e424b3
PROSPECTUS
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-134961
$165,000,000
Pier 1 Imports, Inc.
6.375% Convertible Senior Notes due 2036
and
Shares of Common Stock issuable Upon Conversion of the Notes
In this prospectus unless otherwise stated, the Company, Pier 1, we, our, and us refer to
Pier 1 Imports, Inc. With respect to the descriptions of our business contained in this
prospectus, such terms refer to Pier 1 Imports, Inc. and our subsidiaries, unless the context
indicates otherwise. This prospectus relates to the offering for resale of our 6.375% Convertible
Senior Notes due 2036 and the shares of our common stock issuable upon conversion of the
convertible senior notes. The convertible senior notes were offered to qualified institutional
buyers in reliance on Rule 144A, in transactions exempt from, or not subject to, the registration
requirements of the Securities Act, through the initial purchaser JPMorgan Securities, Inc. This
prospectus will be used by selling securityholders to resell their convertible senior notes and
shares of our common stock issuable upon conversion of their convertible senior notes. We will not
receive any proceeds from sales by the selling securityholders.
The notes are convertible, at the option of the holder, prior to the maturity date into cash
and, if applicable, shares of our common stock in the following circumstances:
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during any fiscal quarter (and only during that fiscal quarter)
commencing after May 27, 2006 if the last reported sale price of our common stock is
greater than or equal to 130% of the conversion price for at least 20 trading days in
the period of 30 consecutive trading days ending on the last trading day of the
preceding fiscal quarter; or |
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if the notes have been called for redemption; or |
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upon the occurrence of specified corporate transactions described under
Description of notesConversion rights. |
The initial conversion price per share is approximately $15.19, which represents an initial
conversion rate of 65.8328 shares of common stock per $1,000 principal amount of notes. Upon
conversion, we will pay cash and shares of our common stock, if any, based on a daily conversion
value (as described herein) calculated on a proportionate basis for each day of the 25 trading-day
observation period. See Description of notesConversion rightsPayment upon conversion. The
conversion rate will be subject to adjustment in some events but will not be adjusted for accrued
interest.
The notes bear interest at a fixed annual rate of 6.375%, payable semi-annually on February 15
and August 15 of each year, commencing August 15, 2006. The notes will mature on February 15,
2036. We may redeem the notes, in whole at any time, or in part from time to time, on or after
February 15, 2011, at a redemption price, payable in cash, of 100% of the principal amount of the
notes, plus accrued and unpaid interest. Holders may require us to repurchase all or a portion of
their notes on each of February 15, 2011, 2016, 2021, 2026 and 2031 at a price of 100% of the
principal amount of the notes, plus accrued and unpaid interest, payable in cash. Upon a
fundamental change, as defined in the indenture governing the notes, holders may require us to
repurchase all or a portion of their notes, at a price of 100% of the principal amount of the
notes, plus accrued and unpaid interest, payable in cash.
The notes rank equally with all of our existing and future unsecured senior debt and senior to
all our future subordinated debt. The notes are guaranteed on a senior unsecured basis by each of
our subsidiaries that is currently a party to our senior credit facility. See Description of
notesSubsidiary Guarantees. The guarantees are senior obligations of our subsidiary guarantors.
If we fail to make payment on the notes, our subsidiary guarantors must make them instead.
The notes will not be listed on any securities exchange. Our common stock is listed on the
New York Stock Exchange under the symbol PIR. On June 8, 2006, the closing sale price of our
common stock on the New York Stock Exchange was $8.94 per share.
Investing in our convertible senior notes or common stock involves risks. Please read
carefully the section entitled Risk Factors beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
June 13, 2006
You should rely only on the information contained or incorporated by reference in this
prospectus. We have not authorized anyone to provide you with different information. You should
not assume that the information contained in this prospectus is accurate as of any date other than
the date on the front of this prospectus.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the Securities and
Exchange Commission utilizing a shelf registration process or continuous offering process. Under
this shelf registration process, the selling securityholders may, from time to time, sell the
securities described in this prospectus in one or more offerings. This prospectus provides you
with a general description of the securities which may be offered by the selling securityholders.
Each time a selling securityholder sells securities, the selling securityholder is required to
provide you with this prospectus and, in certain cases, a prospectus supplement containing specific
information about the selling securityholder and the terms of the securities being offered. That
prospectus supplement may include additional risk factors or other special considerations
applicable to those securities. Any prospectus supplement may also add, update, or change
information in this prospectus. If there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the information in that prospectus
supplement. You should read both this prospectus and any prospectus supplement together with
additional information described under Where You Can Find More Information.
Prospectus Summary
This summary may not contain all the information that may be important to you. You
should read this entire prospectus and the documents to which we have referred you before making an
investment decision. You should carefully consider the information set forth under Risk Factors.
In addition, certain statements include forward-looking information which involves risks and
uncertainties. See Forward-Looking Statements.
Our company
We are one of North Americas largest specialty retailers of unique decorative home
furnishings, gifts and related items. During fiscal 2006, we directly imported proprietary,
private-label merchandise from over 40 countries and sold a wide variety of furniture collections
representing 40% of our merchandise mix, decorative accessories at 26%, bed and bath products at
15%, housewares at 13% and other seasonal assortments at 6%. We operate stores in the United
States and Canada under the name Pier 1 Imports and Pier 1 Kids. Pier 1 Kids operates stores that
sell childrens home furnishings and decorative accessories. As of February 25, 2006, we operated
1,100 Pier 1 stores in the United States, 83 Pier 1 stores in Canada and supported five franchised
stores in the United States. We also operated 43 Pier 1 Kids stores in the United States.
Pier 1 offers a diverse selection of products consisting of approximately 3,000 items. While
the broad categories of Pier 1s merchandise remain constant, individual items within these product
groupings change frequently in order to meet the demands of our customers. Pier 1 merchandise
largely consists of items that require a significant degree of handcraftsmanship and are mostly
imported directly from foreign suppliers that operate in cottage industries and small factories.
Pier 1 is not dependent on any particular supplier and has enjoyed long-standing relationships with
many vendors.
Pier 1 stores in the United States and Canada average approximately 9,800 gross square feet,
which includes an average of approximately 7,800 square feet of retail selling space. The stores
consist of freestanding units located near shopping centers or malls and in-line positions in major
shopping centers. Pier 1 operates in all major U.S. metropolitan areas and many of the primary
smaller markets. Pier 1 stores generally have their highest sales volumes during November and
December as a result of the holiday selling season.
We operate an e-commerce web site, which can be accessed at www.pier1.com, which provides our
customers with access to Pier 1 products and services at their convenience. Customers can shop from
substantially all of our merchandise assortment as well as purchase gift cards, create and manage
bridal and gift registries, view interactive versions of recent catalogs, watch recent TV
commercials and sign up for marketing email and direct mail. We also offer a Pier 1 proprietary
credit card to customers and develop customer loyalty through targeted marketing promotions,
including deferred payment options on larger ticket purchases.
Our strategy
Throughout fiscal 2006, we continued to struggle with declining sales performance. Challenged
with how to increase customer traffic and differentiate ourselves from the growing competition, we
implemented several key initiatives. To regain our position as a unique specialty retailer, we are
focusing on merchandising and marketing strategies as well as prudent management of the business
through cost reductions and other restructuring plans throughout the organization.
Through market research and customer feedback, we determined that our stores needed an updated
look, complete with new merchandise lines and a redesigned store format. Market research showed
that customers are looking for a less is more style of home furnishings, with more efficient and
convenient shopping options. As a result, we have introduced a new line of merchandise with more
contemporary designs, updated color palettes and a modern look. In addition to shelf displays,
customers entering Pier 1
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stores will now find merchandise arrangements designed to fit into particular areas of the
home such as the living room, dining room, bedroom or patio. The new merchandise is displayed in a
manner that allows the customers to imagine what it would look like in their own homes, as well as
showing them how to incorporate different accessories into their living areas.
In addition to the new merchandise initiatives, we have implemented new marketing strategies
including new television advertisements, catalog mailings, magazine advertisements, and direct mail
and Internet marketing. We began test marketing our catalog through limited mailings late in
fiscal 2005 and again in early fiscal 2006 and decided to expand the mailings of catalogs with two
nation-wide distributions during the fall and holiday season of fiscal 2006. Customer response was
positive and we have decided to continue to expand this form of marketing and discontinue the use
of newspaper inserts. The catalog offers an opportunity to show product to its best advantage, to
suggest its use in home settings and to demonstrate the value proposition. In March 2006, we
circulated ten million copies of the spring catalog. In April, we circulated a late spring edition
of the catalog and followed it with a summer catalog in late May. In all, we plan to distribute
nine direct mail catalogs throughout fiscal 2007. Our management feels that the catalogs will play
an increasingly important role in the overall marketing plan as well as provide us with future
business opportunities. Almost all items available through catalogs and Internet shopping are also
available in stores.
We continue to manage our business prudently by reducing capital expenditures and controllable
costs, but we realize that sales will determine our success. Our new marketing and merchandising
initiatives are anticipated to help bring customers back to our stores.
Our industry
We compete in the highly competitive specialty retail business and compete primarily with
specialty sections of large department stores, furniture and decorative home furnishings retailers,
small specialty stores, discount stores, and catalog and Internet retailers. We believe that we
compete on the basis of price, value, rapidly changing merchandise assortments, visual
presentations of our merchandise, customer service and fashion sense. We also believe that we
remain competitive with other retailers because of our name recognition and established vendor
relationships. We believe that our Pier 1 Kids business offers an opportunity to take advantage of
the growing demand for childrens furniture and accessories.
About us
We are a Delaware corporation. Our principal offices are located at 100 Pier 1 Place, Fort
Worth, Texas 76102, and our telephone number is (817) 252-8000. Our website is www.pier1.com. The
information on our website is not part of this prospectus.
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The Offering
On February 14, 2006, we sold in a private offering $165,000,000 in aggregate principal
amount of 6.375% Convertible Senior Notes due 2036 to the initial purchaser. We entered into a
registration rights agreement with the initial purchaser in which we agreed, for the benefit of the
holders of the convertible senior notes, to file a shelf registration statement with the SEC by
June 14, 2006 with respect to resales of the convertible senior notes and common stock issued upon
the conversion thereof. We also agreed to use our reasonable best efforts to cause the shelf
registration statement to be declared effective under the Securities Act by September 12, 2006 and
to keep the shelf registration statement effective until such date as of which the convertible
senior notes and common stock issued upon the conversion thereof have been sold pursuant to the
shelf registration statement.
The following summary contains basic information about the notes and is not intended to be
complete. It does not contain all the information that is important to you. For a more complete
understanding of the notes, see Description of Notes. For purposes of the description of the
notes included in this prospectus, references to the Company, issuer, we, us, and our
refer only to Pier 1 Imports, Inc. and do not include our subsidiaries.
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Issuer
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Pier 1 Imports, Inc., a Delaware corporation. |
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Securities
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$165,000,000 principal amount of 6.375% Convertible Senior Notes due 2036. |
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Maturity
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February 15, 2036, unless earlier redeemed, repurchased or converted. |
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Interest
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6.375% per year until February 15, 2011 and 6.125% per year thereafter.
Interest on the notes will accrue from February 14, 2006. Interest will
be payable semiannually in arrears on February 15 and August 15 of each
year, beginning August 15, 2006. |
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Conversion rights |
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Holders may convert their notes at any time prior to the close of
business on the business day immediately preceding the maturity date, in
multiples of $1,000 principal amount, at the option of the holder under
the following circumstances: |
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during any fiscal quarter (and only during that fiscal quarter)
commencing after May 27, 2006 if the last reported sale price of our
common stock is greater than or equal to 130% of the conversion price for
at least 20 trading days in the period of 30 consecutive trading days
ending on the last trading day of the preceding fiscal quarter; or |
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if such notes have been called for redemption; or |
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upon the occurrence of specified corporate transactions described under
Description of notesConversion rights. |
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The initial conversion rate for the notes is 65.8328 shares per $1,000
principal amount of notes (equal to an initial conversion price of
approximately $15.19 per share), subject to adjustment. |
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Upon conversion, we will pay cash and shares of our common stock, if any,
based on a daily conversion value (as described herein) calculated on a
proportionate basis for each day of the 25 trading-day observation
period. See Description of notesConversion rightsPayment upon
conversion. |
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In addition, following certain corporate transactions that occur prior to
February 15, 2011 and that also constitute a fundamental change (as
defined in this offering memorandum), we will increase the conversion
rate for a holder who elects to convert its notes in connection with such
corporate transactions in certain circumstances. If such fundamental
change also constitutes a public acquirer change of control (as defined
in this offering memorandum), we may, in lieu of increasing the
conversion rate as described above, elect to adjust the conversion rate
and related conversion obligation so that the notes are convertible into
shares of the acquiring or surviving company as described under
Description of notesConversion rightsConversion rate
adjustmentsConversion after a public acquirer change of control. |
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You will not receive any additional cash payment or additional shares
representing accrued and unpaid interest and additional interest, if any,
upon conversion of a note, except in limited circumstances. Instead,
interest will be deemed paid by the cash and shares, if any, of common
stock issued to you upon conversion. |
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Notes called for redemption may be surrendered for conversion prior to
5:00 p.m., New York City time, on the third scheduled trading day
immediately preceding the redemption date. |
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Redemption at our
option
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On or after February 15, 2011, we may redeem for cash all or part of the
notes, upon not less than 45 nor more than 60 days notice before the
redemption date by mail to the trustee, the paying agent and each holder
of notes, at 100% of the principal amount of the notes to be redeemed,
plus accrued and unpaid interest, including any additional interest, to
but excluding the redemption date. |
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Purchase of notes
by us at the option
of the holder
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You have the right to require us to purchase all or a portion of your
notes on each of February 15, 2011, February 15, 2016, February 15, 2021,
February 15, 2026 and February 15, 2031 (each, a purchase date). In
each case, the purchase price payable will be equal to 100% of the
principal amount of the notes to be purchased plus any accrued and unpaid
interest, including any additional interest, to but excluding the
purchase date. We will pay cash for all notes so purchased. |
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Fundamental change
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If we undergo a fundamental change, you will have the option to require
us to purchase all or any portion of your notes. The fundamental change
purchase price will be 100% of the principal amount of the notes to be
purchased plus any accrued and unpaid interest, including any additional
interest, to but excluding the fundamental change purchase date. We will
pay cash for all notes so purchased. |
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Guarantees
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The notes are guaranteed on a senior unsecured basis by our subsidiary
guarantors that are currently party to our senior credit facility. See
Description of notesSubsidiary guarantees. We refer to those
subsidiaries as the subsidiary guarantors. |
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Ranking
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The notes rank equally in right of payment with all of our existing and
future unsecured senior debt and are senior in right of payment to all
our future subordinated debt. The indenture does not limit the amount of
debt that we or our subsidiaries may incur. The subsidiary guarantees
rank equally in right of payment with the existing and future unsecured
senior debt of our subsidiary guarantors and will be senior in right of
payment to the future subordinated debt of our subsidiary guarantors. The
notes and the guarantees will effectively rank junior to any of our
secured indebtedness or the subsidiary guarantors secured indebtedness,
in each case, to the extent of the value of the assets securing such
indebtedness. |
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Use of proceeds
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We will not receive any of the proceeds from the sale of the convertible
senior notes or the common stock contemplated by this prospectus. See
Selling Securityholders. |
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Book-entry form
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The notes will be issued in book-entry form and will be represented by
permanent global certificates deposited with, or on behalf of, The
Depository Trust Company (DTC) and registered in the name of a nominee
of DTC. Beneficial interests in any of the notes will be 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. |
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Absence of a public
market for the
notes
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There is currently no established market for the notes. Accordingly, we
cannot assure you as to the development or liquidity of any market for
the notes. We do not intend to apply for a listing of the notes on any
securities or any automated dealer quotation system. Our common stock is
listed on the New York Stock Exchange under the symbol PIR. |
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Convertible note
hedge transaction |
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We entered into a convertible note hedge transaction with JPMorgan Chase
Bank, National Association, an affiliate of J.P. Morgan Securities Inc.,
which is expected to reduce the potential dilution upon conversion of the
notes. We used approximately $9 million of the proceeds of the offering
of the notes to pay the cost of the convertible note hedge transaction. |
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In connection with hedging that transaction, JPMorgan Chase Bank, National Association, or its affiliates: |
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entered into various derivative transactions with respect to our common
stock concurrently with and shortly after the pricing of the notes; and |
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may enter into, or may unwind, various derivatives and/or purchase or
sell our common stock in secondary market transactions (including during
any observation period in respect of any conversion of notes). |
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These activities could have the effect of increasing or preventing a
decline in, the price of our common stock. |
Risk Factors
In evaluating an investment in the notes, prospective investors should carefully consider,
along with the other information set forth or incorporated by reference in this prospectus, the
specific factors set forth under Risk Factors for risks involved with an investment in the notes.
Ratio of Earnings to Fixed Charges
The following table presents our historical ratios of earnings to fixed charges for the last
five fiscal years.
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Fiscal Year Ended |
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2002 |
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2005 |
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Ratio of earnings
to fixed charges |
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3.41 |
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3.81 |
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3.31 |
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2.10 |
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Earnings were inadequate to cover fixed charges. The deficiency was $41.9 million. |
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Risk Factors
The following information describes certain significant risks and uncertainties inherent
in our business. Some of these risks are described below and in the documents incorporated by
reference in this prospectus, and you should take these risks into account in evaluating us or any
investment decision involving us or in deciding whether to participate in the purchase of the notes
proposed in this prospectus. This section does not describe all risks applicable to us, our
industry or our business, and it is intended only as a summary of certain material factors. You
should carefully consider such risks and uncertainties, together with the other information
contained in our latest Annual Report on Form 10-K and in our other public filings. If any of such
risks and uncertainties actually occurs, our business, financial condition or operating results
could differ materially from the plans, projections and other forward-looking statements included
in the section titled Managements Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in our latest Annual Report on Form 10-K and in our other public filings.
