AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 2004
REGISTRATION NO. 333-108270
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
PEGASUS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7389 75-2605174
(State or other jurisdiction of (Primary Standard Industrial (I.R.S.
Employer
incorporation or organization) Classification Code Number)
Identification No.)
CAMPBELL CENTRE I
8350 NORTH CENTRAL EXPRESSWAY, SUITE 1900
DALLAS, TEXAS 75206
(214) 234-4000
(Address, including zip code, telephone number,
including area code, of registrant's principal executive office)
JOHN F. DAVIS, III
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
PEGASUS SOLUTIONS, INC.
CAMPBELL CENTRE I
8350 NORTH CENTRAL EXPRESSWAY, SUITE 1900
DALLAS, TEXAS 75206
(214) 234-4000
(Name, address, including zip code, telephone number,
including area code, of agent for service)
_______________
COPIES TO:
WHIT ROBERTS
JOHN B. MCKNIGHT
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
(214) 740-8000
_______________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
_______________
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
_______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
EXPLANATORY NOTE
The purpose of this Post-Effective Amendment No. 1 to the Registration
Statement on Form S-3 of Pegasus Solutions, Inc. (333-108270) is to amend the
table under the caption "Selling Securityholders" in the prospectus to add the
names of additional selling securityholders who have requested inclusion in the
prospectus since the effective date of the Registration Statement and to update
certain other disclosure in the prospectus.
The information in this prospectus is not complete and may be changed. The
selling securityholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission becomes effective.
This prospectus is not an offer to sell these securities and it is not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
SUBJECT TO COMPLETION, DATED MAY 7, 2004
PROSPECTUS
PEGASUS SOLUTIONS INC.
$75,000,000
(AGGREGATE PRINCIPAL AMOUNT)
3.875% CONVERTIBLE SENIOR NOTES DUE JULY 15, 2023 AND
THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
We issued the notes in a private placement in July 2003. This prospectus
will be used by selling securityholders to resell their notes and the common
stock issuable upon conversion of their notes. We will not receive any proceeds
from this offering.
We will pay cash interest on the notes on January 15 and July 15 of each
year, beginning January 15, 2004. The notes are issued only in denominations of
$1,000 and integral multiples of $1,000 and mature on July 15, 2023. We may
redeem all or a portion of the notes on or after July 15, 2008, at 100% of the
principal amount of the notes plus any accrued and unpaid interest.
Under certain circumstances set forth in this prospectus, the notes are
convertible into shares of our common stock prior to maturity at a conversion
rate of 49.6808 shares of common stock per $1,000 principal amount of the notes
(equivalent to an initial conversion price of $20.13 per share), subject to
adjustment under certain circumstances described in this prospectus. This
prospectus covers the resale of all of such shares of common stock, which based
on the aforementioned conversion rate is 3,726,060 shares of common stock.
The notes are general unsecured obligations, ranking on a parity in right
of payment with all our existing and future unsecured senior indebtedness and
our other general unsecured obligations, and senior in right of payment with all
our future subordinated indebtedness. The notes are effectively subordinated to
all of our senior secured indebtedness, and are subordinated to indebtedness and
liabilities of our subsidiaries. Holders may require us to purchase all or part
of the notes, for cash, at a purchase price of 100% of the principal amount per
note plus accrued and unpaid interest on July 16, 2008, July 16, 2013 and July
16, 2018 or upon a fundamental change.
Our common stock is listed on the Nasdaq National Market under the symbol
"PEGS." On May 5, 2004, the last reported sale price of our common stock on the
Nasdaq National Market was $11.03 per share.
INVESTING IN THE SECURITIES OFFERED BY THE SELLING SECURITYHOLDERS UNDER
THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
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 MAY __, 2004.
TABLE OF CONTENTS
PAGE
-----
Where You Can Find More Information 1
Information Incorporated by Reference 1
Note Regarding Forward-Looking Statements 2
Prospectus Summary 4
Risk Factors 9
Ratio of Earnings to Fixed Charges 19
Use of Proceeds 19
Description of the Notes 19
Description of Capital Stock 39
Certain United States Federal Income Tax Considerations 41
Selling Securityholders 47
Plan of Distribution 50
Legal Matters 52
Experts 52
In this prospectus, unless otherwise specified, particularly under
"Description of Notes" in this prospectus, "Pegasus," "we," "us" and "our" refer
to Pegasus Solutions, Inc., a Delaware corporation, and its predecessors and
consolidated subsidiaries.
We own or have rights to various trademarks and brand names, which are used
in this prospectus, that we use in conjunction with the sale of our products and
services. This prospectus may also include trademarks and brand or trade names
of companies other than Pegasus, which are the property of their respective
owners.
WHERE YOU CAN FIND MORE INFORMATION
Pegasus files annual, quarterly and special reports, proxy statements and
other information with the Securities Exchange Commission, or the SEC. The file
number for our SEC filings is 000-22935. You may read and copy materials that
we have filed with the Securities and Exchange Commission at the Securities and
Exchange Commission public reference room at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference room. You also
can find Pegasus SEC filings at the SEC's website at http://www.sec.gov.
Pegasus common stock is quoted on the Nasdaq National Market under the
trading symbol "PEGS." Reports, proxy statements and other information about
Pegasus may also be inspected at the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933, as amended ("Securities Act"), with respect to the
shares of common stock offered in this prospectus. This prospectus is part of
that registration statement and, as permitted by the SEC's rules, does not
contain all of the information set forth in the registration statement. For
further information about us and our securities, we refer you to those copies of
contracts or other documents that have been filed as exhibits to the
registration statement, and statements relating to such documents are qualified
in all respects by such reference. You can review and copy the registration
statement and its exhibits and schedules from the SEC at the address listed
above or from its Internet site.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information we file with the SEC in other documents. This means that we can
disclose important information to you by referring to other documents that we
file with the SEC. We incorporate by reference the documents listed below, and
all future documents filed by us with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than information furnished under Items 9 or 12 of our Current
Reports on Form 8-K, until the offering of the securities offered hereby is
terminated:
1
(1) Our annual report on Form 10-K for the fiscal year ended December 31, 2003;
(2) The description of our capital stock contained in our registration
statement on Form 8-A filed with the SEC on August 4, 1997;
(3) The description of the rights to purchase Series A Preferred Stock
contained in our registration statement on Form 8-A filed with the SEC on
October 9, 1998;
(4) Our current reports on Form 8-K dated December 1, 2003, as amended by Form
8-K/A filed February 13, 2004, February 3, 2004, (other than Exhibit 99.1 of
such report), April 27, 2004, (other than Exhibit 99.1 of such report), and May
6, 2004, (other than Exhibit 99.1 of such report).
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
that also is or is deemed to be incorporated by reference in this prospectus
modifies, supersedes or replaces such statement. Any statement so modified,
superseded or replaced shall not be deemed, except as so modified, superseded or
replaced, to constitute a part of this prospectus.
We will provide without charge to you, upon your written or oral request, a
copy of any or all of the information incorporated by reference in this
prospectus. Requests should be directed to:
Pegasus Solutions, Inc.
Campbell Centre I
8350 North Central Expressway, Suite 1900
Dallas, Texas 75206
Attention: Ric L. Floyd
(214) 234-4000
You should rely only on the information contained or incorporated by
reference in this prospectus. Pegasus has not authorized anyone to provide you
with different information. This prospectus is dated May ___, 2004. You should
not assume that the information contained in this prospectus is accurate as of
any date other than that date, or that any information incorporated by reference
is accurate as of any date other than the date of the related document.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. We intend those forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "plan," "estimate," "project," or similar expressions.
These forward-looking statements involve risks and uncertainties such as changes
in general economic conditions, variation in demand for our products and
services and in the timing of our sales, changes in product and price
competition for existing and new competitors, changes in our level of operating
expenditures, delays in developing, marketing and deploying new products and
services, terrorist activities, action by U.S. or other military forces, global
health epidemics, changes in hotel room rates, capacity adjustments by airlines,
negative trends in the overall demand for travel, other adverse changes in
general market conditions for business and leisure travel, as well as other
risks and uncertainties described in or incorporated by reference into this
prospectus.
Our ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Actual results could differ materially from
those in forward-looking statements. All forward-looking statements included in
this prospectus are based on information available to us on the date hereof, and
we assume no obligation to update any such forward-looking statements. Although
we undertake no obligation to revise or update any forward-looking statements,
whether as a result of new information, future events or otherwise, you are
2
advised to consult any additional disclosures we make in our quarterly reports
on Form 10-Q, annual report on Form 10-K and current reports on Form 8-K filed
with the SEC. See "Information Incorporated by Reference."
3
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in, or incorporated
by reference into, this prospectus about our company. This summary may not
contain all of the information that may be important to you. You should read the
entire prospectus, including the Risk Factors section beginning on page 9, and
the financial data and related notes included in this prospectus and
incorporated by reference herein, before making an investment decision.
PEGASUS SOLUTIONS, INC.
OUR BUSINESS
Pegasus is a leading provider of hotel room reservation services,
reservation technology systems and hotel representation services for the global
hospitality industry. Our customers and distribution channels include:
- - Tens of thousands of travel agency locations around the world, including
the 10 largest U.S.-based travel agencies based on revenues;
- - More than 50,000 hotel properties around the globe, including the 50
largest hotel brands in the world based on total number of guest rooms; and
- - Thousands of Web sites that have their hotel reservations "Powered by
Pegasus(TM)".
Our services generate multiple revenue opportunities for each hotel
reservation transaction. These services include outsourced central reservation
systems, or CRS, electronic distribution connectivity, travel agent commission
processing and property management system, or PMS, solutions to the global hotel
industry. We also provide hotel representation services to independent hotels
and small hotel groups around the world. Listed below is a brief description
of our service offerings:
Central Reservation Systems. We provide our CRS service on an application
service provider basis to approximately 7,500 hotel properties, representing
approximately 1.3 million hotel rooms worldwide (including our full-service
representation properties).
Electronic Distribution. We provide a seamless electronic connection
between a hotel's CRS and a variety of hotel room distribution channels. Our
electronic distribution service is linked to the four major GDSs and, therefore,
connects our hotel customers to travel agents around the world. This service
also provides travel-related Internet sites on-line hotel reservation
capability.
Financial Services. We are the leader in hotel commission payment
processing. We provide comprehensive commission payment, processing and
management solutions to more than 35,000 participating hotel properties, other
travel suppliers and travel agency customers in more than 200 countries. We also
offer our payment processing services under the name PegsPay primarily to travel
distributors.
Property Management Systems. We operate an Internet-based, hospitality
enterprise system, PegasusCentral(TM) which is a property management system
available on an application service provider basis over the Internet. This
feature enables hotels to implement our software without a significant initial
investment or training commitment. In addition, PegasusCentral provides both CRS
and PMS functions from a central database. Inter-Continental Hotel Group named
PegasusCentral as one of two preferred PMS standards for its Holiday Inn and
Holiday Inn Express properties.
Hotel representation services. We are the world's largest hotel
representation company. Our representation services, including Utell by Pegasus
(TM) and Unirez by Pegasus(TM), are used by approximately 7,300 independent
hotels around the world. In order to sell their rooms in the marketplace, many
independent hotels and small hotel groups associate themselves with our
representation services and use our systems and infrastructure to accept
reservations for their rooms. Hotels typically utilize our representation
services to obtain a presence in the primary electronic distribution channels
(GDSs and the Internet) through our CRSs and global voice reservation
capability.
4
OUR STRATEGY
Our goal is to be the leading provider of transaction processing services
and technology solutions in hotel room distribution and to be the leading
provider of hotel representation and marketing services to independent hotels
and small hotel chains. We believe our central role as a service provider to the
hospitality industry positions us well to achieve this goal. Key elements of our
strategy include the following:
- - Improve Customer Satisfaction. During 2003, we launched an extensive
customer satisfaction initiative beginning with a comprehensive customer
satisfaction survey. The survey results laid the groundwork for developing a
customer service vision and the metrics and tools to help us measure our
performance against our customers' expectations. In 2004, we are embarking on a
company-wide campaign to embrace customer satisfaction as part of our corporate
culture. To emphasize the importance of customer satisfaction, a portion of our
employees' compensation will be tied to customer satisfaction benchmarks. We
plan to implement initiatives to continually monitor and evaluate our
performance.
- - Expand Our Revenue Base. We intend to expand our revenue base domestically
and internationally by adding customers and by cross-selling new and existing
services to our current and future customers. We believe that by bundling our
existing services with new services such as our connectivity representation
service - Unirez by Pegasus(TM), PegasusCentral(TM), PegsPay(TM) and
PegsTour(TM), we can increase our revenue base and provide comprehensive
solutions for both new and existing customers.
- - Pursue New Hospitality and Travel Markets. We intend to pursue new
hospitality markets, such as the wholesale and leisure tour operator markets.
This market is very fragmented and has a high degree of manual processes which
can benefit from the automation of our distribution services. To expedite our
entry into this market, we acquired a developer of tour operator software during
2003. We plan to introduce our new group and tour service offering PegsTour
within the next year. We also plan to expand the use of our services,
particularly our financial services, into other travel markets, such as car
rental and cruises.
- - Develop Leading Technologies and Expedite the Speed to Market on New
Products. We strive to develop new technologies, services and solutions to meet
The changing needs of our current and prospective customers. Under new
Information technology leadership, we are currently improving the
organizational structure and processes of our information technology department
with a focus on expediting the time to market of new product development.
- - Grow Hotel Representation Business. Independent hotels and small hotel
groups have historically been more prominent internationally with the larger
hotel chains being more recognized in the United States. We believe consumers'
demand for a unique hotel experience, combined with lower cost distribution
channels such as the Internet, will increase the presence of independent hotels
and small hotel companies internationally and in the United States. Our strategy
is to offer this hotel segment services ranging from a basic central reservation
system, or CRS, connection to full service representation, which includes
marketing and voice reservation outsourcing. In December 2003, we acquired
Unirez, which offered a connectivity-only service and fulfilled our multi-tiered
representation strategy for independent hotels and small hotel groups. We also
plan to continue focusing on travel agency relationships by automating the
commission payment process and encouraging our hotel customers to pay
commissions.
- - Build Strategic Alliances and Partnerships. We seek to build strategic
alliances and partnerships, particularly related to sales distribution and
product packaging. We believe that these relationships will broaden the brand
recognition and market presence of our services and help to expand our customer
base. We may also seek to acquire assets, technology and businesses that provide
complementary services to our existing customers or access to other new
travel-related markets and customers.
5
STRATEGIC INTEGRATION
Previously, our services were organized into two business segments -
technology and hospitality. During 2003, we completed a strategic
reorganization to integrate our technology and hospitality segments into one
operating unit. As a result, we have integrated support functions, including
sales and marketing, product development, service delivery, reservation/data
management, information technology, finance and human resources functions. The
integration plan continues our existing strategy of better aligning our
businesses with our customers' needs, thus allowing for future revenue growth
and the realization of further synergies as one fully integrated company.
OUR CORPORATION INFORMATION
Pegasus Solutions, Inc., a Delaware corporation, was incorporated in 1995.
Our executive offices are located at Campbell Centre I, 8350 North Central
Expressway, Suite 1900, Dallas, Texas 75206, and our telephone number is (214)
234-4000. Our Internet address is www.pegs.com. The information on our website
is not, and you should not consider such information to be, a part of this
prospectus.
TERMS OF THE NOTES
This prospectus covers the resale of $75,000,000 aggregate principal
amount of the notes and 3,726,060 shares of our common stock, plus an
indeterminate number of additional shares of common stock that may be issued
from time to time upon conversion of the notes as a result of a stock split,
stock dividend, recapitalization or other event described in this prospectus.
We issued and sold $75,000,000 aggregate principal amount of the notes
on July 21, 2003, in a private offering to Bear, Stearns & Co. Inc., J.P. Morgan
Securities Inc. and Thomas Weisel Partners LLC (the "Initial Purchasers"). We
were told by the Initial Purchasers that the notes were resold in transactions
which were exempt from the registration requirements of the Securities Act to
persons reasonably believed by the Initial Purchasers to be "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act).
Shares of the common stock may be offered by the selling
securityholders following the conversion of the notes.
The following is a brief summary of the terms of the notes. For a
more complete description of the notes, see the section entitled "Description of
the Notes" in this prospectus.
Notes $75,000,000 aggregate principal amount of 3.875%
Convertible Senior Notes due July 15, 2023.
Maturity July 15, 2023.
Ranking The notes are our general unsecured obligations,
ranking on parity in right of payment with all our
existing and future unsecured senior indebtedness,
and senior in right of payment with all our future
subordinated indebtedness. The notes are effectively
subordinated to any of our secured senior
indebtedness to the extent of the assets securing
such indebtedness and to the claims of all creditors
of our subsidiaries.
Interest The notes bear interest at a fixed annual rate of
3.875% to be paid semiannually in arrears in cash
every July 15 and January 15 of each year, beginning
on January 15, 2004. Interest is computed
semi-annually on the basis of a 360-day year
comprised of twelve 30-day months.
6
Conversion Rights Holders may convert the notes into shares of our
common stock only:
- during any calendar quarter if the closing sale
price of our common stock for at least 20 trading
days in the 30 trading day period ending on the
last trading day of the immediately preceding
calendar quarter is greater than or equal to 120%
of the conversion price in effect on that 30th
trading day;
- if we have called those notes for redemption; or
- upon the occurrence of specified corporate
transactions described under "Description of Notes
- Conversion Rights - Conversion Upon Specified
Corporate Transactions."
The notes have an initial conversion rate of 49.6808
shares of common stock per $1,000 principal amount of
notes converted, which represents an initial
conversion price of $20.13 per share. The conversion
rate, and thus the conversion price, are subject
to adjustment under certain circumstances.
