Filed Pursuant to Rule 424(b)(3)
Registration No. 333-108468
DAVE & BUSTER'S, INC.
$30,000,000 OF 5% CONVERTIBLE SUBORDINATED NOTES DUE 2008
WARRANTS TO PURCHASE 522,546 SHARES OF COMMON STOCK
This prospectus relates to $30,000,000 aggregate principal amount of 5%
Convertible Subordinated Notes due 2008 of Dave & Buster's, Inc. and warrants to
purchase 522,446 shares of common stock of Dave & Buster's, Inc. that may be
offered and sold from time to time by certain holders (the "Selling Holders") of
the notes and warrants, as well as the shares of common stock issuable upon
conversion of the notes and exercise of the warrants. We will not receive any
proceeds from sales of the notes and warrants by the Selling Holders. We have
agreed to bear certain expenses in connection with the registration of the
securities being offered and sold by the Selling Holders.
We originally issued the notes and warrants on August 7, 2003 at an
issue price of $1,000 per $1,000 principal amount of the notes. For each $1,000
in principal amount of the notes issued, we issued warrants to purchase
17.414867 shares of common stock. Each warrant represents the right to purchase
one share of our common stock.
Our common stock is traded on the New York Stock Exchange under the
symbol "DAB". The last reported sale price of our common stock on the New York
Stock Exchange on September 10, 2003 was $10.70 per share.
INVESTING IN THE NOTES, WARRANTS AND COMMON STOCK OF THE COMPANY
INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is September 11, 2003
INCORPORATION OF DOCUMENTS BY REFERENCE
We "incorporate by reference" into this prospectus certain information
we file with the SEC, which means that we can disclose important information to
you by referring to another document filed separately with the SEC. The
information that we file after the date of this prospectus with the SEC will
automatically update and supercede this information. We incorporate by reference
into this prospectus the documents listed below:
1. Our annual report on Form 10-K for the year ended February 2,
2003;
2. Our definitive proxy statement for our 2003 annual meeting of
stockholders, filed on May 6, 2003;
3. Our quarterly report on Form 10-Q for the quarter ended May 4,
2003; and
4. Our current reports on Form 8-K, filed on March 10, 2003,
March 24, 2003 and August 7, 2003.
5. All documents we file with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act from the date of this
prospectus to the end of the offering of the notes, warrants
and common stock under this prospectus shall also be deemed to
be incorporated herein by reference and will automatically
update information in this prospectus.
All information incorporated by reference is part of this prospectus,
unless and until that information is updated and superseded by the information
contained in this prospectus or any information incorporated later. Any
information that we subsequently file with the Commission that is incorporated
by reference will automatically update and supersede any previous information
that is part of this prospectus.
You may request a copy of the documents incorporated by reference in
this prospectus, other than exhibits which are not specifically incorporated by
reference into such document, and our certificate of incorporation and bylaws,
at no cost by writing or telephoning us at the following:
Dave & Buster's, Inc.
2481 Manana Drive
Dallas, Texas 75220
Telephone: 214-357-9588
Attention: Investor Relations
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and current reports, proxy statements and
other information with the SEC.
You may read and copy this information at the following locations of
the SEC:
Public Reference Room Midwest Regional Office
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W. Room 1024, Washington, D.C.
20549, at prescribed rates.
The SEC also maintains a Web site that contains reports, proxy
statements and other information about issuers, like us, who file electronically
with the SEC. The address of the site is www.sec.gov.
You can also inspect reports, proxy statement and other information
about us at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York, 10005.
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FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates statements that are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements in this prospectus, other than
statements of historical fact, that address activities, events or developments
that we expect or anticipate may occur in the future, including statements
regarding our future economic performance, restaurant openings, operating
margins, the availability of acceptable real estate locations for new
restaurants, and the sufficiency of our cash balances and cash generated from
operating and financing activities for our future liquidity and capital
resources needs, may be considered forward-looking statements. Also, when we use
words such as "anticipate", "believe", "estimate", "expect", "intend", "plan",
"probably" or similar expressions, we are making forward-looking statements.
These forward-looking statements are based on assumptions concerning
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, could cause actual results to differ materially
from those expressed in the forward-looking statements. These risks and
uncertainties include, but are not limited to:
- - our ability to open new high-volume restaurant/entertainment complexes;
- - our ability to raise and access sufficient capital in the future;
- - changes in consumer preferences, general economic conditions or
consumer discretionary spending;
- - the outbreak or continuation of war or other hostilities involving the
United States;
- - potential fluctuation in our quarterly operating results due to
seasonality and other factors;
- - the continued service of key management personnel;
- - our ability to attract, motivate and retain qualified personnel;
- - the impact of federal, state or local government regulations relating
to our personnel or the sale of food or alcoholic beverages;
- - the impact of litigation;
- - the effect of competition in our industry;
- - additional costs associated with compliance with the Sarbanes-Oxley Act
and related regulations and requirements;
- - labor shortages or increased labor charges; and
- - our ability to protect our name and logo and other proprietary
information.
Some of these and other risks and uncertainties that could cause actual
results to differ materially from such forward-looking statements are more fully
described under the heading "Risk Factors-Risks Related to Our Business"
beginning on page 6 of this prospectus and elsewhere in this prospectus or in
the documents incorporated by reference in this prospectus. Except as may be
required by applicable law, we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
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PROSPECTUS SUMMARY
The following summary contains basic information about us and this
offering. It likely does not contain all the information that is important to
you. For a more complete understanding of this offering, we encourage you to
read this entire document and the documents to which we have referred you.
THE COMPANY
Dave & Buster's is a leading operator of entertainment complexes
("ECs"). For the last twenty years, we have successfully operated our ECs under
the Dave & Buster's name. Each EC offers an extensive array of entertainment
attractions such as pocket billiards, shuffleboard, state-of-the-art interactive
simulators and virtual reality systems, plus traditional carnival-style games of
skill. In addition, our complexes offer a full menu of high quality food and
beverages. The layout of our ECs is designed to promote easy access to, and
maximize customer crossover between, the multiple entertainment and dining areas
within each Dave & Buster's. We believe that the availability of multiple
attractions in one large facility, the high quality food, beverages and service
each EC offers, and our commitment to casual, yet sophisticated fun for adults
synergistically drive repeat usage of our complexes and differentiate us from
other regional entertainment offerings.
We operate 32 ECs across the United States, with an average age of 5.1
years per location. Our ECs can be separated into two categories: mega
complexes, which are typically between 50,000 and 70,000 square feet in size,
and intermediate complexes, which are typically between 40,000 and 49,000 square
feet in size.
As a result of our focus on providing customers with a differentiated
entertainment offering, a significant portion of our ECs is dedicated to
amusements. Our ECs operate seven days a week and are typically open from 11:30
a.m. to 12:00 a.m. on weekdays and 11:30 a.m. to 2:00 a.m. on weekends.
Attractions in all of our ECs are geared toward promoting high levels of
customer participation. Attractions include traditional games, like pocket
billiards and shuffleboard tables, and a broad selection of interactive,
high-energy amusements such as electronic, skill and sports-oriented games in
what we call our Million Dollar Midway area. We believe the Million Dollar
Midway, which is the largest component of our ECs, is a significant reason why
we are able to generate high levels of repeat customers.
Approximately 13.2% of our 2002 revenues were from private parties,
business gatherings and sponsored events. Each EC has a Show Room and other
special event rooms that are designed for hosting these types of functions. This
portion of our business is significant and important to us in that our research
indicates that approximately 30% of the people attending such events are
experiencing Dave & Buster's for the first time. We believe this is a very
effective way to introduce our concept to a broad group of potential new
customers.
In order to better serve the needs of our customers, we provide full,
sit-down food service not only in the restaurant areas, but also throughout the
entire EC. Our menu places special emphasis on quality, well-rounded meals,
including gourmet pastas, steaks, seafood, chicken, sandwiches, salads and an
outstanding selection of desserts. We update our menus to reflect current trends
and guest favorites. Each EC offers full bar service throughout the
entertainment and restaurant areas, including over 50 different beers, an
extensive selection of wine and spirits plus a variety of non-alcoholic
beverages.
Our principal corporate office is located at 2481 Manana Drive, Dallas,
Texas, 75220, and our telephone number is 214-357-9588.
THE OFFERING
Issuer Dave & Busters, Inc.
Securities offered:
Notes $30,000,000 aggregate principal amount of 5% Convertible
Subordinated Notes due 2008, referred to in this
prospectus as the notes. We issued the notes under an
indenture between us and The Bank of New York, as trustee.
Warrants Warrants to purchase 522,546 shares of our common stock,
referred to in this prospectus as the warrants.
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Common Stock
Common stock issuable upon conversion of the notes and
exercise of the warrants
Notes
Interest The notes will bear interest at an annual rate of 5%.
Interest is payable semi-annually on February 15 and
August 15, beginning on February 15, 2004.
Maturity Date August 7, 2008.
Conversion at The notes are convertible at the option of the holder any
Holder's Option time prior to maturity into shares of our common stock at
an initial conversion price of $12.92 per share, subject
to adjustment upon certain events. If a holder elects to
convert any notes prior to August 7, 2005, we will make an
additional payment, in cash, with respect to the notes
converted in an amount equal to $50 per $1,000 principal
amount of the notes (representing approximately two
interest payments).
Optional At any time on or after August 7, 2006, we may redeem some
Redemption or all of the notes at par plus accrued and unpaid
interest to, but excluding, the redemption date.
Repurchase at A holder may require us to repurchase its notes in cash,
Holder's Option upon certain events, including a change in control event
or if our common stock is no longer traded on a national
exchange, at a price equal to (1) 115% of the principal
amount of the notes, if the repurchase event occurs prior
to or on August 7, 2004, (2) 110% of the principal amount
of the notes, if the repurchase event occurs after August
7, 2004, but prior to or on August 7, 2006, and (3) 105%
of the principal amount of the notes, if the repurchase
event occurs after August 7, 2006, but prior to or on
August 7, 2008, together, in each case, with accrued
interest to the repurchase date.
Subordination The notes are subordinated in right of payment to our
existing and future senior indebtedness and are
effectively subordinated to all existing and future
indebtedness or other liabilities of our subsidiaries. As
of May 4, 2003, we had approximately $64 million in senior
indebtedness outstanding.
Warrants:
Exercise Each warrant is exercisable for one share of our common
stock, initially at an exercise price of $13.46 per share,
subject to adjustment upon certain events.
Termination of At any time after August 7, 2006, if the closing price of
Warrants at our our common stock exceeds 150% of the then effective
Option exercise price for any 15 out of 20 consecutive trading
days, we may terminate the warrants. If we elect to
terminate the warrants, we may only do so if, within 10
days after the end of such 20-day period, we mail a notice
of termination to you. If we mail this notice, the
warrants will expire 90 days after the mailing date of the
notice of termination. Any unexercised warrants as of the
date of termination will automatically be deemed exercised
in full pursuant to a cashless exercise.
Expiration The warrants are exercisable at any time on or before
August 7, 2008, unless earlier terminated by us as
described above.
Registration We have agreed to file with the Commission a shelf
Rights registration statement of which this prospectus is a part
covering the resale of the notes, warrants and shares of
our common stock issuable upon conversion of the notes and
exercise of the warrants within 30 days of the first
issuance date of the notes and warrants and to use
reasonable efforts to cause the shelf registration
statement to become effective within 90 days of the first
issuance date of the notes and warrants, or within 120
days of the first issuance date if the filing is reviewed
by the Commission. We will be required to pay certain
"Registration Delay Payments" if these deadlines are not
met or the shelf registration statement is otherwise
unavailable for the resale of the securities. You should
read the registration rights agreement for a description
of how we will calculate the Registration Delay Payments.
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Federal Tax The notes will be deemed to be issued with "original issue
Consequences discount," a portion of which will be included in a
holder's gross income in advance of the receipt of cash
interest payments on the notes. For a more complete
discussion of original issue discount and other tax
considerations concerning the notes and the warrants, see
"Certain U.S. Federal Income Tax Considerations."
Trading There is no public market for the notes or the warrants
and we do not intend to list any of the notes or the
warrants for trading on any national securities exchange
or for inclusion in any automated quotation system. No
assurance can be given as to whether any market for the
notes or the warrants will develop. Our common stock is
currently traded on the New York Stock Exchange under the
symbol "DAB".
RISK FACTORS
An investment in the notes, warrants and common stock involves a number
of risks. Please carefully read the information below, as well as the section
entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended
February 2, 2003, which is incorporated in this prospectus by reference, which
discusses certain factors that you should consider before you make a decision to
invest in our company.
RISKS RELATED TO OUR BUSINESS
Our results of operations are dependent upon consumer discretionary spending.
Our results of operations are dependent upon discretionary spending by
consumers, particularly by consumers living in communities in which the ECs are
located. A significant weakening in any of the local economies in which we
operate may cause our customers to curtail discretionary spending, which in turn
could materially affect our profitability. Our operations during fiscal 2001
were adversely affected by a number of factors, including the overall decline in
the U.S. economy and levels of consumer spending. Additionally, the terrorist
attacks that took place in the United States on September 11, 2001 were
unprecedented events that created economic and business uncertainties,
especially for consumer spending. The military presence in Iraq, potential for
future terrorist attacks, the national and international responses, and other
acts of war or hostility may create economic and political uncertainties that
could materially adversely affect our business, results of operations and
financial condition in ways we currently cannot predict. In addition,
seasonality is a factor in our results of operations due to typically lower
third quarter revenues in the fall season and higher fourth quarter revenues
associated with the year-end holidays.