In addition, if any of the following risks and uncertainties, or if any other disclosed risks and
uncertainties, actually occurs, our business, financial condition or operating results could be
harmed substantially.
Risk Factors Related to the Company
Strategic Risks and Strategy Execution Risks
We must be able to anticipate, identify and respond to changing trends and customer preferences for
home furnishings.
The success of our specialty retail business depends upon our ability to predict trends in
home furnishings consistently and to provide merchandise that satisfies consumer demand in a timely
manner. Consumer preferences often change and may not be reasonably predicted. A majority of our
merchandise is manufactured, purchased and imported from countries around the world and is
typically ordered well in advance of the applicable selling season. Extended lead times of four to
twelve months may make it difficult to respond rapidly to changes in consumer demand and as a
result we may be unable to react quickly and source needed merchandise. Also, our vendors may not
have the ability to handle our increased demand for product. The seasonal nature of the specialty
home furnishing business leads us to purchase and requires us to carry a significant amount of
inventory prior to our peak selling season. As a result, we may be vulnerable to changes in
evolving home furnishing trends, customer preferences, pricing shifts, and may misjudge the timing
and selection of merchandise purchases. Our failure to anticipate, predict and respond in a
timely manner to changing home furnishing trends could lead to lower sales and additional
promotional discounts and clearance markdowns in an effort to clear merchandise, which could have a
negative impact on merchandise margins and in turn the results of operations.
Failure to control merchandise returns could negatively impact the business.
We have established a provision for estimated merchandise returns based upon historical
experience and other known factors. If actual returns are greater than those projected by
management, additional sales returns could be recorded in the future. Also, to the extent that
returned merchandise is damaged, we may not receive full retail value from the resale of the
returned merchandise. Introductions of new merchandise, changes in merchandise mix, merchandise
quality issues, changes in consumer confidence, or other competitive and general economic
conditions may cause actual returns to exceed the provision for estimated merchandise returns. An
increase in merchandise returns that exceeds our current provisions could negatively impact the
business and operating results.
The success of the business is dependent on factors affecting consumer spending that we cannot
control.
Consumer spending, including spending for the home and home-related furnishings, is dependent
upon factors that include but are not limited to general economic conditions, levels of employment,
disposable consumer income, prevailing interest rates, consumer debt, costs of fuel, recession and
fears of recession, war and fears of war, inclement weather, tax rates and rate increases, consumer
confidence in
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future economic conditions and political conditions, and consumer perceptions of personal
well-being and security. Unfavorable changes in factors affecting discretionary spending could
reduce demand for our products and therefore lower sales and negatively impact the business and
operating results.
We intend to expand our direct to consumer business in an effort to continue to grow and may face
challenges that may cause these expansion plans to fail.
We currently operate an e-commerce web site which serves as a marketing vehicle for the
business and provides consumers access to our products and services at their convenience. We
believe our introduction of the catalog business has allowed us to focus on cross-channel
integration and to more effectively utilize our web site to reach new and existing customers. We
plan to fully integrate our direct to consumer business by the end of fiscal 2007 with the
introduction of delivery of products direct to the customers home or to their local Pier 1 store,
at their request. The newest channel of direct to consumer business is expected to play a more
critical role to the growth of the business and will complement our current retail locations,
e-commerce web site and catalog business.
Failure to successfully manage and execute our marketing initiatives could have a negative impact
on the business.
Our continued success and growth has become dependent on improving customer traffic in order
to gain sales momentum in our stores and on our e-commerce web site. Historically, we have
utilized various media to reach the consumer and we have experienced varying levels of favorable
response to our marketing efforts. Often media placement decisions are made months in advance and
our inability to accurately predict our consumers preferred method of communication may negatively
impact the business and operating results.
Risks Related to Profitable Growth
Our success depends, in part, on our ability to find desirable new locations at reasonable rental
rates and close underperforming stores at or before the conclusion of their lease terms.
Historically, the continued growth of the business has been highly dependent on opening and
operating new stores at a reasonable profit. While management is currently executing a very
disciplined growth strategy, we will continue to pursue new store locations. The ability to
continue to open additional stores successfully will depend upon a number of factors, many of which
are beyond our control, including identification and availability of suitable store locations;
negotiation of favorable lease terms; securing required governmental permits and approvals;
availability of construction materials and labor at reasonable prices; obtaining financing on
acceptable terms; and general economic conditions.
For a majority of our current store base, a large portion of a stores operating expense is
our costs associated with leasing the location. Management actively monitors individual store
performance to ensure stores can remain profitable or have the ability to rebound to a profitable
state. Current locations may not continue to be desirable as demographics may adversely change and
we may choose to close an underperforming store before its lease expires. If management chooses to
close an existing store before its lease expiration, we could suffer operating losses until the
lease term expires or until the lease arrangement has been restructured or the lease obligation has
been settled.
Failure to attract and retain an effective management team or changes in the costs or availability
of a suitable workforce to manage and support our stores and distribution facilities could
adversely affect the business.
Our success is dependent, in a large part, on being able to successfully attract, motivate and
retain a qualified management team and employees. Sourcing qualified candidates to fill important
positions within our company, especially management, in the highly competitive retail environment
may prove to be a challenge. The inability to recruit and retain such individuals could result in
turnover in our stores and distribution facilities, which could have an adverse effect on the
business. Management will continue to
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assess our compensation structure in an effort to attract future qualified candidates or
retain current experienced management team members.
Occasionally we experience union organizing activities in our non-unionized distribution
facilities. These types of activities may result in work slowdowns or stoppages and higher labor
costs. Any increase in costs associated with labor organization at our distribution facilities
could result in higher costs to distribute inventory and could negatively impact merchandise
margins.
Factors affecting the general strength of the economy, should they decline, could result in reduced
consumer demand for our products.
Our successful execution relies on customer demand for our merchandise, which is affected by
factors that are impacted by prevailing economic conditions. A general slowdown in the United
States economy and an uncertain economic outlook may adversely affect consumer spending which in
turn could result in lower sales and unfavorable operating results. A prolonged economic downturn
could have a material adverse effect on the business, and our financial condition and results of
operations.
We operate in a highly competitive retail environment with companies offering similar merchandise
to ours, and if customers are lost to our competitors, sales could decline.
Our retail locations, e-commerce web site and direct mail catalog business operate in the
highly competitive specialty retail business competing with specialty sections of large department
stores, home furnishing stores, small specialty stores, discount stores and catalog and Internet
retailers. Management believes that in addition to competing for sales, we compete on the basis of
pricing and quality of products, constantly changing merchandise assortment, visual presentation of
our merchandise and customer service. We also believe our Pier 1 operations are competitive with
other retailers due to brand awareness and name recognition, established vendor relationships and
the extent and variety of the merchandise offered. The level of competition is not anticipated to
decrease and if we are unable to maintain a competitive position, we could experience negative
pressure on retail prices which in turn could result in reduced merchandise margins and operating
results.
Increases in certain operating costs that we cannot entirely control may have a significant impact
on our profitability.
We need to manage our operating costs effectively and continue to look for opportunities to
reduce these costs. Such costs include; rent, fuel and utility costs, delivery expenses, postage,
advertising media and production costs (including the cost of paper and printing), and costs of
obtaining commercial insurance.
Our business is subject to seasonal variations, with a significant portion of our sales and
earnings occurring during two months of the year.
Approximately 25% of our sales generally occur during the November-December holiday selling
season. Failure to predict consumer demand correctly during these months could result in lost
sales or gross margin erosion if merchandise must be marked down to clear inventory.
Our business may be harmed by adverse weather conditions and natural disasters.
Extreme or undesirable weather can affect customer traffic in retail stores as well as
customer shopping behavior. Natural disasters such as earthquakes, weather phenomena, and events
causing infrastructure failures could adversely affect any of our retail locations, distribution
centers, administrative facilities, ports, or locations of our suppliers domestically and in
foreign countries.
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Risks Associated with Dependence on Technology
We are heavily dependent on various kinds of technology in the operation of our business.
Failure of any critical software applications, technology infrastructure, telecommunications,
data communications, or networks could have a material adverse effect on our ability to manage the
merchandise supply chain, sell products, accomplish payment functions or report financial data.
Some business processes that are dependent on technology are outsourced to third parties. Such
processes include gift card tracking and authorization, credit card authorization and processing,
catalog and e-commerce fulfillment, insurance claims processing, processing and payment of payroll
outside the United States, and record keeping for retirement plans. We make a diligent effort to
insure that all providers of outsourced services observe proper internal control practices, such as
redundant processing facilities; however, there are no guarantees that failures will not occur.
Failure of third parties to provide adequate services could have an adverse effect on our results
of operations, liquidity, or ability to accomplish our financial and management reporting.
Regulatory Risks
We are subject to laws and regulatory requirements in many jurisdictions. Changes in these laws
and requirements may result in additional costs, including the costs of compliance as well as
potential penalties for non-compliance.
We operate in many local, state, and federal taxing jurisdictions, including foreign
countries. In most of these jurisdictions we are required to collect state and local sales taxes
at the point of sale and remit them to the appropriate taxing authority. We are also subject to
income taxes, excise taxes, franchise taxes, and other special taxes. We are also required to
maintain various kinds of business and commercial licenses to operate our stores and other
facilities. Rates of taxation are beyond our control, and increases in such rates or taxation
methods and rules could have a material impact on our profitability. Failure to comply with laws
concerning the collection and remittance of taxes and with licensing requirements could also
subject us to financial penalties or business interruptions.
Local, state, and federal legislation also has a potential material effect on our
profitability or ability to operate our business. Compliance with certain legislation carries with
it significant costs. We are subject to oversight by many governmental agencies in the course of
operating our business because of our numerous locations, large number of employees, contact with
consumers, granting of credit, and importation and exportation of product. Insuring compliance
with regulations may cause us to incur significant expenses, including the costs associated with
periodic audits. Failure to comply may also cause additional costs in the form of penalties.
Risks Associated with International Trade
As a retailer of imported merchandise, we are subject to certain risks that typically do not affect
retailers of domestically produced merchandise.
We usually order merchandise from four to twelve months in advance of delivery and generally
pay for the merchandise at the time it is loaded for transport to designated United States
destinations. Global political unrest, war, threats of war, terrorist acts or threats, especially
threats to foreign and United States ports, could affect our ability to import merchandise from
certain countries. Fluctuations in foreign currency exchange rates, restrictions on the
convertibility of the dollar and other currencies, duties, taxes and other charges on imports, dock
strikes, import quota systems and other restrictions sometimes placed on foreign trade can affect
the price, delivery and availability of imported merchandise as well as exports to our stores in
other countries. The inability to import products from certain countries, unavailability of
adequate shipping capacity at reasonable rates, or the imposition of significant tariffs could have
a material adverse effect on our results of operations. Freight costs contribute a substantial
amount to the cost of imported merchandise. Monitoring of foreign vendors compliance with United
States laws and our standards, including quality standards, is more difficult than monitoring of
domestic vendors.
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The United States government has the authority to enforce trade agreements, resolve trade
disputes, and open foreign markets to United States goods and services. The United States
government may also impose trade sanctions on foreign countries that are deemed to violate trade
agreements or maintain laws or practices that are unjustifiable and restrict United States
commerce. In these situations the United States government may increase duties on imports into the
United States from one or more foreign countries. In this event, we could be adversely affected by
the imposition of trade sanctions.
In addition, the United States maintains in effect a variety of additional international trade
laws under which our ability to import may be affected from time to time, including, but not
limited to, the antidumping law, the countervailing duty law, the safeguards law, and laws designed
to protect intellectual property rights. Although we may not be directly involved in a particular
trade dispute under any of these laws, our ability to import, or the terms and conditions under
which we can continue to import, may be affected by the outcome of that dispute.
In particular, because we import merchandise from countries around the world, we may be
affected from time to time by antidumping petitions filed with the United States Commerce
Department and International Trade Commission by United States producers of competing products
alleging that foreign manufacturers are selling their own products at prices in the United States
that are less than the prices that they charge in their home country market or in third country
markets or at less than their cost of production. Such petitions, if successful, could
significantly increase the United States import duties on those products. In that event, we might
possibly decide to pay the increased duties, thereby possibly increasing our price to consumers.
Alternatively, we might decide to source the product or a similar product from a different country
not subject to increased duties or else discontinue the importation and sale of the product.
In recent years, dispute resolution processes have been utilized to resolve disputes regarding
market access between the European Union, China, the United States and other countries. In some
instances these trade disputes can lead to the threats by countries of sanctions against each
other, which can include import prohibitions and increased duty rates on imported items. We
consider any agreement that reduces tariff and non-tariff barriers in international trade
beneficial to our business. Any type of sanction on imports is likely to increase our import costs
or limit the availability of products purchased from sanctioned countries. In that case, we may be
required to seek similar products from other countries.
Risks Relating to Liquidity
Insufficient cash flows from operations could result in the substantial utilization of our secured
credit facility which may impose certain financial covenants.
We maintain a secured credit facility to enable us to issue merchandise and special purpose
standby letters of credit as well as occasionally to fund working capital requirements. Borrowings
under the credit facility are subject to a borrowing base calculation consisting of a percentage of
eligible inventory and third party credit card receivables. Substantial utilization of the
availability under the borrowing base will result in various restrictions on us including:
restricting our ability to repurchase our common stock or pay dividends, dominion over our cash
accounts, and requiring compliance with a minimum fixed charge coverage ratio. While we do not
anticipate the use of the facility for working capital purposes in the next twelve months,
significant decreases in cash flow from operations and investing could result in our borrowing
increased amounts under the credit facility to fund operational needs and potentially being
subjected to these limitations.
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Changes in our credit rating may result in a significant decrease in cash available for our use.
Our credit card securitization program requires that we maintain a minimum credit rating.
Should our credit rating fall more than one notch, or our rating be withdrawn, the certificate
holders would be entitled to retain funds collected on the outstanding credit card receivables
until the certificate holders have been repaid amounts owed. To avoid such an event, our
non-consolidated subsidiary would endeavor to amend the securitization agreement to lower the
minimum acceptable credit rating or eliminate the rating requirement. In the past, our
non-consolidated subsidiary has been able to amend our securitization agreement as needed; however,
there are no assurances that future amendments will be obtainable. If such an event were not
avoided, it could negatively impact our liquidity position as it would reduce the non-consolidated
subsidiarys funds available to purchase our newly generated proprietary credit card receivables
and could further result in defaults under other agreements, including our secured credit facility.
A default under the secured credit facility that remains uncured or that was not waived by the
lenders would cause severe limitations on our ability to issue letters of credit or borrow funds to
cover operational needs, which would negatively impact the business.
Risks Related to the Notes
Although the notes are referred to as senior notes, and the subsidiary guarantees are senior
obligations of our subsidiaries, each will be effectively subordinated to our secured debt and any
secured liabilities of our subsidiaries.
The notes will effectively rank junior to any of our secured debt or any secured debt of our
subsidiaries, including our senior credit facility, to the extent of the value of the assets
securing that debt. In the event of our bankruptcy, liquidation, reorganization or other winding
up, our assets that secure secured debt will be available to pay obligations on the notes only
after that secured debt has been repaid in full from these assets. There may not be sufficient
assets remaining to pay amounts due on any or all the notes then outstanding. Similarly, the
subsidiary guarantees of the notes will effectively rank junior to any secured debt of the
applicable subsidiary, including our senior credit facility, to the extent of the value of the
assets securing that debt. Our subsidiaries had indebtedness of $19 million as of May 27, 2006, all
of which was secured debt.
A fundamental change may adversely affect us or the notes.
Our senior credit facility provides that certain fundamental changes with respect to us will
constitute a default. In addition, future debt we incur may limit our ability to repurchase the
notes upon a fundamental change or require us to offer to redeem that future debt upon a
fundamental change. Moreover, if you or other investors in our notes exercise the repurchase right
for a fundamental change, it may cause a default under that debt, even if the fundamental change
itself does not cause a default, due to the financial effect of such a purchase on us. Finally, if
a fundamental change event occurs, we cannot assure you that we will have enough funds to
repurchase all the notes.
Furthermore, the fundamental change provisions, including the provisions requiring us to
increase the conversion rate by additional shares related to conversions in connection with a
fundamental change, may in certain circumstances make more difficult or discourage a takeover of
our company and the removal of incumbent management.
We may not have the ability to raise the funds necessary to settle conversion of the notes or to
purchase the notes upon a fundamental change or other purchase date, and our future debt may
contain limitations on our ability to pay cash upon conversion or repurchase of the notes.
Upon conversion of the notes, we will be required to pay a settlement amount in cash and
shares of our common stock, if any, based upon a 25 trading-day observation period. In addition, on
February 15, 2011 and on each successive fifth anniversary thereof prior to maturity, holders of
the notes may require us to purchase their notes for cash. Holders may also require us to purchase
their notes upon a fundamental
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change as described under Description of notesFundamental change permits holders to require
us to purchase notes. A fundamental change may also constitute an event of default, and result in
the effective acceleration of the maturity of our then-existing indebtedness, under another
indenture or other agreement. We cannot assure you that we would have sufficient financial
resources, or would be able to arrange financing, to pay the settlement amount in cash, or the
purchase price or fundamental change purchase price for the notes tendered by the holders in cash.