Upon conversion, a holder will not receive any
payment representing accrued and unpaid interest or
additional amounts, if any.
Sinking Fund None.
Optional Redemption On or after July 15, 2008, upon at least 30 days'
notice, we may redeem for cash all or a portion of
the notes at any time for a price equal to 100% of
the principal amount of the notes to be redeemed,
plus accrued and unpaid interest and additional
amounts, if any, to but excluding the redemption
date. See "Description of Notes - Redemption
at Our Option."
Purchase of Notes
at Holder's Option Holders of the notes have the right to require us to
purchase all or a portion of their notes for cash on
July 16, 2008, July 16, 2013 and July 16, 2018, each
of which we refer to as a purchase date. In each
case, upon at least five business days' prior notice
we will pay a purchase price equal to 100% of the
principal amount of notes to be purchased, plus
any accrued and unpaid interest and additional
amounts, if any, to but excluding the purchase date.
See "Description of Notes - Purchase of Notes at
a Holder's Option" and "Risk Factors - We may be
unable to repay or purchase the principal amount of
the notes."
Fundamental Change Upon the occurrence of a fundamental change, as
described in this prospectus, and before the
maturity or redemption of the notes, a holder will
have the right to require us to purchase for cash all
or part of the notes at a price equal to 100%
of their principal amount plus accrued and unpaid
interest and additional amounts, if any. See
"Description of the Notes - Purchase of Notes at a
Holder's Option Upon a Fundamental Change" and "Risk
Factors - We may be unable to repay or purchase the
principal amount of the notes."
7
Registration Rights We have agreed to file with the SEC, within 90 days
after the original issuance of the notes, and use
our reasonable best efforts to cause to become
effective within 180 days after the original
issuance of the notes, the registration statement
of which this prospectus is a part. We have agreed to
use our reasonable best efforts to keep this
registration statement effective until the earliest
of:
- some transfer restrictions on the notes and the
shares of our common stock into which the notes
are convertible (which we sometimes refer to as
the "conversion shares") are terminated as a
result of the application of Rule 144(k);
- the date when the holders of the notes and the
conversion shares have been resold pursuant to
Rule 144 under the Securities Act;
- the date when all of the notes and the conversion
shares are registered under the registration
statement and disposed of in accordance with
the registration statement; and
- the date when all of the notes and the conversion
shares have ceased to be outstanding (whether as a
result of redemption, purchase and cancellation,
conversion or otherwise).
See "Description of Notes - Registration Rights."
Book-Entry Form The notes were issued in book-entry form and are
represented by a permanent global certificate
deposited with, or on behalf of, The Depositary Trust
Company, or DTC, and registered in the name of a
nominee of DTC. Beneficial interests in any of the
notes are shown on, and transfers will be effected
only through, records maintained by DTC or its
nominee and any such interest may not be exchanged
for certificated securities, except in limited
circumstances.
Trading The notes are new securities and there is currently
no established market for the notes. Further, no
assurance can be given as to the liquidity or trading
market for the notes. The Initial Purchasers of the
notes have advised us that they currently intend
to make a market in the notes. However, the Initial
Purchasers are not obligated to do so and may
discontinue any market making with respect to the
notes without notice. We do not intend to apply for
listing of the notes on any securities exchange or
automated dealer quotation system.
Nasdaq National
Market Symbol of our
Common Stock PEGS
8
RISK FACTORS
In deciding whether to purchase our securities, you should carefully
consider the risks described below, which could cause our operating results and
financial condition to be materially adversely affected, as well as other
information and data included or incorporated by reference in this prospectus.
RISKS RELATED TO OUR INDUSTRY
A WEAKENED ECONOMIC CLIMATE AND OTHER WORLD EVENTS MAY ADVERSELY AFFECT OUR
STOCK PRICE, OPERATIONS AND FINANCIAL PERFORMANCE.
A weakened economic climate and the other world events, such as the
continuing threat of terrorism, the war in Iraq, health epidemics and continuing
geopolitical uncertainty, have adversely impacted the travel industry and our
business. These events were preceded by the terrorist attacks of September 11,
2001, which resulted in sharp declines in both the number of hotel room
reservations and the average daily rate charged for hotel rooms. The overall
long-term impact of these events on Pegasus and the travel industry is
uncertain, but their continued existence is likely to have a material adverse
effect on our business, operating results and financial condition.
AS NEARLY ALL OF OUR REVENUES ARE DERIVED FROM THE HOTEL INDUSTRY, A DOWNTURN IN
THE HOTEL INDUSTRY WOULD LIKELY ADVERSELY AFFECT OUR BUSINESS.
Nearly all of our revenues are directly or indirectly dependent on the
hotel industry, which is highly sensitive to any change in the economic
conditions affecting business and leisure travel as well as the matters
addressed in the preceding risk factor. The hotel industry is susceptible to
rapid and unexpected downturns, as experienced after the events of September 11,
2001, the war in Iraq, and the SARS health crisis. In the event of any further
downturn in the hotel industry, we would likely experience significantly reduced
revenues, as the use of our services and the demand for our future services and
solutions would decline. A continued downturn in the hotel industry or any
reduction in the demand for hotel rooms and travel generally, would negatively
impact our business, operating results and financial condition. Many factors
affect the hotel industry, most of which are beyond our control. The hotel
industry and demand for hotel rooms or travel may be affected by, among other
things:
- - General economic conditions including recession, inflation and currency
fluctuations
- - Political instability
- - Increased government regulation and enforcement
- - Global or regional health issues
- - Gasoline and aviation fuel price escalation
- - Labor strikes
- - Instability in the airline industry
We may experience substantial period-to-period fluctuations in our results
of operations as a consequence of these factors and others and the general
economic conditions affecting the demand for hotel rooms and travel.
REDUCTIONS IN ROOM RATES AND HOTEL COMMISSION PAYMENTS WOULD REDUCE OUR REVENUES
AND NET INCOME.
Pegasus financial services, which includes our commission processing
service, derives revenues based on the dollar value of travel agency commissions
paid by hotels. The dollar value of these commissions is based on the number of
reservations, the length of stay and the room rate. Hotels typically are under
no contractual obligation to pay room reservation commissions to travel
agencies. Hotels could elect to reduce the current industry customary commission
rate of 10 percent, limit the maximum commission generally paid for a hotel room
reservation or eliminate commissions entirely. Hotels increasingly utilize other
direct distribution channels, like the Internet, or offer negotiated rates to
major corporate customers that are non-commissionable to travel agencies. If
there is any decline in average daily room rates, change in the commission
payment process, reduction in the amount of commissions paid for reservations or
any increase in the direct distribution of rooms by hotels, our revenues and net
income could substantially decrease.
9
CONSOLIDATION IN THE HOTEL INDUSTRY AND ELECTRONIC RESERVATIONS INDUSTRY COULD
RESULT IN REDUCED REVENUES.
We offer volume-based discounted fees for some of our services. The recent
consolidation in the hotel industry has resulted in a higher percentage of
discounted fees, and this trend could continue. In addition, the GDS industry
has consolidated into four major GDSs. If further consolidation occurs, the
value of our services and the benefits to hotel operators of utilizing our GDS
distribution service would be reduced. Any potential decrease in our customer
base or any potential increase in the percentage of discounted fees may
adversely affect the profitability of our business.
RISKS RELATED TO THE COMPANY
LOSS OF OUR ARRANGEMENTS WITH KEY CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS.
Our business is dependent upon our customer arrangements with hotel chains,
independent hotels, hotel representation firms, travel management companies,
travel agencies, travel agency consortia, global distribution systems,
travel-related Web sites and Internet-based information and reservation systems.
In the future, our customers may elect to perform certain functions themselves,
may circumvent our services, may select the services of competing companies, or
we may otherwise be unable to continue or renew these arrangements on favorable
terms or initiate new arrangements. In addition, customers may elect to utilize
our lower cost service offerings over our higher-priced offerings that provide
us with greater revenue. For example, our representation customers may switch
from our full service offering Utell by Pegasus to our connectivity only
offering Unirez by Pegasus, resulting in less revenue to us. If we are unable to
renew, continue or initiate customer arrangements on a favorable basis, it could
result in a significant reduction in our customer base and revenue sources.
LOSS OF THIRD PARTY SERVICE ARRANGEMENTS COULD ADVERSELY AFFECT OUR BUSINESS.
We rely on third parties for many services, including remittance and
worldwide currency exchange services for our commission processing service and
for facility maintenance and SAP hosting. If we are unable to renew or extend
our contracts with existing third-party service providers or enter into
contracts with alternate service providers on favorable terms, it could
adversely affect our business, operating results and financial condition.
IF WE DO NOT DEVELOP NEW TECHNOLOGIES AND SERVICES IN A TIMELY MANNER WITH
ACCEPTABLE PERFORMANCE LEVELS THAT MEET THE CHANGING NEEDS OF PARTICIPANTS IN
THE HOTEL INDUSTRY OR THE NEW TECHNOLOGIES AND SERVICES WE DEVELOP ARE NOT
UTILIZED, WE MAY BE UNABLE TO COMPETE EFFECTIVELY AND OUR CONTINUING OPERATIONS
MAY BE ADVERSELY AFFECTED.
Our future success depends on our ability to develop leading technologies,
enhance our existing services and develop and introduce new services in a timely
manner and with acceptable performance levels. In particular, our technologies
and services must meet the needs of our current and prospective customers. They
also must continue to meet the demands of technological advances and emerging
industry standards and practices on a timely and cost-effective basis. Although
we strive to be a technological leader, future technology advances may not
complement or be compatible with our services. In addition, we may be unable to
economically and timely incorporate technology changes and advances into our
business. We may be unsuccessful in effectively using new technologies, adapting
our services to emerging industry standards or developing, introducing and
marketing service enhancements or new services in a timely manner and with
acceptable performance levels.
We also may experience difficulties that could delay or prevent the
Successful development or introduction of these services. It is also possible
that a new service, while achieving a technological success, may fail to be
accepted and utilized by prospective customers.
10
We also rely increasingly on third party arrangements for the development
And provision of our services. Such "outsourcing" presents a number of risks
primarily relating to our reduced control of the operations that are outsourced.
Further, because much outsourcing occurs outside of the U.S., these activities
are subject to the risks of international operations, including the risk of
increased governmental regulation of these activities.
If we are unable to develop and introduce new services or enhance existing
services on a timely and cost-effective basis or if new services do not achieve
market acceptance, it could adversely affect our ability to compete in the
marketplace and negatively affect our business, operating results and financial
condition.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN DELIVERING SERVICES AND SOLUTIONS TO
THE HOTEL INDUSTRY, WE MAY LOSE MARKET SHARE AND BE FORCED TO REDUCE THE PRICES
OF OUR SERVICES.
We compete in markets that are rapidly evolving, intensely competitive and
involve continually changing technology and industry standards. We may
experience increased competition from current and potential competitors, many of
which have significantly greater financial, technical, marketing and other
resources than we possess. Competitive pressures could reduce our market share
or require us to reduce the prices of our services. Our inability to compete
effectively with these services could adversely affect our business, operating
results and financial condition.
OUR COMPUTER SYSTEMS AND DATABASES MAY SUFFER SYSTEM FAILURES, BUSINESS
INTERRUPTIONS OR SECURITY BREACHES THAT COULD IMPEDE OUR ABILITY TO SERVICE OUR
CUSTOMERS AND COULD NEGATIVELY IMPACT OUR BUSINESS.
Our operations depend on our ability to protect our computer systems and
databases against damage or system interruptions from fire, earthquake, power
loss, telecommunications failure, unauthorized entry or other events beyond our
control. A significant amount of our computer equipment is located in
Scottsdale, Arizona. Any unanticipated problems may cause a significant system
outage or data loss. Despite the implementation of security measures, our
infrastructure may also be vulnerable to break-ins, computer viruses or other
disruptions caused by our customers or others. Our infrastructure may also fail
to provide consistent dependable service as a result of circumstances both in
and out of our control. Any damage to our databases, failure of communication
links, security breach or other loss that causes interruptions in our operations
could adversely affect our business, operating results and financial condition.
WE MAY NOT HAVE THE RESOURCES TO EFFECTIVELY MANAGE OUR GROWTH, AND DIFFICULTIES
IN MANAGING AND INTEGRATING ORGANIZATIONS MAY CAUSE FUTURE ACQUISITIONS OR JOINT
VENTURES TO DISRUPT OUR OPERATIONS AND IMPEDE OUR OPERATING RESULTS.
Our potential future growth may place significant demands on management as
well as on our administrative, operational and financial resources. Expanding
our business to take advantage of new market opportunities will require
significant management attention and Company resources, possibly adversely
impacting our existing operations.
In addition to our 2003 acquisitions of Total Distribution System Limited,
or TDS, and Unirez, we regularly evaluate acquisition and joint venture
opportunities and in the future may make additional acquisitions of other
companies or technologies or enter into joint ventures. Acquisition and joint
ventures involve many risks including:
- - Difficulty in integrating or otherwise assimilating technologies, products,
personnel and operations
- - Diversion of management's attention from other business concerns
- - Issuance of dilutive equity securities and the incurrence of debt or
contingent liabilities
- - Large write-offs and amortization expense related to identifiable intangible
assets
11
- - Loss of key employees of acquired organizations
- - Risks of entering markets in which we have no or limited prior experience
- - Payments of cash and the assumption of liabilities of other businesses
Our inability to manage growth or to integrate any acquisitions or joint
ventures could adversely affect our business, operating results and financial
condition.
BECAUSE OUR EXPENSES ARE LARGELY FIXED IN THE SHORT-TERM AND WE CANNOT
ACCURATELY PREDICT OUR COMPETITIVE ENVIRONMENT, UNEXPECTED REVENUE SHORTFALLS
AND QUARTERLY VARIATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
Our expense levels are based primarily on our estimate of future revenues
and are largely fixed in the short-term. In the future, we may not accurately
predict the introduction of new or enhanced services by us or our competitors or
the degree of customer acceptance of new services. In the short-term, we may
also be unable to adjust spending rapidly enough to compensate for any
unexpected revenue shortfall. This could adversely impact our business,
operating results and financial condition.
It is possible that in one or more future quarters our results may fall
Below the expectations of securities analysts or investors. In addition, our
Operating results may vary significantly from quarter to quarter due to a
variety of factors, many of which are outside of our control. We believe
that period-to-period comparisons of our operating results should not be relied
upon as an indication of future performance.
WE ARE EXPOSED TO CREDIT RISK FROM HOTELS, TRAVEL-RELATED WEB SITES AND OTHER
CUSTOMERS.
Many of our customers are independent hotels, travel-related Web sites and
other travel industry participants that are particularly exposed to any downturn
in the economy and other factors that adversely impact the hotel industry. Some
of these customers may have inadequate financial strength to make current
payments to us or remain as going concerns. In some instances we may be unable
to collect payments from these customers or we may extend credit to them in the
form of unsecured promissory notes or otherwise. Even though we have policies in
place to reduce our exposure to credit risk and have not experienced any
degradation in overall collectibility of accounts receivable, our inability to
collect payments from these customers in the future could result in a material
adverse effect on our business, operating results and financial condition.
As of December 31, 2003, we had accounts receivable as a result of our
ongoing operations of approximately $25.2 million. Additionally, we had notes
receivable of approximately $7.5 million at December 31, 2003, primarily related
to the sale of business units to IndeCorp Corporation. Our receivables,
including the amounts due and payable to us by IndeCorp, are monitored by
management for collectibility. We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of parties to make required
payments, including the amounts payable by IndeCorp under promissory notes
payable to us. These estimates of losses require judgments that are based on
available information and experience, such as the payment histories and known
financial conditions of the parties. These estimates are significant because we
may incur additional expense for past or future fiscal periods to increase our
allowance for doubtful accounts and we may receive less cash than expected if
the financial condition of the parties were to deteriorate resulting in an
impairment of their ability to make payments.
OUR INTERNATIONAL OPERATIONS MAKE US SUSCEPTIBLE TO CURRENCY FLUCTUATIONS,
GLOBAL ECONOMIC FACTORS, FOREIGN TAX LAW ISSUES, INFORMATION PRIVACY LAWS AND
FOREIGN BUSINESS PRACTICES, WHICH COULD REDUCE OUR REVENUES, INCREASE OUR COST
OF DOING BUSINESS AND ERODE OUR PROFIT MARGINS.
We derive a substantial portion of our revenue from customers located
outside the United States, primarily in Europe. If the value of foreign
currencies relative to the U.S. Dollar decreases, our revenues translate to a
lower U.S. Dollar amount.
Our international operations are also subject to other risks, including:
12
- - Impact of possible adverse political and economic conditions
- - Potentially adverse tax consequences
- - Impact of the policies and regulations of the United States and foreign
governments on foreign trade and commerce, such as the USA PATRIOT Act
- - Compliance with information privacy laws and related enforcement actions
- - Reduced protection for intellectual property rights in some countries
- - Changes in regulatory requirements
- - Cost of adapting our services to foreign markets
- - High costs associated with office closures and personnel reductions
If we do not realize our expected results from international operations or
if the value of foreign currencies decrease relative to the U.S. Dollar, our
business, operating results and financial condition would be adversely affected.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR PREVENT THEIR
UNAUTHORIZED USE, WHICH COULD DIVERT OUR FINANCIAL RESOURCES AND HARM OUR
BUSINESS.
Our success depends upon our proprietary technology and other intellectual
property rights. We currently rely upon a combination of trademark, patents,
copyright, trade secrets, confidentiality procedures and contractual provisions
to protect our proprietary technology and other intellectual property. Despite
our current efforts to protect our proprietary rights, these protective measures
may not be enforceable or adequate to prevent misappropriation or infringement
of our technology. In addition, we may need to litigate claims against third
parties to enforce our intellectual property rights, protect our trade secrets,
determine the validity and scope of the proprietary rights of others or defend
against claims of infringement or invalidity. This litigation could result in
substantial cost and diversion of management resources. A successful claim
against us could effectively block our ability to use or license our technology
and other intellectual property in the United States or abroad. If we cannot
adequately protect our proprietary rights, it could adversely affect our
competitive edge in the marketplace and consequently our business, operating
results and financial condition.