We operate a small number of ECs and new ECs require significant investment.
As of February 2, 2003, we operated 32 ECs. The combination of the
relatively small number of locations and the significant investment associated
with each new EC may cause our operating results to fluctuate significantly. Due
to this relatively small number of locations, poor results of operations at any
single EC could materially affect our profitability. Historically, new ECs
experience a drop in revenues after their first year of operation, and we do not
expect that, in subsequent years, any increases in comparable revenues will be
meaningful. Additionally, because of the substantial up-front financial
requirements to open new ECs, the investment risk related to any single EC is
much larger than that associated with most other companies' restaurant or
entertainment venues.
We may not be able to compete favorably in the highly competitive out-of-home
entertainment market.
The out-of-home entertainment market is highly competitive. There are a
great number of businesses that compete directly and indirectly with us. Many of
these entities are larger and have significantly greater financial resources and
a greater number of units than we have. Although we believe most of our
competition comes from localized single attraction facilities that offer a
limited entertainment package, we may encounter increased competition in the
future, which may have an adverse effect on our profitability. In addition, the
legalization of casino gambling in geographic areas near any current or future
EC would create the possibility for entertainment alternatives, which could have
a material adverse effect on our business.
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Our operations are subject to many government regulations that could affect our
operations.
Various federal, state and local laws and permitting and license
requirements affect our business, including alcoholic beverage control,
amusement, health and safety and fire agencies in the state, county or
municipality in which each EC is located. For example, each EC is required to
obtain a license to sell alcoholic beverages on the premises from a state
authority and, in certain locations, county and municipal authorities. The
failure to receive or retain a liquor license, or any other required permit or
license, in a particular location, or to continue to qualify for or renew our
licenses, could adversely affect our operations and our ability to obtain such a
license or permit in other locations. The failure to comply with other
applicable federal, state or local laws, such as federal and state minimum wage
and overtime pay laws, may also adversely affect our business.
We may face difficulties in attracting and retaining qualified employees for our
ECs.
The operation of our business requires qualified executives, managers
and skilled employees. From time to time there may be a shortage of skilled
labor in certain of the communities in which our ECs are located. While we
believe that we will continue to be able to attract, train and retain qualified
employees, shortages of skilled labor will make it increasingly difficult and
expensive to attract, train and retain the services of a satisfactory number of
qualified employees.
Our growth depends upon our ability to open new ECs.
We opened one new EC in fiscal 2002. Our ability to expand depends upon
our obtaining necessary lender consents, obtaining access to sufficient capital,
locating and obtaining appropriate sites, hiring and training additional
management personnel, and constructing or acquiring, at reasonable cost, the
necessary improvements and equipment for these complexes. We have not opened any
new ECs in fiscal 2003. Based on our current liquidity and capital resources and
operating performance, we may not be able to generate sufficient cash flow or
obtain sufficient additional funding to open any new complexes in fiscal 2004 or
thereafter. In particular, the capital resources required to develop each new EC
are significant. Our ability to open new ECs is also subject to any limitations
imposed by our banking group and applicable credit facilities. There is no
assurance that we will be able to expand or that new ECs, if developed, will
perform in a manner consistent with our most recently opened ECs or make a
positive contribution to our operating performance.
Local conditions, events and natural disasters could adversely affect our
business.
Certain of the regions in which our ECs are located, including five in
California, have been, and may in the future be, subject to adverse local
conditions, events or natural disasters, such as earthquakes. Depending upon its
magnitude, an earthquake could severely damage our ECs, which could adversely
affect our business and operations. We currently maintain earthquake insurance
through our aggregate property policy for each of our ECs. However there is no
assurance that our coverage will be sufficient if there is a major earthquake.
In addition, upon the expiration of our current policies, we cannot assure you
that adequate coverage will be available at economically justifiable rates, if
at all.
RISKS RELATED TO THE NOTES AND WARRANTS
The notes are subordinated in payment to our existing credit facility and any
future senior debt incurred by us.
The notes are our general unsecured obligations and are subordinate in
right of payment to all of our existing debt and any future debt that we incur
that is not specifically pari passu or subordinated to the notes. In the event
of our bankruptcy, liquidation or reorganization or upon acceleration of the
notes due to an event of default, our assets will be available to pay
obligations on the notes only after all senior debt has been paid. As a result,
there may not be sufficient assets remaining to pay amounts due on any or all of
the outstanding notes. In addition, we will not make any payments on the notes
in the event of payment defaults on any future senior debt financing that we may
incur. As of May 4, 2003, we had approximately $64 million of senior
indebtedness outstanding to which the notes would have been effectively
subordinated. The notes are effectively subordinated to the liabilities of our
subsidiaries.
There is no trading market for the notes and warrants.
There is not presently a trading market for the notes and warrants.
Neither the notes nor the warrants will be listed
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on any securities exchange or included in any automated quotation system.
We may not have sufficient funds to purchase the notes when we are required to
do so under the terms of the notes.
We may not have the funds necessary to purchase the notes at the option
of the holders upon certain repurchase events, including a change in control. If
a repurchase event were to occur, we may not have sufficient funds to pay the
purchase price for all tendered notes, or restrictions in our outstanding debt
would not allow those purchases.
The events that require us to repurchase the notes are not the only events that
could have a negative impact on us or the value of an investment in the notes.
We are only obligated to offer to repurchase the notes upon certain
specified repurchase events. There may be other events that could hurt our
financial condition that would not entitle the holders of notes to have the
notes repurchased by us.
The notes have been issued with original issue discount.
The notes have been issued with "original issue discount" for U.S.
federal income tax purposes. As a result, each initial U.S. holder of notes will
be required to include certain amounts in income for federal income tax purposes
as they accrue before the receipt of cash attributable to such income,
regardless of such holder's regular method of accounting. See below under
"Certain U.S. Federal Tax Considerations-U.S. Holders-Original Issue Discount."
RISKS RELATED TO OUR COMMON STOCK
The market price of our common stock may fluctuate due to a number of factors
that we do not control. The value of your investment could decrease even if our
operations are otherwise successful.
Fluctuations in operating results may cause the market price of our
stock to decline. Fluctuations in our results depend on a number of factors,
many of which are beyond our control, including the following: adverse weather
or poor economic conditions, particularly during the fall, winter and spring
when our sales have been historically higher in most of our ECs; timing of new
EC openings and related expenses; operating costs for our newly-opened ECs,
which are often materially greater during the first several months of operations
than thereafter; labor availability and costs for hourly and management
personnel; profitability of our ECs; increases and decreases in comparable
sales; general economic conditions; changes in consumer preference and
competitive conditions; and fluctuations in commodity prices.
USE OF PROCEEDS
We will not receive any proceeds from sales of the notes, warrants or
shares of common stock sold from time to time under this prospectus by the
Selling Holders.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the actual ratio of earnings to fixed
charges of Dave & Buster's, Inc. and our subsidiaries for the thirteen weeks
ended May 4, 2003 and each of our fiscal years 1999 through 2003 and the pro
forma ratio of earnings to fixed charges for our 2003 fiscal year and the
thirteen weeks ended May 4, 2003 giving effect to the issuance of the notes,
assuming the notes were issued at the beginning of each period presented.
Thirteen
Weeks
Ended
Fiscal Year Ended May 4,
1999 2000 2001 2002 2003 2003
-------------------------------------------------------------------------------------------
Actual 5.47 2.55 2.18 1.72 1.48 2.11
Pro forma 1.38 2.10
The ratio of earnings to fixed charges represents the number of times
"fixed charges" are covered by "earnings." "Fixed charges" consist of interest
expense, amortization of debt issuance costs, capitalized interest and the
portion of rental expense representing our estimate of interest included in
rental payments made under operating leases. "Earnings" consist of income before
income taxes and cumulative effect of a change in accounting principle and
before fixed charges, excluding capitalized interest.
The pro forma ratio of earnings to fixed charges gives effect to the
issuance of the notes and the use of the net proceeds from the issuance to
reduce our senior indebtedness.
DESCRIPTION OF THE NOTES
We issued the notes under an indenture, dated as of August 7, 2003,
between us and The Bank of New York, a New York banking corporation, as trustee.
Initially, The Bank of New York also acts as paying agent, conversion agent and
calculation agent for the notes. The terms of the notes include those provided
in the indenture and those provided in the securities purchase agreement and
registration rights agreement, each of which we entered into with the initial
purchasers of the notes.
The following description is only a summary of the material provisions
of the notes and the indenture. The form of note, the indenture, the securities
purchase agreement and registration rights agreement are filed as exhibits to
the registration statement of which this prospectus is a part. We urge you to
read these documents in their entirety because they, and not this description,
define your rights as holders of the notes.
When we refer to "Dave & Buster's", "we", "our" or "us" in this
section, we refer only to Dave & Buster's, Inc., a Missouri corporation, and not
its subsidiaries.
GENERAL
The notes:
- are $30,000,000 in aggregate principal amount;
- were issued only in registered form, without coupons, in
denominations of $1,000 principal amount at maturity and
integral multiples of $1,000;
- are general unsecured obligations of Dave & Buster's, ranking
equally with all of our other obligations that are unsecured
and unsubordinated; as indebtedness of Dave & Buster's, the
notes are effectively subordinated to all indebtedness and
liabilities of our subsidiaries;
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- are convertible into our common stock initially at a
conversion price of $12.92 per share, under the conditions and
subject to such adjustments as are described under
"-Conversion Rights";
- are redeemable at our option in whole or in part beginning on
August 7, 2006 upon the terms set forth under "-Optional
Redemption by Us";
- are subject to repurchase by us at the holder's option upon a
change in control of Dave & Buster's or in the event our
common stock is no longer traded on a national securities
exchange, upon the terms and at the repurchase prices set
forth below under "-Repurchase of Notes at the Option of
Holders"; and
- mature on August 7, 2008, unless earlier converted, redeemed
by us at our option or repurchased by us at your option.
The notes bear interest at the annual rate shown on the cover page of
this prospectus. Interest accrues on the notes from August 8, 2003. Interest
will be paid on each February 15 and August 15 of each year, beginning on
February 15, 2004 subject to limited exceptions if the notes are converted,
redeemed or repurchased prior to an interest payment date. The record dates for
payment of interest are February 1 and August 1. Interest is computed on the
basis of a 360-day year consisting of twelve 30-day months.
No sinking fund is provided for the notes, and the notes will not be
subject to defeasance.
You may present definitive notes for conversion, registration of
transfer and exchange at our office or agency in New York City, which shall
initially be the principal corporate trust office of the trustee currently
located at The Bank of New York, 101 Barclay Street, Floor 8W, New York, New
York 10286, Attention: Corporate Trust Administration. For information regarding
conversion, registration of transfer and exchange of global notes, see "-Form,
Denomination and Registration." No service charge will be made for any
registration of transfer or exchange of notes, but we may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
CONVERSION RIGHTS
General
A holder may convert any outstanding notes at any time prior to
maturity into our common stock at an initial conversion price of $12.92 per
share of common stock. The conversion price is subject to adjustment as
described below. We will not issue fractional shares of common stock upon
conversion of the notes. Instead, we will pay the cash value of such fractional
share based upon the sale price of our common stock on the business day
immediately preceding the conversion date. A holder may convert notes only in
denominations of $1,000 principal amount at maturity and integral multiples of
$1,000.
If a holder delivers a notice regarding its election to require us to
repurchase its notes following the occurrence of a repurchase event as described
under "Repurchase of Notes at Option of Holders," the holder may convert such
notes only if the holder withdraws such repurchase notice by delivering a
written notice of withdrawal to us prior to the close of business on the last
business day prior to the day fixed for repurchase.
If a holder exercises the right of conversion prior to August 7, 2005,
we will make an additional payment in cash to the holder with respect to the
notes converted in an amount equal to $50.00 per each $1,000 principal amount of
notes converted.
We will pay in cash, on any note or portion of a note surrendered for
conversion during the period from the close of business on any interest payment
date to which interest has been fully paid through the close of business on the
business day preceding the record date for the next such interest payment date,
accrued and unpaid interest, if any, on the note or portion thereof surrendered
for conversion to, but excluding, the date of conversion. Any such payment of
interest will be made with respect to such note within ten business days after
the conversion date. However, any note or portion of a note surrendered for
conversion during the period from the close of business on the record date for
any interest payment date through the close of business on the business day next
preceding such interest payment date shall (unless such note or portion of a
note being
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converted shall have been called for redemption or shall have become due prior
to such interest payment date as a result of a repurchase event) be accompanied
by payment, in immediately available funds or other funds acceptable to us, of
an amount equal to the interest otherwise payable on such interest payment date
on the principal amount being converted; provided, however, that no such payment
need be made if there shall exist at the time of conversion a default in the
payment of interest on the notes.
Some of the holders of notes have agreed that their notes contain an
additional limitation on their right to convert the notes. If a holder has
agreed to this limitation, such holder may not convert its notes in excess of
the principal amount of notes upon the conversion of which the number of shares
of common stock beneficially owned by such holder would be equal to or exceed
9.99% of the number of shares of our common stock then issued and outstanding
after giving effect to such conversion. Some of these holders have further
elected that the 9.99% threshold described above be lowered to 4.99% as to any
notes held by them. You should examine the form of notes being purchased to
determine whether or not the limitation described in this paragraph has been
selected by the original holder of such notes.