Further, our ability to pay the settlement amount in cash, or the purchase price or
fundamental change purchase price for the notes in cash, will be subject to limitations we may have
in our credit facilities or any other indebtedness we may have in the future. If you convert your
notes or require us to repurchase them, we may seek the consent of our lenders or attempt to
refinance our debt, but there can be no assurance that we will be able to do so.
Failure by us to pay the settlement amount upon conversion or purchase the notes when required
will result in an event of default with respect to the notes, which may also result in the
acceleration of our other indebtedness.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and
require holders of the notes to return payments received from us or our subsidiary guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws,
a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other
debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt
evidenced by its guarantee,
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issued the guarantee to delay, hinder or defraud present or future creditors; or |
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received less than reasonably equivalent value or fair consideration for the
incurrence of such guarantee, |
and, at the time it issued the guarantee,
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was insolvent or rendered insolvent by reason of such incurrence; |
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was engaged or about to engage in a business or transaction for which the
guarantors remaining unencumbered assets constituted unreasonably small capital to
carry on its business; or |
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intended to incur, or believed that it would incur, debts beyond its ability to pay
the debts as they mature. |
In addition, any payment by that guarantor pursuant to its guarantee could be voided and
required to be returned to the guarantor, or to a fund for the benefit of the creditors of the
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending
upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred.
Generally, however, a guarantor would be considered insolvent if, at the time it incurred the debt,
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the sum of its debts, including liabilities, were greater than the fair saleable
value of all of its assets; |
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the present fair saleable value of its assets were less than the amount that would
be required to pay its probable liability on its existing debts, including
liabilities, as they become absolute and mature; or |
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it could not pay its debts as they become due. |
We cannot be sure as to the standards that a court would use to determine whether or not the
subsidiary guarantors were solvent at the relevant time, or, regardless of the standard that the
court uses, that the issuance of the subsidiary guarantees of the notes would not be voided or a
subsidiary guarantee of the notes would not be subordinated to that subsidiary guarantors other
debt.
If a case were to occur, any subsidiary guarantee of the notes incurred by one or more of the
subsidiary guarantors could also be subject to the claim that, since the subsidiary guarantee was
incurred for our benefit, and only indirectly for the benefit of the subsidiary guarantor, the
obligations of the applicable guarantor were incurred for less than fair consideration.
A court could thus void the obligations under the guarantee or subordinate the guarantee to
the applicable guarantors other debt or take other action detrimental to holders of the notes.
Future sales of our common stock in the public market or the issuance of other equity may adversely
affect the market price of our common stock and the value of the notes.
Sales of a substantial number of shares of our common stock or other equity-related securities
in the public market could depress the market price of the notes, our common stock, or both, and
impair our ability to raise capital through the sale of additional equity securities. We cannot
predict the effect that future sales of our common stock or other equity-related securities would
have on the market price of our common stock or the value of the notes. The price of our common
stock could be affected by possible sales of our common stock by investors who view the notes as a
more attractive means of equity participation in out company and by hedging or arbitrage trading
activity that we expect to develop involving our common stock. The hedging or arbitrage could, in
turn, affect the market price of the notes. As of June 8, 2006,
we held approximately 13,356,945
shares of our common stock in reserve for future issuance to our employees, directors and officers
pursuant to our equity award programs.
The market price of the notes could be significantly affected by the market price of our common
stock and other factors.
We expect that the market price of our notes will be significantly affected by the market
price of our common stock. This may result in greater volatility in the market price of the notes
than would be expected for nonconvertible debt securities. The market price of our common stock
will likely continue to fluctuate in response to factors including the factors discussed elsewhere
in Risk factors and in Forward-looking statements, many of which are beyond our control.
The conditional conversion feature of the notes could result in your receiving less than the value
of our common stock into which a note would otherwise be convertible.
The notes are convertible into cash and shares of our common stock, if applicable, 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 cash and common
stock into which the notes would otherwise be convertible.
Upon conversion of the notes, we will pay a settlement amount consisting of cash and shares of our
common stock, if any, based upon a specified observation period.
Generally, we will satisfy our conversion obligation to holders by paying cash and by
delivering shares of our common stock based on a daily conversion value calculated on a
proportionate basis for each day of the 25 trading-day observation period. Accordingly, upon
conversion of a note, holders might not receive any shares of our common stock, or they might
receive fewer shares of common stock relative to the conversion value of the note as of the
conversion date. In addition, because of the 25 trading-day observation period, settlement will be
delayed until at least the 23rd trading day following the related
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conversion date. See Description of notesConversion rightsPayment upon conversion. Upon
conversion of the notes, you may receive less proceeds than expected because the value of our
common stock may decline (or not appreciate as much as you may expect) between the conversion date
and the day the settlement amount of your notes is determined.
Our failure to convert the notes into cash or a combination of cash and shares of our common
stock upon exercise of a holders conversion right in accordance with the provisions of the
indenture would constitute a default under the indenture. In addition, a default under the
indenture could lead to a default under existing and future agreements governing our indebtedness.
If, due to a default, the repayment of related indebtedness were to be accelerated after any
applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness and
the notes.
The notes are not protected by restrictive covenants.
The indenture governing the notes does not contain any financial or operating covenants or
restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or
repurchase of securities by us or any of our subsidiaries. The indenture contains no covenants or
other provisions to afford protection to holders of the notes in the event of a fundamental change
involving us except to the extent described under Description of notesFundamental change permits
holders to require us to purchase notes, Description of notesConversion rightsConversion rate
adjustmentsAdjustment to shares delivered upon conversion upon certain fundamental changes and
Description of notesConversion rightsConversion rate adjustmentsConversion after a public
acquirer change of control.
The adjustment to the conversion rate for notes converted in connection with a specified corporate
transaction may not adequately compensate you for any lost value of your notes as a result of such
transaction.
If a specified corporate transaction that constitutes a fundamental change occurs prior to
February 15, 2011, under certain circumstances we will increase the conversion rate by a number of
additional shares of our common stock for notes converted in connection with such specified
corporate transaction. The increase in the conversion rate will be determined based on the date on
which the specified corporate transaction becomes effective and the price paid per share of our
common stock in such transaction, as described below under Description of notesConversion
rights. The adjustment to the conversion rate for notes converted in connection with a specified
corporate transaction may not adequately compensate you for any lost value of your notes as a
result of such transaction. In addition, if the specified corporate transaction occurs after
February 15, 2011 or if the price of our common stock in the transaction is greater than or equal
to $40.00 per share or less than $10.85 (in each case, subject to adjustment), no adjustment will
be made to the conversion rate. In addition, in no event will the total number of shares of common
stock issuable upon conversion as a result of this adjustment exceed 92.1659 per $1,000 principal
amount of notes, subject to adjustments in the same manner as the conversion rate as set forth
under Description of notesConversion rightsConversion rate adjustments.
Our obligation to increase the conversion rate in connection with any such specified corporate
transaction could be considered a penalty, in which case the enforceability thereof would be
subject to general principles of reasonableness of economic remedies.
The conversion rate of the notes may not be adjusted for all dilutive events.
The conversion rate of the notes is subject to adjustment for certain events, including, but
not limited to, the issuance of stock dividends on our common stock, the issuance of certain rights
or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets,
cash dividends and certain issuer tender or exchange offers as described under Description of
notesConversion rightsConversion rate adjustments. In addition, the conversion rate will not be
adjusted for other events, such as a third party tender or exchange offer or an issuance of common
stock for cash, that may adversely affect the trading price of the notes or the common stock. An
event that adversely affects the value of the notes may occur, and that event may not result in an
adjustment to the conversion rate.
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Some significant restructuring transactions may not constitute a fundamental change, in which case
we would not be obligated to offer to repurchase the notes.
Upon the occurrence of a fundamental change, you have the right to require us to repurchase
your notes. However, the fundamental change provisions will not afford protection to holders of
notes in the event of certain transactions. For example, transactions such as leveraged
recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute
a fundamental change requiring us to repurchase the notes. In the event of any such transaction,
the holders would not have the right to require us to repurchase the notes, even though each of
these transactions could increase the amount of our indebtedness or otherwise adversely affect our
capital structure or any credit ratings, thereby adversely affecting the holders of notes.
The trading market for the notes may be limited.
The notes are a new issue of securities for which there is currently no trading market. We do
not intend to list the notes on any national securities exchange or automated quotation system.
Accordingly, we cannot predict whether an active trading market for the notes will develop or be
sustained. If an active trading market for the notes fails to develop or be sustained, the trading
price for the notes could fall.
Moreover, even if an active trading market for the notes were to develop, the notes could
trade at prices that may be lower than the initial offering prices of the notes. Future trading
prices of the notes will depend on many factors, including, among other things, prevailing interest
rates, our operating results, the price of our common stock and the market for similar securities.
Historically, the market for convertible debt has been subject to disruptions that have caused
volatility in prices. It is possible that the market for the notes will be subject to disruptions
which may have a negative effect on the holders of the notes, regardless of our prospects or
financial performance.
You may be deemed to have received a taxable distribution without the receipt of any cash.
The conversion rate of the notes will be adjusted in certain circumstances. Under Section
305(c) of the Internal Revenue Code of 1986, (the Code), adjustments (or failures to make
adjustments) that have the effect of increasing your proportionate interest in our assets or
earnings may in some circumstances result in a deemed distribution to you. Certain of the possible
conversion rate adjustments provided in the notes (including, without limitation, adjustments in
respect of taxable dividends to holders of our common stock) will result in deemed distributions to
the U.S. holders of notes even though they have not received any cash or property as a result of
such adjustments. Any deemed distributions will be taxable as a dividend, return of capital, or
capital gain in accordance with the earnings and profits rules under the Code. If you are a
non-U.S. holder (as defined in Certain United States federal income tax considerations), such
deemed dividend may be subject to United States withholding tax at a 30% rate or such lower rate as
may be specified by an applicable treaty. See Certain United States federal income tax
considerations.
The convertible note hedge transaction may affect the value of the notes and our common stock.
We have entered into a convertible note hedge transaction with JPMorgan Chase Bank, National
Association. This transaction is expected to reduce the potential dilution upon conversion of the
notes. We used approximately $9 million of the proceeds of the offering of the notes to pay the
cost of this transaction. In connection with hedging these transactions, JPMorgan Chase Bank,
National Association or its affiliates:
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have entered into various derivative transactions with respect to our common stock
concurrently with and expect to enter into such transactions shortly after the pricing
of the notes; and |
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may enter into, or may unwind, various derivatives and/or purchase or sell our
common stock in secondary market transactions following the pricing of the notes
(including during any observation period related to a conversion of notes). |
Such activities could have the effect of increasing, or preventing a decline in, the price of
our common stock concurrently with or shortly following the pricing of the notes. JPMorgan Chase
Bank, National Association or its affiliates are likely to modify their hedge positions from time
to time prior to conversion or maturity of the notes by purchasing and selling shares of our common
stock, other of our securities, or other instruments they may wish to use in connection with such
hedging. In particular, such hedging modification may occur during any observation period for a
conversion of notes, which may have a negative effect on the settlement amount received in relation
to the conversion of those notes. In addition, we intend to exercise options we hold under the
convertible note hedge transaction whenever notes are converted. In order to unwind its hedge
position with respect to those exercised options, JPMorgan Chase Bank, National Association or its
affiliates expect to sell shares of our common stock in secondary market transactions or unwind
various derivative transactions with respect to our common stock during the observation period for
the converted notes.
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Forward-Looking Statements
This prospectus includes or incorporates by reference forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. We may also make
forward-looking statements in other reports filed with the Securities and Exchange Commission and
in material delivered to the Companys shareholders. Forward-looking statements provide current
expectations of future events based on certain assumptions. These statements encompass information
that does not directly relate to any historical or current fact and often may be identified with
words such as anticipates, believes, expects, estimates, intends, plans, projects and
other similar expressions. Our expectations and assumptions regarding planned store openings,
financing of obligations from operations, results from its new marketing, merchandising and store
operations strategies, and other future results are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements. Risks and uncertainties that may affect
operations and performance include, among others, the effects of terrorist attacks or other acts of
war, conflicts or war involving the United States or its allies or trading partners, labor strikes,
weather conditions or natural disasters, volatility of fuel and utility costs, the general strength
of the economy and levels of consumer spending, consumer confidence, the availability of new sites
for expansion along with sufficient labor to facilitate growth, the availability and proper
functioning of technology and communications systems supporting our key business processes, our
ability to import merchandise from foreign countries without significantly restrictive tariffs,
duties or quotas and our ability to source, ship and deliver items from foreign countries to its
United States distribution centers at reasonable prices and rates and in a timely fashion. The
foregoing risks and uncertainties are in addition to others discussed elsewhere in this report. We
assume no obligation to update or otherwise revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied will not be realized.
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Use of Proceeds
We will not receive any of the proceeds from the sale of the convertible senior notes or
the common stock contemplated by this prospectus. See Selling Securityholders for a list of the
persons receiving proceeds from the sale of the convertible senior notes or the underlying common
stock.
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Description of Notes
We issued our 6.375% Convertible Senior Notes due 2036 (the Notes) under an Indenture
dated as of February 14, 2006 (the Indenture), among the Company, and JPMorgan Chase Bank,
National Association, as Trustee (the Trustee). The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the Trust Indenture Act).
The following description is a summary of the material provisions of the notes and the
indenture and does not purport to be complete. This summary is subject to and is qualified by
reference to all the provisions of the notes and the indenture, including the definitions of
certain terms used in the indenture. We urge you to read the indenture because it, and not this
description, defines your rights as a holder of the notes.
For purposes of this description, references to the Company, we, our and us refer only
to Pier 1 Imports, Inc. and not to its subsidiaries.
General
The notes
The notes
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are general unsecured, senior obligations of the Company; |
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are initially limited to an aggregate principal amount of $165 million; |
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mature on February 15, 2036; |
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will be issued in denominations of $1,000 and integral multiples of $1,000; |
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will be represented by one or more registered notes in global form, but in certain
limited circumstances may be represented by notes in definitive form. See Book-entry,
settlement and clearance; |
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rank equally in right of payment to any future unsecured senior indebtedness of the
Company; |
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are unconditionally guaranteed on a senior basis by each subsidiary of the Company
that is currently a party to our senior credit facility; and |
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are expected to be eligible for trading in The PORTAL Market. |
Subject to fulfillment of certain conditions and during the periods described below, the notes
may be converted initially at an initial conversion rate of 65.8328 shares of common stock per
$1,000 principal amount of notes (equivalent to a conversion price of approximately $15.19 per
share of common stock). The conversion rate is subject to adjustment if certain events occur. Upon
conversion of a note, we will pay cash and shares of common stock, if any, based upon a daily
conversion value calculated on a proportionate basis for each trading day in the 25 trading-day
observation period as described below under Conversion rightsPayment upon conversion. You will
not receive any separate cash payment for interest or additional interest, if any, accrued and
unpaid to the conversion date except under the limited circumstances described below.
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Payments on the notes; paying agent and registrar
We will pay principal of certificated notes at the office or agency designated by the Company
in the Borough of Manhattan, The City of New York. We have initially designated a corporate trust
office at 4 New York Plaza, New York, New York 10004 as our paying agent and registrar and its
agency in New York, New York as a place where notes may be presented for payment or for
registration of transfer. We may, however, change the paying agent or registrar without prior
notice to the holders of the notes, and the Company may act as paying agent or registrar. Interest
(including additional interest, if any), on certificated notes will be payable (i) to holders
having an aggregate principal amount of $5,000,000 or less, by check mailed to the holders of these
notes and (ii) to holders having an aggregate principal amount of more than $5,000,000, either by
check mailed to each holder or, upon application by a holder to the registrar not later than the
relevant record date, by wire transfer in immediately available funds to that holders account
within the United States, which application shall remain in effect until the holder notifies, in
writing, the registrar to the contrary.
We will pay principal of and interest on (including any additional interest) notes in global
form registered in the name of or held by The Depository Trust Company or its nominee in
immediately available funds to The Depository Trust Company or its nominee, as the case may be, as
the registered holder of such global note.
Transfer and exchange
A holder of notes may transfer or exchange notes at the office of the registrar in accordance
with the indenture. The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents. No service charge will be imposed by the
Company, the trustee or the registrar for any registration of transfer or exchange of notes, but
the Company may require a holder to pay a sum sufficient to cover any transfer tax or other similar
governmental charge required by law or permitted by the indenture. The Company is not required to
transfer or exchange any note selected for redemption or surrendered for conversion. Also, the
Company is not required to register any transfer or exchange of any note for a period of 15 days
before the mailing of a notice of redemption.
General
The registered holder of a note will be treated as the owner of it for all purposes.
The Company does not intend to list the notes on a national securities exchange or interdealer
quotation system.
The indenture does not limit the amount of debt which may be issued by the Company or its
subsidiaries under the indenture or otherwise.
Other than restrictions described under Fundamental change permits holders to require us to
purchase notes and Consolidation, merger and sale of assets below and except for the provisions
set forth under Conversion rightsConversion rate adjustmentsAdjustment to shares delivered upon
conversion upon certain fundamental changes and Conversion rights Conversion rate
adjustmentsConversion after a public acquirer change of control, the indenture does not contain
any covenants or other provisions designed to afford holders of the notes protection in the event
of a highly leveraged transaction involving the Company or in the event of a decline in the credit
rating of the Company as the result of a takeover, recapitalization, highly leveraged transaction
or similar restructuring involving the Company that could adversely affect such holders.
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Interest
The notes bear interest at a rate of 6.375% per year until February 15, 2011 and at a rate of
6.125% per year thereafter. Interest on the notes will accrue from February 14, 2006. Interest will
be payable semiannually in arrears on February 15 and August 15 of each year, beginning August 15,
2006.