OUR SUCCESS SIGNIFICANTLY DEPENDS ON THE EXPERIENCE OF OUR KEY PERSONNEL AND OUR
ABILITY TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL.
Our success depends on our ability to retain the services of our current
executive officers and other key personnel, and to manage effectively any
transition in the event of a change in such key personnel. Even though we
currently have "key-man" insurance covering our CEO, this insurance amount may
not adequately compensate us for the loss of his services and does not cover
other key personnel. We cannot guarantee that we will be able to successfully
identify, attract, motivate and retain other highly skilled personnel in a
timely and effective manner. Our failure to retain our officers and key
personnel or to recruit new personnel could adversely affect our business,
operating results and financial condition.
GOVERNMENT REGULATION, NEW OR AMENDED LAWS AND OTHER LEGAL UNCERTAINTIES COULD
FORCE US TO CHANGE OUR OPERATIONS.
Our operations are subject to the laws and regulations of the United States
and numerous states and international jurisdictions. Changes regarding any of
these laws and regulations, their enforcement or our understanding of the
applicable requirements could force us to change our operations or result in
other uncertain consequences. Also, our primary customers are hotel chains,
independent hotels, hotel representation firms and travel agencies, and we
participate in a venture with six other companies. As a result of these
relationships, any federal, state or foreign governmental authorities,
competitors or consumers could raise anti-competitive concerns regarding our
relationship with our customers or otherwise. In addition, we are subject to the
same federal, state and local laws as other companies conducting business on the
Internet. Many of these laws and regulations are new, have not yet been
thoroughly interpreted by the courts, and are subject to change by many
jurisdictions, including federal, state, municipal and international
jurisdictions. Any change in these laws or regulations, or any such actions or
similar allegations by third parties, could have a material adverse effect on
our business, operating results and financial condition.
13
WE HAVE DETERRENTS THAT MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING CONTROL OF
PEGASUS, AND SUCH DETERRENTS MAY PREVENT AN ACQUISITION OF PEGASUS THAT MAY BE
IN YOUR BEST INTEREST.
Provisions in our certificate of incorporation and bylaws could make it
more difficult for a third party to acquire us. These provisions include the
staggered terms of our board of directors, the exclusive right of the board of
directors to fill vacancies on the board, and restrictions on the right of
stockholders to remove members of the board of directors. We are also subject to
the provisions of Delaware law that restrict certain business combinations with
interested stockholders even if such a combination would be beneficial to
stockholders. Under Delaware law, a Delaware corporation may opt out of the
anti-takeover provisions. We do not intend to opt out of these anti-takeover
provisions. In addition, we have a stockholder rights plan. The rights are
exercisable only if a person or group of affiliated persons acquires, or has
announced the intent to acquire, 20 percent or more of our common stock.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control transaction. They could also discourage
others from making tender offers for our shares. As a result, these provisions
may prevent the market price of our common stock from reflecting the effects of
actual or rumored takeover attempts. These provisions may also prevent
significant changes in our board of directors and our management.
LITIGATION OR OTHER PROCEEDINGS COULD RESULT IN SUBSTANTIAL COSTS AND DIVERT OUR
MANAGEMENT'S TIME AND ATTENTION.
From time to time, we are involved in legal and other regulatory
proceedings. We intend to defend our rights vigorously during any of these
proceedings. Regardless of the merits of any issues raised in any of these
proceedings, our involvement could result in substantial costs and divert
management's time and attention from our business, which could adversely affect
our business, financial condition and results of operations.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE EXTREMELY VOLATILE DUE TO MANY
FACTORS.
Several factors have caused, and may in the future cause, our stock price
to be extremely volatile. Our stock price could be subject to wide fluctuations
in response to a variety of factors including the following:
- - Acts of terrorism, retaliation for such acts and the prospect of war
- - Actual or anticipated variations in our quarterly operating results
- - Our ability to successfully develop, introduce and gain acceptance of new or
enhanced products and services to the hotel industry on a timely basis
- - Unexpected changes in demand for our services and solutions
- - Unpredictable volume and timing of customer revenues due to seasonality in
The travel industry, the terms of customer contracts and other factors
- - Purchasing and payment patterns, as well as pricing policies, of our
competitors
- - Announcements of technological innovations or new services by us or our
competitors
14
- - Changes in financial estimates by securities analysts
- - Conditions or trends in the Internet and online commerce industries
- - Changes in the market valuations of other similarly situated companies
- - Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments
- - Market fluctuations and performance of the hotel industry
- - Unscheduled system downtime
- - Lack of confidence in the Company's ability to execute on certain
products or services
In addition, the trading prices of hospitality and technology stocks in
general have historically experienced extreme price and volume fluctuations. Any
negative changes in the public's perception of the prospects of hospitality or
electronic commerce companies or other broad market and industry factors could
depress our stock price regardless of our operating performance. Market
fluctuations, as well as general political and economic conditions, such as
recession or interest rate or currency rate fluctuations, also may decrease the
market price of our common stock. Sales of substantial amounts of shares of our
common stock in the public market, or the perception that those sales may occur,
could cause the market price of our common stock to decline.
OUR MINORITY INTEREST AND OTHER INVESTMENTS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
We have in the past and may in the future make investments in other
companies and ventures. There can be no assurance of the success of any such
investment. Additionally, Financial Accounting Standards Board Interpretation
No. 46 may require us to consolidate entities with which we have an affiliation
but no voting or operational control. In doing so, we may have little or no
control over the success of the company or venture and we may be required to
record the losses of these consolidated entities in our financial statements.
RISKS RELATED TO THE NOTES AND OUR COMMON STOCK
WE INCREASED OUR LEVERAGE AS A RESULT OF THE SALE OF THE NOTES.
In connection with the sale of the notes, we incurred $75 million of
indebtedness. As a result of this indebtedness, our interest payment obligations
have increased. The degree to which we are leveraged could adversely affect our
ability to obtain further financing for working capital, acquisitions or other
purposes and could make us more vulnerable to industry downturns and competitive
pressures. Our ability to meet our debt service obligations will be dependent
upon our future performance, which will be subject to the financial, business
and other factors affecting our operations, many of which are beyond our
control.
WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH FLOW TO SATISFY OUR DEBT SERVICE
OBLIGATIONS.
Our ability to generate cash flow from operations to make interest payments
on the notes will depend on our future performance, which will be affected by a
range of economic, competitive and business factors. We cannot control many of
these factors, including general economic conditions and the health of the hotel
industry. If our operations do not generate sufficient cash flow from operations
to satisfy our debt service obligations, we may need to borrow additional funds
to make these payments or undertake alternative financing plans, such as
refinancing or restructuring our debt, or reducing or delaying capital
investments and acquisitions. Additional funds or alternative financing may not
be available to us on favorable terms, or at all. Our inability to generate
sufficient cash flow from operations or obtain additional funds or alternative
financing on acceptable terms could have a material adverse effect on our
business, financial condition and results of operations.
15
WE MAY BE UNABLE TO REPAY OR PURCHASE THE PRINCIPAL AMOUNT OF THE CONVERTIBLE
NOTES.
At maturity, the entire outstanding principal amount of the notes will
become due and payable by us. In addition, on July 16, 2008, July 16, 2013 and
July 16, 2018 or if a fundamental change occurs, as defined in the indenture
relating to the convertible notes, each holder of the convertible notes may
require that we purchase all or a portion of that holder's notes. We cannot
assure you that we will have sufficient funds or will be able to arrange for
additional financing to pay the principal amount or purchase price due. In that
case, our failure to repay the convertible notes at maturity or to purchase any
tendered notes would constitute an event of default under the indenture.
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES.
There is no established trading market for the notes. We have no plans to
list the notes on a securities exchange. The Initial Purchasers of the notes
may make a market in the notes. However, the Initial Purchasers are not
obligated to do so. Any market-making activity, if initiated, may be
discontinued at any time, for any reason or for no reason, without notice. If
the Initial Purchasers cease to act as the market makers for the notes, we
cannot assure you another firm or person will make a market in the notes. The
liquidity of any market for the notes will depend upon the number of holders of
the notes, our results of operations and financial condition, the market for
similar securities, the interest of securities dealers in making a market in the
notes and other factors. An active or liquid trading market for the notes may
not develop.
WE EXPECT THAT THE TRADING VALUE OF THE NOTES WILL BE SIGNIFICANTLY AFFECTED BY
THE PRICE OF OUR COMMON STOCK.
The market price of the notes is expected to be significantly affected by
the market price of our common stock. This may result in greater volatility in
the trading value of the notes than would be expected for any non-convertible
debt securities we may issue.
THE NOTES ARE SUBORDINATED TO ALL OF OUR SECURED INDEBTEDNESS AND EFFECTIVELY
SUBORDINATED TO INDEBTEDNESS OF OUR SUBSIDIARIES.
The notes are our unsecured senior obligations and are not guaranteed by
any of our subsidiaries. Accordingly, the notes are junior to all of our current
and future secured indebtedness.
Our right to receive any distribution of assets of any subsidiary upon that
subsidiary's liquidation, reorganization or otherwise, is subject to the prior
claims of credits of that subsidiary, except to the extent we are also
recognized as a creditor of that subsidiary. As a result, the notes are
effectively subordinated to the claims of such creditors.
THERE ARE NO RESTRICTIVE COVENANTS IN THE INDENTURE RELATING TO OUR ABILITY TO
INCUR FUTURE INDEBTEDNESS OR COMPLETE OTHER FINANCIAL TRANSACTIONS.
The indenture governing the notes does not contain any financial or
operating covenants or restrictions on the payment of dividends, the incurrence
of indebtedness, transactions with affiliates, incurrence of liens or the
issuance or repurchase of securities by us or any of our subsidiaries. We
therefore may incur additional debt, including secured indebtedness senior to
the notes, or indebtedness at the subsidiary level to which the notes would be
structurally subordinated. As part of our strategy, we may use proceeds from
this offering to finance potential acquisition of companies and technologies,
which may cause us to incur significant indebtedness to which the notes would be
subordinate.
A higher level of indebtedness increases the risk that we may default on
our debt obligations. We cannot assure you that we will be able to generate
sufficient cash flow to pay the interest on our debt or that future working
capital, borrowings or equity financing will be available to pay or refinance
such debt. The indenture contains no covenants or other provisions to afford
protection to holders of the notes in the event of a fundamental change except
to the extent described under "Description of Notes - Purchase of Notes at a
Holder's Option Upon a Fundamental Change."
16
THE CONDITIONAL CONVERSION FEATURE OF THE NOTES COULD RESULT IN YOUR RECEIVING
LESS THAN THE VALUE OF THE COMMON STOCK INTO WHICH A NOTE IS CONVERTIBLE.
The notes are convertible into shares of our common stock only if specified
conditions are met. If the specific conditions for conversion are not met, you
will not be able to convert your notes, and you may not be able to receive the
value of the common stock into which the notes would otherwise be convertible.
OUR REPORTED EARNINGS PER SHARE MAY BE MORE VOLATILE BECAUSE OF THE CONTINGENT
CONVERSION PROVISION OF THE NOTES.
Holders of the notes are entitled to convert the notes into our common
stock, among other circumstances, if the closing sale price of our common stock
for at least 20 trading days in the 30 trading day period ending on the last day
of the immediately preceding calendar quarter is greater than or equal to 120%
of the conversion price in effect on that 30th trade day. Until this contingency
or another conversion contingency is met, the shares underlying the notes are
not included in that calculation of our basic or fully diluted earnings per
share. Should this contingency be met, fully diluted earnings per share would be
expected to decrease as a result of the inclusion of the underlying shares in
the fully diluted earnings per share calculation. Volatility in our stock price
could cause this condition to be met in one quarter and not in a subsequent
quarter, increasing the volatility of our fully diluted earnings per share.
THE NOTES MAY NOT BE RATED OR MAY RECEIVE A LOWER RATING THAN ANTICIPATED.
We do not intend to seek a rating on the notes and we believe it is
unlikely that the notes will be rated. However, if one or more rating agencies
rates the notes and assigns the notes a rating lower than the rating expected by
investors, or reduces their rating in the future, the market price of the notes
and our common stock could be adversely affected.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE EXTREMELY VOLATILE DUE TO MANY
FACTORS.
Several factors have caused, and may in the future cause, our stock price
to be extremely volatile. Our stock price could be subject to wide fluctuations
in response to a variety of factors including the following:
- - Acts of terrorism, retaliation for such acts and the prospect of war.
- - Actual or anticipated variations in our quarterly operating results.
- - Our ability to successfully develop, introduce and gain acceptance of new or
enhanced products and services to the hotel industry on a timely basis.
- - Unexpected changes in demand for our services and solutions.
- - Unpredictable volume and timing of customer revenues due to seasonality in
The travel industry, the terms of customer contracts and other factors.
- - Purchasing and payment patterns, as well as pricing policies, of our
competitors.
17
- - Announcements of technological innovations or new services by us or our
competitors.
- - Changes in financial estimates by securities analysts.
- - Conditions or trends in the Internet and online commerce industries.
- - Changes in the market valuations of other similarly situated companies.
- - Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments.
- - Market fluctuations and performance of the hotel industry.
- - Unscheduled system downtime.
In addition, the trading prices of hospitality and technology stocks in
general have historically experienced extreme price and volume fluctuations. Any
negative changes in the public's perception of the prospects of hospitality or
electronic commerce companies or other broad market and industry factors could
depress our stock price regardless of our operating performance. Market
fluctuations, as well as general political and economic conditions, such as
recession or interest rate or currency rate fluctuations, also may decrease the
market price of our common stock.
SALES OF A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC
MARKET, OR THE PERCEPTION OF SUCH SALES, COULD REDUCE OUR SHARE PRICE AND CAUSE
THE VALUE OF THE NOTES TO DECLINE.
Sales of substantial amounts of shares of our common stock in the public
market, or the perception that those sales may occur, could cause the market
price of our common stock to decline. Because the notes are convertible into
common stock only at a conversion price in excess of the recent trading price,
such a decline in our common stock price may also cause the value of the notes
to decline.
18
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods indicated is
as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1999 2000(1) 2001(1) 2002(1) 2003(1)
---- ------- ------- ------- -------
Ratio of earnings to
fixed charges (2) 36.8x -- -- -- --
- -----------------------
(1) Earnings available for fixed charges to achieve a 1:1 coverage ratio
were inadequate for certain periods, primarily due to purchase
accounting amortization. Specifically, purchase accounting amortization
was $41.3 million, $52.7 million, $31.5 million and $10.4 million for
2000, 2001, 2002, and 2003, respectively. The amount of additional
earnings needed to generate a coverage ratio of 1:1 was $32.5 million,
$38.0 million, $5.6 million and $2.7 million for 2000, 2001, 2002, and
2003, respectively.
(2) These computations include us and our consolidated subsidiaries. The
ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For purposes of this table, earnings constitute
the sum of pre-tax income from continuing operations before
adjustment for loss from equity investee and fixed charges.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale by any selling
securityholder of the notes or the underlying common stock into which the notes
may be converted.
DESCRIPTION OF THE NOTES
We issued the notes under an indenture (the "indenture"), dated as of July
21, 2003, between us and JPMorgan Chase Bank, a New York state banking
organization, as trustee (the "trustee"). Initially, JPMorgan Chase Bank will
also act as paying agent and conversion agent for the notes. The terms of the
notes include those provided in the indenture and also those provided in a
registration rights agreement.
The following description is only a summary of the material provisions of
the notes, the indenture and the registration rights agreement. We urge you to
read these documents in their entirety because they, and not this description,
define the rights of holders of the notes. See "Where You Can Find More
Information" for information on how to obtain a copy of the indenture (including
the form of note) and the registration rights agreement.
When we refer to "Pegasus Solutions," "we," "our" or "us" in this section
of the prospectus, we refer only to Pegasus Solutions, Inc., a Delaware
corporation, and not to any of our current or future subsidiaries.
BRIEF DESCRIPTION OF THE NOTES
The notes offered hereby:
- - are limited to $75 million in aggregate principal amount;
- - pay interest at an annual rate of 3.875% payable semi-annually in arrears
in cash on each July 15 and January 15, beginning January 15, 2004;
- - accrue additional amounts if we fail to comply with certain obligations as
set forth below under "- Registration Rights";
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- - were issued only in denominations of $1,000 principal amount and integral
multiples thereof;
- - are our general unsecured obligations, ranking equally with all of our
other existing and future unsecured senior indebtedness and senior in
right of payment with all of our future subordinated indebtedness;
the notes are effectively subordinated to all of our secured senior
indebtedness to the extent of the assets securing such indebtedness and,
as indebtedness of Pegasus Solutions, the notes are effectively
subordinated to all indebtedness and liabilities of our subsidiaries;
- - are convertible into our common stock initially at a conversion rate of
49.6808 shares of common stock per $1,000 principal amount of notes
(equivalent to an initial conversion price of $20.13 per share of common
stock), under the conditions and subject to the adjustments that are
described under "- Conversion Rights";
- - are redeemable by us at any time on or after July 15, 2008, upon at least
30 days' notice, at a price equal to 100% of the principal amount of the
Notes to be redeemed, plus accrued and unpaid interest and additional
amounts, if any, to but excluding the redemption date;
- - are subject to purchase by us at the holder's option on July 16, 2008,
July 16, 2013 and July 16, 2018, or upon a fundamental change of
Pegasus Solutions, as defined under "- Purchase of Notes at a Holder's
Option Upon a Fundamental Change," at a purchase price equal to 100% of
the principal amount of the notes plus accrued and unpaid interest and
additional amounts, if any, to, but not including, the purchase date;
and
- - are due on July 15, 2023 unless earlier converted, redeemed by us at our
option or purchased by us at a holder's option or upon a fundamental
change.
