to the Philip Morris transaction. Liggett's
management believes that industry-wide shipments of cigarettes in the United
States will continue to decline as a result of numerous factors. These factors
include health considerations, diminishing social acceptance of smoking and
legislative limitations on smoking in public places, federal and state excise
tax increases and settlement-related expenses which have contributed to large
cigarette price increases. If this decline in industry shipments continues and
Liggett is unable to capture market share from its competitors, or if the
industry is unable to offset the decline in unit sales with price increases,
Liggett's sales volume, operating income and cash flows could be negatively
affected, which in turn could negatively affect our ability to meet payment
obligations under the notes and the value of our common stock.
LITIGATION AND REGULATION WILL CONTINUE TO HARM THE TOBACCO INDUSTRY
The cigarette industry continues to be challenged on numerous fronts.
New cases continue to be commenced against Liggett and other cigarette
manufacturers. As of June 30, 2001, there were approximately 311 individual
suits, 40 purported class actions and 117 governmental and other third-party
payor health care reimbursement actions pending in the United States in which
Liggett was a named defendant. In addition to these cases, during 2000, an
action against cigarette manufacturers involving approximately 1,200 named
individual plaintiffs was consolidated before a single West Virginia state
court. Liggett is a defendant in most of the cases pending in West Virginia.
Approximately 38 other purported class action complaints have been filed against
the cigarette manufacturers for alleged antitrust violations. As new cases are
commenced, the costs associated with defending these cases and the risks
relating to the inherent unpredictability of litigation continue to increase.
An unfavorable verdict was returned in the first phase of the ENGLE
smoking and health class action trial pending in Florida. In July 2000, the jury
awarded $790 million in punitive damages against Liggett, in the second phase of
the trial, and the court entered an order of final judgment. Liggett intends to
pursue all available post-trial and appellate remedies. If this verdict is not
eventually reversed on appeal, or substantially reduced by the court, it will
have a material adverse effect on us. Liggett has filed the $3.45 million bond
required under recent Florida legislation which limits the size of any bond
required, pending appeal, to stay execution of a punitive damages verdict. On
May 7, 2001, Liggett reached an agreement with the class in the ENGLE case,
which will provide assurance to Liggett that the stay of execution, currently in
effect under the Florida bonding statute, will not be lifted or limited at any
point until completion of all appeals, including to the United States Supreme
Court. As required by the agreement, Liggett paid $6.27 million into an escrow
account to be held for the benefit of the ENGLE class, and released, along with
Liggett's existing $3.45 million statutory bond, to the court for the benefit of
the class upon completion of the appeals process, regardless of the outcome of
the appeal. It is possible that additional cases could be decided unfavorably
and that there could be further adverse developments in the ENGLE case.
Management cannot predict the cash requirements related to any future
settlements and judgments, including cash required to bond any appeals, and
there is a risk that those requirements will not be able to be met.
In recent years, there have been a number of restrictive regulatory
actions from various Federal administrative bodies, including the United States
Environmental Protection Agency and the Food and Drug Administration. There have
also been adverse political decisions and other unfavorable developments
concerning cigarette smoking and the tobacco industry, including the
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commencement and certification of class actions and the commencement of
third-party payor actions. These developments generally receive widespread media
attention. We are not able to evaluate the effect of these developing matters on
pending litigation or the possible commencement of additional litigation, but
our consolidated financial position, results of operations or cash flows could
be materially adversely affected by an unfavorable outcome in any
smoking-related litigation.
LIGGETT HAS SIGNIFICANT SALES TO A SINGLE CUSTOMER
In 2000, 33.8% of Liggett's net sales, 38.1% of Liggett's net sales in
the discount segment and 24.6% of our consolidated revenues were to Liggett's
largest customer. Liggett's contract with this customer was recently extended
through March 31, 2005. If this customer discontinues its relationship with
Liggett or experiences financial difficulties, Liggett's results of operations
could be materially adversely affected.
EXCISE TAX INCREASES MAY ADVERSELY AFFECT CIGARETTE SALES
As part of the 1997 budget agreement approved by Congress, federal
excise taxes on a pack of cigarettes, which are currently 34 cents, were
increased at the beginning of 2000 and will rise five cents more in the year
2002. In general, excise taxes and other taxes on cigarettes have been
increasing. These taxes vary considerably and, when combined with sales taxes
and the current federal excise tax, may be as high as $1.90 per pack in a given
locality in the United States. Congress has considered significant increases in
the federal excise tax or other payments from tobacco manufacturers, and
increases in excise and other cigarette-related taxes have been proposed at the
state and local levels. A substantial federal or state excise tax increase could
accelerate the trend away from smoking and could have an unfavorable effect on
Liggett's sales and profitability.
VECTOR TOBACCO IS SUBJECT TO RISKS INHERENT IN NEW PRODUCT DEVELOPMENT
INITIATIVES
We plan to make significant investments in Vector Tobacco's development
projects in the tobacco industry. Vector Tobacco is in the business of
developing new cigarette products designed to both reduce cancer causing agents
in cigarettes to below the level that has been shown to produce carcinomas in
animal experiments and to be virtually free of nicotine. These initiatives are
subject to high levels of risk, uncertainties and contingencies, including the
challenges inherent in new product development. Vector Tobacco's new OMNI
product is subject to independent laboratory verification of the reduction of
PAHs and TSNAs in the product prior to launch. There is a risk that investments
in Vector Tobacco will harm our profitability (if any) or liquidity or cash
flow.
The substantial risks facing Vector Tobacco include:
RISKS OF MARKET ACCEPTANCE OF THE NEW PRODUCTS. Vector Tobacco has
conducted limited testing of cigarettes produced from tobacco genetically
modified to produce a virtually nicotine-free and TSNA-free cigarette. Virtually
nicotine-free and TSNA-free or low PAH cigarettes may not be accepted ultimately
by adult smokers. Adult smokers may decide not to purchase cigarettes made with
virtually nicotine-free and TSNA-free or low PAH tobaccos due to taste or other
preferences, or due to the use of genetically modified tobacco or the virtual
absence of nicotine.
COMPETITION FROM OTHER CIGARETTE MANUFACTURERS WITH GREATER RESOURCES.
The cigarette industry is highly competitive. Vector Tobacco's competitors
generally have substantially greater resources than Vector Tobacco has,
including financial, marketing and personnel resources. Other major tobacco
companies have stated that they are working on reduced risk, "safer" cigarette
products and have made publicly available only limited additional information
concerning their activities at this time. There is a substantial likelihood that
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other major tobacco companies will introduce products that are designed to
compete directly with Vector Tobacco's virtually nicotine-free and TSNA-free and
low PAH product candidates.
POTENTIAL DISPUTES CONCERNING INTELLECTUAL PROPERTY. Vector Tobacco's
ability to commercially exploit its proprietary technology for its virtually
nicotine-free and TSNA-free and low PAH products depends in large part on its
ability to obtain and defend issued patents, to obtain further patent protection
for the technology in the United States and other jurisdictions, and to operate
without infringing on the patents and proprietary rights of others both in the
United States and abroad. Additionally, it must be able to obtain appropriate
licenses to patents or proprietary rights held by third parties if infringement
would otherwise occur, both in the United States and in foreign countries.
Intellectual property rights, including Vector Tobacco's patents (owned
or licensed), involve complex legal and factual issues. Any conflicts resulting
from third party patent applications and granted patents could significantly
limit Vector Tobacco's ability to obtain meaningful patent protection or to
commercialize its technology. If necessary patents currently exist or are issued
to other companies that contain competitive or conflicting claims, Vector
Tobacco may be required to obtain licenses to these patents or to develop or
obtain alternative technology. Licensing agreements, if required, may not be
available on acceptable terms or at all. If licenses are not obtained, Vector
Tobacco could be delayed in or prevented from pursuing the development or
commercialization of its new cigarette products. Any alternative technology, if
feasible, could take several years to develop.
Litigation which could result in substantial cost may also be necessary
to enforce any patents to which Vector Tobacco has rights, or to determine the
scope, validity and unenforceability of other parties' proprietary rights which
may affect its rights. Vector Tobacco may also have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office to
determine the priority of an invention or opposition proceedings in foreign
counties or jurisdictions, which could result in substantial costs. There is a
risk that its licensed patents would not be held valid by a court or
administrative body or that an alleged infringer would not be found to be
infringing. The mere uncertainty resulting from the institution and continuation
of any technology-related litigation, interference proceedings or oppositions
could have a material and adverse effect on Vector Tobacco's business, operating
results and prospects.
Vector Tobacco may also rely on unpatented trade secrets and know-how
to maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants, suppliers and others.
There is a risk that these agreements will be breached or terminated, that
Vector Tobacco will not have adequate remedies for any breach, or that its trade
secrets will otherwise become known or be independently discovered by
competitors.
DEPENDENCE ON KEY SCIENTIFIC PERSONNEL. Vector Tobacco's business
depends for its continued development and growth on the continued services of
key scientific personnel. The loss of Dr. Robert Bereman, Vice President of
Chemical Research, or Dr. Mark A. Conkling, Vice President of Genetic Research,
could have a serious negative impact upon Vector Tobacco's business, operating
results and prospects.
ABILITY TO RAISE CAPITAL AND MANAGE GROWTH OF BUSINESS. If Vector
Tobacco succeeds in introducing to market and increasing consumer acceptance for
its new cigarette product candidates, Vector Tobacco will be required to obtain
significant amounts of additional capital and manage substantial volume from its
customers. There is a risk that adequate amounts of additional capital will not
be available to Vector Tobacco to fund the growth of its business. To
accommodate growth and compete effectively, Vector Tobacco will also be required
to attract, integrate, motivate and retain additional highly skilled sales,
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technical and other employees. Vector Tobacco will face competition for these
people. Its ability to manage volume also will depend on its ability to scale up
its tobacco processing, production and distribution operations. There is a risk
that it will not succeed in scaling its processing, production and distribution
operations and that its personnel, systems, procedures and controls will not be
adequate to support its future operations.
POTENTIAL DELAYS IN OBTAINING ANY NECESSARY GOVERNMENT APPROVALS.
Vector Tobacco's business may become subject to extensive domestic and
international government regulation. Various proposals have been made for
federal, state and international legislation to regulate cigarette
manufacturers. The ultimate outcome of these proposals cannot be predicted. It
is possible that laws and regulations may be adopted covering issues like the
manufacture, sale, distribution and labeling of tobacco products as well as any
health claims associated with new, less hazardous cigarette products and the use
of genetically modified tobacco. A system of regulation by agencies like the
Food and Drug Administration, the Federal Trade Commission or the United States
Department of Agriculture may be established. Any new laws or regulations of
this type could significantly delay Vector Tobacco's introduction of its new
products to market or may require it to incur significant expense in complying
with any new regulation or in obtaining any necessary government approvals.
POTENTIAL DELAYS IN OBTAINING TOBACCO, OTHER RAW MATERIALS AND ANY
TECHNOLOGY NEEDED TO PRODUCE NEW PRODUCTS. Vector Tobacco is dependent on third
parties to produce tobacco and other raw materials that Vector Tobacco will
require to manufacture its new product candidates. In addition, the growing of
new tobacco and new seeds is subject to adverse weather conditions. Vector
Tobacco may also need to obtain licenses to technology subject to patents or
proprietary rights of third parties to produce its products. The failure by such
third parties to supply Vector Tobacco with tobacco, other raw materials and
technology on commercially reasonable terms, or at all, in the absence of
readily available alternative sources, would have a serious negative impact on
Vector Tobacco's business, operating results and prospects. There is also a risk
that interruptions in the supply of these materials and technology may occur in
the future. Any interruption in their supply could have a serious negative
impact on Vector Tobacco.
