e424b5
The
information contained in this Prospectus Supplement is not
complete and may be changed. This Prospectus Supplement is not
an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or
sale is not permitted.
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Filed pursuant to Rule 424(b)(5)
File No. 333-161498
Subject to Completion, dated
January 31, 2011
PROSPECTUS SUPPLEMENT
(To Prospectus dated
August 28, 2009)
$100,000,000
Avatar Holdings Inc.
% Senior Convertible Notes
due 2016
This is an offering by Avatar Holdings Inc. of $100,000,000
aggregate principal amount of
its % Senior Convertible Notes
due 2016 (the Notes).
The Notes will be convertible, at your option, into shares of
our common stock initially at a conversion rate
of shares
(equivalent to an initial conversion price of approximately
$ per share), subject to
adjustment as described in this prospectus supplement at any
time on or prior to the close of business on the business day
immediately preceding the maturity date.
In the event of certain types of fundamental changes, we will
increase the conversion rate by a number of additional shares.
The Notes will bear interest at a rate
of % per year, payable
semi-annually in arrears in cash, on February 15 and
August 15 of each year, commencing on August 15, 2011.
The Notes will mature on February 15, 2016.
You may require us to repurchase all or a portion of your Notes
upon a fundamental change or on February 15, 2014, in each
circumstance at a cash repurchase price equal to 100% of the
principal amount plus accrued and unpaid interest (including
additional interest, if any). You may also require us to
repurchase up to 50% of the aggregate principal amount of your
Notes upon breach of certain financial covenants at a cash
repurchase price equal to 110% of the principal amount plus
accrued and unpaid interest (including additional interest, if
any).
The Notes will be our senior unsecured obligations. As of
September 30, 2010 we and our consolidated subsidiaries had
approximately $64.8 million principal amount of unsecured
notes outstanding and approximately $0.1 million of secured
notes outstanding.
The Notes will not be listed on any securities exchange.
Currently there is no public market for the Notes. Our common
stock is listed on The Nasdaq Stock Market (Nasdaq)
under the symbol AVTR. The last reported sale price
of our common stock on January 28, 2011 was $20.20 per
share.
Investing in the Notes involves significant risks. See
Risk Factors beginning on page S-8 of this
prospectus supplement and page 2 of the accompanying
prospectus.
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Per Note
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Total
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Price to the
public(1)
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to the company (before expenses)
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$
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$
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(1) |
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Plus accrued interest, if any, from February ,
2011. |
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed on the adequacy or accuracy of this
prospectus supplement. Any representation to the contrary is a
criminal offense.
Barclays Capital expects to deliver the Notes on or about
February , 2011.
Barclays Capital
Prospectus Supplement dated February , 2011
TABLE OF
CONTENTS
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Prospectus Supplement
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S-ii
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S-ii
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S-iii
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S-iv
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S-1
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S-8
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S-16
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S-16
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S-17
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S-18
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S-43
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S-51
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S-55
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S-55
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Prospectus
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iv
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1
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17
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S-i
ABOUT THIS
PROSPECTUS SUPPLEMENT
This prospectus supplement is accompanied by a prospectus dated
August 28, 2009. The accompanying prospectus is part of a
Registration Statement on
Form S-3
(Reg.
No. 333-161498)
that we filed with the Securities and Exchange Commission (the
Commission) using a shelf registration
process. Under this shelf registration process, we may, from
time to time, offer
and/or sell
the securities referenced in the registration statement in one
or more offerings. Each time our securities are offered, we
provide a prospectus supplement and attach it to the
accompanying prospectus. This prospectus supplement contains
more specific information about the offering. This prospectus
supplement may also add, update or change information contained
in the accompanying prospectus. Any statement that we make in
the accompanying prospectus is modified or superseded by any
inconsistent statement made by us in this prospectus supplement.
You should read both this prospectus supplement and the
accompanying prospectus together with the additional information
described under the heading Incorporation of Certain
Documents by Reference.
You should rely only on the information contained in this
prospectus supplement, the accompanying prospectus and those
documents incorporated by reference herein or therein. We have
not authorized anyone to provide you with information different
from that contained in this prospectus supplement or the
accompanying prospectus or information incorporated by reference
herein or therein. This prospectus supplement may only be used
where it is legal to sell these securities. This prospectus
supplement is not an offer to sell, or a solicitation of an
offer to buy, in any state where the offer or sale is
prohibited. The information in this prospectus supplement, the
accompanying prospectus, or any document incorporated by
reference herein or therein is accurate as of the date of any
such document. Neither the delivery of this prospectus
supplement or the accompanying prospectus, nor any sale made
under this prospectus supplement or the accompanying prospectus
will, under any circumstances, imply that the information in
this prospectus supplement or the accompanying prospectus is
correct as of any date after the date of this prospectus
supplement or the accompanying prospectus, respectively.
INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference
into this prospectus supplement the information we have filed
with the Commission. This means that we can disclose important
information by referring you to those documents. All documents
that we subsequently file with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act),
prior to the termination of this offering, will be deemed to be
incorporated by reference into this prospectus supplement and to
be a part hereof from the date of filing of such documents. We
are not, however, incorporating by reference any documents or
portions thereof, whether specifically listed below or filed in
the future, that are not deemed filed with the
Commission, including information furnished pursuant to
Item 2.02 or 7.01 of
Form 8-K.
Any statement contained in a document incorporated or deemed to
be incorporated by reference in this prospectus supplement shall
be deemed to be modified or superseded for purposes of this
prospectus supplement to the extent that a statement contained
herein or in any other subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus supplement.
We incorporate by reference the following documents that we have
filed with the Commission, and any filings that we will make
with the Commission in the future, under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, until this offering is
terminated:
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009;
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Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2010,
June 30, 2010, and September 30, 2010;
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S-ii
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Current Reports on Form 8-K filed with the Commission on
May 24, 2010, June 4, 2010, August 30, 2010,
October 25, 2010, October 28, 2010, November 16,
2010, January 4, 2011.
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Definitive Proxy Statement on Schedule 14A, dated
April 29, 2010, relating to our annual meeting of
stockholders, which was held on June 3, 2010; and
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Description of Avatars Common Stock on
Form 8-A
filed October 15, 1980.
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WHERE YOU CAN
FIND MORE INFORMATION
The documents incorporated by reference into this prospectus
supplement are available from us upon request. We will provide a
copy of any and all of the information that is incorporated by
reference in this prospectus supplement, without charge, upon
written or oral request. If you would like to obtain this
information from us, please direct your request, either in
writing or by telephone, to:
Avatar Holdings
Inc.
201 Alhambra Circle
Coral Gables, Florida 33134
(305) 442-7000
Attn: Corporate Secretary
Any statement made in this prospectus supplement or in documents
incorporated by reference into this prospectus supplement,
concerning the contents of any contract, agreement or other
document is only a summary of the actual document. You may
obtain a copy of any document summarized in this prospectus
supplement or in documents incorporated by reference into this
prospectus supplement, at no cost by writing to or telephoning
us at the address and telephone number given above. Each
statement regarding a contract, agreement or other document is
qualified in its entirety by reference to the actual document.
We file reports, proxy statements and other information with the
Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the Commissions
Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of these materials can also
be obtained by mail at prescribed rates from the Public
Reference Room of the Commission, 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Commission
at
1-800-SEC-0330.
The Commission maintains an internet site that contains reports,
proxy and information statements and other information regarding
us and other issuers that file electronically with the
Commission. The address of the Commission internet site is
www.sec.gov. This information is also available on our
website at www.avatarholdings.com. Information contained
on these websites is not incorporated by reference into and does
not constitute a part of this prospectus supplement.
Reports, proxy statements and other information regarding us may
also be inspected at:
The National
Association of Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
We filed a registration statement on
Form S-3
(Reg.
No. 333-161498)
under the Securities Act of 1933, as amended (the
Securities Act), with the Commission with respect to
the securities to be sold hereunder. The accompanying prospectus
has been filed as part of that registration statement. The
registration statement is available for inspection and copying
as set forth above.
S-iii
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the
documents incorporated by reference into these documents contain
forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of
the Exchange Act. We use words such as anticipates,
believes, plans, expects,
future, intends, will,
foresee and similar expressions to identify these
forward-looking statements. In addition, from time to time we or
our representatives have made or may make forward-looking
statements orally or in writing. Furthermore, such
forward-looking
statements may be included in various filings that we make with
the Commission, or press releases or oral statements made by or
with the approval of one of our authorized executive officers.
These forward-looking statements are subject to certain known
and unknown risks and uncertainties, as well as assumptions that
could cause actual results to differ materially from those
reflected in these forward-looking statements.
Factors that might cause actual results to differ include, but
are not limited to, the stability of certain financial markets;
disruption of the credit markets and reduced availability and
more stringent financing requirements for commercial and
residential mortgages of all types; the number of investor and
speculator resale homes for sale and homes in foreclosure in our
communities and in the geographic areas in which we develop and
sell homes; the increased level of unemployment; the decline in
net worth
and/or of
income of potential buyers; the decline in consumer confidence;
the failure to successfully implement our business strategy
(including our intention to focus primarily on the development
of active adult communities in the future); shifts in
demographic trends affecting demand for active adult and primary
housing; the level of immigration and migration into the areas
in which we conduct real estate activities; our access to
financing; construction defect and home warranty claims; changes
in, or the failure or inability to comply with, government
regulations; the failure to successfully integrate acquisitions
into our business, including our recent JEN transaction as
described below under Prospectus Summary
Recent Developments, and other factors more fully
described under the caption Risk Factors in this
prospectus supplement and the accompanying prospectus and the
documents incorporated by reference herein or therein. Readers
are cautioned not to place undue reliance on any forward-looking
statements contained herein or therein, which reflect
managements opinions only as of the date thereof.
Except as required by law, we undertake no obligation to revise
or publicly release the results of any revision to any
forward-looking statements. You are advised, however, to consult
any additional disclosures we make in our reports to the
Commission on
Forms 10-K,
10-Q and
8-K. All
subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements
contained in this prospectus supplement.
S-iv
PROSPECTUS
SUMMARY
This summary description of us and our business highlights
selected information about us contained elsewhere in this
prospectus supplement or the accompanying prospectus or the
documents incorporated by reference herein or therein. This
summary may not contain all of the information about us that you
should consider before buying securities in this offering. You
should carefully read this entire prospectus supplement and the
accompanying prospectus, including each of the documents
incorporated herein and therein by reference, before making an
investment decision. As used herein, we,
us and our refer to Avatar Holdings Inc.
and its subsidiaries.
Our
Company
We are engaged in the business of real estate operations in
Florida and Arizona. Our residential community activities have
been adversely affected in both markets, bringing home sales to
low levels. We also engage in other real estate activities, such
as the operation of amenities, the sale for third-party
development of commercial and industrial land and the operation
of a title insurance agency, which activities have also been
adversely affected by economic conditions.
Our primary business strategy is the development of active adult
communities, and we remain opportunistic about the development
of primary residential communities. We believe the demographics
are good for active adult development. Solivita and CantaMia,
our active adult communities in Central Florida and Goodyear,
Arizona, respectively, will initially serve as our flagship
communities as we pursue our active adult business strategy. Our
business remains capital intensive and requires or may require
expenditures for land and infrastructure development, housing
construction, funding of operating deficits and working capital,
as well as potential new acquisitions of real estate and real
estate-related assets. We continue to carefully manage our
inventory levels through monitoring land development and home
starts.
Recent
Developments
JEN Transaction
On October 25, 2010, we acquired from entities affiliated
with JEN Partners LLC (JEN) a portfolio of real
estate assets in Arizona and Florida (the JEN
Transaction), including a 1,781-unit active adult
community, various developed or fully developed lots, completed
houses and houses under construction, a private home developer,
various partially developed single-family and townhome lots, a
multi-family tract and a commercial site. The aggregate purchase
price paid by us in the JEN Transaction was approximately
$65.6 million, comprised of $33.6 million in cash,
$20.0 million in restricted common stock (which resulted in
the issuance of 1,050,572 restricted shares) and
$12.0 million of promissory notes. In addition, we agreed
to pay JEN up to $8.0 million in common stock (up to
420,168 shares), depending upon the achievement of certain
performance metrics related to the active adult community.
Changes in Management and Our Board of Directors
Jon M. Donnell was appointed our President and Chief Executive
Officer, as well as a member of our Board, on November 15,
2010, upon the retirement of Gerald D. Kelfer as President
and Chief Executive Officer. Mr. Kelfer continues as a
member of and Vice Chairman of the Board.
Joseph Carl Mulac, III, was appointed our Executive Vice
President and as President of our wholly-owned subsidiary,
Avatar Properties, Inc on October 25, 2010. Mr. Mulac
was previously the chief executive officer of a private home
builder purchased by us in the JEN Transaction.
Reuben S. Leibowitz and Allen J. Anderson were appointed to our
Board on October 25, 2010. Mr. Leibowitz is the sole
managing member of JEN Partners and is also a limited partner of
S-1
certain affiliates of JEN. Mr. Anderson is employed by an
affiliate of JEN, is a non-managing member of JEN and controls
an entity that is a limited partner of certain affiliates of
JEN.
Our Corporate
Information
We are incorporated under the laws of the State of Delaware. Our
executive headquarters are located at 201 Alhambra Circle, Coral
Gables, Florida 33134. Our telephone number is
(305) 442-7000. Our website is
www.avatarholdings.com. Information contained in our
website is not incorporated by reference into and does not
constitute part of this prospectus supplement or the
accompanying prospectus.
S-2
The
Offering
The summary below describes the principal terms of the Notes.
Certain of the terms and conditions described below are subject
to important limitations and exceptions. The Description
of the Notes section of this prospectus supplement
contains a more detailed description of the terms and conditions
of the Notes.
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Issuer |
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Avatar Holdings Inc. |
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Securities Offered |
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$100 million aggregate principal amount
of % Senior Convertible Notes
due 2016, which we refer to as the Notes. |
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Offering Price |
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Each Note will be issued at a price of 100% of its principal
amount plus accrued interest, if any,
from ,
2011. |
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Maturity |
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February 15, 2016, unless earlier converted, repurchased or
redeemed. |
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Interest Rate |
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% per year. Interest will be
payable semi-annually in arrears in cash on February 15 and
August 15 of each year, beginning on August 15, 2011. |
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Ranking |
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The Notes will be our senior unsecured obligations and will rank
equal in right of payment with all of our existing and future
senior unsecured indebtedness. The Notes will be effectively
subordinated to any secured indebtedness to the extent of the
value of the related collateral and structurally subordinated to
indebtedness and other liabilities of our subsidiaries. |
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As of September 30, 2010, we and our consolidated
subsidiaries had approximately $64.8 million principal
amount of unsecured notes outstanding and approximately
$0.1 million of secured notes outstanding. |
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Conversion Rights |
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You may convert your Notes into shares of our common stock at
any time on or prior to the close of business on the business
day immediately preceding the maturity date. |
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The Notes will be convertible at an initial conversion rate
of shares
of common stock per $1,000 principal amount of the Notes
(equivalent to an initial conversion price of approximately
$ per share). The conversion rate,
and thus the conversion price, may be adjusted under certain
circumstances as described under Description of the
Notes Conversion Rights Conversion Rate
Adjustments. |
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Upon any conversion, subject to certain exceptions, you will not
receive any cash payment |
S-3
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representing accrued and unpaid interest. See Description
of the Notes Conversion Rights. |
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Adjustment to Conversion Rate Upon a Non-Stock Change of
Control |
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If and only to the extent holders elect to convert the Notes in
connection with a transaction described under certain clauses of
the definition of fundamental change as described in
Description of the Notes Repurchase Right of
Holders Upon a Fundamental Change pursuant to which 10% or
more of the consideration for our common stock (other than cash
payments for fractional shares and cash payments made in respect
of dissenters appraisal rights) consists of cash or
securities (or other property) that are not common equity
interests traded or scheduled to be traded immediately following
such transaction on a U.S. national securities exchange, which
we refer to as a non-stock change of control, we
will increase the conversion rate by a number of additional
shares. The number of additional shares will be determined by
reference to the table in Description of the
Notes Conversion Rights Adjustment to
Conversion Rate Upon a Non-Stock Change of Control, based
on the effective date and the price paid per share of our common
stock in such non-stock change of control. |
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If holders of our common stock receive only cash in the type of
transaction described above, the price paid per share will be
the cash amount paid per share. Otherwise, the price paid per
share will be the average of the last reported sale prices of
our common stock on the five trading days prior to but not
including the effective date of such non-stock change of control. |
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Certain Covenants |
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The indenture governing the Notes will, among other things,
contain the following financial covenants, as described under
Description of the Notes Certain Financial
Covenants: |
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until February 15, 2014, we will maintain, at
all times, cash and cash equivalents of not less than
$20 million;
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until the second anniversary of the original
issuance date of the Notes, our total consolidated indebtedness
(as indebtedness, is defined in the Notes) shall not
exceed $150 million at any time excluding, for purposes of
this clause, until April 5, 2011, our outstanding 4.50%
convertible senior notes due 2024; and
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S-4
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until the second anniversary of the original
issuance date of the Notes, our total consolidated indebtedness
(as indebtedness, is defined in the Notes) shall not
exceed $50 million at any time, excluding for purposes of
this clause: (a) the Notes, (b) any indebtedness with
a maturity date
after
, 2014, which indebtedness does not provide the holder with a
unilateral put right prior
to ,
2014 and (c) until April 5, 2011, our outstanding 4.50%
convertible senior notes due 2024.
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Repurchase Right of Holders Upon Breach of Certain Financial
Covenants |
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If we breach any of the financial covenants described in
Description of the Notes Certain Financial
Covenants, you will have the right to require us to
repurchase, at the repurchase price described below, up to 50%
in aggregate principal amount of your Notes, for which you have
properly delivered and not withdrawn a written repurchase notice. |
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The repurchase price will be payable in cash and will equal 110%
of the principal amount of the Notes being repurchased, plus
accrued and unpaid interest (including additional interest, if
any) to, but excluding, the repurchase date. See
Description of the Notes Repurchase Right of
Holders Upon Breach of Certain Financial Covenants. |
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Repurchase Right of Holders on Specified Date |
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On February 15, 2014, you will have the right to require us
to repurchase, at the repurchase price described below, all or
part of your Notes for which you have properly delivered and not
withdrawn a written repurchase notice. |
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The repurchase price will be payable in cash and will equal 100%
of the principal amount of the Notes being repurchased, plus
accrued and unpaid interest (including additional interest, if
any) to, but excluding, the repurchase date. See
Description of the Notes Repurchase Right of
Holders on Specified Date. |
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Repurchase Right of Holders Upon a Fundamental Change |
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If a fundamental change, as described in Description of
the Notes Repurchase Right of Holders Upon a
Fundamental Change occurs at any time prior to the
maturity of the Notes, you will have the right to require us to
repurchase, at the repurchase price described below, all or part
of your Notes for which you have properly delivered and not
withdrawn a written repurchase notice. |
S-5
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The repurchase price will be payable in cash and will equal 100%
of the principal amount of the Notes being repurchased, plus
accrued and unpaid interest (including additional interest, if
any) to, but excluding, the repurchase date. |
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See Description of the Notes Repurchase Right
of Holders Upon a Fundamental Change. |
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Redemption at Our Option |
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We may, at any time on or after February 15, 2014, at our
option, redeem for cash all or any portion of the outstanding
Notes, but only if the last reported sale price of our common
stock for 20 or more trading days in a period of 30 consecutive
trading days ending on the trading day prior to the date we
provide the notice of redemption to holders exceeds 130% of the
conversion price in effect on each such trading day and certain
other conditions described in this prospectus supplement are met. |
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The redemption price will be payable in cash and will equal 100%
of the principal amount of the Notes being repurchased, plus
accrued and unpaid interest (including additional interest, if
any) to, but excluding, the redemption date. See
Description of the Notes Redemption at Our
Option. |
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Events of Default |
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If an event of default on the Notes occurs, the principal amount
of the Notes (or the repurchase price or redemption price, as
applicable), plus accrued and unpaid interest (including
additional interest, if any) may be declared immediately due and
payable, subject to certain conditions set forth in the
indenture. These amounts automatically become due and payable in
the case of certain types of bankruptcy or insolvency events of
default involving Avatar or certain of its subsidiaries. |
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The breach of a financial covenant will not be deemed to
constitute an event of default so long as we satisfy our
obligations to provide timely notice of such breach and
repurchase all Notes we are required to purchase. In the event
we fail to satisfy our obligations, such failure will constitute
an event of default. Following such event of default, 100% of
the aggregate principal amount of the Notes will become due and
payable at the repurchase price of 110% of the principal amount
of the Notes. |
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Absence of Public Market for the Notes |
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The Notes will be a new issuance of securities and 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 |
S-6
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Notes. The underwriter has advised us that it currently intends
to make a market in the Notes. However, it is not obligated to
do so, and may discontinue any market making with respect to the
Notes without notice. We do not intend to apply for a listing of
the Notes on any securities exchange or any automated dealer
quotation system. |
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Nasdaq Symbol for Our Common Stock |
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Our common stock is listed on Nasdaq under the symbol
AVTR. |
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Use of Proceeds |
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We will receive approximately
$ million from this offering
after deducting the underwriters fee and estimated
offering expenditures. We expect to use the net proceeds for
general corporate purposes, including, without limitation, the
repayment of debt (including our 4.50% Convertible Senior Notes
due 2024) and potential new acquisitions of real estate and real
estate-related assets. From time to time, we engage in
preliminary discussions and negotiations with various businesses
in order to explore the possibility of an acquisition or
investment. As of the date of this prospectus supplement, no
acquisitions or investments are probable. See Use of
Proceeds. |
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U.S. Federal Income Tax Considerations |
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For the U.S. federal income tax consequences of the holding,
disposition and conversion of the Notes, and the holding and
disposition of our common stock, see Certain United States
Federal Income Tax Consequences. |
S-7
RISK
FACTORS
An investment in our securities involves a high degree of
risk. You should carefully consider the specific risks described
below, the risks described in the accompanying prospectus and
the risks under the caption Risk Factors in any of
our filings with the Commission pursuant to Sections 13(a),
14 or 15(d) of the Exchange Act, which are incorporated herein
and therein by reference, before making an investment decision.
Each of the risks described could materially adversely affect
our business, financial condition, results of operations and
prospects, and could result in a complete loss of your
investment. For more information, see Where You Can Find
More Information and Incorporation of Certain
Documents By Reference.
Risks Relating to
the Notes and this Offering
Our debt will
increase significantly as a result of this offering. Our
substantial indebtedness could adversely affect our business,
financial condition and results of operations and our ability to
meet our payment obligations under the Notes and our other
debt.
Our debt and debt service obligation will increase significantly
as a result of this offering. As of September 30, 2010, as
adjusted for this offering, we would have had approximately
$164.9 million of outstanding unsecured and secured note
obligations. See the As Adjusted column of the
Capitalization table below. This level of debt could
have significant consequences on our future operations,
including, among others:
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making it more difficult for us to meet our payment and other
obligations under the Notes and our other outstanding debt;
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resulting in an event of default if we fail to comply with the
financial and other restrictive covenants contained in our debt
agreements, which event of default could result in all of our
debt becoming immediately due and payable;
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reducing the availability of our cash flow to fund working
capital, capital expenditures, acquisitions and other general
corporate purposes, and limiting our ability to obtain
additional financing for these purposes;
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subjecting us to the risk of increased sensitivity to interest
rate increases on our indebtedness with variable interest rates;
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limiting our flexibility in planning for, or reacting to, and
increasing our vulnerability to, changes in our business, the
industry in which we operate and the general economy; and
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placing us at a competitive disadvantage compared to our
competitors that have less debt or are less leveraged.
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Any of the above-listed factors could have a material adverse
effect on our business, financial condition and results of
operations and our ability to meet our payment obligations under
the Notes and our other debt.
There are only
limited restrictive covenants in the Notes indenture relating to
our ability to incur future indebtedness or complete other
financial transactions.