The indenture does not contain any financial covenants and does not
prohibit us from paying dividends, incurring additional indebtedness or issuing
or repurchasing our other securities. The indenture also does not protect a
holder of notes in the event of a highly leveraged transaction or a fundamental
change of Pegasus Solutions, except to the extent described under "- Purchase of
Notes at a Holder's Option Upon a Fundamental Change" below.
No sinking fund is provided for the notes and the notes are not subject to
defeasance. The notes were issued only in registered form, without coupons, in
denominations of $1,000 principal amount and whole multiples thereof.
A holder of notes may present definitive notes for conversion and
registration of transfer or exchange at an office or agency in the Borough of
Manhattan in New York City, New York. This office will initially be the
principal corporate trust office of the trustee. For information regarding
conversion and registration of transfer or exchange of global notes, see "-
Form, Denomination and Registration."
INTEREST
The notes bear interest at an annual rate of 3.875% per year from July 21,
2003. We will pay interest semi-annually in arrears in cash on July 15 and
January 15 of each year, beginning January 15, 2004, to the holders of record at
5:00 p.m., New York City time, on the preceding July 1 and January 1,
respectively. Interest generally is computed semi-annually on the basis of a
360-day year comprised of twelve 30-day months.
There are certain exceptions to the preceding sentence:
- - In general, we will not pay accrued interest on any notes that are
converted into our common stock. See "- Conversion Rights." If a holder of
notes converts after a record date for an interest payment but prior
to the corresponding interest payment date, the holder on the record date
will receive on that interest payment date accrued interest on those notes,
notwithstanding the conversion of those notes prior to that interest
payment date, because that holder will have been the holder of record on
the corresponding record date. However, at the time that holder surrenders
notes for conversion, the holder must pay to us an amount equal to the
interest that has accrued and that will be paid on the related interest
payment date. The preceding sentence does not apply, however, to a holder
that converts notes that are called by us for redemption after a record
date for an interest payment but prior to the corresponding interest
payment date. Accordingly, if we elect to redeem notes on a date that is
after a record date but prior to the corresponding interest payment date
and a holder of notes chooses to convert those notes, the holder will not
be required to pay us, at the time that holder surrenders those notes for
conversion, the amount of interest it will receive on the interest payment
date.
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- - We will pay interest to a person other than the holder of record on the
record date if we elect to redeem the notes on a date that is after a
record date but on or prior to the corresponding interest payment date.
In this instance, we will pay accrued and unpaid interest (including
additional amounts, if any) on the notes being redeemed to, but not
including, the redemption date to the same person to whom we will pay
the principal of those notes.
- - We will pay interest to a person other than the holder of record on the
record date if, in connection with a fundamental change, we elect a
fundamental change purchase date that is after a record date but on
or prior to the corresponding interest payment date. In this instance, we
will pay accrued and unpaid interest (including additional amounts, if
any) on the notes being purchased to, but not including, the purchase date
to the same person to whom we will pay the principal of those notes.
At maturity, interest on the definitive notes will be payable at the
principal corporate trust office of the trustee.
We will also pay additional amounts of interest on the notes under certain
circumstances described below under "- Registration Rights."
Cash interest otherwise payable will cease to accrue on a note upon its
maturity, conversion or purchase by us (including upon a fundamental change).
Additional amounts may continue to accrue even after conversion if we fail to
comply with certain obligations set forth under "- Registration Rights."
Except as provided below, we will pay interest on:
- - global notes to DTC in immediately available funds;
- - any definitive notes having an aggregate principal amount of $5 million or
less by check mailed to the holders of those notes; and
- - any definitive notes having an aggregate principal amount of more than $5
million by wire transfer in immediately available funds if requested by the
holders of those notes, otherwise by check mailed to the holders of these
notes.
We will not be required to make any payment on the notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next business day will be treated as though it were paid on the
original due date and no interest will be payable on the payment date for the
additional period of time.
RANKING
The notes are our general unsecured obligations, ranking on a parity in
right of payment with all our existing and future unsecured senior indebtedness,
and senior in right of payment with all our future subordinated indebtedness.
The notes are effectively subordinated to any of our secured senior indebtedness
to the extent of the assets securing such indebtedness and to the claims of all
creditors of our subsidiaries.
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As of December 31, 2003, we had no material indebtedness for borrowed
money, other than the convertible notes. However, we currently maintain two
outstanding letters of credit securing certain lease obligations totaling
approximately $1.7 million. The letters of credit may restrict our ability to
incur liens on certain of our assets without our lender's consent.
Because a significant portion of our operations are conducted by our
subsidiaries, our cash flow and our ability to service indebtedness, including
our ability to pay the interest on and principal of the notes, are dependent to
a large extent upon cash dividends and distributions or other transfers from our
subsidiaries. The ability of our subsidiaries to pay dividends and make other
payments to us may be restricted by, among other things, applicable corporate
and other laws and regulations as well as agreements to which our subsidiaries
may become a party.
As of December 31, 2003, our subsidiaries had no material indebtedness
for borrowed money.
CONVERSION RIGHTS
GENERAL
A holder may convert any outstanding notes, subject to the conditions
described below, initially at a conversion rate of 49.6808 shares of common
stock per $1,000 principal amount of the notes. This reflects an initial
conversion price of $20.13. The conversion rate, and thus the conversion price,
is subject to adjustment as described below. A holder may convert notes only in
denominations of $1,000 principal amount and integral multiples thereof.
A holder may surrender notes for conversion prior to the stated maturity
only under the following circumstances:
- - during any calendar quarter if the closing sale price of our common stock
for at least 20 trading days in the period of 30 consecutive trading days
ending on the last trading day of the immediately preceding calendar
quarter is greater than or equal to 120% of the conversion price in effect
on that 30th trading day;
- - if we have called those notes for redemption; or
- - upon the occurrence of the specified corporate transactions discussed
below.
The conversion agent will, on our behalf, determine if the notes are
convertible and notify the trustee and us accordingly. If a holder has exercised
its right to require us to purchase its notes as described under "- Purchase of
Notes at a Holder's Option Upon a Fundamental Change," the holder may convert
its notes only if it withdraws its fundamental change purchase notice prior to
5:00 p.m., New York City time, on the business day immediately preceding the
applicable purchase date.
CONVERSION UPON SATISFACTION OF COMMON STOCK PRICE CONDITIONS
A holder will have the right to convert any of its notes during any
calendar quarter if the closing sale price of our common stock for at least 20
trading days in the period of 30 consecutive trading days ending on the last
trading day of the immediately preceding calendar quarter is greater than or
equal to 120% of the conversion price in effect on that last trading day.
The initial conversion trigger price per share of our common stock is
$24.16. The conversion trigger price reflects the initial conversion price per
share of our common stock multiplied by 120%.
The "closing sale price" of any share of common stock on any date means the
closing sale price of a share of common stock (or if no closing sale price is
reported, the average of the bid and ask prices or, if there is more than one
bid or ask price, the average of the average bid and the average ask prices) on
that date as reported on a national securities exchange or, if the common stock
is not listed on a national securities exchange, as reported by the Nasdaq
National Market system or, if the common stock is not quoted on the Nasdaq
National Market system, as determined on the basis of quotations we consider
appropriate.
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CONVERSION UPON NOTICE OF REDEMPTION
A holder will have the right to convert any of its notes we call for
redemption at any time prior to 5:00 p.m., New York City time, on the day that
is two business days prior to the redemption date, even if the notes are not
otherwise convertible at such time. If a holder already has delivered a
fundamental change purchase notice with respect to a note, however, the holder
may not surrender that note for conversion until the holder has withdrawn the
notice in accordance with the indenture.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
A holder will have the right to convert any of its notes in the event:
- - we distribute to all holders of our common stock certain rights entitling
them to purchase, for a period expiring within 60 days, common stock at
less than the closing sale price of the common stock on the business day
immediately preceding the announcement of such distribution;
- - we elect to distribute to all holders of our common stock, cash or other
assets, debt securities or certain rights to purchase our securities,
including the declaration of any cash dividends, payable quarterly or
otherwise, which distribution has a per share value exceeding 5% of the
sale price of the common stock on the day preceding the declaration
date for the distribution; or
- - a fundamental change (as defined under "- Purchase of Notes at a Holder's
Option Upon a Fundamental Change") occurs.
In any such event, a holder may convert any of its notes at any time after
we notify holders of such event:
- - in the case of a distribution, until the earlier of 5:00 p.m., New York
City time, on the business day immediately preceding the ex-dividend date
or the date of our announcement that the distribution will not take place;
or
- - in the case of a fundamental change, within 35 business days of the
fundamental change notice.
We will notify holders at least 20 business days prior to the ex-dividend
date for the distribution or within 20 business days of the occurrence of the
fundamental change, as the case may be, of the occurrence of such event. In the
case of a distribution, a holder of notes may not convert any of its notes if
the holder will otherwise participate in the distribution without conversion.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash,
securities or other property, a holder may surrender notes for conversion at any
time from and after the date which is 15 calendar days prior to date announced
by us as the anticipated effective date of the transaction until 15 calendar
days after the actual date of the transaction. If we are a party to a
consolidation, merger or binding share exchange pursuant to which our common
stock is converted into cash, securities or other property, then at the
effective time of the transaction, the right to convert a note into common stock
will be changed into a right to convert the notes into the kind and amount of
cash, securities or other property which the holder would have received if the
holder had converted such notes immediately prior to the transaction. If the
transaction also constitutes a fundamental change, the holder can require us to
purchase all or a portion of its notes as described under "- Purchase of Notes
at a Holder's Option Upon a Fundamental Change."
CONVERSION PROCEDURES
General
We will not issue fractional shares of common stock upon conversion of the
notes. Instead, we will pay the cash value of such fractional shares based upon
the closing sale price of our common stock on the business day immediately
preceding the conversion date.
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Except as provided in the next paragraph, upon conversion, we will not make
any payment or other adjustment for accrued and unpaid interest and additional
amounts, if any, on the notes. In addition, we will not make any payment or
other adjustment for dividends on any common stock issued upon conversion of the
notes.
If a holder converts after a record date for an interest payment but prior
to the corresponding interest payment date, that holder will receive on the
interest payment date interest and additional amounts, if any, accrued and
unpaid on those notes, notwithstanding the conversion of notes prior to the
interest payment date, assuming it was the holder of record on the corresponding
record date. However, at the time the holder surrenders any notes for
conversion, it must pay us an amount equal to the interest and additional
amounts, if any, that has accrued and will be paid on the notes being converted
on the interest payment date. The preceding sentence does not apply to notes
that are converted after being called by us for redemption after a record date
for an interest payment date. If in such case prior to the redemption date a
holder chooses to convert its notes, it will not be required to pay us at the
time it surrenders its notes for conversion the amount of interest and
additional amounts, if any, on the notes it will receive on the date that has
been fixed for redemption.
A holder will not be required to pay any taxes or duties relating to the
issuance or delivery of our common stock if that holder exercises its conversion
rights, but it 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 its own. Certificates representing shares of common
stock will be issued or delivered only after all applicable taxes and duties, if
any, payable by such holder have been paid.
Procedures
To convert interests in the global note, a holder must deliver to DTC the
appropriate instruction form for conversion pursuant to DTC's conversion
program.
To convert a definitive note, a holder must:
- - complete and manually sign the conversion notice on the back of the note
(or a facsimile thereof);
- - deliver the completed conversion notice and the note to be converted to
the specified office of the conversion agent;
- - if required by the conversion agent, furnish appropriate endorsements and
transfer documents;
- - pay all funds required, if any, relating to interest on the note to be
converted to which it is not entitled; and
- - pay all taxes or duties, if any, as described in the preceding paragraph.
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 5:00 p.m., New York City time, 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 such holder as soon as practicable on or after the conversion date. To the
extent that we have a rights plan in effect upon conversion of the notes into
common stock, 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.
Conversion Rate Adjustments
We will adjust the conversion rate if any of the following events occur:
(1) we issue shares of common stock as a dividend or distribution to
all or substantially all holders of our common stock;
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(2) we subdivide, combine or reclassify our common stock;
(3) we issue to all or substantially all holders of our common stock
certain rights or warrants to purchase our common stock, or
securities convertible into or exchangeable or exercisable for
our common stock, for a period expiring within 60 days at less than
the closing sale price of our common stock on the business day
immediately preceding the date of the announcement of such
issuance, provided that the conversion rate will be readjusted to
the extent that such rights or warrants are not exercised prior to
the expiration;
(4) we distribute to all or substantially all holders of our common
stock shares of our capital stock (other than common stock) or
evidences of our indebtedness or assets, including securities, but
excluding:
- dividends or distributions listed in (1) above;
- rights or warrants listed in (3) above;
- dividends and distributions in connection with
reclassification, change, consolidation, merger, combination,
sale or convergence resulting in a change in the conversion
consideration pursuant to the next succeeding paragraph; and
- cash distributions listed in (6) below;
(5) we distribute shares of capital stock of one of our subsidiaries,
with such adjustment, if any, based on the market value of the subsidiary
stock so distributed relative to the market value of our common stock, in
each case over a measurement period following the distribution;
(6) we distribute to all or substantially all holders of our common
stock, any cash, including quarterly cash dividends; or
(7) we or one of our subsidiaries make purchases of our common stock
pursuant to a tender offer or exchange offer for our common stock.
In the event of any:
- reclassification or change of our common stock;
- consolidation, merger or binding share exchange involving us; or
- 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 a noteholder's notes, such noteholder will be entitled to receive
the same type of consideration which such noteholder would have been entitled to
receive if such noteholder had converted the notes into our common stock
immediately prior to any of these events.
A holder of notes may, in certain circumstances, be deemed to have received
a distribution or dividend subject to U.S. federal income tax as a result of an
adjustment or the nonoccurrence of an adjustment to the conversion price. See
"Certain United States Federal Income Tax Considerations - Tax Consequences to
U.S. Holders - Constructive Dividends on Notes."
To the extent permitted by law, we may, from time to time, increase the
conversion rate for a period of at least 20 days if our board of directors
determines that this increase would be in our best interests. Any such
determination by our board will be conclusive. We would give holders at least 15
days' notice of any increase in the conversion rate. In addition, we may
increase the conversion rate if our board of directors deems it advisable to
avoid or diminish any income tax to holders of common stock resulting from any
distribution of common stock or similar event. 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, exchangeable or
exercisable securities or rights to purchase our common stock or convertible,
exchangeable or exercisable securities.
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PAYMENT AT MATURITY
Each holder of $1,000 principal amount of the notes shall be entitled to
receive $1,000, and accrued and unpaid interest and additional amounts, if any,
in cash to, but not including, the maturity date.
REDEMPTION AT OUR OPTION
No sinking fund is provided for the notes. Prior to July 15, 2008, the
notes will not be redeemable. On or after July 15, 2008, we may redeem for cash
all or a portion of the notes at any time for a price equal to 100% of the
principal amount of the notes to be redeemed plus accrued and unpaid interest
and additional amounts, if any, to but excluding the redemption date. We will
provide not less than 30 nor more then 60 days' notice mailed to each holder of
the notes to be redeemed. If the redemption notice is given and funds deposited
as required, then interest will cease to accrue on and after the redemption date
on the notes or portions of such notes called for redemption.
If we decide to redeem fewer than all of the outstanding notes, the trustee
will select the notes to be redeemed by lot, or on a pro rata basis or by
another method the trustee considers fair and appropriate.
If the trustee selects a portion of a holder's notes for partial redemption
and such holder converts a portion of its notes, the converted portion will be
deemed to be from the portion selected for redemption.
PURCHASE OF NOTES AT A HOLDER'S OPTION
Holders have the right to require us to purchase all or a portion of their
notes on July 16, 2008, July 16, 2013 and July 16, 2018 (each, a "purchase
date"). Any note purchased by us on a purchase date will be paid for in cash. We
will be required to purchase any outstanding notes for which a holder delivers a
written purchase notice to the paying agent. This notice must be delivered
during the period beginning at any time from the opening of business on the date
that is 20 business days prior to the relevant purchase date until the close of
business on the fifth business day prior to the purchase date. If the purchase
notice is given and withdrawn during such period, we will not be obligated to
purchase the related notes. Also, as described in the "Risk Factors" section of
this prospectus under the caption "We may be unable to repay or purchase the
principal amount of the notes," we may not have funds sufficient to purchase
notes when we are required to do so.
The purchase price payable will be equal to 100% of the principal amount of
the notes to be purchased plus accrued and unpaid interest and additional
amounts, if any, to, but excluding, the purchase date.
On or before the 20th business day prior to each purchase date, we will
provide to the trustee, the paying agent and to all holders of the notes at
their addresses shown in the register of the registrar, and to beneficial owners
as required by applicable law, a notice stating, among other things:
- - the purchase price;
- - the name and address of the paying agent and the conversion agent; and
- - the procedures that holders must follow to require us to purchase their
notes.
Simultaneously with providing such notice, we will publish a notice
containing this information in a newspaper of general circulation in New York
City or publish the information on our web site or through such other public
medium as we may use at that time.
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A notice electing to require us to purchase a holder's notes must state:
- - the relevant purchase date;
- - if certificated notes have been issued, the certificate numbers of the
notes;
- - the portion of the principal amount of notes to be purchased, in integral
multiples of $1,000; and
- - that the notes are to be purchased by us pursuant to the applicable
provisions of the notes and the indenture.
If the notes are not in certificated form, a holder's notice must comply with
appropriate DTC procedures.