NEW VALLEY IS SUBJECT TO RISKS RELATING TO THE INDUSTRIES IN WHICH IT OPERATES
THE SECURITIES INDUSTRY. As a broker-dealer, Ladenburg is subject to
uncertainties endemic to the securities industry. These uncertainties include
the volatility of domestic and international financial, bond and stock markets,
as demonstrated by recent disruptions in the financial markets, extensive
governmental regulation, litigation, intense competition and substantial
fluctuations in the volume and price level of securities. Ladenburg also depends
on the solvency of various counterparties. As a result, revenues and earnings
may vary significantly from quarter to quarter and from year to year. In periods
of low volume, profitability is impaired because expenses remain relatively
fixed. Ladenburg is much smaller and has much less capital than many competitors
in the securities industry. The securities industry has experienced significant
consolidation in recent years among industry participants. Many of Ladenburg's
competitors are substantially larger than Ladenburg in terms of capital,
employees and distribution and marketing resources.
RISKS OF REAL ESTATE DEVELOPMENT PROJECTS. New Valley is engaged in a
variety of real estate development projects in Russia. Development projects are
subject to special risks including potential increase in costs, inability to
meet deadlines which may delay the timely completion of projects, reliance on
contractors who may be unable to perform and the need to obtain various
governmental and third party consents.
RISKS RELATING TO RUSSIAN REAL ESTATE OPERATIONS. New Valley has
significant real estate development operations in Russia. These operations are
subject to a high level of risk.
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In its on-going transition from a centrally-controlled economy under
communist rule, Russia has experienced dramatic political, social and economic
upheaval. There is a risk that further reforms necessary to complete this
transition will not occur. In August 1998, the economy of the Russian Federation
entered a period of even greater economic instability which has continued since
that time. The country's currency continues to devalue. There is continued
volatility in the debt and equity markets, and hyperinflation persists.
Confidence in the banking sector has yet to be restored, and there continues to
be a general lack of liquidity in the economy. In addition, New Valley may be
harmed by regulatory, political and legal developments beyond the control of
companies operating in the Russian Federation, including:
o diplomatic developments,
o decisions of international lending organizations,
o regional tensions,
o currency repatriation restrictions,
o foreign exchange fluctuations,
o an undeveloped system of commercial laws, including laws on real
estate titles and mortgages, and a relatively untested judicial
system,
o an evolving taxation system subject to constant changes which may be
applied retroactively and subject to varying interpretations by tax
authorities which may not coincide with that of management and can
result in assessments of additional taxes, penalties and interest,
which can be significant, and
o other legal developments and, in particular, the risks of
expropriation, nationalization and confiscation of assets and
changes in legislation relating to foreign ownership.
As a result of the recent economic difficulties in the Russian economy,
New Valley took a charge of $11.6 million in 1999 for a permanent impairment in
the value of the site for the proposed Ducat Place III office building and
related goodwill. The uncertainties in Russia may also impair New Valley's
ability to complete planned financing and investing activities. The development
of the Russian properties will require significant amounts of debt and other
financing. In acquiring its interest in the Kremlin sites, BrookeMil Ltd., a
wholly-owned subsidiary of New Valley, agreed with the City of Moscow to invest
an additional $22 million by May 2000 in the development of the property. In
April 2000, one of New Valley's joint ventures with Apollo, Western Realty
Repin, arranged short-term financing to fund the investment. Under the terms of
the investment, BrookeMil is required to use this financing amount to make
construction expenditures on the site by June 2002. Failure to make the
expenditures could result in the forfeiture of a 34.8% interest in one of the
sites. New Valley is considering potential financing alternatives on behalf of
the joint ventures. However, given the recent economic turmoil in Russia, there
is a risk that financing will not be available on acceptable terms. Failure to
obtain sufficient capital for the projects would force the joint ventures to
curtail or delay their projects.
NEW VALLEY'S POTENTIAL INVESTMENTS ARE UNIDENTIFIED AND MAY NOT SUCCEED
New Valley currently holds a significant amount of marketable
securities and cash not committed to any specific investments. This subjects you
to increased risk and uncertainty because you will not be able to evaluate how
this cash will be invested and the economic merits of particular investments.
There may be substantial delay in locating suitable investment opportunities. In
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addition, New Valley may lack relevant management experience in the areas in
which New Valley may invest. There is a risk that New Valley will fail in
targeting, consummating or effectively managing any of these investments.
WE DEPEND ON OUR KEY PERSONNEL
We depend on the efforts of our executive officers and other key
personnel. While we believe that we could find replacements for these key
personnel, the loss of their services could have a significant adverse effect on
our operations. We do not maintain key-man life insurance for any of our
personnel.
RISKS RELATING TO THE NOTES AND COMMON STOCK
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS SUBORDINATED TO OUR SENIOR DEBT
AND EFFECTIVELY SUBORDINATED TO THE OBLIGATIONS OF OUR SUBSIDIARIES
The notes are general, unsecured obligations, subordinated in right of
payment to all of our existing and future senior debt and effectively
subordinated to all existing and future liabilities (including trade payables or
judgment creditors) of our subsidiaries. This means that if we become insolvent,
file for bankruptcy, reorganize our business or close down, we will have to
repay all of the debt senior to the notes before we can pay the amounts we owe
to you. If we default on payments due on any of our senior debt, or if our debt
under the notes is accelerated because we have violated a covenant in the
indenture governing the notes, we must repay all of our senior debt before we
repay you. If any of these things happen, our assets may not be sufficient to
repay all of the debt we owe to you. The indenture permits us and our
subsidiaries to incur additional senior or other debt or liabilities.
In addition to our own cash resources, we will rely on cash payments
from our subsidiaries to fund our obligations, including payments on the notes.
VGR Holding's note purchase agreement and Liggett's revolving credit agreement
contain significant restrictions on their respective ability to make
distributions to us. The purchase agreement for the VGR Holding senior secured
notes contains covenants which limit the ability of VGR Holding to make
distributions to us to 50% of VGR Holding's net income, unless VGR Holding holds
cash of $50 million after giving effect to the payment of the distribution.
Liggett's revolving credit agreement prohibits Liggett from paying dividends to
VGR Holding unless Liggett's borrowing availability exceeds $5 million for the
thirty days prior to payment of the dividend, and immediately after giving
effect to the dividend, and it is in compliance with the covenants in the credit
facility, including an adjusted net worth and working capital requirement. These
VGR Holding and Liggett agreements and other future debt agreements may not
permit our subsidiaries to distribute enough cash to us to allow us to make all
payments on the notes, even in the case of an event of default under the notes.
Additionally, the notes issued by VGR Holding are secured by the stock of all
VGR Holding's subsidiaries, including Liggett and New Valley. As a result, if
VGR Holding defaults on payment under the notes, the holders of the VGR Holding
notes will have priority as to these assets.
THE INDENTURE DOES NOT CONTAIN FINANCIAL COVENANTS AND DOES NOT RESTRICT THE
INCURRENCE OF DEBT BY US OR OUR SUBSIDIARIES AND, AS A RESULT, OUR SUBSIDIARIES
CAN INCUR ADDITIONAL INDEBTEDNESS OR ENTER INTO OTHER AGREEMENTS THAT RESTRICT
THE PAYMENT OF DIVIDENDS TO US
The indenture does not contain any financial covenants or restrictions
prohibiting the incurrence of indebtedness, including senior indebtedness, by
us, or the incurrence of any indebtedness by our subsidiaries. The indenture
also does not prohibit our subsidiaries from entering into agreements that
restrict the subsidiaries' ability to pay dividends or make other cash
distributions to us. In addition, the indenture does not restrict the payment of
dividends or the issuance or repurchase of securities by us. The indenture does
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not contain any covenants or other provisions to afford protection to holders of
the notes in the event of a highly leveraged transaction, reorganization,
restructuring, merger, spin-off or similar transaction that may adversely affect
holders of the notes except to the extent described under "Description of Notes
- Repurchase of Notes at Your Option Upon a Change of Control". The term "change
of control" is limited to certain specified transactions and may not include
other events that may involve an actual change of control of our company.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE
Upon the occurrence of a change of control, we will be required to
offer to repurchase the notes at a premium. If a change of control were to
occur, there can be no assurance that we would have sufficient financial
resources, or would be able to arrange financing, to pay the purchase price for
all notes tendered by holders thereof. In addition, our repurchase of the notes
as a result of a change of control may be prohibited or limited by, or create an
event of default under, the terms of other agreements related to borrowings
which we or our subsidiaries may enter into from time to time. Our failure to
repurchase tendered notes would constitute an event of default under the
indenture.
A PUBLIC TRADING MARKET FOR THE NOTES MAY NOT DEVELOP
Prior to the initial private placement, there was no public market for
these notes. The notes issued in the initial private placement are eligible for
trading in the PORTAL system. However, the notes resold using this prospectus
will no longer trade in the PORTAL system. We do not intend to list the notes on
any national securities exchange or automated quotation system. If any of the
notes are traded, they may trade at a discount from their initial offering
price. The trading price of the notes may depend on prevailing interest rates,
the market for similar securities and other factors, including economic
conditions and our financial condition, performance and prospects.
WE AND NEW VALLEY HAVE MANY POTENTIALLY DILUTIVE SECURITIES OUTSTANDING
We have outstanding warrants expiring in 2003 to purchase 286,561
shares of our common stock, at a price of $4.32 per share. In 1998, we granted
options expiring in 2003 for shares of our common stock, at a price of $5.18 per
share, to a law firm that represents us, Liggett and New Valley, of which
options for 591,281 shares are currently outstanding and exercisable. At June
30, 2001, we had outstanding options granted to employees to purchase 10,305,018
shares of its common stock, at prices ranging from $.87 to $35.43 per share, of
which options for 4,331,948 shares are exercisable during 2001. The issuance of
these shares will cause dilution which may adversely affect the market price of
our common stock. The availability for sale of significant quantities of our
common stock could adversely affect the prevailing market price of the stock.
As part of New Valley's recapitalization, a total of 17,898,629
warrants to purchase common shares were issued to New Valley's stockholders. The
potential issuance of common shares on exercise of the warrants would increase
the number of New Valley's common shares outstanding by more than 80% and
decrease our holdings.
OUR STOCK PRICE HAS BEEN VOLATILE
The trading price of our common stock has fluctuated widely, ranging
between $12.56 and $43.81 per share over the past 52 weeks. The overall market
and the price of our common stock may continue to fluctuate greatly. The trading
price of our common stock may be significantly affected by various factors,
including:
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o the depth and liquidity of the trading market for our common stock,
o quarterly variations in its actual or anticipated operating results,
o changes in investors' and analysts' perceptions of the business and
legal risks facing us and the tobacco industry,
o changes in estimates of our earnings by investors and analysts, and
o announcements or activities by our competitors.
WE WILL HAVE BROAD DISCRETION WITH RESPECT TO THE USE OF PROCEEDS FROM OUR JULY
2001 NOTE OFFERING
The net proceeds of our July 2001 note offering were approximately $166
million. Our management will retain broad discretion as to the use and
allocation of the proceeds. Accordingly, you will not have the opportunity to
evaluate the economic, financial and other relevant information that we may
consider in the application of the net proceeds.