The indenture governing the Notes contains only limited
financial restrictions on the incurrence of indebtedness, and no
restrictions relating to the payment of dividends, transactions
with affiliates, incurrence of liens, or the issuance or
repurchase of securities by us or any of our subsidiaries. We
therefore may in some circumstances, incur additional debt,
including secured indebtedness effectively senior to the Notes,
or indebtedness at the subsidiary level to which the Notes would
be structurally subordinated. As part of our business strategy,
we may use proceeds
S-8
from this offering to finance potential acquisitions or develop
communities, which may cause us to incur significant
indebtedness.
A higher level of indebtedness increases the risk that we may
default on our debt obligations. We cannot assure you that we
will be able to generate sufficient cash flow to pay the
interest on our debt or that future working capital, borrowings
or equity financing will be available to pay or refinance such
debt. The indenture contains no covenants or other provisions to
afford protection to holders of the Notes upon the occurrence of
designated events other than a breach of certain covenants
contained in the indenture governing the Notes or a fundamental
change (as described under Repurchase Right of Holders
Upon Breach of Certain Financial Covenants and
Repurchase Rights of Holders Upon a Fundamental
Change).
Provisions of
the Notes could discourage a potential future acquisition of us
by a third party.
Certain provisions of the Notes could make it more difficult or
more expensive for a third party to acquire us. Upon the
occurrence of certain transactions constituting a fundamental
change, holders of the Notes will have the right, at their
option, to require us to repurchase all of their Notes or any
portion of the principal amount of such Notes in integral
multiples of $1,000. We also may be required to issue additional
shares upon conversion or provide for conversion into the
acquirers capital stock in the event of certain
fundamental changes.
We may be
unable to generate sufficient cash flow to satisfy our debt
service obligations.
Our ability to generate cash flow from operations to make
interest payments on the Notes will depend on our future
performance, which will be affected by a range of economic,
competitive, legislative, regulatory and business factors. We
cannot control many of these factors, including general economic
conditions and the condition of the real estate industry. If our
operations do not generate sufficient cash flow from operations
to satisfy our debt service obligations or to fund other
liquidity needs, we may need to borrow additional funds to make
these payments or undertake alternative financing plans, such as
refinancing or restructuring our debt, including the Notes,
selling assets or reducing or delaying capital investments and
acquisitions. Additional funds or alternative financing may not
be available to us on favorable terms, or at all. Our inability
to generate sufficient cash flow from operations or obtain
additional funds or alternative financing on acceptable terms
could cause us to be unable to meet our payment obligations,
which could have a material adverse effect on our business,
financial condition and results of operations.
The indenture
governing the Notes contains financial maintenance and other
covenant restrictions that may limit our ability to operate our
business and creates a risk of default.
The indenture governing the Notes contains financial maintenance
and other covenant restrictions, and any of our other future
debt agreements may contain covenant restrictions, that limit
our ability to operate our business and create a risk of
default. The financial maintenance covenants in the indenture
include financial maintenance covenants relating to our cash
levels and our total consolidated indebtedness, as more fully
described under Description of the Notes below. Our
ability to comply with these covenants and tests is dependent on
our future performance, which will be subject to many factors,
some of which are beyond our control, including prevailing
economic conditions. If we are not able to satisfy these
financial covenants and you tender your Notes for repurchase, we
may not have access to sufficient funds to repurchase your Notes
which may result in an event of default under the terms of the
indenture.
The Notes will
be effectively subordinated to the liabilities of all of our
subsidiaries, which may adversely affect your ability to receive
payments on the Notes.
The Notes are obligations exclusively of Avatar and will not be
guaranteed by any of our subsidiaries. We conduct a significant
portion of our operations through our subsidiaries. Our
subsidiaries are separate and distinct legal entities. Our
subsidiaries have no obligation to pay any
S-9
amounts due on the Notes or, subject to existing or future
contractual obligations between us and our subsidiaries, to
provide us with funds for our payment obligations, whether by
dividends, distributions, loans or other payments. In addition,
any payment of dividends, distributions, loans or advances by
our subsidiaries to us could be subject to statutory or
contractual restrictions and taxes on distributions. Payments to
us by our subsidiaries will also be contingent upon our
subsidiaries earnings and other business considerations.
Our right to receive any assets of any of our subsidiaries upon
liquidation or reorganization, and, as a result, the right of
the holders of the Notes to participate in those assets, will be
effectively subordinated to the claims of that subsidiarys
creditors, including trade creditors. The Notes do not restrict
us or our subsidiaries from incurring indebtedness, including
senior secured indebtedness in the future, subject only to
financial maintenance covenants relating to our cash levels and
our total consolidated indebtedness (which such covenants will
expire as described under Description of the
Notes Certain Financial Covenants).
You will not
receive cash payments of accrued but unpaid interest upon
conversion of your Notes.
Upon conversion of your Notes into shares of common stock, we
will deliver to the holder of Notes the full number of shares of
common stock into which $1,000 principal amount of the Notes is
convertible, together with cash payments for fractional shares,
if any. Our obligation to pay accrued but unpaid interest
attributable to the period from the most recent interest payment
date through the conversion date will be deemed to be satisfied
upon delivery of the shares and any accrued interest payable to
you will be deemed to be paid in full, except as described under
Description of the Notes Conversion
Rights.
We may be
unable to repay the principal amount of the Notes at maturity or
repurchase the Notes for cash when required by the holders
following a breach of certain financial covenants, upon the
occurrence of a fundamental change, or on a specific repurchase
date.
At maturity, the entire outstanding principal amount of the
Notes will become due and payable by us. We cannot assure you
that we will have sufficient funds or will be able to arrange
for necessary financing on acceptable terms to pay the principal
amount due. In that case, our failure to repay the Notes at
maturity would constitute an event of default under the
indenture.
Holders of the Notes also have the right to require us to
repurchase the Notes upon a breach of certain financial
covenants contained in the indenture governing the notes, upon
the occurrence of a fundamental change, or on February 15,
2014. Any of our future debt agreements may contain a similar
provision. We may not have sufficient funds to make the required
repurchase in cash at such time or the ability to arrange
necessary financing on acceptable terms. In addition, our
ability to repurchase the Notes in cash may be limited by law or
the terms of other agreements relating to our debt outstanding
at the time, which will limit our ability to purchase the Notes
for cash in certain circumstances. If we fail to repurchase the
Notes in cash as required by the indenture, it would constitute
an event of default under the indenture governing the Notes,
which, in turn, would constitute an event of default under other
debt.
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 offer to repurchase the Notes. However, the
fundamental change provisions will not afford protection to
holders of the Notes in the event of certain transactions. For
example, transactions such as leveraged recapitalizations,
refinancings, restructurings or acquisitions initiated by us
would 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
S-10
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 the Notes.
The terms of
the Notes only provide limited protection in the event of a
fundamental change.
The requirement that we offer to repurchase the Notes upon a
fundamental change is limited to the transactions specified in
the definition of a fundamental change under
Description of the Notes Repurchase Right of
Holders Upon a Fundamental Change. Similarly, the
circumstances under which we are required to adjust the
conversion rate upon the occurrence of a non-stock change
of control are limited to circumstances where a Note is
converted in connection with such a transaction as set forth
under Description of the Notes Conversion
RightsAdjustment to Conversion Rate Upon a Non-Stock
Change of Control. Accordingly, subject to restrictions
contained in our other debt agreements, we could enter into
certain transactions, such as acquisitions, refinancings or
recapitalizations, that could affect our capital structure and
the value of the Notes and common stock but would not constitute
a fundamental change under the Notes.
We cannot
assure you that our obligation to repurchase, in certain
circumstances, all or a portion of the Notes at a repurchase
price of 110% of the aggregate principal amount will be
judicially enforceable.
The Notes provide that if we breach any of the financial
covenants, you will have the right to require us to repurchase
up to 50% of the aggregate principal amount of the Notes at 110%
of the aggregate principal amount. Any failure by us to
repurchase such Notes will constitute an event of default,
following which 100% of the aggregate principal amount of the
Notes shall become due and payable at the repurchase price of
110% of the principal amount of the Notes. We cannot assure you
that a court would not find that the premium paid by us under
these circumstances was punitive in nature and, therefore, that
such terms were unenforceable.
The adjustment
to the conversion rate upon the occurrence of certain types of
fundamental changes may not adequately compensate you for the
lost option time value of your Notes as a result of such
fundamental change.
If certain types of fundamental changes occur on or prior to the
date when the Notes may be redeemed, we may adjust the
conversion rate of the Notes to increase the number of shares
issuable upon conversion. The number of additional shares to be
added to the conversion rate will be determined based on the
date on which the fundamental change becomes effective and the
price paid per share of our common stock in the fundamental
change as described under Description of the
Notes Conversion Rights Adjustment to
Conversion Price Upon Certain Fundamental Changes.
Although this adjustment is designed to compensate you for the
lost option value of your Notes as a result of certain types of
fundamental changes, the adjustment is only an approximation of
such lost value based upon assumptions made on the date of this
Prospectus Supplement and may not adequately compensate you for
such loss. In addition, if the price paid per share of our
common stock in the fundamental change is less than
$ or more than
$ (subject to adjustment), there
will be no such adjustment.
Because your
right to require us to repurchase the Notes is limited, the
market prices of the Notes may decline if we enter into a
transaction that does not require us to repurchase the Notes
under the indenture.
The circumstances upon which we are required to repurchase the
Notes are limited and may not include every event that might
cause the market prices of the Notes to decline or result in a
downgrade of the credit rating of the Notes, if any. As a
result, our obligations to repurchase the Notes in certain
circumstances may not preserve the value of the Notes in the
event of a highly leveraged transaction, reorganization, merger
or similar transaction.
S-11
There is no
established trading market for the Notes, which could materially
and adversely affect the liquidity and value of your
Notes.
The Notes are a new issue of securities, and there is no
existing market for the Notes. We do not intend to apply for
listing of the Notes on any securities exchange or for quotation
of the Notes on any automated dealer quotation system. We have
been advised by the underwriter that following the completion of
the offering, it currently intends to make a market in the
Notes. However, it is not obligated to do so and any
market-making activities with respect to the Notes may be
discontinued at any time without notice. In addition, any
market-making activity will be subject to limits imposed by law.
A market may not develop for the Notes, and there can be no
assurance as to the liquidity of any market that may develop for
the Notes. If an active, liquid market does not develop for the
Notes, the market price and liquidity of the Notes may be
adversely affected. If any of the Notes are traded after their
initial issuance, they may trade at a discount from their
initial offering price.
The liquidity of the trading market, if any, and future trading
prices of the Notes will depend on many factors, including,
among other things, the market price of our common stock,
prevailing interest rates, our operating results, financial
performance and prospects, the market for similar securities and
the overall securities market, and may be adversely affected by
unfavorable changes in these factors. 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
operating results, financial performance or prospects.
Any adverse
rating of the Notes may cause their trading price to
fall.
We do not intend to seek a rating on the Notes. However, if a
rating service were to rate the Notes and if such rating service
were to withdraw its rating or lower its rating on the Notes
below the rating initially assigned to the Notes or otherwise
announces its intention to put the Notes on credit watch, the
trading price of the Notes could decline.
Developments
in the convertible debt markets may adversely affect the market
value of the Notes.
During the last several years, the convertible debt markets have
experienced unprecedented disruptions resulting from, among
other things, the recent instability in the credit and capital
markets and the emergency orders issued by the SEC on September
17 and 18, 2008 (and extended on October 1, 2008). These
orders were issued as a stop-gap measure while Congress worked
to provide a comprehensive legislative plan to stabilize the
credit and capital markets. Among other things, these orders
temporarily imposed a prohibition on effecting short sales of
the common stock of certain financial companies. As a result,
the SEC orders made the convertible arbitrage strategy that many
convertible notes investors employ difficult to execute for
outstanding convertible notes of those companies whose common
stock was subject to the short sale prohibition. The SEC orders
expired on October 8, 2008. However, any future
governmental actions that impose limitations on short sales of
common stock of issuers, including consideration by the SEC to
reinstate the up-tick rule, could significantly
affect the market value of convertible securities linked to
those common stocks.
The price of
our common stock, and therefore of the Notes, may fluctuate
significantly, which may make it difficult for you to resell the
Notes or common stock issuable upon conversion of the Notes when
you want or at prices you find attractive.
The price of our common stock on The Nasdaq Stock Market
constantly changes. We expect that the market price of our
common stock will continue to fluctuate. In addition, because
the Notes are convertible into our common stock, volatility or
depressed prices for our common stock could have a similar
effect on the trading price of the Notes.
S-12
Our stock price may fluctuate as a result of a variety of
factors, many of which are beyond our control. These factors
include:
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quarterly variations in our operating results;
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operating results that vary from the expectations of management,
securities analysts and investors;
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changes in expectations as to our future financial performance;
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announcements of innovations, new products, strategic
developments, significant contracts, acquisitions and other
material events by us or our competitors;
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the operating and securities price performance of other
companies that investors believe are comparable to us;
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future sales of our equity or equity-related securities;
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changes in general conditions in our industry and in the economy
and the financial markets; and
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departures of key personnel.
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In addition, in recent years, the stock market in general has
experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market price of
securities issued by many companies for reasons often unrelated
to their operating performance. These broad market fluctuations
may materially and adversely affect our stock price, regardless
of our operating results.
Future sales
of our common stock in the public market or the issuance of
securities senior to our common stock could materially and
adversely affect the trading price of our common stock, the
value of the Notes and our ability to raise funds in new
offerings.
In the future, we may sell additional shares of our common stock
to raise capital or in connection with acquisitions, such as the
JEN Transaction described above under Prospectus
Summary Recent Developments. Sales of
substantial amounts of additional shares of our common stock,
including shares of our common stock underlying the Notes and
shares issuable upon exercise of outstanding options, restricted
stock units, and stock units, as well as sales of shares that
may be issued in connection with future acquisitions or for
other purposes, including to finance our operations and business
strategy or to adjust our ratio of debt to equity, or the
perception that such sales could occur, may have a harmful
effect on prevailing market prices for our common stock and our
ability to raise additional capital in the financial markets at
a time and price favorable to us. The price of our common stock
could also be affected by possible sales of our common stock by
investors who view the Notes being offered in this offering as a
more attractive means of equity participation in our company and
by hedging or arbitrage trading activity that we expect will
develop involving our common stock.
Future sales
of common stock by our existing stockholders may cause our stock
price to decline significantly.
The market price of our common stock could decline as a result
of sales by our existing and future stockholders, including the
holders of the Notes and our 4.50% Convertible Senior Notes
due 2024 (our 4.50% Notes), or the perception
that these sales could occur. These sales might also make it
more difficult for us to sell equity securities at a time and
price that we deem appropriate.
Our share
price could decline if a large number of shares of our common
stock or equity-related securities become eligible for future
sale.
Sales of a substantial number of shares of our common stock or
other equity-related securities, as well as issuances of shares
of common stock upon conversion of the Notes as well as our
4.50% Notes, could depress the market price of our common
stock and impair our ability to raise
S-13
capital through the sale of additional equity securities. Any
such future sales or issuances could dilute the ownership
interests of stockholders, and we cannot predict the effect that
future sales or issuances of our common stock or other
equity-related securities would have on the market price of our
common stock nor can we predict our future needs to fund our
operations or balance sheet with future equity issuances.
The
significant number of shares of our common stock issuable upon
conversion of the Notes and our existing convertible securities
could adversely affect the trading prices of our common stock
and, as a result, the value of the Notes.
The Notes being offered hereby will be convertible into
approximately shares
subject to adjustment. In addition, upon certain types of
fundamental change, we may be required to deliver significantly
more shares of our common stock upon conversion of the Notes.
Conversion of our outstanding convertible securities
and/or the
Notes and the sale in the market of stock issued upon conversion
or the perception that those other securities and notes will be
converted could depress the market price of our common stock
and, as a result, the value of the Notes. In addition, the price
of our common stock could be adversely affected by possible
sales, including short sales, of our common stock by investors
in our notes and other securities who engage in hedging and
arbitrage activities.
Holders of the
Notes are not entitled to any rights with respect to our common
stock, but are subject to all changes made with respect to our
common stock.
If you hold Notes, you are not entitled to any rights with
respect to our common stock (including, without limitation,
voting rights and rights to receive any dividends or other
distributions on our common stock), but you are subject to all
changes to our common stock that might be adopted by the holders
of our common stock to curtail or eliminate any of the powers,
preferences or special rights of our common stock, or impose new
restrictions or qualifications upon our common stock. You will
only be entitled to rights with respect to the common stock as
of the conversion date for any converted Notes. For example, in
the event that an amendment is proposed to our certificate of
incorporation or bylaws requiring shareholder approval and the
record date for determining the shareholders of record entitled
to vote on the amendment occurs prior to the conversion date for
any converted Notes, you will not be entitled to vote on the
amendment, though you will nevertheless be subject to any
changes in the powers, preferences or special rights of our
common stock.
The conversion
rate of the Notes will not be adjusted for all potentially
dilutive events that may adversely affect the trading price of
the Notes or the common stock issuable upon conversion of the
Notes.
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 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 the Notes Conversion Rights
Conversion Rate Adjustments. 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. Additionally, except in certain cases, the conversion
rate may not be increased above a specified maximum. There can
be no assurance that an event that adversely affects the value
of the Notes, but does not result in an adjustment to the
conversion rate, will not occur.
Because we
have broad discretion in how we use the proceeds from this
offering, we may use the proceeds in ways in which you
disagree.
We intend to use the net proceeds for general corporate
purposes, including, without limitation, the repayment of debt
(including our 4.50% Notes) and potential new acquisitions of
real estate and real estate-related assets. See Use of
Proceeds. Accordingly, our management will have
significant flexibility in applying the net proceeds of this
offering. You will be relying on the judgment of
S-14
our management with regard to the use of these net proceeds, and
you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used
appropriately. Furthermore, it is possible that the net proceeds
of this offering will be invested in a way that does not yield a
favorable, or any, return for our company. The failure of our
management to use such funds effectively could have a material
adverse effect on our business, financial condition, operating
results, cash flow and the value of your Notes.
Notes could be
treated as contingent payment debt instruments.
A U.S. holder would be required to accrue interest income
on a constant yield basis at an assumed yield in excess of the
stated interest rate on the Notes, with adjustments to such
accruals when any contingent payments are made that differ from
the payments calculated based on the assumed yield, regardless
of the holders method of tax accounting, and gains on
disposition of the Notes could be subject to ordinary income
treatment if the IRS successfully challenges certain positions
we are taking. See Certain United States Federal Income
Tax Consequences U.S. Holders
Premium in connection with repurchases triggered by breach of
certain financial covenants.
You may be
subject to tax if we make or fail to make certain adjustments to
the conversion rate of the Notes, even though you do not receive
a corresponding cash distribution.
The conversion rate of the Notes is subject to adjustment in
certain circumstances, including the payment of cash dividends.
If the conversion rate is adjusted as a result of a distribution
that is taxable to our common shareholders, such as a cash
dividend, you may be deemed to have received a dividend subject
to U.S. federal income tax without the receipt of any cash.
In addition, a failure to adjust (or to adjust adequately) the
conversion rate after an event that increases your proportionate
interest in us could be treated as a deemed taxable dividend to
you. If a designated event occurs prior to the maturity date of
the Notes, under some circumstances, we will increase the
conversion rate for Notes converted in connection with the
designated event. Such increase may also be treated as a
distribution subject to U.S. federal income tax as a
dividend. If you are a
non-U.S. holder
(as defined in Certain United States Federal Income Tax
Consequences), any deemed dividend would be subject to
U.S. federal withholding tax at a 30% rate, or such lower
rate as may be specified by an applicable treaty. Any
withholding tax on such a deemed dividend may be withheld from
interest, shares of common stock or sales proceeds subsequently
paid or credited to you.
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RATIO OF EARNINGS
TO FIXED CHARGES
The following table contains our consolidated ratio of earnings
to fixed charges for the periods indicated. You should read
these ratios in connection with our consolidated financial
statements, including the notes to those statements,
incorporated by reference in this prospectus supplement.
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For the
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Nine
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Months
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Ended
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September 30,
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For the Year Ended December 31,
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2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Ratio of earnings to fixed charges
|
|
|
N/A
|
(1)
|
|
|
N/A
|
(1)
|
|
|
N/A
|
(1)
|
|
|
3.6
|
|
|
|
23.3
|
|
|
|
6.0
|
|
(1) Our
earnings were insufficient to cover fixed charges by
$25.7 million, $59.7 million, and $135.1 million
for the nine months ended September 30, 2010, and for the
fiscal years ended December 31, 2009 and December 31,
2008, respectively.
USE OF
PROCEEDS
We will receive approximately
$ million from this offering
after deducting the underwriters fee and estimated
offering expenditures. We expect to use the net proceeds for
general corporate purposes, including, without limitation, the
repayment of debt (including our 4.50% Notes) and potential new
acquisitions of real estate and real estate-related assets. From
time to time, we engage in preliminary discussions and
negotiations with various businesses in order to explore the
possibility of an acquisition or investment. As of the date of
this prospectus supplement, no acquisitions or investments are
probable.
As of January 28, 2011, there was approximately $64.8
principal amount outstanding of our 4.50% Notes. We may, at
our option, redeem for cash all or a portion of our
4.50% Notes at any time on or after April 5, 2011.
Holders may require us to repurchase our 4.50% Notes for
cash on April 1, 2011, April 1, 2014 and April 1,
2019.
S-16
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 2010 (1) on an actual basis and
(2) as adjusted to give effect to this offering, after
deducting the underwriters fees and our estimated offering
expenditures. You should read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Quarterly
Report on
Form 10-Q
and our unaudited financial statements and related notes for the
nine month period ended September 30, 2010 included therein.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Historical
|
|
|
|
|
|
|
(unaudited)
|
|
|
As Adjusted
|
|
|
|
(In thousands, except par value and share information)
|
|
|
Cash and cash equivalents
|
|
$
|
148,149
|
(1)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Notes, mortgage notes and other debt:
|
|
|
|
|
|
|
|
|
4.50% Senior Convertible Notes
(2)
|
|
|
64,087
|
|
|
|
64,087
|
|
% Senior Convertible
Notes (3)
|
|
|
-
|
|
|
|
100,000
|
|
Real estate, other
|
|
|
111
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
Total
Debt(4)
|
|
$
|
64,198
|
|
|
$
|
164,198
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common Stock, par value $1 per share
|
|
|
|
|
|
|
|
|
Authorized: 50,000,000 shares
|
|
|
|
|
|
|
|
|
Issued: 14,019,792 shares at September 30,
2010 (5)
|
|
|
14,020
|
|
|
|
14,020
|
|
Additional paid-in capital
|
|
|
286,852
|
|
|
|
286,852
|
|
Retained earnings
|
|
|
197,530
|
|
|
|
197,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498,402
|
|
|
|
498,402
|
|
|
|
|
|
|
|
|
|
|
Treasury stock: at cost, 2,658,461 shares at
September 30, 2010
|
|
|
(78,937
|
)
|
|
|
(78,937
|
)
|
|
|
|
|
|
|
|
|
|
Total Avatar stockholders equity
|
|
|
419,465
|
|
|
|
419,465
|
|
Non-controlling interest
|
|
|
601
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
420,066
|
|
|
|
420,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$
|
484,264
|
|
|
$
|
584,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cash and cash equivalents at
September 30, 2010 does not reflect $33.6 million in
cash paid in the JEN Transaction on October 25, 2010, as
described in our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2010.
|
|
(2) |
|
In accordance with the adoption of
FASB Staff Position (FSP)
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlement) (FSP 14-1) we were required to separately
account for the liability (debt) and equity (conversion option)
components. As of September 30, 2010, the principal amount
outstanding is $64,804.
|
|
(3) |
|
Excludes reduction for equity
(conversion option) component which will be classified as equity
in accordance with FSP 14-1.
|
|
(4) |
|
Total debt at September 30,
2010 does not include $12.0 million in notes incurred in
connection with the JEN Transaction on October 25, 2010, as
described in our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2010.
|
|
|
|
(5) |
|
Excludes
(i) 110,000 shares of common stock issuable under
outstanding stock options at September 30, 2010,
(ii) 15,335 shares issuable under restricted stock
unit awards, and (iii) 16,751 stock units, which were
outstanding at September 30, 2010. Also excludes
(i) 1,050,572 shares of restricted stock issued in
connection with the JEN Transaction, as described in our
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2010, (ii) up to 420,168 shares of
common stock that may be issued to JEN in the future, and
(iii) an aggregate of 490,000 shares of restricted
common stock issued to Messrs. Donnell and Mulac upon their
appointments in November and October, respectively, as described
above under Prospectus Summary Recent
Developments. An additional 494,930 shares of common
stock are reserved for issuance under our equity compensation
plans as of September 30, 2010 (which were subsequently
reduced by the 490,000 restricted shares issued in connection
with the appointments of Messrs. Donnell and Mulac).
|
S-17
DESCRIPTION OF
THE NOTES
This description of the terms of the Notes adds information to
the description of the general terms and provisions of the debt
securities in the accompanying prospectus. If this description
differs in any way from the description in the accompanying
prospectus, you should rely on the description in this
prospectus supplement. This description is only a summary of
certain terms of the indenture and supplemental indenture
referred to below, and does not purport to be complete. Those
documents, and not the descriptions, will define the rights of
the holders of the Notes. Whenever particular defined terms of
the indenture and supplemental indenture are referred to herein,
such defined terms are incorporated by reference herein.