Conversion Procedures
A holder will not be required to pay any taxes or duties relating to
the issuance or delivery of our common stock if the holder exercises its
conversion rights, but will be required to pay any tax or duty which may be
payable relating to any transfer involved in the issuance or delivery of the
common stock in a name other than the holder's. Certificates representing shares
of common stock will be issued or delivered only after all applicable taxes and
duties, if any, payable by the holder have been paid.
To convert a definitive note, a holder must:
- complete the conversion notice on the back of the notes (or a
facsimile thereof);
- deliver the completed conversion notice and the notes to be
converted to the specified office of the conversion agent,
which initially is The Bank of New York; and
- pay all taxes or duties, if any, as described in the preceding
paragraph.
To convert interests in a global note, a holder must deliver to Depositary Trust
Company the appropriate instruction form for conversion.
The conversion date will be the date on which all of the foregoing
requirements have been satisfied. The notes will be deemed to have been
converted immediately prior to the close of business on the conversion date. A
certificate for the number of shares of common stock into which the notes are
converted (and cash in lieu of any fractional shares) will be delivered to the
converting holder as soon as practicable on or after the conversion date.
Conversion Rate Adjustments
We will adjust the conversion rate if any of the following events
occur:
(1) we issue common stock as a dividend or distribution
on our common stock;
(2) we issue to all holders of common stock specified
rights or warrants to purchase our common stock;
(3) we subdivide or combine our common stock;
(4) we distribute to all holders of our common stock
capital stock, evidences of indebtedness or assets,
including securities but excluding:
- rights or warrants listed in (2) above;
- dividends or distributions listed in (1)
above; and
- cash distributions.
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To the extent that we continue, at the time of conversion of notes, to
have a rights plan in effect, a holder will receive, in addition to the common
stock, the rights under the rights plan whether or not the rights have separated
from the common stock at the time of conversion, subject to limited exceptions.
In the event of:
- any reclassification of our common stock;
- a consolidation, merger, binding share exchange or combination
involving us; or
- a sale or conveyance to another person or entity of all or
substantially all of our property or assets;
in which holders of common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon
conversion of its notes , a holder will be entitled to receive the same type of
consideration which the holder would have been entitled to receive if the holder
had converted the notes into our common stock immediately prior to any of these
events.
We will not be required to make an adjustment in the conversion rate
unless the adjustment would require a change of at least one percent in the
conversion rate. However, we will carry forward any adjustments that are less
than one percent of the conversion rate. Except as described above in this
section, we will not adjust the conversion rate for any issuance of our common
stock or convertible or exchangeable securities or rights to purchase our common
stock or convertible or exchangeable securities.
OPTIONAL REDEMPTION BY US
Prior to August 7, 2006, the notes will not be redeemable at our
option. Beginning on August 7, 2006, we may redeem the notes for cash at any
time as a whole, or from time to time in part, at a redemption price equal to
the issue price of the notes plus accrued and unpaid interest, if any, to the
redemption date. We will give at least 30 days but not more than 90 days notice
of redemption by mail to holders of notes. Notes or portions of notes called for
redemption will be convertible by the holder until the close of business on the
last business day prior to the redemption date, unless we fail to pay all
amounts due on redemption.
If we do not redeem all of the notes, the trustee will select the notes
to be redeemed in principal amounts at maturity of $1,000 or integral multiples
of $1,000, by lot or on a pro rata basis. If any notes are to be redeemed in
part only, we will issue a new note or notes with a principal amount at maturity
equal to the unredeemed principal at maturity portion of the notes. If a portion
of a holder's notes is selected for partial redemption and the holder converts a
portion of its notes, the converted portion will be deemed to be taken from the
portion selected for redemption.
REPURCHASE OF NOTES AT OPTION OF HOLDERS
If a "repurchase event," as described below, occurs, a holder will have
the right (subject to some exceptions set forth below) to require us to
repurchase all of its notes not previously called for redemption, or any portion
of those notes that is equal to $1,000 in principal amount at maturity or
integral multiples of $1,000. If the repurchase event occurs (1) prior to or on
August 7, 2004, such repurchase shall be made in cash at a price equal to 115%
of the principal amount of notes the holder elects to require us to repurchase,
(ii) after August 7, 2004 but prior to or on August 7, 2006, such repurchase
shall be made in cash at a price equal to 110% of the principal amount of notes
the holder elects to require us to repurchase and (iii) after August 7, 2006,
but prior to or on August 7, 2008, such repurchase shall be made in cash at a
price equal to 105% of the principal amount of notes the holder elects to
require us to repurchase, together, in each case, with accrued interest, if any,
to the applicable repurchase date.
Unless we have previously called for redemption all of the outstanding
notes and deposited or set aside an amount of money sufficient to redeem such
notes on the redemption date, on or before the fifth business day following the
occurrence of a repurchase event, we or the trustee will mail to the holders
notice of the occurrence of the repurchase event and of your repurchase right
arising as a result. We will issue a press release with respect to such
repurchase event and also deliver a copy of such notice of a repurchase right to
the Trustee.
To exercise a repurchase right, a holder must deliver to the Trustee
within 35 days after the repurchase event written
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notice of the exercise of such right, together with the notes with respect to
which the repurchase right is being exercised, duly endorsed for transfer to us.
An election to exercise a repurchase right shall be revocable at any time prior
to, but excluding, the repurchase date, by delivering written notice to that
effect to the trustee prior to the close of business on the business day prior
to the repurchase date. If we fail to repurchase on the repurchase date any
notes as to which the repurchase right has been properly exercised, then the
principal amount of such notes shall, until paid, bear interest to the extent
permitted by applicable law from the repurchase date at the rate borne by the
note and each such note shall be convertible into common stock. If we are unable
to repurchase on the repurchase date all of the notes (or portions of the notes)
as to which the repurchase right has been properly exercised, the aggregate
amount of notes we may repurchase shall be allocated pro rata among each note
(or portion of a note) surrendered for repurchase, based on the principal amount
of such note, in proportion to the aggregate amount of notes surrendered for
repurchase.
A "repurchase event" will occur upon a change in control of Dave &
Buster's or if our common stock is no longer listed for trading on a United
States national securities exchange.
A "change in control" will be deemed to have occurred when any of the
following has occurred:
- the acquisition by any person of beneficial ownership,
directly or indirectly, through a purchase, merger or other
acquisition transaction or series of purchase, merger or other
acquisition transactions, of shares of our capital stock
entitling that person to exercise 50% or more of the total
voting power of all shares of our capital stock entitled to
vote generally in elections of directors; or
- any time that a majority of the members of the board of
directors of Dave & Buster's are not "continuing directors;"
- approval by our stockholders of any plan or proposal for the
liquidation, dissolution or winding up of Dave & Buster's; or
- our consolidation or merger with or into any other person, any
merger of another person into us, or any conveyance, transfer,
sale, lease or other disposition of all or substantially all
of our properties and assets to another person, unless our
stockholders immediately before such transaction own, directly
or indirectly immediately following such transaction, at least
51% of the combined voting power of the outstanding voting
securities of the corporation resulting from such transaction
in substantially the same proportion as their ownership of the
voting stock immediately before such transaction.
A change in control will not be deemed to have occurred if at least 90% of the
consideration in the transaction or transactions constituting the change in
control consists of (and the capital stock into which the notes would be
convertible consists of) shares of capital stock of an entity with a market
capitalization of at least $300 million that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United
States. For purposes of this provision, a "continuing director" is a person who
either was one of our existing directors on August 7, 2003 or is subsequently
elected or nominated for election by a majority of continuing directors at the
time of such election or nomination.
Beneficial ownership shall be determined in accordance with Rule 13d-3
promulgated by the SEC under the Exchange Act. The term "person" includes any
syndicate or group that would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
The definition of change in control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, a holder's ability to
require us to repurchase its notes as a result of a conveyance, transfer, sale,
lease or other disposition of less than all our assets may be uncertain.
If the paying agent holds money or common stock sufficient to pay the
purchase price of the notes which holders have elected to require us to
repurchase on the business day following the repurchase date in accordance with
the terms of the indenture, then, immediately after the repurchase date, those
notes will cease to be outstanding and original issue discount and liquidated
damages, if any, on the notes will cease to accrue, whether or not the notes are
delivered to the paying agent. After the repurchase date, all other rights of
the holder shall terminate, other than the right to receive the purchase price
upon delivery of the
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notes.
The foregoing provisions would not necessarily protect holders of the
notes if highly leveraged or other transactions involving us occur that may
affect holders adversely. We could, in the future, enter into certain
transactions, including some recapitalizations, that would not constitute a
change in control for purposes of the notes but that would increase the amount
of our (or our subsidiaries') outstanding indebtedness.
Our ability to repurchase notes for cash upon the occurrence of a
change in control is subject to important limitations. Our ability to repurchase
the notes for cash may be limited by restrictions on the ability of Dave &
Buster's to obtain funds for such repurchase through dividends from its
subsidiaries and the terms of our then existing borrowing agreements. In
addition, the occurrence of a change in control could cause an event of default
under, or be prohibited or limited by the terms of, agreements governing other
indebtedness of ours. We cannot assure any holders that we would have the
financial resources, or would be able to arrange financing, to pay the purchase
price in cash for all the notes that might be delivered by holders of notes
seeking to exercise the repurchase right.
The change in control purchase feature of the notes may in some
circumstances make it more difficult to, or discourage, a takeover of our
company. The change in control purchase feature, however, is not the result of
our knowledge of any specific effort:
- to accumulate shares of our common stock;
- to obtain control of us by means of a merger, tender offer
solicitation or otherwise; or
- by management to adopt a series of anti-takeover provisions.
Instead, the change in control purchase feature is a standard term
contained in securities similar to the notes.
COVENANTS
Leverage Ratio Incurrence Test
We have agreed that we will not incur, and will not permit any of our
subsidiaries to incur, any additional "LR Indebtedness," as described below,
unless the ratio of LR Indebtedness to our EBITDA for the prior four fiscal
quarters is not greater than 3.5 to 1.0 after giving effect to the proposed
increase to LR Indebtedness. Any indebtedness incurred in violation of this
covenant does not constitute "senior indebtedness" to which the notes are
subordinated.
The term "Leverage Ratio" shall mean the ratio of LR Indebtedness to
EBITDA for the prior four fiscal quarters.
The term "EBITDA" shall mean for any fiscal period, as applicable, the
sum of our operating income and our subsidiaries on a consolidated basis, plus
depreciation and amortization expense deducted from such amount as calculated by
our chief financial officer consistent with the information presented in our
financial statements filed with the Commission or provided to the trustee in
accordance with the indenture.
The term "LR Indebtedness" includes
- the LR Senior Indebtedness;
- the indebtedness represented by the notes and indebtedness
which ranks equally with the notes in right of payment; or
- purchase money indebtedness and any other indebtedness secured
by a mortgage, pledge, lien or similar encumbrance affecting
title to the assets of Dave & Buster's or its subsidiaries.
The term "LR Senior Indebtedness" generally includes all "senior
indebtedness," described under "Subordination" below, other than
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- obligations under interest or currency swap agreements and
similar agreements;
- obligations in respect of letters of credit; or
- obligations as lessee under leases of personal property.
Cash Distributions
We have agreed that if we, by dividend or otherwise, distribute to all
holders of our common stock cash (excluding any cash that is distributed upon a
merger or consolidation), then we will also make such distribution on the same
terms to the holders of the notes as of the record date for such distribution,
and each holder of notes is to be treated for such purpose as holding the
greatest whole number of shares of common stock issuable upon conversion of all
notes held by such holder as of the record date for such distribution (without
regard to any limitation on the noteholder's right to convert the notes into
such shares as of such date).
SUBORDINATION
Payment of the notes is subordinate and junior and subject in right of
payment to the prior payment in full in cash of all our "Senior Indebtedness"
now outstanding or incurred in the future.
"Senior Indebtedness" generally consists of all obligations of us and
our subsidiaries for borrowed money unless the instrument creating or evidencing
the same or under which the same is outstanding expressly provides that the same
is not senior in right of payment to the notes. Senior Indebtedness does not
include our liability for taxes, accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees of
such amounts or instruments evidencing such liabilities), any obligations with
respect to our equity securities or any indebtedness or obligation of us or our
subsidiaries that by its terms is subordinate or junior in right of payment to
any other indebtedness or obligation of ours. As of May 4, 2003, we had
approximately $64 million in senior indebtedness outstanding.
No payment on account of principal of or interest on the notes may be
made, and no notes may be redeemed or purchased directly or indirectly by us or
our subsidiaries), if at the time of such payment, redemption or purchase or
immediately after giving effect to such payment, redemption or purchase:
- a default in the payment of principal, premium, if any,
interest, rent or other obligations in respect of any Senior
Indebtedness occurs and is continuing (a "Payment Default")
unless and until such Payment Default shall have been cured or
waived or shall have ceased to exist; or
- we have received notice (a "Payment Blockage Notice") from the
holders of "Designated Senior Debt" that there exists under
such Designated Senior Debt a default, which shall not have
been cured or waived, permitting the holder or holders of such
Designated Senior Debt to declare such Designated Senior Debt
due and payable, but only for the period (the "Payment
Blockage Period") commencing on the date of receipt of the
Payment Blockage Notice and ending on the earlier of the date
such default shall have been cured or waived or the 180th day
immediately following our receipt of such Payment Blockage
Notice.