FORWARD LOOKING STATEMENTS
In addition to historical information, this prospectus contains
"forward-looking statements" within the meaning of the federal securities law.
Forward-looking statements include information relating to our intent, belief or
current expectations, primarily with respect to, but not limited to:
o the use of the proceeds from our July 2001 note offering,
o economic outlook,
o capital expenditures,
o cost reduction,
o cash flows,
o operating performance,
o litigation, and
o related industry developments (including trends affecting our
business, financial condition and results of operations).
We identify forward-looking statements in this prospectus by using
words or phrases such as "anticipate", "believe", "estimate", "expect",
"intend", "may be", "objective", "plan", "predict", "project" and "will be" and
similar words or phrases or their negatives.
The forward-looking information involves important risks and
uncertainties that could cause our actual results, performance or achievements
to differ materially from our anticipated results, performance or achievements
expressed or implied by the forward-looking statements. These risks and
uncertainties include the risk factors discussed above under "Risk Factors" and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference into this prospectus.
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Although we believe the expectations reflected in these forward-looking
statements are based on reasonable assumptions, there is a risk that these
expectations will not be attained and that any deviations will be material. We
disclaim any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained in this prospectus to reflect any
changes in its expectations or any change in events, conditions or circumstances
on which any statement is based.
USE OF PROCEEDS
We will not receive any proceeds from the sale by any selling
securityholder of the notes or the shares of common stock issuable upon
conversion of the notes.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods
indicated is as follows:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed
charges (1) -- -- -- 6.3x 8.8x 1.4x 4.7x
----------------
(1) For purposes of computing the ratio of earnings to fixed charges,
earnings include pre-tax income (loss) from continuing operations and
fixed charges less capitalized interest, as adjusted for the full amount
of losses of a majority-owned subsidiary but only our share of such
subsidiary's income. Earnings are also adjusted to exclude equity in
losses of affiliates. Fixed charges consist of interest expense,
capitalized interest, a portion of rental expense (which we believe to be
representative of the interest factor of rental payments) and
amortization of debt issuance costs. Earnings were insufficient to cover
fixed charges by approximately $62.7 million in 1996, $24.3 million in
1997 and $7.4 million in 1998. Excluding non-recurring pre-tax gains of
$294.1 million in 1999 and $245.5 million in 2000, the ratio of earnings
to fixed charges would have been 1.5x in 1999 and 1.4x in 2000.
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DESCRIPTION OF THE NOTES
Set forth below is a summary of certain provisions of the notes. The
notes were issued pursuant to an indenture, dated as of July 5, 2001, by and
between us and U.S. Bank Trust National Association, as trustee. The following
summary of the notes and the indenture does not purport to be complete and is
subject to and is qualified by reference to all of the provisions of the
indenture, including the definitions of certain terms used in the indenture.
Copies of the indenture may be obtained from us upon request. As used in this
section, references to "us", "we", "our" or the "Company" refer to Vector Group
Ltd., exclusive of its subsidiaries. Whenever particular provisions or defined
terms of the indenture (or the form of note which is a part thereof) are
referred to in this summary, such provisions or defined terms are incorporated
by reference as a part of the statements made and such statements are qualified
in their entirety by such reference.
GENERAL
The notes are our general unsecured obligations, limited in aggregate
principal amount to $172,500,000. Our payment obligations under the notes are
subordinated in right of payment to all of our existing and future senior
indebtedness, as described under "Subordination" below. The notes have been
issued only in fully registered form, without coupons, in denominations of
$1,000 and integral multiples thereof.
The notes will mature on July 15, 2008 unless earlier redeemed or
repurchased. The notes will bear interest at the rate of 6 1/4% per annum from
July 5, 2001, their date of issuance, or, if interest has already been paid,
from the date it was most recently paid. We will pay interest semi-annually in
cash in arrears on January 15 and July 15 of each year, commencing January 15,
2002 to the persons in whose names such notes are registered at the close of
business on January 1 and July 1 immediately preceding the interest payment
dates. Principal, premium, if any, and interest on the notes will be payable,
and the notes will be convertible or may be presented for registration of
transfer or exchange, at our office or agency in New York, New York. Interest
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months.
At our option, payment of interest may be made by check mailed to you
at your address as set forth upon our registry books. No service charge will be
made for any registration of transfer or conversion of notes, but we may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Until otherwise designated by us, our office or
agency will be the corporate trust office of the trustee presently located at
100 Wall Street, Suite 1600, New York, New York 10005.
The indenture does not contain any financial covenants or any
restrictions on our payment of dividends, our issuance or repurchase of our
securities or our incurrence of indebtedness, including senior indebtedness. The
indenture contains no covenants or other provisions to afford you protection in
the event of a highly leveraged transaction or a change of control of us, except
to the limited extent described under "Repurchase of Notes at Your Option Upon a
Change of Control".
CONVERSION RIGHTS
You will have the right to convert any portion of the principal amount
of the notes at any time prior to the close of business on the maturity date of
the notes, unless previously redeemed or repurchased. The conversion price for
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the notes on the date of this prospectus is $34.41 per share, and is subject to
adjustment as described below. The initial conversion price of $36.531 per share
of common stock and the initial conversion rate of 27.374 shares per $1,000
principal amount of notes have been adjusted to reflect a cash dividend of $0.40
per share of common stock and a 5% stock dividend paid by us on September 28,
2001. The conversion price is subject to further adjustment upon the occurrence
of certain events as set forth below.
You may convert your notes in part so long as the part converted is
$1,000 or an integral multiple of $1,000. Except as set forth immediately below,
your right to convert notes called for redemption or delivered for repurchase
and not withdrawn will terminate at the close of business on the business day
immediately prior to the redemption date or repurchase date, unless we
subsequently fail to pay the applicable redemption price or repurchase price.
In the event a redemption date occurs on an interest payment date,
conversion rights will expire at the close of business on the applicable
redemption date. In such cases and, in the event notes are converted on an
interest payment date, the interest due on the interest payment date will be
paid to the holder converting on that date and the converting holder will not be
required to repay that amount. The effect of this clause is to ensure that in
the event of a redemption on an interest payment date we will be required to pay
and the converting holder will be entitled to receive and keep the economic
value of the interest payment due on that date.
In the event your notes have been converted into common stock after any
record date, but on or before the next interest payment date, interest shall be
payable on the interest payment date notwithstanding the conversion, and except
as provided above, the interest shall be paid to the holder of the note who was
a holder on the record date. If you submit any notes for conversion after any
record date but before the next interest payment date (other than notes called
for redemption), you must also submit payment of an amount equal to the interest
payable on the interest payment date on the principal amount of notes being
surrendered for conversion, but no payment shall be required with respect to
interest payable on the redemption date. We will not issue any fractional shares
of common stock upon conversion. Instead, we will pay you an appropriate amount
in cash based on the market price of common stock (determined in accordance with
the indenture) at the close of business on the day of conversion. As a result of
the foregoing provisions, holders who surrender notes for conversion on a date
that is not an interest payment date will not receive any interest for the
period from the interest payment date next preceding the date of conversion to
the date of conversion or for any later period, except for notes that are called
for redemption on a redemption date between a record date and the corresponding
interest payment date as provided above.
Except as provided below, the conversion price will be subject to
adjustment following the issuance of the notes upon certain events, including:
(a) any payment of a cash dividend or distribution on our common stock
(excluding distributions in mergers and consolidations to which the penultimate
paragraph of this section applies),
(b) the issuance of shares of our common stock as a dividend or
distribution on any class of our capital stock,
(c) any issuance to all or substantially all holders of common stock of
rights, options or warrants entitling them to subscribe for or purchase common
stock at less than the then current market price of common stock (determined in
accordance with the indenture), except that if such rights, options or warrants
are only exercisable upon the occurrence of certain triggering events, then the
conversion price will not be adjusted until such triggering events occur,
(d) certain subdivisions, combinations or reclassifications of the
outstanding common stock,
(e) any distribution to all or substantially all holders of common
stock of evidences of indebtedness, shares of capital stock (other than common
stock), or other non-cash assets (including securities, but excluding those
dividends, rights, options, warrants and distributions referred to above and
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distributions in connection with the liquidation, dissolution or winding up of
the Company and excluding distributions in mergers and consolidations to which
the penultimate paragraph of this section applies), and
(f) the completion of a tender offer made by us or any of our
subsidiaries for our common stock to the extent that the aggregate
consideration, together with any cash and other consideration payable in a
tender offer by us or any of our subsidiaries for our common stock expiring
within the 12 months preceding the expiration of such tender offer in respect of
which no adjustment has been made exceeds 10% of our market capitalization on
the expiration of such tender offer.
Cash dividends or distributions paid on our common stock in excess of
three times (the "Maximum Amount") the amount equal to $1.60, as adjusted for
stock splits and similar events (the "Base Amount") in any four-quarter period,
commencing with the four-quarter period beginning July 1, 2001 and ending June
30, 2002, will not adjust the conversion price, but will be paid to you in cash
on a per share basis as if your notes had been converted to common stock
immediately prior to the declaration of the dividend using the conversion price
then in effect; PROVIDED, HOWEVER, that if we pay cash dividends or
distributions in any four quarter period that are less than the Maximum Amount,
the difference between the amount we actually paid and the Maximum Amount will
roll forward to future four quarter periods such that they will increase the
amount we may pay in excess of the Maximum Amount before you will receive a cash
payment; PROVIDED FURTHER that the Base Amount may be increased for a particular
four quarter period and reset to an increased amount, which increased amount
shall be equal to the amount of such dividends or distributions paid in the
prior four quarter period.
No adjustment of the conversion price will be required to be made until
the cumulative adjustments amount to one percent or more of the conversion price
as last adjusted and we will carry forward any adjustment we do not make and
will include it in any future adjustment, PROVIDED, HOWEVER that any cash
dividend or distribution in (a) above will reduce the conversion price by the
exact amount of such cash dividend or distribution.
From time to time and to the extent permitted by law, we may reduce the
conversion price by any amount for any period of at least 20 business days, if
the Board of Directors has made a determination that such reduction would be in
our best interests, which determination shall be conclusive. If we do so, we
will give you and the trustee at least 15 days notice of such reduction. We may,
at our 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 United States federal income tax purposes. See "Certain Federal
Income Tax Consequences".
In case of any reclassification or change of outstanding shares of
common stock issuable upon conversion of the notes (other than certain changes
in par value) or consolidation or merger of the Company with or into another
person or any consolidation or merger of another person with or into us (with
certain exceptions), or in case of any sale, transfer or conveyance of all or
substantially all of our assets, each note then outstanding will, without your
consent, become convertible only into the kind and amount of securities, cash
and other property receivable upon such reclassification, change, consolidation,
merger, sale, transfer or conveyance by a holder of the number of shares of
common stock into which such note was convertible immediately prior thereto
after giving effect to any adjustment required to be made as set forth above,
but if the kind or amount of securities, cash and other property is not the same
for each share of common stock held immediately prior to such reclassification,
change, consolidation, merger, sale, transfer, or conveyance, unless you
exercise any right of election, you shall receive per share the kind and amount
of securities, cash or other property received per share by a plurality of such
shares.