Interest will be paid to the person in whose name a note is registered at the close of
business on February 1 or August 1, as the case may be, immediately preceding the relevant interest
payment date. Interest on the notes will be computed on the basis of a 360-day year composed of
twelve 30-day months.
Ranking
The notes are general unsecured obligations of the Company that rank senior in right of
payment to all future indebtedness that is expressly subordinated in right of payment to the notes.
The notes will rank equally in right of payment with all existing and future liabilities of the
Company that are not so subordinated. The notes will effectively rank junior to any secured
indebtedness of the Company and similarly the subsidiary guarantees will rank junior to any secured
indebtedness of the subsidiary guarantors, in each case to the extent of the value of the assets
securing such indebtedness. In the event of bankruptcy, liquidation, reorganization or other
winding up of the Company, the assets of the Company that secure secured debt will be available to
pay obligations on the notes only after all indebtedness under such secured debt has been repaid in
full from such assets. We advise you that there may not be sufficient assets remaining to pay
amounts due on any or all the notes then outstanding. The subsidiary guarantees of the notes will
have a similar ranking with respect to secured and unsecured senior debt of the subsidiary
guarantors as the notes do with respect to secured and unsecured senior debt of the Company as well
as with respect to any unsecured obligations expressly subordinated in right of payment to the
guarantees.
At May 27, 2006, our total consolidated indebtedness was $184 million. Subsidiaries of the
Company had indebtedness of $19 million as of May 27, 2006, all of which was secured. Each
subsidiary guarantee of the notes will be effectively subordinated to all secured debt of the
relevant subsidiary guarantor to the extent of the value of the assets securing such debt. The
ability of our subsidiaries to pay dividends and make other payments to us is also restricted by,
among other things, applicable corporate and other laws and regulations as well as agreements to
which our subsidiaries may become a party. We may not be able to pay the cash portions of any
settlement amount upon conversion of the notes, or to pay the cash purchase price or cash
fundamental change price if a holder requires us to repurchase notes as described below. See Risk
FactorsWe may not have the ability to raise the funds necessary to settle conversion of the notes
or to purchase the notes upon a fundamental change or other purchase date, and our future debt may
contain limitations on our ability to pay cash upon conversion or repurchase of the notes.
Subsidiary guarantees
Our subsidiary guarantors (as defined below) will, jointly and severally, unconditionally
guarantee the Companys payment obligations under the notes. Each subsidiary guarantee will rank
equally in right of payment with all existing and future liabilities of subsidiary guarantors that
are not subordinated. Each subsidiary guarantee will effectively rank junior to any secured
indebtedness of its respective subsidiary guarantor to the extent of the value of the assets
securing such indebtedness. The subsidiary guarantees with respect to a note will automatically
terminate immediately prior to such notes conversion. Under the terms of the full and
unconditional guarantees, holders of the notes will not be required to exercise their remedies
against us before they proceed directly against the subsidiary guarantors.
Subsidiary guarantors means all of our subsidiaries that are currently a party to our senior
credit facility (as defined below).
Senior credit facility means (i) the Credit Agreement, dated as of November 22, 2005 among
the Company, Pier 1 Imports (U.S.), Inc., Pier 1 Kids, Inc., the borrowers named therein, Bank of
America,
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N.A., as administrative and collateral agent, and the lenders named therein, and (ii) any
amendment, modification, renewal, extension or refinancing thereof.
A subsidiary guarantor will be released and relieved from all its obligations under its
subsidiary guaranty in the following circumstances, each of which is permitted by the indenture:
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upon the sale or other disposition (including by way of consolidation or merger),
in one transaction or a series of related transactions, of a majority of the total
voting power of the capital stock or other interests of such subsidiary guarantor
(other than to the Company or any affiliate); or |
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upon the sale or disposition of all or substantially all the assets of such
subsidiary guarantor (other than to the Company or any affiliate). |
The obligations of each subsidiary guarantor under its subsidiary guarantee will be limited as
necessary to prevent that subsidiary guarantee from constituting a fraudulent conveyance or
fraudulent transfer under applicable law.
Optional redemption
No sinking fund is provided for the notes. Prior to February 15, 2011, the notes will not be
redeemable. On or after February 15, 2011, we may redeem for cash all or part of the notes at any
time, upon not less than 45 nor more than 60 days notice before the redemption date by mail to the
trustee, the paying agent and each holder of notes, for a price equal to 100% of the principal
amount of the notes to be redeemed plus any accrued and unpaid interest, including any additional
interest, to but excluding the redemption date (subject to holders of record on a regular record
date for the payment of interest).
If we decide to redeem fewer than all of the outstanding notes, the trustee will select the
notes to be redeemed (in principal amounts of $1,000 or integral multiples thereof) 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 your note for partial redemption and you convert a portion
of the same note, the converted portion will be deemed to be from the portion selected for
redemption.
In the event of any redemption in part, we will not be required to
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issue, register the transfer of or exchange any note during a period of 15 days
before the mailing of the redemption notice; or |
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register the transfer of or exchange any note so selected for redemption, in whole
or in part, except the unredeemed portion of any note being redeemed in part. |
Conversion rights
General
Subject to the conditions described under the headings Conversion upon satisfaction of sale
price condition, Conversion upon redemption, and Conversion upon specified corporate
transactions, holders may convert each of their notes initially at an initial conversion rate of
65.8328 shares of common stock per $1,000 principal amount of notes (equivalent to a conversion
price of approximately $15.19 per share of common stock ) at any time prior to the close of
business on the business day immediately preceding the maturity date. Upon conversion of a note, we
will pay cash and deliver shares of our common stock, if any, based on a daily conversion value (as
defined below) calculated on a proportionate basis for each trading day of the 25 trading-day
observation period (as defined below),
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all as set forth below under Payment upon conversion. The trustee will initially act as the
conversion agent.
The conversion rate and the equivalent conversion price in effect at any given time are
referred to as the applicable conversion rate and the applicable conversion price,
respectively, and will be subject to adjustment as described below. A holder may convert fewer than
all of such holders notes so long as the notes converted are an integral multiple of $1,000
principal amount.
Upon conversion, you will not receive any separate cash payment for accrued and unpaid
interest and additional interest, if any, unless such conversion occurs between a regular record
date and the interest payment date to which it relates. We will not issue fractional shares of our
common stock upon conversion of notes. Instead, we will pay cash in lieu of fractional shares based
on the last reported sale price of the common stock on the trading day prior to the conversion
date. Our delivery to you of cash or a combination of cash and the full number of shares of our
common stock, if applicable, together with any cash payment for any fractional share, into which a
note is convertible, will be deemed to satisfy our obligation to pay
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the principal amount of the note; and |
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accrued and unpaid interest and additional interest, if any, to, but not including,
the conversion date. |
As a result, accrued and unpaid interest and additional interest, if any, to, but not
including, the conversion date will be deemed to be paid in full rather than cancelled,
extinguished or forfeited.
Notwithstanding the preceding paragraph, if notes are converted after 5:00 p.m., New York City
time, on a regular record date for the payment of interest, holders of such notes at 5:00 p.m., New
York City time, on such record date will receive the interest and additional interest, if any,
payable on such notes on the corresponding interest payment date notwithstanding the conversion.
Notes, upon surrender for conversion during the period from 5:00 p.m., New York City time, on any
regular record date to 9:00 a.m., New York City time, on the immediately following interest payment
date, must be accompanied by funds equal to the amount of interest and additional interest, if any,
payable on the notes so converted; provided that no such payment need be made
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if we have specified a redemption date that is after a record date and on or prior
to the third trading day after the corresponding interest payment date; |
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if we have specified a fundamental change purchase date that is after a record date
and on or prior to the third trading day after the corresponding interest payment
date; or |
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to the extent of any overdue interest, if any overdue interest exists at the time
of conversion with respect to such note. |
If a holder converts notes, we will pay any documentary, stamp or similar issue or transfer
tax due on the issue of any shares of our common stock upon the conversion, unless the tax is due
because the holder requests any shares to be issued in a name other than the holders name, in
which case the holder will pay that tax.
Holders may surrender their notes for conversion into cash and shares of our common stock, if
any, under the following circumstances:
Conversion upon satisfaction of sale price condition
A holder may surrender all or a portion of its notes for conversion during any fiscal quarter
(and only during such fiscal quarter) commencing after May 27, 2006 if the last reported sale price
of the common stock for at least 20 trading days during the period of 30 consecutive trading days
ending on the
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last trading day of the preceding fiscal quarter is greater than or equal to 130% of the
applicable conversion price on such last trading day.
The last reported sale price of our common stock on any date means the closing sale price
per share (or if no closing sale price is reported, the average of the bid and ask prices or, if
more than one in either case, the average of the average bid and the average asked prices) on that
date as reported in composite transactions for the principal U.S. securities exchange on which our
common stock is traded or, if our common stock is not listed on a U.S. national or regional
securities exchange, as reported by The Nasdaq Stock Market.
If our common stock is not listed for trading on a U.S. national or regional securities
exchange and not reported by The Nasdaq Stock Market on the relevant date, the last reported sale
price will be the last quoted bid price for our common stock in the over-the-counter market on the
relevant date as reported by the National Quotation Bureau or similar organization.
If our common stock is not so quoted, the last reported sale price will be the average of
the mid-point of the last bid and ask prices for our common stock on the relevant date from each of
at least three nationally recognized independent investment banking firms selected by us for this
purpose.
Conversion upon notice of redemption
If we call any or all of the notes for redemption, holders may convert notes that have been so
called for redemption at any time prior to the close of business on the third scheduled trading day
prior to the redemption date, even if the notes are not otherwise convertible at such time.
Conversion upon specified corporate transactions
Certain distributions
If we elect to
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distribute to all or substantially all holders of our common stock certain rights
entitling them to purchase, for a period expiring within 60 days after the date of the
distribution, shares of our common stock at less than the last reported sale price of
a share of our common stock at the time of the distribution; or |
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distribute to all or substantially all holders of our common stock our assets, debt
securities or certain rights to purchase our securities, which distribution has a per
share value as determined by our board of directors exceeding 10% of the last reported
sale price of our common stock on the day preceding the declaration date for such
distribution, |
we must notify the holders of the notes at least 35 scheduled trading days prior to the ex-dividend
date for such distribution. Once we have given such notice, holders may surrender their notes for
conversion at any time until the earlier of 5:00 p.m., New York City time, on the business day
immediately prior to the ex-dividend date or our announcement that such distribution will not take
place, even if the notes are not otherwise convertible at such time. The ex-dividend date is the
first date upon which a sale of the common stock does not automatically transfer the right to
receive the relevant dividend from the seller of the common stock to its buyer.
Certain corporate events
If we are party to a transaction described in clause (2) of the definition of fundamental
change (without giving effect to the paragraph following that definition), we must notify holders
of the notes at least 35 scheduled trading days prior to the anticipated effective date for such
transaction. Once we have
24
given such notice, holders may surrender their notes for conversion at any time until 35
calendar days after the actual effective date of such transaction (or if such transaction also
constitutes a fundamental change, the related fundamental change purchase date). In addition, you
may surrender all or a portion of your notes for conversion if a fundamental change of the type
described in clauses (1) and (5) of the definition of fundamental change occurs. In such event, you
may surrender notes for conversion at any time beginning on the actual effective date of such
fundamental change until and including the date which is 30 calendar days after the actual
effective date of such transaction or, if later, until the purchase date corresponding to such
fundamental change.
Conversion procedures
If you hold a beneficial interest in a global note, to convert you must comply with DTCs
procedures for converting a beneficial interest in a global note and, if required, pay funds equal
to interest payable on the next interest payment date to which you are not entitled and, if
required, pay all taxes or duties, if any.
If you hold a certificated note, to convert you must
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complete and manually sign the conversion notice on the back of the note, or a
facsimile of the conversion notice; |
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deliver the conversion notice, which is irrevocable, and the note to the conversion
agent; |
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if required, furnish appropriate endorsements and transfer documents; |
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if required, pay all transfer or similar taxes; and |
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if required, pay funds equal to interest payable on the next interest payment date
to which you are not entitled. |
The date you comply with these requirements is the conversion date under the indenture.
If a holder has already delivered a purchase notice as described under either Purchase of
notes by us at the option of the holder or Fundamental change permits holders to require us to
purchase notes with respect to a note, the holder may not surrender that note for conversion until
the holder has withdrawn the notice in accordance with the indenture.
Payment upon conversion
Upon conversion, we will deliver to holders in respect of each $1,000 principal amount of
notes being converted a settlement amount equal to the sum of the daily settlement amounts for
each of the 25 trading days during the observation period.
Daily settlement amount, for each of the 25 trading days during the observation period,
shall consist of:
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cash equal to the lesser of $40 and the daily conversion value; and |
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to the extent the daily conversion value exceeds $40, a number of shares equal to,
(A) the difference between the daily conversion value and $40, divided by (B) the
daily VWAP for such day. |
Daily conversion value means, for each of the 25 consecutive trading days during the
observation period, 4% of the product of (1) the applicable conversion rate and (2) the daily VWAP
of our common stock on such day.
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Daily VWAP means, for each of the 25 consecutive trading days during the observation period,
the per share volume-weighted average price as displayed under the heading Bloomberg VWAP on
Bloomberg page PIR<equity> AQR in respect of the period from 9:30 a.m. to 4:00 p.m. (New
York City time) on such trading day (or if such volume-weighted average price is unavailable, the
market value of one share of our common stock on such trading day as our board of directors
determines in good faith using a volume-weighted method).
Observation period with respect to any note means the 25 consecutive trading-day period
beginning on and including the second trading day after the related conversion date, except that
with respect to any related conversion date occurring after the date of issuance of a notice of
redemption as described under Optional redemption, the observation period means the 25
consecutive trading days beginning on and including the twenty-eighth scheduled trading day prior
to the applicable redemption date.
Trading day means a day during which (i) trading in our common stock generally occurs, (ii)
there is no market disruption event and (iii) a last reported sale price for our common stock may
be obtained for that day.
Market disruption event means (i) a failure by the exchange to open for trading during its
regular trading session or (ii) the occurrence or existence prior to 1:00 p.m. on any trading day
for our common stock for an aggregate one half hour period of any suspension or limitation imposed
on trading (by reason of movements in price exceeding limits permitted by the stock exchange or
otherwise) in our common stock or in any options, contracts or future contracts relating to our
common stock.
We will deliver the settlement amount to converting holders on the third business day
immediately following the last day of the observation period.
We will deliver cash in lieu of any fractional shares of common stock issuable in connection
with payment of the settlement amount.
Conversion rate adjustments
The conversion rate will be adjusted as described below, except that we will not make any
adjustments to the conversion rate if holders of the notes participate, as a result of holding the
notes, in any of the transactions described below without having to convert their notes.
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If we issue shares of our common stock as a dividend or distribution on shares of our common stock, or if we affect a share split or share combination, the conversion rate will be adjusted based on the following formula: |
where,
CR0 = the conversion rate in effect immediately prior to such event
CR' = the conversion rate in effect immediately after such event
OS0 = the number of shares of our common stock outstanding immediately
prior to such event
OS' = the number of shares of our common stock outstanding
immediately after such event
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If we issue to all or substantially all holders of our common stock any
rights or warrants entitling them for a period of not more than 60 calendar days to
subscribe for or purchase shares of our common stock, at a price per share less than
the last reported sale price of our common stock on the business day immediately
preceding the date of announcement of such issuance, the conversion rate will be
adjusted based on the following formula (provided that the conversion rate will be
readjusted to the extent that such rights or warrants are not exercised prior to their
expiration): |
where,
CR0 = the conversion rate in effect immediately prior to such event
CR' = the conversion rate in effect immediately after such event
OS0 = the number of shares of our common stock outstanding immediately
prior to such event
X = the total number of shares of our common stock issuable
pursuant to such rights
Y = the number of shares of our common stock equal to the
aggregate price payable to exercise such rights divided by the average of the
last reported sale prices of our common stock over the ten consecutive
trading-day period ending on the business day immediately preceding the record
date for the issuance of such rights
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If we distribute shares of our capital stock, evidences of our indebtedness
or other assets or property of ours to all or substantially all holders of our common
stock, excluding |
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dividends or distributions and rights or warrants referred to in clause (1) or (2)
above; and |
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dividends or distributions paid exclusively in cash; |
then the conversion rate will be adjusted based on the following formula:
where,
CR0 = the conversion rate in effect immediately prior to such
distribution
CR' = the conversion rate in effect immediately after such
distribution
SP0 = the average of the last reported sale prices of our common stock
over the ten consecutive trading-day period ending on the business day
immediately preceding the record date for such distribution
FMV = the fair market value (as determined by our board of
directors) of the shares of capital stock, evidences of indebtedness, assets
or property distributed with respect to each outstanding share of our common
stock on the record date for such distribution
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With respect to an adjustment pursuant to this clause (3) where there has been a payment of
a dividend or other distribution on our common stock or shares of capital stock of any
class or series, or similar equity interest, of or relating to a subsidiary or other
business unit, which we refer to as a spin-off, the conversion rate in effect immediately
before 5:00 p.m., New York City time, on the effective date fixed for determination of
shareholders entitled to receive the distribution will be increased based on the following
formula:
where,
CR0 = the conversion rate in effect immediately prior to such
distribution
CR' = the conversion rate in effect immediately after such
distribution
FMV0 = the average of the last reported sale prices of the capital stock
or similar equity interest distributed to holders of our common stock
applicable to one share of our common stock over the first ten consecutive
trading-day period after the effective date of the spin-off
MP0 = the average of the last reported sale prices of our common stock
over the first ten consecutive trading-day period after the effective date of
the spin-off
The adjustment to the conversion rate under the preceding paragraph will occur on the tenth
trading day from, and including, the effective date of the spin-off.
