AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 2004
REGISTRATION NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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WILD OATS MARKETS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 84-1100630
(State or Other Jurisdiction of (I.R.S. Employer
Organization or Incorporation) Identification Number)
3375 MITCHELL LANE
BOULDER, COLORADO 80301
(303) 440-5220
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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FREYA R. BRIER, ESQ.
VICE PRESIDENT -- LEGAL AND GENERAL COUNSEL
WILD OATS MARKETS, INC.
3375 MITCHELL LANE
BOULDER, COLORADO 80301
(303) 440-5220
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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WITH COPIES TO:
ALAN G. STRAUS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NEW YORK 10036-6522
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time following the effectiveness of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SECURITY OFFERING PRICE FEE
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3.25% Convertible Senior Debentures due
2034....................................... $115,000,000(1) 100%(2) $115,000,000(2) $14,570.50
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Common stock, par value $0.001 per shares.... 6,479,175(3)(4) -- -- (5)
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(1) Represents the sum of the $100.0 million aggregate principal amount of 3.25%
Convertible Senior Debentures due 2034 issued on June 1, 2004 and the
additional $15.0 million aggregate principal amount of 3.25% Convertible
Senior Debentures due 2034 issued on June 10, 2004.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(i) under the Securities Act, exclusive of accrued interest, if
any.
(3) Represents the 6,479,175 shares of common stock that are initially issuable
upon conversion of the 3.25% Convertible Senior Debentures due 2034
registered hereby based on the current conversion price of $17.70 per share
of common stock. In addition to the shares set forth in the table, pursuant
to Rule 416 under the Securities Act of 1933 the amount of common stock
registered hereby also includes such indeterminate number of shares of
common stock as may be issuable from time to time upon conversion of the
debentures as a result of stock splits, stock dividends and antidilution
adjustments.
(4) Includes preferred share purchase rights, which are associated with and
trade with the common stock. The value, if any, attributable to the rights
is reflected in the market price of the common stock. No additional
registration fee is required.
(5) Pursuant to Rule 457(i) under the Securities Act of 1933, no registration
fee is payable with respect to the shares of common stock issuable upon
conversion of the 3.25% Convertible Senior Debentures due 2034 because no
additional consideration will be received by the registrant upon conversion
of the 3.25% Convertible Senior Debentures due 2034.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO THE SAID SECTION
8(A), MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 20, 2004
PROSPECTUS
(WILD OATS MARKETS, INC. LOGO)
WILD OATS MARKETS, INC.
$115,000,000 3.25% CONVERTIBLE SENIOR DEBENTURES DUE 2034
AND
THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE DEBENTURES
This prospectus relates to the resale by various selling securityholders of
$115,000,000 aggregate principal amount of our 3.25% senior convertible
debentures due 2034 and shares of our common stock into which the debentures are
convertible, which together are referred to as the offered securities. The
offered securities may be offered and sold from time to time by the
securityholders specified in this prospectus or their successors in interest.
See "Selling securityholders." The debentures and shares of our common stock
into which the debentures are convertible are being registered pursuant to an
agreement with the initial purchasers of the debentures.
The debentures have a principal amount of $1,000 per debenture and bear regular
interest at the annual rate of 3.25% until May 15, 2011, payable on May 15 and
November 15 of each year, beginning on November 15, 2004. After May 15, 2011, we
will not pay regular interest on the debentures. On May 15, 2034, the maturity
date of the debentures, holders will receive the principal amount of $1,000 per
debenture. We will pay contingent interest to the holders of the debentures for
the period commencing May 20, 2011 and ending November 14, 2011 if the average
trading price of a debenture for each of the last five trading days immediately
preceding May 20, 2011 equals 125% or more of the principal amount of the
debenture. Thereafter, we will pay additional contingent interest during a
six-month interest period if the average trading price of the debentures during
the five trading-day period immediately preceding the first day of the interest
period equals or exceeds 125% of the principal amount of the debentures.
Holders may convert the debentures into shares of our common stock prior to
stated maturity under certain circumstances described in this prospectus. Upon
conversion, we will have the right to deliver, in lieu of common stock, cash or
a combination of cash and common stock.
The conversion rate is currently 56.5099 shares of our common stock per $1,000
principal amount of debentures, which is equivalent to a conversion price of
$17.70 per share of common stock. The conversion rate is subject to adjustment
upon the occurrence of specified events.
The debentures are subject to United States federal income tax rules applicable
to contingent payment debt instruments. See "Material United States federal
income tax consequences" beginning on page 57.
The selling securityholders will receive all of the proceeds from the sale of
the securities under this prospectus. We will not receive any proceeds from the
sale of securities under this prospectus by the selling securityholders.
We will bear the expenses in connection with the offering, including filing fees
and our legal and accounting fees, estimated at $ .
Our common stock is listed on the NASDAQ National Market under the symbol
"OATS." On , 2004, the last reported sale price of the common stock on
the NASDAQ national market was $ .
The debentures are not listed on any securities exchange or approved for
quotation through any automated system.
INVESTING IN OUR DEBENTURES AND COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
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.
The date of this prospectus is , 2004.
TABLE OF CONTENTS
Summary............................... 1
Risk factors.......................... 10
Special note regarding forward-looking
statements.......................... 21
Use of proceeds....................... 22
Ratio of earnings to fixed charges.... 23
Dividend policy....................... 24
Description of the debentures......... 25
Registration rights................... 49
Book-entry system..................... 51
Description of capital stock.......... 53
Material United States federal income
tax consequences.................... 56
Selling securityholders............... 63
Plan of distribution.................. 65
Legal matters......................... 68
Experts............................... 68
Where you can find more information... 69
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED OR DEEMED TO
BE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE OFFERED SECURITIES ARE NOT BEING
OFFERED IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS SPEAKS ONLY AS OF THE DATE OF THIS
PROSPECTUS AND THE INFORMATION IN THE DOCUMENTS INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS SPEAKS ONLY AS OF THE RESPECTIVE
DATES THOSE DOCUMENTS WERE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION").
THIS PROSPECTUS CONTAINS SUMMARIES OF CERTAIN PROVISIONS CONTAINED IN SOME OF
THE DOCUMENTS DESCRIBED HEREIN, BUT REFERENCE IS MADE TO THE ACTUAL DOCUMENTS
FOR COMPLETE INFORMATION. ALL OF THE SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY
BY THE ACTUAL DOCUMENTS. COPIES OF SOME OF THE DOCUMENTS REFERRED TO HEREIN HAVE
BEEN FILED OR INCORPORATED BY REFERENCE AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND YOU MAY OBTAIN COPIES OF THOSE
DOCUMENTS AS DESCRIBED HEREIN UNDER "WHERE YOU CAN FIND MORE INFORMATION."
i
SUMMARY
This summary contains basic information about us and this offering. Because it
is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus and all the
information that it incorporates by reference carefully, including the section
entitled "Risk Factors", and our consolidated financial statements, the related
notes and the management's discussion and analysis of our financial condition
and results of operations for the periods covered by those financial statements,
all of which are incorporated by reference into this prospectus, before making
an investment decision.
Generally, in this prospectus, unless the context indicates otherwise, "we,"
"us" and "our" refer to Wild Oats Markets, Inc. and its consolidated
subsidiaries. For purposes of the description of the debentures included in this
prospectus, references to "the company," "issuer," "Wild Oats," "us," "we" and
"our" refer only to Wild Oats Markets, Inc. and do not include our subsidiaries.
WILD OATS MARKETS, INC.
OVERVIEW
We are the second largest natural foods supermarket chain in North America. As
of August 5, 2004, we operated 106 natural foods stores in 24 states and British
Columbia, Canada under several names, including:
-- Wild Oats Natural Marketplace (nationwide)
-- Henry's Marketplace (Southern California and Phoenix, Arizona)
-- Sun Harvest Farms (Texas)
-- Capers Community Market (British Columbia, Canada)
We are dedicated to providing a broad selection of high-quality natural, organic
and gourmet foods, environmentally friendly household products and an extensive
selection of natural vitamins, supplements, herbal and homeopathic remedies and
body care products at competitive prices, in an inviting and educational store
environment that emphasizes customer service. Wild Oats provides its customers
with a one-stop, full-service shopping alternative to both conventional
supermarkets and traditional health food stores, with an emphasis on great
tasting fresh foods, product education and information on wellness issues. Our
comprehensive selection of natural and organic products appeals to
health-conscious shoppers while offering virtually every product category found
in a conventional supermarket. We believe that our market positioning, coupled
with industry data that states that the natural products industry currently
comprises less than 5% of the total grocery industry, offers significant
potential for us to continue to expand our customer base.
Moreover, retail sales of natural products have substantially grown over the
past decade, while sales growth in the traditional grocery industry has remained
relatively flat over the same period. We believe that this growth reflects a
broadening of the natural products consumer base, which is being propelled by
several factors, including healthier eating patterns, increasing concern
regarding food purity and safety, and greater environmental awareness. Despite
the increase in natural foods sales within conventional supermarkets, we believe
that conventional supermarkets still lack the total shopping experience that our
stores offer.
1
We were incorporated in Colorado in 1987, reincorporated in Delaware in 1993 and
completed our initial public offering on October 22, 1996. Our sales grew from
$919.1 million in fiscal 2002 to a record $969.2 million in fiscal 2003, an
overall sales growth of 5.4%. Our improvements in sales resulted from the
opening of eight new stores, for a net store base increase of three stores,
nationwide increases in comparable store sales resulting from a number of
successful operational, merchandising and marketing initiatives and the positive
impact on us of an extensive strike at conventional grocery retailers in
southern California beginning in October 2003.
Fiscal 2003 was a year in which many of the initiatives we commenced in 2001 and
2002 were refined and fully implemented. These initiatives included:
-- Consolidation of brand names through the renaming of our Natures(R)
stores in the northwest to Wild Oats Natural Marketplace;
-- Completion of our stock-keeping unit (SKU) rationalization program,
and implementation of a centralized authorized product list;
-- Refinement of our brand identity as a leader in the natural and
organic products industry and as a resource for information and
education for our customers;
-- Redesign and relaunch of our new lines of private label products; and
-- Refinement of our prototype floor plans for both our natural foods
supermarket and farmers market formats, and the construction of eight
new stores using those prototypes.
Wild Oats is in the forefront in addressing national concerns regarding the
safety of our food chain and health and wellness issues raised by our daily
lifestyles. Food safety concerns arising from the discovery of the first U.S.
case of Bovine Spongiform Encephalopathy (BSE), commonly known as "Mad Cow"
disease, and published reports of PCBs in farmed salmon, as well as continued
concerns about the use of antibiotics and growth hormones in livestock and
pesticide residues on fruits and vegetables, focused consumer awareness on
natural and organic foods as a safer alternative to conventional products. In
response, Wild Oats promoted its "worry-free beef"--100% vegetarian fed, to
reduce the risk of BSE and, like all of our meats, raised without added hormones
or antibiotics. We also introduced an exclusive line of PCB-free Irish salmon
and continued to offer our customers a large selection of organic fresh and
frozen fruits and vegetables with no pesticide residues. In addition, increased
public awareness of obesity and Type II diabetes and other diseases linked to
obesity and nutrition raised the consumer's awareness of wellness. In response,
Wild Oats removed products containing hydrogenated or "trans fats" from its
shelves. The growing popularity of various diets, such as low carbohydrate
diets, and consumer demand for specialty products to address dietary
restrictions arising from medical conditions, such as gluten-free products,
increased consumer interest in the nutritional content of food, and Wild Oats
responded by creating new signage and shopping guides to identify lower
carbohydrate and gluten-free products.
Wild Oats Markets, Inc. is a Delaware corporation. Our principal executive
offices are located at 3375 Mitchell Lane, Boulder, Colorado 80301, and our
telephone number at that address is (303) 440-5220. Our Web site is located at
www.wildoats.com. The content of this Web site and any other Web sites
identified in this prospectus are not incorporated by reference into this
prospectus.
2
OPERATING STRATEGY
Our objective is to become the grocery store of choice both for natural foods
shoppers and quality-conscious consumers in each of our markets by emphasizing
the following key elements of our operating strategy:
Create destination format. Our stores are one-stop, full-service supermarkets
for customers seeking high-quality natural and gourmet foods and related
products. Our prototype stores range from 26,000 to 32,000 square feet and offer
a wide range of SKUs of natural foods products in virtually every product
category found in a conventional supermarket. Our stores carry a much broader
selection of natural and gourmet foods and related products than those offered
by typical independent natural foods stores or conventional supermarkets.
Provide highest standards in the industry. We seek to offer the highest quality
products throughout our merchandise categories, and emphasize unique products
and brands not typically found in conventional supermarkets. We believe our
product standards are the highest in the industry. We routinely conduct quality
assurance checks of certain of our manufacturers' facilities to verify
compliance with our standards.
Provide educational and entertaining store environment with knowledgeable staff.
Each store strives to create a fun, friendly and educational environment that
makes grocery shopping enjoyable, encouraging shoppers to spend more time in the
store and to purchase new products. In order to enhance our customers'
understanding of natural foods and how to prepare them, we train our store staff
to educate customers as to the benefits and quality of our products and
prominently feature educational brochures, newsletters and in-store
demonstrations and product samplings, as well as an in-store consumer
information department. We believe our knowledgeable store staff and high ratio
of store staff to customers results in significantly higher levels of customer
service.
Seek extensive community involvement and cultivate local appeal. We seek to
engender customer loyalty by demonstrating our high degree of commitment to the
local communities in which we operate through involvement in local charities and
the hosting of community events. Each of our stores tailors its product mix to
meet the preference of its local market and where cost of goods and distribution
logistics allow, they source produce from local organic growers. We also operate
regional commissary kitchens and bakeries that provide our stores with fresh
bakery items and a unique assortment of prepared foods for the quality- and
health-conscious consumer.
Offer multiple store formats. We have two store formats: natural foods
supermarkets, which emphasize natural and organic products and high-quality
service; and farmers market stores, which emphasize fresh produce, natural
living products and price value. While each format has the same core demographic
customer profile, differing demographic appeals of each of the formats allows us
to operate successfully in a diverse set of markets, enabling us to reach a
broader customer base, increase our market penetration and have greater
flexibility with real estate selection.
Maintain competitive pricing. We seek to offer products at prices that are
competitive with those of other natural foods stores and conventional markets.
We believe these pricing programs broaden our consumer appeal and encourage our
customers to fulfill more of their shopping needs at our stores. In addition, in
both our Wild Oats and Henry's Marketplace stores we are continuing to emphasize
a private label program, seeking to achieve growth and customer interest through
our reputation and brand loyalty.
3
GROWTH STRATEGY
Due primarily to improved store execution and increased store sales as a result
of the conventional grocery store strike in southern California, comparable
store sales (we deem sales of a store comparable commencing in the 13th full
month of operations) increased 2.4% in fiscal 2003, as compared to a 5.2%
increase in fiscal 2002. Comparable store sales increased 8.5% in the first
quarter of fiscal 2004 as compared to the same period in fiscal 2003 due largely
to increased sales resulting from the continued strike against conventional
grocery retailers in California in the first two months of fiscal 2004, as well
as nationwide improvements in store execution.
Our growth strategy is to increase total year-over-year sales and income
through:
-- Opening new stores;
-- Improving guest service and store execution;
-- Increasing consumer awareness of Wild Oats as a brand and a
destination; and
-- Introducing new products, including private label lines.
We intend to continue our expansion strategy primarily by adding stores in
existing markets as well as by expanding into new regions that we believe are
currently underserved by natural foods retailers. While we believe that most of
our store expansion will result from new store openings, we may continue to
evaluate acquisition opportunities in both existing and new markets. Much of
that growth is likely to be in California and the Southwestern United States as
we expand our farmers market concept and launch Henry's Marketplace outside of
southern California and into Arizona, and in order to benefit from our new
state-of-the-art perishables distribution facility in Riverside, California.
As of August 5, 2004, we had leases and letters of intent signed for 27 new
stores to be opened or relocated in the remainder of fiscal 2004, fiscal 2005
and fiscal 2006. The proposed sites are in Arizona, California, Colorado,
Florida, Indiana, Nebraska, Ohio, Oregon, Utah, Washington and Vancouver,
British Columbia. These include locations for our Wild Oats Natural Marketplace,
Capers Community Market and Henry's Marketplace stores.
Our new prototype design for our Wild Oats natural foods supermarket format
stores was unveiled in our new store in Long Beach, California in April 2002 and
features an expanded produce department, a relocated natural living department
with lower shelving, softer flooring and reading areas to encourage customers to
take advantage of the health and nutrition literature available; liquid and dry
bulk goods in the same merchandising area, an expanded deli area redesigned to
focus the staff's attention on the customer, even when working on food
preparation, and a warm and inviting new decor. In fiscal 2003, all six of our
new Wild Oats stores were built according to this prototype, and we also opened
the first two of our new farmers market prototype stores in Costa Mesa and Chino
Hills, California. Our new farmers market prototype features more square footage
and expanded deli, meat/seafood and bakery departments. On average, stores built
according to our new prototypes performed better upon opening than prior store
models. Our newest store, in Superior, Colorado, was built using an evolution of
our natural foods supermarket prototype. It features a lower profile,
center-of-store grocery department with a discovery kiosk for demonstrations,
product sampling, recipes and information and expanded cheese/charcuterie and
produce sections. We have added a sit-down sushi bar to our prepared food
offerings. This store also introduces our fully redesigned "Holistic Health"
vitamin, mineral, supplement and body care department,
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featuring new fixture designs, better navigational signage, an information kiosk
with computer workstations for consumer research into health and wellness issues
and a continuous video loop previewing fitness videos sold in our stores.
As has been our practice in the past, we will continue to evaluate the
profitability, strategic positioning, impact of potential competition, and sales
growth potential of all of our stores on an ongoing basis. We may, from time to
time, make decisions regarding closures, disposals, relocations or remodels in
accordance with such evaluations.
5
THE OFFERING
ISSUER..................Wild Oats Markets, Inc., a Delaware corporation.
SECURITIES OFFERED......$115,000,000 principal amount of 3.25% Convertible
Senior Debentures due 2034 and shares of our common
stock issuable upon conversion of the debentures.
MATURITY DATE...........May 15, 2034, unless earlier converted, redeemed or
repurchased.
RANKING.................The debentures are our direct, unsecured and
unsubordinated obligations and rank equal in priority
with all of our existing and future unsecured and
unsubordinated indebtedness and senior in right of
payment to all of our future subordinated indebtedness.
The debentures effectively rank junior to any of our
secured indebtedness. The debentures are structurally
subordinated to all liabilities of our subsidiaries,
including our subsidiaries' guarantees of our
indebtedness. As of June 26, 2004, we had outstanding
debt, consisting of borrowings and outstanding letters
of credit under our $95 million credit facility and
capital leases of approximately $7.4 million, all of
which was secured by an interest in certain of our bank
accounts, fixtures, equipment, certain leasehold
mortgages and by guarantees from four of our
subsidiaries. As of the same date, our subsidiaries had
approximately $2.5 million in liabilities (net of
intercompany balances and excluding the subsidiaries'
guarantees under the credit facility) recorded on their
balance sheets.
INTEREST................3.25% per annum on the principal amount, payable
semiannually in arrears on May 15 and November 15 of
each year, beginning November 15, 2004. We will not pay
regular interest on the debentures after May 15, 2011.
CONTINGENT INTEREST.....We will pay contingent interest to the holders of the
debentures for the period commencing May 20, 2011 and
ending November 14, 2011 if the average trading price of
a debenture for each of the last five trading days
immediately preceding May 20, 2011 equals 125% or more
of the principal amount of the debenture. Thereafter, we
will pay contingent interest during a six-month interest
period if the average trading price of the debentures
during the five trading-day period immediately preceding
the first day of the applicable six-month interest
period equals or exceeds 125% of the principal amount of
the debentures. The amount of contingent interest
payable per $1,000 principal amount of debentures during
a six-month interest period will equal 0.25% of the
average trading price of such $1,000 principal amount of
debentures during the applicable five-trading-day
reference period, payable in arrears.