The Notes will constitute a separate series of debt securities
to be issued under a supplemental indenture (the
supplemental indenture) between Avatar Holdings
Inc., as issuer, and Wilmington Trust FSB, as trustee, and
the original indenture between the issuer and the trustee dated
as
of ,
2011 (the base indenture and together with the
supplemental indenture, the indenture). The terms of
the Notes include those provided in the indenture.
The following description is only a summary of the material
provisions of the Notes and the indenture. We urge you to read
the indenture in its entirety because it, and not this
description, define your rights as a holder of the Notes. You
may request copies of the indenture as set forth under the
caption Where You Can Find More Information.
When we refer to Avatar Holdings Inc.,
Avatar, we, our or
us in this section, we refer only to Avatar Holdings
Inc. and not its subsidiaries.
Brief Description
of the Notes
The Notes will:
|
|
|
|
|
be limited to $100.0 million aggregate principal amount;
|
|
|
|
bear interest at a rate of % per
year, payable semi-annually in arrears, on February 15 and
August 15 of each year, commencing on August 15, 2011;
|
|
|
|
be general unsecured obligations, ranking equally with all of
our other unsecured senior indebtedness and senior in right of
payment to any subordinated indebtedness;
|
|
|
|
include certain financial covenants relating to our cash levels
and our total consolidated indebtedness, which covenants expire
on the second anniversary of the original issuance date of the
Notes (or, in the case of the cash level covenant, on
February 15, 2014);
|
|
|
|
be convertible by you at any time on or prior to 5:00 p.m.,
New York City time, on the business day immediately preceding
the maturity date, into shares of our common stock initially at
a conversion rate
of shares
of our common stock per $1,000 principal amount of Notes, which
represents an initial conversion price of approximately
$ per share. In the event of
certain types of fundamental changes, we will increase the
conversion rate as described herein;
|
|
|
|
be subject to repurchase by us at your option if a fundamental
change occurs, at a cash repurchase price equal to 100% of the
principal amount of the Notes, plus accrued and unpaid interest
(including additional interest, if any) to, but not including,
the repurchase date, as set forth under Repurchase
Right of Holder Upon a Fundamental Change; and
|
|
|
|
be subject, up to 50% in aggregate principal amount of such
Notes, to repurchase by us at your option if we breach certain
financial covenants, at a cash repurchase price equal to 110% of
the principal amount of the Notes, plus accrued and unpaid
interest (including additional interest, if any) to, but not
including, the repurchase date, as set forth under
Repurchase Right of Holder Upon Breach of
Certain Financial Covenants;
|
S-18
|
|
|
|
|
be subject to repurchase by us at your option on
February 15, 2014, at a cash repurchase price equal to 100%
of the principal amount of the Notes, plus accrued and unpaid
interest (including additional interest, if any) to, but not
including, the repurchase date, as set forth under
Repurchase Right of Holder on Specified
Date;
|
|
|
|
be redeemable at our option at any time on or after
February 15, 2014, subject to certain conditions; and
|
|
|
|
be due on February 15, 2016, unless earlier converted or
repurchased by us at your option.
|
The indenture governing the Notes does not contain any financial
or operating covenants or restrictions on the payment of
dividends, the incurrence of indebtedness, transactions with
affiliates, incurrence of liens, the issuance or repurchase of
securities by us or any of our subsidiaries and other
restrictive covenants that would protect you from transactions
and actions that may adversely affect you, other than financial
maintenance covenants relating to our cash levels and our total
consolidated indebtedness, which covenants expire on the second
anniversary of the original issuance date of the Notes (or, in
the case of the cash level covenant, on February 15, 2014).
You are not afforded protection under the indenture in the event
of a change in control of us, except to the extent described
below under Conversion Rights and
Repurchase Right of Holders Upon a Fundamental
Change. The indenture contains only limited financial
covenants applicable to our ability to incur debt, see
Certain Financial Covenants.
No sinking fund is provided for the Notes, and the Notes will
not be subject to defeasance.
The Notes initially will be issued in book-entry form only in
denominations of $1,000 principal amount and whole multiples
thereof. Beneficial interests in the Notes will be shown on, and
transfers of beneficial interests in the Notes will be effected
only through, records maintained by The Depository
Trust Company, or DTC, or its nominee, and any such
interests may not be exchanged for certificated Notes except in
limited circumstances. For information regarding conversion,
registration of transfer and exchange of global Notes held in
DTC, see Form, Denomination and
Registration Global Notes, Book-Entry Form.
If certificated Notes are issued, you may present them for
conversion, registration of transfer and exchange, without
service charge, at our office or agency
in ,
which will initially be the office or agency of the trustee
in .
Additional
Notes
We may, without the consent of the holders of the Notes,
increase the principal amount of the Notes by issuing additional
Notes in the future on the same terms and conditions, except for
any differences in the issue price and interest accrued prior to
the issue date of the additional Notes; provided that such
differences do not cause the additional Notes to constitute a
different class of securities than the Notes for U.S. federal
income tax purposes; and provided further, that the additional
Notes have the same CUSIP number as the Notes offered hereby.
The Notes offered by this Prospectus Supplement and any
additional Notes would rank equally and ratably and would be
treated as a single class for all purposes under the indenture.
No additional Notes may be issued if any event of default has
occurred with respect to the Notes and is continuing.
Payment at
Maturity
On the maturity date, each holder will be entitled to receive on
such date $1,000 in cash for each $1,000 in principal amount of
Notes, together with accrued and unpaid interest (including
additional interest, if any) to, but not including, the maturity
date. With respect to global Notes, principal, premium, if any,
and interest (including additional interest, if any) will be
paid to DTC in immediately available funds. With respect to any
certificated Notes, principal and interest (including
S-19
additional interest, if any) will be payable at our office or
agency
in ,
which initially will be the office or agency of the trustee
in .
Interest
The Notes will bear interest at a rate
of % per year. Interest will accrue
from the date of original issuance of the Notes or from the most
recent date to which interest has been paid or duly provided
for. We will pay interest (including additional interest, if
any) semi-annually, in arrears on February 15 and
August 15 of each year, commencing on August 15, 2011,
to holders of record at 5:00 p.m., New York City time, on
the preceding February 1 and August 1, respectively.
However, there are two exceptions to the preceding sentence:
|
|
|
|
|
we will not pay in cash accrued and unpaid interest (excluding
any additional interest) on any Notes when they are converted,
except as described under Conversion
Rights; and
|
|
|
|
we will pay accrued and unpaid interest (including additional
interest, if any) to a person other than the holder of record on
the record date immediately prior to the maturity date on the
maturity date. On such date, we will pay accrued and unpaid
interest to the person to whom we pay the principal amount.
|
We will pay interest on:
|
|
|
|
|
global Notes to DTC in immediately available funds;
|
|
|
|
any certificated Notes having a principal amount of less than
$2,000,000, by check mailed to the holders of those Notes;
provided, however, at maturity, interest will be payable as
described under Payment at Maturity; and
|
|
|
|
any certificated Notes having a principal amount of $2,000,000
or more, by wire transfer in immediately available funds at the
election of the holders of these Notes duly delivered to the
trustee at least five business days prior to the relevant
interest payment date; provided, however, at maturity, interest
will be payable as described under Payment at
Maturity.
|
Interest will be calculated on the basis of a
360-day year
consisting of twelve
30-day
months. If a payment date is not a business day, payment will be
made on the next succeeding business day, and no additional
interest will accrue thereon.
To the extent lawful, payments of principal or interest
(including additional interest, if any) on the Notes that are
not made when due will accrue interest at the annual rate of 1%
above the then applicable interest rate from the required
payment date.
Conversion
Rights
Holders may convert their Notes at any time prior to
5:00 p.m., New York City time, on the business day
preceding the maturity date at an initial conversion rate
of shares
of common stock per $1,000 principal amount of the Notes
(equivalent to an initial conversion price of approximately
$ per share). The conversion rate
will be subject to adjustment as described below. Unless we have
previously repurchased or redeemed the Notes, you will have the
right to convert any portion of the principal amount of any
Notes that is an integral multiple of $1,000 at any time on or
prior to the close of business on the business day immediately
preceding the maturity date.
Except as provided in the next paragraph, upon conversion, you
will not receive any separate cash payment of accrued and unpaid
interest (excluding any additional interest) on the Notes.
Accrued and unpaid interest (excluding any additional interest)
and accrued tax original issue discount, if any, to the
conversion date is deemed to be paid in full with the shares of
our common stock issued (or cash paid on account of fractional
shares) upon conversion rather than cancelled, extinguished or
forfeited.
S-20
If you convert your Notes after the record date for an interest
payment but prior to the corresponding interest payments date,
you will receive on the corresponding interest payment date the
interest (including additional interest, if any) accrued and
unpaid on your Notes, notwithstanding your conversion of those
Notes prior to the interest payment date, assuming you were the
holder of record on the corresponding record date. However,
except as provided in the next sentence, at the time you
surrender your Notes for conversion, you must pay us an amount
equal to the interest (excluding any additional interest) that
has accrued and will be paid on the Notes being converted on the
corresponding interest payment date. You are not required to
make such payment:
|
|
|
|
|
if you convert your Notes following the regular record date
immediately preceding the maturity date;
|
|
|
|
if you convert your Notes in connection with a fundamental
change and we have specified a fundamental change repurchase
date that is after a record date and on or prior to the
corresponding interest payment date;
|
|
|
|
on any Notes called for redemption, if we have specified a
redemption date that is after a record date and on or prior to
the corresponding interest payment date; or
|
|
|
|
to the extent of any overdue interest (including overdue
additional interest, if any), if overdue interest (or overdue
additional interest) exists at the time of conversion with
respect to your Notes.
|
Except as described under Conversion Rate
Adjustments, we will not make any payment or other
adjustment for dividends on any common stock issued upon
conversion of the Notes.
Conversion
Upon Notice of Redemption
If we call any of the Notes for redemption, holders may convert
such Notes called for redemption at any time prior to the close
of business on the business day immediately preceding the
redemption date.
Conversion
Procedures
If you hold a beneficial interest in a global Note, to convert
you must deliver to DTC the appropriate instruction form for
conversion pursuant to DTCs conversion program and, if
required, pay funds equal to interest (excluding any additional
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:
|
|
|
|
|
complete and manually sign the conversion notice on the back of
the Notes or a facsimile of the conversion notice;
|
|
|
|
deliver the completed conversion notice and the Notes to be
converted to the conversion agent;
|
|
|
|
if required, furnish appropriate endorsements and transfer
documents;
|
|
|
|
if required, pay funds equal to interest (but excluding any
additional interest) payable on the next interest payment date
to which you are not entitled; and
|
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|
|
if required, pay all transfer or similar taxes, if any.
|
The conversion date will be the date on which you have satisfied
all of the foregoing requirements. The Notes will be deemed to
have been converted immediately prior to 5:00 p.m., New
York City time, on the conversion date.
You will not be required to pay any taxes or duties relating to
the issuance or delivery of our common stock if you exercise
your conversion rights, but you will be required to pay any tax
or duty
S-21
that may be payable relating to any transfer involved in the
issuance or delivery of the common stock in a name other than
your own. Certificates representing common stock will be issued
and delivered only after all applicable taxes and duties, if
any, payable by you have been paid in full.
We will not issue fractional shares of our common stock upon
conversion of the Notes. Instead, we will pay cash in lieu of
fractional shares based on the closing sale price of our common
stock on the trading day immediately preceding the conversion
date.
Conversion
Rate Adjustments
We will adjust the conversion rate for the following events:
(1) If we issue shares of our common stock as a dividend or
distribution on shares of our common stock, or if we effect a
share split or share combination, the conversion rate will be
adjusted based on the following formula:
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|
|
|
|
where,
|
CR1
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the record date for such dividend or distribution or
the effective date of such share split or combination, as the
case may be;
|
CR0
|
|
=
|
|
the conversion rate in effect at 5:00 p.m., New York City
time, on the trading day immediately preceding the record date
for such dividend or distribution or the effective date of such
share split or combination, as the case may be;
|
OS0
|
|
=
|
|
the number of shares of our common stock outstanding at
5:00 p.m., New York City time, on the trading day
immediately preceding the record date for such dividend or
distribution or the effective date of such share split or
combination;
|
OS1
|
|
=
|
|
the number of shares of our common stock that would be
outstanding immediately after such dividend, distribution, share
split or combination, as the case may be.
|
If any dividend or distribution described in this clause
(1) is declared but not so paid or made, the adjusted
conversion rate shall be readjusted to the conversion rate that
would then be in effect if such dividend or distribution had not
been declared.
(2) If we distribute to all or substantially all holders of
our common stock any rights, warrants or convertible securities
(other than rights issued pursuant to a shareholders right
plan) entitling them for a period of not more than 45 days
from the issuance date for such distribution 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
trading day immediately preceding the declaration date of such
distribution, 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, warrants or
convertible securities are not exercised or converted prior to
their expiration:
|
|
|
|
|
|
|
|
|
|
|
CR1
|
|
=
|
|
CR0
|
|
×
|
|
OS0
+ X
OS0
+ Y
|
|
|
S-22
|
|
|
|
|
where,
|
CR1
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the record date for such distribution;
|
CR0
|
|
=
|
|
the conversion rate in effect at 5:00 p.m., New York City
time, on the trading day immediately preceding the record date
for such distribution;
|
OS0
|
|
=
|
|
the number of shares of our common stock outstanding at
5:00 p.m., New York City time, on the trading day
immediately preceding the record date for such distribution;
|
X
|
|
=
|
|
the total number of shares of our common stock issuable pursuant
to such rights; and
|
Y
|
|
=
|
|
the number of shares of our common stock equal to the aggregate
price payable to exercise such rights, warrants or convertible
securities, divided by the average of the last reported
sale prices of our common stock over the 10 consecutive trading
day period ending on the trading day immediately preceding the
record date for such distribution.
|
(3) If we distribute shares of our capital stock, evidences
of our indebtedness or other of our assets or property to all or
substantially all holders of our common stock, excluding:
|
|
|
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|
dividends or distributions as to which adjustment is required to
be effected in clause (1) or (2) above;
|
|
|
|
dividends or distributions paid exclusively in cash; and
|
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|
spin-offs described below in the second paragraph of this clause
(3),
|
then the conversion rate will be adjusted based on the following
formula:
|
|
|
|
|
|
|
|
|
|
|
CR1
|
|
=
|
|
CR0
|
|
×
|
|
SP0
SP0
FMV
|
|
|
|
|
|
|
|
where,
|
CR1
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the record date for such distribution;
|
CR0
|
|
=
|
|
the conversion rate in effect at 5:00 p.m., New York City
time, on the trading day immediately preceding the record date
for such distribution;
|
SP0
|
|
=
|
|
the average of the last reported sale prices of our common stock
over the 10 consecutive trading day period ending on the trading
day immediately preceding the record date for such distribution;
and
|
FMV
|
|
=
|
|
the fair market value (as determined by our board of directors
or a committee thereof) of the shares of capital stock,
evidences of indebtedness, assets or property distributed with
respect to each outstanding share of our common stock as of the
open of business on the record date for such distribution.
|
With respect to an adjustment pursuant to this clause
(3) where there has been a payment of a dividend or other
distribution on our common stock in shares of capital stock of
any class or series, or similar equity interest, of or relating
to a subsidiary or other business unit of ours that are listed
on a national or regional securities exchange, which is referred
to in this Prospectus Supplement as a spin-off, the
conversion rate will be increased based on the following formula:
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|
|
|
|
|
|
|
|
|
|
CR1
|
|
=
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CR0
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×
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FMV +
MP0
MP0
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S-23
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where,
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CR1
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=
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the conversion rate in effect immediately prior to the open of
business on the record date for the spin-off;
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CR0
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=
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the conversion rate in effect at 5:00 p.m., New York City
time, on the trading day immediately preceding the record date
for the spin-off;
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FMV
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=
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the average of the last reported sale prices of the capital
stock or similar equity interest distributed to holders of our
common stock applicable to one share of our common stock over
the first 10 consecutive trading day period immediately
following, and including, the third trading day after the record
date for such spin-off (such period, the valuation
period); and
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MP0
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=
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the average of the last reported sale prices of our common stock
over the valuation period.
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The adjustment of the conversion rate under the preceding
paragraph will occur on the tenth trading day from, and
including, the third trading day after the record date for such
spin-off; provided that in respect of any conversion within the
ten trading days following the commencement of the valuation
period, references within this clause (3) to ten days shall
be deemed replaced with such lesser number of trading days as
have elapsed during such valuation period in determining the
applicable conversion rate.
If any such dividend or distribution described in this clause
(3) is declared but not paid or made, the adjusted
conversion rate shall be readjusted to be the conversion rate
that would then be in effect if such dividend or distribution
had not been declared.
(4) If we pay any cash dividends or distributions to all or
substantially all holders of our common stock (other than
dividends or distributions made in connection with our
liquidation, dissolution or
winding-up
or upon a merger, consolidation or sale, lease, transfer,
conveyance or other disposition resulting in a change in the
conversion consideration as described under Change
in the Conversion Rights upon Certain Reclassifications,
Business Combinations, Asset Sales and Corporate Events),
the conversion rate will be adjusted based on the following
formula:
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where,
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CR1
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=
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the conversion rate in effect immediately prior to the open of
business on the record date for such dividend or distribution;
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CR0
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=
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the conversion rate in effect at 5:00 p.m., New York City
time, on the trading day immediately preceding the record date
for such distribution;
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SP0
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=
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the average of the last reported sale prices of our common stock
over the 10 consecutive trading day period ending on the trading
day immediately preceding the record date for such distribution;
and
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C
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=
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the amount in cash per share we distribute to holders of our
common stock.
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If any dividend or distribution described in this clause
(4) is declared but not so paid or made, the new conversion
rate shall be readjusted to the conversion rate that would then
be in effect if such dividend or distribution had not been
declared.
(5) If we or any of our subsidiaries makes a payment in
respect of a tender offer or exchange offer for our common
stock, to the extent that the cash and value of any other
consideration included in the payment per share of our 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
S-24
pursuant to such tender or exchange offer, the conversion rate
will be increased based on the following formula:
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CR1
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=
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CR0
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×
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AC + (
SP1
×
OS1
)
OS0
×
SP1
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where,
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CR1
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=
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the conversion rate in effect immediately prior to the open of
business on the trading day next succeeding the date such tender
offer or exchange offer expires;
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CR0
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=
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the conversion rate in effect at 5:00 p.m. on the day such
tender offer or exchange offer expires;
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AC
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=
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the aggregate value of all cash and any other consideration (as
determined by our board of directors or a committee thereof)
paid or payable for shares purchased in such tender or exchange
offer;
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SP1
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=
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the average of the last reported sale prices of our common stock
over the 10 consecutive trading day period commencing on, and
including, the trading day next succeeding the date such tender
or exchange offer expires (the averaging period);
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OS1
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=
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the number of shares of our common stock outstanding immediately
after the close of business on the date such tender or exchange
offer expires (after giving effect to such tender offer or
exchange offer); and
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OS0
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=
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the number of shares of our common stock outstanding immediately
prior to the date such tender or exchange offer expires (prior
to giving effect to such tender offer or exchange offer).
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The adjustment of the conversion rate under the preceding
paragraph will occur on the tenth trading day from, and
including, the trading day next succeeding the date such tender
or exchange offer expires; provided that in respect of any
conversion within the ten trading days following the
commencement of the averaging period, references within this
clause (5) to ten days shall be deemed replaced with such
lesser number of trading days as have elapsed during such
averaging period in determining the applicable conversion rate.
To the extent that any future shareholders rights plan
adopted by us is in effect upon conversion of the Notes into
common stock, you will receive, in addition to the common stock,
the rights under the applicable rights agreement unless the
rights have separated from our common stock at the time of
conversion of the Notes, in which case, the conversion rate will
be adjusted as if we distributed to all holders of our common
stock shares of our capital stock, evidences of indebtedness or
assets as described above in clause (3), subject to readjustment
in the event of the expiration, termination or redemption of
such rights.
We will not make any adjustment in accordance with clauses
(1) (5) above if holders may participate in the
transaction or in certain other cases. Except with respect to a
spin-off, in cases where the fair market value of assets, debt
securities or certain rights, warrants or options to purchase
our securities, applicable to one share of common stock,
distributed to stockholders:
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equals or exceeds the average closing price of our common stock
over the ten consecutive trading day period ending on the record
date for such distribution, or
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such average closing price exceeds the fair market value of such
assets, debt securities or rights, warrants or options so
distributed by less than $1.00,
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rather than being entitled to an adjustment in the conversion
price, the holder of Notes will be entitled to receive upon
conversion, in addition to the shares of common stock, the kind
and amount of assets, debt securities or rights, warrants or
options comprising the distribution that such holder would have
received if such holder had converted such Notes immediately
prior to the record date for determining the stockholders
entitled to receive the distribution.
S-25
Except as stated above, we will not adjust the conversion rate
for the issuance of our common stock or any securities
convertible into or exchangeable for our common stock or
carrying the right to purchase any of the foregoing.
If a taxable distribution to holders of our common stock or
other transaction occurs that results in any adjustment of the
conversion rate (including an adjustment at our option), you
may, in certain circumstances, be deemed to have received a
distribution subject to U.S. income tax as a dividend. In
certain other circumstances, the absence of an adjustment may
result in a taxable dividend to the holders of our common stock.
See Certain United States Federal Income Tax
Consequences.
We will not be required to make an adjustment in the conversion
rate unless the adjustment would require a change of at least 1%
in the conversion rate. However, we will carry forward any
adjustment that is less than 1% of the conversion rate, take
such carried-forward adjustments into account in any subsequent
adjustment, and make such carried-forward adjustments,
regardless of whether the aggregate adjustment is less than 1%,
(a) annually on the anniversary of the first date of issue
of the Notes and otherwise (b)(1) upon a conversion of the Notes
by a holder or (2) prior to any repurchase date, unless
such adjustment has already been made.
If we adjust the conversion rate pursuant to the above
provisions, we will issue a press release through a national
distribution service containing the relevant information and
make this information available on our website or through
another public medium as we may use at that time.
Change in the
Conversion Rights upon Certain Reclassifications, Business
Combinations, Asset Sales and Corporate Events
If we:
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reclassify or change our common stock (other than changes
resulting from a subdivision or combination), or
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consolidate or merge with or into any person or sell, lease,
transfer, convey or otherwise dispose of all or substantially
all of our assets and those of our subsidiaries taken as a whole
to another person,
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and in either case holders of our common stock receive stock,
other securities or other property or assets (including cash or
any combination thereof) with respect to or in exchange for
their common stock, then from and after the effective date of
such transaction, each outstanding Note will, without the
consent of any holders of the Notes, upon the occurrence of any
conversion, become convertible in accordance with the procedures
described in Conversion Procedures, into
the consideration the holders of our common stock received in
such reclassification, change, consolidation, merger, sale,
lease, transfer, conveyance or other disposition (such
consideration, the reference property). 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
become convertible will be deemed to be the kind and amount of
consideration actually received by holders of a majority of our
common stock that voted for such an election (if electing
between two types of consideration) or by holders of a plurality
of our common stock that voted for such an election (if electing
between more than two types of consideration), as the case may
be. We may not become a party to any such transaction unless its
terms are consistent with the foregoing in all material
respects. None of the foregoing provisions shall affect the
right of a holder of Notes to convert its Notes prior to the
effective date of the business combination.