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If any cash dividend or distribution is made to all or substantially all
holders of our common stock, other than regular quarterly cash dividends that do not
exceed $0.10 per share (the initial dividend threshold), the conversion rate will be
adjusted based on the following formula: |
where,
CR0 = the conversion rate in effect immediately prior to the record date
for such distribution
CR' = the conversion rate in effect immediately after the record
date for such distribution
SP0 = the last reported sale price of our common stock on the trading
day immediately preceding the ex-dividend date for such distribution;
C = the amount in cash per share we distribute to holders of
our common stock in excess of the initial dividend threshold, in the case of a
regular quarterly dividend, or, in the case of any other dividend or
distribution, the full amount of such dividend or distribution.
The initial dividend threshold is subject to adjustment in a manner inversely
proportional to adjustments to the conversion rate, provided that no adjustment
will be made to the dividend threshold amount for any adjustment made to the
conversion rate under this clause (4).
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If we or any of our subsidiaries makes a payment in respect of a tender offer
or exchange offer for our common stock, to the extent that the cash and value of any
other consideration included in the payment per share of common stock exceeds the last
reported sale price of our common stock on the trading day next succeeding the last
date on which tenders or exchanges may be made pursuant to such tender or exchange
offer, the conversion rate will be increased based on the following formula: |
where,
CR0 = the conversion rate in effect on the date such tender or exchange
offer expires
CR' = the conversion rate in effect on the day next succeeding
the date such tender or exchange offer expires
AC = the aggregate value of all cash and any other consideration
(as determined by our board of directors) paid or payable for shares purchased
in such tender or exchange offer
OS0 = the number of shares of our common stock outstanding immediately
prior to the date such tender or exchange offer expires
OS' = the number of shares of our common stock outstanding
immediately after the date such tender or exchange offer expires
SP = the average of the last reported sale prices of our common
stock over the ten consecutive trading-day period commencing on the trading
day next succeeding the date such tender or exchange offer expires
Except as stated herein, we will not adjust the conversion rate for the issuance of shares of
our common stock or any securities convertible into or exchangeable for shares of our common stock
or the right to purchase shares of our common stock or such convertible or exchangeable securities.
We are permitted to increase the conversion rate of the notes by any amount for a period of at
least 20 days if our board of directors determines that such increase would be in our best
interest. We may also (but are not required to) increase the conversion rate to avoid or diminish
income tax to holders of our common stock or rights to purchase shares of our common stock in
connection with a dividend or distribution of shares (or rights to acquire shares) or similar
event.
A holder may, in some circumstances, including the distribution of cash dividends to holders
of our shares of common stock, 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 rate. For a discussion of the U.S. federal income tax treatment of an adjustment to the
conversion rate, see Certain United States federal income tax considerations.
To the extent that we have a rights plan in effect upon conversion of the notes into common
stock, you will receive, in addition to the common stock, the rights under the rights plan, unless
prior to any conversion, the rights have separated from the common stock, in which case the
conversion rate will be adjusted at the time of separation as if we distributed to all holders of
our common stock shares of our capital stock, evidences of indebtedness or assets as described in
clause (3) above, subject to readjustment in the event of the expiration, termination or redemption
of such rights.
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The applicable conversion rate will not be adjusted
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upon the issuance of any shares of our common stock pursuant to any present or
future plan providing for the reinvestment of dividends or interest payable on our
securities and the investment of additional optional amounts in shares of our common
stock under any plan; |
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upon the issuance of any shares of our common stock or options or rights to
purchase those shares pursuant to any present or future employee, director or
consultant benefit plan or program of or assumed by us or any of our subsidiaries; |
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upon the issuance of any shares of our common stock pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security not described in
the preceding bullet and outstanding as of the date the notes were first issued; |
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for a change in the par value of the common stock; or |
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for accrued and unpaid interest and additional interest, if any. |
Adjustments to the applicable conversion rate will be calculated to the nearest 1/10,000th of
a share. Except as described above in this section, we will not adjust the conversion rate.
Recapitalizations, reclassifications and changes of our common stock
In the case of any recapitalization, reclassification or change of our common stock (other
than changes resulting from a subdivision or combination), a consolidation, merger or combination
involving us, a sale, lease or other transfer to a third party of the consolidated assets of ours
and our subsidiaries substantially as an entirety, or any statutory share exchange, in each case as
a result of which our common stock would be converted into, or exchanged for, stock, other
securities, other property or assets (including cash or any combination thereof), then, at the
effective time of the transaction, the right to convert a note will be changed into a right to
convert it into the kind and amount of shares of stock, other securities or other property or
assets (including cash or any combination thereof) that a holder of a number of shares of common
stock equal to the conversion rate prior to such transaction would have owned or been entitled to
receive (the reference property) upon such transaction. If the transaction causes our common
stock to be converted into the right to receive more than a single type of consideration
(determined based in part upon any form of stockholder election), the reference property into which
the notes will be convertible will be deemed to be the weighted average of the types and amounts of
consideration received by the holders of our common stock that affirmatively make such an election.
We will agree in the indenture not to become a party to any such transaction unless its terms are
consistent with the foregoing.
However, if the transaction described above also constitutes a public acquirer change of
control, then we may in certain circumstances elect to change the conversion right in the manner
described under Conversion after a public acquirer change of control in lieu of changing the
conversion right in the manner described in this paragraph.
Adjustments of average prices
Whenever any provision of the indenture requires us to calculate an average of last reported
prices or daily VWAP over a span of multiple days, we will make appropriate adjustments to account
for any adjustment to the conversion rate that becomes effective, or any event requiring an
adjustment to the conversion rate where the ex date of the event occurs, at any time during the
period from which the average is to be calculated.
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Adjustment to shares delivered upon conversion upon certain fundamental changes
If you elect to convert your notes as described above under Conversion upon specified
corporate transactionsCertain corporate events, and the corporate transaction occurs on or prior
to February 15, 2011 and also constitutes a fundamental change (as defined under Fundamental
change permits holders to require us to purchase notes), in certain circumstances described below,
the conversion rate will be increased by an additional number of shares of common stock (the
additional shares) as described below. Any conversion occurring at a time when the notes would be
convertible in light of the expected or actual occurrence of a fundamental change will be deemed to
have occurred in connection with such fundamental change notwithstanding the fact that a note may
then be convertible because another condition to conversion has been satisfied.
The number of additional shares by which the conversion rate will be increased will be
determined by reference to the table below, based on the date on which the fundamental change
occurs or becomes effective (the effective date) and the price (the stock price) paid per share
of our common stock in the fundamental change. If the fundamental change is a transaction described
in clause (2) of the definition thereof, and holders of our common stock receive only cash in that
fundamental change, the stock price shall be the cash amount paid per share. Otherwise, the stock
price shall be the average of the last reported sale prices of our common stock over the five
trading-day period ending on the trading day preceding the effective date of the fundamental
change.
The stock prices set forth in the first row of the table below (i.e., column headers) will be
adjusted as of any date on which the conversion rate of the notes is otherwise adjusted. The
adjusted stock prices will equal the stock prices applicable immediately prior to such adjustment,
multiplied by a fraction, the numerator of which is the conversion rate immediately prior to the
adjustment giving rise to the stock price adjustment and the denominator of which is the conversion
rate as so adjusted. The number of additional shares will be adjusted in the same manner as the
conversion rate as set forth under Conversion rate adjustments.
The following table sets forth the hypothetical stock price and the number of additional
shares to be received per $1,000 principal amount of notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock price |
Effective date |
|
$10.85 |
|
$12.50 |
|
$15.00 |
|
$17.50 |
|
$20.00 |
|
$22.50 |
|
$25.00 |
|
$27.50 |
|
$30.00 |
|
$32.50 |
|
$35.00 |
|
$37.50 |
|
$ 40.00 |
|
February 15, 2006 |
|
|
26.3331 |
|
|
|
21.2297 |
|
|
|
14.6219 |
|
|
|
10.6388 |
|
|
|
8.0895 |
|
|
|
6.3732 |
|
|
|
5.1659 |
|
|
|
4.2835 |
|
|
|
3.6171 |
|
|
|
3.0991 |
|
|
|
2.6863 |
|
|
|
2.3502 |
|
|
|
0.0000 |
|
February 15, 2007 |
|
|
26.3331 |
|
|
|
20.1746 |
|
|
|
13.4247 |
|
|
|
9.4867 |
|
|
|
7.0548 |
|
|
|
5.4778 |
|
|
|
4.4074 |
|
|
|
3.6531 |
|
|
|
3.0997 |
|
|
|
2.6810 |
|
|
|
2.3549 |
|
|
|
2.0942 |
|
|
|
0.0000 |
|
February 15, 2008 |
|
|
26.3331 |
|
|
|
18.8501 |
|
|
|
11.8521 |
|
|
|
7.9304 |
|
|
|
5.6279 |
|
|
|
4.2152 |
|
|
|
3.3067 |
|
|
|
2.6991 |
|
|
|
2.2722 |
|
|
|
1.9608 |
|
|
|
1.7251 |
|
|
|
1.5400 |
|
|
|
0.0000 |
|
February 15, 2009 |
|
|
26.3331 |
|
|
|
17.3632 |
|
|
|
9.9841 |
|
|
|
6.1022 |
|
|
|
4.0115 |
|
|
|
2.8493 |
|
|
|
2.1757 |
|
|
|
1.7643 |
|
|
|
1.4974 |
|
|
|
1.3134 |
|
|
|
1.1789 |
|
|
|
1.0754 |
|
|
|
0.0000 |
|
February 15, 2010 |
|
|
26.3331 |
|
|
|
15.3715 |
|
|
|
7.1436 |
|
|
|
3.3338 |
|
|
|
1.6930 |
|
|
|
1.0193 |
|
|
|
0.7442 |
|
|
|
0.6239 |
|
|
|
0.5626 |
|
|
|
0.5254 |
|
|
|
0.4991 |
|
|
|
0.4787 |
|
|
|
0.0000 |
|
February 15, 2011 |
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
|
0.0000 |
|
|
The exact stock prices and effective dates may not be set forth in the table above, in
which case
|
|
|
If the stock price is between two stock price amounts in the table or the effective
date is between two effective dates in the table, the number of additional shares will
be determined by a straight-line interpolation between the number of additional shares
set forth for the higher and lower stock price amounts and the two dates, as
applicable, based on a 365-day year. |
|
|
|
|
If the stock price is greater than $40.00 per share (subject to adjustment), no
additional shares will be issued upon conversion. |
|
|
|
|
If the stock price is less than $10.85 per share (subject to adjustment), no
additional shares will be issued upon conversion. |
Notwithstanding the foregoing, in no event will the total number of shares of common stock
issuable upon conversion exceed 92.1659 per $1,000 principal amount of notes, subject to
adjustments in the same manner as the conversion rate as set forth under Conversion rate
adjustments.
31
Conversion after a public acquirer change of control
Notwithstanding the foregoing, in the case of a fundamental change constituting a public
acquirer change of control (as defined below), we may, in lieu of increasing the conversion rate by
a number of additional shares as described in Adjustment to shares delivered upon conversion upon
certain fundamental changes above, elect to adjust the conversion rate and the related conversion
obligation such that from and after the effective date of such public acquirer change of control,
holders of the notes will be entitled to convert their notes (subject to the satisfaction of the
conditions to conversion described under Conversion rights) into a number of shares of public
acquirer common stock (as defined below), still subject to the arrangements for payment upon
conversion as set forth above under Payment upon conversion, by adjusting the conversion rate in
effect immediately before the public acquirer change of control by a fraction
|
|
|
the numerator of which will be the average of the last reported sale prices of our
common stock for the five consecutive trading days prior to but excluding the
effective date of such public acquirer change of control, and |
|
|
|
|
the denominator of which will be the average of the last reported sale prices of
the public acquirer common stock for the five consecutive trading days commencing on
the trading day next succeeding the effective date of such public acquirer change of
control. |
A public acquirer change of control means a fundamental change as defined in clause (2) in
the definition thereof in which the acquirer has a class of common stock traded on a U.S. national
securities exchange or quoted on the Nasdaq National Market or which will be so traded or quoted
when issued or exchanged in connection with such fundamental change (the public acquirer common
stock). If an acquirer does not itself have a class of common stock satisfying the foregoing
requirement, it will be deemed to have public acquirer common stock if a corporation that
directly or indirectly owns at least a majority of the acquirer has a class of common stock
satisfying the foregoing requirement, in such case, all references to public acquirer common stock
shall refer to such class of common stock. Majority owned for these purposes means having
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the
total voting power of all shares of the respective entitys capital stock that are entitled to vote
generally in the election of directors.
Upon a public acquirer change of control, if we so elect, holders may convert their notes
(subject to the satisfaction of the conditions to conversion described under Conversion rights
above) at the adjusted conversion rate described in the second preceding paragraph but will not be
entitled to receive additional shares upon conversion as described under Adjustment to shares
delivered upon conversion upon certain fundamental changes. We are required to notify holders of
our election in our notice to holders of such transaction. In addition, upon a public acquirer
change of control, in lieu of converting notes, the holder can, subject to certain conditions,
require us to repurchase all or a portion of its notes as described below.
Purchase of notes by us at the option of the holder
Holders have the right to require us to purchase the notes on February 15, 2011, February 15,
2016, February 15, 2021, February 15, 2026 and February 15, 2031 (each, a purchase date). 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 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, our ability to satisfy our purchase obligations may be affected by the factors described in
Risk factors under the caption We may not have the ability to raise the funds necessary to
settle conversion of the notes or to purchase the notes upon a fundamental change or other purchase
date, and our future debt may contain limitations on our ability to pay cash upon conversion or
repurchase of the notes.
32
The purchase price payable will be equal to 100% of the principal amount of the notes to be
purchased plus any accrued and unpaid interest, including any additional amounts, to such purchase
date. Any notes purchased by us will be paid for in cash.
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 last date on which a holder may exercise the repurchase right; |
|
|
|
|
the repurchase price; |
|
|
|
|
the name and address of the paying agent; and |
|
|
|
|
the procedures that holders must follow to require us to repurchase their notes. |
Simultaneously with providing such notice, we will publish a notice containing this
information in a newspaper of general circulation in The City of New York or publish the
information on our website or through such other public medium as we may use at that time.
A notice electing to require us to purchase your notes must state
|
|
|
if certificated notes have been issued, the certificate numbers of the notes, or if
not certificated, your notice must comply with appropriate DTC procedures; |
|
|
|
|
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. |
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.
You 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, or if not certificated, your notice must comply with appropriate DTC
procedures; and |
|
|
|
|
the principal amount, if any, which remains subject to the purchase notice. |
You 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. You 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
33
|
|
|
the notes will cease to be outstanding and interest, including any additional
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 and previously accrued and unpaid interest and additional interest upon
delivery or transfer of the notes). |
Fundamental change permits holders to require us to purchase notes
If a fundamental change (as defined below in this section) occurs at any time, you will have
the right, at your option, to require us to purchase any or all of your notes, or any portion of
the principal amount thereof, that is equal to $1,000 or an integral multiple of $1,000. The price
we are required to pay is equal to 100% of the principal amount of the notes to be purchased plus
accrued and unpaid interest, including additional interest, to but excluding the fundamental change
purchase date (unless the fundamental change purchase date is between a regular record date and the
interest payment date to which it relates, in which case we will pay accrued and unpaid interest to
the holder of record on such regular record date). The fundamental change purchase date will be a
date specified by us no later than the 35th calendar day following the date of our fundamental
change notice as described below. Any notes purchased by us will be paid for in cash.
A fundamental change will be deemed to have occurred at the time after the notes are
originally issued that any of the following occurs
|
(1) |
|
a person or group within the meaning of Section 13(d) of the Exchange Act
other than us, our subsidiaries or our or their employee benefit plans, files a
Schedule TO or any schedule, form or report under the Exchange Act disclosing that
such person or group has become the direct or indirect ultimate beneficial owner, as
defined in Rule 13d-3 under the Exchange Act, of our common equity representing more
than 50% of the voting power of our common equity; |
|
|
(2) |
|
consummation of any share exchange, consolidation or merger of us pursuant to
which our common stock will be converted into cash, securities or other property or
any sale, lease or other transfer in one transaction or a series of transactions of
all or substantially all of the consolidated assets of us and our subsidiaries, taken
as a whole, to any person other than one of our subsidiaries; provided, however, that
a transaction where the holders of more than 50% of all classes of our common equity
immediately prior to such transaction own, directly or indirectly, more than 50% of
all classes of common equity of the continuing or surviving corporation or transferee
immediately after such event shall not be a fundamental change; |
|
|
(3) |
|
continuing directors cease to constitute at least a majority of our board of
directors; |
|
|
(4) |
|
our stockholders approve any plan or proposal for the liquidation or
dissolution of us; or |
|
|
(5) |
|
our common stock ceases to be listed on a national securities exchange or
quoted on the Nasdaq National Market or another established automated over-the-counter
trading market in the United States. |
A fundamental change will not be deemed to have occurred, however, if at least 90% of the
consideration, excluding cash payments for fractional shares, in the transaction or transactions
constituting the fundamental change consists of shares of common stock traded on a national
securities exchange or quoted on the Nasdaq National Market or which will be so traded or quoted
when issued or exchanged in connection with a fundamental change (these securities being referred
to as publicly traded securities)
34
and as a result of this transaction or transactions the notes become convertible into such
publicly traded securities, excluding cash payments for fractional shares.