CONVERSION RIGHTS.......You may convert the debentures into shares of our common
stock at a conversion rate of 56.5099 shares per $1,000
principal amount of debentures (equal to a conversion
price of approximately $17.70 per share), subject to
adjustment, only under the following circumstances:
-- during any calendar quarter (and only during such
calendar quarter) commencing after June 30, 2004 and
before March 31, 2029, if the last reported sale
price of our common stock is greater
6
than or equal to 130% of the conversion price for at
least 20 trading days in the period of 30 consecutive
trading days ending on the last trading day of the
preceding calendar quarter;
-- at any time on or after April 1, 2029 if the last
reported sale price of our common stock on any date
on or after March 31, 2029 is greater than or equal
to 130% of the conversion price;
-- subject to certain limitations, during the five
business day period after any five consecutive
trading-day period in which the trading price per
debenture for each day of that period was less than
98% of the product of the conversion rate and the
last reported sale price of our common stock;
-- if the debentures have been called for redemption by
us;
-- upon the occurrence of specified corporate
transactions described under "Description of the
debentures--Conversion rights--Conversion upon
specified corporate transactions"; or
-- if we obtain credit ratings with respect to the
debentures from Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Rating Services
("Standard & Poor's") or both, at any time when (i)
the long-term credit rating assigned to the
debentures by both Moody's and Standard & Poor's (or
by either of them if we obtain a credit rating from
only one of Moody's or Standard & Poor's) is two or
more levels below the credit rating initially
assigned to the debentures, (ii) both Moody's and
Standard & Poor's have (or either of them has, if we
obtain a credit rating from only one of Moody's or
Standard & Poor's) discontinued, withdrawn or
suspended their ratings with respect to the
debentures or (iii) either Moody's or Standard &
Poor's has discontinued, withdrawn or suspended its
rating with respect to the debentures and the
remaining rating is two or more levels below the
credit rating initially assigned to the debentures.
You will not receive any cash payment or additional
shares representing accrued and unpaid interest upon
conversion of a debenture, except in limited
circumstances. Instead, interest (including contingent
interest, if any) will be deemed paid by the common
stock issued to you upon conversion. Debentures called
for redemption may be surrendered for conversion prior
to the close of business on the second business day
immediately preceding the redemption date.
Upon conversion, we will have the right to deliver, in
lieu of shares of our common stock, cash or a
combination of cash and shares of our common stock. See
"Description of the debentures--Conversion
rights--Payment upon conversion."
SINKING FUND............None.
OPTIONAL REDEMPTION.....Prior to May 20, 2011, the debentures will not be
redeemable. On or after May 20, 2011, we may redeem for
cash some or all of the debentures, at any time and from
time to time, upon at least 30 and no more than 60 days'
notice for a price equal to 100% of the principal amount
of the debentures to be redeemed plus any
7
accrued and unpaid interest (including contingent
interest, if any) to but excluding the redemption date.
REPURCHASE OF DEBENTURES
BY US AT THE OPTION OF
THE HOLDER..............You may require us to repurchase some or all of your
debentures for cash on May 15, 2011, May 15, 2014 and
May 15, 2024 at a repurchase price equal to 100% of the
principal amount of the debentures being repurchased,
plus any accrued and unpaid interest (including
contingent interest, if any) to but excluding the
applicable repurchase date.
FUNDAMENTAL CHANGE......If we undergo a fundamental change (as defined in this
prospectus) prior to maturity, you will have the right,
at your option, to require us to repurchase some or all
of your debentures for cash at a repurchase price equal
to 100% of the principal amount of the debentures being
repurchased, plus any accrued and unpaid interest
(including contingent interest, if any) to but excluding
the applicable repurchase date. In addition, following
certain fundamental changes, we will pay to all holders
of debentures a make-whole premium which may be paid in
cash, shares of common stock or a combination thereof.
REGISTRATION RIGHTS.....Pursuant to a registration rights agreement that we
entered into in connection with the private offering of
the debentures in June 2004, we have filed a shelf
registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the
resale of the debentures and the common stock issuable
upon conversion of the debentures. This prospectus
constitutes a part of that shelf registration statement.
We filed the shelf registration statement solely to
permit the resale of offered securities, and investors
who purchase debentures or shares of common stock from
selling securityholders in this offering will not be
entitled to any registration rights under the
registration rights agreement. In addition, under the
registration rights agreement relating to the private
offering of the debentures, selling securityholders may
be required to discontinue the sale or other disposition
of debentures and shares of common stock issued upon
conversion of debentures pursuant to the shelf
registration statement and to discontinue the use of
this prospectus under certain circumstances specified in
the registration rights agreement.
UNITED STATES FEDERAL
INCOME TAX
CONSEQUENCES............Under the indenture governing the debentures, we have
agreed, and by acceptance of a beneficial interest in a
debenture each holder of a debenture is deemed to have
agreed, to treat the debentures as indebtedness for
United States federal income tax purposes that is
subject to the Treasury regulations governing contingent
payment debt instruments. For United States federal
income tax purposes, interest income on the debentures
will accrue at the rate of 8.25% per year, compounded
semi-annually, which represents the yield on comparable
noncontingent, nonconvertible,
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fixed-rate debt instruments with terms and conditions
otherwise similar to the debentures that we would issue.
A U.S. Holder (as defined herein) will be required to
accrue interest income on a constant yield to maturity
basis at this rate (subject to certain adjustments),
with the result that a U.S. Holder generally will
recognize taxable income significantly in excess of
regular interest payments received while the debentures
are outstanding.
A U.S. Holder will also recognize gain or loss on the
sale, conversion, exchange or retirement of a debenture
in an amount equal to the difference between the amount
realized on the sale, conversion, exchange or
retirement, including the fair market value of our
common stock received, and the U.S. Holder's adjusted
tax basis in the debenture. Any gain recognized on the
sale, conversion, exchange or retirement of a debenture
generally will be ordinary interest income; any loss
will be ordinary loss to the extent of the interest
previously included in income, and thereafter, capital
loss. See "Material United States federal income tax
consequences."
USE OF PROCEEDS.........The selling securityholders will receive all of the net
proceeds from the sale of the offered securities. We
will not receive any of the proceeds from the sale of
any of these securities.
BOOK-ENTRY FORM.........The debentures are issued in book-entry form and are
represented by global certificates deposited with, or on
behalf of, The Depository Trust Company ("DTC") and
registered in the name of a nominee of DTC. Beneficial
interests in any of the debentures are shown on, and
transfers will be effected only through, records
maintained by DTC or its nominee and any such interest
may not be exchanged for certificated securities except
in limited circumstances.
TRADING.................We issued the debentures in June 2004 in a private
offering. Prior to such offering there was no trading
market for the debentures. Although the initial
purchasers advised us at the time of that offering that
they intended to make a market in the debentures, they
are not obligated to do so and may discontinue such
market making at any time without notice. There is no
public market for the debentures and we do not intend to
apply for listing of the debentures on any securities
exchange or for quotation of the debentures through any
automated quotation system. The debentures issued to
qualified institutional buyers in the June 2004 offering
currently trade on the PORTAL market. However, once
debentures are sold under this prospectus, those
debentures will no longer trade on the PORTAL market.
9
RISK FACTORS
You should carefully consider the risks described below and all other
information contained in this prospectus before making an investment decision.
If any of the following risks, as well as other risks and uncertainties that are
not yet identified or that we currently think are not material, actually occur,
our business, financial condition and results of operations could be materially
and adversely affected. In that event, the value of the debentures or our common
stock could decline, and you may lose part or all of your investment.
RISK RELATED TO OUR BUSINESS
OUR QUARTERLY FINANCIAL RESULTS AND OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY.
Our quarterly financial results of operations may differ materially from quarter
to quarter for a variety of reasons, including the timing and success of new
store openings, overall store performance, changes in the economy, seasonality
and the timing of holidays, significant increases or decreases in prices for or
availability of goods and services, competitive pressure and labor disturbances,
as well as other factors mentioned in this section.
Our stock price has been and continues to be fairly volatile. Our stock price is
affected by our quarterly and yearly financial results, financial results of our
major competitors and suppliers, general market and economic conditions and
publicity about us, our competitors, our vendors or our industry. Volatility in
our stock price may affect our future ability to raise proceeds from equity
financings or borrowings, or to obtain new store sites on favorable economic
terms.
OUR PAST COMPARABLE STORE SALES MAY NOT BE INDICATIVE OF FUTURE COMPARABLE STORE
SALES.
A variety of factors affect our comparable store sales results, including, among
others:
-- the opening of stores by us or by our competitors in markets where we
have existing stores;
-- the relative proportion of new stores to mature stores;
-- store remodelings;
-- the timing of promotional events;
-- our ability to implement our operating plans effectively;
-- changes in consumer preferences for natural foods products; and
-- general economic conditions.
Past increases in comparable store sales may not reflect future performance.
Comparable store sales for any particular period may decrease in the future.
Because of the factors listed above, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future financial
performance. Fluctuations in our comparable store sales could cause the price of
our common stock to fluctuate substantially.
INCREASED COMPETITION IN THE SALE OF NATURAL FOODS PRODUCTS COULD REDUCE OUR
PROFITABILITY.
Our competitors currently include other independent and multi-unit natural foods
supermarkets, smaller traditional natural foods stores, conventional
supermarkets and specialty grocery stores. We believe that our primary
competitor is Whole Foods Market, Inc., a national natural
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foods supermarket chain based in Texas, which, as of September 28, 2003,
operated 145 stores in 26 states plus the District of Columbia and Canada and
had annual sales of approximately $3.1 billion in its 2003 fiscal year. We
directly compete with Whole Foods Market, Inc. in several states including
California, Colorado Florida, Illinois, Massachusetts, New Mexico and Texas (a
total of 75% of our current total sales are in shared DMA markets). A number of
other natural foods supermarkets offer a range of natural foods products similar
to those we offer. While some competitors do not offer as full a range of
products as we do, they do compete with us in some product categories.
Many of our competitors have been in business longer and have greater financial
or marketing resources than we do. Our competitors also may be able to devote
more funds and employees to securing suitable locations for new stores and to
the sourcing, promotion and sale of their products. In addition, should any of
our competitors reduce prices, we may be required to reduce prices to remain
competitive, which could result in lower sales and profitability. As we open
stores in new geographic markets, our success will depend in part on our ability
to gain market share from established competitors. Traditional and specialty
grocery stores are expanding the amount of natural foods they carry and market,
and therefore they now compete directly with us for products, customers and
locations. We expect competition from both new and existing competitors to
increase in our markets and we may not be able to compete effectively in the
future, which could adversely affect our profitability.
ECONOMIC CONDITIONS MAY AFFECT US TO A GREATER DEGREE THAN OUR COMPETITORS.
Downturns in general economic conditions in communities, states, regions or the
nation as a whole can negatively affect our results of operations. While
purchases of food generally do not decrease in a slower economy, consumers may
choose less expensive alternative sources for food purchases. In addition,
downturns in the economy make the disposition of excess properties, for which we
continue to pay rent and other carrying costs, substantially more difficult as
the markets become saturated with vacant space and market rents decrease.
INFORMATIONAL PICKETING AND OTHER UNION ACTIVITIES MAY NEGATIVELY AFFECT OUR
SALES.
From time to time, unions will attempt to organize employees or portions of the
employee base at stores or our distribution or production facilities. Responses
to organization attempts require substantial management and employee time and
are disruptive to operations. In addition, from time to time certain of our
stores may be subject to informational picketing by local trade unions, which
can discourage customer traffic and lower sales volumes. A successful
organizational effort could result in disruptions in our store operations and
higher costs for salaries and benefits.
LOSS OF KEY PERSONNEL COULD DISRUPT OUR OPERATIONS.
We believe that our continued success will depend to a significant extent upon
the leadership and performance of our key executive personnel, including:
-- Perry D. Odak, our President and Chief Executive Officer;
-- Edward F. Dunlap, our Chief Financial Officer and Senior Vice
President, Operations;
-- Bruce M. Bowman, our Senior Vice President, Business Development;
-- Stephen P. Kaczynski, our Senior Vice President, Merchandising and
Marketing;
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-- Freya R. Brier, our Senior Vice President, Real Estate and General
Counsel; and
-- Peter F. Williams, our Vice President, Human Resources.
The loss of the services of these individuals or other of our key personnel
could harm our operations. We do not maintain key person insurance on any of
these personnel. Our continued success is also dependent upon our ability to
attract and retain qualified executives to meet our future growth needs. We face
intense competition for qualified executives, many of whom are subject to offers
from competing employers. We may not be able to attract and retain key executive
personnel as necessary to operate our business.
OUR GROWTH STRATEGY HAS PLACED, AND WILL CONTINUE TO PLACE, A SIGNIFICANT STRAIN
ON OUR MANAGEMENT.
Although we believe that we have the management, operational and information
systems, distribution infrastructure and other resources required to implement
our growth strategy, we may not be able to execute our new store expansion plans
within the expected time frame. Our continued growth may place a significant
strain on our management, our ability to distribute products to our stores,
working capital and financial and management control systems. In order for us to
manage our expanding store base successfully, our management will be required to
anticipate the changing demands of our growing operations and to adapt systems
and procedures accordingly. If we are not able to do so, our business, sales and
overall profitability will be materially and negatively affected.
DISRUPTIONS OF PRODUCT SUPPLY COULD REDUCE STORE SALES AND PROFITABILITY AND
DISRUPT OUR OPERATIONS.
Our business is dependent on our ability to buy products on a timely basis and
at competitive prices from a small number of distributors and from a large
number of relatively small vendors. In the fourth quarter of fiscal 2003, we
announced that we and Tree of Life, Inc. ("TOL"), our previous primary
distributor, would be terminating that relationship and that we would be
converting a secondary contract with United Natural Foods, Inc. ("UNFI") to a
primary relationship. We entered into a new primary distribution agreement with
UNFI in January 2004. The distribution arrangement, which commenced effective
April 1, 2004, has a five-year term. Under the terms of the new agreement, we
are obligated to purchase a majority of certain specified categories of goods
for sale in our U.S. stores from UNFI, except in certain defined circumstances.
We believe UNFI has sufficient warehouse capacity and distribution technology to
service our existing stores' distribution needs for natural foods and products
as well as the needs of new stores in the future. The transition to UNFI from
TOL was completed by the end of the second quarter of 2004.
To date, the transition has not resulted in any unusual or unexpected
disruptions in product supply, other than a shortage of private label products,
although we may experience additional short term disruptions in delivery of
goods as the transition is completed, resulting in reduced sales. We will have
no other material supply contracts with our vendors, who could discontinue
selling to us at any time. Although we believe that we could develop alternative
sources of supply, any such termination may create a short-term disruption in
store-level merchandise selection, resulting in reduced sales. Any significant
disruption in the supply of goods could have a material impact on our overall
sales volume, cost of goods and our profitability. We may not be able to
negotiate future supply agreements with this or other distributors on terms
favorable to us, if at all.
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In February 2004, we transitioned from two older warehouse facilities to our new
state-of-the-art perishables distribution facility in Riverside, California.
Some start-up issues resulted in sales disruptions to 22 stores then being
serviced from the facility. These disruptions were exacerbated by produce volume
volatility caused by the end of the California grocery strike. Continued
problems at such facility could result in negative sales impacts at the 36
stores currently being serviced from the facility.
CHANGES IN GOVERNMENT REGULATION COULD INCREASE OUR COSTS AND HARM OUR OPERATING
RESULTS.
We are subject to many laws, regulations and ordinances at the local, state and
national level and problems or failures to comply with these laws could
negatively affect our store sales and operations, or could delay the opening of
a new store. Such laws regulate our operations, including:
-- health and sanitation standards;
-- food labeling and handling requirements;
-- employment and wage levels; and
-- food and alcoholic beverage sales regulations.
For example, approximately 17% of our total sales in fiscal 2003 came from our
Holistic Health department, which sells vitamins, supplements, herbal products,
and body care and fitness products. There have been proposals for modifications
to existing laws on a national level to restrict sales of certain supplement
products or to regulate information available to consumers regarding these
products, as well as recent bans from the U.S. Food and Drug Administration on
the sale of certain products.
Modifications in existing laws and the implementation of new laws governing
components of our business operations may be triggered by consumer and
regulatory concerns regarding food safety issues, new technology or competitive
pressures. Such modifications could require the reformulation of certain
products to meet new standards, the recall or discontinuance of certain products
not able to be reformulated, increased risk of litigation, additional record
keeping, expanded documentation of the properties of certain products, expanded
or different labeling and/or scientific substantiation. Any of these
requirements could harm our sales volume, costs of goods and direct store
expenses. In addition, from time to time we are audited by various governmental
agencies for compliance with existing laws, and we could be subject to fines or
operational modifications as a result of noncompliance.
SUCCESSFULLY OPENING AND OPERATING NEW STORES IS A CRITICAL COMPONENT OF OUR
GROWTH STRATEGY.
We have grown considerably in size and geographic scope since 1992. From the
beginning of 1997 through 2003, we added 43 net new and acquired stores to our
store base. We plan to continue growing, primarily through the opening of new
stores. If we are unable to successfully open and operate new stores our growth
strategy will be restricted and our operating results will be harmed. We
currently are restricted by the covenants in our credit facility in the number
of new leases we can sign and the amount of aggregate new store capital
expenditures we can make; however, the credit facility was amended in connection
with the private offering of the debentures in June 2004 to allow us to add
additional leases and make additional capital expenditures.
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Our ability to successfully open and operate new stores depends on many factors,
including our ability to:
-- raise sufficient equity financing to allow us to execute new leases
and spend additional capital in accordance with the terms of our
current bank covenants;
-- identify areas of the country that meet our criteria for new store
sites;
-- locate suitable store sites and negotiate acceptable lease terms;
-- hire and train new personnel, including administrative and accounting
personnel, departmental, regional and store managers, store employees
and other personnel in our corporate organization;
-- expand into areas of the country where we have no operating
experience;
-- obtain governmental and other third party consents, permits and
licenses needed to operate new stores;
-- integrate new stores into our existing operations;
-- expand our existing systems or acquire and implement new systems,
including information systems, hardware and software, and
distribution infrastructure, to include new, relocated and acquired
stores; and
-- obtain adequate funding for operations.
The success of new stores depends on a number of factors, including our ability
to identify target customers and place stores in areas convenient to those
customers, as well as create and implement merchandising and marketing programs
that are effective with our targeted customers. New stores build their sales
volumes and refine their merchandise selection gradually and, as a result,
generally have lower gross margins and higher operating expenses as a percentage
of sales than more mature stores. We anticipate that the stores we opened in
2003 and will open in 2004 will experience operating losses for the first six to
12 months of operation, in accordance with historical trends. Additionally, we
incur significant pre-opening expenses and, as a result, the opening of a
significant number of new stores in a single period will negatively affect our
operating results.
WE MAY GROW OUR BUSINESS THROUGH THE ACQUISITION OF OTHER STORES, WHICH WE MAY
BE UNABLE TO SUCCESSFULLY ACCOMPLISH.
We will continue to consider acquisitions of natural foods retailers where
attractive opportunities exist. Acquisitions of operating stores involve risks
which could have a negative effect on our business and financial results such
as:
-- short-term declines in our reported operating results;
-- diversion of management's attention;
-- unanticipated problems or legal liabilities;
-- inclusion of incompatible operations, particularly management
information systems; and
-- inexperience in operating different store formats.
Further, acquired stores, while generally profitable as of the acquisition date,
initially generate lower gross margins and store contribution margins than our
company average due to their
14
substantially lower volume purchasing discounts and the integration of the
acquired stores into our operating systems. Other factors that could cause
acquired stores to perform at lower-than-expected levels include, among other
things, difficulties in integrating existing employees, turnover of regional and
store management, disruption of advertising, changes in product mix and delays
in the integration of purchasing programs.
OUR REMODELING EFFORTS MAY CAUSE AN EXTENDED REDUCTION IN THE SALES VOLUMES OF
OUR REMODELED STORES.
We completed the remodeling or remerchandising of 20 of our older stores in
2003, and remerchandised a number of our stores in the first half of 2004, with
the goal of updating key store departments' components and fixtures,
reorganizing products by sales velocity, reducing excess SKU counts in certain
categories of products, adding in new fixtures and signage to introduce our new
lines of private label vitamins, minerals and supplements and giving greater
emphasis to produce, meat and seafood and grocery departments. In 2004, we plan
to complete four major remodels and remerchandise a number of our stores,
subject to the limitations of our bank covenants. Remodels and remerchandising
typically cause short-term disruption in sales volume and related increases in
certain expenses as a percentage of sales, such as payroll. Current and future
remodeled or remerchandised stores may experience sales disruptions and the
related impact on earnings to a greater degree than we have projected.