No notes may be purchased at the option of holders if there has occurred
and is continuing an event of default other than an event of default that is
cured by the payment of the purchase price of the notes.
A holder may withdraw any purchase notice in whole or in part by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the purchase date. The notice of
withdrawal must state:
- - the principal amount of the withdrawn notes;
- - if certificated notes have been issued, the certificate numbers of the
withdrawn notes; and
- - the principal amount, if any, which remains subject to the purchase
notice.
If the notes are not in certificated form, a holder's notice must comply with
appropriate DTC procedures.
A holder must either effect book-entry transfer or deliver the notes,
together with necessary endorsements, to the office of the paying agent after
delivery of the purchase notice to receive payment of the purchase price. A
holder will receive payment promptly following the later of the purchase date or
the time of book-entry transfer or the delivery of the notes. If the paying
agent holds money sufficient to pay the purchase price of the notes on the
business day following the purchase date, then:
- - the notes will cease to be outstanding and interest will cease to accrue
(whether or not book-entry transfer of the notes is made or whether or not
the note is delivered to the paying agent); and
- - all other rights of the holder will terminate (other than the right to
receive the purchase price upon delivery or transfer of the notes).
PURCHASE OF NOTES AT A HOLDER'S OPTION UPON A FUNDAMENTAL CHANGE
In the event of a fundamental change, a holder will have the right to
require us to purchase for cash all or any part of the notes after the
occurrence of a fundamental change at a purchase price equal to 100% of the
principal amount at issuance plus accrued and unpaid interest and additional
amounts, if any, to, but excluding, the purchase date. Notes submitted for
purchase must be $1,000 or an integral multiple thereof.
On or before the 20th day after the occurrence of a fundamental change, we
will provide to all holders of the notes and the trustee and paying agent a
notice of the occurrence of the fundamental change and of the resulting purchase
right. Such notice shall state, among other things, the procedures that holders
must follow to require us to purchase the notes and the date of the fundamental
change.
Simultaneously with providing such notice, we will publish a notice
containing this information in a newspaper of general circulation in New York
City or publish the information on our website or through such other public
medium as we may use at that time.
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To exercise the purchase right, a holder must deliver, on or before the
30th business day after the date of our notice of a fundamental change, subject
to extension to comply with applicable law, the notes to be purchased, duly
endorsed for transfer, together with a written purchase notice and the form
entitled "Form of Fundamental Change Purchase Notice" on the reverse side of the
notes duly completed, to the paying agent. The purchase notice must state:
- - if certificated notes have been issued, the certificate numbers of the
notes;
- - the portion of the principal amount of notes to be purchased, in integral
multiples of $1,000; and
- - that the notes are to be purchased by us pursuant to the applicable
provisions of the notes and the indenture.
If the notes are not in certificated form, a holder's notice must comply
with appropriate DTC procedures.
A holder may withdraw any purchase notice (in whole or in part) by a
written notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the fundamental change purchase date. The
notice of withdrawal shall state:
- - the principal amount of the withdrawn notes;
- - if certificated notes have been issued, the certificate numbers of the
withdrawn notes; and
- - the principal amount, if any, which remains subject to the purchase
notice.
We will be required to purchase the notes no later than 35 business days
after the date of our notice of the occurrence of the relevant fundamental
change subject to extension to comply with applicable law. A holder will receive
payment of the fundamental change purchase price promptly following the later of
the fundamental change purchase date or the time of book-entry transfer or the
delivery of the notes. If the paying agent holds cash sufficient to pay the
fundamental change purchase price of the notes on the business day following the
fundamental change purchase date, then:
- - the notes will cease to be outstanding and interest (including any
additional amounts), if any, will cease to accrue (whether or not book-
entry transfer of the notes is made or whether or not the note is
delivered to the paying agent); and
- - all other rights of the holder will terminate (other than the right to
receive the fundamental change purchase price and any previously accrued
and unpaid interest (including any additional amounts), if any, upon
delivery or transfer of the notes).
A fundamental change will be deemed to have occurred if any of the
following occurs:
- - any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 of the Exchange Act, except that a person
shall be deemed to have beneficial ownership of all shares that such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 50% of our total outstanding voting stock.
- - during any period of two consecutive years, individuals who at the
beginning of such period constituted our board of directors (together with
any new directors whose election to such board or whose nomination for
election by our stockholders, was approved by a vote of at least 66 2/3%
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority
of such board of directors then in office; provided, however, that if
during such two-year period, every director dies, and such vacancies are
filled by a vote of our stockholders in accordance with our certificate of
incorporation, this replacement upon death will not constitute a
fundamental change;
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- - we consolidate with or merge with or into any person or convey, transfer
or lease all or substantially all of our assets to any person, or any
corporation consolidates with or merges into or with us, in any such
event pursuant to a transaction in which our outstanding voting stock is
changed into or exchanged for cash, securities or other property,
other than any such transaction where our outstanding voting stock is not
changed or exchanged at all (except to the extent necessary to reflect a
change in our jurisdiction of incorporation), or where (A) our outstanding
voting stock is changed into or exchanged for (x) voting stock of the
surviving corporation which is not "disqualified equity interests" or (y)
cash, securities and other property (other than equity interests of the
surviving corporation) and (B) no "person" or "group" owns immediately
after such transaction, directly or indirectly, more than 50% of the total
outstanding voting stock of the surviving corporations;
- - we are liquidated or dissolved or adopt a plan of liquidation or
dissolution other than in a transaction which complies with the provisions
described under "- Consolidation, Merger and Sale of Assets"; or
- - our common stock ceases to be quoted on the Nasdaq National Market system
or another established automated over-the-counter trading market, or listed
on a national securities exchange, in the United States.
However, a fundamental change will not be deemed to have occurred if
either:
- - the last sale price of our common stock for any five trading days within:
- - the period of ten consecutive trading days immediately after the later of
the fundamental change or the public announcement of the fundamental
change, in the case of a fundamental change resulting solely from a
fundamental change under the first bullet point above; or
- - the period of ten consecutive trading days immediately preceding the
fundamental change, in the case of a fundamental change under the second,
third and fourth bullet points above;
is at least equal to 105% of the quotient where the numerator is the principal
amount and the denominator is the conversion rate in effect on each of those
five trading days; or
- - in the case of a merger or consolidation, at least 95% of the
consideration, excluding cash payments for fractional shares, in the
merger or consolidation constituting the fundamental change, consists of
common stock traded on a United States national securities exchange or
quoted on the Nasdaq National Market system (or which will be so traded
or quoted when issued or exchanged in connection with such fundamental
change) and as a result of such transaction or transactions the notes
become convertible solely into such common stock.
For purposes of this fundamental change definition, "voting stock" means
stock of the class or classes pursuant to which the holders thereof have the
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of a corporation (irrespective
of whether or not at the time stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).
The term "all or substantially all" as used in the definition of
fundamental change will likely be interpreted under applicable state law and
will be dependent upon particular facts and circumstances. There may be a degree
of uncertainty in interpreting this phrase. As a result, we cannot assure
holders how a court would interpret this phrase under applicable law.
Pursuant to the indenture, we will:
- - comply with the provisions of Rule 13e-4 and Rule 14e-1, if applicable,
under the Exchange Act;
- - file a Schedule TO or any successor or similar schedule if required under
the Exchange Act; and
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- - otherwise comply with all federal and state securities laws in connection
with any offer by us to purchase the notes upon a fundamental change.
This fundamental change purchase feature may make more difficult or
discourage a takeover of us and the removal of incumbent management. However, we
are not aware of any specific effort to accumulate shares of our capital stock
with the intent to obtain control of us by means of a merger, tender offer,
solicitation or otherwise. In addition, the fundamental change purchase feature
is not part of a plan by management to adopt a series of anti-takeover
provisions. Instead, the fundamental change purchase feature is a result of
negotiations between us and the Initial Purchasers of the notes.
We could, in the future, enter into certain transactions, including
recapitalizations, that would not constitute a fundamental change but would
increase the amount of debt outstanding or otherwise adversely affect a holder.
Neither we nor our subsidiaries are prohibited from incurring debt under the
indenture. The incurrence of significant amounts of additional debt could
adversely affect our ability to service our debt, including the notes.
If a fundamental change were to occur, we may not have sufficient funds to
pay the fundamental change purchase price for the notes tendered by holders. In
addition, we may in the future incur debt that has similar fundamental change
provisions that permit holders of this debt to accelerate or require us to
purchase this debt upon the occurrence of events similar to a fundamental
change. Our failure to repurchase the notes upon a fundamental change will
result in an event of default under the indenture.
CONSOLIDATION, 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 or the District of
Columbia;
- - such person assumes all of our obligations under the notes and the
indenture under a supplemental indenture in a form reasonably satisfactory
to the trustee;
- - we or such successor is not then or immediately thereafter in default
under the indenture; and
- - if a supplemental indenture is to be executed in connection with such
consolidation, merger or disposition, we have delivered to the trustee an
officers' certificate and an opinion of counsel stating compliance with
these provisions.
Upon any such consolidation, merger or disposition in accordance with the
foregoing, the successor corporation formed by such consolidation or share
exchange or into which we are merged or which such person formed by such
consolidation or share exchange or to which such conveyance, sale, lease,
transfer or other disposition is made will succeed to, and be substituted for,
and may exercise our right and power, under the indenture with the same effect
as if such successor had been named as us in the indenture, and thereafter
(except in the case of a sale, transfer, lease, conveyance or other disposition)
the predecessor corporation will be relieved of all further obligations and
covenants under the indenture and the notes.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the indenture:
- - our failure to pay principal amount of the notes when due and payable,
whether at maturity or upon acceleration;
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- - our failure to pay any accrued unpaid interest and additional amounts on
the notes, if any, when due and payable, and continuance of such default
for a period of 30 days;
- - our failure to convert notes into our common stock upon exercise of a
holder's conversion right in accordance with the terms of the
indenture;
- - our failure to redeem notes after we have exercised our redemption option;
- - our failure to purchase all or any part of the notes in accordance with
the provisions of "- Purchase of Notes at a Holder's Option Upon a
Fundamental Change";
- - our failure to provide notice in the event of a fundamental change;
- - our failure to perform or observe any other term, covenant or agreement
contained in the notes or the indenture 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 25% in aggregate principal
amount of the notes then outstanding;
- - our default under any credit agreement, mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any indebtedness of us or any of our subsidiaries for money
borrowed whether such indebtedness now exists, or is created after the
date of the indenture, which default:
(i) involves the failure to pay the principal of or any premium or
Interest on such indebtedness when such indebtedness becomes due
and payable at the stated maturity thereof, and such default continues
after any applicable grace period, or
(ii) results in the acceleration of such indebtedness prior to its
stated maturity, and
in each case, the principal amount of any such indebtedness, together
with the principal amount of any other such indebtedness so unpaid at its
stated maturity or the stated maturity of which has been so accelerated,
aggregates $5.0 million or more;
- - there is a failure by us or any of our subsidiaries to pay final judgments
not covered by insurance aggregating in excess of $5.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days;
and
- - certain events of bankruptcy, insolvency, liquidation or similar
reorganization with respect to us or any of our significant
subsidiaries.
The indenture will provide that the trustee shall, within 90 days of the
occurrence of a default known to the trustee (or within 15 days after it is
known to the trustee, if later), 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 a default under the first, second, fourth or fifth bullets above.
If certain events of default specified in the last bullet point above shall
occur and be continuing, then automatically the principal amount of the notes
plus accrued and unpaid interest and accrued and unpaid additional amounts, if
any, through such date shall become immediately due and payable. If any other
event of default shall occur and be continuing (the default not having been
cured or waived as provided under "- Modification and Waiver" below), the
trustee or the holders of at least 25% in aggregate principal amount of the
notes then outstanding may declare the notes due and payable at the principal
amount of the notes plus accrued and unpaid interest and additional amounts, if
any, and thereupon the trustee may, at its discretion, proceed to protect and
enforce the rights of the holders of notes by appropriate judicial proceedings.
Such declaration may be rescinded or annulled with the written consent of the
holders of a majority in aggregate principal amount of the notes then
outstanding upon the conditions provided in the indenture.
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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 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.
Except with respect to a default in the payment of the principal of,
premium, if any, or any accrued and unpaid interest (including additional
amounts) on any note, redemption price or fundamental change purchase price of
any note, or in respect of a failure to convert any note into common stock as
required, or in respect of a covenant or provision which under the indenture
cannot be modified or amended without the consent of the holder of each note
outstanding, the holders of not less than a majority in aggregate principal
amount of the notes outstanding may on behalf of the holders of all the notes
waive any past default under the indenture and rescind any acceleration with
respect to the notes and its consequences if (1) rescission would not conflict
with any judgment or decree of a court of competent jurisdiction and (2) all
existing events of default, other than the nonpayment of the principal of and
interest on the notes that have become due solely by such declaration of
acceleration, have been cured or waived.
We will be required to furnish annually to the trustee a statement as to
the fulfillment of our obligations under the indenture and as to any default in
the performance of such obligations.
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 (in addition to the written consent
or the affirmative vote of the holders of at least a majority in aggregate
principal amount of the notes at the time outstanding) to:
- - change the maturity of any note or the payment date of any installment of
interest or additional amounts, if any, payable on any notes;
- - reduce the principal amount, redemption price or purchase price of, or
interest or additional amounts, if any, on, any note;
- - change the currency of payment of principal, redemption price or purchase
price of, or interest or additional amounts, if any, on, any note;
- - impair or adversely effect the manner of calculation or rate of accrual of
interest or additional amounts, if any, on any note,
- - impair the right to institute suit for the enforcement of any payment on
or with respect to, or conversion of, any note;
- - modify our obligation to maintain a paying agent in city of New York;
- - impair or adversely affect the conversion rights or purchase rights of any
holders of notes;
- - modify the redemption provisions of the indenture in a manner adverse to
the holders of notes;
- - reduce the percentage in aggregate principal amount of notes outstanding
necessary to modify or amend the indenture; or
- - reduce the percentage in aggregate principal amount of notes outstanding
necessary to waive past defaults.
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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 of
the notes at the time 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, to, among other things:
- - add to our covenants for the benefit of the holders of notes;
- - surrender any right or power conferred upon us;
- - provide 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;
- - provide for the assumption of our obligations to the holders of notes in
the case of a merger, consolidation, conveyance, transfer or lease;
- - increase the conversion rate, provided that the increase will not
adversely affect the interests of the holders of notes;
- - comply with the requirements of the SEC in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act of 1939,
as amended;
- - make any changes or modifications necessary in connection with the
registration of the notes under the Securities Act as contemplated in
the registration rights agreement; provided that such change or
modification does not, in the good faith opinion of our board of
directors and the trustee, adversely affect the interests of the holders
of notes in any material respect;
- - cure any ambiguity or correct or supplement any inconsistent or otherwise
defective provision contained in the indenture or make any other provision
with respect to matters or questions arising under the indenture which we
may deem necessary or desirable and which shall not be inconsistent with
provisions of the indenture; provided that such modification or amendment
does not, in the good faith opinion of our board of directors and the
trustee, adversely affect the interests of the holders of notes in any
material respect; or
- - to evidence the succession of another person to us or any other obligor
upon the notes, and the assumption by any such successor of the covenant
of us or such other obligor under the indenture and in the notes, in each
case in compliance with the provisions of the indenture;
- - to evidence and provide the acceptance of the appointment of a successor
trustee under the indenture;
- - add or modify any other provisions with respect to matters or questions
arising under the indenture which we and the trustee may deem necessary
or desirable and which will not adversely affect the interests of the
holders of notes.
The holders of a majority in aggregate principal amount of the notes
outstanding may waive compliance with certain provisions of the indenture
relating to the notes, unless (1) we fail to pay principal or interest
(including additional amounts) or on any note when due, (2) we fail to convert
any note into common stock as required by the indenture, or (3) we fail to
comply with any of the provisions of the indenture that would require the
consent of the holder of each outstanding note.
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Any notes held by us or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with us shall be
disregarded (from both the numerator and denominator) for purposes of
determining whether the holders of a majority in principal amount of the
outstanding notes have consented to a modification, amendment or waiver of the
terms of the indenture.
REGISTRATION RIGHTS
In connection with the initial private placement of the notes, we entered
into the registration rights agreement with the Initial Purchasers for the
benefit of the holders of the notes. Pursuant to the agreement, we agreed that
we will, at our expense:
- - file with the SEC not later than the date 90 days after the first date of
original issuance of the notes, the registration statement of which
this prospectus is a part covering resales by holders of all notes and the
shares of common stock issuable upon conversion of the notes, which we
sometimes call the "conversion shares";
- - use our reasonable best efforts to cause such registration statement to
become effective as promptly as is practicable, but in no event later than
180 days after the first date of original issuance of the notes; and
- - use our reasonable best efforts to keep the registration statement
effective until the earliest of:
__ some transfer restrictions on the notes and the shares of our common
stock into which the notes are convertible (which we sometimes refer
to as the "conversion shares") are terminated as a result of the
application of Rule 144(k);
__ the date when the holders of the notes and the conversion shares have
been resold pursuant to Rule 144 under the Securities Act;
__ the date when all of the notes and the conversion shares are
Registered under the registration statement and disposed of in
accordance with the registration statement; and
__ the date when all of the notes and the conversion shares have ceased to
be outstanding (whether as a result of redemption, purchase and
cancellation, conversion or otherwise).