Continuing director means a director who either was a member of our board of directors on
the date of this offering memorandum or who becomes a director of the Company subsequent to that
date and whose election, appointment or nomination for election by our stockholders, is duly
approved by a majority of the continuing directors on the board of directors of the Company at the
time of such approval, either by a specific vote or by approval of the proxy statement issued by
the Company on behalf of the entire board of directors of the Company in which such individual is
named as nominee for director.
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 events causing a fundamental change; |
|
|
|
|
the date of the fundamental change; |
|
|
|
|
the last date on which a holder may exercise the repurchase right; |
|
|
|
|
the fundamental change purchase price; |
|
|
|
|
the fundamental change purchase date; |
|
|
|
|
the name and address of the paying agent and the conversion agent, if applicable; |
|
|
|
|
if applicable, the applicable conversion rate and any adjustments to the applicable
conversion rate; |
|
|
|
|
if applicable, that the notes with respect to which a fundamental change purchase
notice has been delivered by a holder may be converted only if the holder withdraws
the fundamental change purchase notice in accordance with the terms of the indenture;
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 The City of New York or publish the
information on our website or through such other public medium as we may use at that time.
To exercise the purchase right, you must deliver, on or before the business day immediately
preceding the fundamental change purchase date, 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. Your purchase notice must state
|
|
|
if certificated, the certificate numbers of your notes to be delivered for
purchase; |
|
|
|
|
the portion of the principal amount of notes to be purchased, which must be $1,000
or an integral multiple thereof; and |
|
|
|
|
that the notes are to be purchased by us pursuant to the applicable provisions of
the notes and the indenture. |
35
You 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, or if not certificated, your notice must comply with appropriate DTC
procedures; and |
|
|
|
|
the principal amount, if any, which remains subject to the purchase notice. |
We will be required to purchase the notes on the fundamental change purchase date, subject to
extension to comply with applicable law. You 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 money or securities
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
interest, 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 previously accrued and unpaid interest
(including any additional interest) upon delivery or transfer of the notes). |
The purchase rights of the holders could discourage a potential acquirer of us. The
fundamental change purchase feature, however, is not the result of managements knowledge of any
specific effort to obtain control of us by any means or part of a plan by management to adopt a
series of anti-takeover provisions.
The term fundamental change is limited to specified transactions and may not include other
events that might adversely affect our financial condition. In addition, the requirement that we
offer to purchase the notes upon a fundamental change may not protect holders in the event of a
highly leveraged transaction, reorganization, merger or similar transaction involving us.
No notes may be purchased at the option of holders upon a fundamental change 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 fundamental change purchase price of the notes.
The definition of fundamental change includes a phrase relating to the conveyance, transfer,
sale, lease or disposition of all or substantially all of our consolidated assets. There is no
precise, established definition of the phrase substantially all under applicable law.
Accordingly, the ability of a holder of the notes to require us to purchase its notes as a result
of the conveyance, transfer, sale, lease or other disposition of less than all of our assets may be
uncertain.
If a fundamental change were to occur, we may not have enough funds to pay the fundamental
change purchase price. See Risk Factors under the caption We may not have the ability to raise
the funds necessary to settle conversion of the notes or to purchase the notes upon a fundamental
change or other purchase date, and our future debt may contain limitations on our ability to pay
cash upon conversion or repurchase of the notes. If we fail to purchase the notes when required
following a fundamental change, we will be in default under the indenture. In addition, we have,
and may in the future incur, other indebtedness with similar change in control provisions
permitting our holders to accelerate or to require us to purchase our indebtedness upon the
occurrence of similar events or on some specific dates.
36
Consolidation, merger and sale of assets
The indenture provides that the Company shall not consolidate with or merge with or into, or
convey, transfer or lease all or substantially all of its properties and assets to, another person,
unless (i) the resulting, surviving or transferee person (if not the Company) is a person organized
and existing under the laws of the United States of America, any state thereof or the District of
Columbia, and such entity (if not the Company) expressly assumes by supplemental indenture all the
obligations of the Company under the notes, the indenture and, to the extent then still operative,
the registration rights agreement; and (ii) immediately after giving effect to such transaction, no
default has occurred and is continuing under the indenture. Upon any such consolidation, merger or
transfer, the resulting, surviving or transferee person shall succeed to, and may exercise every
right and power of, the Company under the indenture.
Although these types of transactions are permitted under the indenture, certain of the
foregoing transactions could constitute a fundamental change (as defined above) permitting each
holder to require us to purchase the notes of such holder as described above.
Events of default
Each of the following is an event of default:
|
(1) |
|
default in any payment of interest, including any additional interest on any
note when due and payable and the default continues for a period of 30 days; |
|
|
(2) |
|
default in the payment of principal of any note when due and payable at its
stated maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise; |
|
|
(3) |
|
failure by the Company to comply with its obligation to convert the notes
into cash or a combination of cash and common stock, as applicable, upon exercise of a
holders conversion right and such failure continues for a period of five days; |
|
|
(4) |
|
failure by the Company to give a fundamental change notice or notice of a
specified corporate transaction as described under Conversion upon specified
corporate transactions, in each case when due; |
|
|
(5) |
|
failure by the Company to comply with its obligations under Consolidation,
merger and sale of assets; |
|
|
(6) |
|
failure by the Company for 60 days after written notice from the trustee or
the holders of at least 25% in principal amount of the notes then outstanding has been
received to comply with any of its other agreements contained in the notes or
indenture; |
|
|
(7) |
|
default by the Company or any subsidiary in the payment of the principal or
interest on any mortgage, agreement or other instrument under which there may be
outstanding, or by which there may be secured or evidenced, any indebtedness for money
borrowed in excess of $10 million in the aggregate of the Company and/or any
subsidiary, whether such indebtedness now exists or shall hereafter be created
resulting in such indebtedness becoming or being declared due and payable, and such
acceleration shall not have been rescinded or annulled within 10 days after written
notice of such acceleration has been received by the Company or such subsidiary; |
|
|
(8) |
|
certain events of bankruptcy, insolvency, or reorganization of the Company or
significant subsidiaries (the bankruptcy provisions); |
37
|
(9) |
|
a final judgment for the payment of $10 million or more (excluding any
amounts covered by insurance) rendered against the Company or any significant
subsidiary, which judgment is not discharged or stayed within 90 days after (i) the
date on which the right to appeal thereof has expired if no such appeal has commenced,
or (ii) the date on which all rights to appeal have been extinguished; or |
|
|
(10) |
|
except as permitted by the indenture, any subsidiary guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect, or any subsidiary guarantor, or any person
acting on its behalf, shall deny or disaffirm its obligation under the subsidiary
guarantee. |
If an event of default occurs and is continuing, the trustee by notice to the Company, or the
holders of at least 25% in principal amount of the outstanding notes by notice to the Company and
the trustee, may, and the trustee at the request of such holders shall, declare 100% of the
principal of and accrued and unpaid interest, including additional interest, if any, on all the
notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization
involving us or a significant subsidiary, 100% of the principal of and accrued and unpaid interest
on the notes will automatically become due and payable. Upon such a declaration, such principal and
accrued and unpaid interest, including any additional interest will be due and payable immediately.
The holders of a majority in principal amount of the outstanding notes may waive all past
defaults (except with respect to nonpayment of principal or interest, including any additional
interest) and rescind any such 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,
including additional interest, on the notes that have become due solely by such declaration of
acceleration, have been cured or waived.
Subject to the provisions of the indenture relating to the duties of the trustee, if an event
of default occurs and is continuing, the trustee will be under no obligation to exercise any of the
rights or powers under the indenture at the request or direction of any of the holders unless such
holders have offered to the trustee indemnity or security reasonably satisfactory to it against any
loss, liability or expense. Except to enforce the right to receive payment of principal or
interest, including any additional interest, when due, no holder may pursue any remedy with respect
to the indenture or the notes unless:
|
(1) |
|
such holder has previously given the trustee notice that an event of default
is continuing; |
|
|
(2) |
|
holders of at least 25% in principal amount of the outstanding notes have
requested the trustee to pursue the remedy; |
|
|
(3) |
|
such holders have offered the trustee security or indemnity reasonably
satisfactory to it against any loss, liability or expense; |
|
|
(4) |
|
the trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and |
|
|
(5) |
|
the holders of a majority in principal amount of the outstanding notes have
not given the trustee a direction that, in the opinion of the trustee, is inconsistent
with such request within such 60-day period. |
Subject to certain restrictions, the holders of a majority in principal amount of the
outstanding notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or of exercising any trust or power conferred on
the trustee. The indenture provides that in the event an event of default has occurred and is
continuing, the trustee will be required in the exercise of its powers to use the degree of care
that a prudent person would use in the conduct of its own affairs. The trustee, however, may refuse
to follow any direction that conflicts with law or the indenture or
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that the trustee determines is unduly prejudicial to the rights of any other holder or that
would involve the trustee in personal liability. Prior to taking any action under the indenture,
the trustee will be entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The indenture provides that if a default occurs and is continuing and is known to the trustee,
the trustee must mail to each holder notice of the default within 90 days after it occurs. Except
in the case of a default in the payment of principal of or interest on any note, the trustee may
withhold notice if and so long as a committee of trust officers of the trustee in good faith
determines that withholding notice is in the interests of the holders. In addition, the Company is
required to deliver to the trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any default that occurred during the
previous year. The Company also is required to deliver to the trustee, within 30 days after the
occurrence thereof, written notice of any events which would constitute certain defaults, their
status and what action the Company is taking or proposes to take in respect thereof.
Modification and amendment
Subject to certain exceptions, the indenture or the notes may be amended with the consent of
the holders of at least a majority in principal amount of the notes then outstanding (including
without limitation, consents obtained in connection with a purchase of, or tender offer or exchange
offer for, notes) and, subject to certain exceptions, any past default or compliance with any
provisions may be waived with the consent of the holders of a majority in principal amount of the
notes then outstanding (including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, notes). However, without the consent of each
holder of an outstanding note affected, no amendment may, among other things:
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reduce the amount of notes whose holders must consent to an amendment; |
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reduce the rate of or extend the stated time for payment of interest,
including additional interest, on any note; |
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reduce the principal of or extend the stated maturity of any note; |
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make any change that adversely affects the conversion rights of any notes; |
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reduce the redemption price, the purchase price or fundamental change
purchase price of any note or amend or modify in any manner adverse to the holders of
notes the Companys obligation to make such payments, whether through an amendment or
waiver of provisions in the covenants, definitions or otherwise; |
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make any note payable in money other than that stated in the note or, other
than in accordance with the provisions of the indenture, eliminate any existing
subsidiary guarantee of the notes; |
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impair the right of any holder to receive payment of principal and interest,
including additional interest, on such holders notes on or after the due dates
therefore or to institute suit for the enforcement of any payment on or with respect
to such holders notes; or |
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make any change in the amendment provisions which require each holders
consent or in the waiver provisions. |
Without the consent of any holder, the Company and the trustee may amend the indenture to:
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cure any ambiguity, omission, defect or inconsistency; |
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provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of the Company under the indenture; |
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provide for uncertificated notes in addition to or in place of certificated
notes (provided that the uncertificated notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the uncertificated
notes are described in Section 163(f)(2)(B) of the Code); |
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add guarantees with respect to the notes; |
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secure the notes; |
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add to the covenants of the Company for the benefit of the holders or
surrender any right or power conferred upon the Company; |
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make any change that does not materially adversely affect the rights of any
holder; |
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comply with any requirement of the Commission in connection with the
qualification of the indenture under the Trust Indenture Act; or |
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conform the provisions of the indenture to the Description of notes section
in this offering memorandum. |
The consent of the holders is not necessary under the indenture to approve the particular form
of any proposed amendment. It is sufficient if such consent approves the substance of the proposed
amendment. After an amendment under the indenture becomes effective, the Company is required to
mail to the holders a notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect in the notice, will not impair or affect the validity of
the amendment.
Discharge
We may satisfy and discharge our obligations under the indenture by delivering to the
securities registrar for cancellation all outstanding notes or by depositing with the trustee or
delivering to the holders, as applicable, after the notes have become due and payable, whether at
stated maturity, or any redemption date, or any purchase date, or upon conversion or otherwise,
cash or shares of common stock sufficient to pay all of the outstanding notes and paying all other
sums payable under the indenture by us. Such discharge is subject to terms contained in the
indenture.
Calculations in respect of notes
Except as otherwise provided above, we will be responsible for making all calculations called
for under the notes. These calculations include, but are not limited to, determinations of the last
reported sale prices of our common stock, accrued interest payable on the notes and the conversion
rate of the notes. We will make all these calculations in good faith and, absent manifest error,
our calculations will be final and binding on holders of notes. We will provide a schedule of our
calculations to each of the trustee and the conversion agent, and each of the trustee and
conversion agent is entitled to rely conclusively upon the accuracy of our calculations without
independent verification. The trustee will forward our calculations to any holder of notes upon the
request of that holder.
Trustee
JPMorgan Chase Bank, National Association is the trustee, security registrar, paying agent and
conversion agent. JPMorgan Chase Bank, National Association, in each of its capacities, including
without limitation as trustee, security registrar, paying agent and conversion agent, assumes no
responsibility for the accuracy or completeness of the information concerning us or our affiliates
or any other party contained in
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this document or the related documents or for any failure by us or any other party to disclose
events that may have occurred and may affect the significance or accuracy of such information.
We maintain banking relationships in the ordinary course of business with the trustee and its
affiliates.
Governing law
The indenture provides that it and the notes will be governed by, and construed in accordance
with, the laws of the State of New York.
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Description of Certain Other Indebtedness
Revolving credit facility
On November 22, 2005, we, through our subsidiaries, Pier 1 Imports (U.S.), Inc. and Pier 1
Kids, Inc., entered into a Credit Agreement with Bank of America, N.A., as administrative agent and
collateral agent and various lender parties thereto (Credit Agreement). The Credit Agreement
provides for a $325,000,000 senior secured five-year revolving credit facility secured by all of
our U.S. and Canadian inventory and our third party credit card receivables and is governed by a
borrowing base as defined therein.
Borrowing base and interest
Borrowings under the credit facility will be limited to the lesser of $325,000,000 or the
amount of the borrowing base as defined in the Credit Agreement. At our option, borrowings will
bear interest, payable quarterly or, if earlier, at the end of each interest period, at either (a)
the LIBO Rate plus a spread varying from 75 to 125 basis points per annum, depending on the amount
then borrowed under the credit facility (initially 100 basis points) or (b) the higher of the Prime
Rate or the Federal Funds Rate. Provided that there is no default and no default would occur as a
result thereof, we may request that the credit facility be increased to an amount not to exceed
$375,000,000. Under the terms of the Credit Agreement, we agree to pay a fee on the unused portion
of the credit facility payable monthly in arrears at a rate of 25 basis points per annum. In
addition, we will pay, when applicable, letter of credit fronting fees and fees on the amount of
letters of credit outstanding.
Covenants
The credit agreement contains customary affirmative and negative covenants for credit
facilities of this type, including, among others, limitations on us and certain of our subsidiaries
with respect to liens, investments, incurrence of indebtedness, disposition of assets, mergers and
acquisitions, subordinated debt, and transactions with affiliates. The credit agreement does not
require us to comply with financial covenants unless the amount available under the credit facility
is less than $32.5 million, in which case, we would be required to maintain a fixed charge coverage
ratio as defined in the Credit Agreement. We may use the proceeds of borrowings under the Credit
Agreement for working capital, capital expenditures and other general corporate purposes.
Events of default
Events of default under the Credit Agreement include, among other things: failure to pay any
principal, interest or fees due under the Credit Agreement prior to the expiration of any
applicable grace period; a default in the performance of any covenant in the loan documents that is
not timely cured; a default under any indebtedness in excess of $5,000,000 that permits the holder
thereof to accelerate such indebtedness; a change of control; our bankruptcy, insolvency or
dissolution; entry of a final judgment for the payment of money exceeding $5,000,000 that is not
timely discharged; incurrence of specified liability resulting from termination or other events
relating to certain employee benefit plans; and incurrence of any uninsured or unreimbursed loss to
any material portion of the collateral.
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Description of Capital Stock
Our authorized capital stock consists of 500,000,000 shares of common stock, $1.00 par
value per share, of which 87,244,475 shares were outstanding as of June 8, 2006, and 5,000,000
shares of preferred stock, $1.00 par value per share, none of which are outstanding. The following
summary of our common stock is not complete and may not contain all the information you should
consider before investing in the notes or common stock. This description is subject to and
qualified in its entirety by provisions of our certificate of incorporation as amended and our
amended and restated bylaws, which are incorporated by reference into this offering memorandum, and
by provisions of applicable Delaware law.
Common stock
Each outstanding share of our common stock entitles the holder thereof to one vote on all
matters voted upon by our stockholders. Holders of our common stock are not entitled to any
cumulative voting rights or to any preemptive rights. The outstanding shares of common stock are
fully paid and nonassessable.
In the event of any liquidation, dissolution or winding up of the affairs of the company,
subject to the rights of holders of any preferred stock, each outstanding share of common stock
entitles its holder to receive pro rata any assets remaining after satisfaction of corporate
liabilities.
Subject to the rights of holders of any preferred stock, all outstanding shares of common
stock are entitled to share equally in such dividends as our board of directors, in its discretion,
may validly declare from funds legally available therefore.
Preferred stock
Our board of directors is authorized to issue preferred stock from time to time in the future,
in such series and with such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions as may be fixed by the board of
directors in the resolution authorizing their issuance. The issuance of preferred stock by the
board of directors could adversely affect the rights of holders of shares of common stock. For
example, the issuance of preferred stock could result in a class of securities outstanding that
would have certain preferences with respect to dividends and liquidation over the common stock and
could result in a dilution of the voting rights of the common stock. Further, the issuance of
preferred stock could decrease the amount of earnings and assets available for distribution to
holders of common stock and may have the effect of delaying, deferring or preventing a change in
control of our company. We have no agreements or understandings for the issuance of any shares of
preferred stock.