WE DO NOT INTEND TO PAY CASH DIVIDENDS FOR THE FORESEEABLE FUTURE.
We have never paid cash dividends on shares of our common stock. We do not
intend to pay cash dividends in the foreseeable future. Our credit facilities
contain various financial covenants which restrict, among other things, our
ability to pay cash dividends.
LEGAL PROCEEDINGS AND RESULTS OF AUDITS COULD MATERIALLY IMPACT OUR RESULTS.
From time to time we are party to legal proceedings including matters involving
personnel and employment issues, distribution relationships, real estate leases,
and other proceedings arising in the ordinary course of business. We are also
audited by state tax authorities and conduct self-audits of benefit plans,
including administrative practices of such plans. Our operating results could be
harmed by the decisions and expenses related to legal proceedings or as a result
of corrections identified by such audits.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF PEOPLE ARE HARMED BY THE
PRODUCTS WE SELL.
There is increasing governmental scrutiny of and public awareness regarding food
safety. We believe that many customers choose to shop at our stores because of
their interest in health, nutrition and food safety. We believe that our
customers hold us to a higher standard than conventional supermarkets. The real
or perceived sale of contaminated food products by us could result in decreased
sales and product liability claims, which would harm our operating results.
INFORMATION SYSTEM UPGRADES OR INTEGRATIONS MAY DISRUPT OUR OPERATIONS OR
FINANCIAL REPORTING.
We continually evaluate and upgrade our management information systems. We are
currently testing or implementing a number of significant upgrades and additions
to our systems, including labor scheduling, back door receiving and centralized
price hosting of our farmers market stores. Although we do not anticipate any
disruption in our operations or financial
15
reporting as a result of system upgrades or new system implementation, there can
be no assurance that such disruption will not occur or that the desired benefits
from the system upgrades or new system implementation will be realized.
RISKS RELATED TO THE DEBENTURES
THE DEBENTURES ARE UNSECURED AND, THEREFORE, ARE EFFECTIVELY SUBORDINATED TO ANY
OF OUR SECURED DEBT.
The debentures are not secured by any of our assets or those of our
subsidiaries. As a result, the debentures are effectively subordinated to our
existing secured debt, including obligations under our credit facility, as well
as any secured debt that we may incur in the future. In any liquidation,
dissolution, bankruptcy or other similar proceeding, the holders of our secured
debt may assert rights against the secured assets in order to receive full
payment of their debt before the assets may be used to pay the holders of the
debentures.
AN ACTIVE TRADING MARKET FOR THE DEBENTURES MAY NOT DEVELOP.
We issued the debentures in June 2004 in a private offering made to "qualified
institutional buyers," as defined in Rule 144A under the Securities Act. The
offering was made through a group of investment banks, which we refer to as the
"initial purchasers." Prior to that offering, there was no trading market for
the debentures. Although the initial purchasers advised us at the time of that
offering that they intended to make a market in the debentures, they are not
obligated to do so and may discontinue such market making at any time without
notice. Accordingly, there can be no assurance that any market for the
debentures will develop or, if one does develop, that it will be maintained. If
an active market for the debentures fails to develop or be sustained, the value
of the debentures could be materially adversely affected.
There is no public market for the debentures and we do not intend to apply for
listing of the debentures on any securities exchange or for quotation of the
debentures through any automated quotation system. The debentures issued to
qualified institutional buyers in the June 2004 offering currently trade on the
PORTAL market. However, once debentures are sold under this prospectus, those
debentures will no longer trade on the PORTAL market.
WE EXPECT THAT THE TRADING VALUE OF THE DEBENTURES WILL BE SIGNIFICANTLY
AFFECTED BY THE PRICE OF OUR COMMON STOCK AND OTHER FACTORS.
The market price of the debentures is expected to be significantly affected by
the market price of our common stock. This may result in greater volatility in
the trading value of the debentures than would be expected for nonconvertible
debt securities. In addition, the debentures have a number of features,
including conditions to conversion, which, if not met, could result in a holder
receiving less than the value of our common stock into which a debenture would
otherwise be convertible. These features could adversely affect the value and
the trading price of the debentures.
OUR LEVEL OF LEVERAGE AND DEBT SERVICE OBLIGATIONS COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS TO YOU UNDER
THE DEBENTURES.
As of June 26, 2004, we had approximately $122.6 million of indebtedness
outstanding, consisting of letters of credit under our credit facility, capital
leases and our obligations under the debentures. We may not be able to generate
cash sufficient to pay the principal of,
16
interest on and other amounts due in respect of our indebtedness when due. We
and our subsidiaries may also incur additional debt that may be secured.
Our level of debt and debt service obligations could have important effects on
your investment in the debentures. These effects may include:
-- making it more difficult for us to satisfy our obligations to you
with respect to the debentures and our obligations to other persons
with respect to our other debt;
-- limiting our ability to obtain additional financing or renew existing
financing at maturity on satisfactory terms to fund our working
capital requirements, capital expenditures, acquisitions,
investments, debt service requirements and other general corporate
requirements;
-- increasing our vulnerability to general economic downturns,
competition and industry conditions, which could place us at a
competitive disadvantage compared to our competitors that are less
leveraged;
-- increasing our exposure to rising interest rates because a portion of
our borrowings is at variable interest rates;
-- reducing the availability of our cash flow to fund our working
capital requirements, capital expenditures, acquisitions, investments
and other general corporate requirements because we will be required
to use a substantial portion of our cash flow to service debt
obligations; and
-- limiting our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate.
Our ability to pay principal and interest on the debentures and to satisfy our
other debt obligations will depend upon our future operating performance and the
availability of refinancing debt. If we are unable to service our debt and fund
our business, we may be forced to reduce or delay capital expenditures, seek
additional debt financing or equity capital, restructure or refinance our debt
or sell assets. We cannot assure you that we would be able to obtain additional
financing, refinance existing debt or sell assets on satisfactory terms or at
all.
OUR REPORTED EARNINGS PER SHARE MAY BE MORE VOLATILE BECAUSE OF THE CONVERSION
CONTINGENCY PROVISION OF THE DEBENTURES.
Holders of the debentures may convert the debentures into our common stock upon
the occurrence of certain events or conditions (including events related to the
trading price of our common stock). Until any of these contingencies are met,
the shares underlying the debentures will not be included in the calculation of
reported earnings per share. Should any of these contingencies be met, reported
earnings per share would be expected to decrease as a result of the inclusion of
the underlying shares in the earnings per share calculation. An increase in
volatility in our stock price could cause some of these conditions to be met in
one quarter and not in a subsequent quarter, increasing the volatility of
reported fully diluted earnings per share.
A PROPOSED CHANGE IN THE ACCOUNTING RULES RELATING TO THE EFFECT OF THE
DEBENTURES ON THE COMPUTATION OF OUR EARNINGS PER SHARE WOULD, IF AND WHEN SUCH
CHANGE BECOMES EFFECTIVE,
17
CAUSE US TO INCLUDE THE SHARES ISSUABLE ON CONVERSION OF THE DEBENTURES IN
CALCULATING EARNINGS PER SHARE IF THE EFFECT IS DILUTIVE, REGARDLESS OF WHETHER
ANY CONVERSION CONTINGENCIES HAD BEEN MET.
A proposed change in the accounting rules relating to the effect of the
debentures on the computation of our earnings per share would, if and when such
change becomes effective, cause us to include the shares issuable on conversion
of the debentures in calculating earnings per share if the effect is dilutive,
regardless of whether any conversion contingencies had been met. Including such
shares in the diluted earnings per share calculation could reduce our diluted
earnings per share, which in turn could adversely affect the market price of our
common stock and, consequently, the value and trading price of the debentures.
See "--We expect that the trading value of the debentures will be significantly
affected by the price of our common stock and other factors." Under the
indenture governing the debentures, we have the right to irrevocably elect to
satisfy in cash 100% of the principal amount of the debentures converted after
the date of such election, which should prevent the dilution in our diluted
earnings per share for the principal amount. Amounts in excess of the principal
could, however, still be settled in shares, thereby causing a dilution of
earnings per share. The election could, however, additionally adversely affect
us if we do not have adequate sources of cash from operations or from available
borrowings to satisfy our obligations to make cash payments in respect of the
debentures.
YOU WILL RECOGNIZE INCOME FOR FEDERAL INCOME TAX PURPOSES SIGNIFICANTLY IN
EXCESS OF CURRENT CASH PAYMENTS.
We treat the debentures as contingent payment debt instruments subject to U.S.
federal income tax rules applicable to contingent payment debt instruments.
Under that treatment, if you acquire debentures, you will be required to include
on an accrual basis (even if you are generally a cash method taxpayer) amounts
in income significantly in excess of the stated interest on the debentures based
in part on projected future contingent payments that may not ultimately
materialize. Any gain you recognize (including any gain attributable to a
conversion of the debentures) will generally be ordinary interest income; any
loss will be ordinary loss to the extent of interest on the debentures
previously included in income and, thereafter, capital loss. There is some
uncertainty as to the proper application of the Treasury regulations governing
contingent payment debt instruments, and if our treatment were successfully
challenged by the Internal Revenue Service, it might be determined that, among
other things, you should have accrued interest income at a lower or higher rate,
should not have recognized ordinary income upon the conversion, and should have
recognized capital gain or loss, rather than ordinary income or loss upon a
taxable disposition of the debentures. See "Material United States federal
income tax consequences."
IF YOU HOLD DEBENTURES, YOU WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT TO
OUR COMMON STOCK, BUT YOU WILL BE SUBJECT TO ANY CHANGES MADE WITH RESPECT TO
OUR COMMON STOCK.
If you hold debentures, you will not be entitled to any rights with respect to
our common stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common stock), but you will
be subject to all changes affecting our common stock. You will only be entitled
to rights on the common stock if and when we deliver shares of common stock to
you in connection with conversion of your debentures. For example, in the event
that an amendment is proposed to our certificate of incorporation or by-laws
requiring stockholder approval and the record date for determining the
stockholders of record
18
entitled to vote on the amendment occurs prior to delivery to you of the common
stock, you will not be entitled to vote on the amendment, although you will
nevertheless be subject to any changes in the powers, preferences or special
rights of our common stock.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO REPURCHASE THE
DEBENTURES UPON A FUNDAMENTAL CHANGE OR ON ANY OTHER REPURCHASE DATE, AS
REQUIRED BY THE INDENTURE GOVERNING THE DEBENTURES.
On May 15 , 2011, May 15, 2014 and May 15, 2024, or following a fundamental
change as described under "Description of debentures--Repurchase of debentures
by us at the option of the holder upon a fundamental change," holders of
debentures may require us to repurchase their debentures for cash. A fundamental
change may also constitute an event of default or prepayment under, and result
in the acceleration of the maturity of, our then-existing indebtedness. Unless
waived, a fundamental change could constitute an event of default under our
credit facility. We cannot assure you that we will have sufficient financial
resources, or will be able to arrange financing, to pay the repurchase price in
cash with respect to any debentures tendered by holders for repurchase on any of
these dates or upon a fundamental change, or that we will be able to obtain a
waiver of a default under our credit facility upon a fundamental change. In
addition, restrictions in our then existing credit facilities or other
indebtedness may not allow us to repurchase the debentures. Our failure to
repurchase the debentures when required would result in an event of default with
respect to the debentures.
WE MAY ISSUE ADDITIONAL EQUITY SECURITIES AND THEREBY MATERIALLY AND ADVERSELY
AFFECT THE PRICE OF OUR COMMON STOCK.
We are not restricted from issuing additional equity securities during the life
of the debentures. We are authorized to issue, without stockholder approval,
5,000,000 shares of preferred stock, none of which were outstanding as of August
17, 2004, in one or more series, which may give other stockholders dividend,
conversion, voting, and liquidation rights, among other rights, which may be
superior to the rights of holders of our common stock. Any such series of
preferred stock could contain dividend rights, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences or other rights
superior to the rights of holders of our common stock. In addition, we are
authorized to issue, without further stockholder action under Delaware law, up
to 60,000,000 shares of common stock, of which 28,460,697 shares were
outstanding as of August 17, 2004, after giving effect to the repurchase of
1,977,600 shares of common stock by the Company on June 1, 2004. If we issue
additional equity securities, the price of our common stock and, in turn, the
price of the debentures may be materially and adversely affected.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS COULD LIMIT ANOTHER
PARTY'S ABILITY TO ACQUIRE US AND COULD DEPRIVE YOU OF THE OPPORTUNITY TO OBTAIN
A TAKEOVER PREMIUM FOR YOUR SHARES OF COMMON STOCK.
Provisions in our certificate of incorporation and by-laws, and under the
Delaware General Corporation Law, may make it difficult for another company to
acquire us and for you to receive any related takeover premium for our common
stock. See "Description of capital stock."
Our certificate of incorporation and by-laws provide: (i) for division of the
Board of Directors into three classes, with one class elected each year to serve
a three-year term; (ii) that directors may be removed only for cause and only
upon the affirmative vote of the holders of at least
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majority of the outstanding shares entitled to vote; (iii) that the authorized
number of directors may be changed only by resolution of the Board of Directors;
(iv) that a vacancy on the Board of Directors may be filled by the remaining
directors; and (v) that the affirmative vote of the holders of at least
two-thirds of the outstanding shares entitled to vote is required to alter,
amend or repeal the foregoing provisions.
In addition, under our certificate of incorporation, our board of directors has
the authority, without further action by our stockholders, to issue up to
5,000,000 shares of preferred stock (in one or more series) and to determine or
alter the designations, preferences and relative, participating, optional or
other rights of such shares of preferred stock. In connection with our rights
agreement, our board of directors has authorized the issuance of shares of
Series A Junior Participating Preferred Stock upon the occurrence of certain
triggering events. The terms of the Series A Junior Participating Preferred
Stock include, and the terms of any other preferred stock may include, voting
rights, including the right to vote as a series on particular matters,
conversion and redemption rights and preferences as to dividends and
liquidation. No shares of preferred stock are currently outstanding and we have
no present plans for the issuance of any preferred stock. The issuance of any
preferred stock, however, could materially adversely affect the rights of
holders of our common stock, and therefore could reduce its value. In addition,
specific rights granted to future holders of preferred stock could be used to
restrict our ability to merge with, or sell assets to, a third party. The
ability of the board of directors to issue preferred stock could delay,
discourage, prevent or make it more difficult or costly to acquire us or effect
a change in control in our board of directors.
We are also subject to the anti-takeover provision of Section 203 of the
Delaware General Corporation Law, which prohibits us from engaging in a
"business combination" with an "interested stockholder" for a period of the
three years after the date of the transaction in which the person becomes an
interested stockholder, unless the business combination is approved in the
prescribed manner. The application of Section 203 could have the effect or
delaying or preventing a change in control in us, including transaction in which
stockholders might otherwise receive a premium for their shares over then
current market prices.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the provisions of the Private Securities Litigation Reform
Act of 1995, or the Reform Act, we may include forward looking statements (as
defined in the Reform Act) in oral or written public statements issued by us or
on our behalf. These forward looking statements may include, among other things,
plans, objectives, projections, anticipated future economic performance or
assumptions and the like that are subject to risks and uncertainties. These
forward-looking statements are generally identified by the use of words such as
we "expect," "believe," "anticipate," "estimate," or words of similar import.
Actual results or outcomes may differ materially from those discussed in the
forward looking statements. Important factors that may cause actual results to
differ include, but are not limited to, the following:
-- the timing, cost and execution of new store openings, relocations,
remodels, sales and closures;
-- the impact of competition;
-- changes in product supply or suppliers;
-- the ability to manage growth;
-- technological developments and changes in management information
needs;
-- changes in customer needs and expectations;
-- governmental and regulatory actions;
-- the unanticipated loss of key personnel;
-- shifts in industry rates of compensation, government compliance costs
or litigation;
-- natural disasters, terrorist attacks or war;
-- changes in interest rates and/or consumer spending either in the
United States or non-United States markets in which we operate;
-- unanticipated expenses;
-- general industry or business trends or events;
-- changes in economic or business conditions in general or affecting
the natural foods industry in particular;
-- labor strikes or union organizational efforts;
-- competition for and the availability of sites for new stores and
potential acquisition candidates; and
-- other factors referenced in this prospectus.
The forward looking statements speak only as of the date when made. We undertake
no obligation to update any of the forward-looking statements after the date of
this prospectus to conform such statements to actual results, except to the
extent required by law.
21
USE OF PROCEEDS
The selling securityholders will receive all of the net proceeds from the sale
of the offered securities. We will not receive any of the proceeds from the sale
of any of these securities.
22
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents the ratio of earnings to fixed charges for Wild
Oats Markets, Inc. and its consolidated subsidiaries for each of the periods
indicated.
COMPUTATION OF RATIO OF EARNINGS TO FIXED
CHARGES
WILD OATS MARKETS
JUNE 26, 2004
---------------------------------------------------
SIX SIX
MONTHS MONTHS
ENDED ENDED
FISCAL YEAR JUNE 26, JUNE 28,
1999 2000 2001 2002 2003 2004 2003
---------------------------------------------------------------------------------------------------------------------
EARNINGS:
Income (loss) before income taxes....... $17,967 $ (23,580) $ (69,101) $11,642 $ 5,893 $ 4,390 $ 5,940
Add back fixed charges:
Interest on rent expense................ 14,637 19,562 21,133 20,850 21,882 8,982 10,941
Interest expense........................ 4,584 8,967 10,437 8,753 2,661 807 1,835
---------------------------------------------------------------------------------------------------------------------
Adjusted Earnings......................... $37,188 $ 4,949 $ (37,531) $41,245 $30,436 $14,179 $18,716
TOTAL FIXED CHARGES....................... $19,221 $ 28,529 $ 31,570 $29,603 $24,543 $ 9,789 $12,776
RATIO OF EARNINGS TO FIXED CHARGES........ 1.9 1.4 1.2 1.4 1.5
DEFICIENCY OF EARNINGS TO FIXED CHARGES... $ (23,580) $ (69,101)
---------------------------------------------------------------------------------------------------------------------
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DIVIDEND POLICY
We currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. The payment of any future dividends will be
at the discretion of our Board of Directors and will depend upon, among other
things, our future earnings, operations, capital requirements and financial
condition. In addition, our credit facility contains various financial covenants
which restrict, among other things, our ability to pay dividends. As of the date
of this prospectus, we are prohibited from paying dividends under the terms of
our credit facility.
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DESCRIPTION OF THE DEBENTURES
We issued the debentures under an indenture dated as of June 1, 2004, between us
and U.S. Bank National Association, as trustee. The registration of the
debentures and the shares of common stock issuable upon conversion of the
debentures is covered by a registration rights agreement dated June 1, 2004
between us and the initial purchasers. You may request a copy of the indenture
and the registration rights agreement from the trustee.
The following description is a summary of the material provisions of the
debentures, the indenture and the registration rights agreement and does not
purport to be complete. This summary is subject to and is qualified by reference
to all the provisions of the debentures and the indenture, including the
definitions of certain terms used in the indenture, and to all provisions of the
registration rights agreement. Wherever particular provisions or defined terms
of the indenture or form of debenture are referred to, these provisions or
defined terms are incorporated in this prospectus by reference. We urge you to
read the indenture because it, and not this description, defines your rights as
a holder of the debentures.
As used in this "Description of the debentures" section, references to "Wild
Oats," "we," "our" or "us" refer solely to Wild Oats Markets, Inc. and not to
our subsidiaries.
GENERAL
The debentures will mature on May 15, 2034 unless earlier converted, redeemed or
repurchased. You have the option, subject to fulfillment of certain conditions
and during the periods described below, to convert your debentures into shares
of our common stock at an initial conversion rate of 56.5099 shares of common
stock per $1,000 principal amount of debentures. This is equivalent to an
initial conversion price of approximately $17.70 per share of common stock. The
conversion rate is subject to adjustment if certain events occur. Upon
conversion of a debenture and subject to our payment elections, you will receive
only shares of our common stock and a cash payment to account for any fractional
share. You will not receive any cash payment for interest (or contingent
interest or additional amounts, if any) accrued and unpaid to the conversion
date except under the limited circumstances described below.
If any interest payment date, maturity date, redemption date or repurchase date
(including upon the occurrence of a fundamental change, as described below)
falls on a day that is not a business day, the required payment will be made on
the next succeeding business day with the same force and effect as if made on
the date that the payment was due, and no additional interest will accrue on
that payment for the period from and after the interest payment date, maturity
date, redemption date or repurchase date (including upon the occurrence of a
fundamental change, as described below), as the case may be, to that next
succeeding business day.