We have filed the registration statement of which this prospectus is a part
to meet our obligations under the registration rights agreement. We agreed in
the registration rights agreement to give notice to all holders of the filing
and effectiveness of the registration statement. We have mailed a notice and
questionnaire to each holder, which is to be completed and delivered by each
holder interested in selling their notes and conversion shares pursuant to the
registration statement. In order to sell the notes and conversion shares under
the registration statement, a holder must complete and deliver the questionnaire
to us by the earlier of the 20th business day after completion of any transfer
of such securities to a holder and the second business day prior to the
effectiveness of the registration statement so that they may be named as selling
securityholders in the prospectus at the time of initial effectiveness. During
the effective period of the registration statement, upon receipt of a completed
notice and questionnaire and any additional information we reasonably request,
we will use our reasonable best efforts to file any amendments to the
registration statement or supplements to the related prospectus as are necessary
to permit holders to deliver their prospectus to purchasers of the notes and
conversion shares, subject to our right to suspend the use of the prospectus. If
a holder does not complete and deliver a questionnaire or provide the additional
information we may reasonably request as a result of an SEC request or
requirement, such holder will not be named as a selling securityholder in the
prospectus and will not be permitted to sell its notes and conversion shares
pursuant to the registration statement. There can be no assurance that we will
be able to maintain an effective and current registration statement as required.
The absence of such a registration statement may limit the holders' ability to
sell the notes and conversion shares or adversely affect the price at which such
securities can be sold.
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In connection with the filing of the registration statement, we will:
- - provide to each holder for whom the registration statement was filed
copies of the prospectus that is a part of the registration statement;
- - notify each such holder when the registration statement has become
effective; and
- - take certain other actions as are required to permit unrestricted resales
of the notes and the common stock issuable upon conversion of the notes.
Each holder who sells securities pursuant to the registration statement
generally will be:
- - required to be named as a selling securityholder in this prospectus;
- - 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).
Each holder must notify us not later than three business days prior to any
proposed sale by that holder pursuant to the registration statement. This notice
of sale will be effective for five business days. We will, within five business
days of receiving a completed notice of sale and any additional information we
reasonably request, file any amendments to the registration statement or
supplements to the related prospectus as are necessary to permit holders to
deliver their prospectus to purchasers of the notes and conversion shares,
subject to our right to suspend the use of the prospectus. We may suspend the
holder's use of the prospectus for a period not to exceed 30 days in any 90-day
period, and not to exceed an aggregate of 60 days in any 360-day period.
However, if the disclosure relates to a previously undisclosed proposed or
pending material business transaction, the disclosure of which would impede our
ability to consummate such transaction, we may extend the suspension period from
30 days to 45 days. We need not specify the nature of the event giving rise to a
suspension in any notice to holders of the notes of the existence of such a
suspension. Each holder, by its acceptance of the notes, agrees to hold any
communication by us in response to a notice of a proposed sale in confidence.
Upon the initial sale of notes or conversion shares, each selling holder
will be required to deliver a prescribed notice of such sale to the trustee and
us. The notice will, among other things:
- - identify the sale as a transfer pursuant to the registration statement;
- - certify that the prospectus delivery requirements, if any, of the Securities
Act have been complied with; and
- - certify that the selling holder and the aggregate principal amount of the
notes or number of shares of common stock, as the case may be, owned by such
holder are identified in the related prospectus in accordance with the
applicable rules and regulations under the Securities Act.
If,
(1) on or prior to the 90th day after the first date of original issuance
Of the notes, the registration statement has not been filed;
(2) on or prior to the 180th day after the first date of original
issuance of the notes, the registration statement has not been
declared effective; or
35
(3) after the registration statement has been declared effective, such
registration statement ceases to be effective or fails to be
usable in connection with resales of the notes and conversion shares
in accordance with and during the periods specified in the
registration rights agreement and we do not cure the registration
statement within five business days by filing a post-effective
amendment, prospectus supplement or report pursuant to the
Exchange Act or, if applicable, we do not terminate the suspension
period, described in the preceding paragraph, by the 30th or 45th day,
as the case may be, or a suspension period exceeds an aggregate
of 60 days in any 360-day period,
each such event referred to in the prior three bullet points, a "registration
default," then additional amounts will accrue on the notes, from and including
the day following the registration default to but excluding the earlier of (1)
the day on which the registration default has been cured and (2) the date the
registration statement is no longer required to be kept effective. Additional
amounts will be paid semiannually in arrears, with the first semiannual payment
due on the first interest payment date following the date on which such
additional amounts begin to accrue, and will accrue at a rate per year equal to:
- 0.25%, in the case of (1) above;
- 0.50%, in the case of (2) above; and
- 0.50%, in the case of (3) above.
In no event will additional amounts accrue at a rate per year exceeding 0.50%.
If a holder has converted some or all of its notes into shares of common stock,
the holder will be entitled to receive equivalent amounts based on the principal
amount to the date of calculation of each note converted.
If a registration statement covering the resale of the notes and conversion
shares is not effective, these securities may not be sold or otherwise
transferred except in accordance with applicable laws and regulations.
SATISFACTION AND DISCHARGE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding notes or by
depositing with the paying agent or the conversion agent, as the case may be,
after the notes have become due and payable, whether at maturity, any redemption
date, any purchase date, or upon conversion or otherwise, cash or common stock
(as applicable under the terms of the indenture) sufficient to pay all of the
outstanding notes and paying all other sums payable under the indenture. Such
discharge is subject to terms contained in the indenture.
FORM, DENOMINATION AND REGISTRATION
DENOMINATION AND REGISTRATION
The notes were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and integral multiples thereof.
GLOBAL NOTE
The notes are evidenced by one global note deposited with the trustee as
custodian for DTC, and registered in the name of Cede & Co. as DTC's nominee.
Record ownership of the global note 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 note
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.
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So long as Cede & Co., as nominee of DTC, is the registered owner of the
global note, Cede & Co. for all purposes will be considered the sole holder of
the global note. Except as provided below, owners of beneficial interests in the
global note:
- 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 persons may be limited.
We will wire, through the facilities of the trustee, payments of principal,
accrued interest and additional amounts, if any, on the global notes to Cede &
Co., the nominee of DTC, as the registered owner of the global note. None of
Pegasus Solutions, 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 note.
It is DTC's current practice, upon receipt of any payment of principal,
accrued interest and additional amounts, if any, on the global note, to credit
participants' accounts on the payment date in amounts proportionate to their
respective beneficial interests in the notes represented by the global note, 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 note represented by the global note 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."
If a holder would like to convert its notes pursuant to the terms of the
notes, the holder should contact its broker or other direct or indirect DTC
participant to obtain information on procedures, including proper forms and
cut-off times, for submitting those requests.
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 note 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.
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 note are credited
and only for the principal amount 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.
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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 (a) DTC is at any time unwilling
or unable to continue as depositary or if at any time ceases to be a "clearing
agency" registered under the Exchange Act and a successor depositary is not
appointed by us within 90 days or (b) an event of default under the indenture
occurs and is continuing, we will cause notes to be issued in definitive form in
exchange for the global notes. None of Pegasus Solutions, 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 the global note.
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.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the notes in accordance with the
indenture. 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, assessment or other governmental charge payable in connection therewith. We
are not required to transfer or exchange any note in respect of which a
fundamental change purchase notice has been given and not withdrawn by the
holder thereof.
GOVERNING LAW
The indenture and the notes are governed by, and will be construed in
accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE TRUSTEE, TRANSFER AGENT AND REGISTRAR
JPMorgan Chase Bank, as trustee, has been appointed by us as paying agent
and registrar with regard to the notes. JPMorgan Chase Bank or its affiliates
may from time to time in the future provide banking and other services to us in
exchange for a fee.
American Stock Transfer & Trust Company is the transfer agent and registrar
for our common stock.
CALCULATIONS IN RESPECT OF NOTES
We or our agents will be responsible for making all calculations called for
under the notes. These calculations include, but are not limited to,
determination of the market price of our common stock. 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.
All notes surrendered for payment, redemption, registration of transfer or
exchange or conversion shall, if surrendered to any person other than the
trustee, be delivered to the trustee. All notes delivered to the trustee shall
be cancelled promptly by the trustee. No notes shall be authenticated in
exchange for any notes cancelled as provided in the indenture.
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We may, to the extent permitted by law, repurchase notes in the open market
or by tender offer at any price or by private agreement. Any notes purchased by
us, to the extent permitted by law, may be reissued or resold or may, at our
option, be surrendered to the trustee for cancellation. Any notes surrendered
for cancellation may not be reissued or resold and will be promptly cancelled.
REPLACEMENT OF NOTES
We will replace mutilated, destroyed, stolen or lost notes at your expense
upon delivery to the trustee of the mutilated notes, or evidence of the loss,
theft or destruction of the notes satisfactory to us and the trustee. In the
case of a lost, stolen or destroyed note, indemnity satisfactory to the trustee
and us may be required at the expense of the holder of such note before a
replacement note will be issued.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
$0.01 par value per share, and 2,000,000 shares of preferred stock, $0.01 par
value per share, issuable in series. Our board of directors has designated
100,000 shares of preferred stock as Series A Preferred Stock.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. The
holders of our common stock are not entitled to cumulate voting rights with
respect to the election of directors, and as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone. Subject to preferences that may be applicable to any then outstanding
shares of preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by the board of directors out of funds
legally available therefore. In the event of a liquidation, dissolution or
winding up of Pegasus, holders of the common stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding preferred stock. Holders of common stock have
no preemptive, conversion or other rights to subscribe for additional securities
of Pegasus. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be, validly
issued, fully paid and non assessable.
PREFERRED STOCK
Our board of directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of
Pegasus. We have no present plan to issue any shares of preferred stock.
TRADING MARKET, TRANSFER AGENT AND REGISTRAR
Our common stock is traded on the Nasdaq National Market under the symbol
"PEGS." The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company.
39
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND CONTRACTUAL PROVISIONS
DELAWARE ANTI-TAKEOVER STATUTE
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
CERTIFICATE OF INCORPORATION
Our Certificate of Incorporation provides:
- - for the authorization of the board of directors to issue, without further
action by the stockholders, up to 2,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and
restrictions thereof;
- - that any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of the stockholders
and may not be effected by a consent in writing;
- - that special meetings of our stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer or a majority of the
Members of the board of directors;
- - for a classified board of directors;
- - that vacancies on the board of directors, including newly created
directorships, can be filled only by a majority of the directors then in
office; and
- - that our directors may be removed only for cause and only by the
affirmative vote of holders of at least two-thirds of the outstanding shares
of voting stock, voting together as a single class.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board of directors and in the policies
formulated by the board of directors and to discourage some types of
transactions that may involve an actual or threatened change of control of
Pegasus. These provisions are also designed to reduce our vulnerability to an
unsolicited proposal for a takeover of Pegasus that does not contemplate the
acquisition of all of its outstanding shares, or an unsolicited proposal for the
restructuring or sale of all or part of Pegasus. These provisions, however,
could discourage potential acquisition proposals and could delay or prevent a
change in control of Pegasus. These provisions may also have the effect of
preventing changes in our management.
LIMITATIONS ON DIRECTOR LIABILITY
Our Fourth Amended and Restated Certificate of Incorporation provides that,
to the fullest extent permitted by the General Corporation Law of the State of
Delaware, as it may be amended, our directors will not be liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director.
RIGHTS AGREEMENT
On September 28, 1998, our board of directors declared a dividend
Distribution of one purchase right for each outstanding share of its common
stock to our stockholders on October 13, 1998. Each purchase right entitles the
registered holder to purchase from Pegasus one-one thousand five hundredth
(1/1,500) of a share of Series A Preferred Stock at a price of $60.00 per
one-one thousand five hundredth (1/1,500) of a share, which reflects the
adjustment for the stock split effected in January 2000. Initially, the
purchase rights are attached to all common stock certificates representing
shares then outstanding, and no separate rights certificates are distributed.
The purchase rights will separate from the common stock upon the earlier of:
40
- - 10 business days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding shares
of common stock; or
- - 10 business days (or a later date as the board of directors determines)
following the commencement of a tender or exchange offer that would result
in a person or group beneficially owning 20% or more of such outstanding
shares of common stock.
If an acquiring person or group obtains 20% or more of our outstanding
common stock, other than in some types of permitted transactions, and unless the
purchase rights were redeemed earlier, the holder of each unexercised purchase
right will have the right to receive shares of our common stock having a value
equal to two times the purchase price. Similarly, unless the purchase rights
were redeemed earlier, after the tenth day following some types of acquisition
transactions, proper provision must be made so that holders of purchase rights
(other than those beneficially owned by an acquiring person, which are void
after being acquired by the acquiring person) will thereafter have the right to
receive, upon exercise, shares of common stock of the acquiring company having a
value equal to two times the purchase price. Prior to the time the purchase
rights become exercisable, our board of directors may redeem the purchase rights
for $0.01. However, the purchase rights are not exercisable following the
triggering events until the purchase rights are no longer redeemable by us as
described below. Until 10 business days following the time the purchase rights
become exercisable, we may redeem the purchase rights in whole, but not in part,
at a price of $0.01 per purchase right (payable in cash, shares of common stock
or other consideration deemed appropriate by our board of directors). Prior to
the acquisition by any acquiring person or group of 50% or more of the
outstanding shares of common stock, our board of directors may, without payment
of the purchase price by the holder, exchange the purchase rights (other than
purchase rights owned by such acquiring person or group, which will become
void), in whole or in part, for shares of common stock at an exchange ratio of
one-half the number of shares of common stock (or in some circumstances
preferred stock) for which a purchase right is exercisable immediately prior to
the time of our decision to exchange the purchase rights (subject to
adjustment). The purchase rights expire on October 13, 2008 or on their earlier
exchange, redemption or expiration in connection with some types of permitted
transactions.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following are the material U.S. federal income tax consequences of
ownership and disposition of the notes and common stock. This discussion applies
only to notes and common stock held as capital assets (in general, assets held
for investment).
This discussion does not describe all of the tax consequences that may be
relevant to a holder in light of his particular circumstances or to holders
subject to special rules, such as:
- certain financial institutions;
- tax exempt organizations;
- insurance companies;
- dealers in securities or foreign currencies;
- persons holding notes as part of a hedging, integrated, constructive
sale or straddle;
- U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
- partnerships or other entities classified as partnerships for U.S.
Federal income tax purposes or investors in partnerships or other
entities classified as partnerships for U.S. federal income tax
purposes;
41
- former citizens or residents of the United States; and
- persons that own, or are deemed to own, more than 5% of our common
Stock or who, on the date of the acquisition of the notes, own
notes with a fair market value of more than 5% of the fair market
value of our common stock.
In addition, this discussion does not address any tax consequences under
state, local or foreign tax laws, or under U.S. estate and gift tax law or any
U.S. federal alternative minimum tax consequences.
This summary is based on the Internal Revenue Code of 1986, as amended, or
the "Code," administrative pronouncements, judicial decisions and final,
temporary and proposed Treasury Regulations, changes to any of which subsequent
to the date of this prospectus may affect the tax consequences described herein.
TAX CONSEQUENCES TO U.S. HOLDERS
As used herein, the term "U.S. Holder" means a beneficial owner of a note
or common stock that is, for U.S. federal income tax purposes:
- - a citizen or resident of the United States;
- - a corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the
United States or any political subdivision thereof;
- - a trust if a court within the United States is able to exercise primary
jurisdiction over its administration and one or more U.S. persons have
the authority to control all of the substantial decisions of the
trust; or
- - an estate the income of which is subject to U.S. federal income taxation
regardless of its source.
PAYMENTS OF INTEREST
The notes have been issued without original issue discount for U.S. federal
income tax purposes. Accordingly, interest paid on a note will be taxable to a
U.S. Holder as ordinary interest income at the time it accrues or is received in
accordance with the U.S. Holder's method of accounting for federal income tax
purposes.
MARKET DISCOUNT
If a U.S. Holder acquires notes at a price that is less than the issue
price (that is, a discount from its stated redemption price at maturity), the
U.S. Holder may be deemed to have acquired notes with market discount.
A U.S. Holder who acquires notes at a market discount that is more than a
statutorily-defined "de minimis" amount will generally be required to recognize
ordinary income to the extent of accrued market discount on notes upon their
exchange into common stock (to the extent of cash received in lieu of a
fractional share) or, to the extent of any gain, upon their sale or other
disposition. Such market discount will accrue ratably or, at the election of
the U.S. Holder, under a constant yield method over the remaining term of the
notes. A U.S. Holder will also be required to defer the deduction of a portion
of the interest paid or accrued on indebtedness incurred to purchase or carry
notes acquired with market discount. In lieu of the foregoing, a U.S. Holder
may elect to include market discount in income currently as it accrues on all
market discount instruments acquired by such U.S. Holder in the taxable year of
the election or thereafter, in which case the interest deferral rule will not
apply. A U.S. Holder will not recognize income for any accrued market discount
attributable to notes surrendered for conversion into, or exchanged solely for,
our common stock. Upon disposition of such common stock received, however, any
gain will be treated as ordinary income to the extent of such accrued market
discount not previously included in income.
42
BOND PREMIUM
If a U.S. Holder acquires notes at a price that is greater than the stated
redemption price at maturity the U.S. Holder will generally be deemed to have
acquired notes with bond premium. The amount of such premium will be included
in the adjusted tax basis of notes which may result in a capital loss upon
exchange, repurchase, sale or other disposition of notes. In lieu of the
foregoing, such U.S. Holder may elect to amortize such premium, as an offset to
interest, if any, using a constant yield method, over the remaining term of
notes.
CONSTRUCTIVE DIVIDENDS ON NOTES
If we were to make a distribution of property to stockholders (for example,
distributions of evidences of indebtedness or assets, but generally not stock
dividends or rights to subscribe for our common stock) and the conversion price
underlying the notes were decreased pursuant to the anti-dilution provisions of
the indenture, such decrease would be deemed to be a distribution to U.S.
Holders. In addition, other decreases in the conversion price of the notes may,
depending on the circumstances, be deemed to be distributions to U.S. Holders.