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You may, in some circumstances, be deemed to have received a
distribution or dividend subject to United States federal income tax as a result
of an adjustment or the nonoccurrence of an adjustment to the conversion price.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
notes is subordinated to the extent provided in the indenture to the prior
payment in full, in cash or other payment satisfactory to the holders of senior
indebtedness, of all senior indebtedness.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, or in bankruptcy, insolvency, receivership or
similar proceedings, payment of the principal of, premium, if any, and interest
(including any additional interest) on the notes will be subordinated in right
of payment to the prior payment in full, in cash or other payment satisfactory
to the holders of senior indebtedness, 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 or other payment satisfactory to the
holders of senior indebtedness, of all obligations with respect to such senior
indebtedness before the holders of notes are entitled to receive any payment or
other distribution.
We also may not make any payment on the notes if:
o a default in the payment of designated senior indebtedness occurs
and is continuing beyond any applicable period of grace, or
o any other default occurs and is continuing with respect to
designated senior indebtedness that permits holders of the
designated senior indebtedness to accelerate its maturity and the
trustee receives a notice of such default, which we refer to as a
payment blockage notice, from any person permitted to give this
notice under the indenture.
We may resume making payments on the notes:
o in the case of a payment default, when the default is cured or
waived or ceases to exist, and
o in the case of a nonpayment default, upon the earlier of (1) when
the default is cured or waived or ceases to exist and (2) 179 days
after receipt of the payment blockage notice.
No new period of payment blockage may be commenced pursuant to a
payment blockage notice unless and until 365 days have elapsed since our receipt
of the prior payment blockage notice.
No default that existed on the date of delivery of any payment blockage
notice to the trustee shall be the basis for a subsequent payment blockage
notice.
The term "designated senior indebtedness" means any senior
indebtedness, the principal amount of which is, or under which the lenders party
thereto are committed to lend or advance, $10 million or more, provided, that
such senior indebtedness has been designated by us in the instrument or
agreement creating or evidencing the same as "designated senior indebtedness".
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The term "SENIOR INDEBTEDNESS" means all of our obligations to pay 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 allowed as a claim in any
proceeding) and rent payable on or in connection with, and all letters of
credit, reimbursement obligations and fees, costs, expenses and other amounts
and liabilities accrued or due on or in connection with, and interest swap and
hedging obligations issued by parties to and secured with, any of our
indebtedness, whether outstanding on the date of the indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by us, unless the
instrument creating or evidencing such indebtedness expressly provides that such
indebtedness is not senior or superior in right of payment to the notes or is
PARI PASSU with, or subordinated to, the notes; PROVIDED that in no event shall
senior indebtedness include (a) indebtedness owed to any of our subsidiaries,
(b) our indebtedness representing any trade account payable incurred in the
ordinary course of business, (c) any liability for taxes owed or owing by us or
any of our subsidiaries or (d) the notes.
In the event that, notwithstanding the foregoing, any payment or
distribution of our assets or the assets of any of our subsidiaries, other than
junior securities, shall be received by you or the trustee on your behalf or any
paying agent at a time when such payment or distribution is prohibited as
described above, such payment or distribution shall be held in trust for the
benefit of the holders of senior indebtedness, and shall be paid or delivered by
you or the trustee or such paying agent, as the case may be, to the holders of
the senior indebtedness remaining unpaid.
No provision contained in the indenture or the notes will affect our
obligation, which is absolute and unconditional, to pay principal of, premium,
if any, and interest on the notes when due. The subordination provisions of the
indenture and the notes will not prevent the occurrence of any default or event
of default under the indenture or limit the rights of you or the trustee,
subject to the preceding paragraphs, to pursue any other rights or remedies with
respect to the notes.
We conduct our operations through our subsidiaries. Accordingly, our
ability to meet our cash obligations in the future in part will be dependent
upon the ability of our subsidiaries to make cash distributions to us.
Our subsidiaries are separate and distinct legal entities. Our
subsidiaries have no obligation to pay any amounts due on the notes or to
provide us with funds for our payment obligations, whether by dividends,
distributions, loans or other payments. In addition, any payment of dividends,
distributions, loans or advances by our subsidiaries to us could be subject to
statutory or contractual restrictions. For example, VGR Holding, one of our
subsidiaries, has issued $60 million of 10% senior secured notes due March 31,
2006. These senior secured notes contain restrictions on VGR Holding's ability
to pay dividends, distributions or other payments to us or its subsidiaries.
These restrictions may limit the ability of VGR Holding and its subsidiaries to
pay dividends to us and, thus, our ability to meet our obligations with respect
to the notes. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations. The indenture will not
limit our subsidiaries' ability to incur such contractual restrictions in the
future.
Our right to participate in the assets of any subsidiary (and thus your
ability to benefit indirectly from such assets) is generally subject to the
prior claims of creditors, including trade creditors, of that subsidiary except
to the extent that we are recognized as a creditor of such subsidiary, in which
case our claims would still be subject to any security interest of other
non-subordinated or PARI PASSU creditors of such subsidiary. The notes,
therefore, will be effectively subordinated to obligations to creditors,
including trade or judgment creditors, of our subsidiaries with respect to the
assets of the subsidiaries against which such creditors have a more direct
claim. An acceleration of subsidiary debt or a failure to pay the same at the
maturity thereof will not constitute a default or event of default under the
indenture.
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As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of our or our subsidiaries'
creditors or a marshaling of our and our subsidiaries' assets or liabilities,
holders of senior indebtedness may receive more, ratably, and you may receive
less, ratably, than our other creditors.
As of June 30, 2001, we had outstanding $0.3 million of senior
indebtedness and our subsidiaries would have had $547.8 million of liabilities.
The indenture will not restrict our or our subsidiaries' incurrence of senior
indebtedness or other indebtedness or our ability to transfer assets or business
operations to our subsidiaries, subject to the provisions described under " --
Repurchase of Notes at Your Option Upon a Change of Control" and " -- Limitation
on Merger, Sale or Consolidation".
PROVISIONAL REDEMPTION
The notes will be subject to redemption in whole or in part at any time
between July 15, 2003 and July 15, 2004 at our option, upon not less than 20 nor
more than 60 days' notice to each holder, at a redemption price, payable in
cash, equal to $1,000 per $1,000 principal amount of notes, together with
accrued and unpaid interest and liquidated damages, if any, to, but excluding,
the provisional redemption (subject to the right of holders of record on the
relevant record date to receive interest due on any interest payment date that
is prior to such provisional redemption date) if:
o the closing price of our common stock on the New York Stock Exchange
exceeds 150% of the conversion price then in effect for a period of
at least 20 trading days in any consecutive 30 day trading period
ending on the trading day prior to the date of mailing of the
provisional redemption notice, and
o the shelf registration statement covering resales of the notes and
the common stock is effective and expected to remain effective and
available for use for the 30 days following the provisional
redemption date, unless registration is no longer required.
If we redeem the notes under these circumstances, we will make an
additional "make whole" payment, payable in cash, on the redeemed notes equal to
the present value of the aggregate value of the interest payments and liquidated
damages, if any, that would thereafter have been payable on the notes from the
provisional redemption date through July 15, 2004 (the "make whole period"). The
present value will be calculated using the bond equivalent yield on U.S.
Treasury notes or bills having a term nearest in length to that of the make
whole period. We must make this make whole payment on all notes called for
provisional redemption, including notes converted after the date we mail the
notice. The make whole payment for notes converted shall not be reduced by
accrued and unpaid interest and liquidated damages.
As provided above under "Conversion Rights," in the event your notes
have been converted into common stock after any record date, but on or before
the next interest payment date, interest shall be payable on the interest
payment date notwithstanding the conversion.
REDEMPTION AT OUR OPTION
Except as set forth under " -- Provisional Redemption", the notes will
not be subject to redemption prior to July 15, 2004 and will be redeemable on
and after such date at our option, in whole or in part, upon not less than 30
nor more than 60 days' notice to each holder, at the following redemption prices
(expressed as percentages of the principal amount) if redeemed during the
12-month period commencing July 15 of the years indicated below, in each case
(subject to the right of holders of record on a record date to receive interest
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due on an interest payment date that is prior to such redemption date) together
with accrued and unpaid interest and liquidated damages, if any, to, but
excluding, the redemption date:
YEAR PERCENTAGE
---- ----------
2004.............................................103.125%
2005.............................................102.083%
2006.............................................101.042%
2007 and thereafter..............................100.000%
In the case of a partial redemption, the trustee shall select the notes
or portions thereof for redemption on a PRO RATA basis, by lot or in such other
manner it deems appropriate and fair. The notes may be redeemed in part in
multiples of $1,000 only.
Notice of any redemption will be sent, by first-class mail, at least 30
days and not more than 60 days prior to the redemption date, to you at your last
address as then shown upon the registry books of the registrar. This notice of
redemption must state the redemption date, the redemption price and the amount
of accrued interest, if any, to be paid. Any notice that relates to a note to be
redeemed in part only must state the portion of the principal amount to be
redeemed and must state that on and after the redemption date, upon surrender of
such note, a new note or notes in principal amount equal to the unredeemed
portion thereof will be issued. On and after the redemption date, interest will
cease to accrue on the notes or portions of the notes called for redemption,
unless we default in our obligations with respect thereto. The notes will not
have the benefit of any sinking fund.
As provided above under "Conversion Rights," in the event your notes
have been converted into common stock after any record date, but on or before
the next interest payment date, interest shall be payable on the interest
payment date notwithstanding the conversion.
REPURCHASE OF NOTES AT YOUR OPTION UPON A CHANGE OF CONTROL
In the event of a change of control, as defined below, we are required
to make an offer to purchase all of your notes at a cash repurchase price equal
to 101% of the principal amount of your notes, together with accrued and unpaid
interest and liquidated damages, if any, to, but excluding, the date of
repurchase. Additionally, we will be required also to pay a "make whole premium"
on the repurchased notes if a change of control occurs before July 15, 2004.
Holders of notes on the date of the change of control will be entitled to
receive the make whole premium, if applicable, if such notes are converted
following the date of the change of control and on or before the change of
control payment date. "Make whole premium" means an amount equal to the present
value of the aggregate value of the interest payments and liquidated damages, if
any, that would thereafter have been payable on the notes from the repurchase
date through July 15, 2004 (the "premium period"). The present value will be
calculated using the bond equivalent yield on U.S. Treasury notes or bills
having a term nearest in length to that of the premium period. You may accept
the repurchase offer with respect to all or a portion of your notes, provided
that the principal amount of the notes you require us to repurchase must be
$1,000 or an integral multiple thereof. We will make the repurchase offer within
25 business days following a change of control and it will remain open for 20
business days following its commencement except to the extent that a longer
period is required by applicable law. Upon expiration of the repurchase offer
period, we shall purchase all notes tendered in response to the repurchase
offer.
Except as provided below, a "change of control" means:
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(a) the acquisition by any "person" or group under Section 13(d)(3) of
the Securities Exchange Act, but excluding us or any of our wholly
owned subsidiaries and any employee benefit plan of ours or any of
our subsidiaries and excluding Bennett S. LeBow and his immediate
family and any "person" or group under Section 13(d)(3) of the
Securities Exchange Act that is controlled by Bennett S. LeBow or
his immediate family, any beneficiary of the estate of Bennett S.