Voluntary
Increases of Conversion Rate
We are permitted to the extent provided by law and subject to
the applicable rules of Nasdaq to increase the conversion rate
of the Notes by any amount for a period of at least 20 calendar
days if our board of directors determines that such increase
would be in our best interest. We may also (but
S-26
are not required to) increase the conversion rate to avoid or
diminish income tax to holders of our common stock or rights to
purchase our common stock in connection with a dividend or
distribution of shares (or rights to acquire shares) or similar
event.
Adjustment to
Conversion Rate Upon a Non-Stock Change of Control
If and only to the extent you elect to convert your Notes in
connection with a transaction described under clauses (1),
(4) or (5) under the definition of a fundamental
change described below under Repurchase Right of
Holders Upon a Fundamental Change pursuant to which 10% or
more of the consideration for our common stock (other than cash
payments for fractional shares and cash payments made in respect
of dissenters appraisal rights) in such fundamental change
transaction consists of cash or securities (or other property)
that are not shares of common stock traded or scheduled to be
traded immediately following such transaction on a U.S. national
securities exchange, which we refer to as a non-stock
change of control, we will increase the conversion rate as
described below. The number of additional shares by which the
conversion is increased (the additional shares) will
be determined by reference to the table below, based on the date
on which the non-stock change of control becomes effective (the
effective date) and the price (the stock
price) paid per share for our common stock in such
non-stock change of control. If holders of our common stock
receive only cash in such transaction, the price paid per share
will be the cash amount paid per share. Otherwise, the price
paid (or deemed paid) per share will be the average of the
closing sale prices of our common stock on the five trading days
prior to but not including the effective date of such non-stock
change of control. We will notify you of the anticipated
effective date of any non-stock fundamental change at least 20
calendar days prior to such anticipated effective date.
A conversion of the Notes by a holder will be deemed for these
purposes to be in connection with a non-stock change
of control if the conversion notice is received by the
conversion agent following the effective date of the non-stock
change of control but before the close of business on the
business day immediately preceding the related repurchase date
(as specified in the repurchase notice described under
Repurchase Right of Holders Upon a Fundamental
Change).
The number of additional shares will be adjusted in the same
manner as and as of any date on which the conversion rate of the
Notes is adjusted as described above under
Conversion Rate Adjustments. The stock
prices set forth in the first row of the table below (i.e., the
column headers) will be simultaneously adjusted to equal the
stock prices immediately prior to such adjustment, multiplied by
a fraction, the numerator of which is the conversion rate
immediately prior to the adjustment and the denominator of which
is the conversion rate as so adjusted.
The following table sets forth the number of additional shares
by which the conversion rate shall be increased:
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Stock Price
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Effective Date
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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February , 2011
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February 15, 2012
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February 15, 2013
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February 15, 2014
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February 15, 2015
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February 15, 2016
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The exact stock price and effective dates may not be set forth
on the table, in which case, if the stock price is:
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between two stock price amounts on the table or the effective
date is between two dates on the table, the number of additional
shares will be determined by straight-line
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S-27
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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
360-day year;
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in excess of $ per share (subject
to adjustment), no additional shares will be issued upon
conversion; or
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less than $ per share (subject to
adjustment), no additional shares will be issued upon conversion.
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Notwithstanding the foregoing, in no event will the total number
of shares of common stock issuable upon conversion
exceed
per $1,000 principal amount of the Notes, subject to adjustments
in the same manner as the conversion rate.
Additional shares deliverable as described in this section
Adjustment to Conversion Rate Upon a Non-Stock
Change of Control will be delivered on the settlement date
applicable to the relevant conversion.
Certain Financial
Covenants
In addition to other customary covenants, the indenture will
contain the following financial covenants:
(1) until February 15, 2014, we will maintain, at all
times, cash and cash equivalents of not less than
$20 million;
(2) until the second anniversary of the original issuance
date of the Notes, our total consolidated indebtedness (as
indebtedness, is defined in the Notes) shall not
exceed $150 million at any time, excluding, for purposes of
this clause (2), until April 5, 2011, our outstanding
4.50% Notes; and
(3) until the second anniversary of the original issuance
date of the Notes, our total consolidated indebtedness (as
indebtedness, is defined in the Notes) shall not
exceed $50 million at any time, excluding for purposes of
this clause (3): (a) the Notes, (b) any indebtedness
with a maturity date
after ,
2014, which indebtedness does not provide the holder with a
unilateral put right prior
to ,
2014 and (c) until April 5, 2011, our outstanding 4.50%
Notes.
Definitions
Solely for purposes of the financial covenants described under
Certain Financial Covenants, the
following terms shall have the meanings set forth below.
cash and cash equivalents means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having
maturities of not more than twelve months from the date of
acquisition;
(3) readily marketable direct obligations issued by any
state of the United States of America or any political
subdivision thereof having one of the two highest ratings
obtainable from either Moodys or Standard &
Poors with maturities of 12 months or less from the
date of acquisition;
(4) certificates of deposit and Eurodollar time deposits
with maturities of twelve months or less from the date of
acquisition, bankers acceptances with maturities not
exceeding one year and overnight bank deposits, in each case,
with any domestic commercial bank having combined capital and
surplus in excess of $500 million and a Thomson Bank Watch
Rating at the time of acquisition of B or better;
S-28
(5) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (2) and (4) above entered into with any
financial institution meeting the qualifications specified in
clause (4) above;
(6) commercial paper having one of the two highest ratings
obtainable from Moodys Investors Service, Inc. or
Standard & Poors Rating Services and in each
case maturing within six months after the date of
acquisition; and
(7) money market or mutual funds at least 90% of the assets
of which constitute cash equivalents of the kinds described in
clauses (1) through (6) of this definition.
GAAP means United States generally accepted
accounting principles, consistently applied.
indebtedness of any person means, without
duplication (i) all indebtedness for borrowed money,
secured or unsecured, (ii) all obligations issued,
undertaken or assumed as the deferred purchase price of property
or services, including (without limitation) capital leases in
accordance with GAAP (other than accrued expenses, trade
payables, customer deposits and deferred revenues, in each case,
entered into in the ordinary course of business and earn-out
obligations owed to sellers in connection with the acquisition
of properties), (iii) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and
other similar instruments (other than reimbursement or payment
obligations with respect to letters of credit, surety bonds and
other similar instruments that are secured by a cash escrow or
that are made in the ordinary course of the development
business, in each case only to the extent such payment
obligations would not appear as a liability on a balance sheet
of such person in accordance with GAAP), (iv) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or
businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such
indebtedness (other than estimated development liability for
sold land), (vi) all indebtedness referred to in
clauses (i) through (v) above secured by (or for which
the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or
in any property or assets (including accounts and contract
rights) owned by such person, even though the person that owns
such assets or property has not assumed or become liable for the
payment of such indebtedness, (vii) all contingent
obligations (whether as obligor, guarantor or otherwise) in
respect of indebtedness of others of the kinds referred to in
clauses (i) through (vi) above; provided,
however, that the following shall not be deemed to
constitute indebtedness for purposes of this definition:
(a) the accrual of interest, the accretion of original
issue discount (in each case, whether as the issuance of
pay-in-kind
securities or otherwise) and imputed interest, cost or premiums
and (b) any non-recourse indebtedness.
non-recourse indebtedness means indebtedness with
respect to which recourse for payment is limited to specific
assets related to a particular property or group of properties
encumbered by a lien securing such indebtedness; provided,
however, that personal recourse of borrower for any such
indebtedness for customary non-recourse carve-outs in
non-recourse financing of real estate shall not, by itself,
prevent such indebtedness from being characterized as
non-recourse indebtedness. customary non-recourse
carve-outs means fraud, misrepresentation, misapplication
of cash, waste, environmental claims and liabilities and other
circumstances customarily excluded by institutional lenders from
exculpation provisions
and/or
included in separate indemnification agreements.
Repurchase Right
of Holders Upon Breach of Certain Financial Covenants
If we breach any of the financial covenants described under
Certain Financial Covenants, you will
have the right to require us to repurchase, at the repurchase
price described below, up to 50% in aggregate principal amount
of your Notes, for which you have properly delivered and not
withdrawn a written repurchase notice.
S-29
The repurchase price will be payable in cash and will equal 110%
of the principal amount of the Notes being repurchased, plus
accrued and unpaid interest (including additional interest) to,
but excluding, the repurchase date. However, if the repurchase
date is after a record date and on or prior to the corresponding
interest payment date, the interest (including additional
interest) will be paid on the repurchase date to the holder of
record on the record date.
On or before the twentieth calendar day after any breach by us
of the financial covenants, in accordance with the indenture, we
will provide to all record holders of the Notes at their address
shown in the register of the registrar and to beneficial owners
to the extent required by applicable law, the trustee and the
paying agent, a written notice of the occurrence of such failure
and the resulting repurchase right. Such notice shall describe,
among other things, the breach of the financial covenant and the
procedures you must follow to require us to repurchase your
Notes.
At our request, the trustee shall give the repurchase notice in
our name and at our expense; provided that we make such request
at least three business days prior to the date by which such
repurchase notice is to be given to the holders of the Notes (it
being understood that we will prepare such notice).
The repurchase date will be a date specified by us in the notice
that is not less than 20 nor more than 35 business days after
the date of such notice.
The procedures for exercising your repurchase right upon a
breach of the financial covenants is described below under
Procedures Upon Exercise of a Repurchase Right.
Repurchase Right
of Holders on Specified Date
On February 15, 2014, you will have the right to require us
to repurchase, at the repurchase price described below, all or
part of your Notes for which you have properly delivered and not
withdrawn a written repurchase notice.
The repurchase price will be payable in cash and will equal 100%
of the principal amount of the Notes being repurchased, plus
accrued and unpaid interest (including additional interest) to,
but excluding, the repurchase date. However, if the repurchase
date is after a record date and on or prior to the corresponding
interest payment date, the interest (including additional
interest) will be paid on the repurchase date to the holder of
record on the record date.
We must give notice of the repurchase date to all record holders
of the Notes not less than 20 business days prior to the
repurchase date at their address shown in the register of the
registrar and to beneficial owners to the extent required by
applicable law, the trustee and the paying agent. Such notice
shall describe, among other things, the procedures you must
follow to require us to repurchase your Notes.
At our request, the trustee shall give the repurchase notice in
our name and at our expense; provided that we make such request
at least three business days prior to the date by which such
repurchase notice is to be given to the holders of the Notes (it
being understood that we will prepare such notice).
The procedures for exercising your repurchase right upon a
specified date is described below under Procedures Upon
Exercise of a Repurchase Right.
Repurchase Right
of Holders Upon a Fundamental Change
If a fundamental change (as defined below) occurs at any time
prior to the maturity of the Notes, you will have the right to
require us to repurchase, at the repurchase price described
below, all or part of your Notes for which you have properly
delivered and not withdrawn a written repurchase notice.
S-30
The repurchase price will be payable in cash and will equal 100%
of the principal amount of the Notes being repurchased, plus
accrued and unpaid interest (including additional interest, if
any) to, but excluding, the repurchase date. However, if the
repurchase date is after a record date and on or prior to the
corresponding interest payment date, the interest (including
additional interest, if any) will be paid on the repurchase date
to the holder of record on the record date.
We may be unable to repurchase your Notes in cash upon a
fundamental change. Our ability to repurchase the Notes with
cash in the future may be limited by the terms of our
then-existing borrowing agreements. In addition, the occurrence
of a fundamental change could cause an event of default under
the terms of our then-existing borrowing agreements. We cannot
assure you that we would have the financial resources, or would
be able to arrange financing, to pay the repurchase price in
cash.
A fundamental change will be deemed to have occurred
when any of the following has occurred:
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(1)
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the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any person becomes the beneficial
owner (as these terms are defined in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act), directly or indirectly, of more than
50% of our capital stock that is at the time entitled to vote by
the holder thereof in the election of our board of directors (or
comparable body); or
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(2)
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the first day on which a majority of the members of our board of
directors are not continuing directors; or
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(3)
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the adoption of a plan relating to our liquidation or
dissolution; or
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(4)
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the consolidation or merger of us with or into any other person,
or the sale, lease, transfer, conveyance or other disposition,
in one or a series of related transactions, of all or
substantially all of our assets and those of our subsidiaries
taken as a whole to any person (as this term is used
in Section 13(d)(3) of the Exchange Act), other than:
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that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our capital
stock; and
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pursuant to which the holders of 50% or more of the total voting
power of all shares of our capital stock entitled to vote
generally in elections of directors immediately prior to such
transaction have the right to exercise, directly or indirectly,
50% or more of the total voting power of all shares of the
capital stock entitled to vote generally in elections of
directors of the continuing or surviving person immediately
after giving effect to such transaction; or
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(b)
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any merger primarily for the purpose of changing our
jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares
of common stock solely into shares of common stock of the
surviving entity.
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(5)
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the termination of trading of our common stock, which will be
deemed to have occurred if our common stock or other common
stock into which the Notes are convertible is neither listed for
trading on a United States national securities exchange nor
approved for listing on any United States system of automated
dissemination of quotations of securities prices.
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Notwithstanding the foregoing, any transaction or event
described above will not constitute a fundamental change if, in
connection with such transaction or event, or as a result
therefrom, a
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transaction described in clauses (1), (4) or (5) above
occurs (without regard to any exclusion to such clause described
in the bullets thereunder) and at least 90% of the consideration
paid for our common stock (excluding cash payments for
fractional shares, cash payments made pursuant to
dissenters appraisal rights and cash dividends) consists
of shares of common stock (or depositary receipts in respect
thereof) traded on any of the New York Stock Exchange, the
Nasdaq Global Market or the Nasdaq Global Select Market (or any
of their respective successors) (or will be so traded or quoted
immediately following the completion of the merger or
consolidation or such other transaction) and, as a result of
such transaction, the Notes become convertible into such
reference property as described under
Conversion Rate Adjustments and
Change in the Conversion Rights upon Certain
Reclassifications, Business Combinations, Asset Sales and
Corporate Events above.
Continuing directors means, as of any date of
determination, any member of the board of directors of Avatar
who:
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was a member of the board of directors on the date of the
indenture; or
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was nominated for election or elected to the board of directors
with the approval of a majority of the continuing directors who
were members of the board at the time of the new directors
nomination or election.
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The definition of fundamental change includes a
phrase relating to the sale, lease, transfer, conveyance or
other disposition, in one or a series of related transactions,
of all or substantially all of our assets and those of our
subsidiaries taken as a whole. Although there is a developing
body of case law interpreting the phrase substantially
all, there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a
holder of Notes to require us to repurchase the Notes as a
result of a sale, lease, transfer, conveyance or other
disposition of less than all of our assets and those of our
subsidiaries taken as a whole to another person or group may be
uncertain.
On or before the fifth calendar day after the occurrence of a
fundamental change, we will provide to all record holders of the
Notes on the date of the fundamental change at their address
shown in the register of the registrar and to beneficial owners
to the extent required by applicable law, the trustee and the
paying agent, a written notice of the occurrence of the
fundamental change and the resulting repurchase right. Such
notice shall state, among other things, the event causing the
fundamental change and the procedures you must follow to require
us to repurchase your Notes.
At our request, the trustee shall give the repurchase notice in
our name and at our expense; provided that we make such request
at least three business days prior to the date by which such
repurchase notice is to be given to the holders of the Notes (it
being understood that we will prepare such notice).
The repurchase date will be a date specified by us in the notice
of a fundamental change that is not less than 20 nor more than
35 business days after the date of the notice of a fundamental
change.
This fundamental change repurchase right could discourage a
potential acquirer of Avatar. However, this fundamental change
repurchase feature is not the result of managements
knowledge of any specific effort to obtain control of us by
means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover
provisions.
Our obligation to repurchase the Notes upon a fundamental change
would not necessarily afford you protection in the event of a
highly leveraged or other transaction involving us that may
adversely affect holders. We also could, in the future, enter
into certain transactions, including certain recapitalizations,
that would not constitute a fundamental change but would
increase the amount of our (or our subsidiaries)
outstanding debt. The incurrence of significant amounts of
additional debt could adversely affect our ability to service
our then existing debt, including the Notes.
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Procedures Upon
Exercise of a Repurchase Right
To exercise your repurchase right, you must deliver, during the
period beginning at any time after the date of the notice
provided by us until 5:00 p.m., New York City time, on the
repurchase date, a written notice to the paying agent of your
exercise of your repurchase right (together with the Notes to be
repurchased, if certificated Notes have been issued). The
repurchase notice must state:
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if you hold a beneficial interest in a global Note, your
repurchase notice must comply with appropriate DTC procedures;
if you hold certificated Notes, the certificate numbers;
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the portion of the principal amount of the Notes to be
repurchased, which must be $1,000 or whole multiples
thereof; and
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that the Notes are to be repurchased by us pursuant to the
applicable provisions of the Notes and the indenture.
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You may withdraw your repurchase notice at any time prior to
5:00 p.m., New York City time, on the repurchase date by
delivering a written notice of withdrawal to the paying agent.
If a repurchase notice is given and withdrawn during that
period, we will not be obligated to repurchase the Notes listed
in the repurchase notice. The withdrawal notice must state:
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if you hold a beneficial interest in a global Note, your
withdrawal notice must comply with appropriate DTC procedures;
if you hold certificated Notes, the certificate numbers of the
withdrawn Notes;
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the principal amount of the withdrawn Notes; and
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the principal amount, if any, which remains subject to the
repurchase notice.
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Payment of the repurchase price for Notes for which a repurchase
notice has been delivered and not withdrawn is conditioned upon
book-entry transfer or delivery of the Notes, together with
necessary endorsements, to the paying agent, as the case may be.
Payment of the repurchase price for the Notes will be made
promptly following the later of the repurchase date and the time
of book-entry transfer or delivery of the Notes, as the case may
be.
If the paying agent holds on the business day immediately
following the repurchase date cash sufficient to pay the
repurchase price of the Notes that holders have elected to
require us to repurchase, then, as of the repurchase date:
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the Notes will cease to be outstanding and interest (including
additional interest, if any) will cease to accrue, whether or
not book-entry transfer of the Notes has been made or the Notes
have been delivered to the paying agent, as the case may
be; and
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all other rights of the holders of Notes will terminate, other
than the right to receive the repurchase price upon delivery or
transfer of the Notes.
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In connection with any repurchase, we will, to the extent
applicable:
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comply with the provisions of
Rule 13e-4
and any other tender offer rules under the Exchange Act that may
be applicable at the time of the offer to repurchase the Notes;
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file a Schedule TO or any other schedule required in
connection with any offer by us to repurchase the Notes; and
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comply with all other federal and state securities laws in
connection with any offer by us to repurchase the Notes.
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We may arrange for a third party to purchase any Notes for which
we receive a valid repurchase notice that is not withdrawn, in
the manner and otherwise in compliance with the requirements set
forth in the terms of the Notes applicable to the repurchase
right with respect to the Notes. If a third party purchases any
Notes under these circumstances, then interest will continue to
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accrue on those Notes and those Notes will continue to be
outstanding after the repurchase date and will be fungible with
all other Notes then outstanding. The third party subsequently
may resell those purchased Notes to other investors.
Redemption at Our
Option
We may, at any time on or after February 15, 2014, at our
option, by providing not less than 25 days nor more
than 60 days notice to each holder of Notes to be
redeemed, redeem for cash all or any portion of the outstanding
Notes, but only if the last reported sale price of our common
stock for 20 or more trading days in a period of 30 consecutive
trading days ending on the trading day prior to the date we
provide the notice of redemption to holders exceeds 130% of the
conversion price in effect on each such trading day.
The redemption price will be payable in cash and will equal 100%
of the principal amount of the Notes being redeemed, plus
accrued and unpaid interest (including additional interest, if
any) to, but excluding, the redemption date. However, if the
redemption date is after a record date and on or prior to the
corresponding interest payment date, the interest (including
additional interest, if any) will be paid on the redemption date
to the holder of record on the record date.
Notwithstanding the foregoing, we may only exercise our
redemption rights relating to our stock price exceeding 130% of
the conversion price if all of the conditions listed below (the
equity conditions) are satisfied on each day during
the period (i) commencing ten days prior to the date a
notice of redemption (as described above) is delivered to the
trustee and (ii) ending on the redemption date (as defined
below under Redemption Procedures)
(such period, the equity conditions measuring
period). The equity conditions are as follows:
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all shares of common stock issuable upon conversion of the Notes
and held by a non-affiliate of Avatar shall be eligible for sale
without the need for registration under any applicable federal
or state securities laws;
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we will have no knowledge of any fact that would cause any
shares of common stock issuable upon conversion of the Notes not
to be eligible for sale without restriction pursuant to
Rule 144 and any applicable state securities laws (other
than restrictions due to the holder of such shares being an
affiliate of us);
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during the equity conditions measuring period, the common stock
is listed or traded on The Nasdaq Global Market, The Nasdaq
Global Select Market or the New York Stock Exchange, or any of
their respective successors (each, an eligible
market) and shall not have been suspended from trading on
such exchange or market (other than suspensions of not more than
two trading days and occurring prior to the applicable date of
determination due to business announcements by us) nor shall
delisting or suspension by such exchange or market have been
threatened or pending either (i) in writing by such
exchange or market or (ii) by falling below the then
effective minimum listing maintenance requirements of such
exchange or market;
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during the equity conditions measuring period, to the extent any
Notes have been delivered to us for conversion in accordance
with the terms of the Notes, we shall have delivered shares of
common stock upon conversion of the Notes to the holders on a
timely basis as set forth under Conversion
Procedures above;
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any applicable shares of common stock to be issued upon
conversion may be issued in full without violating the rules or
regulations of The Nasdaq Global Market or any applicable
eligible market on which the common shares delivered upon
conversion are then listed or trading;
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during the equity conditions measuring period, we shall not have
failed to make any payment within five business days of when
such payment is due pursuant to the Notes, the indenture or
related documents;
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during the equity conditions measuring period, there shall not
have occurred the public announcement of a pending, proposed or
intended transaction or event that will constitute a
fundamental change pursuant to clause (1) or
(4) of the definition thereof under
Repurchase Right of Holders Upon Fundamental
Change (other than, for the avoidance of doubt, any such
transaction or event that is not a fundamental
change as a result of the paragraph immediately following
the definition of a fundamental change) which has not been
abandoned, terminated or consummated; and
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no default or event of default under the indenture shall have
occurred and be continuing.
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Redemption Procedures
We will be required to redeem any Notes we call for redemption
on the applicable date fixed for redemption (the
redemption date). Holders will receive payment of
the redemption price promptly following the later of the
redemption date or the time of book-entry transfer or other
delivery of the Notes to be redeemed. Subject to a holders
right to receive interest on the related interest payment date
where the redemption date falls between a record date and the
interest payment date to which it relates as described above, if
the paying agent holds money sufficient to pay the redemption
price of the Notes on the business day following the redemption
date, then:
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the Notes will cease to be outstanding as of the redemption date
and 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;
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all other rights of the holder will terminate as of the
redemption date, other than the right to receive the redemption
price and previously accrued and unpaid interest, if any, upon
delivery or transfer of the Notes; and
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the holder will be deemed to be a holder of record of any shares
of our common stock issuable in connection with such redemption
as of the date of delivery or transfer of the Notes by such
holder.
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If we redeem less than all of the outstanding Notes, the trustee
will select the Notes to be redeemed in integral multiples of
$1,000 principal amount by lot, on a pro rata basis or in
accordance with another method that the trustee reasonably
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 issue, register
the transfer of or exchange any certificated Note.
If we call Notes for redemption, a holder may convert its Notes
only until the close of business on the business day prior to
the redemption date as described under
Conversion Rights Conversion Upon
Notice of Redemption.
We may not redeem the Notes on any date if the principal amount
of the Notes has been accelerated, and such acceleration has not
been rescinded, on or prior to such date.