The term "Designated Senior Debt" generally refers to indebtedness
under our "Senior Credit Facility" but also includes any Senior Indebtedness
consisting of indebtedness for borrowed money which, at the time of
determination, has an aggregate principal amount of at least $2,000,000 if the
instrument creating or evidencing the same expressly provides that such
indebtedness shall be "Designated Senior Debt."
The term "Senior Credit Facility" refers to our revolving credit and
term loan agreement with Fleet National Bank as lender and administrative agent
and the other financial institutions from time to time party to the agreement,
including any agreement extending the maturity of, refinancing, replacing,
increasing the amount of, or otherwise restructuring all or any portion of the
indebtedness under such agreement.
We will resume payments on and distributions in respect of the notes on
the date upon which a Payment Default is cured or waived or ceases to exist.
Unless the holders of Designated Senior Debt shall have accelerated the maturity
of such
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Designated Senior Debt or there is a Payment Default, we will resume payments on
the notes after the end of each Payment Blockage Period. Not more than one
Payment Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior Debt
during such period.
In the event of any bankruptcy, insolvency or other similar proceeding
initiated by or against us or any dissolution or winding up or total or partial
liquidation or reorganization of us, all principal and interest due upon any
Senior Indebtedness shall first be paid in full before any holders of the notes
shall be entitled to receive or, if received, to retain any payment or
distribution on account of the notes.
The subordination provisions are intended solely for the purposes of
defining the relative rights of the holders of the notes and the holders of
Senior Indebtedness. The subordination provisions in no way are intended to
impair, as between us and any holders of the notes, our unconditional and
absolute obligation to pay to the holders of the notes the principal of the
notes (and premium, if any) and interest thereon, in accordance with the terms
of the notes.
MERGER AND SALES OF ASSETS
The indenture provides that we may not consolidate with or merge into
any other person or convey, transfer, sell, lease or otherwise dispose of all or
substantially all of our properties and assets to another person unless, among
other things:
- the resulting, surviving or transferee person is organized and
existing under the laws of the United States, any state
thereof, the District of Columbia or specified jurisdictions
outside the United States;
- such person assumes all obligations of Dave & Buster's under
the notes and the indenture; and
- Dave & Buster's or such successor is not then or immediately
after such consolidation or merger in default under the
indenture.
The occurrence of some of the foregoing transactions could constitute a
change in control.
This covenant includes a phrase relating to the conveyance, transfer,
sale, lease or disposition of "all or substantially all" of our assets. There is
no precise, established definition of the phrase "substantially all" under
applicable law. Accordingly, there may be uncertainty as to whether a
conveyance, transfer, sale, lease or other disposition of less than all our
assets is subject to this covenant.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the
indenture:
- default in our obligation to pay the principal of the notes at
maturity or otherwise;
- default for a period of 30 days in our obligation to pay the
interest on the notes;
- default in our obligation to convert notes into shares of our
common stock within 30 days of the exercise of a holder's
conversion right;
- default in our obligation to repurchase notes at the option of
holders;
- default in our obligation to redeem notes after we have
exercised our redemption option;
- our failure to perform or observe any other term, covenant or
agreement contained in the notes or the indenture or any of
the related transaction documents for a period of 30 days
after written notice of such failure, provided that such
notice requiring us to remedy the same shall have been given
to us by the trustee or to us and the trustee by the holders
of at least 20% in aggregate principal amount at maturity of
the notes then outstanding;
- any of the representations or warranties made by us in the
indenture, the notes or the related transaction documents
shall be false or misleading in any material respect at the
time made and such condition (to the
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extent capable of being cured) shall continue uncured for a
period of 10 business days after written notice of default is
given to us by the trustee or holders of not less than 20% in
aggregate principal amount at maturity of the notes then
outstanding;
- a failure to pay when due at maturity or a default that
results in the acceleration of maturity of any indebtedness
for borrowed money of Dave & Buster's or our significant
subsidiaries in an aggregate amount of $2 million or more,
unless the acceleration is rescinded, stayed or annulled
within 30 days after written notice of default is given to us
by the trustee or holders of not less than 20% in aggregate
principal amount at maturity of the notes then outstanding;
and
- specific events of bankruptcy, insolvency or reorganization
with respect to us or any of our subsidiaries that is a
significant subsidiary.
The indenture provides that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the notes notice of
all uncured defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of default in the payment of the principal of, or premium, if any, or
interest on any of the notes.
If an Event of Default occurs and is continuing, the trustee may in its
discretion proceed to protect and enforce the rights vested in it by the
indenture by such appropriate judicial proceedings as the trustee shall deem
most effectual to protect and enforce any of such rights, either by suit in
equity or by action at law or by proceeding in bankruptcy or otherwise, whether
for the specific enforcement of any covenant or agreement contained in the
indenture or in aid of the exercise of any power granted in the indenture, or to
enforce any other legal or equitable right vested in the trustee by the
indenture or by law.
The indenture contains a provision entitling the trustee, subject to
the duty of the trustee during default to act with the required standard of
care, to be indemnified by the holders of notes before proceeding to exercise
any right or power under the indenture at the request of such holders. The
indenture provides that the holders of a majority in aggregate principal amount
at maturity of the notes then outstanding, through their written consent, may
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred upon the
trustee.
We are required to furnish annually to the trustee a statement as to
the fulfillment of our obligations under the indenture.
MODIFICATION AND WAIVER
Changes Requiring Approval of Each Affected Holder
The indenture (including the terms and conditions of the notes) cannot
be modified or amended without the written consent or the affirmative vote of
the holder of each note affected by such change to:
- change the maturity of any note or the payment date of any
installment of interest payable on any notes;
- reduce the principal amount at maturity of, or any interest
on, redemption price or purchase price (including change in
control purchase price) on, any note;
- impair or adversely affect the conversion rights of any holder
of notes;
- change the currency of payment of the notes;
- modify the redemption provisions of the indenture in a manner
adverse to the holders of notes;
- reduce the percentage in aggregate principal amount at
maturity of notes outstanding necessary to modify or amend the
indenture or to waive any past default; or
- reduce the percentage in aggregate principal amount at
maturity of notes outstanding required for any other waiver
under the indenture.
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Changes Requiring Majority Approval
The indenture (including the terms and conditions of the notes) may be
modified or amended, subject to the provisions described above, with the written
consent of the holders of at least a majority in aggregate principal amount at
maturity of the notes then outstanding.
Changes Requiring No Approval
The indenture (including the terms and conditions of the notes) may be
modified or amended by us and the trustee, without the consent of the holder of
any note, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of
notes;
- providing for conversion rights of holders of notes if any
reclassification or change of our common stock or any
consolidation, merger or sale of all or substantially all of
our assets occurs;
- providing for the assumption of our obligations to the holders
of notes in the case of a merger, consolidation, conveyance,
transfer or lease;
- complying with the requirements of the Commission in order to
effect or maintain the qualification of the indenture under
the Trust Indenture Act of 1939, as amended; or
- curing any ambiguity or correcting or supplementing any
defective provision contained in the indenture; provided that
such modification or amendment does not adversely affect the
interests of the holders of notes.
FORM, DENOMINATION AND REGISTRATION
Denomination and Registration. The notes are issued in fully registered form,
without coupons, in denominations of $1,000 principal amount at maturity and
integral multiples of $1,000. Notes may be issued as definitive notes or global
notes. Definitive notes are registered in the names of the registered holders.
Global notes are registered in the name of a depositary or its nominee for the
holders. As of the date of this prospectus, all of the notes have been issued as
definitive notes.
Global Notes: Book-Entry Form. It is anticipated that any global notes will be
registered in the name of Cede & Co. as nominee for Depositary Trust Company
("DTC").
Record ownership of the global notes may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee,
except as set forth below. A holder may hold its interests in the global notes
directly through DTC if such holder is a participant in DTC, or indirectly
through organizations which are direct DTC participants if such holder is not a
participant in DTC. Transfers between direct DTC participants will be effected
in the ordinary way in accordance with DTC's rules and will be settled in
same-day funds. Holders may also beneficially own interests in the global notes
held by DTC through certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a direct
DTC participant, either directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of
the global notes, Cede & Co. for all purposes will be considered the sole holder
of the global notes. Except as provided below, owners of beneficial interests in
the global notes:
- will not be entitled to have certificates registered in their
names;
- will not receive or be entitled to receive physical delivery
of certificates in definitive form; and
- will not be considered holders of the global notes.
The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability of an owner
of a beneficial interest in a global security to transfer the beneficial
interest in the global security to such
- 18 -
persons may be limited.
We will wire, through the facilities of the trustee, payments of
principal, issue price, original issue discount, and interest payments on the
global notes to Cede & Co., the nominee of DTC, as the registered owner of the
global notes. None of Dave & Buster's, the trustee and any paying agent will
have any responsibility or be liable for paying amounts due on the global notes
to owners of beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal
and issue price of, and interest and accrued original issue discount on, the
global notes, to credit participants' accounts on the payment date in amounts
proportionate to their respective beneficial interests in the notes represented
by the global notes, as shown on the records of DTC, unless DTC believes that it
will not receive payment on the payment date. Payments by DTC participants to
owners of beneficial interests in notes represented by the global notes held
through DTC participants will be the responsibility of DTC participants, as is
now the case with securities held for the accounts of customers registered in
"street name".
Because DTC can only act on behalf of DTC participants, who in turn act
on behalf of indirect DTC participants and other banks, a holder's ability to
pledge its interest in the notes represented by global notes to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interest, may be affected by the lack of a physical certificate.
Neither Dave & Buster's nor the trustee (nor any registrar, paying
agent or conversion agent under the indenture) will have any responsibility for
the performance by DTC or direct or indirect DTC participants of their
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
notes, including, without limitation, the presentation of notes for conversion
as described below, only at the direction of one or more direct DTC participants
to whose account with DTC interests in the global notes are credited and only
for the principal amount at maturity of the notes for which directions have been
given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, 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, as amended. DTC was created to hold securities
for DTC participants and to facilitate the clearance and settlement of
securities transactions between DTC participants through electronic book-entry
changes to the accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations, such as the initial purchasers of the notes.
Certain DTC 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.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global notes among DTC participants, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued 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, we will cause notes to be issued in definitive form in
exchange for the global notes. None of Dave & Buster's, the trustee or any of
their respective agents will have any responsibility for the performance by DTC
or direct or indirect DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining, supervising or
reviewing the records relating to or payments made on account of beneficial
ownership interests in global notes.
According to DTC, the foregoing information with respect to DTC has
been provided to its participants and other members of the financial community
for information purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
Restrictions on Transfer; Legends
The notes are subject to restrictions on transfer set forth on the
notes and in the indenture, and certificates evidencing the notes bear a legend
regarding such transfer restrictions.
GOVERNING LAW
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The indenture and the notes are governed by, and construed in
accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
The Bank of New York, as trustee under the indenture, has been
appointed by us as paying agent, conversion agent, calculation agent, registrar
and custodian with regard to the notes. Mellon Investor Services, LLC is the
transfer agent and registrar for our common stock. The trustee or its affiliates
may from time to time in the future provide banking and other services to us in
exchange for a fee.
CALCULATIONS IN RESPECT OF NOTES
We or our agents are responsible for making all calculations called for
under the notes. These calculations include, but are not limited to,
determination of the market prices of the notes and of our common stock and
amounts of interest and contingent payments, if any, on the notes. We or our
agents will make all these calculations in good faith and, absent manifest
error, our and their calculations will be final and binding on holders of notes.
We or our agents will provide a schedule of these calculations to the trustee,
and the trustee is entitled to conclusively rely upon the accuracy of these
calculations without independent verification.
DESCRIPTION OF THE WARRANTS
We issued the notes under a warrant agent agreement, dated as of August
7, 2003, between us and The Bank of New York, a New York banking corporation, as
warrant agent.
The following description is only a summary of the material provisions
of the warrants and the warrant agent agreement. The form of warrant and of the
warrant agent agreement are filed as exhibits to the registration statement of
which this prospectus is a part. We urge you to read these documents in their
entirety because they, and not this description, define your rights as holders
of the warrants.
When we refer to "Dave & Buster's", "we", "our" or "us" in this
section, we refer only to Dave & Buster's, Inc., a Missouri corporation, and not
its subsidiaries.
GENERAL
Each warrant is exercisable for one share of our common stock,
initially at an exercise price of $13.46 per share, subject to adjustment upon
certain events. The warrants are exercisable at any time on or before August 7,
2008, unless earlier terminated by us under specific circumstances.
WARRANT AGENT
The Bank of New York serves as the warrant agent under a warrant agent
agreement in order to facilitate the transfer, exchange and exercise of
warrants.
The warrant agent will register the transfer of any outstanding warrant
certificates upon surrender of the warrant duly endorsed or accompanied (if so
required by us) by a duly executed written instrument of transfer in form
satisfactory to us. Upon any such registration of transfer, a new warrant
certificate shall be issued to the transferee(s) and the surrendered warrant
certificate shall be cancelled by the warrant agent. Cancelled warrant
certificates shall thereafter be disposed of by the warrant agent in its
customary manner.