The debentures will be issued only in denominations of $1,000 principal amount
and integral multiples thereof. References to "a debenture" or "each debenture"
in this prospectus refer to $1,000 principal amount of the debentures. The
debentures have an aggregate principal amount of $115,000,000.
As used in this prospectus, "business day" means any day, other than a Saturday
or Sunday, that is neither a legal holiday nor a day on which commercial banks
are authorized or required by law, regulation or executive order to close in The
City of New York.
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When we refer to "common stock," we mean the common stock, $0.001 par value, of
Wild Oats Markets, Inc., which is the only outstanding class of our capital
stock.
RANKING
The debentures are our direct, unsecured and unsubordinated obligations. The
debentures rank equal in priority with all of our existing and future unsecured
and unsubordinated indebtedness and senior in right of payment to all of our
existing and future subordinated indebtedness. The debentures effectively rank
junior to any of our future secured indebtedness and any of our future
indebtedness guaranteed by our subsidiaries. In addition, our rights and the
rights of our creditors, including the holders of the debentures, to participate
in the assets of a subsidiary during its liquidation or reorganization will be
effectively subordinated to all existing and future liabilities of that
subsidiary, including guarantees by the subsidiary of our future indebtedness.
As of March 27, 2004, we had outstanding debt, consisting of borrowings and
outstanding letters of credit under our $95 million credit facility and capital
leases of approximately $31.6 million, all of which was secured by an interest
in certain of our bank accounts, as well as fixtures, equipment, certain
leasehold mortgages and by guarantees from four of our subsidiaries. As of the
same date, our subsidiaries had approximately $2.3 million in liabilities (net
of intercompany balances and excluding the subsidiaries' guarantees under the
credit facility) recorded on their balance sheets.
INTEREST
The debentures bear regular interest at a rate of 3.25% per annum. We will also
pay contingent interest on the debentures in the circumstances described under
"--Contingent interest." Interest (including contingent interest and additional
amounts, if any) shall be payable semi-annually in arrears on May 15 and
November 15 of each year, commencing November 15, 2004 and ending on May 15,
2011. After May 15, 2011, we will not pay regular interest on the debentures.
Interest on a debenture (including contingent interest and additional amounts,
if any) will be paid to the person in whose name the debenture is registered at
the close of business on the May 1 or November 1, as the case may be (each, a
"record date"), immediately preceding the relevant interest payment date
(whether or not such day is a business day). Interest is calculated on the basis
of a 360-day year consisting of twelve 30-day months and accrues from June 1,
2004 or from the most recent date to which interest has been paid or duly
provided for.
CONTINGENT INTEREST
We will pay contingent interest to the holders of debentures for the period
commencing May 20, 2011 and ending November 14, 2011 if the average trading
price of a debenture for each of the last five trading days immediately
preceding May 20, 2011 equals 125% or more of the principal amount of the
debenture. Thereafter, we will pay contingent interest on the interest payment
date for a six-month interest period if the average trading price (as defined
below) of the debentures during the five trading-day period immediately
preceding the first day of the applicable six-month interest period equals or
exceeds 125% of the principal amount of the debentures.
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On any interest payment date when contingent interest shall be payable, the
contingent interest payable per debenture will equal 0.25% of the average
trading price of such debenture during the applicable five trading-day reference
period.
We will notify the holders of the debentures upon a determination that they will
be entitled to receive contingent interest with respect to any six-month
interest period.
The "trading price" of a debenture on any date of determination shall be
determined by us and shall be the average of the secondary market bid quotations
per debenture obtained by the bid solicitation agent for $2,000,000 aggregate
principal amount of debentures at approximately 4:00 p.m., New York City time,
on such determination date from two independent nationally recognized securities
dealers we select, provided that if:
-- at least two such bids are not obtained by the bid solicitation
agent, or
-- in our reasonable judgment, the bid quotations are not indicative of
the secondary market value of debentures as of such determination
date,
then the trading price for such determination date will equal (1) the applicable
conversion rate of the debentures as of such determination date multiplied by
(2) the average last reported sale price (as defined below) of our common stock
on the five trading days ending on such determination date.
The bid solicitation agent will initially be the trustee. We may change the bid
solicitation agent, but the bid solicitation agent will not be our affiliate.
The bid solicitation agent will solicit bids from securities dealers that are
believed by us to be willing to bid for the debentures.
OPTIONAL REDEMPTION BY US
No sinking fund is provided for the debentures. Prior to May 20, 2011, the
debentures will not be redeemable. On or after May 20, 2011, we may redeem the
debentures in whole or in part at anytime for a redemption price in cash equal
to 100% of the principal amount of the debentures to be redeemed, plus any
accrued and unpaid interest (including contingent interest and additional
amounts, if any) to but excluding the redemption date.
If the redemption date is an interest payment date, interest (including
contingent interest and additional amounts, if any) shall be paid on such
interest payment date to the record holder on the relevant record date.
We will provide not less than 30 nor more than 60 days' notice of redemption by
mail to each registered holder of debentures to be redeemed. If the redemption
notice is given and funds are deposited as required, then interest will cease to
accrue on and after the redemption date on those debentures or portions of
debentures called for redemption.
If we decide to redeem fewer than all of the outstanding debentures, the trustee
will select the debentures to be redeemed (in principal amounts of $1,000 or
integral multiples thereof) by lot, on a pro rata basis or by another method the
trustee considers fair and appropriate. If the trustee selects a portion of your
debentures for partial redemption and you convert a portion of your debentures,
the converted portion will be deemed to be from the portion selected for
redemption.
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We may not redeem the debentures if we have failed to pay any interest
(including contingent interest and additional amounts, if any) on the debentures
when due and such failure to pay is continuing. We will notify all of the
holders if we redeem any of the debentures.
CONVERSION RIGHTS
Subject to the conditions and during the periods described below, you may
convert each of your debentures into shares of our common stock initially at a
conversion rate of 56.5099 shares of common stock per $1,000 principal amount of
debentures (equivalent to an initial conversion price of approximately $17.70
per share of common stock based on the issue price per debenture). The
conversion rate and the equivalent conversion price in effect at any given time
are referred to as the "applicable conversion rate" and the "applicable
conversion price," respectively, and will be subject to adjustment as described
below. You may convert fewer than all of your debentures so long as the
debentures converted are an integral multiple of $1,000 principal amount.
You may convert your debentures into shares of our common stock only in the
following circumstances, which are described in more detail below, and to the
following extent:
-- in whole or in part, upon satisfaction of the market price condition;
-- in whole or in part, upon satisfaction of the trading price
condition;
-- if any of your debentures are called for redemption, those debentures
that have been so called;
-- in whole or in part, upon the occurrence of specified corporate
transactions; or
-- in whole or in part, if a credit ratings event occurs.
If we call your debentures for redemption, you may convert the debentures only
until the close of business on the second business day prior to the redemption
date unless we fail to pay the redemption price. If you have already delivered a
repurchase election with respect to a debenture as described under either
"--Repurchase of debentures by us at the option of the holder" or "--Repurchase
of debentures by us at the option of the holder upon a fundamental change," you
may not surrender that debenture for conversion until you have withdrawn the
repurchase election in accordance with the indenture.
Upon conversion, you will not receive any cash payment of interest (including
contingent interest and additional amounts, if any) unless such conversion
occurs between a regular record date and the interest payment date to which it
relates. We will not issue fractional common shares upon conversion of
debentures. Instead, we will pay cash in lieu of fractional shares based on the
last reported sale price of the common stock on the trading day prior to the
conversion date. Our delivery to you of the full number of shares of our common
stock into which a debenture is convertible, together with any cash payment for
any fractional share, will be deemed to satisfy our obligation to pay:
-- the principal amount of the debenture; and
-- accrued but unpaid interest (including contingent interest and
additional amounts, if any) to but excluding the conversion date.
As a result, accrued but unpaid interest (including contingent interest and
additional amounts, if any) to but excluding the conversion date will be deemed
to be paid in full rather than
28
cancelled, extinguished or forfeited. For a discussion of your tax treatment
upon receipt of our common stock upon conversion, see "Material United States
federal income tax consideration."
Notwithstanding the preceding paragraph, if debentures are converted after the
close of business on a record date, holders of such debentures at the close of
business on the record date will receive the interest (including contingent
interest and additional amounts, if any) payable on such debentures on the
corresponding interest payment date notwithstanding the conversion. Debentures,
upon surrender for conversion during the period from the close of business on
any date, must be accompanied by funds equal to the amount of interest
(including contingent interest and additional amounts, if any) payable on the
debentures so converted; provided that no such payment need be made (1) if we
have specified a redemption date that is after a record date and on or prior to
the next interest payment date, (2) if we have specified a redemption date
following a fundamental change that is after a record date and on or prior to
the next interest payment date or (3) to the extent of any overdue interest
(including any contingent interest and additional amounts) if any overdue
interest exists at the time of conversion with respect to such debenture.
If you convert debentures, we will pay any documentary, stamp or similar issue
or transfer tax due on the issue of shares of our common stock upon the
conversion, unless the tax is due because you request the shares to be issued or
delivered to another person, in which case you will pay that tax.
CONVERSION PROCEDURES
To convert your debenture into common stock you must do the following:
-- complete and manually sign the conversion notice on the back of the
debenture, or a facsimile of the conversion notice, and deliver this
irrevocable notice to the conversion agent;
-- surrender the debenture to the conversion agent;
-- if required, furnish appropriate endorsements and transfer documents;
-- if required, pay all transfer or similar taxes; and
-- if required, pay funds equal to interest payable on the next interest
payment date.
The date you comply with these requirements is the conversion date under the
indenture. If your interest is a beneficial interest in a global debenture, to
convert you must comply with the last three requirements listed above and comply
with the depositary's procedures for converting a beneficial interest in a
global debenture.
The conversion agent will, on your behalf, convert the debentures into shares of
our common stock, to the extent we elect to satisfy our conversion obligation in
common stock. See "--Payment upon conversion." You may obtain copies of the
required form of the conversion notice from the conversion agent. A certificate,
or a book-entry transfer through DTC, for the number of full shares of our
common stock into which any debentures are converted, together with a cash
payment for any fractional share, will be delivered through the conversion agent
as soon as practicable, but no later than the fifth business day, following the
conversion date.
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PAYMENT UPON CONVERSION
(1) Conversion on or prior to the final notice date. In the event that we
receive your notice of conversion on or prior to the day that is 20 days prior
to maturity or, with respect to debentures being redeemed, the applicable
redemption date (the "final notice date"), the following procedures will apply:
If we choose to satisfy all or any portion of our obligation (the "conversion
obligation") in cash, we will notify you through the trustee of the dollar
amount to be satisfied in cash (which must be expressed either as 100% of the
conversion obligation or as a fixed dollar amount) at any time on or before the
date that is two business days following receipt of your notice of conversion
("cash settlement notice period"). If we timely elect to pay cash for any
portion of the shares otherwise issuable to you, you may retract the conversion
notice at any time during the two business day period beginning on the day after
the final day of the cash settlement notice period ("conversion retraction
period"), no such retraction can be made (and a conversion notice shall be
irrevocable) if we do not elect to deliver cash in lieu of shares (other than
cash in lieu of fractional shares). If the conversion notice has not been
retracted, then settlement (in cash and/or shares) will occur on the business
day following the final day of the 10 trading-day period beginning on the day
after the final day of the conversion retraction period. Settlement amounts will
be computed as follows:
-- If we elect to satisfy the entire conversion obligation in shares, we
will deliver to you a number of shares equal to (1) the aggregate
original principal amount of debentures to be converted divided by
1,000 multiplied by (2) the applicable conversion rate.
-- If we elect to satisfy the entire conversion obligation in cash, we
will deliver to you cash in an amount equal to the product of:
-- a number equal to (1) the aggregate original principal amount of
debentures to be converted divided by 1,000 multiplied by (2) the
conversion rate and
-- the average of the last reported sale prices of our common stock
for the ten consecutive trading days immediately following the date
of our notice of our election to deliver cash (the "cash settlement
averaging period").
-- If we elect to satisfy in cash a fixed portion of the conversion
obligation other than the entire obligation, or a percentage of the
conversion obligation other than 100%, we will deliver to you such
cash amount ("cash amount") and a number of shares equal to the
excess, if any, of the number of shares equal to (i) the aggregate
original principal amount of debentures to be converted divided by
1,000, multiplied by (ii) the conversion rate, over the number of
shares equal to the sum, for each day of the cash settlement
averaging period, of (x) 10% of the cash amount, divided by (y) the
last reported sale price of our common stock. In addition, we will
pay cash for all fractional shares of common stock as described
above.
(2) Conversion after the final notice date. In the event that we receive your
notice of conversion after the final notice date, we will not send individual
notices of our election to satisfy all or any portion of the conversion
obligation in cash. Instead, if we choose to satisfy all or any portion of the
conversion obligation in cash, we will send a single notice to the trustee of
the dollar amount to be satisfied in cash (which must be expressed either as
100% of the conversion obligation or as a fixed dollar amount) at any time on or
before the final notice date. Settlement amounts will be computed and settlement
dates will be determined in the
30
same manner as set forth above under "--Conversion on or prior to the final
notice date" except that the "cash settlement averaging period" shall be the
five consecutive trading days ending on the third trading day prior to the
conversion date. Settlement (in cash and/or shares) will occur on the business
day following the final day of such cash settlement averaging period.
"Trading day" means a day during which trading in securities generally occurs on
the New York Stock Exchange or, if our common stock is not listed on the New
York Stock Exchange, on the principal other U.S. national or regional securities
exchange on which our common stock is then listed or, if our common stock is not
listed on a U.S. national or regional securities exchange, on the principal
other market on which our common stock is then traded.
(3) Conversion after irrevocable election to pay principal in cash. At any time
prior to maturity, we may irrevocably elect, in our sole discretion without the
consent of the holders of the debentures, by notice to the trustee and the
holders of the debentures to satisfy in cash 100% of the principal amount of the
debentures converted after the date of such election. After making such an
election, we still may satisfy our conversion obligation to the extent it
exceeds the principal amount in cash or common stock or a combination of cash
and common stock. If we choose to satisfy all or a portion of the remainder of
our conversion obligation in cash, we will provide notice of our election in the
same manner as set forth above under either "--Conversion on or prior to the
final notice date" or "--Conversion after the final notice date," whichever is
applicable. If we choose to satisfy all of the remainder of our conversion
obligation in common stock, notice of our election to deliver cash for the
principal amount will be deemed to have been provided on the last date of the
cash settlement notice period and your notice of conversion will not be
retractable. Settlement amounts will be computed and settlement dates will be
determined in the same manner as set forth above under "--Conversion on or prior
to the final notice date" and "--Conversion after the final notice date," as
applicable.
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
You may surrender your debentures for conversion into our common stock (1) in
any calendar quarter commencing after June 30, 2004 and before March 31, 2029
(and only during such calendar quarter) if the last reported sale price of our
common stock for at least 20 trading days during the period of 30 consecutive
trading days ending on the last trading day of the previous calendar quarter is
greater than or equal to 130% of the applicable conversion price per share of
our common stock on such last trading day and (2) at any time on or after April
1, 2029 if the last reported sale price of our common stock on any date on or
after March 31, 2029 is greater than or equal to 130% of the conversion price.
The "last reported sale price" of our common stock on any date means the closing
sale price per share (or if no closing sale price is reported, the average of
the bid and asked prices or, if more than one in either case, the average of the
average bid and the average asked prices) on such date as reported in composite
transactions for the principal U.S. securities exchange on which our common
stock is traded or, if our common stock is not listed on a U.S. national or
regional securities exchange, as reported by the New York Stock Exchange. If our
common stock is not listed for trading on a U.S. national or regional securities
exchange and not reported by the New York Stock Exchange on the relevant date,
the "last reported sale price" will be the last quoted bid price for our common
stock in the over-the-counter market on the relevant date as reported by the
National Quotation Bureau Incorporated or similar organization. If our common
stock is not so quoted, the "last reported sale price" will be the
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average of the mid-point of the last bid and asked prices for our common stock
on the relevant date from each of at least three independent nationally
recognized investment banking firms selected by us for this purpose.
CONVERSION UPON SATISFACTION OF TRADING PRICE CONDITION
You may surrender your debentures for conversion into shares of our common stock
during the five business day period after any five consecutive trading-day
period in which the "trading price" per debenture, as determined following a
request by a holder of debentures in accordance with the procedures described
below, for each day of that period was less than 98% of the product of the
conversion rate and the last reported sale price of our common stock for each
day during such period (the "98% Trading Exception"); provided that if, on the
date of any conversion pursuant to the 98% Trading Exception that is on or after
May 15, 2029, the closing sale price of our common stock is greater than the
conversion price but less than 130% of the conversion price, then you will
receive, in lieu of common stock based on the conversion rate, an amount in cash
equal to the principal amount of the debentures converted, plus accrued and
unpaid interest, including contingent interest, if any, to the conversion date.
The "trading price" of a debenture on any date of determination shall be
determined by us and shall be the average of the secondary market bid quotations
per debenture obtained by the trustee for $2,000,000 aggregate principal amount
of debentures at approximately 4:00 p.m., New York City time, on such
determination date from two independent nationally recognized securities dealers
we select, which may include one or more of the initial purchasers, provided
that if at least two such bids cannot reasonably be obtained by the trustee, but
one such bid can reasonably be obtained by the trustee, this one bid will be
used. If the trustee cannot reasonably obtain at least one bid for $2,000,000
aggregate principal amount of the debentures from a nationally recognized
securities dealer, or in our reasonable judgment the bid quotations are not
indicative of the secondary market value of the debentures, then the trading
price per debenture will be deemed to be less than 98% of the product of the
last reported sale price of our common stock and the applicable conversion rate.
In connection with any conversion upon satisfaction of the above trading price
condition, the trustee shall have no obligation to determine the trading price
of the debentures unless we have requested such determination; and we shall have
no obligation to make such request unless you provide us with reasonable
evidence that the trading price per debenture would be less than 98% of the
product of the last reported sale price of our common stock and the applicable
conversion rate. At such time, we shall instruct the trustee to determine the
trading price of the debentures beginning on the next trading day and on each
successive trading day until the trading price per debenture is greater than or
equal to 98% of the product of the last reported sale price of our common stock
and the applicable conversion rate.
CONVERSION UPON NOTICE OF REDEMPTION
If we call any or all of the debentures for redemption, you may convert any of
your debentures that have been called for redemption into our common stock at
any time prior to the close of business on the second business day prior to the
redemption date.
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CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If we elect to:
-- distribute to all holders of our common stock rights or warrants
entitling them to subscribe for or purchase, for a period expiring
within 45 days after the date of the distribution, shares of our
common stock at less than the last reported sale price of a share of
our common stock on the trading day immediately preceding the
declaration date of the distribution; or
-- distribute to all holders of our common stock, assets, debt
securities or rights to purchase our securities, which distribution
has a per share value as determined by our board of directors
exceeding 5% of the last reported sale price of our common stock on
the trading day immediately preceding the declaration date for such
distribution,
we must notify holders of the debentures at least 20 business days prior to the
ex-dividend date for such distribution. Once we have given such notice, holders
may surrender their debentures for conversion at any time until the earlier of
the close of business on the business day immediately prior to the ex-dividend
date or any announcement that such distribution will not take place. No holder
may exercise this right to convert if the holder otherwise will participate in
the distribution without conversion. The "ex-dividend" date is the first date
upon which a sale of the common stock does not automatically transfer the right
to receive the relevant distribution from the seller of the common stock to its
buyer.
In addition, if we are a party to a consolidation, merger or binding share
exchange, in each case pursuant to which our common stock would be converted
into cash or property other than securities, a holder may surrender debentures
for conversion at any time from and after the date which is 15 days prior to the
anticipated effective date of the transaction until and including the date which
is 15 days after the actual effective date of such transaction. If we engage in
certain reclassifications of our common stock or are a party to a consolidation,
merger, binding share exchange or transfer of all or substantially all of our
assets, in each case pursuant to which our common stock is converted into cash,
securities or other property, then at the effective time of the transaction, the
right to convert a debenture into our common stock will be changed into a right
to convert a debenture into the kind and amount of cash, securities or other
property which a holder would have received if the holder had converted its
debentures immediately prior to the applicable record date for such transaction.