Consolidation,
Merger and Sale of Assets by Avatar
The indenture will provide that we may not, in a single
transaction or a series of related transactions, consolidate
with or merge into any other person or sell, convey, transfer or
lease our properties and assets substantially as an entirety to
another person or permit any person to
S-35
consolidate with or merge into us or convey, transfer, sell or
lease such persons properties and assets substantially as
an entirety to us, unless:
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either (a) we are the continuing corporation or
(b) the resulting, surviving or transferee person (if other
than us) is a corporation, limited liability company,
partnership or trust organized and validly existing under the
laws of the United States, any state thereof or the District of
Columbia and such person expressly assumes, by a supplemental
indenture, executed and delivered to the trustee, in a form
reasonably satisfactory to the trustee, the due and punctual
payment of the principal of, premium, if any, and interest on
the Notes, and all of our obligations under the Notes and the
indenture;
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immediately after giving effect to such transaction, no default
or event of default has occurred and is continuing;
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if as a result of such transaction the Notes become convertible
into common stock or other securities issued by a third party,
such third party fully and unconditionally guarantees all
obligations of us or such successor under the Notes and the
indenture; and
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we have delivered to the trustee an officers certificate
and opinions of counsel if so requested by the trustee.
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In the event of any transaction described in and complying with
the conditions listed in the immediately preceding paragraph in
which Avatar is not the continuing corporation, the successor
person formed or remaining shall succeed, and be substituted
for, and may exercise every right and power of, Avatar, and
Avatar shall be discharged from its obligations, under the Notes
and the indenture. Although such transactions are permitted
under the indenture, certain of the foregoing transactions
occurring could constitute a fundamental change of our company,
permitting such holder to require us to purchase the Notes of
such holder or to convert their Notes, each as described above.
This covenant includes a phrase relating to the sale,
conveyance, transfer and lease of the property and assets of
Avatar substantially as an entirety. There is no
precise, established definition of the phrase
substantially as an entirety under New York law,
which governs the indenture and the Notes, or under the laws of
Delaware, Avatars state of incorporation. Accordingly, the
ability of a holder of the Notes to require us to repurchase the
Notes as a result of a sale, conveyance, transfer or lease of
less than all of the property and assets of Avatar may be
uncertain.
An assumption by any person of Avatars obligations under
the Notes and the indenture might be deemed for
U.S. federal income tax purposes to be an exchange of the
Notes for new Notes by the holders thereof, resulting in
recognition of gain or loss for such purposes and possibly other
adverse tax consequences to the holders. Holders should consult
their own tax advisors regarding the tax consequences of such an
assumption.
Events of
Default; Notice and Waiver
The following will be events of default under the indenture:
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we fail to pay any interest (including additional interest, if
any) on the Notes when due and payable and such failure
continues for a period of 30 calendar days;
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we fail to pay principal of the Notes when due at maturity, or
we fail to pay the repurchase price or redemption price payable,
in respect of any Notes when due;
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we fail to deliver shares of common stock upon the conversion of
any Notes and such failure continues for five days following the
scheduled settlement date for such conversion;
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we fail to comply with the covenants set forth above under
Consolidation, Merger and Sale of Assets by
Avatar;
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S-36
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we fail to provide notice of the anticipated effective date or
actual effective date of a fundamental change on a timely basis
as required in the indenture;
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we fail to perform or observe any other term, covenant or
agreement in the Notes or the indenture (other than any
financial covenants) for a period of 90 calendar days after
written notice of such failure is given to us by the trustee or
to us and the trustee by the holders of at least 25% in
aggregate principal amount of the Notes then outstanding;
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we fail to pay when due (whether at stated maturity or
otherwise), or a default results in the acceleration of maturity
of, any indebtedness for borrowed money of Avatar or any of our
significant subsidiaries (which term shall have the
meaning specified in
Rule 1-02(w)
of
Regulation S-X)
in an aggregate amount in excess of $20,000,000 (or its foreign
currency equivalent), unless such indebtedness is discharged, or
such acceleration is rescinded, stayed or annulled, within a
period of 30 calendar days after written notice of such failure
is given to us by the trustee or to us and the trustee by the
holders of at least 25% in aggregate principal amount of the
Notes then outstanding;
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any final judgment or judgments for the payment of money in
excess of $20,000,000 is rendered against us or any of our
subsidiaries and is not discharged for any period of 30
consecutive days during which a stay of enforcement is not in
effect, and the aggregate amount thereof not covered by
insurance is in excess of $20,000,000; or
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certain events occur involving our bankruptcy, insolvency or
reorganization or the bankruptcy, insolvency or reorganization
of any of our significant subsidiaries (which term
shall have the meaning specified in
Rule 1-02(w)
of
Regulation S-X).
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Notwithstanding anything to the contrary, the failure to perform
or observe any of the covenants described under
Certain Financial Covenants shall not be
deemed to constitute an Event of Default so long as we satisfy
our obligation to provide timely notice of such breach and
repurchase all Notes we are required to purchase and for which
you have properly delivered and not withdrawn a written
repurchase notice as described under Certain
Financial Covenants. In the event we fail to satisfy our
obligation to provide notice of breach or fail to repurchase up
to 50% of the aggregate principal amount of your Notes, such
failure shall constitute an event of default. Following such
event of default, 100% of the aggregate principal amount of the
Notes shall become due and payable at the repurchase price of
110% of the principal amount of the Notes, in accordance with
the last paragraph of this section.
We are required to notify the trustee promptly upon becoming
aware of the occurrence of any default (including any breach of
a financial covenant) under the indenture known to us. The
trustee is then required within 90 calendar days of becoming
aware of the occurrence of any default to give to the registered
holders of the Notes notice of all uncured defaults known to it.
However, the trustee may withhold notice to the holders of the
Notes of any default, except defaults in payment of principal of
or interest (including additional interest, if any) on the
Notes, if the trustee, in good faith, determines that the
withholding of such notice is in the interests of the holders.
We are also required to deliver to the trustee, on or before a
date not more than 120 calendar days after the end of each
fiscal year and 40 calendar days after the end of each fiscal
quarter, an officers certificate as to compliance with the
indenture, including whether or not any default (including any
breach of a financial covenant) has occurred.
If an event of default specified in the last bullet point listed
above occurs and continues with respect to us or any of our
significant subsidiaries, the principal amount of the Notes (or
the repurchase price or redemption price, as applicable) and
accrued and unpaid interest (including additional interest, if
any) on the outstanding Notes will automatically become due and
payable. If any other event of default occurs and is continuing,
the trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Notes, by notice in writing
to us (and to the trustee if given by the holders), may declare
the principal amount of the Notes (or the repurchase price, as
applicable) and
S-37
accrued and unpaid interest (including additional interest, if
any) on the outstanding Notes to be due and payable. Thereupon,
the trustee may, in its discretion, proceed to protect and
enforce its rights and the rights of the holders of the Notes by
appropriate judicial proceedings.
After such declaration of acceleration, but before a judgment or
decree for payment of the money due has been obtained by the
trustee, the holders of a majority in aggregate principal amount
of the Notes outstanding, by written notice to us and the
trustee, may rescind and annul such declaration if:
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we have paid (or deposited with the trustee a sum sufficient to
pay) (1) all overdue interest (including additional
interest, if any) on all Notes; (2) the principal amount of
any Notes that have become due otherwise than by such
declaration of acceleration; (3) to the extent that payment
of such interest is lawful, interest upon overdue interest
(including additional interest, if any); and (4) all sums
paid or advanced by the trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of
the trustee, its agents and counsel; and
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all events of default, other than the non-payment of the
principal amount and any accrued and unpaid interest (including
additional interest, if any) that have become due solely by such
declaration of acceleration, have been cured or waived.
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The holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method
and place of conducting any proceedings for any remedy available
to the trustee or exercising any trust or power conferred on the
trustee with respect to the Notes, subject to limitations
specified in the indenture.
No holder of the Notes may pursue any proceeding, judicial or
otherwise, under the indenture or for the appointment of a
receiver or trustee, except in the case of a default in the
payment of principal or interest (including additional interest,
if any) on the Notes, unless:
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the holder has given the trustee written notice of a continuing
event of default;
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the holders of at least 25% in aggregate principal amount of the
outstanding Notes make a written request to the trustee to
institute proceedings in respect of an event of default in its
own name as trustee and offer reasonable security or indemnity
against any costs, liability or expense to be incurred in
compliance with such request;
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the trustee fails to comply with the request within 60 calendar
days after receipt of the notice, request and offer of
indemnity; and
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the trustee does not receive an inconsistent direction with such
written request from the holders of a majority in aggregate
principal amount of the outstanding Notes.
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Notwithstanding the foregoing, the indenture will provide, if we
so elect, that the sole remedy for an event of default relating
to the failure to comply with the reporting obligations in the
indenture, which are described below under the caption
Reports, and for any failure to comply
with the requirements of Section 314(a)(1) of the
Trust Indenture Act (which also relate to the provision of
reports), will, at our option, for the 365 days after the
occurrence of such an event of default consist exclusively of
the right to receive additional interest on the Notes at an
annual rate equal to 0.50% of the principal amount of the Notes.
In the event we do not elect to pay the additional interest upon
an event of default in accordance with this paragraph, the Notes
will be subject to acceleration as provided above. The
additional interest will accrue on all outstanding Notes from
and including the date on which an event of default relating to
a failure to comply with the reporting obligations in the
indenture first occurs to but not including the 365th day
thereafter (or such earlier date on which the event of default
relating to the reporting obligations shall have been cured or
waived). On such 365th day (or earlier, if the event of
default relating to the reporting obligations is cured or waived
prior to such 365th day), such additional interest will
cease to accrue and the Notes will be subject to acceleration as
provided above if the event of default is continuing. The
provisions of the indenture
S-38
described in this paragraph will not affect the rights of
holders of Notes in the event of the occurrence of any other
event of default.
Waiver
The holders of a majority in aggregate principal amount of the
Notes outstanding may, on behalf of the holders of all the
Notes, waive any past default or event of default under the
indenture and its consequences, except:
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our failure to pay principal (or the purchase price or
redemption price, as applicable) of or interest (including
additional interest, if any) on any Notes when due;
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our failure to convert any Notes into common stock as required
by the indenture; or
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our failure to comply with any of the provisions of the
indenture that would require the consent of the holder of each
outstanding Note affected.
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Modification
Changes
Requiring Approval of Each Affected Holder
The indenture (including the terms and conditions of the Notes)
may not be modified, amended or supplemented without the written
consent or the affirmative vote of the holder of each Note
affected by such change to:
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change the maturity date of any Notes;
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reduce the rate or change the time for payment of interest
(including additional interest, if any) on any Notes;
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reduce the principal amount of any Notes;
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reduce any amount payable upon repurchase of any Notes upon
breach of certain financial covenants, on a specified date, and
upon a fundamental change;
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impair the right of a holder to institute suit for the
enforcement of payment of any Notes;
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change the currency in which any Notes is payable;
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change our obligation to repurchase any Notes upon breach of
certain financial covenants, on a specified date, and upon a
fundamental change in a manner materially adverse to the holders;
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modify the redemption provisions of the Notes in a manner
adverse to the holders of the Notes;
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affect the right of a holder to convert any Notes into shares of
our common stock or reduce the number of shares of our common
stock or any other property, including cash, receivable upon
conversion pursuant to the terms of the indenture;
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change our obligation to maintain an office or agency
in ;
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subject to specified exceptions, modify certain provisions of
the indenture relating to modification of the indenture or
waiver under the indenture; or
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reduce the percentage of the Notes required for consent to any
modification of the indenture that does not require the consent
of each affected holder.
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Changes
Requiring Majority Approval
The indenture (including the terms and conditions of the Notes)
may be modified or amended, except as described above, with the
written consent or affirmative vote of the holders of a majority
in aggregate principal amount of the Notes then outstanding.
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Changes
Requiring No Approval
The indenture (including the terms and conditions of the Notes)
may be modified, amended or supplemented by us and the trustee,
without the consent of the holder of any Notes, to, among other
things:
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provide for conversion rights of holders of the Notes and our
repurchase obligations in connection with a fundamental change
in the event of any reclassification of our common stock, merger
or consolidation, or sale, conveyance, transfer or lease of our
property and assets substantially as an entity;
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secure the Notes;
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provide for the assumption of our obligations to the holders of
the Notes in the event of a merger or consolidation, or sale,
conveyance, transfer or lease of our property and assets
substantially as an entirety;
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surrender any right or power conferred upon us;
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add to our covenants for the protection of the holders of the
Notes;
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cure any ambiguity, correct or supplement any inconsistent
provision contained in the indenture or any supplemental
indenture, or to make any other provisions with respect to
matters or questions arising under the indenture that do not
adversely affect the interest of the holders in any material
respect; provided that any amendment made solely to conform the
provisions of the indenture to the description of the Notes
contained in this Prospectus Supplement will not be deemed to
adversely affect the interests of the holders of the Notes;
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make any provision with respect to matters or questions arising
under the indenture that we may deem necessary or desirable and
that shall not be inconsistent with provisions of the indenture;
provided that such change or modification does not, in the good
faith opinion of our board of directors, adversely affect the
interests of the holders of the Notes in any material respect;
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increase the conversion rate; provided, that the increase will
not adversely affect the interests of the holders of the Notes;
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comply with the requirements of the Commission in order to
effect or maintain the qualification of the indenture under the
Trust Indenture Act;
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add guarantees or co-obligors under the Notes; and
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provide for a successor trustee and to add to or change any of
the provisions of the indenture as shall be necessary to provide
for or facilitate the administration of the Notes by more than
one Trustee.
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Other
The consent of the holders of Notes is not necessary under the
indenture to approve the particular form of any proposed
modification, amendment or supplement. It is sufficient if such
consent approves the substance of the proposed modification,
amendment or supplement. After a modification or amendment under
the indenture becomes effective, we are required to mail to the
holders a notice briefly describing such modification or
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 modification or amendment.
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Notes Not
Entitled to Consent
Any Notes held by us or by any person directly or indirectly
controlling or controlled by or under direct or indirect common
control with us shall be disregarded (from both the numerator
and the denominator) for purposes of determining whether the
holders of the requisite aggregate principal amount of the
outstanding Notes have consented to a modification, amendment or
waiver of the terms of the indenture.
Repurchase and
Cancellation
We may, to the extent permitted by law, repurchase any Notes in
the open market or by tender offer at any price or by private
agreement. Any Notes repurchased by us may, at our option, be
surrendered to the trustee for cancellation, but may not be
reissued or resold by us. Any Notes surrendered for cancellation
may not be reissued or resold and will be promptly cancelled.
Discharge and
Defeasance
The discharge provisions of the base indenture related to Notes
that will become due and payable within one year
(Section 3.01(a)(ii)(B)) shall not apply to the Notes.
The Notes will not be subject to defeasance.
Reports
We shall deliver to the trustee, within 15 days after
filing with the Commission, copies of the annual reports and of
the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules
and regulations prescribe) that we are required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange
Act.
Information
Concerning the Trustee and Common Stock Transfer Agent and
Registrar
We have appointed Wilmington Trust FSB, the trustee under the
indenture, as paying agent, conversion agent, Notes registrar
and custodian for the Notes. The trustee or its affiliates may
also provide other services to us in the ordinary course of
their business. The indenture contains certain limitations on
the rights of the trustee, if it or any of its affiliates is
then our creditor, to obtain payment of claims in certain cases
or to realize on certain property received on any claim as
security or otherwise. The trustee and its affiliates will be
permitted to engage in other transactions with us. However, if
the trustee or any affiliate continues to have any conflicting
interest and a default occurs with respect to the Notes, the
trustee must eliminate such conflict or resign.
BNY Mellon Shareowner Services is currently the transfer agent
and registrar for our common stock.
Governing
Law
The Notes and the indenture shall be governed by, and construed
in accordance with, the laws of the State of New York.
Calculations in
Respect of the Notes
Except as otherwise provided herein, we will be responsible for
making all calculations called for under the Notes. These
calculations include, but are not limited to, determinations of
the sale price of our common stock, accrued interest payable on
the Notes and the conversion rate and conversion price. We or
our agents will make all these calculations in good faith and,
absent manifest error, such calculations will be final and
binding on holders of the Notes. We will provide a schedule of
these calculations to each of the trustee and the conversion
agent, and each of the trustee and conversion agent is entitled
to rely upon the accuracy of our calculations without
independent verification. The trustee will forward these
calculations to any holder of the Notes upon the request of that
holder.
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Form,
Denomination and Registration
The Notes will be issued:
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in fully registered form;
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without interest coupons; and
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in denominations of $1,000 principal amount and integral
multiples of $1,000.
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Global Notes,
Book-Entry Form
The Notes will be evidenced by one or more global Notes. We will
deposit the global Notes with DTC and register the global Notes
in the name of Cede & Co. as DTCs nominee.
Except as set forth below, a global Note may be transferred, in
whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Beneficial interests in a global Note may be held through
organizations that are participants in DTC (called
participants). Transfers between participants will
be effected in the ordinary way in accordance with DTC rules and
will be settled in clearing house funds. The laws of some states
require that certain persons take physical delivery of
securities in definitive form. As a result, the ability to
transfer beneficial interests in the global Notes to such
persons may be limited.
Beneficial interests in a global Note held by DTC may be held
only through participants, or certain banks, brokers, dealers,
trust companies and other parties that clear through or maintain
a custodial relationship with a participant, either directly or
indirectly (called indirect participants). So long
as Cede & Co., as the nominee of DTC, is the
registered owner of a global Note, Cede & Co. for all
purposes will be considered the sole holder of such global
Notes. Except as provided below, owners of beneficial interests
in a global Note will:
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not be entitled to have certificates registered in their names;
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not receive physical delivery of certificates in definitive
registered form; and
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not be considered holders of the global Notes.
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We will pay principal of, premium, if any, and interest
(including additional interest, if any) on the repurchase price
of, and the redemption price of, a global Note to
Cede & Co., as the registered owner of the global
Notes, by wire transfer of immediately available funds on the
maturity date, each interest payment date or repurchase date, as
the case may be. Neither we, the trustee nor any paying agent
will be responsible or liable:
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for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in a global
Note; or
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for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests.
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DTC has advised us that it will take any action permitted to be
taken by a holder of the Notes, including the presentation of
the Notes for conversion, only at the direction of one or more
participants to whose account with DTC interests in the global
Notes are credited, and only in respect of the principal amount
of the Notes represented by the global Notes as to which the
participant or participants has or have given such direction.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System;
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a clearing corporation within the meaning of the
Uniform Commercial Code; and
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act.
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DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the
participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate
transfers of interests in a global Note among participants.
However, DTC is under no obligation to perform or continue to
perform these procedures, and may discontinue these procedures
at any time. We will issue the Notes in definitive certificated
form if DTC notifies us that it is unwilling or unable to
continue as depositary or DTC ceases to be a clearing agency
registered under the Exchange Act and a successor depositary is
not appointed by us within 90 days. In addition, beneficial
interests in a global Note may be exchanged for definitive
certificated notes upon request by or on behalf of DTC in
accordance with customary procedures following the request of a
beneficial owner seeking to enforce its rights under such Notes
or the indenture. The indenture permits us to determine at any
time and in our sole discretion that Notes shall no longer be
represented by global Notes. DTC has advised us that, under its
current practices, it would notify its participants of our
request, but will only withdraw beneficial interests from the
global note at the request of each DTC participant. We would
issue definitive certificates in exchange for any such
beneficial interests withdrawn.
Neither we, the trustee, registrar, paying agent nor conversion
agent will have any responsibility or liability for the
performance by DTC or its participants or indirect participants
of their respective obligations under the rules and procedures
governing their operations.
CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States
federal income tax consequences of the ownership, disposition
and conversion of Notes and the ownership and disposition of 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 purchases the Notes on original issuance at their
initial offering price, which will equal the first price at
which a substantial amount of the Notes are sold to the public
(not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement
agents or wholesalers), and does not represent a detailed
description of the United States federal income tax consequences
applicable to you if you are subject to special treatment under
the United States federal income tax laws, including if you are:
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a dealer in securities or currencies;
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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a tax-exempt organization
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an insurance company;
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a person holding the Notes as part of a hedging, integrated,
conversion or constructive sale transaction or a straddle;
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a trader in securities that has elected the
mark-to-market
method of accounting for your securities;
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a person liable for alternative minimum tax;
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a person who is an investor in a pass-through entity;
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a United States person whose functional currency is
not the U.S. dollar;
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a controlled foreign corporation;
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a passive foreign investment company; or
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a United States expatriate.
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The summary is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the Code), and
regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in United States federal income tax consequences
different from those summarized below. This summary does not
address all aspects of United States federal income taxes and
does not deal with all tax considerations that may be relevant
to holders in light of their personal circumstances. In
addition, this summary does not consider the effect of any
foreign, state, local, or other tax laws, or any United States
tax consequences (e.g., estate or gift tax) other than
U.S. federal income tax consequences, that may be
applicable to a particular holder.
For purposes of this discussion, a U.S. holder
is a beneficial owner of a Note that is:
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an individual citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
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The term
non-U.S. holder
means a beneficial owner of a Note or share of common stock
(other than an entity classified as a partnership for United
States federal income tax purposes) that is not a
U.S. holder.
If an entity classified as a partnership for United States
federal income tax purposes holds the Notes or shares of our
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 of a partnership holding the
Notes or shares of our common stock, you should consult your own
tax advisors.
If you are considering the purchase of Notes, you should consult
your own tax advisors concerning the particular United States
federal income tax consequences to you of the ownership of the
Notes and common stock, as well as the consequences to you
arising under the laws of any other taxing jurisdiction.
U.S.
Holders
The following discussion is a summary of certain
U.S. federal income tax consequences that will apply to you
if you are a U.S. holder of Notes or shares of our common
stock.
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Payment of
Interest
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.
Sale,
Exchange, Repurchase, or Other Disposition of
Notes
Except as provided below under Conversion of Notes into
Common Stock you will generally recognize gain or loss
upon the sale, exchange, repurchase or other disposition of a
Note equal to the difference between the amount realized (less
accrued interest not previously included in income, which will
be taxable as such) upon the sale, exchange, repurchase 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. 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.
Conversion of
Notes into Common Stock
You will not recognize gain or loss on the conversion of your
Notes into shares of our common stock, except to the extent of
cash received, if any, in lieu of a fractional share of common
stock, and except to the extent of amounts received with respect
to accrued interest, not previously included in income, which
will be taxable as such. The amount of gain or loss recognized
on the receipt of cash in lieu of a fractional share will be
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 tax basis of the shares of common stock received upon a
conversion (other than common stock attributable to accrued
interest, the tax basis of which will equal the amount of such
accrued interest) will equal the adjusted tax basis of the Note
that was converted, reduced by the portion of the tax basis that
is allocable to any fractional share. Your holding period for
shares of common stock will include the period during which you
held the Notes except that the holding period of any shares of
common stock received with respect to accrued interest will
commence on the day after the date of receipt.
Dividends
Distributions, if any, paid on the common stock after a
conversion generally will be treated as dividends to the extent
of our current or accumulated earnings and profits. Dividends
paid to a noncorporate U.S. holder in taxable years
beginning before January 1, 2011 that constitute qualified
dividend income will be taxable at a maximum tax rate of 15%
provided that the holder holds the common stock for more than
60 days during the
121-day
period beginning 60 days before the ex-dividend date and
meets other holding period requirements. Dividends we pay with
respect to the common stock will generally be qualified dividend
income if the above holding period requirement is satisfied.
Distributions in excess of our current and accumulated earnings
and profits will be treated as a return of capital to the extent
of the holders basis in the common stock and thereafter as
capital gain. U.S. holders that are corporations will generally
be eligible for the dividends-received deduction in
respect of dividends received from us.
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
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you. In certain circumstances the failure of the Notes to
provide for such adjustment may result in a deemed distribution
to the holders of the common stock. 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, voluntary discretionary
increases in the conversion rate, and as discussed in
Description of the Notes Adjustment to
Conversion Rates Upon a Non-Stock Change of Control) may
not qualify as being pursuant to a bona fide reasonable
adjustment formula. If such adjustments are made, the
U.S. holders of Notes may be deemed to have received a
distribution even though they have not received any cash or
property as a result of such adjustments. Such a distribution
might be treated as a taxable dividend paid to holders of the
Notes (with an increase in their adjusted tax basis in the Notes
by the same amount). It is not clear whether a constructive
dividend deemed paid to you would be eligible for the
preferential rates of United States federal income tax
applicable in respect of qualifying dividend income. It is also
unclear whether corporate holders would be entitled to claim the
dividends received deduction with respect to any such
constructive dividends.