Warrant certificates may be exchanged at the option of the holders,
when surrendered to the warrant agent at its principal corporate trust office,
which is currently located at the address 101 Barclay Street, Floor 8W New York,
New York 10286, Attention: Corporate Trust Administration, for another warrant
certificate or other warrant certificates of like tenor and representing in the
aggregate a like number of warrants. Any holder desiring to exchange a warrant
certificate shall deliver a written request to the warrant agent, and shall
surrender, duly endorsed or accompanied (if so required by the warrant agent) by
a duly executed written instrument or instruments of transfer in form
satisfactory to the warrant agent, the warrant certificate or certificates to be
so exchanged. Warrant certificates surrendered for exchange shall be cancelled
by the warrant agent. Such cancelled warrant certificates shall then be disposed
of by the warrant agent in its customary manner.
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EXERCISE OF THE WARRANTS
The warrants may be exercised in whole or in part. If a holder desires
to exercise the warrants, it must deliver an exercise notice which specifies the
number of shares of common stock to be purchased upon exercise ("warrant
shares"). Unless the holder has elected a "cashless exercise" of the warrant,
the notice must also be accompanied by payment to the warrant agent of an amount
equal to the exercise price multiplied by the number of warrant shares as to
which the warrant is being exercised in cash or delivery of a certified check or
bank draft payable to the order of the warrant agent or wire transfer of
immediately available funds. A holder may in its sole discretion elect, in lieu
of making such cash payment, instead to receive upon such exercise the net
number of shares of common stock (a "Cashless Exercise") determined according to
the following formula:
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which the warrant is then
being exercised.
B= the closing price of the common stock on the trading day immediately
preceding the date of the exercise notice.
C= the exercise price then in effect for the applicable warrant shares at
the time of such exercise.
We shall not be required to issue fractions of shares of common stock
upon exercise of the warrants or to distribute certificates which evidence such
fractional shares. In lieu of any fractional shares, there shall be paid to the
holder an amount of cash equal to the same.
We are generally obligated within five business days after exercise of
a warrant to issue the holder a certificate for the number of shares of common
stock to which the holder is entitled or to credit the holder's or its
designee's balance account with DTC for such number of shares of common stock to
which the holder is entitled upon the holder's exercise of the warrant. If we
fail to complete such issuance by such required date (the "Warrant Share
Delivery Date"), we shall pay as additional damages in cash to such holder on
each day after we failed to take such action in an amount equal to 0.5% per
month multiplied by the product of (1) the sum of the number of shares of common
stock not issued to the holder on or prior to the Warrant Share Delivery Date
and to which such holder is entitled and, in the event we have failed to deliver
a warrant to the holder on or prior to the Warrant Delivery Date and to which
such holder is entitled, the number of shares of common stock issuable upon
exercise of the warrant as of the Warrant Delivery Date and (2) the closing
price of the common stock on the Warrant Share Delivery Date, in the case of
failure to deliver common stock, or on the Warrant Delivery Date, in the case of
failure to deliver a warrant.
Some of the holders of warrants have agreed that their warrants contain
an additional limitation on their right to exercise the warrants. If a holder
has requested such limitation, such holder may not exercise its warrants in
excess of the number of warrants upon the exercise of which the number of shares
of common stock beneficially owned by such holder would be equal to or exceed
9.99% of the number of shares of common stock then issued and outstanding after
giving effect to such exercise. Some of these holders have further elected that
the 9.99% threshold described above be lowered to 4.99% as to them. You should
examine the form of warrants being purchased to determine whether or not the
limitation described in this paragraph has been selected by the original holder
of such warrants.
We shall pay any and all documentary, stamp, transfer and other similar
taxes which may be payable with respect to the issuance and delivery of shares
of common stock issued upon exercise of the warrants.
COMPANY TERMINATION OF THE WARRANTS
If at any time after August 6, 2006, the closing price per share of the
common stock has exceeded 150% of the exercise price of the warrants then in
effect for any 15 trading days within a period of 20 consecutive trading days,
then we may at our option elect to terminate the warrants. We may not exercise
this right unless:
- a shelf registration statement covering resales of the common
stock issuable upon exercise of the warrants
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is effective and available for use by the holders of warrants
through the date of termination of the warrants; or
- the warrant shares issuable upon a Cashless Exercise may be
sold pursuant to Rule 144 under the Securities Act
We must mail a notice of termination of the warrants to holders of the
warrants within 10 days after the 20 day trading period described above. We will
contemporaneously issue a press release containing substantially the same
information as the notice of termination. If we have followed all of the
foregoing procedures and if no event of default shall have occurred under the
notes, any warrant not exercised before the close of business on the 90th day
after the mailing date of the notice of termination shall automatically be
deemed exercised in a Cashless Exercise.
ADJUSTMENT OF EXERCISE PRICE
We will adjust the exercise price, the number of warrant shares
issuable upon the exercise of each warrant and the number of warrants
outstanding if any of the following events occur:
(1) we issue common stock as a dividend or distribution
on our common stock;
(2) we issue to all holders of common stock certain
rights or warrants to purchase our common stock;
(3) we subdivide or combine our common stock;
(4) we distribute to all holders of our common stock
cash, capital stock, evidences of indebtedness or
assets but excluding:
- rights or warrants listed in (2) above; and
- dividends or distributions listed in (1)
above.
To the extent that we continue to have a rights plan in effect at the
time of exercise of the warrants into common stock, you will receive, in
addition to the common stock, the rights under the rights plan whether or not
the rights have separated from the common stock at the time of exercise, subject
to limited exceptions.
In the event of:
- any reclassification of our common stock;
- a consolidation, merger, binding share exchange or combination
involving us; or
- a sale or conveyance to another person or entity of all or
substantially all of our property or assets;
in which holders of common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon exercise
of a holder's warrants, the holder will be entitled to receive the same type of
consideration which the holder would have been entitled to receive if the holder
had exercised the warrants immediately prior to any of these events.
We will not be required to make an adjustment to the exercise price
unless the adjustment would require a change of at least one percent in the
exercise price. However, we will carry forward any adjustments that are less
than one percent of the exercise price. Except as described above in this
section, we will not adjust the exercise price for any issuance of our common
stock or convertible or exchangeable securities or rights to purchase our common
stock or convertible or exchangeable securities.
We may also make such reductions in the exercise price as our board of
directors considers to be advisable to avoid or diminish any income tax to
holders of common stock or rights to purchase common stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.
To the extent permitted by applicable law, we may reduce the exercise
price by any amount for any period of time of
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at least 20 days, if the reduction is irrevocable during such period and our
board of directors has made a determination that such reduction would be in our
best interests.
Upon each adjustment of the exercise price, each warrant shall evidence
the right to purchase that number of shares of common stock (calculated to the
nearest hundredth of a share) obtained by multiplying the number of shares of
common stock purchasable immediately prior to such adjustment upon exercise of
the warrant by the exercise price in effect immediately prior to such adjustment
and dividing the product so obtained by the exercise price in effect immediately
after such adjustment. The adjustment to the number of shares of common stock
purchasable upon exercise of a warrant shall be made each time an adjustment of
the exercise price is made.
AMENDMENTS
The warrants may be amended, changed, waived, discharged, or terminated
only by an instrument in writing signed by us and holders of a majority of the
shares issuable upon exercise of the warrants. However, we may not increase the
exercise price, or decrease the number of shares or class of stock issuable upon
exercise of any warrants, without the written consent of the holder of any such
warrant.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of our capital stock is subject to our
restated certificate of incorporation and bylaws and the provisions of
applicable Missouri law.
AUTHORIZED CAPITAL
We currently have authority to issue 50 million shares of common stock,
par value $.01 per share. As of June 5, 2003, 13,385,115 shares of our common
stock were issued and outstanding.
We also have authority to issue 10 million shares of preferred stock.
We may issue preferred stock from time to time in one or more series, without
stockholder approval, when authorized by our board of directors. No shares of
our preferred stock are currently issued and outstanding.
VOTING RIGHTS
Each outstanding share of our common stock is entitled to one vote on
all matters submitted to a vote of stockholders.
DIVIDEND AND LIQUIDATION RIGHTS
The holders of outstanding shares of our common stock are entitled to
receive dividends out of assets legally available for the payment of dividends
at the times and in the amounts as our board of directors may from time to time
determine. The shares of common stock are neither redeemable nor convertible.
Holders of our common stock have no preemptive or subscription rights to
purchase any securities of Dave & Buster's. Upon liquidation, dissolution or
winding up of Dave & Buster's, the holders of our common stock are entitled to
receive pro rata the assets of Dave & Buster's which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of preferred stock then outstanding.
We have, to date, not paid cash dividends to holders of outstanding
shares and do not intend to do so in the future.
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
We have entered into a stockholder protection rights agreement. Under
the rights agreement, we have issued, for each share of common stock
outstanding, one right to purchase 1/100 of a newly issued share of Series A
Junior Participating Preferred Stock for $75. Each share of Series A Junior
Participating Preferred Stock is entitled to one vote on all matters submitted
to a vote of stockholders. However, the rights issued under the rights agreement
will not be exercisable initially. The rights will trade with our common stock
and no certificates will be issued until certain triggering events occur
involving acquisitions of our common
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stock. Depending upon the circumstances, all holders except a person seeking to
acquire us may be entitled to:
- acquire shares of common stock having a market value of twice
the exercise price of each right;
- exchange a right for one share of common stock or 1/100 of a
share of Series A Junior Participating Preferred Stock; or
- receive shares of the acquiring person's stock having a market
value of twice the exercise price of each right.
The rights have no voting privileges and remain in existence until June
2005, unless redeemed by our board of directors at a price of $.01 per right. We
may, from time to time, supplement or amend the rights agreement without holder
approval, as long as any amendment does not materially adversely affect holders'
interests or to correct any ambiguity or inconsistency in the rights.
The rights could cause substantial dilution to a person or group that
attempts to acquire Dave & Buster's without conditioning the offer on redemption
of the rights or on substantially all of the rights also being acquired. The
rights should not, however, interfere with any merger or other business
combination approved by our board of directors because the rights may be
redeemed by us as described above.
STATUTORY PROVISIONS ADDRESSING BUSINESS COMBINATIONS
We may be subject to the provisions of Sections 351.407 and 351.459 of
the Missouri Business Corporation Laws. These provisions prohibit a publicly
held Missouri corporation like us from engaging in a business combination with
an interested stockholder for a period of five years after the date of the
transaction in which the stockholder became an interested stockholder, unless
prior to that date, our board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder. These provisions also serve to potentially limit the
voting rights of a stockholder which acquires shares of common stock in a
business combination in an amount exceeding certain percentage thresholds,
unless the articles or bylaws of the Missouri corporation provide that
limitation does not apply.
A "business combination" includes a merger, consolidation or similar
transaction. An "interested stockholder" is a person, other than us and any
direct or indirect majority owned subsidiary of ours, who is the owner of 20% or
more of any class of our outstanding voting stock, of an affiliate or associate
of such person.
These provisions apply only to corporations which have a principal
place of business, principal office or substantial assets in Missouri. Whether
we will meet this standard at any particular time is not certain.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Mellon
Investor Services, LLC.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal tax
consequences relevant to the purchase, ownership, and disposition of the notes,
warrants and common stock acquired upon conversion of notes or exercise of
warrants by persons who hold the notes, warrants or common stock as capital
assets (generally, property held for investment within the meaning of Section
1221 of the Internal Revenue Code). This discussion is based upon the Internal
Revenue Code, Treasury regulations, Internal Revenue Service rulings and
pronouncements, and judicial decisions, all as of the date of this prospectus,
and all of which are subject to change, possibly with retroactive effect. This
discussion does not discuss every aspect of U.S. federal taxation that may be
relevant to a particular taxpayer in light of its personal circumstances or to
persons who are otherwise subject to special tax treatment (including, without
limitation, banks, broker-dealers, insurance companies, pension and other
employee benefit plans, tax exempt organizations and entities, investors who
hold the notes, warrants or common stock through partnerships or other
pass-through entities, persons who acquire notes and warrants in connection with
the performance of services, U.S. expatriates, persons holding the notes,
warrants or common stock as a part of a hedging or conversion transaction or a
straddle, certain hybrid entities and owners of interests therein, holders whose
functional currency is not the U.S. dollar and, except to the limited extent
described below, persons who are not U.S. holders (as defined below)), and it
does not discuss the effect of any U.S. state and local or non-U.S. tax laws or
U.S. tax laws other
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than U.S. federal income tax law except to the limited extent described below
with respect to the U.S. federal estate tax. This discussion is also limited to
initial holders who purchase notes and warrants for cash at the original
offering price. We have not sought and will not seek any rulings from the
Internal Revenue Service concerning the tax consequences of the purchase,
ownership, or disposition of the notes, warrants or common stock and,
accordingly, we cannot assure you that the Internal Revenue Service will not
successfully challenge the tax consequences described below. Each prospective
purchaser is urged to consult its own tax advisor with respect to the U.S.
federal income tax consequences of holding and disposing of notes, warrants and
common stock, as well as the tax consequences applicable under the laws of any
U.S., state, local or non-U.S. taxing jurisdiction.
U.S. HOLDERS
This section summarizes certain U.S. federal income tax consequences of
the ownership and disposition of the notes, warrants and common stock by "U.S.
holders." The term "U.S. holder" means a beneficial owner of notes, warrants, or
common stock that is:
a citizen or resident of the United States, as defined for
U.S. federal income tax purposes;
a corporation created or organized in the United States or
under the laws of the United States or of any state or political subdivision
thereof;
an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust, or certain electing trusts that were in existence on
August 20, 1996, and were treated as domestic trusts on the previous day.