If we engage in any transaction described in the preceding sentence, the
conversion rate will not be adjusted. If the transaction also constitutes a
fundamental change, a holder can require us to redeem all or a portion of its
debentures as described under "--Repurchase of debentures by us at the option of
the holder upon a fundamental change."
CONVERSION UPON CREDIT RATINGS EVENT
If we obtain a credit rating for the debentures from Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Rating Services ("Standard & Poor's") or
both, then you will have the right to surrender your debentures for conversion
into our common stock prior to maturity as follows:
-- if we obtain a credit rating for the debentures from both Moody's and
Standard & Poor's, at any time when (i) the long-term credit rating
assigned to the debentures by Moody's or Standard & Poor's is two or
more levels below the credit rating initially assigned to the
debentures, (ii) both Moody's and Standard & Poor's have
33
discontinued, withdrawn or suspended their ratings with respect to
the debentures or (iii) either Moody's or Standard & Poor's has
discontinued, withdrawn or suspended its rating with respect to the
debentures and the remaining rating is two or more levels below the
credit rating initially assigned to the debentures; or
-- if we obtain a credit rating for the debentures from only one of
Moody's and Standard & Poor's, at any time when (i) the long-term
credit rating assigned to the debentures by such rating agency is two
or more levels below the credit rating initially assigned to the
debentures or (ii) such rating agency has discontinued, withdrawn or
suspended its rating.
The debentures have not been assigned a credit rating by any rating agency. We
have no obligation to obtain a credit rating for the debentures, and these
provisions do not apply to any credit rating that we have not requested.
CONVERSION RATE ADJUSTMENTS
The conversion rate will be adjusted as described below, except that we will not
make any adjustments to the conversion rate if holders of the debentures
participate in any of the transactions described below.
(1) If we issue shares of our common stock as a dividend or distribution on
shares of our common stock, or if we effect a share split or share combination,
the conversion rate will be adjusted based on the following formula:
CR' = CR(o X )OS'
OS(o)
where,
CR(o) = the conversion rate in effect immediately prior to such
event
CR' = the conversion rate in effect immediately after such event
OS(o) = the number of our shares of common stock outstanding
immediately prior to such event
OS' = the number of our shares of common stock outstanding
immediately after such event
(2) If we issue to all or substantially all holders of our common stock any
rights or warrants entitling them for a period of not more than 45 days to
subscribe for or purchase shares of our common stock, or securities convertible
into shares of our common stock, at a price per share or a conversion price per
share less than the sale price of shares of our common stock on the business day
immediately preceding the time of announcement of such issuance, the conversion
rate will be adjusted based on the following formula (provided that the
conversion rate will be readjusted to the extent that such rights or warrants
are not exercised prior to their expiration):
CR' = CR(o) X OS(o) + X
----
OS(o) + Y
where,
CR(o) = the conversion rate in effect immediately prior to such
event
CR' = the conversion rate in effect immediately after such event
34
OS(o) = the number of shares of our common stock outstanding
immediately prior to such event
X = the total number of shares of our common stock issuable
pursuant to such rights
Y = the number of shares of our common stock equal to the
aggregate price payable to exercise such rights divided by
the average of the last reported sale prices of our common
stock for the ten consecutive trading days prior to the
business day immediately preceding the record date for the
issuance of such rights
(3) If we distribute shares of our capital stock, evidences of our indebtedness
or other assets or property of ours to all or substantially all holders of our
common stock, excluding:
-- dividends, distributions and rights or warrants referred to in clause
(1) or (2) above; and
-- dividends or distributions paid exclusively in cash; then the
conversion rate will be adjusted based on the following formula:
CR' = CR(o) X SP(o)
---
SP(o) - FMV
where,
CR(o) = the conversion rate in effect immediately prior to such
distribution
CR(o) = the conversion rate in effect immediately after such
distribution
SP(o) = the average of the last reported sale prices of our common
stock for the ten days prior to the business day immediately
preceding the record date for such distribution
FMV = the fair market value (as determined on the ex-dividend date
by our board of directors) of the shares of capital stock,
evidences of indebtedness, assets or property distributed
with respect to each outstanding share of our common stock
on the record date for such distribution
With respect to an adjustment pursuant to this clause (3) where there has been a
payment of a dividend or other distribution on our common stock or shares of
capital stock of any class or series, or similar equity interest, of or relating
to a subsidiary or other business unit, which we refer to as a "spin-off," the
conversion rate in effect immediately before the close of business on the record
date fixed for determination of shareholders entitled to receive the
distribution will be increased based on the following formula:
CR' = CR(o) X FMV(o) + MP(o)
-------
MP(o)
where,
CR(o) = the conversion rate in effect immediately prior to such
distribution
CR' = the conversion rate in effect immediately after such
distribution
FMV(o) = the average of the last reported sale prices of the capital
stock or similar equity interest distributed to holders of
our common stock applicable to one share of our common stock
over the first 10 trading days after the effective date of
the spin-off
MP(o) = the average of the last reported sale prices of our common
stock over the first 10 consecutive trading days after the
effective date of the spin-off
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The adjustment to the conversion rate under the preceding paragraph will occur
on the tenth trading day from, and including, the effective date of the
spin-off.
(4) If we make any cash dividend or distribution during any of our quarterly
fiscal periods to all or substantially all holders of our common stock, the
conversion rate will be adjusted based on the following formula:
CR' = CR(o) X SP(o)
--
SP(o) - C
where,
CR(o) = the conversion rate in effect immediately prior to the
ex-dividend date for such distribution
CR' = the conversion rate in effect immediately after the record
date for such distribution
SP(o) = the average of the last reported sale prices of our common
stock for the ten consecutive trading days prior to the
business day immediately preceding the ex-dividend date of
such distribution
C = the amount in cash per share we distribute to holders of our
common stock
(5) If we or any of our subsidiaries makes a payment in respect of a tender
offer or exchange offer for our common stock, to the extent that the cash and
value of any other consideration included in the payment per share of common
stock exceeds the last reported sale price of our common stock on the trading
day next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer, the conversion rate will be increased
based on the following formula:
CR' = CR(o) X AC + (SP' X OS')
----------
OS(o) X SP'
where,
CR(o) = the conversion rate in effect on the date such tender or
exchange offer expires
CR' = the conversion rate in effect on the day next succeeding the
date such tender or exchange offer expires
AC = the aggregate value of all cash and any other consideration
(as determined by our board of directors) paid or payable
for shares purchased in such tender or exchange offer
OS(o) = the number of shares of common stock outstanding immediately
prior to the date such tender or exchange offer expires
OS' = the number of shares of common stock outstanding immediately
after the date such tender or exchange offer expires
SP' = the average of the last reported sale prices of our common
stock for the ten consecutive trading days commencing on the
trading day next succeeding the date such tender or exchange
offer expires
If, however, the application of the foregoing formula would result in a decrease
in the conversion rate, no adjustment to the conversion rate will be made.
Except as stated herein, we will not adjust the conversion rate for the issuance
of shares of our common stock or any securities convertible into or exchangeable
for shares of our common stock or the right to purchase shares of our common
stock or such convertible or exchangeable securities.
36
In the event of:
-- any reclassification of our common stock, or
-- a consolidation, merger or combination involving us, or
-- a sale or conveyance to another person of all or substantially all of
our property and assets,
in which holders of our outstanding common stock would be entitled to receive
cash, securities or other property for their shares of common stock, holders of
debentures will generally be entitled thereafter to convert their debentures
into the same type of consideration received by holders of our common stock
immediately prior to one of these types of event.
We may, from time to time, to the extent permitted by law and the Nasdaq
Marketplace Rules, increase the conversion rate of the debentures by any amount
for a period of at least 20 days if our board of directors determines that such
increase would be in our best interest. We are required to give at least 15 days
prior notice of any increase in the conversion rate. We may also (but are not
required to) increase the conversion rate to avoid or diminish income tax to
holders of our common stock or rights to purchase shares of our common stock in
connection with a dividend or distribution of shares (or rights to acquire
shares) or similar event. For discussion of the United States federal income tax
treatment of an adjustment to the conversion rate of the debentures, see
"Material United States federal income tax consequences--U.S.
holders--Constructive dividends."
Holders of debentures will receive, upon conversion of debentures, in addition
to shares of our common stock, the rights under our existing rights plan or, if
we amend our rights plan or adopt a new rights plan while debentures remain
outstanding, the rights under that rights plan as so amended or adopted unless,
prior to the conversion, the rights have expired, terminated or been redeemed or
unless the rights have separated from our common stock, in which case the
applicable conversion rate will be adjusted at the time of separation as if we
distributed to all holders of our common stock shares of our common stock,
evidences of indebtedness or assets described in clause (4) above, subject to
readjustment upon the subsequent expiration, termination or redemption of the
rights.
As used in this prospectus, "current market price" means the average of the last
reported sale prices per share of our common stock for the 20 trading-day period
ending on the applicable date of determination (if the applicable date of
determination is a trading day or, if not, then on the last trading day prior to
the applicable date of determination), appropriately adjusted to take into
account the occurrence, during the period commencing on the first of the trading
days during the 20 trading period and ending on the applicable date of
determination, of any event that would result in an adjustment of the conversion
rate under the indenture.
The applicable conversion rate will not be adjusted:
-- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of additional
optional amounts in shares of our common stock under any plan;
-- upon the issuance of any shares of our common stock or options or
rights to purchase those shares pursuant to any present or future
employee, director or consultant benefit plan or program of or
assumed by us or any of our subsidiaries;
37
-- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right or exercisable, exchangeable or convertible
security not described in the preceding bullet and outstanding as of
the date the debentures were first issued;
-- for a change in the par value of the common stock; or
-- for accrued and unpaid interest (including contingent interest and
additional amounts, if any).
Adjustments to the applicable conversion rate will be calculated to the nearest
1/10,000th of a share.
For U.S. federal income tax purposes, adjustments to the conversion rate (or
failures to make such adjustments) that have the effect of increasing the
holders' proportionate interest in our assets or earnings may in some
circumstances result in a taxable deemed distribution to the holders. See
"Material United States federal income tax consequences--U.S.
holders--Constructive dividends" and "--Non-U.S. holders--Debentures."
REPURCHASE OF DEBENTURES BY US AT THE OPTION OF THE HOLDER
You have the right to require us to repurchase all or a portion of your
debentures for cash on May 15, 2011, May 15, 2014 and May 15, 2024 (each, a
"repurchase date").
We will be required to repurchase any outstanding debenture for which you
deliver a written repurchase notice to the paying agent (which will initially be
the trustee). This notice must be delivered during the period beginning at
anytime from the opening of business on the date that is 20 business days prior
to the repurchase date until the close of business on the business day prior to
the repurchase date. You may withdraw your repurchase notice at any time prior
to the close of business on the business day prior to the repurchase date. If a
repurchase notice is given and withdrawn during that period, we will not be
obligated to repurchase the debentures listed in the notice. Our repurchase
obligation will be subject to certain additional conditions described below.
The repurchase price payable will be equal to 100% of the principal amount of
the debentures to be repurchased plus any accrued and unpaid interest (including
contingent interest and additional amounts, if any) to but excluding the
repurchase date.
On or before the 20th business day prior to each repurchase date, we will
provide to the trustee, the paying agent and all holders of debentures at their
addresses shown in the register of the registrar, and to beneficial owners as
required by applicable law, a notice stating, among other things:
-- the repurchase price;
-- the name and address of the paying agent and the conversion agent;
and
-- the procedures that holders must follow to require us to repurchase
their debentures.
-- Your notice electing to require us to repurchase debentures must
state:
-- if certificated debentures have been issued, the debenture
certificate numbers;
-- the portion of the principal amount of debentures to be repurchased,
which must be in integral multiples of $1,000; and
-- that the debentures are to be repurchased by us pursuant to the
applicable provisions of the debentures and the indenture.
38
If your debentures are not in certificated form, your repurchase notice must
comply with appropriate DTC procedures.
No debentures may be repurchased at the option of holders if there has occurred
and is continuing an event of default under the indenture, other than an event
of default that is cured by the payment of the repurchase price of the
debentures.
You may withdraw any repurchase notice in whole or in part by delivering a
written notice of withdrawal to the paying agent prior to the close of business
on the business day prior to the repurchase date. The withdrawal notice must
state:
-- the principal amount of the withdrawn debentures;
-- if certificated debentures have been issued, the certificate numbers
of the withdrawn debentures; and
-- the principal amount, if any, which remains subject to the repurchase
notice.
If your debentures are not in certificated form, your withdrawal notice must
comply with appropriate DTC procedures.
To receive payment of the repurchase price, you must either effect book-entry
transfer of your debentures or deliver your debentures, together with necessary
endorsements, to the office of the paying agent after delivery of your
repurchase notice. Payment of the repurchase price for a debenture will be made
promptly following the later of the repurchase date and the time of book-entry
transfer or delivery of the debenture.
If the paying agent holds money sufficient to pay the repurchase price of the
debentures on the repurchase date, then, on and after the business day following
such date:
-- the debentures will cease to be outstanding and interest will cease
to accrue (whether or not book-entry transfer of the debentures has
been made or the debentures have been delivered to the paying agent);
and
-- all other rights of the holders will terminate (other than the right
to receive the repurchase price upon transfer or delivery of the
debentures).
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), that may be applicable at the time of our repurchase notice. If then
required by the applicable rules, we will file a Schedule TO or any other
schedule required in connection with any offer by us to repurchase the
debentures.
REPURCHASE OF DEBENTURES BY US AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL
CHANGE
If a fundamental change (as defined below in this section) occurs at any time
prior to the maturity date, you will have the right, at your option, to require
us to repurchase for cash any or all of your debentures, or any portion of the
principal amount thereof that is equal to $1,000 or an integral multiple of
$1,000. The repurchase price we are required to pay is equal to 100% of the
principal amount of the debentures to be purchased plus accrued and unpaid
interest (including contingent interest and additional amounts, if any) to but
excluding the repurchase date.
39
A "fundamental change" will be deemed to have occurred at the time after the
debentures are originally issued that any of the following occurs:
-- a "person" or "group" within the meaning of Section 13(d) of the
Exchange Act other than us, our subsidiaries or our or their employee
benefit plans, files a Schedule TO or any other schedule, form or
report under the Exchange Act disclosing that such person or group
has become the direct or indirect ultimate "beneficial owner," as
defined in Rule 13d-3 under the Exchange Act, of more than 50% of the
total voting power of all shares of our capital stock that are
entitled to vote generally in the election of directors;
-- consummation of any share exchange, consolidation or merger of us or
any sale, lease or other transfer in one transaction or a series of
transactions of all or substantially all of the consolidated assets
of us and our subsidiaries, taken as a whole, to any person other
than us or one or more of our subsidiaries, pursuant to which our
common stock will be converted into cash, securities or other
property; provided, however, that a transaction where the holders of
our voting capital stock immediately prior to such transaction have
directly or indirectly more than 50% of the aggregate voting power of
all shares of capital stock of the continuing or surviving
corporation or transferee entitled to vote generally in the election
of directors immediately after such event shall not be a fundamental
change;
-- continuing directors (as defined below) cease to constitute at least
a majority of our board of directors;
-- our shareholders approve any plan or proposal for our liquidation or
dissolution; or
-- our common stock or other common stock into which the debentures are
convertible is neither listed for trading on a U.S. national
securities exchange nor approved for trading on the Nasdaq National
Market or another established automated over-the-counter trading
market in the United States.
"Continuing director" means a director who was a member of our board of
directors on the date of the indenture or who becomes a director subsequent to
that date and whose election, appointment or nomination for election by our
shareholders is duly approved by a majority of the continuing directors on our
board of directors at the time of such approval, either by a specific vote or by
approval of the proxy statement issued by us on behalf of our entire board of
directors in which such individual is named as nominee for director.
A fundamental change will not be deemed to have occurred in respect of any of
the foregoing, however, if either:
-- the last reported sale price of our common stock for any five trading
days within the 10 consecutive trading days ending immediately before
the later of the fundamental change or the public announcement
thereof, equals or exceeds 105% of the applicable conversion price of
the debentures immediately before the fundamental change or the
public announcement thereof; or
-- at least 90% of the consideration, excluding cash payments for
fractional shares, in the transaction or transactions constituting
the fundamental change consists of shares of capital stock traded on
a national securities exchange or quoted on the Nasdaq National
Market or which will be so traded or quoted when issued or exchanged
in connection with a fundamental change (these securities being
referred to as "publicly
40
traded securities") and as a result of this transaction or
transactions the debentures become convertible into such publicly
traded securities, excluding cash payments for fractional shares.
For purposes of the above paragraph the term "capital stock" of any person means
any and all shares (including ordinary shares or American Depository Shares),
interests, participations or other equivalents however designated of corporate
stock or other equity participations, including partnership interests, whether
general or limited, of such person and any rights (other than debt securities
convertible or exchangeable into an equity interest), warrants or options to
acquire an equity interest in such person.
If a fundamental change occurs and all of the consideration for the common stock
in the transaction or transactions constituting the fundamental change consists
of cash, which we will refer to as a "cash buy-out," we will pay a make-whole
premium to the holders of the debentures. The make-whole premium will be payable
to all holders regardless of whether the holder elects to require us to
repurchase the debentures or elects to surrender the debentures for conversion.
If the holder elects to require us to repurchase the debentures, the total
repurchase price to such holder will be the sum of (i) 100% of the principal
amount of the debentures to be purchased plus (ii) accrued and unpaid interest
(including contingent interest and additional amounts, if any) to but excluding
the repurchase date, plus (iii) the applicable make-whole premium. If the holder
is otherwise entitled to, and does, surrender the debentures for conversion, the
holder will receive (i) at our option, cash or shares of common stock or a
combination thereof (as described above under the caption "--Payment upon
conversion") in respect of the conversion obligation (as defined in such
section) plus (ii) the applicable make-whole premium.
The make-whole premium per debenture will equal the excess, if any, of (a) the
average of the closing trading prices of a debenture for the five trading days
immediately prior to the public announcement of the cash buy-out, less (b) the
greater of (i) $1,000 and (ii) the product of (x) the average of the closing
prices of our common stock for the five trading days immediately prior to the
public announcement of the cash buy-out and (y) the applicable conversion rate;
and will be payable in cash or shares of common stock or a combination thereof
at our option.
The "closing trading price," for purposes of calculating the make-whole premium
on any date of determination, means the average of the secondary market bid
quotations per debenture obtained by the trustee for $2,000,000 aggregate
principal amount of the debentures at approximately 4:00 p.m. New York City
time, on such determination date from two independent nationally recognized
securities dealers we select, which may include one or more of the initial
purchasers, provided that if at least two such bids cannot reasonably be
obtained by the trustee, but one such bid can reasonably be obtained by the
trustee, this one bid will be used. If the trustee cannot reasonably obtain at
least one bid for $2,000,000 aggregate principal amount of debentures from a
nationally recognized securities dealer, or in our reasonable judgment the bid
quotations are not indicative of the secondary market value of the debentures,
then the closing trading price of the debentures will be deemed to be the
product of (x) the average of the closing prices of our common stock for the
five trading days immediately prior to the public announcement of the cash
buy-out and (y) the applicable conversion rate.
On or before the 30th day after the occurrence of a fundamental change, we will
provide to all holders of the debentures and the trustee and paying agent a
notice of the occurrence of
41
the fundamental change and of the resulting repurchase right. Such notice shall
state, among other things:
-- the events causing a fundamental change;
-- the date of the fundamental change;
-- the last date on which a holder may exercise the repurchase right;
-- the fundamental change repurchase price;
-- the fundamental change repurchase date;
-- the name and address of the paying agent and the conversion agent;
-- the applicable conversion rate and any adjustments to the applicable
conversion rate;
-- that the debentures with respect to which a fundamental change
repurchase election has been given by the holder may be converted
only if the holder withdraws the fundamental change repurchase
election in accordance with the terms of the indenture; and
-- the procedures that holders must follow to require us to repurchase
their debentures.
To exercise the repurchase right, you must deliver prior to the close of
business on the business day immediately preceding the repurchase date, subject
to extension to comply with applicable law, the debentures to be repurchased,
duly endorsed for transfer, together with a written repurchase election and the
form entitled "Form of Fundamental Change Repurchase Notice" on the reverse side
of the debentures duly completed, to the paying agent. Your repurchase election
must state:
-- if certificated, the certificate numbers of your debentures to be
delivered for repurchase;
-- the portion of the principal amount of debentures to be repurchased,
which must be $1,000 or an integral multiple thereof; and
-- that the debentures are to be repurchased by us pursuant to the
applicable provisions of the debentures and the indenture.