Possible
Effect of the Assumption of the Notes by a Successor to
Avatar
In certain situations, a successor to Avatar following certain
types of transactions (as described above under
Description of the Notes-Consolidation, Merger and Sale of
Assets by Avatar) would be required to assume the Notes
and the Notes could become convertible into stock of such
successor. Depending on the circumstances, such adjustments
might be deemed for United States income tax purposes to be an
exchange of the Notes for new Notes by the holders thereof,
possibly resulting in recognition of gain or loss for such
purposes, a new holding period for the holder of such Notes, and
other adverse tax consequences. Holders should consult their own
tax advisors regarding the tax consequences of such an
assumption.
Possible
Effect of Change in Conversion Rights
In certain situations described in Description of the
NotesChange in the Conversion Rights upon Certain
Reclassifications, Business Combinations, Asset Sales and
Corporate Events, we may provide for the conversion of the
Notes into stock, securities, other property or assets other
than our common stock. Depending on the circumstances, such an
adjustment could result in a deemed taxable exchange to a holder
and the modified Note could be treated as newly issued at that
time, potentially resulting in the recognition of taxable gain
or loss.
Sale of Common
Stock
Upon the sale or exchange of common stock, a U.S. holder
generally will recognize gain or loss equal to the difference
between the sum of the amount of cash and fair market value of
any property received on such sale, minus such holders
adjusted tax basis in the common stock. Any gain or loss
recognized on a taxable disposition of common stock will be
capital gain or loss. If you are an individual and have a
holding period in the common stock of more than one year, such
capital gain will be subject to reduced rates of taxation. Your
ability to deduct capital losses may be limited.
Recently
Enacted Legislation
For taxable years beginning after December 31, 2012, a
U.S. person that is an individual, estate, or a trust that
does not fall into a special class of trusts that is exempt from
such tax, will be subject to a 3.8% tax (the Medicare
Tax) on the lesser of (1) the U.S. persons
net investment income for the relevant taxable year
and (2) the excess of the U.S. persons modified
gross income for the taxable year over certain thresholds. A
holders net investment income will generally include its
gross interest and dividend income and its net gains from the
disposition of the Notes or common stock, unless such interest
payments, dividends or net gains are derived in the ordinary
course of the conduct of a trade or business (other than a trade
or business that consists of certain passive or
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trading activities). U.S. holders should consult their tax
advisors regarding the applicability of the Medicare Tax to your
income and gains in respect of your investment in the Notes and
common stock.
Premium in
connection with repurchases triggered by breach of certain
financial covenants
If we breach certain financial covenants we may be required to
repurchase up to 50% of the aggregate principal amount of the
Notes for 110% of the principal amount of the Notes being
repurchased, plus accrued and unpaid interest (including
additional interest). See Description of the
Notes Repurchase Right of Holders Upon Breach of
Certain Financial Covenants. Under certain circumstances,
these provisions could cause the Notes to be contingent
payment debt instruments and give rise to original
issue discount for U.S. federal income tax purposes.
We intend to take the position that, as of the issue date, the
Notes do not represent contingent payment debt instruments and
are not issued with original issue discount for
U.S. federal income tax purposes because either
(i) the likelihood that we will be required to repurchase
Notes in connection with breaches described above is remote, or
(ii) the likelihood that the Notes will remain outstanding
for their entire term is significantly more likely than any
other possibility. Our position is binding on a U.S. Holder
unless such holder discloses its contrary position in the manner
required under applicable Treasury Regulation. Our position is
not binding on the IRS, and if the IRS were to assert
successfully that the Notes represent contingent payment debt
instruments because neither one of the foregoing conditions has
been satisfied, then a U.S. Holder would be required to
accrue interest income on a constant yield basis at an assumed
yield in excess of the stated interest rate on the Notes, with
adjustments to such accruals when any contingent payments are
made that differ from the payments calculated based on the
assumed yield, regardless of the holders method of tax
accounting. In addition, in such event, any gain on the sale,
exchange, redemption, retirement or other taxable disposition of
a Note would be recharacterized as ordinary income.
U.S. Holders should consult their tax advisors regarding
the tax consequences of the Notes being treated as contingent
payment debt instruments.
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. A
backup withholding tax will apply to those payments if you fail
to provide your taxpayer identification number, or certification
of exempt status, or if you fail to report in full interest and
dividend income.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your United States
federal income tax liability provided the required information
is furnished to the Internal Revenue Service.
Non-U.S.
Holders
The following is a summary of the U.S. federal tax
consequences that will apply to you if you are a
non-U.S. holder
of Notes or shares of our common stock.
Payments of
Interest
The 30% United States federal withholding tax will not apply to
any payment to you of interest on a Note under the
portfolio interest rule provided that:
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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 voting stock
within the meaning of the Code and applicable United States
Treasury regulations;
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you are not a controlled foreign corporation that is related to
us 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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either (a) you provide your name and address on an Internal
Revenue Service (IRS)
Form W-8BEN
(or other applicable form), and certify, under penalties of
perjury, that you are not a United States person or (b) you
hold your Notes through certain foreign intermediaries and
satisfy the certification requirements of applicable United
States Treasury regulations.
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Special rules apply to
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
If you cannot satisfy the requirements described above, payments
of interest made to you will be subject to the 30% United States
federal withholding tax, unless you provide us with a properly
executed:
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IRS
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
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IRS
Form W-8ECI
(or other applicable form) stating that 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 United States.
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If you are engaged in a trade or business in the United States
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 United States
permanent establishment, then you will be subject to United
States federal income tax on that interest on a net income basis
(although you will be exempt from the 30% United States federal
withholding tax, provided the certification requirements
discussed above are satisfied) in the same manner as if you were
a United States person as defined under the Code. In addition,
if you are a foreign corporation, you may also be subject to a
branch profits tax equal to 30% (or lower applicable income tax
treaty rate) of earnings and profits for the taxable year,
subject to adjustments, that are effectively connected with your
conduct of a trade or business in the United States.
Distributions
and Constructive Distributions
Any distributions paid to you with respect to the shares of our
common stock (and any deemed distributions resulting from
certain adjustments, or failure to make adjustments, to the
conversion rate including, without limitation, adjustments in
respect of taxable dividends to holders of our common stock, see
U.S. HoldersConstructive Distributions
above) will be subject to withholding tax at a 30% rate (or
lower applicable income tax treaty rate). Any such withholding
tax with respect to a constructive distribution may be withheld
from interest or other amounts actually paid on the Notes.
However, dividends that are effectively connected with the
conduct of a trade or business within the United States 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 United States
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 lower
applicable income tax treaty rate).
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 United States withholding tax pursuant to an
income tax treaty, you may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
S-48
Conversion, Sale, Exchange, Repurchase, or Other
Disposition of Notes or Shares of Common Stock
You will not recognize gain or loss on the conversion of your
Notes into shares of our common stock, except to the extent of
cash received, if any, in lieu of a fractional share of common
stock (which will be taxed as a taxable disposition discussed
below), and except to the extent of amounts received with
respect to accrued interest, which will be taxable as such (as
described above under Payments of Interest).
Gain realized by a
non-U.S. holder
on the sale, exchange, repurchase or other taxable disposition
of a Note or shares of common stock will not be subject to
United States federal income tax unless:
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that gain is effectively connected with your conduct of a trade
or business in the United States (and, if required by an
applicable income tax treaty, is attributable to a
U.S. permanent establishment);
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you are an individual who is present in the United States 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 for United States federal income tax purposes.
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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, repurchase, 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, repurchase, or other taxable
disposition, which may be offset by United States source capital
losses, even though you are not considered a resident of the
United States. If you are a foreign corporation that falls under
the first bullet point above, you will be subject to tax on your
net gain 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 currently a United States real property
holding corporation. However, any gain recognized by you on a
sale, exchange, repurchase, or other taxable disposition of the
Notes or the common stock still would not be subject to United
States federal income tax if the Notes or the common stock,
respectively, were to be regularly traded (within
the meaning of applicable United States Treasury regulations) on
an established securities market (such as, for example, the
Nasdaq National Market) and you did not own, directly or
constructively, more than 5% of the outstanding Notes or common
stock, respectively, at any time during the shorter of
(a) the five-year period ending on the date of the sale or
other disposition or (b) your holding period. If the Notes
are not regularly traded, any gain recognized by you
on a sale, exchange, repurchase, or other taxable disposition of
your Notes would not be subject to United States federal income
tax unless, on the date you acquire them, your Notes have a fair
market value greater than the fair market value of 5% of our
common stock. Subsequent acquisitions of Notes will be
aggregated for purposes of this determination. We believe that
our common stock will be regularly traded (within
the meaning of applicable United States Treasury regulations) on
an established securities market and that the Notes will not be
so regularly traded. You should consult your tax
advisors to determine whether an income tax treaty is applicable.
Any stock or cash which you receive on the sale, exchange,
repurchase, 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
Non-U.S. HoldersPayments
of Interest.
S-49
Information
Reporting and Backup Withholding
Generally, we must report to the IRS 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 payments and any
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 that we do not have actual knowledge or reason to know
that you are a United States person, as defined under the Code,
and we have received from you the statement described above in
the last bullet point under Payments of interest. In
addition, information reporting and, depending on the
circumstances, backup withholding will be required regarding the
proceeds of the sale of a Note or shares of our common stock
made within the United States or conducted through certain
United States-related financial intermediaries, unless the payor
receives the statement described above and does not have actual
knowledge or reason to know that you are a United States person,
as defined under the Code, 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 United States
federal income tax liability provided the required information
is furnished to the IRS.
Withholdable
Payment to Foreign Financial Entities and Other Foreign
Entities
Under recently enacted legislation, certain foreign financial
institutions, investment funds, and other
non-U.S. persons
are subject to information reporting requirements with respect
to their direct and indirect U.S. shareholders
and/or
U.S. accountholders. A 30% withholding tax would be imposed
on certain payments that are made after December 31, 2012
to a
non-U.S. person
that is subject to such requirements and fails to comply with
them. Such payments would include our dividends and the gross
proceeds from the sale or other disposition of our common stock.
Non-U.S. holders
should consult their own tax advisors regarding the possible
implications of this legislation on their investment in our
common stock.
S-50
UNDERWRITING
Under the terms of an underwriting agreement, which we will file
as an exhibit to a Current Report on
Form 8-K
and incorporate by reference in this prospectus supplement and
the accompanying prospectus, we have agreed to sell to the
underwriter, Barclays Capital Inc., and the underwriter has
agreed to purchase from us, $100 million principal amount
of the Notes being offered.
The underwriting agreement provides that the underwriters
obligation to purchase the Notes depends on the satisfaction of
the conditions contained in the underwriting agreement,
including:
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the representations and warranties made by us to the underwriter
are true;
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there is no material change in our business or in the financial
markets; and
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we deliver customary closing documents to the underwriter.
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Commissions and
Expenses
The following table summarizes the underwriting discounts and
commissions we will pay to the underwriter. The underwriting fee
is the difference between the initial price to the public and
the amount the underwriter pays to us for the Notes.
The underwriter has advised us that it proposes to offer the
Notes directly to the public at the public offering price on the
cover of this prospectus supplement and to selected dealers at
such offering price less a selling concession not in excess
of % of the principal amount of the
Notes. After the offering, the underwriter may change the
offering price and other selling terms. Sales of the Notes made
outside of the United States may be made by affiliates of the
underwriter.
The expenses of the offering that are payable by us are
estimated to be $ (excluding
underwriting discounts and commissions).
Lock-Up
Agreements
We, all of our directors and executive officers and certain of
our significant stockholders have agreed that, subject to
certain exceptions, without the prior written consent of
Barclays Capital Inc., we and they will not, directly or
indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device that is
designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of common
stock (including, without limitation, shares of common stock
that may be deemed to be beneficially owned by the undersigned
in accordance with the rules and regulations of the Commission
and shares of common stock that may be issued upon exercise of
any options or warrants) or securities convertible into or
exercisable or exchangeable for common stock, (2) enter
into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or
risks of ownership of shares of common stock, (3) make any
demand for or exercise any right or cause to be filed a
registration statement, including any amendments thereto, with
respect to the registration of any shares of common stock or
securities convertible into or exercisable or exchangeable for
common stock or any of our other securities, or
(4) publicly disclose the intention to do any of the
foregoing, for a period commencing on the date hereof and ending
on the 90th day after the date of the prospectus supplement.
The 90-day
restricted period described in the preceding paragraph will be
extended if:
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during the last 17 days of the
90-day
restricted period, we issue an earnings release or material news
or a material event relating to us occurs; or
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prior to the expiration of the
90-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
90-day
period;
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in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or occurrence of material
event, unless such extension is waived in writing by Barclays
Capital Inc.
Barclays Capital Inc., in its sole discretion, may release the
common stock and other securities subject to the
lock-up
agreements described above in whole or in part at any time with
or without notice. When determining whether or not to release
the common stock and other securities from
lock-up
agreements, Barclays Capital Inc. will consider, among other
factors, the holders reasons for requesting the release,
the number of shares of common stock or other securities for
which the release is being requested and market conditions at
the time.
Indemnification
We and certain of our subsidiaries have agreed to indemnify the
underwriter against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments that the
underwriter may be required to make for these liabilities.
New Issue of
Notes
The Notes are a new issue of securities, and there is no
existing market for the Notes. The underwriter has advised us
that following the completion of this offering, it presently
intends to make a market in the Notes. The underwriter is not
obligated to do so, however, and any market-making activities
with respect to the Notes may be discontinued at any time at
their sole discretion without notice. In addition, such
market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. Accordingly, we cannot
give any assurance as to the development of any market or the
liquidity of any market for the Notes.
Stabilization,
Short Positions and Penalty Bids
The underwriter may engage in stabilizing transactions, short
sales and purchases to cover positions created by short sales,
for the purpose of pegging, fixing or maintaining the price of
the notes, in accordance with Regulation M under the
Exchange Act:
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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A short position involves a sale by the underwriter of the Notes
in excess of the principal amount the underwriter is obligated
to purchase in the offering. The underwriter may close out any
short position by purchasing Notes in the open market.
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Penalty bids permit the underwriter to reclaim a selling
concession from a broker/dealer when the Notes originally sold
by such broker/dealer are purchased in a stabilizing or
syndicate covering transaction to cover short positions.
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These stabilizing transactions and purchases to cover short
positions may have the effect of raising or maintaining the
market price of the Notes or preventing or retarding a decline
in the market price of the notes. As a result, the price of the
Notes may be higher than the price that might otherwise exist in
the open market. These transactions may be effected on the
over-the-counter
market or otherwise and, if commenced, may be discontinued at
any time.
Neither we nor the underwriter make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
Notes. In addition, neither we nor the underwriter make any
representation that the underwriter will engage in these
transactions or that any transaction, once commenced, will not
be discontinued without notice.
S-52
Listing
Our common stock trades on Nasdaq under the symbol
AVTR. The last reported sale price of our common
stock on January 28, 2011 was $20.20 per share.
Electronic
Distribution
A prospectus supplement and the accompanying prospectus in
electronic format may be made available on the internet sites or
through other online services maintained by the underwriter
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
affiliate underwriter or selling group member, prospective
investors may be allowed to place orders online. The underwriter
may agree with us to allocate a specific number of the Notes for
sale to online brokerage account holders. Any such allocation
for online distributions will be made by the underwriter on the
same basis as other allocations.
Other than the prospectus supplement and the accompanying
prospectus in electronic format, the information on the
underwriters or selling group members website and
any information contained in any other website maintained by the
underwriter or selling group member is not part of the
prospectus supplement and the accompanying prospectus or the
registration statement of which this prospectus supplement and
the accompanying prospectus forms a part, has not been approved
and/or
endorsed by us or the underwriter or selling group member in its
capacity as underwriter or selling group member and should not
be relied upon by investors.
Relationships
The underwriter and its related entities have engaged, and may
in the future engage, in investment banking transactions with us
in the ordinary course of their business. They have received,
and expect to receive, customary compensation and expense
reimbursements for these investment banking transactions.
Foreign Selling
Restrictions
European Economic
Area
In relation to each member state of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), including each Relevant
Member State that has implemented the 2010 PD Amending Directive
with regard to persons to whom an offer of securities is
addressed and the denomination per unit of the offer of
securities (each, an Early Implementing Member
State), with effect from and including the date on which
the Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date), no offer
of ordinary shares will be made to the public in that Relevant
Member State (other than offers (the Permitted Public
Offers) where a prospectus will be published in relation
to the ordinary shares that has been approved by the competent
authority in a Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive), except that with
effect from and including that Relevant Implementation Date,
offers of ordinary shares may be made to the public in that
Relevant Member State at any time:
(a) to qualified investors as defined in the
Prospectus Directive, including:
(A) (in the case of Relevant Member States other than Early
Implementing Member States), legal entities which are authorized
or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in securities, or any legal entity which has two or more
of (i) an average of at least 250 employees during the
last financial year; (ii) a total balance sheet of more
than 43.0 million and (iii) an annual turnover
of more than 50.0 million as shown in its last annual
or consolidated accounts; or
S-53
(B) (in the case of Early Implementing Member States),
persons or entities that are described in points (1) to
(4) of Section I of Annex II to Directive 2004/39/EC,
and those who are treated on request as professional clients in
accordance with Annex II to Directive 2004/39/EC, or
recognized as eligible counterparties in accordance with
Article 24 of Directive 2004/39/EC unless they have
requested that they be treated as non-professional
clients; or
(b) to fewer than 100 (or, in the case of Early
Implementing Member States, 150) natural or legal persons
(other than qualified investors as defined in the
Prospectus Directive) ,as permitted in the Prospectus Directive,
subject to obtaining the prior consent of the representatives
for any such offer; or
(c) in any other circumstances falling within
Article 3(2) of the Prospectus Directive, provided that no
such offer of ordinary shares shall result in a requirement for
the publication of a prospectus pursuant to Article 3 of
the Prospectus Directive or of a supplement to a prospectus
pursuant to Article 16 of the Prospectus Directive.
Each person in a Relevant Member State (other than a Relevant
Member State where there is a Permitted Public Offer) who
initially acquires any ordinary shares or to whom any offer is
made will be deemed to have represented, acknowledged and agreed
that (A) it is a qualified investor, and
(B) in the case of any ordinary shares acquired by it as a
financial intermediary, as that term is used in
Article 3(2) of the Prospectus Directive, (x) the
ordinary shares acquired by it in the offering have not been
acquired on behalf of, nor have they been acquired with a view
to their offer or resale to, persons in any Relevant Member
State other than qualified investors as defined in
the Prospectus Directive, or in circumstances in which the prior
consent of the Subscribers has been given to the offer or
resale, or (y) where ordinary shares have been acquired by
it on behalf of persons in any Relevant Member State other than
qualified investors as defined in the Prospectus
Directive, the offer of those ordinary shares to it is not
treated under the Prospectus Directive as having been made to
such persons.
For the purpose of the above provisions, the expression an
offer to the public in relation to any ordinary shares in
any Relevant Member State means the communication in any form
and by any means of sufficient information on the terms of the
offer of any ordinary shares to be offered so as to enable an
investor to decide to purchase any ordinary shares, as the same
may be varied in the Relevant Member State by any measure
implementing the Prospectus Directive in the Relevant Member
State and the expression Prospectus Directive means
Directive
2003/71
EC (including the 2010 PD Amending Directive, in the case of
Early Implementing Member States) and includes any relevant
implementing measure in each Relevant Member State and the
expression 2010 PD Amending Directive means
Directive 2010/73/EU.
United
Kingdom
This prospectus supplement is only being distributed to, and is
only directed at, persons in the United Kingdom that are
qualified investors within the meaning of Article 2(1)(e)
of the Prospectus Directive (Qualified Investors)
that are also (i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This prospectus supplement and its contents are confidential and
should not be distributed, published or reproduced (in whole or
in part) or disclosed by recipients to any other persons in the
United Kingdom. Any person in the United Kingdom that is not a
relevant person should not act or rely on this document or any
of its contents.
S-54
LEGAL
MATTERS
Akerman Senterfitt has passed upon the validity of the issuance
of the Notes and the underlying common stock offered by this
prospectus supplement on behalf of the issuer. Certain legal
matters are being passed upon for the underwriter by Hogan
Lovells US LLP.
EXPERTS
The consolidated financial statements of Avatar Holdings Inc.
appearing in Avatar Holdings Inc.s Annual Report (Form
10-K) for the year ended December 31, 2009 including the
schedule appearing therein, and the effectiveness of Avatar
Holdings Inc.s internal control over financial reporting
as of December 31, 2009, 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 are, and audited financial statements to be
included in subsequently filed documents will be, incorporated
herein in reliance upon the reports of Ernst & Young
LLP pertaining to such consolidated financial statements and the
effectiveness of our internal control over financial reporting
as of the respective dates (to the extent covered by consents
filed with the Securities and Exchange Commission) given on the
authority of such firm as experts in accounting and auditing.
S-55
PROSPECTUS
AVATAR HOLDINGS INC.
$500,000,000
Common Stock, par value $1.00
per share
Preferred Stock, par value
$0.10 per share
Debt Securities
Warrants
Units
This prospectus relates solely to the offer and sale, from time
to time, of equity and debt securities, warrants to purchase
equity securities or units of such securities of Avatar Holdings
Inc. (Avatar) by us.
We may offer the securities from time to time in amounts and on
terms as we may determine in the manner described in the section
entitled Plan of Distribution beginning on
page 17, at prevailing market prices or at prices different
than prevailing market prices. We may offer and sell these
securities to or through one or more underwriters, dealers and
agents, or directly to purchasers, on a delayed or continuous
basis. The prospectus supplements will provide the specific
terms of the plan of distribution.
Each time our securities are offered, we will provide a
prospectus supplement containing more specific information about
the particular offering and attach it to this prospectus. The
prospectus supplements may also add, update or change
information contained in this prospectus.
You should carefully read this prospectus and any accompanying
prospectus supplement, together with the documents we
incorporate by reference, before you invest in our securities.
Our common stock is listed on The Nasdaq Stock Market under the
ticker symbol AVTR. The last reported sale price of
our common stock on August 20, 2009 was $19.50 per share.
We have not yet determined whether any of the other securities
that may be offered by this prospectus will be listed on any
exchange, inter-dealer quotation system or
over-the-counter
system. If we decide to seek a listing for any of our other
securities, that will be disclosed in a prospectus supplement.
Investing in our securities involves risks. See Risk
Factors beginning on page 2 to read about factors you
should consider before buying our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
This prospectus may not be used to sell securities unless
accompanied by a prospectus supplement that contains a
description of those securities.
The date of this prospectus is August 28, 2009.
TABLE OF
CONTENTS
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ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement on
Form S-3
that we filed with the Securities and Exchange Commission (the
Commission) using a shelf registration
process. Under this shelf registration process, we may, from
time to time, offer
and/or sell
the securities referenced herein in one or more offerings. Each
time our securities are offered, we will provide a prospectus
supplement and attach it to this prospectus. The prospectus
supplement will contain more specific information about the
offering. The prospectus supplement may also add, update or
change information contained in this prospectus. Any statement
that we make in this prospectus will be modified or superseded
by any inconsistent statement made by us in a prospectus
supplement. You should read both this prospectus and any
accompanying prospectus supplement together with the additional
information described under the heading Incorporation of
Certain Documents by Reference.
You should rely only on the information contained in this
prospectus, any applicable prospectus supplement and those
documents incorporated by reference herein or therein. We have
not authorized anyone to provide you with information different
from that contained in this prospectus or any prospectus
supplement or incorporated by reference herein. This prospectus
may only be used where it is legal to sell these securities.
This prospectus is not an offer to sell, or a solicitation of an
offer to buy, in any state where the offer or sale is
prohibited. The information in this prospectus, any prospectus
supplement or any document incorporated herein or therein by
reference is accurate as of the date contained on the cover of
such documents. Neither the delivery of this prospectus or any
prospectus supplement, nor any sale made under this prospectus
or any prospectus supplement will, under any circumstances,
imply that the information in this prospectus or any prospectus
supplement is correct as of any date after the date of this
prospectus or any such prospectus supplement.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference
into this prospectus the information we have filed with the
Commission. This means that we can disclose important
information by referring you to those documents. All documents
that Avatar subsequently files with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, prior to
the termination of this offering, will be deemed to be
incorporated by reference into this prospectus and to be a part
hereof from the date of filing of such documents. We are not,
however, incorporating by reference any documents or portions
thereof, whether specifically listed below or filed in the
future, that are not deemed filed with the
Commission, including information furnished pursuant to
Item 2.02 or 7.01 of
Form 8-K.