If an entity treated as a partnership for U.S. federal income tax
purposes holds the notes, warrants, or common stock, the tax treatment of a
partner in the partnership generally will depend upon the status of the partner
and the activities of the partnership. A holder of notes, warrants, or common
stock that is a partnership, and partners in such a partnership, should consult
their tax advisors about the U.S. federal income tax consequences of holding and
disposing of notes, warrants, and common stock.
Issue Price of the Notes and Warrants
For U.S. federal income tax purposes, the notes and the warrants will
be treated as an investment unit. The "issue price" of the unit will be the
first price at which a substantial portion of the units is sold, disregarding
sales to bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers. The issue price of a
note is determined by allocating the issue price of the units between the note
and the warrants based on their relative fair market values. We will treat
96.134% of the issue price of each unit as allocable to the note and 3.866% of
the issue price as allocable to the warrants. Our allocation of the issue price
is binding on you unless you explicitly disclose on a statement attached to your
income tax return that you have made a different determination. Our allocation
is not binding on the Internal Revenue Service, which may challenge such
allocation. If the Internal Revenue Service successfully asserts that the issue
price of a note is less than the amount allocated by us, a greater amount of
original issue discount (as discussed below) will accrue on the notes.
TAX TREATMENT OF THE NOTES
Stated Interest
Stated interest paid or accrued on the notes will be taxable to a U.S.
holder as ordinary income in accordance with the holder's method of accounting
for federal income tax purposes.
Original Issue Discount
The notes have been issued with "original issue discount" for U.S.
federal income tax purposes. The amount of original issue discount on a note
equals the excess of the "stated redemption price at maturity" of the note over
its issue price.
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The stated redemption price at maturity of a note equals the sum of its
principal amount plus all other payments scheduled to be made thereunder, other
than payments of stated interest. The "issue price" of a note will be that
portion of the issue price of the unit that is allocated to the note under the
rules described in "Issue Price of the Notes and Warrants," above.
Each initial U.S. holder of a note must include original issue discount
in income as ordinary interest income for federal income tax purposes as it
accrues using a constant yield method in advance of the receipt of cash payments
attributable to such income, regardless of such holder's regular method of tax
accounting. In general, the amount of original issue discount includible by a
U.S. holder is the sum of the "daily portions" of original issue discount with
respect to a note for each day during the taxable year (or portion of the
taxable year) on which the holder held such note. The daily portion is
determined by allocating to each day in an accrual period (generally, the period
between interest payments or compounding dates) a pro rata portion of the
original issue discount allocable to such accrual period. The amount of original
issue discount allocable to an accrual period is the product of the "adjusted
issue price" of the note at the beginning of the accrual period multiplied by
its yield to maturity, less the amount of any stated interest allocable to such
accrual period. The adjusted issue price of a note at the beginning of an
accrual period is equal to its issue price, increased by the aggregate amount of
original issue discount that has accrued on the note in all prior accrual
periods, and decreased by any payments other than payments of stated interest
made during all prior accrual periods. Original issue discount allocable to the
final accrual period is the difference between the amount payable at maturity of
the note (other than stated interest) and the note's adjusted issue price at the
beginning of the final accrual period. Special rules will apply for calculating
original issue discount for an initial short accrual period.
Mandatory Repurchase
If a repurchase event (as defined in the indenture) occurs, the holders
of the notes will have the right to require us to purchase their notes for an
amount greater than the aggregate principal amount, plus accrued interest. Under
applicable Treasury regulations, computation of yield and maturity of the notes
is not affected by an additional payment right if, based on all the facts and
circumstances as of the issue date, payments on the notes are significantly more
likely than not to occur in accordance with the stated payment schedule on the
notes (which does not reflect the occurrence of a repurchase event). We believe,
based on all the facts and circumstances as of the issue date, that it is
significantly more likely than not that the notes will be paid according to
their stated payment schedule. Therefore, we have not taken the potential
additional payment into account in determining the yield and maturity of the
notes. The Internal Revenue Service may take a different position, which could
result in a greater amount of original issue discount accruing under the notes.
Additional Amounts Payable on Early Conversion
If a holder of a note elects to convert the note into common stock
prior to August 7, 2005, we will pay the holder in cash an amount equal to $50
per $1,000 principal amount of the notes converted. In addition, if we make a
cash distribution to all holders of our common stock, then we will also make a
corresponding payment to each holder of notes on an as-converted basis. Under
applicable Treasury regulations, computation of yield and maturity of the notes
is not affected by an additional payment right if, based on all the facts and
circumstances as of the issue date, payments on the notes are significantly more
likely than not to occur in accordance with the stated payment schedule on the
notes (which does not reflect the payment of additional amounts in the event of
early conversion or cash distribution). We believe, based on all the facts and
circumstances as of the issue date, that it is significantly more likely than
not that the notes will not be converted prior to August 7, 2005, and that we
will not make a cash distribution to all holders of our common stock while notes
are outstanding. Therefore, we have not taken the potential additional payments
to holders of notes into account in determining the yield and maturity of the
notes. If our position is correct, then any such additional amount, if it
becomes payable, would be taxable to a U.S. holder as interest income or other
ordinary income at the time it accrues or is received in accordance with such
holder's method of accounting for U.S. federal income tax purposes. The Internal
Revenue Service may take a different position, which could result in a greater
amount of original issue discount accruing under the notes.
Conversion
A U.S. holder of a note generally will not recognize gain or loss on
the conversion of a note into common stock except with respect to any cash
received in lieu of a fractional share. The U.S. holder's holding period for the
common stock received upon conversion will include the period during which the
note was held, and the U.S. holder's aggregate tax basis in the common stock
received upon conversion will be equal to the holder's adjusted tax basis in the
note at the time of conversion, increased by the aggregate conversion price,
less any portion allocable to the fractional share. A U.S. holder of a
- 26 -
note will recognize gain or loss for federal income tax purposes upon the
receipt of cash in lieu of a fractional share of common stock in an amount equal
to the difference between the amount of cash received and the portion of the
holder's tax basis in the note that is attributable to such fractional share.
This gain or loss will be capital gain or loss and will be taxable in the same
manner as described under "Sale, Retirement, Redemption, or Other Taxable
Disposition of Notes," below.
Changes in Conversion Price
The terms of the notes allow for changes in their conversion price in
certain circumstances. A change in the conversion price that allows U.S. holders
of notes to receive more shares of common stock upon conversion and has the
effect of increasing such holders' proportionate interest in our earnings and
profits could be treated as though such holders received a dividend in the form
of our common stock. Such a constructive stock dividend could be taxable to such
holders, although such holders would not actually receive any cash or other
property with which to pay the related tax. However, a change in the conversion
price to prevent the dilution of such holders' interests upon a stock split or
other change in capital structure, if made under a bona fide, reasonable
adjustment formula, should not increase the holders' proportionate interests in
our earnings and profits and should not be treated as a constructive stock
dividend. Any taxable constructive stock dividend resulting from a change to, or
failure to change, the conversion price would be treated in the same manner as
dividends paid in cash or other property. See below under "Tax Treatment of
Common Stock--Distributions."
Sale, Retirement, Redemption, or Other Taxable Disposition of Notes
Upon the sale, retirement, redemption, or other taxable disposition of
a note, a U.S. holder will recognize gain or loss equal to the difference
between (1) the sum of the amount of cash and the fair market value of any
property received in exchange therefor (except to the extent attributable to
accrued interest, which generally will be taxed as ordinary income to the extent
that the holder has not previously recognized this income) and (2) the U.S.
holder's adjusted tax basis in the note. A U.S. holder's adjusted tax basis in a
note generally will equal the price paid for such note, increased by the amount
of original issue discount previously included in such holder's income, and
decreased by the amount of any payments received on the note other than payments
of stated interest. Generally, any such gain or loss recognized by a U.S. holder
upon the sale, retirement, redemption, or other taxable disposition of a note
will be capital gain or loss, and will be long-term capital gain or loss if, at
the time of such disposition, the note has been held for more than one year. Net
long-term capital gain recognized by a non-corporate U.S. holder generally is
subject to U.S. federal income tax at a reduced rate. The deductibility of
capital losses is subject to limitation.
TAX TREATMENT OF WARRANTS
Exercise
A U.S. holder generally will not recognize gain or loss upon exercise
of a warrant (except with respect to any cash received in lieu of a fractional
share, which will be taxed in a manner similar to that described above under
"Conversion"). A U.S. holder's initial tax basis in a warrant will be equal to
the portion of the issue price of the unit allocable to the warrant (as
described above under "Issue Price of the Notes and Warrants"). A U.S. holder
will have a tax basis in the common stock received upon the exercise of a
warrant equal to the sum of its tax basis in the warrant and the aggregate cash
exercise price paid in respect of such exercise, less any amount attributable to
the fractional share. The holding period of common stock received upon the
exercise of a warrant will commence on the day after the warrant is exercised.
Although the tax consequences of a cashless exercise are not clear, it is
possible that a cashless exercise would result in a taxable exchange in which
capital gain or loss would be recognized in an amount equal to the exercise
price less the tax basis of the property exchanged in the exercise.
Alternatively, it is possible that a cashless exercise would be considered a
recapitalization for federal income tax purposes, in which case a U.S. holder's
tax basis in the common stock received would equal its tax basis in the
surrendered warrants, and the holding period of such common stock would include
the holding period of the surrendered warrants.
Expiration and Disposition
If a warrant expires without being exercised, a U.S. holder will
recognize a capital loss in an amount equal to its tax basis in the warrant.
Upon the sale, exchange, or redemption of a warrant, a U.S. holder generally
will recognize gain or loss equal to the difference between the amount realized
on such sale, exchange, or redemption and the U.S. holder's tax basis in such
warrant. Such gain or loss will be long-term capital gain or loss if, at the
time of such sale, exchange, or redemption,
- 27 -
the warrant has been held for more than one year. The deductibility of capital
losses is subject to limitation.
Adjustments to Exercise Ratio
Adjustments made to the number of shares that may be acquired upon the
exercise of a warrant or to the exercise price thereof, or the failure to make
such adjustments, may result in a constructive distribution to holders of
warrants, in a manner similar to that described above under "Tax Treatment of
the Notes--Changes in Conversion Price." As a result, U.S. holders of warrants
may be required to include amounts in income even though such holders will not
have received any cash or other property with which to pay the related tax.
Registration Delay Payments
We may be required to pay additional amounts to holders of the warrants
if we do not meet deadlines set forth in the registration rights agreement. The
tax treatment of such registration delay payments with respect to the warrants
is unclear. Such payments may be treated as a tax-free purchase price
adjustment, but it is possible that the Internal Revenue Service would treat
such payments, if made, as taxable to a U.S. holder as ordinary income at the
time such payments accrue or are received in accordance with the holder's method
of tax accounting.
TAX TREATMENT OF COMMON STOCK
Distributions
Any distribution we make in respect of our common stock will be treated
as a dividend to the extent paid out of our current or accumulated earnings and
profits. If a distribution exceeds our current and accumulated earnings and
profits, the excess will be treated 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 capital gain. Under recently enacted legislation, dividend income
received by an individual U.S. holder in a tax year beginning on or before
December 31, 2008 and that satisfies certain requirements generally will be
subject to tax at a reduced rate. Unless the reduced rate provision is extended
or made permanent by subsequent legislation, for tax years beginning after
December 31, 2008 dividends will be taxed at regular ordinary income rates.
Subject to some restrictions, dividends received by a U.S. holder that is a
corporation will be eligible for a dividends received deduction.
Registration Delay Payments
We may be required to pay additional amounts to holders of common stock
acquired pursuant to the conversion of a note or the exercise of a warrant if we
do not meet deadlines set forth in the registration rights agreement. The tax
treatment of such registration delay payments is unclear. Such payments may be
treated as a tax-free purchase price adjustment, but it is possible that the IRS
would treat such payments, if made, as taxable to a U.S. holder as ordinary
income at the time such payments accrue or are received in accordance with the
holder's method of tax accounting.
Disposition of Common Stock
A U.S. holder will recognize gain or loss upon the sale, exchange, or
other taxable disposition of common stock in an amount equal to the difference
between (1) the amount of cash and the fair market value of any other property
received in exchange for such stock and (2) the U.S. holder's tax basis in the
common stock. Generally, any such gain or loss will be capital gain or loss, and
will be long-term capital gain or loss if, at the time of such disposition, the
common stock has been held for more than one year. Net long-term capital gain
recognized by a non-corporate U.S. holder generally is subject to U.S. federal
income tax at a reduced rate. The deductibility of capital losses is subject to
limitation.
Information Reporting; Backup Withholding
We are required to furnish to the record holders of the notes and
common stock, other than corporations and other exempt holders, and to the
Internal Revenue Service, information with respect to interest paid or accrued
and the amount of original issue discount accrued on the notes and dividends
paid on the common stock.
A U.S. holder may be subject to backup withholding with respect to
interest and original issue discount paid on the notes, dividends paid on the
common stock, and proceeds received from a disposition of the notes, warrants,
or shares of
- 28 -
common stock. The backup withholding rate currently in effect is 28%. Some
holders (including, among others, corporations and certain tax-exempt
organizations) generally are not subject to backup withholding. A U.S. holder
will be subject to backup withholding if such holder is not otherwise exempt and
such holder:
fails to furnish its U.S. taxpayer identification number,
which for an individual is ordinarily his or her Social Security number;
furnishes an incorrect taxpayer identification number;
has been notified by the Internal Revenue Service that it has
failed properly to report payments of interest or dividends; or
fails to certify, under penalties of perjury, that it has
furnished a correct taxpayer identification number and that the Internal Revenue
Service has not notified the U.S. holder that it is subject to backup
withholding.