If the debentures are not in certificated form, your notice must comply with
appropriate DTC procedures.
You may withdraw any repurchase election (in whole or in part) by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the fundamental change repurchase date.
The notice of withdrawal shall state:
-- the principal amount of the withdrawn debentures;
-- if certificated debentures have been issued, the certificate numbers
of the withdrawn debentures; and
-- the principal amount, if any, which remains subject to the repurchase
notice.
If the debentures are not in certificated form, your notice must comply with
appropriate DTC procedures.
We will be required to repurchase the debentures no later than 30 days after the
date of our notice of the occurrence of the relevant fundamental change subject
to extension to comply
42
with applicable law. You will receive payment of the fundamental change
repurchase price promptly following the later of the fundamental change
repurchase date or the time of book-entry transfer or the delivery of the
debentures. If the paying agent holds money sufficient to pay the fundamental
change repurchase price of the debentures on the fundamental change repurchase
date, then on the business day following such date:
-- the debentures will cease to be outstanding and interest will cease
to accrue (whether or not book-entry transfer of the debentures is
made or whether or not the debenture is delivered to the paying
agent); and
-- all other rights of the holders will terminate (other than the right
to receive the fundamental change repurchase price upon delivery or
transfer of the debentures).
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act that may be applicable at the time of our
repurchase of debentures upon a fundamental change. If then required by the
applicable rules, we will file a Schedule TO or any other schedule required in
connection with any offer by us to repurchase the debentures.
The rights of the holders to require us to repurchase their debentures upon a
fundamental change could discourage a potential acquirer of us. The fundamental
change repurchase feature, however, is not the result of management's knowledge
of any specific effort to accumulate shares of our common stock, to obtain
control of us by any means or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the fundamental change purchase feature is a
standard term contained in other offerings of debt securities similar to the
debentures that have been marketed by the initial purchasers. The terms of the
fundamental change repurchase feature resulted from negotiations between the
initial purchasers and us.
The term "fundamental change" is limited to specified transactions and may not
include other events that might adversely affect our financial condition. In
addition, the requirement that we offer to repurchase the debentures upon a
fundamental change may not protect holders in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
No debentures may be repurchased at the option of holders upon a fundamental
change if there has occurred and is continuing an event of default under the
indenture, other than an event of default that is cured by the payment of the
fundamental change repurchase price of the debentures.
The definition of fundamental change includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our consolidated assets. There is no precise, established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of the debentures to require us to repurchase its debentures as a result
of the conveyance, transfer, sale, lease or other disposition of less than all
of our assets may be uncertain.
If a fundamental change were to occur, we may not have enough funds to pay the
fundamental change repurchase price. If we fail to repurchase the debentures
when required following a fundamental change, we will be in default under the
indenture. In addition, we have, and may in the future incur, other indebtedness
with similar change in control provisions permitting our holders to accelerate
or to require us to purchase our indebtedness upon the occurrence of similar
events or on some specific dates.
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MERGER AND SALE OF ASSETS BY US
The indenture provides that we may not consolidate with or merge with or into
any other person or sell, convey, transfer or lease our properties and assets
substantially as an entirety to another person, unless:
-- we are the surviving person, or the resulting, surviving or
transferee person, if other than us, is organized and existing under
the laws of the United States, any state thereof or the District of
Columbia;
-- the successor person assumes all of our obligations under the
debentures and the indenture;
-- immediately after giving effect to such transaction, there is no
event of default or event that, with notice or passage of time or
both, would become an event of default; and
-- we have delivered to the trustee an officers' certificate and an
opinion of counsel each stating that such consolidation, merger,
sale, conveyance, transfer or lease complies with these requirements.
Upon any permitted consolidation, merger, sale, conveyance, transfer or lease,
the resulting, surviving or transferee person shall succeed to and be
substituted for us, and may exercise our rights and powers under the indenture
and the debentures, and after any such contemplated transaction, we will be
relieved of all obligations and covenants under the indenture and the
debentures.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following will be events of default under the indenture:
-- we fail to pay principal of the debentures when due at maturity, upon
redemption, upon repurchase or otherwise;
-- we fail to pay any interest (including contingent interest and
additional amounts, if any) on the debentures when due and such
failure continues for a period of 30 days;
-- we fail to provide notice of the occurrence of a fundamental change
on a timely basis;
-- default in our obligation to convert the debentures into shares of
our common stock, cash or a combination of cash and common stock upon
exercise of a holder's conversion right and such default continues
for a period of 10 days;
-- default in our obligation to repurchase the debentures at the option
of a holder upon a fundamental change or on any other repurchase
date;
-- default in our obligation to redeem the debentures after we have
exercised our option to redeem;
-- we fail to perform or observe any of the covenants in the indenture
for 60 days after written notice to us from the trustee or the
holders of at least 25% in principal amount of the outstanding
debentures;
-- there occurs an event of default with respect to our or any of our
subsidiaries' indebtedness having a principal amount then
outstanding, individually or in the
44
aggregate, of at least $15 million, whether such indebtedness now
exists or is hereafter incurred, which default or defaults:
-- shall have resulted in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise have
become due and payable; or
-- shall constitute the failure to pay such indebtedness at the final
stated maturity thereof (after expiration of any applicable grace
period);
-- any final judgment or judgments for the payment of money in excess of
$15 million shall be rendered against us and shall not be discharged
for any period of 60 consecutive days during which time a stay of
enforcement shall not be in effect or during which during which time
an appeal has not been filed; and
-- certain events involving our bankruptcy, insolvency or
reorganization.
The trustee may withhold notice to the holders of the debentures of any default,
except defaults in payment of principal or interest (including contingent
interest or additional amounts, if any) on the debentures. However, the trustee
must consider it to be in the interest of the holders of the debentures to
withhold this notice.
If an event of default occurs and continues, the trustee or the holders of at
least 25% in principal amount of the outstanding debentures may declare the
principal and accrued and unpaid interest (including contingent interest and
additional amounts, if any) on the outstanding debentures to be immediately due
and payable. In case of certain events of bankruptcy or insolvency involving us,
the principal and accrued and unpaid interest (including contingent interest and
additional amounts, if any) on the debentures will automatically become due and
payable. However, if we cure all defaults, except the nonpayment of principal or
interest (including contingent interest and additional amounts, if any) that
became due as a result of the acceleration, and meet certain other conditions,
with certain exceptions, this declaration may be cancelled and the holders of a
majority of the principal amount of outstanding debentures may waive these past
defaults.
The holders of a majority of outstanding debentures will have the right to
direct the time, method and place of any proceedings for any remedy available to
the trustee, subject to limitations specified in the indenture.
No holder of the debentures may pursue any remedy under the indenture, except in
the case of a default in the payment of principal or interest (including
contingent interest or additional amounts, if any) on the debentures, unless:
-- the holder has given the trustee written notice of an event of
default;
-- the holders of at least 25% in principal amount of outstanding
debentures make a written request, and offer reasonable indemnity, to
the trustee to pursue the remedy;
-- the trustee does not receive an inconsistent direction from the
holders of a majority in principal amount of the debentures;
-- the holder or holders have offered reasonable security or indemnity
to the trustee against any costs, liability or expense of the
trustee; and
-- the trustee fails to comply with the request within 60 days after
receipt of the request and offer of indemnity.
45
MODIFICATION AND WAIVER
The consent of the holders of a majority in principal amount of the outstanding
debentures is required to modify or amend the indenture. However, a modification
or amendment requires the consent of the holder of each outstanding debenture if
it would:
-- extend the fixed maturity of any debenture;
-- reduce the rate or extend the time for payment of interest (including
contingent interest or additional amounts, if any) on any debenture;
-- reduce the principal amount of any debenture;
-- reduce any amount payable upon redemption or repurchase of any
debenture;
-- affect our obligation to redeem any debentures on a redemption date
in a manner adverse to such holder;
-- affect our obligation to repurchase any debenture at the option of
the holder in a manner adverse to such holder;
-- affect our obligation to repurchase any debenture upon a fundamental
change in a manner adverse to such holder;
-- impair the right of a holder to institute suit for payment on any
debenture;
-- change the currency in which any debenture is payable;
-- impair the right of a holder to convert any debenture or reduce the
number of common shares, the amount of cash or the amount of any
other property receivable upon conversion;
-- reduce the quorum or voting requirements under the indenture;
-- change any obligation of ours to maintain an office or agency in the
places and for the purposes specified in the indenture;
-- subject to specified exceptions, modify certain of the provisions of
the indenture relating to modification or waiver of provisions of the
indenture; or
-- reduce the percentage of debentures required for consent to any
modification of the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of the debentures, including to:
-- secure any debentures;
-- evidence the assumption of our obligations by a successor person;
-- add covenants for the benefit of the holders of debentures;
-- cure any ambiguity or correct any error in the indenture, so long as
such action will not adversely affect the interests of holders,
provided that any such amendment made solely to conform the
provisions of the indenture to this prospectus will be deemed not to
adversely affect the interests of holders;
-- establish the forms or terms of the debentures;
-- evidence the acceptance of appointment by a successor trustee;
46
-- qualify or maintain the qualification of the indenture under the
Trust Indenture Act of 1939, as amended; and
-- make other changes to the indenture or forms or terms of the
debentures, provided no such change individually or in the aggregate
with all other such changes has or will have a material adverse
effect on the interests of the holders of the debentures.
CALCULATIONS IN RESPECT OF DEBENTURES
We are responsible for making all calculations called for under the indenture.
These calculations include, but are not limited to, determinations of the market
prices of our common stock and the debentures, the amount of accrued interest
(including contingent interest and additional amounts, if any) payable on the
debentures and the conversion price of the debentures. We will make all these
calculations in good faith, and, absent manifest error, our calculations will be
final and binding on holders of debentures. We will provide a schedule of our
calculations to each of the trustee and the conversion agent, and each of the
trustee and the conversion agent is entitled to rely upon the accuracy of our
calculations without independent verification. The trustee will forward our
calculations to any holder of debentures upon the request of that holder.
INFORMATION CONCERNING THE TRUSTEE
We have appointed U.S. Bank National Association, the trustee under the
indenture, as paying agent, conversion agent, debenture registrar and custodian
for the debentures. The trustee or its affiliates may also provide banking and
other services to us in the ordinary course of their business.
GOVERNING LAW
The debentures and the indenture are governed by, and construed in accordance
with, the laws of the State of New York.
FORM, DENOMINATION, EXCHANGE, REGISTRATION AND TRANSFER
The debentures will be issued:
-- in fully registered form;
-- without interest coupons; and
-- in denominations of $1,000 principal amount and integral multiples of
$1,000.
Holders may present debentures for conversion, registration of transfer and
exchange at the office maintained by us for such purpose, which will initially
be the Corporate Trust Office of the trustee in The City of New York.
PAYMENT AND PAYING AGENT
We will maintain an office in the Borough of Manhattan, The City of New York,
where we will pay the principal on the debentures and you may present the
debentures for conversion, registration of transfer or exchange for other
denominations, which shall initially be an office or agency of the trustee. We
may pay interest by check mailed to your address as it appears in the debenture
register, provided that if you are a holder with an aggregate principal amount
47
in excess of $2.0 million, you will be paid, at your written election, by wire
transfer in immediately available funds.
However, payments to The Depository Trust Company, New York, New York, which we
refer to as DTC, will be made by wire transfer of immediately available funds to
the account of DTC or its nominee.
NOTICES
Except as otherwise described herein, notice to registered holders of the
debentures will be given by mail to the addresses as they appear in the security
register. Notices will be deemed to have been given on the date of such mailing.
48
REGISTRATION RIGHTS
On June 1, 2004, we entered into a registration rights agreement with the
initial purchasers pursuant to which we agreed for the benefit of the holders of
the debentures and the common stock issuable upon conversion of the debentures
that we, at our cost, would:
-- no later than the 90th day after the original date of issuance of the
debentures, file a shelf registration statement covering resales of
the debentures and the common stock issuable upon conversion thereof
pursuant to Rule 415 under the Securities Act;
-- use our commercially reasonable efforts to cause the shelf
registration statement to be declared effective under the Securities
Act no later than 210 days after the original date of issuance of the
debentures; and
-- use our commercially reasonable efforts to keep the shelf
registration statement effective until the earlier of:
-- the second anniversary of the original date of issuance of the
debentures; and
-- such time as all of the debentures and the common stock issuable
upon conversion thereof cease to be outstanding or have been sold
either pursuant to the shelf registration statement or pursuant to
Rule 144 under the Securities Act or any similar provision then in
force.
We may suspend the effectiveness of the shelf registration statement or the use
of the prospectus that is part of the shelf registration statement during
specified periods under certain circumstances relating to pending corporate
developments, public filings with the SEC and similar events. Any such
suspension period shall not exceed an aggregate of 90 days in any 12-month
period. In addition, holders will be unable to use the registration statement if
we have filed a post-effective amendment to the registration statement for the
purpose of adding holders to the registration statement until the post-effective
amendment is declared effective, and this inability will not be subject to the
90-day limit referred to above or the payment of additional amounts discussed
below.
We will pay predetermined additional amounts to holders of debentures if the
shelf registration statement is not made effective as described above or if the
prospectus is unavailable for periods in excess of those permitted above. Those
additional amounts will accrue until a failure to file or become effective or
unavailability is cured in respect of any debentures required to bear the legend
set forth in "Transfer restrictions," at a rate equal to 0.25% per annum of the
outstanding principal amount thereof for the first 90 days after the occurrence
of the event and 0.50% per annum of the outstanding principal amount thereof
after the first 90 days.
Subject to the limitations described in the last paragraph of this section, the
additional amounts will accrue from and including the date on which the
registration default occurs to but excluding the date on which all registration
defaults have been cured. We will have no other liabilities for monetary damages
with respect to our registration obligations, except that if we breach, fail to
comply with or violate some provisions of the registration rights agreement, the
holders of the debentures may be entitled to equitable relief, including
injunction and specific performance. If a holder converts some or all of its
debentures into common stock, the holder will not be entitled to receive
liquidated damages on such common stock.
49
A holder who elects to sell securities pursuant to the shelf registration
statement is required to:
-- be named as a selling securityholder in the related prospectus;
-- deliver a prospectus to purchasers; and
-- be subject to the provisions of the registration rights agreement,
including indemnification provisions.
Under the registration rights agreement we are to:
-- pay all expenses of the shelf registration statement;
-- provide each registered holder with copies of the prospectus;
-- notify holders when the shelf registration statement has become
effective; and
-- take other reasonable actions as are required to permit unrestricted
resales of the debentures and common stock issued upon conversion of
the debentures in accordance with the terms and conditions of the
registration rights agreement.
The plan of distribution of the shelf registration statement permits resales of
registrable securities by selling securityholders though brokers and dealers.
We will give notice to all holders of the filing and effectiveness of the shelf
registration statement. In order to be named as a selling securityholder in the
prospectus at the time of effectiveness of the shelf registration statement,
holders are required to complete and deliver a selling securityholder
questionnaire to us on or prior to the effectiveness of the registration
statement. Upon receipt of a completed questionnaire after that time, together
with any other information we may reasonably request following the
effectiveness, we will, within ten business days of receipt, file any amendments
to the shelf registration statement or supplements to the related prospectus as
are necessary to permit the holder to deliver a prospectus to purchasers of such
debentures or shares of common stock, subject to our right to suspend the use of
the prospectus and provided that we will not be obligated to file more than one
post-effective amendment to the registration statement in any fiscal quarter. We
will pay the predetermined additional amounts described above to the holder if
we fail to make the filing in the time required or, if such filing is a
post-effective amendment to the shelf registration statement required to be
declared effective under the Securities Act, if such amendment is not declared
effective within 90 days of the filing.
Only holders who have timely completed and delivered a questionnaire and
provided the other information we may request will be named as a selling
securityholder in the prospectus and will be permitted to sell securities
pursuant to the shelf registration statement or be entitled to additional
amounts. In addition, only holders of "Transfer Restricted Securities" (as such
term is defined in the registration rights agreement) will have the right to
receive such additional amounts. Upon the sale or other transfer of any
debentures or shares of common stock issued upon conversion of debentures
pursuant to the registration statement of which this prospectus is a part or
pursuant to Rule 144 under the Securities Act under circumstances described in
the registration rights agreement, those debentures or shares of common stock
will cease to be "Transfer Restricted Securities" and our obligation to pay
additional amounts, if any, in respect of those debentures or shares of common
stock will terminate.
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BOOK-ENTRY SYSTEM
Debentures are evidenced by one or more global debentures. We deposited the
global debenture or debentures with DTC and registered the global debentures in
the name of Cede & Co. as DTC's nominee. Except as set forth below, a global
debenture may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
Beneficial interests in a global debenture may be held through organizations
that are participants in DTC (called "participants"). Transfers between
participants will be effected in the ordinary way in accordance with DTC rules
and will be settled in clearing house funds. The laws of some states require
that certain persons take physical delivery of securities in definitive form. As
a result, the ability to transfer beneficial interests in the global debenture
to such persons may be limited.
Beneficial interests in a global debenture held by DTC may be held only through
participants, or certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (called "indirect participants"). So
long as Cede & Co., as the nominee of DTC, is the registered owner of a global
debenture, Cede & Co. for all purposes will be considered the sole holder of
such global debenture. Except as provided below, owners of beneficial interests
in a global debenture:
-- do not receive physical delivery of certificates in definitive
registered form; and
-- are not considered holders of the global debenture.
We pay interest (including contingent interest and additional amounts, if any)
on and the redemption price and the repurchase price of a global debenture to
Cede & Co., as the registered owner of the global debenture, by wire transfer of
immediately available funds on each interest payment date or the redemption or
repurchase date, as the case may be. Neither we, the trustee nor any paying
agent are responsible or liable:
-- for the records relating to, or payments made on account of,
beneficial ownership interests in a global debenture; or
-- for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
Neither we, the trustee, registrar, paying agent nor conversion agent have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations. DTC has advised us that it will take any action
permitted to be taken by a holder of debentures, including the presentation of
debentures for conversion, only at the direction of one or more participants to
whose account with DTC interests in the global debenture are credited, and only
in respect of the principal amount of the debentures represented by the global
debenture as to which the participant or participants has or have given such
direction.
DTC has advised us that it is:
-- a limited purpose trust company organized under the laws of the State
of New York, and a member of the Federal Reserve System;
-- a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
-- a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
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DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and clearing
corporations and other organizations. Some of the participants or their
representatives, together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of interests
in a global debenture among participants. However, DTC is under no obligation to
perform or continue to perform these procedures, and may discontinue these
procedures at any time. If DTC is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by us within 90 days, DTC
has ceased to be a clearing agency registered under the Exchange Act or an event
of default has occurred and is continuing, we will issue debentures in
certificated form in exchange for global debentures.
52
DESCRIPTION OF CAPITAL STOCK
The following summary description of our capital stock is qualified in its
entirety by reference to applicable provisions of Delaware law, our certificate
of incorporation and our by-laws. The complete texts of our certificate of
incorporation and by-laws are on file with the Commission.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 60,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value. As
of August 17, 2004, there were 28,460,697 shares of common stock issued and
outstanding held by approximately 570 holders of record, after giving effect to
the repurchase of 1,977,600 shares of common stock by the Company on June 1,
2004. As of August 17, 2004, there were no shares of preferred stock issued and
outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on such
matters and in such manner as may be provided by law. The holders of common
stock are not entitled to cumulative voting rights with respect to the election
of directors, and as a consequence, minority stockholders are not able to elect
directors on the basis of their votes alone. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of common stock are entitled to receive, when and as
declared by our Board of Directors, out of any of our assets legally available
therefor, such dividends as may be declared from time to time by the Board of
Directors. See "Dividend Policy." Upon our liquidation, dissolution or winding
up, whether voluntary or involuntary, 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. Holders of
common stock have no preemptive rights and no right to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Under our certificate of incorporation, the Board of Directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to determine or alter the
designations, preferences, and relative, participating, optional or other
rights, and such qualifications, limitations or restrictions thereof, as shall
be stated in resolutions adopted by the Board of Directors and as may be
permitted by the General Corporation Law of the State of Delaware. The issuance
of preferred stock could adversely affect the voting power of holders of common
stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of us. We have no present plan to issue any
shares of preferred stock. See "Risk Factors--Provisions of our certificate of
incorporation and by-laws could limit another party's ability to acquire us and
could deprive you of the opportunity to obtain a takeover premium for your
shares of common stock."