Any statement contained in a document incorporated or deemed to
be incorporated by reference in this prospectus shall be deemed
to be modified or superseded for purposes of this prospectus to
the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We incorporate by reference the following documents that we have
filed with the Commission, and any filings that we will make
with the Commission in the future, under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, until this offering is
terminated:
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008;
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Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 31, 2009;
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Quarterly Report on
Form 10-Q
for the fiscal quarter ended June 30, 2009;
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Definitive Proxy Statement on Schedule 14A dated
April 28, 2009, relating to our annual meeting of
stockholders held on May 28, 2009;
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Current Report on
Form 8-K
filed January 6, 2009.
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Current Report on
Form 8-K
filed February 13, 2009;
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Current Report on
Form 8-K
filed April 16, 2009;
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Current Report on
Form 8-K
filed May 26, 2009;
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Current Report on
Form 8-K
filed August 19, 2009; and
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Current Report on
Form 8-K/A
filed August 20, 2009.
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Copies of any documents incorporated by reference in this
prospectus are available free of charge by writing Avatar
Holdings Inc., 201 Alhambra Circle, Coral Gables, Florida 33134,
Attention Corporate Secretary, or by telephoning us at
(305) 442-7000.
WHERE YOU
CAN FIND MORE INFORMATION
The documents incorporated by reference into this prospectus are
available from us upon request. We will provide a copy of any
and all of the information that is incorporated by reference in
this prospectus, without charge, upon written or oral request.
If you would like to obtain this information from us, please
direct your request, either in writing or by telephone, to:
Avatar Holdings Inc.
201 Alhambra Circle
Coral Gables, Florida 33134
(305) 442-7000
Attn: Corporate Secretary
Any statement made in this prospectus concerning the contents of
any contract, agreement or other document is only a summary of
the actual document. You may obtain a copy of any document
summarized in this prospectus at no cost by writing to or
telephoning us at the address and telephone number given above.
Each statement regarding a contract, agreement or other document
is qualified in its entirety by reference to the actual document.
We file reports, proxy statements and other information with the
Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the Commission
s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of these materials can also
be obtained by mail at prescribed rates from the Public
Reference Room of the Commission, 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Commission
at
1-800-SEC-0330.
The Commission maintains an internet site that contains reports,
proxy and information statements and other information regarding
Avatar and other issuers that file electronically with the
Commission. The address of the Commission internet site is
www.sec.gov. This information is also available on our
website at www.avatarholdings.com. Information contained
on these websites is not incorporated by reference into and does
not constitute a part of this prospectus.
Reports, proxy statements and other information regarding us may
also be inspected at:
The National Association of Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
We have filed a registration statement on
Form S-3
under the Securities Act of 1933, as amended, with the
Commission with respect to the securities to be sold hereunder.
This prospectus has been filed as part of that registration
statement. This prospectus does not contain all of the
information set forth in the registration statement because
certain parts of the registration statement are omitted in
accordance with the rules and regulations of the Commission. The
registration statement is available for inspection and copying
as set forth above.
iii
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the registration statement of which it forms
a part, any prospectus supplement and the documents incorporated
by reference into these documents contain forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We use words such
as anticipates, believes,
plans, expects, future,
intends, will, foresee and
similar expressions to identify these forward-looking
statements. In addition, from time to time we or our
representatives have made or may make forward-looking statements
orally or in writing. Furthermore, such forward-looking
statements may be included in various filings that we make with
the Commission, or press releases or oral statements made by or
with the approval of one of our authorized executive officers.
These forward-looking statements are subject to certain known
and unknown risks and uncertainties, as well as assumptions that
could cause actual results to differ materially from those
reflected in these forward-looking statements.
Factors that might cause actual results to differ include, but
are not limited to, the continuing decline in value and the
instability of certain financial markets; disruption of the
credit markets and reduced availability and more stringent
financing requirements for commercial and residential mortgages
of all types; the number of investor and speculator resale homes
for sale and homes in foreclosure in our communities and in the
geographic areas in which we develop and sell homes; the
increasing level of unemployment; the decline in net worth
and/or of
income of potential buyers; the decline in consumer confidence;
the successful implementation of Avatars business
strategy; shifts in demographic trends affecting demand for
active adult and primary housing; the level of immigration and
migration into the areas in which we conduct real estate
activities; Avatars access to financing; geopolitical
risks; changes in, or the failure or inability to comply with,
government regulations; and other factors more fully described
under the caption Risk Factors in this prospectus,
any prospectus supplement and the documents incorporated by
reference herein or therein. Readers are cautioned not to place
undue reliance on any forward-looking statements contained
herein, which reflect managements opinions only as of the
date hereof.
Except as required by law, we undertake no obligation to revise
or publicly release the results of any revision to any
forward-looking statements. You are advised, however, to consult
any additional disclosures we make in our reports to the
Commission on
Forms 10-K,
10-Q and
8-K. All
subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements
contained in this prospectus.
iv
PROSPECTUS
SUMMARY
This summary description of us and our business highlights
selected information about us contained elsewhere in this
prospectus or incorporated herein by reference. This summary may
not contain all of the information about us that you should
consider before buying securities in this offering. You should
carefully read this entire prospectus and any applicable
prospectus supplement, including each of the documents
incorporated herein by reference, before making an investment
decision. As used herein, we, us, and
our refer to Avatar Holdings Inc. and its
subsidiaries.
Our
Company
We are engaged in the business of real estate operations in
Florida and Arizona. Our residential community development
activities have been adversely affected in both markets,
bringing development in our active adult and primary residential
communities to approaching a stand still. We also engage in
other real estate activities, such as the operation of
amenities, the sale for third-party development of commercial
and industrial land and the operation of a title insurance
agency, which activities have also been adversely affected by
the current economic downturn.
Our primary business strategy continues to be the development of
lifestyle communities, including active adult and primary
residential communities, as well as the development and
construction of housing on scattered lots. However, due to the
significant deterioration in the economy and the residential
real estate business, we have increased our focus on maintaining
the integrity of our balance sheet through preservation of
capital, sustaining liquidity and reduction of overhead. Our
development activities have been and will continue to be minimal
as we work through the negative impacts on the homebuilding
industry. While we have curtailed our homebuilding operations,
our business is still capital intensive and requires or may
require expenditures for land and infrastructure development,
housing construction, and funding of operating deficits or
providing working capital, as well as potential new acquisition
and development opportunities.
It is our intention to continue to monetize our inventory of
unsold homes and many of our model homes in anticipation of
introducing new homes across many of our product lines. Many of
these new products will consist of smaller and less amenitized
houses to enable us to sell homes at lower price points when the
market recovers. In the areas in which our developments are
located, we believe that for the foreseeable future there may be
significant demand for smaller and less amenitized homes than in
prior years.
We continue to defer the introduction of new housing products or
recommencing developing activities in our existing communities
until such times as we believe that our markets would enable us
to construct and sell new houses at an acceptable profit.
We continue to focus on acquiring real estate or real estate
related assets as the fallout from the deleveraging of the
economy continues to adversely affect real estate values. We
have analyzed a substantial number of residential real estate
properties in Florida which we believe could represent
opportunities to acquire real estate, or debt secured by real
estate, at a substantial discount to its intrinsic value. To
date we have seen very few properties that we believe would
present such desirable investment or development/redevelopment
opportunities at the pricing offered. However, we believe we are
approaching a window in which these opportunities will become
available. We have an experienced residential real estate
development group which is able to expeditiously underwrite
portfolios of Florida residential real estate ranging from large
undeveloped/unentitled parcels of land to finished lots, and
acquire these properties or the debt secured by these properties
from financial institutions or others. Our cash position and our
ability to plan, permit, develop, and sell land, as well as to
design, permit and build out highly amenitized residential
communities enables us to have a competitive advantage in buying
such properties over financial buyers, and developers not having
extensive experience in Florida. However, we compete for
opportunities to acquire real estate or real estate related
assets and there can be no assurance that we will identify and
be able to acquire appropriate assets or that any such assets we
were to acquire would result in a desirable return on our
investment.
Our
Corporate Information
We are incorporated under the laws of the State of Delaware. Our
executive headquarters are located at 201 Alhambra Circle, Coral
Gables, Florida 33134. Our telephone number is
(305) 442-7000.
Our website is www.avatarholdings.com. Information
contained in our website is not incorporated by reference into
and does not constitute part of this prospectus.
1
RISK
FACTORS
Investment in our securities involves a high degree of risk.
You should carefully consider the specific risks described below
under the heading Risk Factors and in any applicable
prospectus supplement and under the caption Risk
Factors in any of our filings with the Commission pursuant
to Sections 13(a), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended, which are incorporated herein and
therein by reference, before making an investment decision. Each
of the risks described could adversely affect our business,
financial condition, results of operations and prospects, and
could result in a complete loss of your investment. For more
information, see Where You Can Find More Information
and Incorporation of Certain Documents By Reference.
Risks related to specific securities will be described in the
applicable prospectus supplement relating to those
securities.
The
economic recession we are experiencing may continue for an
extended period, has created greater uncertainty in our ability
to forecast our business needs, and has adversely affected our
business and results of operations compared to prior
periods
During the fourth quarter of 2008 and continuing to date, the
market for homes in the geographic areas in which our
developments are located were severely and negatively impacted
by the dislocations in the financial markets and the collapse or
near collapse of major financial institutions. Unemployment has
increased significantly and consumer confidence has continued to
erode. In the geographic areas in which we conduct our real
estate operations, there has been a significant increase in the
number of homes for sale or available for purchase or rent
through foreclosures or otherwise. The price points at which
these homes are available have put further downward pressure on
our margins.
During the fourth quarter of 2008 and continuing to date, most
of our sales contracts have been signed at selling prices that
have resulted or will result in losses upon closing when
factoring in operating costs such as sales and marketing and
divisional overhead. During the fourth quarter of 2008 and for
the six months ended June 30, 2009, we recorded impairment
charges of $5,168,000 and $1,228,000, respectively, for housing
communities relating to homes completed or under construction.
Our
industry is highly cyclical and is affected by general economic
conditions and other factors beyond our control
The real estate industry is highly cyclical and is affected by
changes in national, global and local economic conditions and
events, such as employment and income levels, availability of
financing, interest rates, consumer confidence and the demand
for housing and other types of construction. We are subject to
various risks, many of which are outside our control, including
real estate market conditions (both where our communities and
homebuilding operations are located and in areas where potential
customers reside), changing demographic conditions, adverse
weather conditions and natural disasters, such as hurricanes,
tornadoes and wildfires, delays in construction schedules, cost
overruns, changes in government regulations or requirements, and
increases in real estate taxes and other local government fees.
We are in the midst of a severe downturn in the real estate
market. The market for new single-family and multi-family
residences has been weak for some time and continues to be weak.
The
current economic environment has increased our deficit funding
obligations for club and homeowner association
obligations
Because we fund homeowners association operating deficits and we
operate our club amenities, defaults in payments of club dues
and homeowner association assessments by home owners have caused
us to expend additional available cash to maintain the homeowner
association and club operations at their current levels.
Further, due to lower than anticipated sales of homes in certain
of our master planned communities, our obligations to fund our
club and homeowner association operating deficits are greater
than projected as there are fewer new home sales in these
communities to absorb these obligations.
2
A
continuing decline in real estate values could result in
additional impairment write-downs
Further decline of the real estate market could result in future
impairments (as defined by Statement of Financial Accounting
Standards No. 144) to certain of our land and other
inventories and of our investments in unconsolidated entities.
The value of our land and other inventory and land owned by
unconsolidated entities depends on market conditions, including
estimates of future demand for, and the revenues that can be
generated from, such inventory. The downturn in the real estate
market has caused the fair value of certain of our inventory to
fall below the fair value at the time we acquired it. Because of
our assessments of fair value, we have written down the carrying
value of certain of our inventory, and take corresponding
non-cash charges against our earnings to reflect the impaired
value. If the current downturn in the real estate market
continues, we may need to take additional charges against our
earnings for inventory impairments
and/or a
write-down of our investments in unconsolidated entities. Any
such non-cash charges would have an adverse effect on our
consolidated results of operations.
We are
concentrated geographically, which could adversely affect our
business
Our land and development activities are located in Florida and
Arizona, which are among the states most adversely affected by
the downturn in the residential real estate market. Development
activities depend to a significant degree on the levels of
immigration to Florida from outside the United States, migration
to Florida from within the United States and purchases in
Florida of second
and/or
vacation homes. Our understanding is that recently there has
been substantially less migration into Florida from within the
United States than there had been in previous years.
Our
access to financing may be limited
While we have curtailed our homebuilding operations, our
business is still capital intensive and requires expenditures
for land and infrastructure development, housing construction,
and working capital, as well as potential development
opportunities. As of June 30, 2009, total consolidated
indebtedness was $118,307,000, including $62,293,000 carrying
amount of our 4.50% Convertible Senior Notes due 2024 (the
4.50% Notes) and borrowings of $55,903,000
outstanding under our amended unsecured credit facility, as well
as letters of credit totaling $22,535,000 of which $21,053,000
were financial/maintenance letters of credit and $1,482,000 was
a performance letter of credit. Under our amended unsecured
credit facility, performance letters of credit do not count
against our availability for borrowing. On November 7,
2008, Franklin Bank SSB (Franklin Bank), one of the
participating financial institutions in our amended unsecured
credit facility, was closed by the Texas Department of Savings
and Mortgage Lending and the Federal Deposit Insurance
Corporation (FDIC) was named receiver. Franklin Bank is a 20%
participant in our amended unsecured credit facility. During
December 2008, we requested funding from Franklin Bank which we
did not receive. Therefore, it is our assumption that Franklin
Bank will no longer participate in our amended unsecured credit
facility, and therefore we estimated our availability to be
$3,044,000 as of June 30, 2009.
On July 23, 2009, Guaranty Bank, one of the participating
financial institutions in our amended unsecured credit facility,
announced that it no longer believes it can raise sufficient
capital, therefore, it is not probable that it will be able to
continue as a going concern. Guaranty Bank is a 25% or
$25,000,000 participant in our amended unsecured credit
facility. The outstanding borrowings under our amended unsecured
credit facility includes participation from Guaranty Bank in the
amount of approximately $17,889,000. At this time we have
included Guaranty Banks participation in the determination
of our availability; however, it is not known how Guaranty
Banks situation may affect our remaining borrowing
capacity of $3,044,000 under our amended unsecured credit
facility.
We anticipate, but cannot assure, that the amounts available
from internally generated funds, cash on hand, the sale of
non-core assets, and existing and future financing will be
sufficient to fund the anticipated operations, meet debt service
and working capital requirements, and provide sufficient
liquidity. We may seek additional capital in the form of equity
or debt financing from a variety of potential sources, including
additional bank financing and sales of debt or equity
securities. However, as the capital markets have become more
problematic, we cannot assure that such financing will be
available or, if available, will be on favorable terms. In
addition, from time to time we have obtained amendments to our
amended unsecured credit facility. There can be no assurance
that we will be able to obtain future amendments at favorable
terms and costs.
3
Further
decline in the capital markets or fluctuations in interest rates
could have a further adverse effect on our
business
A significant majority of the purchasers of our homes finance
their purchases through third-party lenders providing mortgage
financing or, to some extent, rely upon investment income. In
general, housing demand is dependent on home equity, consumer
savings and third-party financing and has been adversely
affected by less favorable mortgage terms, including
requirements for higher deposits and higher credit scores, the
tightening of underwriting standards, decreases in investment
income, limited availability of mortgage financing, and
declining employment and income levels. The amount or value of
discretionary income and savings, including retirement assets,
available to home purchasers has been affected by a decline in
the capital markets. Certain lenders are imposing more stringent
credit requirements. If lending restrictions continue to be
tightened or the capital markets continue to decline, the
ability of prospective buyers to finance home purchases may be
further adversely affected, resulting in further adverse effects
on our business.
Our
success significantly depends on our key personnel and our
ability to retain personnel
Our business strategy requires, among other things, the
retention of experienced management personnel and employees. The
loss of the services of certain members of the senior and middle
management team could have a material adverse effect on the
success of our business strategy.
Our
joint ventures and equity partnerships may not achieve
anticipated results
We may seek additional joint venture or equity partnership
arrangements. A joint venture or equity partnership may involve
special risks associated with the possibility that a partner or
partnership at any time (i) may have economic or business
interests or goals that are inconsistent with ours,
(ii) may take actions contrary to our instructions or
requests or contrary to our policies or objectives with respect
to our real estate investments or (iii) could experience
financial difficulties. Actions by a partner may have the result
of subjecting property owned by the joint venture or equity
partnership to liabilities in excess of those contemplated by
the terms of the joint venture or equity partnership agreement
or have other adverse consequences. We cannot assure that any
joint venture or equity partnership arrangements will achieve
the results anticipated or otherwise prove successful.
Our
business is subject to substantial competition
The residential homebuilding industry is competitive and other
national, regional and local homebuilders compete with us in
markets where we are selling homes. Further, our residential
homebuilding, planned community development and other real
estate operations are subject to significant competition from
distressed sales. We currently compete with foreclosure sales as
well as resales by investors, speculators, foreclosing lenders
and residents in our communities. For sales of new housing
units, we compete, as to price and product, with several
national and regional homebuilding companies.
We continue to focus on acquiring real estate or real estate
related assets as the fallout from the deleveraging of the
economy continues to adversely affect real estate values. We
have analyzed a substantial number of residential real estate
properties in Florida and debt secured by real estate. To date
we have seen very few properties that we believe would present
desirable investment or development/redevelopment opportunities
at the pricing offered. We compete for opportunities to acquire
real estate or real estate related assets with investors, other
residential land developers and home builders and large real
estate funds, and there can be no assurance that we will
identify and be able to acquire appropriate assets or that any
such assets we were to acquire would result in a desirable
return on our investment.
We are
subject to extensive governmental regulation and environmental
considerations
Our business is subject to extensive federal, state and local
statutes, ordinances and regulations. The broad discretion that
governmental agencies have in administering those requirements
and no growth or slow growth policies,
can prevent, delay, make uneconomic or significantly increase
the costs of development. Various governmental approvals and
permits are required throughout the development process, and no
4
assurance can be given as to the receipt (or timing of receipt)
of these approvals or permits. Furthermore, governmental
approvals may be affected by changes in the policies of elected
officials or modifications to policies to address current
economic conditions. The incurrence of substantial compliance
costs and the imposition of delays and other regulatory burdens
could have a material adverse effect on our operations. In
addition, various federal, state and local laws subject property
owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a
property. Such laws often impose liability without regard to
whether the owner knew of, or was responsible for, the release
of the hazardous substances. The presence of such hazardous
substances at one or more properties, and the requirement to
remove or remediate such substances, may result in significant
cost.
Further, some laws require us to provide roads and other
off-site improvements concurrent with new construction. In some
cases, counties and municipalities will also charge us impact or
other similar fees and assessments to pay for concurrent
infrastructure to serve our new developments. Development
projects may also be subject to assessments for schools, parks,
highways and other public improvements, the costs of which can
be substantial. These laws are subject to frequent change and
frequently result in higher construction costs.
Both Florida and Arizona have laws respecting statutory
disclosures and requirements that must be complied with in the
marketing and selling of new homes. Other states require us to
register our Florida and Arizona projects with such states
before we can locally market our homes to residents of such
states. There are also Federal laws and regulations that we must
comply with in order to allow our home buyers to obtain
federally insured mortgages. If certain Federal and state laws
are not complied with, home buyers may have a right to cancel
their contracts and to a return of their deposit.
Certain
events could trigger the acceleration of payment of our
4.50% Notes
Certain events could result in a default under our
4.50% Notes. These include cessation of trading of our
common stock, failure to pay interest when due on our
4.50% Notes, and final judgment(s) for the payment of money
in excess of $20,000,000 rendered against us or any of our
subsidiaries if not discharged for any periods of 30 consecutive
days during which a stay of enforcement is not in effect. Such
default would result in the requirement for payment of the
4.50% Notes prior to the due date thereof. Our inability to
make such accelerated payment could have a material adverse
effect upon our business.
Failure
to purchase replacement property or obtain an extension of time
in which to do so could result in a reduction in available
cash
In 2006, we sold land under the threat of condemnation which we
believe entitled us to defer the payment of income taxes of
$23,798,000 from the gain on this sale. We have not yet
identified replacement property although it is our intention to
do so by December 31, 2009. It is possible that we may not
identify and purchase such replacement property within the
required time period or obtain an extension of time in which to
do so which would require us to make this income tax payment and
interest as of December 31, 2009 which would result in a
reduction in available cash.
We are
subject to construction defect and home warranty claims arising
in the ordinary course of business, which may lead to additional
reserves or expenses.
Despite our commitment to quality, from time to time we discover
construction defects in our homes either as a result of our own
inspections or in response to customer service requests. To
address possible defects that may occur during construction, we
set aside a warranty reserve in connection with every home
closing. We also maintain general liability insurance and
require our subcontractors and professional service providers to
maintain insurance coverage and indemnify us for liabilities in
connection with their services. Historically, our home warranty
reserves have been sufficient to cover all claims for
construction defects. Nonetheless, it is possible that our
warranty reserves, insurance
and/or
indemnities will not be adequate to cover all construction
defects and home warranty claims for which we may be held liable
in the future.
5
On August 11, 2009, we determined that one of our homes,
constructed on a scattered lot in Poinciana, contains defective
drywall manufactured in China (Chinese drywall). The
Chinese drywall in this home was provided to our drywall
contractor by a secondary supplier of such drywall contractor.
At this date, we are not aware of any other customer service
inquiries related to Chinese drywall. Our current estimate of
our cost to remediate the one home that does contain Chinese
drywall is $75,000. As this cost is well below our deductible
and insurance coverage may be limited, we have not made any
claim against our insurance companies with respect to this one
home. At this date, we are aware only of this isolated Chinese
drywall incident; however, if and to the extent the scope of the
Chinese drywall issue proves to be significantly greater than we
currently believe, and our existing warranty reserves together
with our insurance and any recovery from contractors is not
sufficient to cover claims, losses or other issues related to
the Chinese drywall, we could incur costs or liabilities related
to this issue that could have a material adverse effect on our
results of operations, financial position and cash flows.
If we
do not secure funding for our Poinciana Parkway project on
commercially reasonable terms and commence construction by
February 14, 2011, we will be in default under our
agreements with Polk and Osceola Counties regarding the
Poinciana Parkway, and we may not recover our investment in the
Poinciana Parkway, which has already been substantially
impaired.
In July 2008 and August 2008, we entered into amended and
restated agreements with Osceola County and Polk County (the
Counties), pursuant to which construction of the
Poinciana Parkway is to be commenced by February 14, 2011.
Construction was to be completed by December 31, 2011
subject to extension for specified Force Majeure events. We have
notified the Counties that the completion date has been extended
to March 20, 2013 due to Force Majeure events related to
the economic downturn. We advised the Counties that the current
economic downturn has resulted in our inability to:
(i) conclude negotiations with potential investors; or
(ii) obtain financing for the construction of the Poinciana
Parkway.
If funding for the Poinciana Parkway is not obtained so that
construction of the Poinciana Parkway can be commenced by
February 14, 2011 as required by our agreements with
Osceola County and Polk County, there are no remedies of damages
or specific performance. Polk Countys sole remedy under
its agreement with us is to cancel such agreement if we do not
construct the Poinciana Parkway. If the construction of the
Poinciana Parkway is not funded and commenced by
February 14, 2011, (i) a portion of our land in
Osceola County will become subject to Osceola traffic
concurrency requirements applicable generally to other home
builders in the County and (ii) we will be required to
contribute approximately $1,900,000 towards the construction
cost of certain traffic improvements in Osceola County that we
otherwise might have been obligated to build or fund if we had
not agreed to construct the Poinciana Parkway.