LeBow or his immediate family or any trust or partnership controlled
by any of the foregoing, of beneficial ownership, directly or
indirectly, through a purchase, merger, or other acquisition
transaction or series of transactions, of shares of our capital
stock entitling such person to exercise more than 50% of the total
voting power of all shares of our capital stock entitling the
holders thereof to vote generally in elections of directors,
(b) any consolidation of us with, or merger of us into, any other
person, any merger of another person into us, or any sale or
transfer of all or substantially all of our assets to another
person, other than a merger or sale of assets that (x) is effected
solely to change our jurisdiction of incorporation and results in a
reclassification, conversion, or exchange of outstanding shares of
common stock solely into shares of common stock, or (y) does not
have the result that our shareholders immediately before such
transaction beneficially own, directly or indirectly, immediately
following such transaction, less than 50% of the combined total
voting power of all shares of capital stock of the person resulting
from such transaction entitling the holders thereof to vote
generally in elections of directors,
(c) a "Termination of Listing" occurs, which means that the shares into
which the notes are convertible are neither listed for trading on
the United States national securities exchange nor quoted on the
Nasdaq National Market, as a result of Bennett S. LeBow engaging in
any going private transaction with respect to the Company, or
(d) at any time Bennett S. LeBow or his immediate family, or any
"person" or group under Section 13(d)(3) of the Securities Exchange
Act that is controlled by Bennett S. LeBow or his immediate family,
any beneficiary of the estate of Bennett S. LeBow or his immediate
family or any trust or partnership controlled by any of the
foregoing, beneficially own, either individually or collectively,
directly or indirectly, shares of our capital stock entitling any
such person or persons to exercise in the aggregate more than 65% of
the total voting power of all shares of our capital stock entitling
the holders thereof to vote generally in the election of directors.
Notwithstanding a change of control, a change of control shall not be
deemed to have occurred if at least 90% of the consideration, excluding cash
payments for fractional shares, to be received by the holders of the common
stock in the transaction or transactions constituting the change of control
consists of shares of common stock or other equity securities traded on a
national securities exchange or quoted on the Nasdaq National Market, and, as a
result of such transaction or transactions, the notes become convertible into
such common stock or other equity securities.
The phrase "all or substantially all" of our assets, as included in the
definition of change of control, is likely to be interpreted by reference to
applicable state law at the relevant time, and will be dependent on the facts
and circumstances existing at such time. As a result, there is a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of our assets has occurred.
On or before the repurchase date, we will:
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o accept for payment notes or portions thereof properly tendered
pursuant to the repurchase offer,
o deposit with the paying agent cash sufficient to pay the repurchase
price, together with accrued and unpaid interest, if any, of all
notes so tendered, and
o deliver to the trustee the notes so accepted, together with an
officers' certificate listing the notes or portions thereof being
purchased by us.
The paying agent will promptly mail to the holders of notes so accepted
payment in an amount equal to the repurchase price, together with accrued and
unpaid interest, if any, and the trustee will promptly authenticate and mail or
deliver to such holders a new note or notes equal in principal amount to any
unpurchased portion of the notes surrendered. We will promptly mail or deliver
any notes not accepted to their holder. We will announce publicly the results of
the repurchase offer on or as soon as practicable after the repurchase date.
The change of control purchase feature of the notes may make more
difficult or discourage a takeover of us, and, thus, the removal of incumbent
management. The change of control purchase feature resulted from negotiations
between us and Jefferies & Company, Inc., the initial purchaser of the notes.
The provisions of the indenture relating to a change of control may not
afford you protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that may
adversely affect you, if such transaction does not constitute a change of
control. Moreover, certain events with respect to us which may involve an actual
change of control of us may not constitute a change of control for purposes of
the indenture.
The right to require us to repurchase notes as a result of the
occurrence of a change of control could create an event of default under senior
indebtedness as a result of which any repurchase could be blocked by the
subordination provisions of the notes. Our failure to repurchase the notes when
required would result in an event of default with respect to the notes whether
or not such repurchase is permitted by the subordination provisions. See
"--Subordination".
No modification of the indenture regarding the provisions on repurchase
at your option upon a change of control that adversely affects you is
permissible without the consent of holders of in excess of two-thirds of the
outstanding aggregate principal amount of the notes. At any time following the
occurrence of a change of control and before the close of business on the
business day immediately preceding the date of repurchase, holders of in excess
of two-thirds of the outstanding aggregate principal amount of the notes may
waive or amend the requirements of the change of control covenant. In such
event:
o we shall not be required to make the repurchase offer,
o to the extent the repurchase offer has already been made, such
repurchase offer shall be deemed revoked, and
o to the extent any notes have been tendered in response to any such
revoked repurchase offer, such tender shall be rescinded and the
notes so tendered shall be promptly returned to the holders thereof.
For purposes of any such determination by the holders of the
outstanding notes, notes held by us or any of our affiliates, including any
person that would become an affiliate of us, or our successor, as a consequence
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of the event or series of events that otherwise would be treated as a change of
control for purposes of the indenture, shall be disregarded.
To the extent applicable, we will comply with the provisions of Rule
13e-4 and 14e-1 or any other tender offer rules under the Exchange Act and any
other securities laws, and will file a Schedule 13e-4 or any other schedule if
required under such rules, in connection with any offer by us to repurchase
notes at the option of the holders upon a change of control.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
We may not, directly or indirectly, consolidate with or merge with or
into, or sell, lease or otherwise dispose of all or substantially all of our
assets on a consolidated basis, whether in a single transaction or a series of
related transactions, to another person or group of affiliated persons, other
than to our wholly owned subsidiaries, unless:
o in the case of a merger or consolidation, we are the surviving
entity or the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state
thereof or the District of Columbia and expressly assumes by
supplemental indenture all of our obligations in connection with the
notes and the indenture, and
o no default or event of default shall exist immediately before or
after giving effect on a pro forma basis to such transaction.
Upon any consolidation or merger or any transfer of all or
substantially all of our assets in accordance with the foregoing, the successor
corporation formed by such consolidation or into which we are merged or to which
such transfer is made, shall succeed to, and be substituted for, and may
exercise every right and power of, us under the indenture with the same effect
as if such successor corporation had been named therein as us, and we will be
released from our obligations under the indenture and the notes, except as to
any obligations that arise from or as a result of such transaction.
For purposes of the foregoing, the transfer, by lease, assignment, sale
or otherwise, of all or substantially all of the properties and assets of one or
more subsidiaries, which properties and assets, if held by us instead of such
subsidiary, would constitute all or substantially all of our properties and
assets, shall be deemed to be the transfer of all or substantially all of our
properties and assets.
EVENTS OF DEFAULT AND REMEDIES
The indenture defines an event of default as:
o our failure to pay any installment of interest on the notes as and
when due and payable and the continuance of any such failure for 30
days, whether or not prohibited by the subordination provisions of
the indenture,
o our failure to pay all or any part of the principal of, or premium,
if any, on the notes as and when the same become due and payable at
maturity, redemption, by acceleration or otherwise, including,
without limitation, pursuant to any repurchase offer, whether or not
prohibited by the subordination provisions of the indenture,
o our failure to perform our covenants and agreements regarding any
conversion of the notes required under the indenture and the
continuance of any such failure for 30 days,
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o our failure to observe or perform any other covenant or agreement
contained in the notes or the indenture and, subject to certain
exceptions, the continuance of such failure for a period of 60 days
after written notice is given to us by the trustee or to us and the
trustee by the holders of at least 25% in aggregate principal amount
of the notes outstanding,
o certain events of bankruptcy, insolvency or reorganization in
respect of us or any of our significant subsidiaries,
o failure to make any payment at final stated maturity, including any
applicable grace period, in respect of our indebtedness, other than
non-recourse obligations, in an amount in excess of $10 million, and
continuance of such failure for 30 days after written notice is
given to us by the trustee or to us and the trustee by the holders
of at least 25% in aggregate principal amount of notes outstanding,
o default with respect to any of our indebtedness, other than
non-recourse obligations, which default results in the acceleration
of indebtedness in an amount in excess of $10 million without such
indebtedness having been discharged or such acceleration having been
rescinded or annulled for 30 days after written notice is given to
us by the trustee or to us and the trustee by the holders of at
least 25% in aggregate principal amount of notes outstanding, and
o final unsatisfied judgments not covered by insurance aggregating in
excess of $10 million, at any one time rendered against us or any of
our significant subsidiaries and not stayed, bonded or discharged
within 60 days.
If a default occurs and is continuing, the trustee must, within 90 days
after the trustee's receiving notice of occurrence of such default, give you
notice of such default, but the trustee shall be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
your interest, except in the case of a default in the payment of the principal
of, premium, if any, or interest on any of the notes when due or in the payment
of any redemption or repurchase obligation.
If an event of default occurs and is continuing, other than an event of
default described above relating to bankruptcy, insolvency or reorganization
with respect to us, then in every such case, unless the principal of all of the
notes shall have already become due and payable, either the trustee or the
holders of at least 25% in aggregate principal amount of the notes then
outstanding, by notice in writing to us, and to the trustee if given by holders,
may declare all principal, premium, if any, accrued interest, if any, on or with
respect to the notes to be due and payable immediately. If an event of default
described above relating to bankruptcy, insolvency or reorganization with
respect to us occurs, all principal, premium, if any, accrued interest, if any,
will be immediately due and payable on all outstanding notes without any
declaration or other act on the part of the trustee or the holders. The holders
of no less than a majority in aggregate principal amount of notes generally are
authorized to rescind such acceleration if all existing events of default, other
than the non-payment of principal of, premium, if any, and interest on the notes
that have become due solely by such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the notes,
the holders of a majority in aggregate principal amount of the notes at the time
outstanding may waive on behalf of all the holders any default, except a default
in the payment of principal of, interest on, or liquidated damages with respect
to, any note not yet cured, or a default with respect to any covenant or
provision that cannot be modified or amended without the consent of the holders
of a greater percentage of notes or the holder of each outstanding note
affected. Subject to the provisions of the indenture relating to the duties of
the trustee, the trustee will be under no obligation to exercise any of its
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rights or powers under the indenture at the request, order or direction of any
of the holders, unless those holders have offered to the trustee reasonable
security or indemnity. Subject to all provisions of the indenture and applicable
law, the holders of a majority in aggregate principal amount of the notes at the
time outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or exercising
any trust or power conferred on the trustee.
No holder may pursue any remedy under the indenture, except for a
default in the payment of principal, premium, if any, or interest, if any, on
the notes, unless:
o the holder gives to the trustee written notice of a continuing event
of default,
o the holders of at least 25% in principal amount of the outstanding
notes make a written request to the trustee to pursue the remedy,
o such holders offer to the trustee indemnity satisfactory to the
trustee against any loss, liability or expense,
o the trustee does not comply with the request within 60 days after
the receipt of the request and the offer of indemnity, and
o the trustee shall not have received a contrary direction from the
holders of a majority in principal amount of the outstanding notes.