Any such deemed distribution will be taxed in the same manner as an actual
dividend distribution. In certain circumstances, the failure to make an
adjustment of the conversion price under the indenture may result in a taxable
distribution to holders of our common stock.
CONVERSION INTO COMMON STOCK
A U.S. Holder's conversion of a note into common stock will not be a
taxable event, except that the receipt of cash in lieu of a fractional share of
common stock will result in capital gain or loss (measured by the difference
between the cash received in lieu of the fractional share and the U.S. Holder's
tax basis attributable to the fractional share, as described in the next
paragraph), and the fair market value of common stock received with respect to
accrued and unpaid interest will be taxed as a payment of interest (as described
above).
A U.S. Holder's tax basis in common stock received upon a conversion of a
note will be the same as the U.S. Holder's basis in the note at the time of
conversion, reduced by any basis allocated to a fractional share and increased,
for a cash method Holder, by the amount of income recognized with respect to
accrued interest. The U.S. Holder's holding period for the common stock received
will include the Holder's holding period for the note converted, except that the
holding period of any common stock received with respect to accrued and unpaid
interest will commence on the day after the date of conversion.
SALE, EXCHANGE, REDEMPTION OR RETIREMENT OF THE NOTES
Unless a non-recognition provision applies, upon the sale, exchange,
redemption or retirement of a note (other than a conversion into common stock),
a U.S. Holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange, redemption or retirement and
the Holder's adjusted tax basis in the note taking into account previously
recognized accrued market discount and any non-amortized bond premium. For
these purposes, the amount realized does not include any amount attributable to
accrued and unpaid interest. Gain or loss realized on the sale, exchange,
redemption or retirement of a note will generally be capital gain or loss and
will be long-term capital gain or loss if at the time of sale, exchange,
redemption or retirement the note has been held for more than one year. The
deductibility of capital losses is subject to limitations.
DIVIDENDS ON COMMON STOCK
If, after you convert a note into shares of our common stock, we make a
distribution of cash or other property (other than certain pro rata
distributions of our common stock) in respect of that stock, the distribution
will be treated as a dividend, taxable to you as ordinary income, to the extent
it is paid from our current or accumulated earnings and profits. If the
distribution exceeds our current or accumulated earnings and profits, the excess
will be treated first as a tax-free return of your investment, up to your basis
in your shares. Any remaining excess will be treated as capital gain. If you
are a corporation, you may be able to claim a dividend received deduction for a
portion of any distribution received that is considered a dividend.
43
SALE OR OTHER DISPOSITION OF COMMON STOCK
You will generally recognize capital gain or loss on a sale or other
disposition of your shares of our common stock. Your gain or loss will equal
the difference between the proceeds you received and your adjusted tax basis in
your shares. The proceeds received will include the amount of any cash and the
fair market value of any other property received for the shares. If you are a
noncorporate U.S. Holder and your holding period for the shares exceeds one
year, your capital gain will be subject to tax at a reduced rate for long-term
capital gains (see "Recent Changes to the Code," below). Your ability to deduct
capital losses may be limited.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information returns will be filed with the Internal Revenue Service in
connection with payments on the notes, dividends paid on our common stock, and
the proceeds from a sale or other disposition of the notes or common stock. A
U.S. Holder will be subject to U.S. backup withholding tax on these payments if
the U.S. Holder fails to provide its taxpayer identification number to the
paying agent and comply with certain certification procedures or otherwise
establish an exemption from backup withholding. The amount of any backup
withholding from a payment to a U.S. Holder will be allowed as a credit against
the U.S. Holder's U.S. federal income tax liability and may entitle the U.S.
Holder to a refund, provided that the required information is timely furnished
to the Internal Revenue Service.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
As used herein, the term "Non-U.S. Holder" means a beneficial owner that
is, for U.S. federal income tax purposes:
- - an individual who is classified as a nonresident alien for U.S. federal
income tax purposes and who is not, by reason of being a U.S.
expatriate or former long-term resident, taxable under Section 877 of
the Code;
- - a foreign corporation; or
- - a foreign estate or trust.
PAYMENTS ON THE NOTES
Subject to the discussion below concerning backup withholding, principal
payments will not be subject to U.S. federal withholding tax, and interest
payments (including additional amounts) will not be subject to U.S. federal
withholding tax if:
- - the certification requirements described below have been fulfilled with
respect to the beneficial owner, and either:
- the interest is effectively connected with a U.S. trade or business, or
- each of the following three conditions have been satisfied:
- the Holder is not a bank that receives interest on an extension of
credit made pursuant to a loan agreement entered into in the ordinary
course of its trade or business; and
- the Holder does not own, actually or constructively, 10 percent or
more of the total combined voting power of all classes of our stock
entitled to vote; and
- the Holder is not a controlled foreign corporation (as defined in
The Code) related, directly or indirectly, to us through stock
ownership.
Payments of interest on the notes that do not meet the foregoing
requirements generally will be subject to U.S. federal withholding tax at a rate
of 30% (or a lower applicable treaty rate, provided certain certification
requirements are met).
44
CERTIFICATION REQUIREMENT
Interest with respect to a note will not be exempt from withholding tax
unless the beneficial owner of the note completes Internal Revenue Service Form
W-8BEN and certifies on such form, under penalties of perjury, that it is not a
U.S. person.
If a Non-U.S. Holder of a note is engaged in a trade or business in the
United States, and if interest on the note is effectively connected with the
conduct of this trade or business, or, in the case of treaty resident,
attributable to a U.S. permanent establishment (or, in the case of an
individual, a fixed base) in the U.S., the Non-U.S. Holder, although exempt from
the withholding tax discussed in the preceding paragraphs, the income will be
"U.S. trade or business income" and will generally be taxed in the same manner
as a U.S. Holder (see "- Tax Consequences to U.S. Holders" above), except that
the Holder will be required to provide a properly-executed Internal Revenue
Service Form W-8ECI in order to claim an exemption from withholding tax. These
holders are urged to consult their own tax advisors with respect to other U.S.
tax consequences of the ownership and disposition of notes, including, in the
case of corporations, the possible imposition of a branch profits tax at a 30%
rate (or an applicable lower treaty rate).
SALE, EXCHANGE OR OTHER DISPOSITION OF NOTES OR SHARES OF COMMON STOCK
Subject to the discussion below concerning backup withholding, a Non-U.S.
Holder generally will not be subject to U.S. federal income tax (or any
withholding thereof) on gain (see "- Tax Consequences to U.S. Holders-Sale,
Exchange, Redemption or Retirement of Notes" above for the calculation of gain)
realized on a sale or other disposition of notes or common stock, unless:
- - the note holder is an individual who is present in the U.S. for 183 days
or more in the taxable year of disposition and certain other conditions are
met;
- - the gain is U.S. trade or business income; or
- - we are or have been a U.S. real property holding corporation, as defined
in the Code, at any time within the five-year period preceding the
disposition or the Non-U.S. Holder's holding period, whichever period is
shorter, and the common stock has ceased to be traded on an established
securities market prior to the beginning of the calendar year in which the
sale or disposition occurs.
We do not believe that we are, and do not anticipate becoming, a U.S. real
property holding corporation.
CONVERSION INTO COMMON STOCK
A Non-U.S. Holder's conversion of a note into common stock will not be a
taxable event. However, to the extent that a Non-U.S. Holder receives cash in
lieu of a fractional share upon conversation or is deemed to receive accrued and
unpaid interest, any such gain and/or interest would be subject to the rules
described above.
DIVIDENDS
Dividends (including deemed dividends on the notes described above under "-
Tax Consequences to U.S. Holders - Constructive Dividends on Notes") paid to a
Non-U.S. Holder of common stock generally will be subject to withholding tax at
a 30% rate or a reduced rate specified by an applicable income tax treaty. In
order to obtain a reduced rate of withholding, a Non-U.S. Holder will be
required to provide an Internal Revenue Service Form W-8BEN certifying its
entitlement to benefits under a treaty.
45
The withholding tax also does not apply to dividends paid to a Non-U.S.
Holder who provides a Form W-8ECI, certifying that the dividends are U.S. trade
or business income. Instead, such dividends will be subject to regular U.S.
income tax as if the Non-U.S. Holder were a U.S. Holder. A Non-U.S. corporation
receiving such dividends may also be subject to an additional "branch profits
tax" imposed at a rate of 30% (or a lower treaty rate).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information returns will be filed with the Internal Revenue Service in
connection with payments of interest on the notes and dividends on the common
stock. Unless the Non-U.S. Holder complies with certification procedures to
establish that it is not a U.S. person, information returns may be filed with
the Internal Revenue Service in connection with the proceeds from a sale or
other disposition of the notes and common stock and the Non-U.S. Holder may be
subject to U.S. backup withholding tax on payments of interest on the notes or
on dividends or the proceeds from a sale or other disposition of the notes or
common stock. The certification procedures required to claim the exemption from
withholding tax on interest described above will satisfy the certification
requirements necessary to avoid the backup withholding tax as well. The amount
of any backup withholding from a payment to a Non-U.S. Holder will be allowed as
a credit against the Non-U.S. Holder's U.S. federal income tax liability and may
entitle the Non-U.S. Holder to a refund, provided that the required information
is timely furnished to the Internal Revenue Service.
RECENT CHANGES TO THE CODE
On May 28, 2003, President Bush signed into law the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This legislation generally reduces the
maximum United States federal income tax rate imposed on long-term capital gains
of non-corporate taxpayers from 20% to 15% for gains recognized on or after May
6, 2003 through December 31, 2008 (subject to certain exceptions not applicable
to the notes) and reduces the maximum United States federal income tax rate
imposed on certain dividends received by non-corporate taxpayers generally from
38.6% to 15% for taxable years from 2003 through 2008. The reduction in the
maximum capital gains rate and the favorable treatment of dividends might apply
to certain capital gains recognized by, and dividends received by, individual
holders of notes or our common stock.
THE PRECEDING SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES IS FOR GENERAL
INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY EACH INVESTOR IS URGED TO
CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO
HIM, HER OR IT OF PURCHASING, OWNING AND DISPOSING OF NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAW.
46
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement in July 2003 to Bear,
Stearns & Co. Inc., J.P. Morgan Securities Inc. and Thomas Weisel Partners LLC.
The notes were subsequently resold to purchasers, including the selling
securityholders listed below, in transactions exempt from registration. Selling
securityholders may from time to time offer and sell the notes and the
underlying common stock pursuant to this prospectus.
The following table contains information previously provided to us with respect
to the selling securityholders and the principal amount of notes and the
underlying common stock beneficially owned by each selling securityholder that
may be offered using this prospectus.
SELLING SECURITYHOLDERS TABLE
Principal Number of
Amount of Shares Percentage of
Notes of Common Common
Beneficially Percentage Stock That Stock
Owned That of Notes May Be Sold Outstanding
Name May Be Sold Outstanding (1) (2)
- ----------------------- ------------- ----------- ------------ -----------
Arbitex Master
Fund, L.P. + $ 3,500,000 4.67% 173,883 *
Argent Classic
Convertible Arbitrage
Fund L.P. 1,000,000 1.33% 49,681 *
Argent Classic
Convertible Arbitrage
Fund II, L.P. 200,000 * 9,936 *
Argent Classic
Convertible Arbitrage
Fund (Bermuda) Ltd. 1,900,000 2.53% 94,394 *
Bancroft Convertible
Fund, Inc. 875,000 1.17% 43,471 *
Citi JL, Ltd 126,000 * 6,260 *
CNH CA Master
Account, L.P. 2,250,000 3.00% 111,782 *
Common Fund Event
Driven Co, Ltd. + 85,000 * 4,223 *
Convertible Securities
Fund 40,000 * 1,987 *
DBAG London + 7,500,000 10.00% 372,606 1.53%
Ellsworth Convertible
Growth and Income
Fund, Inc. 875,000 1.17% 43,471 *
Grace Brothers, Ltd. # 1,000,000 1.33% 49,681 *
Highbridge
International LLC+ 9,500,000 12.67% 471,968 1.93%
J.P. Morgan
Securities Inc. # 9,750,000 13.00% 484,388 1.98%
Levco Alternative
Fund, Ltd. + 3,393,000 4.52% 168,567 *
Nations Convertible
Securities Fund 3,960,000 5.28% 196,736 *
Nisswa Master Fund Ltd. 2,000,000 2.67% 99,362 *
Polaris Vega Fund L.P. 750,000 1.00% 37,261 *
Purchase
Associates, L.P. + 602,000 * 29,908 *
Purchase
Associates II, L.P. + 294,000 * 14,606 *
Silverback Master, Ltd. 8,500,000 11.33% 422,287 1.73%
Sunrise Partners
Limited Partnership +(3) 2,500,000 3.33% 124,202 *
Xavex Convertible
Arbitrage 10 Fund 100,000 * 4,968 *
Unnamed holders of
notes or future
transferee, pledgee,
donee or successor of
any such unnamed
holder (4)(5) 14,300,000 19.07% 710,435 2.91%
47
- --------------------------------
* Less than 1%.
# Broker-dealer
+ Affiliate of broker-dealer
(1) Assumes conversion of all of the holder's notes at a conversion rate of
approximately 49.6808 shares of our common stock for each $1,000
principal amount of notes. However, this conversion rate is subject
to adjustment as described under "Description of Notes - Conversion
Rights." As a result, the amount of common stock issuable upon
conversion of the notes may increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using
24,411,563 shares of common stock outstanding as of March 9, 2004.
In calculating this amount, we treated as outstanding the number of
shares of common stock issuable upon conversion of all of that
particular holder's notes. However, we did not assume the
conversion of any other holder's notes.
(3) The indicated securityholder also directly owns 600 shares of our common
stock. Such shares may not be sold pursuant to this prospectus.
(4) Information about other selling securityholders who hold notes not
specifically identified above will be provided in an amendment to
the registration statement of which this prospectus forms a part, while
information about any purchaser, transferee, pledge, donee or other
successor of a selling securityholder specifically identified above will
be provided in a supplement to the prospectus.
(5) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of
notes, do not beneficially own any common stock other than the common
stock issuable upon conversion of the notes at the initial
conversion rate.
VOTING/INVESTMENT CONTROL TABLE
SELLING SECURITYHOLDER NATURAL PERSON OR PERSONS WITH VOTING
OR DISPOSITIVE POWER
- ---------------------- ----------------------------------------------------
Arbitex Master Fund, L.P. Clark K. Hunt and Jonathan Bren
Argent Classic
Convertible Arbitrage
Fund L.P. Bruce McMahan, Saul Schwartzman and John Gordon
Argent Classic
Convertible Arbitrage
Fund II, L.P. Bruce McMahan, Saul Schwartzman and John Gordon
Argent Classic
Convertible Arbitrage
Fund (Bermuda) Ltd. Henry Cox and Thomas Marshall
Bancroft Convertible
Fund, Inc. Gordon F. Ahalt, William A. Benton,
Elizabeth C. Bogan, Ph.D.,
Thomas H. Dinsmore, C.F.A., Donald M. Halsted, Jr.,
George R. Lieberman, Duncan O. McKee,
Jane D. O'Keeffe, and Nicolas W. Platt, each of whom
expressly disclaims beneficial ownership
Citi JL, Ltd Henry Levin
CNH CA Master
Account, L.P. CNH Partners, LLC is the Investment Advisor of
CNH CA Master Account, L.P. Investment Principals
are Robert Krail, Mark Mitchell, and Todd Pulvino
48
Common Fund Event
Driven Co, Ltd. Henry Levin
Convertible Securities
Fund Ed Cassens and Yanfang C. Yan
DBAG London Dan Azzi
Ellsworth Convertible
Growth and Income
Fund, Inc. Gordon F. Ahalt, William A. Benton,
Elizabeth C. Bogan, Ph.D.,
Thomas H. Dinsmore, C.F.A., Donald M. Halsted, Jr.,
George R. Lieberman, Duncan O. McKee,
Jane D. O'Keeffe, and Nicolas W. Platt, each of whom
expressly disclaims beneficial ownership
Grace Brothers, Ltd. Michael Brailov and Bradford Whitmore
Highbridge
International LLC Glenn Dubin and Henry Swieca are principals of
Highbridge Capital Management, the trading advisor.
J.P. Morgan
Securities Inc. Michael Barnett
Levco Alternative
Fund, Ltd. Henry Levin
Nations Convertible
Securities Fund Ed Cassens and Yanfang C. Yan
Nisswa Master
Fund Ltd. Nikhil Mankodi, Aaron Yeary, Brian Taylor, Scott
Reinhart, Chris Lyche, Michael O'Connell and
John Lutkehaus
Polaris Vega Fund L.P. Silverton Management Company Limited, a private
Bermuda corporation, is the general partner.
Gregory R. Levinson has voting power and disclaims
any beneficial ownership.
Purchase Associates, L.P. Henry Levin
Purchase Associates
II, L.P. Henry Levin
Silverback Master, Ltd. Elliot Bossen
Sunrise Partners
Limited Partnership S. Donald Sussman
Xavex Convertible
Arbitrage 10 Fund Bruce McMahon, Saul Schwartzman and John Gordon
We prepared the above tables based solely on the information supplied to us
by the selling securityholders named in the tables.
The selling securityholders listed in the tables may sell, pledge, gift or
otherwise transfer, in transactions exempt from the registration requirements of
the Securities Act, some or all of their notes. If such an event occurs, we may
file a prospectus supplement identifying any purchaser, pledgee, donee or other
transferee. In addition, we may from time to time include additional selling
securityholders who hold notes not specifically identified above in an amendment
to this registration statement.
Because the selling securityholders may offer all or some of their notes or
The underlying common stock from time to time, we cannot estimate the amount of
The notes or underlying common stock that will be held by the selling
securityholders upon the termination of any particular offering. See "Plan of
Distribution."
None of the selling securityholders nor any of their affiliates, officers,
directors or principal equity holders has held any position or office or has had
any material relationship with us within the past three years, except that J.P.