Our estimate of the
right-of-way
acquisition, development and construction costs for the
Poinciana Parkway approximates $175,000,000 to $200,000,000.
However, no assurance of the ultimate costs can be given at this
stage. As of June 30, 2009, approximately $46,600,000 has
been expended. During fiscal year 2008 and for the six months
ending on June 30, 2009 we recorded impairment charges of
$30,228,000 and $448,000, respectively, associated with the
Poinciana Parkway. If we cannot obtain funding for construction
of the Poinciana Parkway and commence construction by
February 14, 2011, or obtain amendments of our agreements
with the Counties regarding the Poinciana Parkway and permit
extensions, it is unlikely that we will recover our investment
in the Poinciana Parkway at any time in the foreseeable future.
6
USE OF
PROCEEDS
Unless we state otherwise in the applicable prospectus
supplement accompanying this prospectus, we expect to use the
net proceeds from the sale of securities for general corporate
purposes.
7
SELECTED
HISTORICAL FINANCIAL INFORMATION
The following table sets forth, for the periods and at the dates
indicated, our selected historical and consolidated financial
data, in thousands of dollars, except share and per share data.
The selected consolidated financial data presented below for the
five fiscal years in the period ended December 31, 2008 are
derived from our audited financial statements and reflect the
retrospective adoption of FSP APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement).
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For the Six Months Ended June 30,
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For the Year Ended December 31,
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2009
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2008
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2008
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2007
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2006
|
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2005
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2004(1)
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Dollars in thousands (except share and per share data)
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Statement of Operations Data
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Revenues
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$
|
34,702
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$
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55,462
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$
|
110,366
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$
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291,832
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$
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835,079
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$
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516,848
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$
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334,205
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and
discontinued operations
|
|
$
|
(19,201
|
)
|
|
$
|
(12,613
|
)
|
|
|
$
|
(142,341
|
)
|
|
$
|
34,053
|
|
|
$
|
256,479
|
|
|
$
|
85,490
|
|
|
$
|
37,291
|
|
Income tax (expense) benefit
|
|
|
830
|
|
|
|
4,820
|
|
|
|
|
32,465
|
|
|
|
(13,056
|
)
|
|
|
(83,151
|
)
|
|
|
(29,336
|
)
|
|
|
(12,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(18,371
|
)
|
|
|
(7,793
|
)
|
|
|
|
(109,876
|
)
|
|
|
20,997
|
|
|
|
173,328
|
|
|
|
56,154
|
|
|
|
24,869
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations (including gain on
disposal of $8,322 and $6,465 for 2005 and 2004, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,562
|
|
|
|
6,905
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,634
|
)
|
|
|
(2,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,928
|
|
|
|
4,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(18,371
|
)
|
|
$
|
(7,793
|
)
|
|
|
$
|
(109,876
|
)
|
|
$
|
20,997
|
|
|
$
|
173,328
|
|
|
$
|
62,082
|
|
|
$
|
29,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(2.12
|
)
|
|
$
|
(0.91
|
)
|
|
|
$
|
(12.85
|
)
|
|
$
|
2.53
|
|
|
$
|
21.16
|
|
|
$
|
6.97
|
|
|
$
|
2.93
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.73
|
|
|
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2.12
|
)
|
|
$
|
(0.91
|
)
|
|
|
$
|
(12.85
|
)
|
|
$
|
2.53
|
|
|
$
|
21.16
|
|
|
$
|
7.70
|
|
|
$
|
3.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(2.12
|
)
|
|
$
|
(0.91
|
)
|
|
|
$
|
(12.85
|
)
|
|
$
|
2.22
|
|
|
$
|
16.59
|
|
|
$
|
5.72
|
|
|
$
|
2.69
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.56
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2.12
|
)
|
|
$
|
(0.91
|
)
|
|
|
$
|
(12.85
|
)
|
|
$
|
2.22
|
|
|
$
|
16.59
|
|
|
$
|
6.28
|
|
|
$
|
3.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004(1)
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
182,299
|
|
|
|
$
|
175,396
|
|
|
$
|
192,258
|
|
|
$
|
203,760
|
|
|
$
|
38,479
|
|
|
$
|
29,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
562,467
|
|
|
|
$
|
594,812
|
|
|
$
|
710,144
|
|
|
$
|
752,996
|
|
|
$
|
624,222
|
|
|
$
|
505,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes, mortgage notes and other debt
|
|
$
|
118,307
|
|
|
|
$
|
131,061
|
|
|
$
|
122,505
|
|
|
$
|
125,632
|
|
|
$
|
130,157
|
|
|
$
|
122,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$
|
411,257
|
|
|
|
$
|
429,511
|
|
|
$
|
535,021
|
|
|
$
|
513,543
|
|
|
$
|
322,477
|
|
|
$
|
256,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
8,837,062
|
|
|
|
|
8,829,798
|
|
|
|
8,525,412
|
|
|
|
8,193,736
|
|
|
|
8,179,463
|
|
|
|
8,058,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity per share
|
|
$
|
46.54
|
|
|
|
$
|
48.64
|
|
|
$
|
62.76
|
|
|
$
|
62.68
|
|
|
$
|
39.43
|
|
|
$
|
31.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the fourth quarter of 2005, we sold our utility
operations in Arizona, our shopping center in Poinciana and our
mini storage facility in Poinciana. As a result of these sales,
the results of operations have been reclassified as discontinued
operations to conform to the 2005 presentation. |
8
RATIO OF
EARNINGS TO FIXED CHARGES
The following table contains our consolidated ratio of earnings
to fixed charges for the periods indicated. You should read
these ratios in connection with our consolidated financial
statements, including the notes to those statements,
incorporated by reference in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended June 30,
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Ratio of earnings to fixed charges
|
|
|
N/A(1
|
)
|
|
|
N/A(1
|
)
|
|
|
3.6
|
|
|
|
23.3
|
|
|
|
6.0
|
|
|
|
3.6
|
|
|
|
|
(1) |
|
Our earnings were insufficient to cover fixed charges by
$18.7 million and $135.1 million for the six months
ended June 30, 2009 and for the year ended
December 31, 2008, respectively. |
SECURITIES
WE MAY OFFER
We may, from time to time offer under this prospectus,
separately or together:
|
|
|
|
|
common stock;
|
|
|
|
preferred stock;
|
|
|
|
debt securities;
|
|
|
|
warrants to purchase equity securities; and
|
|
|
|
units.
|
9
DESCRIPTION
OF CAPITAL STOCK
The following description of our capital stock is based upon
our restated certificate of incorporation, as amended, our
by-laws, as amended and restated, and applicable provisions of
law, in each case as currently in effect. The following
description is only a summary of the material provisions of our
capital stock, our restated certificate of incorporation, as
amended, and our by-laws, as amended and restated, and does not
purport to be complete and is qualified in its entirety by
reference to such documents and applicable provisions of law.
General
Our authorized capital stock consists of 50,000,000 shares
of common stock, par value $1.00 per share, and
10,000,000 shares of preferred stock, par value $0.10 per
share. As of August 10, 2009, there were
8,837,062 shares of our common stock outstanding and no
preferred stock was outstanding. The foregoing and the following
description of capital stock give effect to our restated
certificate of incorporation, as amended and the provisions of
the applicable Delaware law.
Common
Stock
Holders of shares of common stock are entitled to one vote per
share in the election of directors and on all other matters
submitted to a vote of stockholders. Such holders have the right
to cumulate their votes in the election of directors. Holders of
common stock have no redemption or conversion rights and no
preemptive or other rights to subscribe for our securities. In
the event of our liquidation, dissolution or winding up, holders
of common stock are entitled to share equally and ratably in all
of the assets remaining, if any, after satisfaction of all our
debts and liabilities, and the preferential rights of any series
of our preferred stock then outstanding. The shares of common
stock outstanding are fully paid and non-assessable.
Holders of common stock have an equal and ratable right to
receive dividends, when, as and if declared by the board of
directors out of funds legally available therefor and only after
payment of, or provision for, full dividends on all outstanding
shares of any series of preferred stock, if any, and after we
have made provision for any required sinking or purchase funds
for any series of preferred stock.
Preferred
Stock
Our preferred stock may be issued, from time to time in one or
more series, and the board of directors, without further
approval of the stockholders, is authorized to fix the dividend
rights and terms, redemption rights and terms, liquidation
preferences, conversion rights, voting rights and sinking fund
provisions applicable to each such series of preferred stock. If
we issue a series of preferred stock in the future that has
voting rights or preference over the common stock with respect
to the payment of dividends and upon our liquidation,
dissolution or winding up, the rights of the holders of common
stock may be adversely affected.
The issuance of shares of preferred stock could be utilized,
under certain circumstances, in an attempt to prevent our
acquisition by a third party. We have no present intention to
issue any shares of preferred stock.
Limitation
of Director Liability
Our restated certificate of incorporation, as amended contains a
provision that limits the liability of our directors as
permitted under Delaware law. The provision eliminates a
directors personal liability to us or our stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability (A) for any breach of the
directors duty of loyalty to us or our stockholders,
(B) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(C) under Section 174 of the Delaware General
Corporation Law or (D) for any transaction from which the
director derives an improper personal benefit.
Pursuant to our restated certificate of incorporation, as
amended, the liability of directors will be further limited or
eliminated without action by stockholders if Delaware law is
amended to further limit or eliminate the personal liability of
directors.
10
Rights
Plan
We do not currently have a rights plan.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is BNY
Mellon Shareowner Services, P.O. Box 358015,
Pittsburgh, Pennsylvania
15252-8015.
11
DESCRIPTION
OF DEBT SECURITIES
The following summary of the terms of the debt securities
describes general terms that apply to the debt securities. The
debt securities offered pursuant to this prospectus will be
unsecured obligations and will be either senior debt or
subordinated debt and may be convertible debt. The particular
terms of any debt securities will be described more specifically
in each prospectus supplement relating to those debt securities.
Where any provision in an accompanying prospectus supplement is
inconsistent with any provision in this summary, the prospectus
supplement will control.
Debt securities will be issued under an indenture, the terms of
which are summarized below. Where we make no distinction in our
summary between senior debt securities and subordinated debt
securities, the applicable information refers to any debt
securities. A form of indenture relating to the debt securities
is an exhibit to the registration statement of which this
prospectus is a part. We encourage you to read the indenture
because the following description is only a summary of the
material provisions of such documents and does not purport to be
complete and is qualified in its entirety by reference to such
document.
General
The indenture will not limit the aggregate principal amount of
debt securities we may issue and will provide that we may issue
debt securities thereunder from time to time in one or more
series. The indenture will not limit the amount of other
indebtedness or debt securities, other than certain secured
indebtedness as described below, which we or our subsidiaries
may issue. Under the indenture, the terms of the debt securities
of any series may differ and we, without the consent of the
holders of the debt securities of any series, may reopen a
previous series of debt securities and issue additional debt
securities of the series or establish additional terms of the
series.
Unless otherwise provided in a prospectus supplement, any senior
debt securities will be our unsecured obligations and will rank
equally with all of our other unsecured and senior indebtedness.
Because our assets may be held in subsidiaries, our rights and
the rights of our creditors (including the holders of debt
securities) and stockholders to participate in any distribution
of assets of any subsidiary upon the subsidiarys
liquidation or reorganization or otherwise would be subject to
the prior claims of the subsidiarys creditors, except to
the extent that we may be a creditor with recognized claims
against the subsidiary.
You should refer to the prospectus supplement that accompanies
this prospectus for a description of the specific series of debt
securities we are offering by that prospectus supplement. The
terms may include:
|
|
|
|
|
the title and specific designation of the debt securities,
including whether they are senior debt securities or
subordinated debt securities;
|
|
|
|
the terms of subordination, if applicable;
|
|
|
|
any limit on the aggregate principal amount of the debt
securities or the series of which they are a part;
|
|
|
|
whether the debt securities are convertible, and if so, the
terms of conversion;
|
|
|
|
the date or dates on which we must pay principal;
|
|
|
|
the rate or rates at which the debt securities will bear
interest or the manner in which interest will be determined, if
any interest is payable;
|
|
|
|
the date or dates from which any interest will accrue, the date
or dates on which we must pay interest and the record date for
determining who is entitled to any interest payment;
|
|
|
|
the place or places where we must pay the debt securities and
where any debt securities issued in registered form may be sent
for transfer or exchange;
|
|
|
|
the terms and conditions on which we may, or may be required to,
redeem the debt securities;
|
|
|
|
the terms and conditions of any sinking fund;
|
12
|
|
|
|
|
the terms and conditions of modifications, amendments and
waivers of any terms of the debt securities;
|
|
|
|
if other than denominations of $1,000, the denominations in
which we may issue the debt securities;
|
|
|
|
the amount we will pay if the maturity of the debt securities is
accelerated;
|
|
|
|
whether we will issue the debt securities in the form of one or
more global securities and, if so, the identity of the
depositary for the global security or securities;
|
|
|
|
events of default or covenants (including relating to merger,
consolidations and sales of assets) that apply to the debt
securities;
|
|
|
|
whether the debt securities will be defeasible; and
|
|
|
|
any other terms of the debt securities and any other deletions
from or modifications or additions to the indenture in respect
of the debt securities, including those relating to the
subordination of any debt securities.
|
Unless the applicable prospectus supplement specifies otherwise,
the debt securities will not be listed on any securities
exchange. We may issue the debt securities in fully registered
form without coupons.
Unless otherwise stated in the prospectus supplement, we will
pay principal, premium, interest and additional amounts, if any,
on the debt securities at the office or agency we maintain for
that purpose (initially the corporate trust office of the
trustee). Interest will be payable on any interest payment date
to the registered owners of the debt securities at the close of
business on the regular record date for the interest payment in
immediately available funds. We will name in the prospectus
supplement all paying agents we initially designate for the debt
securities. We may designate additional paying agents, rescind
the designation of any paying agent or approve a change in the
office through which any paying agent acts, but we must maintain
a paying agent in each place where payments on the debt
securities are payable.
Unless otherwise stated in the prospectus supplement, the debt
securities may be presented for transfer (duly endorsed or
accompanied by a written instrument of transfer, if we or the
security registrar so requires) or exchanged for other debt
securities of the same series (containing identical terms and
provisions, in any authorized denominations, and in the same
aggregate principal amount) at the office or agency we maintain
for that purpose (initially the corporate trust office of the
trustee). There will be no service charge for any transfer or
exchange, but we may require payment sufficient to cover any tax
or other governmental charge or expenses payable in connection
with the transfer or exchange.
We may initially appoint the trustee as security registrar. Any
transfer agent (in addition to the security registrar) we
initially designate for any debt securities will be named in the
related prospectus supplement. We may designate additional
transfer agents, rescind the designation of any transfer agent
or approve a change in the office through which any transfer
agent acts, but we must maintain a transfer agent in each place
where any payments on the debt securities are payable.
Unless otherwise stated in the prospectus supplement, we will
issue the debt securities only in fully registered form, without
coupons, in minimum denominations of $2,000 and integral
multiples of $1,000. The debt securities may be represented in
whole or in part by one or more global debt securities. Each
global security will be registered in the name of a depositary
or its nominee and the global security will bear a legend
regarding the restrictions on exchanges and registration of
transfer. Interests in a global security will be shown on
records maintained by the depositary and its participants, and
transfers of those interests will be made as described below.
Provisions relating to the use of global securities are more
fully described below in the section entitled
Use of Global Securities.
We may issue the debt securities as original issue discount
securities (bearing no interest or bearing interest at a rate
which at the time of issuance is below market rates) to be sold
at a substantial discount below their principal amount. We will
describe certain special U.S. federal income tax and other
considerations applicable to any debt securities that are issued
as original issue discount securities in the applicable
prospectus supplement.
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If the purchase price of any debt securities is payable in one
or more foreign currencies or currency units, or if any debt
securities are denominated in one or more foreign currencies or
currency units, or if any payments on the debt securities are
payable in one or more foreign currencies or currency units, we
will describe the restrictions, elections, certain
U.S. federal income tax considerations, specific terms and
other information about the debt securities and the foreign
currency or currency units in the prospectus supplement.
We will comply with Section 14(e) under the Securities
Exchange Act of 1934, amended, and any other tender offer rules
under the Securities Exchange Act of 1934, as amended, that may
then be applicable, in connection with any obligation to
purchase debt securities at the option of the holders. Any such
obligation applicable to a series of debt securities will be
described in the related prospectus supplement.
Use of
Global Securities
The debt securities of any series may be issued in whole or in
part in the form of one or more global debt securities that will
be deposited with a depositary or its nominee identified in the
series prospectus supplement.
The specific terms of the depositary arrangement covering debt
securities will be described in the prospectus supplement
relating to that series. We anticipate that the following
provisions or similar provisions will apply to depositary
arrangements relating to debt securities, although to the extent
the terms of any arrangement differs from those described in
this section, the terms of the arrangement shall supersede those
in this section. In this section, the term debt securities will
refer to both senior, subordinated and convertible debt
securities.
Upon the issuance of a global security, the depositary for the
global security or its nominee will credit, to accounts in its
book-entry registration and transfer system, the principal
amounts of the debt securities represented by the global
security. These accounts will be designated by the underwriters
or agents with respect to such debt securities or by us if such
debt securities are offered and sold directly by us. Only
institutions that have accounts with the depositary or its
nominee, and persons who hold beneficial interests through those
participants, may own beneficial interests in a global security.
Ownership of beneficial interests in a global security will be
shown only on, and the transfer of those ownership interests
will be effected only through, records maintained by the
depositary, its nominee or any such participants. The laws of
some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. These
laws may prevent you from transferring your beneficial interest
in a global security.
As long as the depositary or its nominee is the registered owner
of a global security, the depositary or nominee will be
considered the sole owner or holder of the debt securities
represented by the global security. Except as described below,
owners of beneficial interests in a global security will not be
entitled to have debt securities registered in their names and
will not be entitled to receive physical delivery of the debt
securities in definitive form.
We will make all payments of principal of, any premium and
interest on, and any additional amounts with respect to, debt
securities issued as global securities to the depositary or its
nominee. Neither we nor the trustee, any paying agent or the
security registrar assumes any responsibility or liability for
any aspect of the depositarys or any participants
records relating to, or for payments made on account of,
beneficial interests in a global security.
We expect that the depositary for a series of debt securities or
its nominee, upon receipt of any payment with respect to such
debt securities, will credit immediately participants
accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the
global security for such debt securities as shown on the records
of such depositary or its nominee. We also expect that payments
by participants to owners of beneficial interests in such global
security held through such participants will be governed by
standing instructions and customary practices, as is now the
case with securities held for the accounts of customers
registered in street name, and will be the
responsibility of such participants.
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DESCRIPTION
OF WARRANTS
We may issue, either separately or together with other
securities, warrants for the purchase of any, including any
combination of, common stock or preferred stock that we may sell.
The warrants will be issued under warrant agreements to be
entered into between us and a bank or trust company, as warrant
agent, all to be set forth in the applicable prospectus
supplement relating to any or all warrants with respect to which
this prospectus is being delivered. Copies of the form of
agreement for each warrant and the warrant certificate, if any,
which we refer to collectively as warrant
agreements, and reflecting the provisions to be included
in such agreements that will be entered into with respect to a
particular offering of each type of warrant, will be filed with
the Commission and incorporated by reference as exhibits to the
registration statement of which this prospectus is a part.
The following description sets forth certain general terms and
provisions of the warrants to which any prospectus supplement
may relate. The particular terms of the warrants to which any
prospectus supplement may relate and the extent, if any, to
which the general provisions may apply to the warrants so
offered will be described in the applicable prospectus
supplement. To the extent that any particular terms of the
warrants, warrant agreements or warrant certificates described
in a prospectus supplement differ from any of the terms
described in this section, then the terms described in this
section will be deemed to have been superseded by that
prospectus supplement. We encourage you to read the applicable
warrant agreement for additional information before you purchase
any of our warrants.
General
The prospectus supplement will describe the terms of the
warrants with respect to which this prospectus is being
delivered, as well as the related warrant agreement and warrant
certificates, including the following, where applicable:
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the number of, securities, as the case may be, purchasable upon
exercise of each warrant and the initial price at which the
number of securities may be purchased upon such exercise;
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the designation and terms of the securities, if other than
common stock, purchasable upon exercise of the warrants and of
any securities, if other than common stock, with which the
warrants are issued;
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the procedures and conditions relating to the exercise of the
warrants;
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the date, if any, on and after which the warrants, and any
securities with which the warrants are issued, will be
separately transferable;
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the offering price, if any, of the warrants;
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the date on which the right to exercise the warrants will
commence and the date on which that right will expire;
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if applicable, a discussion of the material United States
federal income tax considerations applicable to the exercise of
the warrants;
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whether the warrants represented by the warrant certificates
will be issued in registered or bearer form and, if registered,
where they may be transferred and registered;
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call provisions, if any, of the warrants;
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antidilution provisions, if any, of the warrants; and
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any other material terms of the warrants.
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The description of warrants in the prospectus supplement will
not necessarily be complete and will be qualified in its
entirety by reference to the warrant agreement relating to the
warrants being offered.
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No Rights
of Security Holder Prior to Exercise
Before the exercise of their warrants, holders of warrants will
not have any of the rights of holders of the securities
purchasable upon the exercise of the warrants, and will not be
entitled to, among other things, vote or receive dividend
payments or similar distributions on the securities purchasable
upon exercise.
DESCRIPTION
OF UNITS
We may issue units to purchase one or more of the securities
referenced herein. The terms of such units will be set forth in
a prospectus supplement. The form of units and the applicable
unit agreement will be filed with the Commission and
incorporated by reference as exhibits to the registration
statement of which this prospectus is a part. We encourage you
to read the applicable unit agreement and unit before you
purchase any of our units.
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PLAN OF
DISTRIBUTION
We may, from time to time, sell any or all of our shares of
common stock on The Nasdaq Stock Market or any other stock
exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed
or negotiated prices.
We may use any one or more of the following methods when selling
our securities:
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to or through underwriters or dealers;
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directly to purchasers;
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through block trades in which the broker-dealer will attempt to
sell the securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
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a combination of any such methods of sale; or
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any other method permitted pursuant to applicable law.
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If underwriters are used in the sale of any shares, the shares
will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The
shares may be either offered to the public through underwriting
syndicates represented by managing underwriters, or directly by
underwriters. Generally, the underwriters obligations to
purchase the shares will be subject to certain conditions
precedent. The underwriters will be obligated to purchase all of
the shares if they purchase any of the shares (other than any
shares purchased upon exercise of any option to purchase
additional shares).
Broker-dealers engaged by us, may arrange for other
brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from us (or, if any
broker-dealer acts as agent for the purchaser of shares, from
the purchaser) in amounts to be negotiated, but, except as set
forth in a supplement to this prospectus, in the case of an
agency transaction not in excess of a customary brokerage
commission in compliance with NASD Rule 2440; and in the
case of a principal transaction a markup or markdown in
compliance with NASD IM-2440.
Any broker-dealers or agents that are involved in selling the
securities may be deemed to be underwriters within
the meaning of the Securities Act of 1933, as amended, in
connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the
resale of the securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act
of 1933, as amended.
We may be required to pay certain fees and expenses incurred by
us incident to the registration of the shares.
LEGAL
MATTERS
Weil, Gotshal & Manges LLP, New York, New York has
passed upon the validity of the securities offered by this
prospectus on behalf of the issuer.
EXPERTS
The consolidated financial statements of Avatar Holdings Inc.
(and schedule) as of December 31, 2008 and 2007 and for the
three years in the period ended December 31, 2008, included
in Avatar Holdings Inc.s current report on
Form 8-K
filed on August 19, 2009, and the effectiveness of Avatar
Holdings Inc.s internal control over financial reporting
as of December 31, 2008, 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 are, and audited financial statements to be
included in subsequently filed documents will be, incorporated
herein in reliance upon the reports of
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Ernst & Young LLP pertaining to such consolidated
financial statements and the effectiveness of our internal
control over financial reporting as of the respective dates (to
the extent covered by consents filed with the Securities and
Exchange Commission) given on the authority of such firm as
experts in accounting and auditing.
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$100,000,000
Avatar Holdings Inc.
% Senior
Convertible Notes due 2016
Prospectus Supplement
February ,
2011
Barclays Capital