AMENDMENTS AND SUPPLEMENTS
We may enter into a supplemental indenture with the trustee for certain
purposes without the consent of the holders. With the consent of the holders of
not less than a majority in aggregate principal amount of the notes at the time
outstanding, we and the trustee are permitted to amend or supplement the
indenture or any supplemental indenture, but no such modification may, without
the consent of each holder affected thereby:
o change the stated maturity of any note or reduce the principal
amount thereof or the rate (or extend the time for payment) of
interest thereon or any premium payable upon the redemption thereof,
o change the place of payment where, or the coin or currency in which,
any note or any premium or the interest thereon is payable,
o impair the right to institute suit for the conversion of any note or
the enforcement of any such payment on or after the due date thereof
(including, in the case of redemption, on or after the redemption
date),
o reduce the repurchase price, or alter the repurchase offer (other
than as set forth herein) or redemption provisions in a manner
adverse to the holders,
o reduce the percentage in principal amount of the outstanding notes,
the consent of whose holders is required for any such amendment,
supplemental indenture or waiver provided for in the indenture, or
o adversely affect your right to convert notes or alter, in a manner
that adversely affects your rights, the provisions relating to
anti-dilution protection in respect thereof.
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A supplemental indenture entered into in compliance with the
"Limitation on Merger, Sale or Consolidation" covenant would not require your
consent.
NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES
The indenture provides that none of our shareholders, employees,
officers, directors or partners, as such, past, present or future, shall have
any personal liability in respect of our obligations under the indenture or the
notes by reason of his, her or its status as such shareholder, employee,
officer, director or partner.
TRANSFER AND EXCHANGE
We have initially appointed the trustee as security registrar, paying
agent and conversion agent, acting through its corporate trust office. We
reserve the right to:
o vary or terminate the appointment of the security registrar, paying
agent or conversion agent,
o appoint additional paying agents or conversion agents, or
o approve any change in the office through which any security
registrar or any paying agent or conversion agent acts.
A holder may transfer or convert the notes in accordance with the
indenture. We or the trustee may require a holder, among other things, to
furnish appropriate endorsements, legal opinions and transfer documents, and to
pay any taxes and fees required by law or permitted by the indenture. We are not
required to transfer or convert any notes selected for redemption. Also, we are
not required to transfer or convert any notes for a period of 15 days before the
mailing of a repurchase offer or notice of redemption.
The registered holder of a note may be treated as the owner of it for
all purposes.
BOOK ENTRY, DELIVERY AND FORM
The notes are evidenced by one or more global notes, deposited with, or
on behalf of, the depositary and registered in the name of Cede & Co. as the
depositary's nominee. Except as set forth below, the global note may be
transferred, in whole or in part, only to another nominee of the depositary or
to a successor of the depositary or its nominee.
You may hold your interests in the global note directly through the
depositary if you are participants in the depositary, or you may hold your
interests in the global note indirectly through organizations which are
participants in the depositary. Transfers between holders whose interests in the
global note are directly or indirectly held by the depositary will be effected
in accordance with the depositary's rules and will be settled in same-day funds.
The depositary has advised us that it is a limited-purpose trust
company that was created to hold securities for its participants and to
facilitate the clearance and settlement of transactions in such securities
between its participants through electronic book-entry changes in accounts of
its participants. The depositary's participants include securities brokers and
dealers (including Jefferies), banks and trust companies, clearing corporations
and certain other organizations. Access to the depositary's system is also
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available to other entities such as banks, brokers, dealers and trust companies,
known as indirect participants, that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly. Holders
may elect to hold notes purchased by them through the depositary. Holders who
are not participants may beneficially own securities held by or on behalf of the
depositary only through direct or indirect participants.
We expect that pursuant to procedures established by the depositary:
o the depositary will credit the accounts of participants with an
interest in the global notes, and
o ownership of the notes evidenced by the global notes will be shown
on, and the transfer of ownership thereof will be effected only
through, records maintained by the depositary (with respect to the
interests of participants), the participants and the indirect
participants.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interests in negotiable instruments can only be perfected by delivery of
securities representing the instruments. Consequently, your ability to transfer
notes evidenced by the global notes will be limited to such extent.
So long as the depositary or its nominee is the registered owner of a
note, the depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global notes for all
purposes under the indenture and the notes. Except as provided below, owners of
beneficial interests in a global note will not be entitled to have notes
represented by such global note registered in their names, will not receive or
be entitled to receive physical delivery of certificated notes, and will not be
considered the owners or holders thereof under the indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the trustee thereunder. As a result, the ability of a person having
a beneficial interest in notes represented by a global note to pledge such
interest to persons that do not participate in the depositary's system, or to
otherwise take actions with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither we nor the trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of notes
by the depositary, or for maintaining, supervising or reviewing any records of
the depositary relating to such notes.
Payments with respect to the principal of, premium, if any, interest on
any note represented by a global note registered in the name of the depositary
or its nominee on the applicable record date will be payable by the trustee to
or at the direction of the depositary or its nominee in its capacity as the
registered holder of the global notes representing such notes under the
indenture. We and the trustee may treat the persons in whose names the notes,
including the global notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither we nor the trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of notes
(including, principal, premium, if any, or interest), or immediately to credit
the accounts of the relevant participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the global notes as shown on the records of the depositary.
Payments by the direct and the indirect participants to the beneficial owners of
notes will be governed by standing instructions and customary practice and will
be the responsibility of the direct or indirect participants.
If you desire to convert your notes into common stock pursuant to the
terms of the notes, you should contact your broker or other participants or
indirect participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.
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CERTIFICATED SECURITIES
If:
o we notify the trustee in writing that the depositary is no longer
willing or able to act as a depositary and we are unable to locate a
qualified successor within 90 days, or
o we, at our option, notify the trustee in writing that we elect to
cause the issuance of notes in definitive form under the indenture,
then, upon surrender by the depositary of the global notes,
certificated notes will be issued to each person that the depositary
identifies as the beneficial owner of the notes represented by the
global notes. In addition, subject to certain conditions, any person
having a beneficial interest in a global note may, upon request to
the trustee, exchange such beneficial interest for notes in the form
of certificated notes. Upon any such issuance, the trustee is
required to register such certificated notes in the name of such
person or persons (or the nominee of any thereof), and cause the
same to be delivered thereto.
Neither we nor the trustee shall be liable for any delay by the
depositary or any direct or indirect participant in identifying the beneficial
owners of the notes, and we and the trustee may conclusively rely on, and shall
be protected in relying on, instructions from the depositary for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the notes to be issued).
GOVERNING LAW
The indenture and the notes provide that they are to be governed in
accordance with the laws of the State of New York, without regard to choice of
laws provisions.
THE TRUSTEE
U.S. Bank Trust National Association is the trustee under the
indenture. A successor trustee may be appointed in accordance with the terms of
the indenture.
The indenture contains certain limitations on the rights of the
trustee, in the event it becomes our creditor, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to engage in other
transactions with us and our subsidiaries, but if it acquires any conflicting
interest (as defined), it must eliminate such conflict or resign.
In case an event of default shall occur (and shall not be cured or
waived), the trustee will be required to use the degree of care of a prudent
person in the conduct of its own affairs in the exercise of its powers. Subject
to such provisions, the trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request of any of the holders of
notes, unless they shall have offered to the trustee reasonable security or
indemnity.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding if:
o all outstanding notes will become due and payable at their scheduled
maturity within 90 days, or
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o all outstanding notes have been called for redemption within 90 days
and in either case we have deposited with the trustee an amount
sufficient to pay and discharge all outstanding notes on the date of
their scheduled maturity or the scheduled date of redemption.
REGISTRATION RIGHTS
We have entered into a registration rights agreement with Jefferies &
Company, Inc. for the benefit of the holders of the notes and the common stock
issuable upon conversion of the notes. The following is a summary of the
registration rights agreement and is not complete. You should refer to the
registration rights agreement for a full description of the registration rights
that apply to the notes.
We agreed to file a shelf registration statement, of which this
prospectus is a part, under the Securities Act to register resales of the notes
and the shares of common stock into which the notes are convertible, referred to
as registrable securities. We agreed to use commercially reasonable efforts to
have the shelf registration statement declared effective within 180 days after
the first date of original issuance of the notes, and to keep it effective until
the earliest of:
o two years after the closing date,
o the date when all registrable securities shall have been registered
under the Securities Act and disposed of, and
o the date on which all registrable securities (other than those held
by our affiliates) are eligible to be sold to the public pursuant to
Rule 144(k) under the Securities Act.
We are permitted to suspend the use of the prospectus which is a part
of the shelf registration statement for a period not to exceed 90 consecutive
days or an aggregate of 120 days in any twelve-month period under certain
circumstances relating to pending corporate developments, public filings with
the Securities and Exchange Commission and similar events.
A holder of registrable securities that sells registrable securities
pursuant to the shelf registration statement generally is required to provide
information about itself and the specifics of the sale, be named as a selling
securityholder in the related prospectus and deliver a prospectus to purchasers,
be subject to relevant civil liability provisions under the Securities Act in
connection with such sales and be bound by the provisions of the registration
rights agreements which are applicable to such holder.
If:
o on or prior to the 180th day after the first date of original
issuance of the notes the shelf registration statement has not been
declared effective by the SEC,
o we fail with respect to a note holder that supplies the
questionnaire described below to supplement the shelf registration
statement in a timely manner in order to name additional selling
securities holders, or
o after the shelf registration statement has been declared effective
the shelf registration statement ceases to be effective or fails to
be usable in connection with resales of notes and the common stock
issuable upon the conversion of the notes in accordance with and
during the periods specified in the registration rights agreement
and (A) we do not cure the shelf registration statement within five
business days by a post-effective amendment or a report filed
pursuant to the Exchange Act or (B) if applicable, we do not
terminate the suspension period described above by the 90th day, as
the case may be,
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(each such event referred to in the three clauses above, a registration
default), then, in each case, we will pay, until such failure is cured,
liquidated damages equal to 0.5% per annum for the notes or, if applicable, on
an equivalent basis per share, subject to adjustment in the case of stock
splits, stock recombinations, stock dividends and the like, of common stock
constituting registrable securities.
We agreed to give notice of our intention to file the shelf
registration statement, which we refer to as a filing notice, to each of the
holders of the notes in the same manner as we would give notice to holders of
notes under the indenture. The filing notice seeks, among other things, a
determination from each such holder as to whether such holder elected to have
its notes and the common stock issuable on conversion thereof registered for
sale pursuant to the shelf registration statement.
Any holder of notes wishing to include its registrable securities is
required to deliver to us a properly completed and signed selling securityholder
notice and questionnaire. Depending on how quickly the shelf registration
statement is declared effective, a holder who responds at the end of the period
may not have its registrable securities included until after the shelf
registration statement is declared effective. No holder other than Jefferies is
entitled to have the registrable securities held by it covered by the shelf
registration statement unless such holder agrees in writing to be bound by all
the provisions of the registration rights agreement applicable to such holder.
Holders of notes are required to deliver the questionnaire prior to the
effectiveness of the shelf registration statement so that they can be named as
selling securityholders in the prospectus. Upon receipt of any completed
questionnaires after the effectiveness of the shelf registration statement, we
are required, as promptly as practicable but in any event within five business
days of receipt, to file any amendments or supplements to the shelf registration
statement so that such securityholders may use the prospectus, subject to our
right to suspend under certain circumstances. Under the registration rights
agreement all selling securityholders are required to deliver a prospectus to
purchasers and will be bound by the provisions of the agreement.
We agreed to pay all expenses of the shelf registration statement,
provide each holder that is selling registrable securities pursuant to the shelf
registration statement copies of the related prospectus and take other actions
as are required to permit, subject to the foregoing, registered resales of the
registrable securities.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The section summarizes the material United States federal income tax
consequences of purchasing, owning, and disposing of the notes and common stock
into which you may convert the notes. This is not a complete analysis of all the
potential tax consequences that you may need to consider before investing based
on your particular circumstances. This summary is based on the Internal Revenue
Code of 1986, as amended, the applicable treasury regulations promulgated or
proposed under the Code, judicial authority and current administrative rulings
and practice. All of these may change, possibly on a retroactive basis.