Morgan Securities Inc. was an Initial Purchaser of the notes in the private
placement in July 2003, and an affiliate of J.P. Morgan Securities Inc. (1) was
a lender under our $30.0 million revolving credit facility, which has been
terminated; and (2) is the institution with which we have two existing
irrevocable standby letter of credit agreements totaling $1.7 million
collateralizing the leases for the Dallas and Scottsdale offices. All of the
notes are "restricted securities" under the Securities Act prior to their sale
under this registration statement.
49
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes or the
common stock issued upon conversion of the notes offered by this prospectus. The
notes and the underlying common stock may be sold from time to time to
purchasers:
- directly by the selling securityholders;
- through underwriters, broker-dealers or agents who may receive
compensation in the form of underwriting discounts or commissions or
agent's commissions from the selling securityholders or the purchasers
of the common stock.
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the notes and the underlying common stock may
be deemed to be "underwriters." As a result, any profits on the sale of the
notes and the underlying common stock by selling securityholders and any
discounts, commissions or concessions received by any such broker-dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. If the selling securityholders were to be deemed underwriters,
the selling securityholders may be subject to certain statutory liabilities of,
including, but not limited to, Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Exchange Act.
If the notes and the underlying common stock are sold through underwriters or
broker-dealers, the selling securityholders will be responsible for underwriting
discounts or commissions or agent's commissions.
The notes and the underlying common stock may be sold in one or more
transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions (which may involve block
transactions):
- on any national securities exchange or quotation service on which the
notes and underlying common stock may be listed or quoted at the time
of the sale, including the New York Stock Exchange in the case of the
common stock;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
- through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the notes and the underlying common stock, the
selling securityholders may enter into hedging transactions with broker-dealers.
These broker-dealers may in turn engage in short sales of the notes and the
underlying common stock in the course of hedging their positions. The selling
securityholders may also sell the notes and the underlying common stock short
and deliver notes and the underlying common stock to close out short positions,
or loan or pledge notes and the underlying common stock to broker-dealers that
in turn may sell the notes and the underlying common stock.
50
The selling securityholders identified by the symbol "#" in the table in
the preceding section (Grace Brothers, Ltd. and J.P. Morgan Securities Inc.)
are broker-dealers, and, as such they are underwriters within the meaning of
Section 2(a)(11) of the Securities Act with respect to the shares each of them
may offer for sale, and are subject to the prospectus delivery
requirements of the Securities Act as well as to statutory liabilities,
including, but not limited to, liabilities under Sections 11, 12 and 17 of
the Securities Act. With respect to selling securityholders that are
affiliates of broker-dealers, identified by the symbol "+" in the table in the
preceding section, we believe, based on information supplied to us by the
selling securityholders, that such entities acquired their notes or underlying
common stock in the ordinary course of business, and at the time of the purchase
such selling securityholders had no agreements or understandings, directly or
indirectly, with any person to distribute the notes or underlying common
stock. To the extent that we become aware that any such entities did not
acquire their notes or underlying common stock in the ordinary course of
business or did have such an agreement or understanding, we will file a
post- effective amendment to the registration statement of which this prospectus
forms a part to designate such affiliate as an underwriter within the meaning
of the Securities Act.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter, broker-
dealer or agent regarding the sale of the notes and the underlying common
stock by the selling securityholders. Selling securityholders may be able to
sell the notes and the underlying common stock pursuant to an exemption
from the registration requirements of the Securities Act rather than making
sales pursuant to this prospectus. In addition, we cannot assure you that
any such selling securityholder will not transfer, devise or gift the notes
and the underlying common stock by other means not described in
this prospectus.
Our common stock is listed on the Nasdaq National Market under the symbol
"PEGS." We do not intend to apply for listing of the notes on any securities
exchange or on the Nasdaq National Market. Accordingly, we cannot assure you
that the notes will be liquid or that any trading market for the notes will
develop.
There can be no assurance that any selling securityholder will sell any or
all of the notes and the underlying common stock pursuant to this prospectus. In
addition, any notes and the underlying common stock covered by this prospectus
that qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act
may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the notes and the underlying common stock by the
selling securityholders and any other such person. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the notes and the underlying common stock to engage in
market-making activities with respect to the particular notes and the underlying
common stock being distributed for a period of up to five business days prior to
the commencement of such distribution. This may affect the marketability of the
notes and the underlying common stock and the ability of any person or entity to
engage in market-making activities with respect to the notes and the underlying
common stock.
Pursuant to the registration rights agreement filed as an exhibit to this
registration statement, we and the selling securityholders will be indemnified
by the other against certain liabilities, including certain liabilities under
the Securities Act or will be entitled to contribution in connection with these
liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and the underlying common stock to
the public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
51
LEGAL MATTERS
The validity of the securities offered by this prospectus has been passed
upon by Locke Liddell & Sapp LLP, Dallas, Texas.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference to the Annual Report on
Form 10-K for the year ended December 31, 2003, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting. The
consolidated financial statements of Unirez, Inc. incorporated in this
prospectus by reference to the Current Report on Form 8-K/A filed on February
13, 2004, have been so incorporated in reliance on the report of Deloitte &
Touche LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
52
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table indicates the estimated expenses incurred by Pegasus in
connection with the offering described in the Registration Statement:
Securities and Exchange Commission filing fee $ 6,068
Printing and engraving fees 73,000*
Accountants' fees and expenses 35,000*
Legal fees and expenses 260,000*
Miscellaneous 18,000*
--------
Total $ 392,068*
===========
______________
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a director, officer, employee or agent of Pegasus may and, in
certain cases, must be indemnified by Pegasus against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorney's fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Pegasus. This indemnification does not apply, in a derivative action, to matters
as to which it is adjudged that the director, officer, employee or agent is
liable to Pegasus, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case, he
is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article Eight of our Third Amended and Restated Certificate of
Incorporation provides that no director of Pegasus shall be liable to Pegasus or
its stockholders for monetary damages for breach of fiduciary duty as a director
to the fullest extent permitted by the DGCL.
Article Eight of our Third Amended and Restated Certificate of
Incorporation also provides that Pegasus may indemnify to the fullest extent
permitted by Delaware law any person made or threatened to be made a party to an
action or proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that he, his estate or legal representative is or was a
director, officer, employee or agent of Pegasus or any predecessor of Pegasus or
serves or served at any other enterprise as a director, officer, employee or
agent at the request of Pegasus or any other predecessor to Pegasus. In
addition, Section 7.7 of our Amended and Restated Bylaws provides that Pegasus
shall indemnify to the fullest extent authorized or permitted by law any current
or former director or officer of Pegasus (or his or her testator or estate) made
or threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether criminal, civil administrative, or
investigative, by reason of the fact that he or she is or was a director or
officer of Pegasus or is or was serving, at the request of Pegasus, as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise and that, subject to
applicable law, Pegasus may indemnify an employee or agent of Pegasus to the
extent that and with respect to such proceedings as, the Board of Directors may
determine by resolution, in its discretion.
Reference is also made to the Rights Agreement incorporated by reference
herein, pursuant to which certain holders of capital stock of Pegasus named
therein have agreed to indemnify officers and directors of Pegasus against
certain liabilities under the Securities Act of 1933 or the Securities Exchange
Act of 1934 in the event Registrable Securities (as defined therein) held by
such holders are included in the securities to be registered pursuant to a
public offering by Pegasus.
II-1
Pegasus has purchased directors' and officers' liability insurance. Subject
to conditions, limitations and exclusions in the policy, the insurance covers
amounts required to be paid for a claim or claims made against directors and
officers for any act, error, omission, misstatement, misleading statement or
breach of duty by directors and officers in their capacity as directors and
officers of Pegasus.
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference
herein:
EXHIBIT NO. DESCRIPTION
- ------------ -----------
2.1 Agreement and Plan of Merger dated November 16, 1999, as
amended and restated, among the Company, Pegasus Worldwide,
Inc., Rez, Inc., Reed Elsevier, Inc. and Utell International
Group, LTD. (incorporated by reference from Appendix A of
the Company's Registration Statement (File No. 333-92683) on
Form S-4 filed on December 14, 1999)
2.2 Stock Purchase Agreement by and among Pegasus Solutions,
Inc., a Delaware corporation, and each Shareholder of Unirez,
Inc. dated October 24, 2003, and the Amendment to the Stock
Purchase Agreement dated November 24, 2003 (incorporated by
reference from Exhibit 2.1 of the Company's Current Report on
Form 8-K filed with the Commission on December 3, 2003).
4.1 Specimen of Common stock certificate (incorporated by reference
from Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (File No. 333-28595) declared effective by the
Commission on August 6, 1997)
4.2 Fourth Amended and Restated Certificate of Incorporation
(incorporated by reference from Exhibit 3.1 of the Company's
Quarterly Report on Form 10-Q filed with the Commission on
May 15, 2000)
4.3 Second Amended and Restated Bylaws (incorporated by reference
from Exhibit 3.4 to the Company's Registration Statement
on Form S-1 (File No. 333-28595) declared effective by the
Commission on August 6, 1997)
4.4 Rights Agreement dated June 25, 1996 by and among the
Company and certain holders of capital stock of the Company
named therein (incorporated by reference from Exhibit 4.3 to
the Company's Registration Statement on Form S-1 (File No.
333-28595) declared effective by the Commission on
August 6, 1997)
4.5 Rights Agreement dated as of September 28, 1998 by and between
the Company and American Securities Transfer & Trust, Inc.
(incorporated by reference from Exhibit 4 of the Company's
Current Report on Form 8-K filed with the Commission on
October 9, 1998)
4.6 Form of Rights Certificate (incorporated by reference from
Exhibit 3 of the Company's Form 8-A filed with Commission
on October 9, 1998)
4.7 Form of Note for the Company's 3.875% Convertible Senior Notes
due 2023 (included in Exhibit 4.8 below)
4.8 Indenture, dated as of July 21, 2003, by and between the
Company and JPMorgan Chase Bank, as trustee (incorporated by
reference from Exhibit 4.6 to the Company's Quarterly Report on
Form 10-Q filed with the Commission on August 14, 2003)
4.9 Registration Rights Agreement, dated as of July 21, 2003, by
and between Bear, Stearns & Co. Inc., JPMorgan Securities Inc.
and Thomas Weisel Partners LLC (incorporated by reference
from Exhibit 4.7 to the Company's Quarterly Report on Form
10-Q filed with the Commission on August 14, 2003)
II-2
+5.1 Opinion of Locke Liddell & Sapp LLP as to the legality
of the securities being registered
*12.1 Computation of ratio of earnings to fixed charges
23.1 Consent of PricewaterhouseCoopers LLP (incorporated by
reference from Exhibit 23.1 of the Company's Form 10-K filed
with the Commission on March 11, 2004)
+23.2 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5.1
hereto)
23.3 Consent of Deloitte & Touche LLP (incorporated by
reference from Exhibit 23.1 of the Company's Form 8-K/A filed
with the Commission on February 13, 2004)
+24.1 Power of Attorney (see signature page)
+25.1 Statement of Eligibility of Trustee on Form T-1
______________________
+ Previously filed.
* Filed herewith.
Pegasus will furnish a copy of any exhibit listed above to any shareholder
without charge upon written request to Mr. Ric L. Floyd, Secretary, Campbell
Centre I, 8350 North Central Expressway, Suite 1900, Dallas, Texas 75206.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that the undertakings set forth in clauses (i) and (ii) above
shall not apply if the information required to be included in a post-effective
amendment by these clauses is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 of this registration
statement or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
in payment by the registrant of expenses incurred or paid by a trust manager,
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such trust manager,
director, officer or controlling person in connection with the securities being
registered hereby, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on the 7th day of May,
2004.
PEGASUS SOLUTIONS, INC.
By: /s/ JOHN F. DAVIS III
-----------------------------
John F. Davis III,
Chief Executive Officer and Chairman
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
By: /s/John F. Davis III Chairman, Chief Executive Officer May 7, 2004
---------------------- and President
John F. Davis III (Principal Executive Officer)
By: * Executive Vice President and May 7, 2004
-------------------------- Chief Financial Officer (Principal
Susan K. Cole Financial and Accounting Officer)
By: *
------------------
Michael A. Barnett Director May 7, 2004
By: *
------------------
Robert B. Collier Director May 7, 2004
By: *
------------------
William C. Hammett, Jr. Vice Chairman and Director May 7, 2004
By: *
------------------
Thomas F. O'Toole Director May 7, 2004
By: *
------------------
Pamela H. Patsley Director May 7, 2004
II-5
SIGNATURE TITLE DATE
- --------- ----- ----
By: *
------------------
Jeffrey A. Rich Director May 7, 2004
By: *
------------------
Bruce W. Wolff Director May 7, 2004
*By: /s/John F. Davis, III
------------------------
John F. Davis III,
Attorney-in-Fact
II-6
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------ -----------
2.1 Agreement and Plan of Merger dated November 16, 1999, as
amended and restated, among the Company, Pegasus Worldwide,
Inc., Rez, Inc., Reed Elsevier, Inc. and Utell International
Group, LTD. (incorporated by reference from Appendix A of
the Company's Registration Statement (File No. 333-92683) on
Form S-4 filed on December 14, 1999)
2.2 Stock Purchase Agreement by and among Pegasus Solutions,
Inc., a Delaware corporation, and each Shareholder of Unirez,
Inc. dated October 24, 2003, and the Amendment to the Stock
Purchase Agreement dated November 24, 2003 (incorporated by
reference from Exhibit 2.1 of the Company's Current Report on
Form 8-K filed with the Commission on December 3, 2003).
4.1 Specimen of Common Stock certificate (incorporated by
reference from Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (File No. 333-28595) declared effective
by the Commission on August 6, 1997)
4.2 Fourth Amended and Restated Certificate of Incorporation
(incorporated by reference from Exhibit 3.1 of the Company's
Quarterly Report on Form 10-Q filed with the Commission on
May 15, 2000)
4.3 Second Amended and Restated Bylaws (incorporated by
reference from Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (File No. 333-28595) declared effective
by the Commission on August 6, 1997)
4.4 Rights Agreement dated June 25, 1996 by and among the
Company and certain holders of capital stock of the Company
named therein (incorporated by reference from Exhibit 4.3 to
the Company's Registration Statement on Form S-1 (File No.
333-28595) declared effective by the Commission on
August 6, 1997)
4.5 Rights Agreement dated as of September 28, 1998 by and
between the Company and American Securities Transfer & Trust,
Inc. (incorporated by reference from Exhibit 4 of the
Company's Current Report on Form 8-K filed with the Commission
on October 9, 1998)
4.6 Form of Rights Certificate (incorporated by reference from
Exhibit 3 of the Company's Form 8-A filed with Commission
on October 9, 1998)
4.7 Form of Note for the Company's 3.875% Convertible Senior Notes
due 2023 (included in Exhibit 4.8 below)
4.8 Indenture, dated as of July 21, 2003, by and between the
Company and JPMorgan Chase Bank, as trustee (incorporated by
reference from Exhibit 4.6 to the Company's Quarterly Report on
Form 10-Q filed with the Commission on August 14, 2003)
4.9 Registration Rights Agreement, dated as of July 21, 2003, by
and between Bear, Stearns & Co. Inc., JPMorgan Securities
Inc. and Thomas Weisel Partners LLC (incorporated by
reference from Exhibit 4.7 to the Company's Quarterly
Report on Form 10-Q filed with the Commission on August
14, 2003)
+5.1 Opinion of Locke Liddell & Sapp LLP as to the legality
of the securities being registered
*12.1 Computation of ratio of earnings to fixed charges
23.1 Consent of PricewaterhouseCoopers LLP (incorporated by
reference from Exhibit 23.1 of the Company's Form 10-K filed
with the Commission on March 11, 2004)
+23.2 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5.1
hereto)
23.3 Consent of Deloitte & Touche LLP (incorporated by reference
From Exhibit 23.1 of the Company's Form 8-K/A filed with the
Commission on February 13, 2004)
+24.1 Power of Attorney (see signature page)
+25.1 Statement of Eligibility of Trustee on Form T-1
_____________________
+ Previously filed.
* Filed herewith.
EXHIBIT 12.1
RATIOS OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
1999 2000 2001 2002 2003
------- --------- --------- -------- --------
Pre-tax income (loss) from continuing operations
before loss from equity investee $13,353 $(32,500) $(38,049) $(5,634) $(2,737)
Interest expense 27 1,687 887 53 1,552
Portions of rentals representative of interest (a) 346 2,875 3,256 3,093 2,933
------- --------- --------- -------- --------
Total fixed charges included in net income 373 4,562 4,143 3,146 4,485
Earnings available for fixed charges $13,726 $(27,938) $(33,906) $(2,488) $ 1,748
======= ========= ========= ======== ========
Fixed charges:
Fixed charges included in net income 373 4,562 4,143 3,146 4,485
------- --------- --------- -------- --------
Total fixed charges $ 373 $ 4,562 $ 4,143 $ 3,146 $ 4,485
======= ========= ========= ======== ========
Ratio of earnings to fixed charges 36.8 (b) (b) (b) (b)
======= ========= ========= ======== ========
(a) The interest factor attributable to rentals consists of one-third of
rental charges, which is deemed by
the Company to be representative of the interest factor inherent in rents.
(b) Earnings available for fixed charges to achieve a 1:1 coverage ratio
were inadequate for certain periods,
primarily due to purchase accounting amortization. Specifically, purchase
accounting amortization was
$41,285, $52,700, $31,495 and $10,429 for 2000, 2001, 2002 and 2003,
respectively. The amount of
additional earnings needed to generate a coverage ratio of 1:1 was $32,500,
$38,049, $5,634 and $2,737
for 2000, 2001, 2002 and 2003, respectively.