53
RIGHTS
Each outstanding share of common stock has associated with it one Right. Each
Right entitles the registered holder to purchase from us a unit consisting of
one one-thousandth of a share of Series A Junior Participating Preferred Stock
at a purchase price of $145.00 per one one-thousandth of a share of Series A
Junior Participating Preferred Stock. The description and terms of the Rights
are set forth in a Rights Agreement, dated May 22, 1998, between us and Norwest
Bank Minneapolis, N.A., as Rights Agent, as amended by Amendment No. 1 to Right
Agreement, dated February 26, 2002, between us and Wells Fargo Bank, N.A., as
successor Rights Agent. The following summary of certain terms of the Rights is
qualified in its entirety by reference to the Rights Agreement, as amended,
which is on file with the Commission.
Until the Rights become exercisable, the Rights are attached to the common stock
certificates. In general, the Rights will separate from the common stock upon
the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons, subject to certain exceptions (an
"Acquiring Person"), has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of common stock (the "Stock
Acquisition Date"), or (ii) 10 business days following the commencement of a
tender offer or exchange offer that would result in such a person or group
beneficially owning 15% or more of such outstanding shares of common stock.
If any person becomes an Acquiring Person each holder of a Right will thereafter
have the right to receive, upon exercise, common stock (or, in certain
circumstances, cash, property or other securities of ours) having a value equal
to two times the exercise price of the Right. Notwithstanding any of the
foregoing, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be null
and void. However, Rights are not exercisable in any event until such time as
the Rights are no longer redeemable by us as set forth below.
If at any time following the Stock Acquisition Date (i) we are acquired in a
merger or other business combination transaction in which common stock is
changed or exchanged or in which we are not the surviving corporation, or (ii)
50% or more of our assets or earning power is sold or transferred, each holder
of a Right (except those Rights owned by an Acquiring Person and voided as set
forth above) shall thereafter have the right to receive, upon exercise, common
stock of the acquiring company having a value equal to two times the exercise
price of the Right.
At any time after any person or group becomes an Acquiring Person and prior to
the acquisition by the Acquiring Person of 50% or more of the outstanding common
stock, the Board of Directors may exchange the Rights (other than Rights owned
by the Acquiring Person, which will have become void), in whole or in part, at
an exchange ratio of one share of common stock per Right (subject to
adjustment). At any time until ten days following the Stock Acquisition Date, we
may redeem the Rights in whole, but not in part, at a price of $.001 per Right.
The Rights expire at the close of business on May 5, 2008.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
Our certificate of incorporation and by-laws contain provisions which may have
the effect of delaying, deferring or preventing a change in control of us. Our
certificate of incorporation and Bylaws provide: (i) for division of the Board
of Directors into three classes, with one class elected each year to serve a
three-year term; (ii) that directors may be removed only for cause and only upon
the affirmative vote of the holders of at least majority of the outstanding
54
shares entitled to vote; (iii) that the authorized number of directors may be
changed only by resolution of the Board of Directors; (iv) that a vacancy on the
Board of Directors may be filled by the remaining directors; and (v) that the
affirmative vote of the holders of at least two-thirds of the outstanding shares
entitled to vote is required to alter, amend or repeal the foregoing provisions.
Our certificate of incorporation provides that no action may be taken by the
stockholders except at a meeting of the stockholders called in accordance with
our by-laws and that no action may be taken by the stockholders by written
consent. Our by-laws require advance notification for a stockholder to bring
business before a stockholders' meeting or to nominate a person for election as
a director. Our certificate of incorporation and by-laws provide that special
meetings of stockholders may be called only by a majority of the total number of
directors which the Board of Directors would have if there were no vacancies.
Special meetings of the stockholders may not be called by the stockholders.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law prohibits certain "business
combination" transactions between a Delaware corporation and any "interested
stockholder" owning 15% or more of the corporation's outstanding voting stock
for a period of three years after the date on which the stockholder became an
interested stockholder, unless:
-- our Board of Directors approves, prior to the date, either the
proposed business combination or the proposed acquisition of stock
which resulted in the stockholder becoming an interested stockholder;
-- upon consummation of the transaction in which the stockholder becomes
an interested stockholder, the interested stockholder owned at least
85% of those shares of the voting stock of the corporation that are
not held by the directors, officers or certain employee stock plans;
or
-- on or subsequent to the date on which the stockholder became an
interested stockholder, the business combination with the interested
stockholder is approved by the Board of Directors and also approved
at a stockholder's meeting by the affirmative vote of the holders of
at least two-thirds of the outstanding shares of the corporation's
voting stock other than shares held by the interested stockholder.
Under Delaware law, a "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder.
Although a corporation may elect not to be governed by Section 203, we have made
no such election.
55
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain United States federal income tax
consequences of the purchase, ownership, conversion and other disposition of the
debentures and of the common stock received upon a conversion of the debentures.
This summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, judicial authorities, published positions of the
Internal Revenue Service (the "IRS") and other applicable authorities, all as in
effect on the date hereof and all of which is subject to change or differing
interpretations (possibly with retroactive effect). This summary does not
discuss all aspects of United States federal income taxation that may be
important to particular investors in light of their individual circumstances,
some of whom may be subject to special tax rules that differ significantly from
those summarized below such as:
-- partnerships or other pass-through entities or investors in such
entities,
-- expatriates,
-- financial institutions,
-- insurance companies,
-- broker-dealers,
-- tax-exempt organizations,
-- persons that will hold the debentures as part of a straddle, hedge,
conversion, constructive sale, or other integrated transaction for
United States federal income tax purposes or
-- U.S. Holders (as defined below) that have a functional currency other
than the United States dollar.
In addition, this summary does not discuss any foreign, state or local tax
considerations. This summary assumes that investors will hold their debentures
and common stock as "capital assets" for United States federal income tax
purposes.
No ruling has been or will be sought from the IRS regarding any matter discussed
herein. Our counsel has not rendered any legal opinion to us regarding any tax
consequences relating to an investment in the debentures or common stock. No
assurance can be given that the IRS would not assert, or that a court would not
sustain, a position contrary to any of the tax aspects set forth below. Thus,
each prospective investor is urged to consult its tax advisor regarding the
United States federal, state, local and foreign income and other tax
consequences of the purchase, ownership, conversion and other disposition of the
debentures and common stock received upon a conversion of the debentures.
For purposes of this summary, a "U.S. Holder" is a beneficial owner of a
debenture that is, for United States federal income tax purposes:
-- an individual who is a citizen or resident of the United States,
-- a corporation or other entity taxable as a corporation created in, or
organized under the laws of, the United States or any state or
political subdivision thereof,
-- an estate the income of which is includible in gross income for
United States federal income tax purposes regardless of its source or
56
-- a trust (A) the administration of which is subject to the primary
supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial
decisions of the trust, or (B) that was in existence on August 20,
1996, was treated as a United States person on the previous day, and
elected to continue to be so treated.
A beneficial owner of a debenture that is not a U.S. Holder is referred to
herein as a "Non-U.S. Holder." If a partnership (including any entity or
arrangement treated as a partnership for United States federal income tax
purposes) is a beneficial owner of debentures or shares of common stock, the
treatment of a partner in the partnership will generally depend upon the status
of the partner and the activities of the partnership. A holder of debentures or
shares of common stock that is a partnership and partners in such partnership
are urged to consult their tax advisors about the United States federal income
tax consequences of holding and disposing of debentures or shares of common
stock, as the case may be.
CLASSIFICATION OF THE DEBENTURES
Pursuant to the terms of the indenture, each holder of debentures agrees to
treat the debentures, for United States federal income tax purposes, as debt
instruments that are subject to the Treasury regulations that govern contingent
payment debt instruments (the "CPDI regulations") and to be bound by our
application of the CPDI regulations to the debentures, including our
determination of the rate at which interest will be deemed to accrue on the
debentures and the related "projected payment schedule." The remainder of this
discussion assumes that the debentures will be treated in accordance with that
agreement and our determinations.
No authority directly addresses the treatment of all aspects of the debentures
for United States federal income tax purposes. Revenue Ruling 2002-31 and IRS
Notice 2002-36 addressed the United States federal income tax classification and
treatment of a debt instrument similar, although not identical, to the
debentures, and the IRS concluded that the debt instrument addressed in that
published guidance was subject to the CPDI regulations. In addition, the IRS
clarified various aspects of the applicability of certain other provisions of
the Code to the debt instrument addressed in that published guidance. The
applicability of Revenue Ruling 2002-31 and IRS Notice 2002-36 to any particular
debt instrument, however, such as the debentures, is uncertain. In addition, no
rulings are expected to be sought from the IRS with respect to any of the United
States federal income tax consequences discussed below, and no assurance can be
given that the IRS will not take contrary positions. As a result, no assurance
can be given that the IRS will agree with the tax characterizations and the tax
consequences described below. A different treatment of the debentures for United
States federal income tax purposes could significantly alter the amount, timing,
character, and treatment of income, gain or loss recognized in respect of the
debentures from that which is described below and could require a U.S. Holder to
accrue interest income at rate different from the "comparable yield" rate
described below.
U.S. HOLDERS
INTEREST INCOME
Under the CPDI regulations, a U.S. Holder will generally be required to accrue
interest income on the debentures on a constant yield-to-maturity basis based on
the adjusted issue price (as defined below) of the debentures and the comparable
yield (as defined below), regardless of
57
whether the U.S. Holder uses the cash or accrual method of tax accounting.
Accordingly, a U.S. Holder will be required to include interest in taxable
income in each year significantly in excess of the amount of interest payments,
including contingent interest payments, actually received by it in that year.
The "issue price" of a debenture is the first price at which a substantial
amount of the debentures is sold to investors, excluding bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The "adjusted issue price" of a debenture is
its issue price increased by any interest income previously accrued, determined
without regard to any adjustments to interest accruals described below, and
decreased by the amount of any noncontingent payments and the projected amount
of any contingent payments previously made with respect to the debentures.
Under the CPDI regulations, we are required to establish the "comparable yield"
for the debentures. The comparable yield for the debentures is the annual yield
we would incur, as of the initial issue date, on a fixed rate nonconvertible
debt instrument with no contingent payments, but with terms and conditions
otherwise comparable to those of the debentures. Accordingly, we have determined
the comparable yield to be 8.25% compounded semi-annually.
We are required to provide to U.S. Holders, solely for United States federal
income tax purposes, a schedule of the projected amounts of payments on the
debentures. This schedule must produce the comparable yield. Our determination
of the projected payment schedule for the debentures includes estimates for
payments of contingent interest and an estimate for a payment at maturity that
takes into account the conversion feature. U.S. Holders may obtain the projected
payment schedule by submitting a written request for it to us at the address set
forth under "Additional Information."
The comparable yield and the projected payment schedule are not determined for
any purpose other than for the determination of a U.S. Holder's interest
accruals and adjustments thereof in respect of the debentures for United States
federal income tax purposes and do not constitute a projection or representation
regarding the actual amounts payable to U.S. holders of the debentures.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE DEBENTURES
If a U.S. Holder receives actual payments with respect to the debentures in a
tax year that in the aggregate exceed the total amount of projected payments for
that tax year, the U.S. Holder will have a "net positive adjustment" equal to
the amount of such excess. The U.S. Holder will be required to treat the "net
positive adjustment" as additional interest income for the tax year. For this
purpose, the payments in a tax year include the fair market value of any
property received (including common stock received on conversion of the
debentures) in that year.
If a U.S. Holder receives actual payments with respect to the debentures in a
tax year that in the aggregate are less than the amount of the projected
payments for that tax year, the U.S. Holder will have a "net negative
adjustment" equal to the amount of such deficit. This adjustment will (a) reduce
the U.S. Holder's interest income on the debentures for that tax year, and (b)
to the extent of any excess after the application of (a), give rise to an
ordinary loss to the extent of the U.S. Holder's interest income on the
debentures during prior tax years, reduced to the extent such interest income
was offset by prior net negative adjustments. Any negative adjustment in excess
of the amounts described in (a) and (b) will be carried forward
58
to offset future interest income in respect of the debentures or to reduce the
amount realized upon a sale, exchange, repurchase or redemption of the
debentures.
If subsequent purchasers of the debentures have a basis in the debentures which
differs from the adjusted issue price of the debentures, such holder must
reasonably allocate such difference to the interest on the debentures or the
projected payments. If the holder's basis is less than the adjusted issue price
(e.g., discount), the amounts allocated are treated as a positive adjustment. If
the holder's basis exceeds the adjusted issue price (e.g., premium), the
adjustment is a negative adjustment. A holder's adjusted tax basis in the
debenture will be increased to reflect any such positive adjustment or decreased
to reflect any such negative adjustment. Holders should consult their tax
advisors regarding such potential adjustments.
SALE, EXCHANGE, CONVERSION, REPURCHASE OR REDEMPTION OF DEBENTURES
Generally, the sale, exchange, repurchase, or redemption of a debenture will
result in gain or loss to a U.S. Holder, which will be subject to tax. As
described above, our calculation of the comparable yield and the schedule of
projected payments for the debentures includes the receipt of shares of our
common stock upon conversion as a contingent payment with respect to the
debentures. Accordingly, we intend to treat the payment of shares of our common
stock to a U.S. Holder upon the conversion of a debenture as a contingent
payment under the CPDI regulations. As described above, U.S. Holders are
generally bound by our determination of the comparable yield and the schedule of
projected payments. Under this treatment, a conversion will also result in
taxable gain or loss to a U.S. Holder. The amount of gain or loss on a taxable
sale, exchange, conversion, repurchase or redemption will be equal to the
difference between (a) the amount of cash plus the fair market value of any
other property received by the U.S. Holder, including the fair market value of
any shares of our common stock received, reduced by any negative adjustment
carryforward as described above, and (b) the U.S. Holder's adjusted tax basis in
the debenture. A U.S. Holder's adjusted tax basis in a debenture on any date
will generally be equal to the U.S. Holder's original purchase price for the
debenture, increased by any interest income previously accrued by the U.S.
Holder under the CPDI regulations as described above (determined without regard
to any adjustments to interest accruals described above), and decreased by the
amount of any noncontingent payments and the projected amount of any contingent
payments, as described above, previously made on the debentures to the U.S.
Holder through such date (without regard to the actual amount paid).
Gain recognized upon a sale, exchange, conversion, repurchase or redemption of a
debenture will generally be treated as ordinary interest income. Any loss
recognized upon a sale, exchange, conversion, repurchase or redemption of a
debenture will be treated as an ordinary loss to the extent of the excess of
previous interest inclusions over the total negative adjustment previously taken
into account as ordinary loss, and thereafter, as capital loss (which will be
long-term if the debenture is held for more than one year). The deductibility of
capital losses is subject to limitations. Under Treasury regulations intended to
address so-called tax shelters and other tax-motivated transactions, a U.S.
Holder that recognizes a loss that meets certain thresholds upon the sale,
exchange, conversion, repurchase or redemption of a debenture may have to comply
with certain disclosure requirements and should consult its tax advisor.
A U.S. Holder's tax basis in shares of our common stock received upon a
conversion of a debenture will equal the fair market value of such common stock
at the time of conversion. The U.S. Holder's holding period for the shares of
our common stock received will commence on the day immediately following the
date of conversion.
59
CONSTRUCTIVE DIVIDENDS
If at any time we make a distribution of property to our stockholders that would
be taxable to the stockholders as a dividend for United States federal income
tax purposes and, in accordance with the anti-dilution provisions of the
debentures, the conversion rate of the debentures is increased, such increase
may be deemed to be the payment of a taxable dividend to U.S. Holders of the
debentures. For example, an increase in the conversion rate in the event of our
distribution of our debt instruments or our assets will generally result in
deemed dividend treatment to U.S. Holders of the debentures, but an increase in
the event of stock dividends or the distribution of rights to subscribe for our
common stock will generally not.
DIVIDENDS ON COMMON STOCK
If we make cash distributions on our common stock, the distributions will
generally be treated as dividends to a U.S. Holder of our common stock to the
extent of our current or accumulated earnings and profits as determined under
United States federal income tax principles at the end of the tax year of the
distribution, then as a tax-free return of capital to the extent of the U.S.
Holder's adjusted tax basis in the common stock, and thereafter as gain from the
sale or exchange of that stock. Under recently enacted tax legislation, eligible
dividends received in tax years beginning on or before December 31, 2008, will
be subject to tax to a non-corporate U.S. Holder at the special reduced rate
generally applicable to long-term capital gains. A U.S. Holder will be eligible
for this reduced rate only if the U.S. Holder has held our common stock for more
than 60 days during the 120-day period beginning 60 days before the ex-dividend
date. Although current law only provides a 120 day period for holding such
stock, a proposed technical correction to the law would extend such periods to
121 days. The Treasury Department and the IRS have announced that taxpayers may
apply the extended period as if the legislation were already enacted in filing
their federal income tax returns.
DISPOSITION OF COMMON STOCK
If you convert your debentures into our common stock, then upon the sale or
other taxable disposition of our common stock received on conversion of a
debenture, a U.S. Holder will generally recognize capital gain or loss equal to
the difference between (i) the amount of cash and the fair market value of any
property received upon the sale or exchange and (ii) the U.S. Holder's adjusted
tax basis in our common stock. That capital gain or loss will be long-term if
the U.S. Holder's holding period in respect of such debenture is more than one
year. The deductibility of capital losses is subject to limitations. Under
Treasury regulations intended to address so-called tax shelters and other
tax-motivated transactions, a U.S. Holder that recognizes a loss that meets
certain thresholds upon the sale or exchange of our common stock may have to
comply with certain disclosure requirements and should consult its tax advisor.
NON-U.S. HOLDERS
DEBENTURES
All payments on the debentures made to a Non-U.S. Holder, including a payment in
our common stock pursuant to a conversion, and any gain realized on a sale or
exchange of the debentures, will be exempt from United States income and
withholding tax, provided that: (i) such Non-U.S. Holder does not own, actually
or constructively, 10% or more of the total combined voting power of all classes
of our stock entitled to vote, (ii) such Non-U.S. Holder is not a controlled
foreign corporation related, directly or indirectly, to us through stock
60
ownership, (iii) such Non-U.S. Holder is not a bank receiving certain types of
interest, (iv) the beneficial owner of the debentures certifies, under penalties
of perjury, to us or our paying agent on IRS Form W-8BEN that it is a United
States person and provides its name, address and certain other required
information or certain other certification requirements are satisfied, (v) such
payments and gain are not effectively connected with the conduct by such
Non-U.S. Holder of a trade or business in the United States, and (vi) with
respect only to gain realized on a sale, exchange or conversion of the
debentures, our common stock continues to be actively traded within the meaning
of section 871(h)(4)(C)(v)(I) of the Code and we have not been a U.S. real
property holding corporation, as defined in the Code, at any time within the
five-year period preceding the disposition or the Non-U.S. Holder's holding
period, whichever is shorter. We believe that we have not been during the past
five years, are not, and do not anticipate becoming, a U.S. real property
holding corporation.
If a Non-U.S. Holder of a debenture were deemed to have received a constructive
dividend (see "--U.S. Holders--Constructive Dividends" above), however, the
Non-U.S. Holder would generally be subject to United States withholding tax at a
30% rate on the amount of such dividend (which withholding may be deducted from
the amount of interest otherwise payable to you), subject to reduction (i) by an
applicable treaty if the Non-U.S. Holder provides an IRS Form W-8BEN certifying
that it is entitled to such treaty benefits or (ii) upon the receipt of an IRS
Form W-8ECI from a Non-U.S. Holder claiming that the constructive dividend on
the debentures is effectively connected with the conduct of a United States
trade or business.
COMMON STOCK
Dividends paid to a Non-U.S. Holder of common stock will generally be subject to
withholding tax at a 30% rate subject to reduction (a) by an applicable treaty
if the Non-U.S. Holder provides an IRS Form W-8BEN certifying that it is
entitled to such treaty benefits or (b) upon the receipt of an IRS Form W-8ECI
from a Non-U.S. Holder claiming that the payments are effectively connected with
the conduct of a United States trade or business.
A Non-U.S. Holder will generally not be subject to United States federal income
tax on gain realized on the sale or exchange of the common stock received upon a
conversion of debentures unless (a) the gain is effectively connected with the
conduct of a United States trade or business of the Non-U.S. Holder or (b) in
the case of a Non-U.S. Holder who is a nonresident alien individual, the
individual is present in the United States for 183 or more days in the taxable
year of the disposition and certain other conditions are met, or (c) we will
have been a U.S. real property holding corporation at any time within the
shorter of the five-year period preceding such sale or exchange and the Non-U.S.