This summary deals only with beneficial owners who hold notes and
common stock as "capital assets" and does not address tax consequences under
special tax rules. Special tax rules may apply to banks, tax-exempt
organizations or funds, pension funds, insurance companies, dealers in
securities or foreign currencies, persons participating in a hedging transaction
or a "straddle" or "conversion transaction" for tax purposes, or persons that
have a "functional currency" other than the U.S. dollar.
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This summary discusses the tax consequences to holders who purchase the
notes at their "issue price" (the first price at which a substantial portion of
the notes is sold to the public) and generally does not discuss the tax
consequences to subsequent purchasers of the notes. We have not sought any
ruling from the Internal Revenue Service with respect to the statements and
conclusions in the following summary. We cannot guarantee the IRS will agree
with these statements and conclusions.
Before you invest in these securities, you should consult your own tax
advisor to determine how the United States federal income and estate tax laws
apply to your particular situation and for information about any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction or under any applicable tax treaty.
The following discussion is limited to the U.S. federal income tax
consequences relevant to a "U.S. Holder" of a note. You are a "U.S. Holder" if
you are:
o a citizen or resident (as defined in Section 7701(b)(1) of the Code)
of the United States,
o a corporation or partnership organized under the laws of the United
States or any political subdivision thereof or therein,
o an estate, the income of which is subject to U.S. federal income tax
regardless of the source, or
o a trust the administration of which is subject to the primary
supervision of a U.S. court and for which one or more U.S. persons
can make all significant decisions.
In addition, if a holder is an entity treated as a partnership for United States
federal income tax purposes, the tax treatment of each partner of such
partnership will generally depend upon the status of the partner and upon the
activities of the partnership. Partners in partnerships which hold notes or
common stock should consult their tax advisors.
TAXATION OF INTEREST
You generally must include interest on a note in your income as
ordinary income at the time you receive or accrue interest, in accordance with
your method of accounting for United States federal income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Except as described below under "Conversion of the Notes", you
generally will recognize capital gain or loss on the sale, exchange or
redemption of a note equal to the difference between:
o the amount of cash proceeds and the fair market value of any
property you receive on the sale, exchange or redemption (except any
portion that is accrued but unpaid interest not previously included
in income, which is taxable as ordinary income), and
o your adjusted tax basis in the note.
Your adjusted tax basis generally will equal the cost of the note to
you, less any principal payments you have received. This capital gain or loss
will be long-term if you have held the note for more than one year and will be
short-term if you have held the note one year or less. Long-term capital gains
for non-corporate taxpayers, including individuals, are taxed at a maximum rate
of 20%, and short-term capital gains are taxed at a maximum rate of 39.6%. (The
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maximum long-term capital gains rate for non-corporate taxpayers is 18% on the
sale of any capital asset acquired after December 31, 2000 and held more than
five years; the maximum tax rate for non-corporate taxpayers is scheduled to be
reduced from 39.6% to 39.1% for taxable years beginning during 2001 (but
effective July 1, 2001); to 38.6% for taxable years beginning during 2002 and
2003; to 37.6% for taxable years beginning during 2004 and 2005; and to 35% for
taxable years beginning during 2006 and thereafter.) Corporate taxpayers pay a
maximum regular tax rate of 35% on all capital gains and ordinary income.
EARLY REDEMPTION
In the event of a change of control, the holders of notes will have the
right to require us to purchase their notes. Treasury regulations provide that
the right of holders of the notes to require redemption of the notes upon the
occurrence of a change of control will not affect the yield or maturity date of
the notes if, based on all the facts and circumstances as of the issue date, it
is significantly more likely than not that a change of control giving rise to
the redemption right will not occur. We do not intend to treat this redemption
provision of the notes as affecting the computation of the yield or maturity
date of the notes.
We may redeem all or a portion of the notes at any time on or after a
certain date. Treasury regulations provide that for purposes of determining the
yield and maturity of the notes, we will be deemed to exercise any option to
redeem the notes if the exercise of such option would lower the yield of the
debt instrument. We believe, and intend to take the position, that we will not
be treated as having exercised an option to redeem under these rules.
CONSTRUCTIVE DIVIDENDS ON THE NOTES
The conversion price of the notes may change under certain
circumstances. In such a case, you may be treated as having received a
constructive distribution whether or not you ever exercise your conversion
privilege. The constructive distribution will be taxed as ordinary income,
subject to a possible dividends received deduction if you are a corporate
holder, to the extent of our current or accumulated earnings and profits, if,
and to the extent that, the adjustment in the conversion price increases your
proportionate interest in the fully diluted common stock. Moreover, common
stockholders themselves will generally be treated as having received a
constructive distribution if there is not a full adjustment to the conversion
price of the notes to reflect a stock dividend or other event increasing the
proportionate interest of the common stockholders in our assets or earnings and
profits. In such an event, the constructive distribution will be taxable as
ordinary income, subject to a possible dividends received deduction if you are a
corporate holder, to the extent of our current or accumulated earnings and
profits. Under these circumstances, it is possible that you could be required to
pay tax even though you did not receive any cash or other property.
LIQUIDATED DAMAGES
If the shelf registration statement is not declared effective or if we
fail to maintain the effectiveness of the shelf registration statement, we will
be required to pay you liquidated damages, as described above under "Description
of Notes - Registration Rights". We intend to take the position for United
States federal income tax purposes that any payments of liquidated damages
should be taxable to you as additional interest income when received or accrued,
in accordance with your method of tax accounting. This position is based in part
on the assumption that as of the date of issuance of the notes, the possibility
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that liquidated damages will have to be paid is a "remote" or "incidental"
contingency within the meaning of applicable treasury regulations. Our
determination that such possibility is a remote or incidental contingency is
binding on you, unless you explicitly disclose that you are taking a different
position to the IRS on your tax return for the year during which you acquire the
notes. However, the Internal Revenue Service may take a contrary position from
that described above, which could affect the timing and character of both your
income from the notes and our deduction with respect to the payments of
liquidated damages. If you convert your notes prior to the payment of liquidated
damages, liquidated damages paid to you will be treated as a distribution on
your common stock in the manner discussed under " -- Dividends on Common Stock"
below.
If we fail to file a registration statement, you should consult your
tax advisers concerning the appropriate tax treatment of the payment of
liquidated damages with respect to the notes.
CONVERSION OF THE NOTES
You generally will not recognize any income, gain or loss on conversion
of a note into common stock, except for any cash you receive instead of a
fractional share of common stock. Your tax basis in the common stock will be the
same as your adjusted tax basis in the note at the time of conversion, reduced
by any basis allocable to any fractional share interest for which you received
cash. For capital gains purposes, your holding period for the common stock will
generally include the holding period of the note you converted.
You should treat cash you receive instead of a fractional share of
common stock as a payment in exchange for the fractional share of common stock.
This will generally result in capital gain or loss (measured by the difference
between the cash you received for the fractional share and your adjusted tax
basis in the fractional share).
DIVIDENDS ON COMMON STOCK
Generally, distributions are treated as a dividend and taxed as
ordinary income to the extent of our current or accumulated earnings and
profits. Thereafter, distributions are treated as a tax-free return of capital
to the extent of your tax basis in the common stock, and thereafter as gain from
the sale or exchange of such stock.
A dividend distribution to a corporate holder may qualify for the 70%
dividends received deduction if the holder owns less than 20% of the voting
power and value of our stock, not counting non-voting, non-convertible,
non-participating preferred stock. A corporate holder that owns 20% or more of
the voting power and value of our stock, other than non-voting, non-convertible,
non-participating preferred stock, generally will qualify for an 80% dividends
received deduction.
SALE, EXCHANGE OR REDEMPTION OF COMMON STOCK
On the sale, exchange or redemption of common stock, you generally will
recognize capital gain or loss equal to the difference between:
o the amount of cash and the fair market value of any property
received on the sale or exchange, and
o your adjusted tax basis in the common stock.
This capital gain or loss will be long-term if you have held the stock
for more than one year and will be short-term if you have held the stock for one
year or less. A holder's basis and holding period in common stock received upon
conversion of a note are determined as discussed above under "-- Conversion of
the Notes".
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INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, we must report to the IRS payments of principal, premium
and interest on a note, payments of dividends on common stock, payments of the
proceeds of the sale of a note and payments of the proceeds of the sale of
common stock. The payer must withhold backup withholding tax if:
o the payee fails to furnish a taxpayer identification number to the
payer or establish an exemption from backup withholding,
o the IRS notifies the payer that the number furnished by the payee is
incorrect,
o the payee has underreported interest, dividends or original issue
discount, or
o the payee has failed to certify under the penalty of perjury that he
is not subject to backup withholding under the Code.
Certain holders, including all corporations, are exempt from such
backup withholding. You may credit any amounts withheld under the backup
withholding rules against your United States federal income tax, and you may
receive a refund if you furnish the required information to the IRS.
DESCRIPTION OF CAPITAL STOCK
THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY, THE PROVISIONS OF OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED, AND ALL APPLICABLE PROVISIONS OF THE
DELAWARE GENERAL CORPORATION LAW.
GENERAL
Our Amended and Restated Certificate of Incorporation, as amended,
authorizes us to issue 100,000,000 shares of common stock, par value $.10 per
share, and 10,000,000 shares of preferred stock, par value $1.00 per share. As
of September 27, 2001, there were 31,548,978 shares of our common stock, and no
shares of our preferred stock, issued and outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Subject
to the prior rights of any outstanding preferred stock, the holders of common
stock are entitled to receive such dividends as the Board of Directors may
declare out of funds legally available for payment of dividends. In the event of
our liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding preferred stock. The
holders of common stock have no right to convert their common stock into any
other securities. The common stock has no preemptive or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are duly authorized,
validly issued, fully paid and nonassessable. The rights of holders of common
stock are subject to, and may be adversely affected by, the rights of holders of
any series of preferred stock that we may designate in the future.
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PREFERRED STOCK
The Board of Directors may authorize the issuance of up to 10,000,000
shares of preferred stock from time to time in one or more series and for such
consideration as the Board may determine and subject to certain restrictions,
with such designations, preferences and rights, and such qualifications,
limitations and restrictions, as the Board may determine with respect thereto by
duly adopted resolution or resolutions. The issuance of preferred stock may
delay, defer or prevent our change in control of without further action by the
stockholders and may adversely affect the voting and other rights of holders of
our common stock. As of the date hereof, no shares of preferred stock are issued
and outstanding.
WARRANTS AND OPTIONS
We have outstanding warrants expiring in 2003 to purchase 286,561
shares of our common stock, at a price of $4.32 per share. In 1998, we granted
options expiring in 2003 for shares of our common stock, at a price of $5.18 per
share, to a law firm that represents us, Liggett and New Valley, of which
options for 591,281 shares are currently outstanding and exercisable. At June
30, 2001, we had outstanding options granted to employees to purchase 10,305,018
shares of its common stock, at prices ranging from $.87 to $35.43 per share, of
which options for 4,331,948 shares are exercisable during 2001.