A U.S. holder may claim exemption from backup withholding by providing
a properly completed IRS Form W-9 (or substitute form) to us or our paying
agent. Backup withholding is not an additional tax but, rather, is a method of
tax collection. A U.S. holder will be entitled to credit any amounts withheld
under the backup withholding rules against its actual U.S. federal income tax
liability provided that the required information is furnished to the Internal
Revenue Service.
NON-U.S. HOLDERS
This section summarizes the U.S. federal income and estate tax
consequences of the purchase, beneficial ownership, and disposition of notes,
warrants, and common stock issuable upon conversion of notes and exercise of
warrants by a holder that is not a partnership or a U.S. holder, which we refer
to as a "non-U.S. holder." For purposes of the following discussion, any
interest or dividend income and any gain realized on the sale, exchange, or
other disposition of a note, a warrant, or a share of common stock will be
considered "U.S. trade or business income" if such interest, dividend, or gain
(1) is effectively connected with the conduct of a trade or business in the
United States or (2) in the case of a treaty resident, is attributable to a
permanent establishment (or in the case of an individual, to a fixed base) in
the United States. Generally, U.S. trade or business income is not subject to
U.S. withholding tax (provided the non-U.S. holder complies with applicable
certification and disclosure requirements); instead, such income generally is
subject to U.S. federal income tax on a net income basis at regular graduated
tax rates. Any U.S. trade or business income received by a non-U.S. holder that
is a corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or a lower rate than an applicable income tax
treaty may specify.
Interest and Original Issue Discount
In general, a non-U.S. holder will not be subject to U.S. federal
income tax or withholding tax with respect to stated interest or original issue
discount received or accrued on the notes so long as each of the following
requirements is satisfied:
the interest and original issue discount is not U.S. trade or
business income (as defined above);
the non-U.S. holder does not actually or constructively own
10% or more of the voting power of our stock;
the non-U.S. holder is not a "controlled foreign corporation"
(as defined for U.S. federal income tax purposes) that is related to us actually
or constructively through stock ownership; and
the non-U.S. holder properly certifies as to its foreign
status as described below.
If all of these conditions are not met, a 30% U.S. withholding tax will
apply to interest income on the notes unless either (1) an applicable income tax
treaty reduces or eliminates such tax and a non-U.S. holder claiming the benefit
of that treaty provides to us or our paying agent a properly executed IRS Form
W-8BEN (or suitable substitute form) or (2) the interest is U.S. trade or
business income (as defined above) and the non-U.S. holder provides an
appropriate statement to that effect on IRS Form W-8ECI (or substitute form).
A non-U.S. holder can generally satisfy the certification requirement
by providing to us or our paying agent a
- 29 -
properly executed IRS Form W-8BEN (or suitable substitute form). If the non-U.S.
holder holds the notes through a financial institution or other agent acting on
the holder's behalf, the holder may be required to provide appropriate
certifications to the agent. The holder's agent will then generally be required
to provide appropriate certifications to us. Special rules in Treasury
regulations apply to foreign partnerships, estates, and trusts, and in certain
circumstances certifications as to foreign status of partners, trust owners, or
beneficiaries may have to be provided to us. In addition, special rules apply to
qualified intermediaries that enter into withholding agreements with the
Internal Revenue Service, and such intermediaries generally are not required to
forward any certification forms received from non-U.S. holders. We urge non-U.S.
holders to consult their tax advisors for information on the impact of these
withholding and certification rules.
Dividends on Common Stock
Except as discussed above with respect to U.S. trade or business
income, dividends (i.e., distributions or deemed distributions to the extent of
our current and accumulated earnings and profits for federal income tax
purposes) paid to non-U.S. holders of common stock will be subject to
withholding of U.S. federal income tax at a 30% rate, unless such rate is
reduced by an applicable income tax treaty. In general, to claim the benefit of
a tax treaty or to claim exemption from withholding because the income is U.S.
trade or business income (as defined above), a non-U.S. holder must provide a
properly executed IRS Form W-8BEN for treaty benefits or Form W-8ECI for U.S.
trade or business income, in either case prior to the payment of dividends.
These forms must be periodically updated. Non-U.S. holders may obtain a refund
of any excess amounts withheld by timely filing an appropriate claim for refund
with the IRS. If a non-U.S. holder holds common stock through a foreign
partnership or a foreign intermediary, the foreign partnership or foreign
intermediary will also be required to comply with certain certification
requirements. Non-U.S. holders should consult their tax advisors with respect to
their entitlement to benefits under a relevant income tax treaty.
Gain on Disposition of Notes, Warrants, or Common Stock
Non-U.S. holders generally will not be subject to U.S. federal income
taxation, including by way of withholding, on gain realized on a sale, exchange,
or other disposition of notes, warrants, or common stock unless:
the gain is U.S. trade or business income (as defined above);
in the case of a non-U.S. holder who is an individual, such
non-U.S. holder is present in the United States for 183 days or more in the
taxable year of disposition and certain other requirements are met; or
in the case of a disposition of common stock, we are or have
been a "U.S. real property holding corporation" (a "USRPHC") for U.S. federal
income tax purposes at any time during the shorter of the five-year period
ending on the date of disposition and the non-U.S. holder's holding period for
the common stock.
The tax relating to stock in a USRPHC does not apply to a non-U.S.
holder whose holdings, actual and constructive, at all times during the
applicable period amount to 5% or less of our common stock, provided that our
common stock is regularly traded on an established securities market. Generally,
a corporation is a USRPHC if the fair market value of its "U.S. real property
interests" equals or exceeds 50% of the sum of the fair market values of its
worldwide real property interests and its other assets used or held for use in a
trade or business. We believe that we have not been and are not currently a
USRPHC for U.S. federal income tax purposes, nor do we anticipate becoming a
USRPHC in the future. However, no assurance can be given that we will not be a
USRPHC when a non-U.S. holder disposes of its common stock.
Registration Delay Payments
We may be required to pay additional amounts to holders of the notes,
holders of the warrants, and holders of common stock acquired upon conversion of
a note or exercise of a warrant if we do not meet deadlines set forth in the
registration rights agreement. We intend to withhold tax at a 30% rate from any
such payments to non-U.S. holders. If any of the payments were determined not to
be subject to U.S. federal income taxation, a non-U.S. holder would be entitled
to a refund of the tax withheld and could obtain such refund by filing an
appropriate return with the IRS.
- 30 -
U.S. Federal Estate Tax
Notes held or treated as held by an individual who is a non-U.S. holder
at the time of his or her death will not be subject to U.S. federal estate tax,
provided that the non-U.S. holder does not at the time of death actually or
constructively own 10% or more of the combined voting power of all classes of
our stock and payments of interest on such notes would not have been considered
U.S. trade or business income (as defined above). Common stock, and perhaps
warrants, held or treated as held by an individual who is a non-U.S. holder at
the time of his or her death will be included in the individual's gross estate
for U.S. federal estate tax purposes, and may be subject to U.S. federal estate
tax, unless an applicable estate tax treaty provides otherwise.
Information Reporting; Backup Withholding
When required, we will report to the appropriate holders and the IRS
(1) information with respect to the original issue discount accruing while the
notes are held by the initial holders and amounts paid on or with respect to the
notes, (2) dividends paid in respect of common stock, and (3) the amount of any
tax withheld from such payments; and such amounts may be subject to backup
withholding. The backup withholding rate currently in effect is 28%.
A non-U.S. holder that provides a properly completed and executed IRS
Form W-8BEN (or substitute form), signed under penalties of perjury, identifying
the non-U.S. holder and certifying that the non-U.S. holder is not a United
States person, will not be subject to backup withholding provided that neither
we nor our paying agent has actual knowledge that the holder is a United States
person or otherwise does not satisfy the requirements for an exemption.
Information reporting and backup withholding requirements with respect
to the payment of proceeds from the disposition of notes, warrants, or shares of
common stock are as follows:
If the proceeds are paid to or through a U.S. office of a broker, they
generally will be subject to information reporting and backup withholding as
described above. However, no such reporting and withholding will be required if
(1) the holder either certifies as to its status as a non-U.S. holder under
penalties of perjury on IRS Form W-8BEN (or substitute form) or otherwise
establishes an exemption and (2) the broker does not have actual knowledge or
reason to know that the holder is a United States person or that the conditions
of any other exemption are not in fact satisfied.
If the proceeds are paid to or through a foreign office of a non-U.S.
broker, they will not be subject to information reporting or backup withholding
unless the broker has certain types of relationships with the United States (a
"U.S. related person").
If the proceeds are paid to or through a foreign office of a broker
that is either a United States person or a U.S. related person, they generally
will be subject to information reporting unless (1) the holder certifies as to
its status as a non-U.S. holder under penalties of perjury or the broker has
certain documentary evidence in its files as to the non-U.S. holder's foreign
status and (2) the broker has no actual knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a United States person or a U.S. related person, absent actual knowledge
that the payee is a United States person.
Backup withholding is not an additional tax. Any amount withheld under
the backup withholding rules may be credited against the non-U.S. holder's U.S.
federal income tax liability and any excess may be refundable if the proper
information is provided to the Internal Revenue Service.
The U.S. federal tax discussion set forth above is included for general
information only and may not be applicable depending on a holder's particular
situation. Holders should consult their tax advisors with respect to the tax
consequences to them of the beneficial ownership and disposition of the notes,
the warrants, and the common stock received upon conversion of notes or exercise
of warrants, including the tax consequences under state, local, foreign, and
other tax laws and the possible effects of changes in federal and other tax
laws.
SELLING HOLDERS
The notes and warrants were originally issued by us in transactions
exempt from the registration requirements of the Securities Act to persons
reasonably believed to be "accredited investors" as defined in Regulation D
under the Securities
- 31 -
Act. These accredited buyers, together with their transferees, pledgees, donees
or successors, comprise the persons who are "Selling Holders" under this
prospectus and may from time to time offer and sell pursuant to this prospectus
any or all of the notes, warrants and common stock issued upon conversion of the
notes and exercise of the warrants.
The following tables set forth information with respect to the Selling
Holders and the respective principal amounts of notes, number of warrants and
shares of common stock beneficially owned by each Selling Holder as of August
25,2003 that may be offered under this prospectus. Such information has been
obtained from the Selling Holders. Beneficial ownership is determined in
accordance with the rules of the SEC, and includes voting or investment power
with respect to shares. Unless otherwise indicated below, to our knowledge, all
persons named in the table below have sole voting and investment power with
respect to their securities.
U.S. Bancorp Piper Jaffray has performed, and may perform in the
future, financial advisory and investment banking services for us, including
acting as placement agent in connection with the private placement of the notes
and warrants. In addition, U.S. Bancorp Piper Jaffray is a registered
broker-dealer. In the ordinary course of business, U.S. Bancorp Piper Jaffray
may actively trade our securities for their own account and for the accounts of
their customers. Accordingly, U.S. Bancorp Piper Jaffray may at any time hold
long or short positions in such accounts. Except for these relationships, and as
otherwise disclosed in this prospectus, none of the Selling Holders has, or
within the past three years has had, any position, office or other material
relationship with us or any of our predecessors or affiliates.
Because the Selling Holders may offer all or some portion of the notes,
warrants or the common stock issuable upon conversion of the notes and exercise
of the warrants pursuant to this prospectus, no estimate can be given as to the
amount of the notes, warrants or the common stock issuable upon conversion of
the notes and exercise of the warrants that will be held by the Selling Holders
upon termination of any such sales. However, for purposes of the following
tables, we have assumed that, after completion of the offering, none of the
securities covered by this prospectus will be held by the Selling Holders. The
conversion and exercise prices of the notes and warrants, respectively, are
subject to antidilution adjustments and, as a result, the number of shares of
common stock issuable upon conversion or exercise of the notes or warrants may
vary from the numbers indicated below. In addition, the Selling Holders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their notes or warrants since the date on which they provided the
information regarding their beneficial ownership of these securities, in
transactions exempt from the registration requirements of the Securities Act.
The inclusion of any shares in the following tables does not constitute
an admission of beneficial ownership by the persons named below.
PRINCIPAL AMOUNT OF NOTES NUMBER OF WARRANTS
BENEFICIALLY OWNED BENEFICIALLY OWNED
SELLING HOLDER AND THAT MAY BE OFFERED HEREBY AND THAT MAY BE OFFERED HEREBY
- -------------- ------------------------------ ------------------------------
Context Convertible Arbitrage Fund, L.P. $ 400,000 6,966
Context Convertible Arbitrage Offshore, LTD. $ 600,000 10,449
Smithfield Fiduciary LLC $ 10,000,000 174,149
Deephaven Small Cap Growth Fund, LLC $ 1,000,000 17,415
Quattro Fund LTD $ 2,000,000 34,830
Portside Growth & Opportunity Fund $ 2,000,000 34,830
Gryphon Master Fund, LP $ 2,000,000 34,830
Deutsche Bank AG $ 5,000,000 87,074
Bancroft Convertible Fund, Inc. $ 500,000 8,707
Ellsworth Convertible Growth and Income Fund, Inc. $ 500,000 8,707
Victus Capital, LP $ 500,000 8,707
Elks Youth Eye Service $ 150,000 2,612
Umpqua Investment LLC $ 250,000 4,354
Regents of University of Michigan $ 250,000 4,354
JP Morgan Securities Inc. $ 4,850,000 84,462
U.S. Bancorp Piper Jaffray(1) 0 52,245
- --------------------
(1) Consists of warrants issued to U.S. Bancorp Piper Jaffray as partial
compensation for placement agent activities.