Holder's holding period in the common stock, provided that, so long as our stock
is regularly traded on an established securities market (within the meaning of
applicable Treasury regulations), clause (c) will not apply to you if you do not
beneficially own more than 5% of our common stock at any time during the
five-year period ending on the date of the disposition. We believe that we have
not been during the past five years, are not and do not anticipate becoming, a
U.S. real property holding corporation.
INCOME EFFECTIVELY CONNECTED WITH A UNITED STATES TRADE OR BUSINESS
If a Non-U.S. Holder of debentures or our common stock is engaged in a trade or
business in the United States, and if interest on the debentures, dividends on
our common stock, or gain realized on the sale, exchange, conversion or other
disposition of the debentures and gain realized on the sale or exchange of our
common stock is effectively connected with the
61
conduct of such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed in the preceding paragraphs, will generally be subject
to regular United States federal income tax on such interest, dividends or gain
in the same manner as if it were a U.S. Holder. In addition, if such a Non-U.S.
Holder is a foreign corporation, such holder may be subject to a branch profits
tax equal to 30% (or such lower rate provided by an applicable treaty) of its
effectively connected earnings and profits for the taxable year, subject to
certain adjustments.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments of interest or dividends made by us on, or the proceeds of the sale or
other disposition (including a redemption) of, the debentures or shares of
common stock may be subject to information reporting and United States federal
backup withholding tax at the current rate of 28% if the recipient of such
payment fails to supply an accurate taxpayer identification number or otherwise
fails to comply with applicable United States information reporting or
certification requirements. Any amount withheld under the backup withholding
rules is allowable as a credit against the holder's United States federal income
tax, provided that the required information is furnished to the IRS.
62
SELLING SECURITYHOLDERS
The following table sets forth information regarding the beneficial ownership of
our securities by the selling securityholders prior to this offering and the
respective amounts of offered securities offered by the selling securityholders
pursuant to this prospectus. This information has been obtained from the selling
securityholders and we have not independently verified this information. None of
the selling securityholders has, or within the past three years has had, any
position, office or other material relationship with us or, insofar as we are
aware, any of our predecessors or affiliates. Because the selling
securityholders may offer all or some portion of the offered securities pursuant
to this prospectus, no estimate can be given as to the amount of the debentures
or common stock that will be held by the selling securityholders upon
termination of this offering. In addition, the selling securityholders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their debentures or common stock since the date on which they
provided the information to us for inclusion in the following table.
--------------------------------------------------------------------------------------------------------
NUMBER OF
PRINCIPAL AMOUNT SHARES OF NUMBER OF
OF DEBENTURES PRINCIPAL AMOUNT COMMON STOCK SHARES OF
BENEFICIALLY OF DEBENTURES BENEFICIALLY COMMON STOCK
OWNED PRIOR TO OFFERED BY THIS OWNED PRIOR TO OFFERED BY THIS
NAME OF SELLING SECURITYHOLDER(1) THIS OFFERING PROSPECTUS THIS OFFERING(2) PROSPECTUS(2)
--------------------------------------------------------------------------------------------------------
Aftra Health Fund.............. $135,000 $135,000 7,627 7,627
Bay County Employees Retirement
System...................... 40,000 40,000 2,260 2,260
BNP Paribas Equity Strategies,
SNC......................... 3,111,000 3,111,000 175,802 175,802
Calamos Convertible Fund, Calamos
Investment Trust............ 7,000,000 7,000,000 395,569 395,569
Calyon Securities (USA) Inc. ... 3,000,000 3,000,000 169,491 169,491
CNH CA Master Account, L.P..... 1,000,000 1,000,000 56,497 56,497
CooperNeff Convertible Strategies
(Cayman) Master Fund LP..... 3,451,000 3,451,000 195,016 195,016
CQS Convertible and Quantitative
Strategies Master Fund
Limited..................... 750,000 750,000 42,373 42,373
Deutsche Bank Securities, Inc... 6,000,000 6,000,000 339,059 339,059
Fore Convertible Master Fund,
Ltd......................... 613,000 613,000 34,641 34,641
Fore Plan Asset Fund, Ltd...... 58,000 58,000 3,278 3,278
Guggenheim Portfolio Company VIII
(Cayman) Ltd................ 102,000 102,000 5,764 5,764
Lyxor/Convertible Arbitrage Fund
Limited..................... 578,000 578,000 32,663 32,663
Man Mac 1 Ltd.................. 227,000 227,000 12,828 12,828
63
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NUMBER OF
PRINCIPAL AMOUNT SHARES OF NUMBER OF
OF DEBENTURES PRINCIPAL AMOUNT COMMON STOCK SHARES OF
BENEFICIALLY OF DEBENTURES BENEFICIALLY COMMON STOCK
OWNED PRIOR TO OFFERED BY THIS OWNED PRIOR TO OFFERED BY THIS
NAME OF SELLING SECURITYHOLDER(1) THIS OFFERING PROSPECTUS THIS OFFERING(2) PROSPECTUS(2)
--------------------------------------------------------------------------------------------------------
MSD TCB, LP.................... 20,500,000 20,500,000 1,158,192 1,158,192
Mainstay Convertible Fund...... 1,625,000 1,625,000 91,808 91,808
Mainstay VP Convertible
Fund........................ 980,000 980,000 55,367 55,367
New York Life Insurance
Company..................... 2,447,000 2,447,000 138,249 138,249
Radcliffe SPC, Ltd............. 5,000,000 5,000,000 282,550 282,550
Singlehedge US Convertible
Arbitrage Fund.............. 722,000 722,000 40,800 40,800
Sturgeon Limited............... 638,000 638,000 36,053 36,053
United Overseas Bank (SGO)..... 42,000 42,000 2,373 2,373
United Overseas Bank (USA)..... 21,000 21,000 1,186 1,186
Vicis Capital Master Fund...... 400,000 400,000 22,599 22,599
Victus Capital, LP............. 1,600,000 1,600,000 90,395 90,395
All other holders of debentures
or shares of common stock
issued on conversion of
debentures and future
transferees, pledgees, donees
and successors thereof(3)... 54,960,000 54,960,000 3,105,084 3,105,084
Total....................... $115,000,000 $115,000,000 6,479,175(4) 6,479,175(4)
--------------------------------------------------------------------------------------------------------
(1) Information concerning the selling securityholders may change from time to
time. Any such changed information will be set forth in amendments or
supplements to this prospectus, if and when required.
(2) Unless otherwise indicated, includes all shares of common stock issuable
upon conversion of the debentures and assumes a conversion rate of 56.5099
shares of common stock per $1,000 principal amount of debentures and a cash
payment in lieu of any fractional share. However, this conversion price will be
subject to adjustment as described under "Description of the
debentures--Conversion rate adjustments." As a result, the number of shares of
common stock beneficially owned prior to this offering and the number of shares
of common stock offered hereby may increase or decrease in the future. Also
assumes that the debentures are convertible immediately. As described above
under "Description of the debentures--Conversion rights," the debentures are
convertible only in specified circumstances.
(3) Information concerning other selling securityholders will be set forth in
amendments or supplements to this prospectus, if required.
(4) Assumes that any other holders of debentures or shares of common stock
issuable on conversion of debentures and their respective transferees, pledgees,
donees and successors do not beneficially own any common stock other than the
common stock issued or issuable upon conversion of the debentures.
The debentures offered hereby were originally issued by us in a private offering
in June 2004. Pursuant to a purchase agreement that we and the initial
purchasers entered into in connection with that offering, the initial purchasers
agreed to offer and sell the debentures only to persons they reasonably believed
to be "qualified institutional buyers" within the meaning of Rule 144A under the
Securities Act. The selling securityholders, which term includes their
transferees, pledgees, donees and successors, may from time to time offer and
sell pursuant to this prospectus any or all of the offered securities.
64
PLAN OF DISTRIBUTION
The selling securityholders (including their transferees, pledgees, donees and
successors) may sell the offered securities from time to time directly to
purchasers or through broker-dealers or agents who may receive compensation in
the form of discounts, concessions or commissions from the selling
securityholders or the purchasers. If the offered securities are sold through
broker-dealers or agents, the selling securityholders will be responsible for
any discounts, concessions or commissions payable to those broker-dealers or
agents.
The offered securities may be sold in one or more transactions at:
-- fixed prices;
-- prevailing market prices at the time of sale;
-- varying prices determined at the time of sale; or
-- negotiated prices.
These sales may be effected in transactions, which may involve block
transactions:
-- on any national securities exchange or quotation service on which the
offered securities may be listed or quoted at the time of sale;
-- in the over-the-counter market; or.
-- otherwise than on such exchanges or services or in the
over-the-counter market
The selling securityholders also may loan or pledge the offered securities to
broker-dealers that in turn may sell those securities. The selling
securityholders also may transfer, donate and pledge offered securities, in
which case the transferees, donees, pledgees or other successors in interest
will be deemed selling securityholders for purposes of this prospectus.
The aggregate proceeds to the selling securityholders from the sale of the
offered securities offered by them will be the purchase price of such debentures
or common stock less discounts and commissions, if any, payable by them. Each of
the selling securityholders reserves the right to accept and, together with
their broker-dealers or agents from time to time, to reject, in whole or in
part, any proposed purchase of the offered securities to be made directly or
through broker-dealers or agents. We will not receive any of the proceeds from
the offering of the offered securities.
There is no public market for the debentures and we do not intend to apply for
listing of the debentures on any securities exchange or for quotation of the
debentures through any automated quotation system. The debentures are currently
designated for trading on the PORTAL market. However, once debentures are sold
by means of this prospectus, those debentures will no longer trade on the PORTAL
market. Our common stock is listed on The NASDAQ National Market under the
symbol "OATS."
In order to comply with the securities laws of some states, if applicable, the
offered securities may be sold in those jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the offered securities
may not be sold unless they have been registered
65
or qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
The selling securityholders may not sell any, or may sell less than all, of the
offered securities offered by them pursuant to this prospectus. In addition, any
selling securityholder may, to the extent permitted by applicable law, sell,
transfer, devise or gift the offered securities by means not described in this
prospectus. In that regard, any offered securities that qualify for sale
pursuant to Rule 144A or Rule 144 under the Securities Act may be sold under
that rule, if applicable, rather than pursuant to this prospectus.
The selling securityholders and any broker-dealers or agents that participate in
the distribution of the offered securities may be "underwriters" within the
meaning of Section 2(11) of the Securities Act. As a result, any profits on the
sale of the offered securities received by selling securityholders and any
discounts, commissions or concessions received by any such broker-dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. If the selling securityholders were deemed to be underwriters,
the selling securityholders could be subject to certain statutory liabilities
under the federal securities laws, including under Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.
The selling securityholders and any other persons participating in the
distribution of the offered securities will be subject to the Exchange Act. The
Exchange Act rules include, without limitation, Regulation M, which may limit
the timing of or prohibit the purchase and sale of debentures and shares of
common stock by the selling securityholders and any such other person. In
addition, under Regulation M, any selling securityholder or other person engaged
in the "distribution," within the meaning of Regulation M, of the offered
securities may not engage in market-making activities with respect to the
debentures or the common stock for certain periods prior to the commencement of
that distribution, unless, in the case of persons other than selling
securityholders, an applicable exemption is available under Regulation M. The
foregoing may affect the marketability of the offered securities and the ability
of any person or entity to engage in market-making activities with respect to
those securities.
In that regard, the selling securityholders acknowledge that they understand
their obligations to comply with the provisions of the Exchange Act and the
rules thereunder relating to stock manipulation, particularly Regulation M
thereunder (or any successor rules or regulations), in connection with the
offering made by this prospectus. Each selling securityholder agrees that
neither it nor any person acting on its behalf will engage in any transaction in
violation of such provisions.
To the extent required, the specific debentures or common stock to be sold, the
names of the selling securityholders, the respective purchase prices and public
offering prices, the names of any agent or broker-dealer, and any applicable
commissions or discounts with respect to a particular sale or other disposition
of offered securities pursuant to this prospectus will be set forth in a
supplement to this prospectus or, if appropriate, a post-effective amendment to
the shelf registration statement of which this prospectus is a part.
Pursuant to the registration rights agreements described above under
"Registration rights" and "Selling securityholders," we and the selling
securityholders have agreed, subject to exceptions, to indemnify each other
against specified liabilities, including liabilities under the Securities Act,
and may be entitled to contribution from each other in respect of those
liabilities.
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We will pay substantially all of the expenses incident to the offering and sale
of the offered securities pursuant to this prospectus, other than commissions,
fees and discounts payable to brokers-dealers or agents, fees and disbursements
of any counsel or other advisors or experts retained by the selling
securityholders and any documentary, stamp or similar issue or transfer tax.
Under the registration rights agreement, we may be required from time to time to
require holders of offered securities to discontinue the sale or other
disposition of those debentures and shares of common stock under specified
circumstances. See "Registration rights" above.
67
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon for us
by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the fiscal year ended December 27, 2003 have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the authority of said
firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Commission. You may read and copy any document that we file
at the Commission's public reference room facility located at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference room. Our Commission filings are
also available to the public from the Commission's Web site at www.sec.gov.
We incorporate by reference into this prospectus the documents listed below and
any future filings we make with the Commission under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act including any filings after the date of this
prospectus, until all of the offered securities to which this prospectus relates
have been sold or the offering is otherwise terminated. The information
incorporated by reference is an important part of this prospectus. Any statement
in a document incorporated by reference into this prospectus will be deemed to
be modified or superseded to the extent a statement contained in (1) this
prospectus or (2) any other subsequently filed document that is incorporated by
reference into this prospectus modifies or supersedes such statement. The
documents incorporated by reference herein include:
-- our annual report on Form 10-K for the fiscal year ended December 27,
2003;
-- our amendment on Form 10-K/A to our annual report on Form 10-K for
the fiscal year ended December 27, 2003;
-- our quarterly reports on Form 10-Q for the fiscal quarters ended
March 27, 2004 and June 26, 2004;
-- our current reports on Form 8-K filed February 6, 2004, March 15,
2004, May 25, 2004, May 26, 2004, June 2, 2004 and August 3, 2004;
-- our definitive proxy statement filed with the Commission for our
annual meeting of stockholders held on May 6, 2004;
-- the description of the rights as set forth on Form 8-A filed May 21,
1998; and
-- the description of our common stock as set forth on Form 8-A filed
October 17, 1996.
We will furnish without charge to you, on written or oral request, a copy of any
or all of the documents incorporated by reference, other than exhibits that are
specifically incorporated by reference into such documents. You should direct
any requests for documents to Wild Oats Markets, Inc., Attention: Chief
Financial Officer, 3375 Mitchell Lane, Boulder, Colorado 80301, Telephone: (303)
440-5220.
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$115,000,000
3.25% CONVERTIBLE SENIOR DEBENTURES DUE 2034
AND
THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THE DEBENTURES
(WILD OATS MARKETS, INC. LOGO)
------------------------
PROSPECTUS
------------------------
, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses, other than discounts,
commissions and concessions payable to broker-dealers and agents, in connection
with the offering and distribution of the securities being offered hereunder.
All amounts other than the filing fee for the registration statement are
estimates. All of these fees and expenses will be borne by the registrant.
-------------------------------------------------------------------------
Securities and Exchange Commission filing fee............... $
Printing fees and expenses..................................
Trustees' fees and expenses.................................
Legal fees..................................................
Accounting and auditor fees.................................
Miscellaneous...............................................
----------
Total.................................................... $
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ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation (the "DGCL") Law permits a
Delaware corporation to limit the personal liability of its directors in
accordance with the provisions set forth therein. The amended and restated
certificate of incorporation (the "Charter") of the registrant provides that the
personal liability of its directors shall be limited to the fullest extent
permitted by applicable law.
Section 145 of the DGCL permits Delaware corporations to indemnify directors,
officers, employees or agents against expenses, judgments and fines reasonably
incurred and against certain other liabilities in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person was or is a director, officer, employee or agent of the corporation. The
Charter and the Bylaws of the registrant provide for indemnification to the
fullest extent permitted by applicable law. The Charter limits the liability of
the registrant's directors for monetary damages for breaches of the directors'
fiduciary duty of care. In addition, the Charter requires the registrant to
indemnify its directors, officers, employees and agents serving at the
registrant's request against expenses, judgment (including derivative actions),
fines and amounts paid in settlement. This indemnification is limited to actions
taken in good faith in the reasonable belief that the conduct was lawful and in
or not opposed to the registrant's interests. The Bylaws provide for the
indemnification of directors and officers in connection with civil, criminal,
administrative or investigative proceedings when acting in their capacities as
agents of the registrant. In addition, the registrant has entered into
agreements with certain of its current and former directors and executive
officers that require the registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was our director or officer, provided
that such person's conduct was not knowingly fraudulent or deliberately
dishonest and did not constitute willful misconduct. Furthermore, pursuant to
the employment agreement between the registrant and its Chief Executive Officer,
Perry D. Odak, the registrant has agreed to indemnify Mr. Odak to the fullest
extent permitted under the DGCL, including an undertaking to advance
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litigation expenses. The registrant also maintains an officers and directors
liability insurance policy.
The foregoing may reduce the likelihood of a derivative litigation against the
registrant's directors and executive officers and may discourage or deter
stockholders or management from suing directors or executive officers for
breaches of their duty of care, even though such actions, if successful, might
otherwise benefit the registrant and its stockholders.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in
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the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(7) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
ITEM 16. EXHIBITS
--------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION OF EXHIBIT
--------------------------------------------------------------------------
4.1 Indenture, dated as of June 1, 2004, between Wild Oats
Markets, Inc. and U.S. Bank National Association, as
trustee.
4.2 Form of 3.25% Senior Convertible Debenture due 2034 of Wild
Oats Markets, Inc. (included in Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of June 1, 2004,
between Wild Oats Markets, Inc. and J.P. Morgan Securities
Inc., as representative of the initial purchasers of the
debentures.
4.4 Specimen of common stock, $0.001 par value, of Wild Oats
Markets, Inc. (incorporated by reference from the
Registration Statement on Form S-1 (File No. 333-11261) of
Wild Oats Markets, Inc. filed on August 30, 1996).
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as to
certain tax matters.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP.
24.1 Powers of Attorney (included in the signature page to this
registration statement).
25.1 Statement of Eligibility on Form T-1 of U.S. Bank National
Association, as trustee.
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* To be filed by amendment.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boulder, State of Colorado, on August 20, 2004.
WILD OATS MARKETS, INC.
By: /s/ PERRY D. ODAK
--------------------------------------
Name: Perry D. Odak
Title: Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby severally constitutes and
appoints Edward F. Dunlap and Freya R. Brier, and each of them singly, as his or
her true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him or her and in his or her name, place and stead, and
in any and all capacities to sign any and all amendments (including
pre-effective and post-effective amendments) to this registration statement, and
to file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
-------------------------------------------------------------------------------------------
SIGNATURE TITLE DATE
-------------------------------------------------------------------------------------------
/s/ PERRY D. ODAK Chief Executive Officer and August 20, 2004
-------------------------------------- Director (Principal Executive
(Perry D. Odak) Officer)
/s/ EDWARD F. DUNLAP Chief Financial Officer and August 20, 2004
-------------------------------------- Senior Vice President,
(Edward F. Dunlap) Operations (Principal
Financial and Accounting
Officer)
/s/ JOHN A. SHIELDS Director August 20, 2004
--------------------------------------
(John A. Shields)
/s/ DAVID M. CHAMBERLAIN Director August 20, 2004
--------------------------------------
(David M. Chamberlain)
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-------------------------------------------------------------------------------------------
SIGNATURE TITLE DATE
-------------------------------------------------------------------------------------------
/s/ STACEY BELL Director August 20, 2004
--------------------------------------
(Stacey Bell)
/s/ BRIAN K. DEVINE Director August 20, 2004
--------------------------------------
(Brian K. Devine)
/s/ ANN-MARIE AUSTIN-STEPHENS Director August 20, 2004
--------------------------------------
(Ann-Marie Austin-Stephens)
/s/ DAVID GALLITANO Director August 20, 2004
--------------------------------------
(David Gallitano)
/s/ MARK RETZLOFF Director August 20, 2004
--------------------------------------
(Mark Retzloff)
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