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW
We are a Delaware corporation subject to the provisions of Section 203
of the Delaware General Corporation Law. Section 203 generally provides that a
stockholder acquiring more than 15%, but less than 85%, of the outstanding
voting stock of a corporation subject to Section 203 may not engage in a
"business combination," as defined in Section 203, with the corporation for a
period of three years from the date on which that stockholder became an
"interested stockholder," as defined in Section 203, unless:
o prior to such date the board of directors of the corporation
approved either the business combination or the transaction in which
the stockholder became an interested stockholder, or
o the business combination is approved by the board of directors of
the corporation and authorized by the holders of at least 66 2/3% of
the outstanding voting stock of the corporation not owned by the
interested stockholder.
A "business combination" includes a merger, asset sale and certain other
transactions with an interested stockholder. In general, an "interested
stockholder" is a person or entity who, together with affiliates thereof, owns,
or within three years prior to the determination of the interested stockholder
status, did own, 15% or more of the voting stock of the corporation. Section 203
could prohibit or delay a merger or other takeover or change of control
transaction with respect to our company and, accordingly, may discourage actions
that could result in a premium over the market price for the shares held by our
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company, New York, New York.
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SELLING SECURITYHOLDERS
The notes were originally issued by us and sold by Jefferies & Company,
Inc., as the initial purchaser, in transactions exempt from the registration
requirements of the Securities Act to persons reasonably believed by the initial
purchaser to be qualified institutional buyers. Selling securityholders,
including their transferees, pledgees or donees or their successors, may from
time to time offer and sell any or all the notes and common stock into which the
notes are convertible pursuant to this prospectus.
The selling securityholders have represented to us that they purchased
the notes and the common stock issuable upon conversion of the notes for their
own account for investment only and not with a view toward selling or
distributing them, except through sales registered under the Securities Act or
pursuant to exemptions therefrom. We agreed with the initial purchaser to file
this registration statement to register the resale of the notes and the common
stock. We agreed to prepare and file all necessary amendments and supplements to
the registration statement to keep it effective until the date on which the
notes and the common stock issuable upon their conversion no longer qualify as
"registrable securities" under our registration rights agreement.
The following table sets forth, as of September 27, 2001, information
regarding the beneficial ownership of the notes and our common stock by the
selling securityholders. The information is based on information provided by or
on behalf of the selling securityholders. Information about the selling
securityholders may change over time. Any material changed information will be
set forth in prospectus supplements.
The selling securityholders may offer from time to time all, some or
none of the notes or common stock into which the notes are convertible. See
"Plan of Distribution". Thus, we cannot estimate the amount of the notes or the
common stock that will be held by the selling securityholders upon termination
of any sales. In addition, the selling securityholders identified below may have
sold, transferred or otherwise disposed of all or a portion of their notes since
the date on which they provided the information about their notes in
transactions exempt from the registration requirements of the Securities Act.
Except as otherwise may be described in the footnotes below, none of the selling
securityholders has had any material relationship with us or our affiliates
within the past three years.
PRINCIPAL AMOUNT OF
NOTES BENEFICIALLY NUMBER OF SHARES OF
OWNED THAT MAY PERCENTAGE OF NOTES COMMON STOCK THAT PERCENTAGE OF COMMON
NAME BE SOLD OUTSTANDING MAY BE SOLD (1) STOCK OUTSTANDING (2)
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
AIG/National Union Fire $395,000 * 11,479 *
Insurance
AIG SoundShore $6,787,000 3.9% 197,239 *
Holdings Ltd.
AIG SoundShore $3,898,000 2.3% 113,281 *
Opportunity Holding
Fund Ltd.
AIG SoundShore $2,315,000 1.3% 67,276 *
Strategic Holding
Fund Ltd.
Argonaut Investment $46,000 * 1,336 *
Fund Ltd.
Argonaut Partnership $328,000 * 9,532 *
L.P.
Arkansas PERS $500,000 * 14,530
Bank Julius Baer & Co. $150,000 * 4,359 *
Ltd.
Bayberry Corp. $20,000,000 11.6% 581,226 1.8%(3)
BNP Paribas Equity $8,270,000 4.8% 240,337 *
Strategies, SNC
Boilermakers Blacksmith $675,000 * 19,616 *
Pension Trust
Clinton Multistrategy $3,500,000 2.0% 101,714 *
Master Fund, Ltd.
Clinton Riverside Convertible $4,818,000 2.8% 140,017 *
Portfolio Limited
Cooper Neff Convertible $1,500,000 * 43,591 *
Strategies Fund, L.P.
Delaware PERS $745,000 * 21,650 *
F.R. Convertible $75,000 * 2,179 *
Securities Fund
Global Bermuda Limited $800,000 * 23,249 *
Partnership
Hamilton Partners $17,000,000 9.9% 494,042 1.5%
Limited
ICI American Holdings $275,000 * 7,991 *
Trust
Janus Capital $14,000,000 8.1% 406,858 1.3%
Corporation
Jefferies & Company, $10,000,000 5.8% 290,613 *
Inc. (4)
Lakeshore $3,200,000 1.9% 92,996 *
International, Ltd.
Lemanik Sicav $200,000 * 5,812 *
Convertible Bond
Ondeo Nalco $105,000 * 3,051 *
Prospect International $250,000 * 7,265 *
Debt Strategy Fund
Putnam Advisory Company, $220,000 * 6,393 *
LLC
Putnam Investment $9,557,000 5.5% 277,739 *
Management, LLC
Starvest Combined $430,000 * 12,496 *
Portfolio
Starvest Managed $30,000 * 871 *
Portfolio
State of Oregon - Equity $2,390,000 1.4% 69,456 *
Sturgeon Limited $230,000 * 6,684 *
Syngenta AG $130,000 * 3,777 *
Whitebox Convertible $6,000,000 3.5% 174,367 *
Arbitrage Partners, L.P.
Zazove Hedged $1,500,000 * 43,591 *
Convertible Fund, L.P.
Zeneca Holdings Trust $185,000 * 5,376 *
Any other holder of $51,996,000 30.1% 1,511,072 4.6%
notes or future
transferee from any
holder (5) (6)
---------------
* Less than 1%.
(1) Assumes conversion of all of the securityholder's notes at a conversion
price of $34.41 per share of common stock. The initial conversion price
of $36.531 per share has been adjusted to reflect a cash dividend of
$0.40 per share of common stock and a 5% stock dividend paid by us on
September 28, 2001. The conversion price is subject to further adjustment
as described under "Description of Notes-Conversion Rights" and, as a
result, the amount of common stock issuable upon conversion of the notes
may increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using shares of
common stock outstanding as of September 27, 2001. In calculating this
amount, we treated as outstanding the number of shares of common stock
issuable upon conversion of all of that particular securityholder's
notes. We did not assume, however, the conversion of any other
securityholder's notes.
(3) Barberry is an investment entity owned by Carl C. Icahn. Mr. Icahn and
his affiliates are the beneficial owners of 6,749,356 shares of our
common stock (21.0%).
(4) Jefferies was the initial purchaser of the notes as described above.
Jefferies or its affiliates has from time to time provided investment
banking, general financing and banking services to us and our affiliates,
for which they have received customary compensation.
(5) Information about other selling securityholders will be set forth in
prospectus supplements, if required.
(6) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of
notes, do not beneficially own any common stock other than the common
stock issuable upon conversion of the notes at the initial conversion
rate.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and
the underlying common stock offered by this prospectus. The notes and the
underlying common stock may be sold from time to time to purchasers:
o directly by the selling securityholders; or
o through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions
from the selling securityholders or the purchasers of the notes and
the underlying common stock.
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the notes and the underlying common stock may
be deemed to be "underwriters". As a result, any profits on the sale of the
notes and underlying common stock by selling securityholders and any discounts,
commissions or concessions received by any such broker-dealers or agents might
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be deemed to be underwriting discounts and commissions under the Securities Act.
If the selling securityholders were to be deemed underwriters, the selling
securityholders may be subject to certain statutory liabilities, including, but
not limited to, those set forth in Sections 11, 12 and 17 of the Securities Act
and Rule 10b-5 under the Exchange Act.
If the notes and underlying common stock are sold through underwriters
or broker-dealers, the selling securityholders will be responsible for
underwriting discounts or commissions or agent's commissions.
The notes and underlying common stock may be sold in one or more
transactions at:
o fixed prices,
o prevailing market prices at the time of sale,
o varying prices determined at the time of sale, or
o negotiated prices.
These sales may be effected in transactions:
o on any national securities exchange or quotation service on which
the notes and underlying common stock may be listed or quoted at the
time of the sale, including the New York Stock Exchange in the case
of the common stock,
o in the over-the-counter market,
o in transactions otherwise than on such exchanges or services or in
the over-the-counter market,
o through the writing of options, whether the options are listed on an
option exchange or otherwise,
o through the settlement of short sales, or
o through other types of transactions.
These transactions may include block transactions or crosses. Crosses
are transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the notes and underlying common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions. These broker-dealers or
financial institutions may in turn engage in short sales of the notes and
underlying common stock in the course of hedging their positions. The selling
securityholders may also sell the notes and underlying common stock short and
deliver notes and underlying common stock to close out short positions, or loan
or pledge notes and underlying common stock to broker-dealers that in turn may
sell the notes and underlying common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the underlying common
stock by the selling securityholders. Selling securityholders may decide not to
sell any of the notes and the underlying common stock offered by them pursuant
to this prospectus. In addition, there may be circumstances where a selling
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securityholder may transfer, devise or gift the notes and the underlying common
stock by other means not described in this prospectus.
Our common stock trades on the New York Stock Exchange under the symbol
"VGR". We cannot assure you as to the development of liquidity or any trading
market for the notes. See "Risk Factors - A public trading market for the notes
may not develop".
With respect to a particular offering of notes or common stock, to the
extent required, an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part will be prepared and will set forth the following information:
o the specific notes or common stock to be offered or sold,
o the names of the selling securityholders,
o the respective purchase prices and public offering prices and other
material terms of the offering,
o the names of any participating agents, broker-dealers or
underwriters, and
o any applicable commissions, discounts, concessions and other items
constituting compensation from the selling securityholders.
There can be no assurance that any selling securityholder will sell any
or all of the notes or underlying common stock pursuant to this prospectus. In
addition, any notes or underlying common stock covered by this prospectus that
qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be
sold under Rule 144 or Rule 144A, as the case may be, rather than pursuant to
this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the notes and the underlying common stock by the
selling securityholders and any other such person. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the notes and the underlying common stock to engage in
market-making activities with respect to the particular notes and the underlying
common stock being distributed for a period of up to five business days prior to
the commencement of such distribution. This may affect the marketability of the
notes and the underlying common stock and the ability of any person or entity to
engage in market-making activities with respect to the notes and the underlying
common stock.
Pursuant to the registration rights agreement filed as an exhibit to
this registration statement, we have agreed to indemnify the selling
securityholders and the selling securityholders have agreed to indemnify us
against certain liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection with these liabilities.
We have agreed to pay substantially all of the expenses incidental to
the registration, offering and sale of the notes and underlying common stock to
the public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
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LEGAL MATTERS
The validity of the issuance of the notes and the shares of common
stock issuable upon conversion of the notes has been passed upon by McDermott,
Will & Emery, Los Angeles, California.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-K for the year ended December 31, 2000 have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent certified public accountants, given on the authority of said firm as
experts in auditing and accounting.
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