- 32 -
SHARES OF COMMON SHARES OF COMMON STOCK
STOCK OWNED SHARES OF COMMON OWNED AFTER THE OFFERING(1)
SELLING HOLDER BEFORE THE OFFERING STOCK OFFERED HEREBY(1) NUMBER PERCENT OF CLASS
- -------------- ------------------- ----------------------- -------- ----------------
Context Convertible Arbitrage Fund, L.P. 37,925(5) 39,821 0 0
Context Convertible Arbitrage Offshore, LTD. 56,888(6) 59,732 0 0
Smithfield Fiduciary LLC(2) 948,142(7) 995,549 0 0
Deephaven Small Cap Growth Fund, LLC(2) 94,814(8) 99,555 0 0
Quattro Fund LTD 189,628(9) 199,109 0 0
Portside Growth & Opportunity Fund(3) 189,628(10) 199,109 0 0
Gryphon Master Fund, LP(3) 822,628(11) 199,109 633,000 3.89%
Deutsche Bank AG (2) 474,070(12) 497,774 0 0
Bancroft Convertible Fund, Inc. 47,406(13) 49,776 0 0
Ellsworth Convertible Growth and
Income Fund, Inc. 47,406(14) 49,776 0 0
Victus Capital, LP(2) 47,406(15) 49,776 0 0
Elks Youth Eye Service 14,221(16) 14,932 0 0
Umpqua Investment LLC 23,703(17) 24,888 0 0
Regents of University of Michigan 23,703(18) 24,888 0 0
JP Morgan Securities Inc.(3) 459,848(19) 482,840 0 0
U.S. Bancorp Piper Jaffray(4) 52,245 54,857 0 0
- --------------------
(1) Determined in accordance with the Registration Rights Agreement with
the Selling Holders, in which we agreed to register for resale 105% of
the number of shares of common stock issuable upon conversion of the
notes and exercise of the warrants. The additional shares of common
stock offered hereby are registered in the event that the conversion
price of the notes and/or the exercise price of the warrants are
adjusted to a lower price as provided in the terms of the notes and
the warrants, which could result in the issuance of a substantial
number of additional shares. The number of shares that will actually be
issued may be more or less than the shares being offered by this
prospectus. The number of shares of common stock after the offering
assumes that all of the shares offered hereby are sold.
(2) Pursuant to the securities purchase agreement under which we issued the
notes and warrants, the Selling Holder has agreed not to convert any of
its notes or exercise any of its warrants, to the extent such
conversion or exercise would result in it holding more than 4.99% of
our issued and outstanding common stock. The number of shares included
in the table does not take into account this ownership restriction.
(3) Pursuant to the securities purchase agreement under which we issued the
notes and warrants, the Selling Holder has agreed not to convert any of
its notes or exercise any of its warrants, to the extent such
conversion or exercise would result in it holding more than 9.99% of
our issued and outstanding common stock. The number of shares included
in the table does not take into account this ownership restriction.
(4) Consists of warrants issued to U.S. Bancorp Piper Jaffray as partial
compensation for placement agent activities, which are exercisable for
52,245 shares at an exercise price of $13.46 per share.
(5) Includes 30,959 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 6,966 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(6) Includes 46,439 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 10,449 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(7) Includes 773,993 shares issuable upon conversion of convertible notes
at a conversion price of $12.92 per share and 174,149 shares issuable
upon exercise of warrants at an exercise price of $13.46 per share.
(8) Includes 77,399 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 17,415 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(9) Includes 154,798 shares issuable upon conversion of convertible notes
at a conversion price of $12.92 per share and 34,830 shares issuable
upon exercise of warrants at an exercise price of $13.46 per share.
(10) Includes 154,798 shares issuable upon conversion of convertible notes
at a conversion price of $12.92 per share and 34,830 shares issuable
upon exercise of warrants at an exercise price of $13.46 per share.
(11) Includes 154,798 shares issuable upon conversion of convertible notes
at a conversion price of $12.92 per share and 34,830 shares issuable
upon exercise of warrants at an exercise price of $13.46 per share.
(12) Includes 386,996 shares issuable upon conversion of convertible notes
at a conversion price of $12.92 per share and 87,074 shares issuable
upon exercise of warrants at an exercise price of $13.46 per share.
(13) Includes 38,699 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 8,707 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(14) Includes 38,699 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 8,707 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
- 33 -
(15) Includes 38,699 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 8,707 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(16) Includes 11,609 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 2,612 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(17) Includes 19,349 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 4,354 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(18) Includes 19,349 shares issuable upon conversion of convertible notes at
a conversion price of $12.92 per share and 4,354 shares issuable upon
exercise of warrants at an exercise price of $13.46 per share.
(19) Includes 375,386 shares issuable upon conversion of convertible notes
at a conversion price of $12.92 per share and 84,462 shares issuable
upon exercise of warrants at an exercise price of $13.46 per share.
REGISTRATION RIGHTS
We have filed a registration statement of which this prospectus is a
part pursuant to a registration rights agreement with the initial purchasers and
U.S. Bancorp Piper Jaffray for the benefit of the Selling Holders.
The registration rights agreement provides that we will, at our
expense, use reasonable efforts to keep the registration statement effective
until the earliest of:
- two years after the filing of the registration statement;
- the date when the Selling Holders are able to sell all of the
securities offered hereby immediately without restriction
pursuant to the volume limitation provisions of Rule 144 under
the Securities Act; and
- the date when the Selling Holders have sold all of the notes,
warrants and the common stock issuable upon conversion of the
notes and exercise of the warrants.
The agreement provides that the Selling Holders will immediately
discontinue disposition of the securities registered under this prospectus if we
notify the holders that we have delayed the disclosure of material non-public
information concerning us because the disclosure of such information at the time
is not, in the good faith judgment of our Board of Directors relying upon the
opinion of counsel, in our best interests. We will also notify the investors of
the duration of such delay, which will not exceed 30 consecutive days nor more
than 60 days in any year and will be at least ten trading days after the last
day of any prior period of such delay.
Each holder who sells securities pursuant to the registration statement
generally will be:
- required to be named as a selling holder in this prospectus or
a prospectus supplement;
- required to deliver a prospectus to the purchaser;
- subject to certain of the civil liability provisions under the
Securities Act in connection with the holder's sales; and
- bound by the provisions of the registration rights agreement
which are applicable to the holder (including certain
indemnification rights and obligations).
PLAN OF DISTRIBUTION
We are registering the notes, warrants and shares of common stock
issuable upon conversion of the notes and upon exercise of the warrants to
permit the resale of these securities from time to time after the date of this
prospectus. The term "Selling Holders" includes donees, pledgees, transferees or
other successors-in-interest selling securities received after the date of this
prospectus from a Selling Holder as a gift, pledge, partnership distribution or
other non-sale related transfer. The Selling Holders will act independently of
us in making decisions with respect to the timing, manner and size of each sale.
We
- 34 -
will not receive any of the proceeds from the sale by the Selling Holders of the
securities offered by this prospectus. We will bear all fees and expenses
incident to our obligation to register the securities offered by this
prospectus.
The Selling Holders may sell all or a portion of the securities offered
by this prospectus from time to time directly or through one or more
underwriters, broker-dealers or agents. If the securities are sold through
underwriters or broker-dealers, the selling holders will be responsible for
underwriting discounts or commissions or agent's commissions. The securities
offered by this prospectus may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale, or at negotiated prices. These sales may be
effected in transactions, which may involve crosses or block transactions,
- - on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale,
- - in the over-the-counter market,
- - in transactions otherwise than on these exchanges or systems or in the
over-the-counter market,
- - through the writing of options, whether such options are listed on an
options exchange or otherwise, or
- - through the settlement of short sales.
If the Selling Holders effect such transactions by selling notes,
warrants or shares of common stock to or through underwriters, broker-dealers or
agents, such underwriters, broker-dealers or agents may receive commissions in
the form of discounts, concessions or commissions from the Selling Holders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the common stock or otherwise, the Selling Holders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the common stock in the course of hedging in positions they assume. The
Selling Holders may also sell shares of common stock short and deliver shares of
common stock covered by this prospectus to close out short positions. The
Selling Holders may also loan or pledge shares of common stock to broker-dealers
that in turn may sell such shares.
The selling holders may pledge or grant a security interest in some or
all of the notes, warrants or shares of common stock owned by them and, if the
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell these securities from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending, if necessary, the list of
Selling Holders to include the pledgee, transferee or other successors in
interest as Selling Holders under this prospectus. The Selling Holders also may
transfer and donate the notes, warrants or shares of common stock in other
circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners of purposes of this
prospectus.
The Selling Holders and any broker-dealer participating in the
distribution of the securities offered by this prospectus may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
paid, or any discounts or concessions allowed to, any such broker-dealer may be
deemed to be underwriting commissions or discounts under the Securities Act. At
the time a particular offering of the securities offered hereby is made, a
prospectus supplement, if required, will be distributed which will set forth the
aggregate amount of securities being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling holders
and any discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
Under the securities laws of some states, the securities offered by
this prospectus may be sold in such states only through registered or licensed
brokers or dealers. In addition, in some states, the securities may not be sold
unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with.
- 35 -
Our outstanding common stock is listed for trading on the New York
Stock Exchange. We do not intend to list the notes or warrants for trading on
any national securities exchange or on the Nasdaq National Market and we cannot
assure you that any trading market for the notes or the warrants will develop.
There can be no assurance that any Selling Holder will sell any or all
of the securities registered pursuant to the shelf registration statement, of
which this prospectus forms a part.
At the time a particular offer of securities is made, if required, a
prospectus supplement will be distributed that will set forth the number of
securities being offered and the terms of the offering, including the name of
any underwriter, dealer or agent, the purchase price paid by any underwriter,
any discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
The Selling Holders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations under such act,
including, without limitation, Regulation M of the Exchange Act, which may limit
the timing of purchases and sales of any of the shares of common stock by the
Selling Holders and any other participating person. Regulation M may also
restrict the ability of any person engaged in the distribution of the shares of
common stock to engage in market-making activities with respect to the shares of
common stock. All of the foregoing may affect the marketability of the shares of
common stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We will pay all expenses of the registration of the securities pursuant
to the registration rights agreement, estimated to be $50,000 in total,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that a Selling Holder
will pay all underwriting discounts and selling commissions, if any. We will
indemnify the Selling Holders against liabilities, including some liabilities
under the Securities Act, in accordance with the registration rights agreements,
or the Selling Holders will be entitled to contribution. We may be indemnified
by the Selling Holders against civil liabilities, including liabilities under
the Securities Act, that may arise from any written information furnished to us
by the Selling Holders specifically for use in this prospectus, in accordance
with the related registration rights agreements, or we may be entitled to
contribution.
Once sold under the shelf registration statement, of which this
prospectus forms a part, the securities offered by this prospectus will be
freely tradable in the hands of persons other than our affiliates.
UNDERWRITERS
The SEC staff is of a view that selling stockholders who are registered
broker-dealers or affiliates of registered broker-dealers may be underwriters
under the Securities Act. U.S. Bancorp Piper Jaffray, Deutsche Bank AG and JP
Morgan Securities Inc. are registered broker-dealers. Deephaven Small Cap Growth
Fund, LLC and Victus Capital, LP are affiliates of registered broker-dealers. We
will not pay any compensation or give any discounts or commissions to any
underwriter in connection with the securities being registered by this
prospectus.
LEGAL MATTERS
The validity of the notes and warrants, and the shares of common stock
issuable upon the conversion of the notes and exercise of the warrants, was
passed upon for us by Hallett & Perrin, P.C., Dallas, Texas.
EXPERTS
The consolidated financial statements and schedule included in our
Annual Report on Form 10-K/A for the year ended February 2, 2003 are
incorporated by reference in this prospectus in reliance on Ernst & Young LLP's
report, dated March 21, 2003 with respect to the consolidated financial
statements and schedule of Dave & Buster's, Inc., given on their authority as
experts in accounting and auditing.
- 36 -
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY DAVE & BUSTER'S, INC., THE SELLING HOLDERS OR ANY OF THEIR RESPECTIVE
AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED BY THIS
PROSPECTUS BY ANY PERSON IN ANY JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, IMPLY
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY DOCUMENT INCORPORATED
BY REFERENCE IN THIS PROSPECTUS IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS OR SUCH OTHER DOCUMENT.
Table of Contents
Page
----
Incorporation of Documents by Reference..... 2
Where You Can Find More
Information About Us.................... 2
Forward-Looking Statements.................. 3
Prospectus Summary.......................... 4
Risk Factors................................ 6
Use of Proceeds............................. 8
Ratio of Earnings to Fixed Charges.......... 9
Description of the Notes.................... 9
Description of the Warrants................. 20
Description of Capital Stock................ 23
Certain U.S. Federal Income Tax
Consequences........................... 24
Selling Holders............................. 31
Plan of Distribution........................ 34
Underwriters ............................... 36
Legal Matters............................... 36
Experts..................................... 36
DAVE & BUSTER'S, INC.
$30,000,000 OF 5% CONVERTIBLE SUBORDINATED NOTES DUE 2008
WARRANTS TO PURCHASE 522,546 SHARES OF COMMON STOCK
PROSPECTUS
September 11, 2003