Delaware anti-takeover law
Section 203 of the Delaware General Corporation Law prohibits certain business combination
transactions between a Delaware corporation and any interested stockholder owning 15% or more of
the corporations outstanding voting stock for a period of three years after the date on which the
stockholder became an interest stockholder, unless
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the board of directors approves, prior to the date, either the proposed business
combination or the proposed acquisition of stock which resulted in the stockholder
becoming an interested stockholder; upon consummation of the transaction in which the
stockholder becomes an interested stockholder, the interested stockholder owned at
least 85% of the shares of the voting stock of the corporation which are not held by
the directors, officers or certain employee stock plans; or |
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on or subsequent to the date on which the stockholder became an interested
stockholder, the business combination with the interested stockholder is approved by
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directors and also approved at a stockholders meeting by the affirmative vote of
the holders of at least two-thirds of the outstanding shares of the corporations
voting stock other than shares held by the interested stockholder. |
Under Delaware law, a business combination includes a merger, asset sale or other
transaction resulting in a financial benefit to the interest stockholder.
Transfer agent and registrar
Mellon Investor Services, LLC is the transfer agent for our common stock.
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Certain United States Federal Income Tax Considerations
TO COMPLY WITH TREASURY DEPARTMENT CIRCULAR 230, YOU ARE HEREBY NOTIFIED THAT: (A) ANY
DISCUSSION OF U.S. FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS PROSPECTUS AND RELATED
MATERIALS IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY YOU, FOR THE PURPOSE OF
AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU UNDER THE INTERNAL REVENUE CODE OF 1986 (THE CODE);
(B) ANY SUCH DISCUSSION IS BEING USED IN CONNECTION WITH THE PROMOTION OR MARKETING BY US OF THE
TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR
CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
The following is a summary of certain material U.S. federal income tax consequences of the
ownership of notes and the shares of common stock into which the notes may be converted, as of the
date hereof. Except where noted, this summary deals only with a note or share of common stock held
as a capital asset by a holder who purchased the note on original issuance at its initial offering
price, which is assumed to be equal to $1,000 per note. This summary does not deal with special
situations, such as
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tax consequences to holders who may be subject to special tax treatment, such as
dealers in securities or currencies, financial institutions, regulated investment
companies, real estate investment trusts, tax-exempt entities, insurance companies, or
traders in securities that elect to use a mark-to-market method of accounting for
their securities; |
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tax consequences to persons holding notes as a part of a hedging, integrated,
conversion or constructive sale transaction or a straddle; |
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tax consequences to U.S. holders (as defined below) of notes or shares of common
stock whose functional currency is not the U.S. dollar; |
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tax consequences to investors in pass-through entities; |
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alternative minimum tax consequences, if any; and |
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any state, local or foreign tax consequences. |
The discussion below is based upon the provisions of the Code, and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be changed, perhaps
retroactively, so as to result in U.S. federal income tax consequences different from those
discussed below. This summary does not address all aspects of U.S. federal income taxes and does
not deal with all tax consequences that may be relevant to holders in light of their personal
circumstances.
If a partnership holds notes or shares of common stock, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the partnership. If you are a
partner in a partnership holding the notes or shares of common stock, you should consult your tax
advisors.
If you are considering ownership of notes and the shares of common stock into which the notes
may be converted, you should consult your tax advisors concerning the U.S. federal income tax
consequences to you in light of your particular situation as well as any consequences arising under
the laws of any other taxing jurisdiction.
As used herein, the term U.S. holder means a beneficial owner of notes or shares of common
stock that is, for U.S. federal income tax purposes,
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an individual citizen or resident of the U.S.; |
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a corporation (or any other entity treated as a corporation for U.S. federal income
tax purposes) created or organized in or under the laws of the U.S., any state thereof
or the District of Columbia; |
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an estate the income of which is subject to U.S. federal income taxation regardless
of its source; or |
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a trust, if it (i) is subject to the primary supervision of a court within the U.S.
and one or more U.S. persons have the authority to control all substantial decisions
of the trust or (ii) has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person. |
A non-U.S. holder is a beneficial owner of notes or shares of common stock (other than a
partnership) that is not a U.S. holder. Special rules may apply to certain non-U.S. holders such as
controlled foreign corporations, passive foreign investment companies, corporations that
accumulate earnings to avoid federal income tax or, in certain circumstances, individuals who are
U.S. expatriates. Such entities and individuals should consult their tax advisors to determine the
U.S. federal, state, local and other tax consequences that may be relevant to them.
Consequences to U.S. holders
Payment of interest
It is anticipated, and this discussion assumes, that the notes will be issued for an amount
equal to the principal amount. In such case, interest on a note will generally be taxable to you as
ordinary income at the time it is paid or accrued in accordance with your usual method of
accounting for tax purposes.
Additional payments
We may be required to pay additional amounts to you in certain circumstances described above
under the headings Description of notesConversion rights. This discussion assumes that the notes
will not be treated as contingent payment debt instruments due to the possibility of such
additional amounts.
Sale, exchange, redemption, or other disposition of notes
Except as provided below under Consequences to U.S. holdersExchange of notes into cash or
common stock and cash you will generally recognize gain or loss upon the sale, exchange,
redemption or other disposition of a note equal to the difference between the amount realized upon
the sale, exchange, redemption or other disposition and your adjusted tax basis in the note. Your
tax basis in a note will generally be equal to the amount you paid for the note. For these
purposes, the amount realized does not include any amount attributable to accrued interest, which
amount would be treated as interest as described under Payment of interest above. Any gain or
loss recognized on a taxable disposition of the note will be capital gain or loss. If you are an
individual and have held the note for more than one year, such capital gain will be subject to
reduced rates of taxation. Your ability to deduct capital losses may be limited.
Exchange of notes into cash or common stock and cash
If you convert your notes into a combination of cash and stock, it is likely that the
conversion will be treated as a recapitalization. Under such treatment, you will realize gain, but
not loss, equal to the excess, if any, of the fair market value of the common stock and cash
received (except to the extent of amounts received with respect to accrued but unpaid interest,
which will be treated as such, and cash received in lieu of a fractional share) over your adjusted
tax basis in the note (other than basis that is allocable to a fractional share), but in no event
will the amount recognized exceed the amount of such cash received (excluding amounts received with
respect to accrued but unpaid interest and cash received in lieu of a fractional share). You will
recognize gain or loss on the receipt of cash in lieu of a fractional share in
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an amount equal to the difference between the amount of cash you receive in respect of the
fractional share and the portion of your adjusted tax basis in the note that is allocable to the
fractional share. The aggregate tax basis of the shares of common stock received upon a conversion,
other than any shares of common stock received with respect to accrued but unpaid interest, will
equal the adjusted tax basis of the note that was converted (excluding the portion of the tax basis
that is allocable to any fractional share), reduced by the amount of any cash received (other than
cash received in lieu of a fractional share) and increased by the amount of gain, if any,
recognized (other than with respect to a fractional share or cash received with respect to accrued
but unpaid interest). Your holding period for these shares of common stock will include the period
during which you held the notes. The tax basis of any shares of common stock received with respect
to accrued but unpaid interest upon conversion will equal the then-current fair market value of
that common stock. Your holding period for these shares of common stock will commence on the day
after receipt.
Alternatively there is a possibility that the conversion could be treated as a partial taxable
sale of the note and a partial tax-free conversion of the note. You should consult your tax advisor
regarding the U.S. federal income tax consequences to you of the receipt of both cash and common
stock upon conversion of a note.
If you receive solely cash in exchange for your notes upon conversion, your gain or loss will
be determined in the same manner as if you disposed of the note in a taxable disposition (as
described above under Sale, exchange, redemption or other disposition of the notes).
Constructive distributions
The conversion rate of the notes will be adjusted in certain circumstances. Under Section
305(c) of the Code, adjustments (or failures to make adjustments) that have the effect of
increasing your proportionate interest in our assets or earnings may in some circumstances result
in a deemed distribution to you. Adjustments to the conversion rate made pursuant to a bona fide
reasonable adjustment formula that has the effect of preventing the dilution of the interest of the
holders of the notes, however, will generally not be considered to result in a deemed distribution
to you. Certain of the possible conversion rate adjustments provided in the notes (including,
without limitation, adjustments in respect of taxable dividends to holders of our common stock)
will not qualify as being pursuant to a bona fide reasonable adjustment formula. If such
adjustments are made, you will be deemed to have received a distribution even though you have not
received any cash or property as a result of such adjustments. Any deemed distributions will be
taxable as a dividend, return of capital, or capital gain in accordance with the earnings and
profits rules under the Code. It is not clear whether a constructive dividend deemed paid to you
would be eligible for the preferential rates of U.S. federal income tax applicable in respect of
certain dividends received. It is also unclear whether corporate holders would be entitled to claim
the dividends received deduction with respect to any such constructive dividends.
Dividends
Distributions, if any, made on our common stock generally will be included in your income as
ordinary dividend income to the extent of our current and accumulated earnings and profits.
However, with respect to individuals, for taxable years beginning before January 1, 20011, such
dividends are generally taxed at the lower applicable long-term capital gains rates provided
certain holding period requirements are satisfied. Distributions in excess of our current and
accumulated earnings and profits will be treated as a return of capital to the extent of your
adjusted tax basis in the common stock and thereafter as capital gain from the sale or exchange of
such common stock. Dividends received by a corporation may be eligible for a dividends received
deduction, subject to applicable limitations.
Sale, exchange, redemption or other taxable disposition of common stock
Upon the sale, taxable exchange, certain redemptions or other taxable disposition of our
common stock, you generally will recognize capital gain or loss equal to the difference between (i)
the amount of cash and the fair market value of any property received upon such taxable disposition
and (ii) your adjusted
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tax basis in the common stock. Such capital gain or loss will be long-term capital gain or
loss if your holding period in the common stock is more than one year at the time of the taxable
disposition. Long-term capital gains recognized by individuals will generally be subject to a
reduced rate of U.S. federal income tax. The deductibility of capital losses is subject to
limitations.
Possible effect of the change in conversion after a public acquirer change of control
In certain situations, we may provide for the conversion of the notes into shares of a public
acquirer (as described above under Description of notesConversion rightsConversion after a
public acquirer change of control). Depending on the circumstances, such adjustments could result
in a deemed taxable exchange to a holder and the modified note could be treated as newly issued at
that time.
Information reporting and backup withholding
Information reporting requirements generally will apply to payments of interest on the notes
and dividends on shares of common stock and to the proceeds of a sale of a note or share of common
stock paid to you, unless you are an exempt recipient, such as a corporation. A backup withholding
tax will apply to those payments if you fail to provide your taxpayer identification number or
otherwise fail to comply with applicable requirements to establish an exemption. Any amounts
withheld under the backup withholding rules will be allowed as a refund or a credit against your
U.S. federal income tax liability provided the required information is furnished timely to the
Internal Revenue Service.
Consequences to non-U.S. holders
Payments of interest
The 30% U.S. federal withholding tax will not be applied to any payment to you of interest
(including additional interest payable under certain circumstances) provided that
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interest paid on the note is not effectively connected with your conduct of a trade
or business in the U.S.; |
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you do not actually or constructively own 10% or more of the total combined voting
power of all classes of our stock that are entitled to vote within the meaning of
section 871(h)(3) of the Code; |
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you are not a controlled foreign corporation that is related to us (actually or
constructively) through stock ownership; |
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you are not a bank whose receipt of interest on a note is described in section
881(c)(3)(A) of the Code; and |
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(a) you provide your name and address, and certify, under penalties of perjury,
that you are not a U.S. person (which certification may be made on an Internal Revenue
Service Form W-8BEN (or other applicable form)) or (b) you hold your notes through
certain foreign intermediaries or certain foreign partnerships, and you and they
satisfy the certification requirements of applicable Treasury regulations. |
Special certification rules apply to non-U.S. holders that are pass-through entities.
If you cannot satisfy the requirements described above, payments of interest (including
additional interest payable under certain circumstances) will be subject to the 30% U.S. federal
withholding tax, unless you provide us with a properly executed (1) Internal Revenue Service Form
W-8BEN (or other applicable form) claiming an exemption from or reduction in withholding under the
benefit of an applicable income tax treaty or (2) Internal Revenue Service Form W-8ECI (or other
applicable form) stating that
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interest paid on the notes is not subject to withholding tax because it is effectively
connected with your conduct of a trade or business in the U.S. If you are engaged in a trade or
business in the U.S. and interest on the notes is effectively connected with the conduct of that
trade or business and, if required by an applicable income tax treaty, is attributable to a U.S.
permanent establishment, then (although you will be exempt from the 30% withholding tax provided
the certification requirements discussed above are satisfied) you will generally be subject to U.S.
federal income tax on that interest on a net income basis in the same manner as if you were a U.S.
Holder. In addition, if you are a foreign corporation, you may be subject to a branch profits tax
equal to 30% (or lesser rate under an applicable income tax treaty) of your earnings and profits
for the taxable year, subject to adjustments, that are effectively connected with your conduct of a
trade or business in the U.S.
Dividends and constructive distributions
Any dividends paid to you with respect to the shares of common stock (and any deemed dividends
resulting from certain adjustments, or failure to make adjustments, to the conversion rate, see
Consequences to U.S. holdersConstructive distributions above) will be subject to withholding tax
at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. In the
case of any deemed dividend, it is possible that the U.S. federal tax on this dividend would be
withheld from interest, shares of your common stock or sales proceeds subsequently paid or credited
to you. However, dividends that are effectively connected with the conduct of a trade or business
within the U.S. and, where a tax treaty applies, are attributable to a U.S. permanent
establishment, are not subject to the withholding tax, but instead are subject to U.S. federal
income tax on a net income basis at applicable graduated individual or corporate rates. Certain
certification requirements and disclosure requirements must be complied with in order for
effectively connected income to be exempt from withholding. Any such effectively connected income
received by a foreign corporation may, under certain circumstances, be subject to an additional
branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
A non-U.S. holder of shares of common stock who wishes to claim the benefit of an applicable
treaty rate is required to satisfy applicable certification and other requirements. If you are
eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, you may
obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund
with the Internal Revenue Service.
Sale, exchange, redemption, conversion or other disposition of notes or shares of common stock
Gain on the sale, exchange, redemption or other taxable disposition of a note, as well as upon
the conversion of a note into cash or into a combination of cash and stock, or common stock will
not be subject to U.S. federal income tax unless
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that gain is effectively connected with your conduct of a trade or business in the
U.S. (and, if required by an applicable income treaty, is attributable to a U.S.
permanent establishment); |
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you are an individual who is present in the U.S. for 183 days or more in the
taxable year of that disposition, and certain other conditions are met; or |
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we are or have been a U.S. real property holding corporation (a USRPHC) for
U.S. federal income tax purposes during the shorter of your holding period or the
5-year period ending on the date of disposition of the notes or common stock, as the
case may be. |
If you are an individual described in the first bullet point above, you will be subject to tax
on the net gain derived from the sale, exchange, redemption, conversion or other taxable
disposition under regular graduated U.S. federal income tax rates. If you are an individual
described in the second bullet point above, you will be subject to a flat 30% tax on the gain
derived from the sale, exchange, redemption, conversion or
49
other taxable disposition, which may be offset by United States source capital losses, even
though you are not considered a resident of the U.S.
If you are a foreign corporation that falls under the first bullet point above, you will be
subject to tax on your net gain generally in the same manner as if you were a U.S. person as
defined under the Code and, in addition, you may be subject to the branch profits tax equal to 30%
of your effectively connected earnings and profits, or at such lower rate as may be specified by an
applicable income tax treaty.
We believe that we are not and do not anticipate becoming a USRPHC for U.S. federal income tax
purposes.
Any stock which you receive on the sale, exchange, redemption, conversion or other disposition
of a note which is attributable to accrued interest will be subject to U.S. federal income tax in
accordance with the rules for taxation of interest described above under Consequences to non-U.S.
holdersPayments of interest.
Information reporting and backup withholding
Generally, we must report annually to the Internal Revenue Service and to you the amount of
interest and dividends paid to you and the amount of tax, if any, withheld with respect to those
payments. Copies of the information returns reporting such interest, dividends and withholding may
also be made available to the tax authorities in the country in which you reside under the
provisions of an applicable income tax treaty.
In general, you will not be subject to backup withholding with respect to payments of interest
or dividends that we make to you, provided the statement described above in the last bullet point
under Consequences to non-U.S. holdersPayments of interest has been received (and we do not have
actual knowledge or reason to know that you are a U.S. person, as defined under the Code, that is
not an exempt recipient).
In addition, you will be subject to information reporting and, depending on the circumstances,
backup withholding with respect to payments of the proceeds of the sale of a note or share of
common stock within the U.S. or conducted through certain U.S.-related financial intermediaries,
unless the statement described above has been received (and we do not have actual knowledge or
reason to know that you are a U.S. person, as defined under the Code, that is not an exempt
recipient) or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against your U.S. federal income tax liability provided the required information is
furnished timely to the Internal Revenue Service.
50
Selling Securityholders
The notes were originally issued by Pier 1 and sold by the initial purchaser of the notes
in a transaction exempt from the registration requirements of the Securities Act of 1933 to persons
reasonably believed by the initial purchaser to be qualified institutional buyers as defined by
Rule 144A under the Securities Act. Selling securityholders, including their transferees, pledgees
or donees or their successors, may from time to time offer and sell pursuant to this prospectus any
or all of the notes and shares of common stock into which the notes are convertible.
The following table sets forth information, as of June 8, 2006, with respect to the selling
securityholders and the principal amounts of notes beneficially owned by each selling
securityholder that may be offered pursuant to this prospectus. The information is based on
information provided by or on behalf of the selling securityholders. The selling securityholders
may offer all, some or none of the notes or the common stock into which the notes are convertible.
Because the selling securityholders may offer all or some portion of the notes or the common stock,
we cannot estimate the amount of the notes or the common stock that will be held by the selling
securityholders upon termination of any of these sales. In addition, the selling securityholders
identified below may have sold, transferred or otherwise disposed of all or a portion of their
notes since the date on which they provided the information regarding their notes in transactions
exempt from the registration requirements of the Securities Act. The percentage of notes
outstanding beneficially owned by each selling securityholder is based on $165,000,000 aggregate
principal amount of notes outstanding.
The number of shares of common stock issuable upon conversion of the notes shown in the table
below assumes conversion of the full amount of notes held by each selling securityholder at a
maximum conversion rate of 92.1659 shares per $1,000 principal amount of notes and a cash payment
in lieu of any fractional shares. This conversion price is subject to adjustment in certain events.
Accordingly, the number of conversion shares may increase or decrease from time to time.
Information concerning other selling securityholders will be set forth in prospectus supplements
from time to time, if required. The number of shares of common stock owned by the other selling
securityholders or any future transferee from any such holder assumes that they do not beneficially
own any common stock other than common stock into which the notes are convertible.
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
% of |
|
% of |
|
Common Stock |
|
|
Amount of |
|
Notes |
|
Common |
|
Offered |
Name of Holder |
|
Notes (3) |
|
Owned |
|
Stock (1) |
|
Hereby (2) |
|
Aristeia International Limited |
|
|
11,440,000 |
|
|
|
6.93 |
% |
|
|
0.86 |
% |
|
|
1,054,378 |
|
Aristeia Partners LP |
|
|
1,560,000 |
|
|
|
0.95 |
% |
|
|
0.12 |
% |
|
|
143,779 |
|
CNH CA
Master Account, L.P. |
|
|
7,500,000 |
|
|
|
4.55 |
% |
|
|
0.56 |
% |
|
|
691,244 |
|
D.E. Shaw Valence Portfolio, L.L.C. |
|
|
13,000,000 |
|
|
|
7.88 |
% |
|
|
0.97 |
% |
|
|
1,198,157 |
|
DBAG London |
|
|
10,020,000 |
|
|
|
6.07 |
% |
|
|
0.75 |
% |
|
|
923,502 |
|
Empyrean Capital Fund, LP |
|
|
7,574,000 |
|
|
|
4.59 |
% |
|
|
0.57 |
% |
|
|
698,065 |
|
Empyrean Capital Overseas Benefit Plan Fund, Ltd |
|
|
1,480,000 |
|
|
|
0.90 |
% |
|
|
0.11 |
% |
|
|
136,406 |
|
Empyrean Capital Overseas Fund, Ltd |
|
|
12,446,000 |
|
|
|
7.54 |
% |
|
|
0.93 |
% |
|
|
1,147,097 |
|
Fore Convertible Master Fund, Ltd |
|
|
275,000 |
|
|
|
0.17 |
% |
|
|
0.02 |
% |
|
|
25,346 |
|
Fore Erisa Fund, Ltd |
|
|
28,000 |
|
|
|
0.02 |
% |
|
|
0.00 |
% |
|
|
2,581 |
|
Fore Multi Strategy Master Fund, Ltd |
|
|
79,000 |
|
|
|
0.05 |
% |
|
|
0.01 |
% |
|
|
7,281 |
|
General Motors Investment Corp |
|
|
7,500,000 |
|
|
|
4.55 |
% |
|
|
0.56 |
% |
|
|
691,244 |
|
Grace Convertible Arbitrage Fund, Ltd. |
|
|
3,500,000 |
|
|
|
2.12 |
% |
|
|
0.26 |
% |
|
|
322,581 |
|
Greenwich Street Series Fund- Capital & Income Portfolio |
|
|
400,000 |
|
|
|
0.24 |
% |
|
|
0.03 |
% |
|
|
36,866 |
|
Inflective Convertible Opportunity Fund I, LP |
|
|
900,000 |
|
|
|
0.55 |
% |
|
|
0.07 |
% |
|
|
82,949 |
|
Inflective Convertible Opportunity Fund I, LTD |
|
|
2,500,000 |
|
|
|
1.52 |
% |
|
|
0.19 |
% |
|
|
230,415 |
|
Institutional Benchmark Series (Master Feeder) Limited in
Respect of Electra Series c/o Quattro Fund |
|
|
1,005,000 |
|
|
|
0.61 |
% |
|
|
0.08 |
% |
|
|
92,627 |
|
Institutional Benchmarks Series Ivan Segregated Accts |
|
|
700,000 |
|
|
|
0.42 |
% |
|
|
0.05 |
% |
|
|
64,516 |
|
JP Morgan
Securities Inc. |
|
|
7,695,000 |
|
|
|
4.66 |
% |
|
|
0.58 |
% |
|
|
709,217 |
|
Kamunting Street Master Fund, LTD |
|
|
4,000,000 |
|
|
|
2.42 |
% |
|
|
0.30 |
% |
|
|
368,664 |
|
KBC Financial Products USA, Inc. |
|
|
300,000 |
|
|
|
0.18 |
% |
|
|
0.02 |
% |
|
|
27,650 |
|
Lyxer/Inflective Convertible Opportunity Fund |
|
|
700,000 |
|
|
|
0.42 |
% |
|
|
0.05 |
% |
|
|
64,516 |
|
Man Mac I, Ltd |
|
|
118,000 |
|
|
|
0.07 |
% |
|
|
0.01 |
% |
|
|
10,876 |
|
Managed Asset Trust |
|
|
200,000 |
|
|
|
0.12 |
% |
|
|
0.02 |
% |
|
|
18,433 |
|
McMahon Securities Co. L.P. |
|
|
30,000 |
|
|
|
0.02 |
% |
|
|
0.00 |
% |
|
|
2,765 |
|
Nomura Securities International, Inc. |
|
|
10,000,000 |
|
|
|
6.06 |
% |
|
|
0.75 |
% |
|
|
921,659 |
|
Partners Group Alternative Strategies PCC Limited, Red Delta Cell |
|
|
1,005,000 |
|
|
|
0.61 |
% |
|
|
0.08 |
% |
|
|
92,627 |
|
Phoenix-Durango Investments L.P. |
|
|
2,500,000 |
|
|
|
1.52 |
% |
|
|
0.19 |
% |
|
|
230,415 |
|
Pond Point
Partners Master Fund |
|
|
1,000,000 |
|
|
|
0.61 |
% |
|
|
0.08 |
% |
|
|
92,166 |
|
Quattro Fund Ltd. |
|
|
16,430,000 |
|
|
|
9.96 |
% |
|
|
1.22 |
% |
|
|
1,514,286 |
|
Quattro Multistrategy Masterfund LP |
|
|
1,660,000 |
|
|
|
1.01 |
% |
|
|
0.13 |
% |
|
|
152,995 |
|
Salomon Brothers Capital and Income Fund |
|
|
3,000,000 |
|
|
|
1.82 |
% |
|
|
0.23 |
% |
|
|
276,498 |
|
SB Capital Fund |
|
|
5,000,000 |
|
|
|
3.03 |
% |
|
|
0.38 |
% |
|
|
460,830 |
|
SBCIF Convertibles |
|
|
12,000,000 |
|
|
|
7.27 |
% |
|
|
0.90 |
% |
|
|
1,105,991 |
|
Smith Barney Convertible Fund |
|
|
1,000,000 |
|
|
|
0.61 |
% |
|
|
0.08 |
% |
|
|
92,166 |
|
Topaz Fund |
|
|
2,000,000 |
|
|
|
1.21 |
% |
|
|
0.15 |
% |
|
|
184,332 |
|
Wachovia Securities Intl. LTD |
|
|
3,000,000 |
|
|
|
1.82 |
% |
|
|
0.23 |
% |
|
|
276,498 |
|
Total |
|
|
153,520,000 |
|
|
|
|
|
|
|
|
|
|
|
14,149,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
(1) |
|
Calculated based on 87,244,475 shares of our common stock
outstanding as of June 8, 2006. In calculating this amount for
each holder, we treated as outstanding the number of shares of our
common stock issuable upon conversion of all of that holders
notes, but we did not assume conversion of any other holders
notes. |
|
(2) |
|
Represents the maximum number of shares of our common stock
issuable upon conversion of all of the holders notes, based on
the maximum conversion rate of 92.1659 shares of our common stock
per $1,000 principal amount at maturity of the notes. This
conversion rate is subject to adjustment, however, as described
under Description of notesConversion rights conversion rate
adjustments. As a result, the maximum number of shares of our
common stock issuable upon conversion of the notes may increase or
decrease in the future. |
|
(3) |
|
Because certain of the selling securityholders may have sold,
transferred or otherwise disposed of all or a portion of their
notes in transactions exempt from the registration requirements of
the Securities Act since the date on which they provided the
information presented in this table, this prospectus may not
reflect the exact principal amount of notes held by each selling
securityholder on the date of this prospectus. The maximum
aggregate principal amount of notes that may be sold pursuant to
this prospectus will not exceed $165,000,000. |
53
Plan of Distribution
The selling securityholders and their successors, which term includes their transferees,
pledgees or donees or their successors may sell the notes and the common stock issuable upon
conversion of the notes directly to purchasers or through underwriters, broker-dealers or agents,
who may receive compensation in the form of discounts, concessions or commissions from the selling
securityholders or the purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the types of
transactions involved.
The notes and the common stock issuable upon conversion of the notes may be sold in one or
more transactions at:
|
|
|
fixed prices; |
|
|
|
|
prevailing market prices at the time of sale; |
|
|
|
|
prices related to the prevailing market prices; |
|
|
|
|
varying prices determined at the time of sale; or |
|
|
|
|
negotiated prices. |
These sales may be effected in transactions:
|
|
|
on any national securities exchange or quotation service on which our common stock
may be listed or quoted at the time of sale; |
|
|
|
|
in the over-the-counter market; |
|
|
|
|
otherwise than on such exchanges or services or in the over-the-counter market; |
|
|
|
|
through the writing of options, whether the options are listed on an options
exchange or otherwise; or |
|
|
|
|
through the settlement of short sales. |
These transactions may include block transactions or crosses. Crosses are transactions in
which the same broker acts as agent on both sides of the trade.
In connection with the sale of the notes and the common stock issuable upon conversion of the
notes or otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions. These broker-dealers or financial institutions may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume with selling securityholders. The selling securityholders may also sell the notes and the
common stock issuable upon conversion of the notes short and deliver these securities to close out
such short positions, or loan or pledge the notes or the common stock issuable upon conversion of
the notes to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of the notes or the common
stock issuable upon conversion of the notes offered by them hereby will be the purchase price of
the notes or the common stock less discounts and commissions, if any. Each of the selling
securityholders reserves the right to accept and, together with their agents from time to time, to
reject, in whole or in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
54
Our outstanding common stock is listed for trading on the New York Stock Exchange. We do not
intend to list the notes for trading on any national securities exchange or on the Nasdaq National
Market and can give no assurance about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable, the notes and the
common stock issuable upon conversion of the notes may be sold in these jurisdictions only through
registered or licensed brokers or dealers.
The selling securityholders and any broker-dealers or agents that participate in the sale of
the notes and the common stock issuable upon conversion of the notes may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act of 1933. Profits on the
sale of the notes and the common stock issuable upon conversion of the notes by selling
securityholders and any discounts, commissions or concessions received by any broker-dealers or
agents might be deemed to be underwriting discounts and commissions under the Securities Act of
1933. Selling securityholders who are deemed to be underwriters within the meaning of Section
2(11) of the Securities Act of 1933 will be subject to the prospectus delivery requirements of the
Securities Act of 1933. To the extent the selling securityholders may be deemed to be
underwriters, they may be subject to statutory liabilities, including, but not limited to,
Sections 11, 12 and 17 of the Securities Act of 1933.
The selling securityholders and any other person participating in a distribution will be
subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and
regulations thereunder. Regulation M of the Securities Exchange Act of 1934 may limit the timing of
purchases and sales of any of the securities by the selling securityholders and any other person.
In addition, Regulation M may restrict the ability of any person engaged in the distribution of the
securities to engage in market-making activities with respect to the particular securities being
distributed for a period of up to five business days before the distribution.
To our knowledge, there are currently no plans, arrangements or understandings between any
selling securityholder and any underwriter, broker-dealer or agent regarding the sale of the notes
or the common stock issuable upon conversion of the notes by the selling securityholders.
A selling securityholder may decide not to sell any notes or the common stock issuable upon
conversion of the notes described in this prospectus. We cannot assure holders that any selling
securityholder will use this prospectus to sell any or all of the notes or the common stock
issuable upon conversion of the notes. Any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act of 1933 may be sold under Rule 144 or
Rule 144A rather than pursuant to this prospectus. In addition, a selling securityholder may
transfer, devise or gift the notes and the common stock issuable upon conversion of the notes by
other means not described in this prospectus.
With respect to a particular offering of the notes and the common stock issuable upon
conversion of the notes, to the extent required, an accompanying prospectus supplement or, if
appropriate, a post-effective amendment to the registration statement of which this prospectus is a
part will be prepared and will set forth the following information:
|
|
|
the specific notes or common stock to be offered and sold; |
|
|
|
|
the names of the selling securityholders; |
|
|
|
|
the respective purchase prices and public offering prices and other material terms
of the offering; |
|
|
|
|
the names of any participating agents, broker-dealers or underwriters; and |
|
|
|
|
any applicable commissions, discounts, concessions and other items constituting,
compensation from the selling securityholders. |
55
We entered into the registration rights agreement for the benefit of holders of the notes to
register their notes and the common stock issuable upon conversion of the notes under applicable
federal and state securities laws under certain circumstances and at certain times. The
registration rights agreement provides that the selling securityholders and we will indemnify each
other and our respective directors, officers and controlling persons against specific liabilities
in connection with the offer and sale of the notes and the common stock issuable upon conversion of
the notes, including liabilities under the Securities Act of 1933, or will be entitled to
contribution in connection with those liabilities. We will pay all of our expenses and specified
expenses incurred by the selling securityholders incidental to the registration, offering and sale
of the notes and the common stock issuable upon conversion of the notes to the public, but each
selling securityholder will be responsible for payment of commissions, concessions, fees and
discounts of underwriters, broker-dealers and agents.
Legal Matters
The validity of the issuance of the notes and the validity of the common stock issuable
upon conversion of the notes has been passed upon for us by Winstead Sechrest & Minick P.C.,
Dallas, Texas. Tom Thomas, a director of Pier 1, is a shareholder of Winstead Sechrest & Minick
P.C.
Experts
The consolidated financial statements of Pier 1 Imports, Inc. appearing in Pier 1
Imports, Inc.s Annual Report (Form 10-K) for the year ended February 25, 2006 and Pier 1 Imports,
Inc. managements assessment of the effectiveness of internal control over financial reporting as
of February 25, 2006 included therein, have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their reports thereon, included therein, and
incorporated herein by reference. Such consolidated financial statements and managements
assessment are incorporated herein by reference in reliance upon such reports given on the
authority of such firm as experts in accounting and auditing.
Where You Can Find More Information
We file annual, quarterly and current reports and other information with the SEC. You
may inspect and copy such material at the public reference facilities maintained by the SEC at 100
F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference room. You can also find our SEC filings at the SECs website at
www.sec.gov and on our website at www.pier1.com (click on Investor Relations and then SEC
Filings). Information contained on our website is not part of this prospectus. In addition, our
reports and other information concerning us can be inspected at the New York Stock Exchange, 20
Broad Street, New York, New York 10005, where our common stock is listed.
We have filed with the SEC a registration statement on Form S-3 relating to the securities
covered by this prospectus. This prospectus is a part of the registration statement and does not
contain all the information in the registration statement. Whenever a reference is made in this
prospectus to a contract or other document, the reference is only a summary and you should refer to
the exhibits that are a part of the registration statement for a copy of the contract or other
document. You may view a copy of the registration statement at the SECs public reference room in
Washington, D.C. as well as through the SECs website.
The following documents we filed with the SEC pursuant to the Exchange Act are incorporated
herein by reference:
|
|
|
our Annual Report on Form 10-K for the fiscal year ended February 25, 2006,
including information specifically incorporated by reference into our Form 10-K from
our Proxy Statement for our Annual Meeting of Stockholders to be held on June 22,
2006; and |
56
|
|
|
our Current Reports on Form 8-K filed on March 2, 2006, March 15, 2006, March 20,
2006, March 23, 2006, March 24, 2006, March 29, 2006, April 6, 2006, May 4, 2006, and
June 1, 2006. |
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
(excluding any information furnished pursuant to Item 2.02 or Item 7.01 on any current report on
Form 8-K) subsequent to the date of this filing and prior to the termination of this offering shall
be deemed to be incorporated in this prospectus and to be a part hereof from the date of the filing
of such document. Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a statement contained in
this prospectus, or in any other subsequently filed document which is also incorporated or deemed
to be incorporated by reference, modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to constitute a part of
this prospectus.
We will provide without charge to each person to whom this prospectus is delivered, upon
written or oral request of such person, a copy of any or all documents incorporated by reference in
this prospectus. Requests for such copies should be directed to Michael A. Carter, Senior Vice
President and General Counsel, Pier 1 Imports, Inc., 100 Pier 1 Place, Fort Worth, Texas 76102, by
mail, or if by telephone at (817) 252-7630.
57