Item 1.01. Entry into a Material Definitive Agreement.
On September 1, 2009, Vector Group Ltd. (the "Company") completed a private
placement of $85.0 million aggregate principal amount of its 11% Senior Secured
Notes due 2015 (the "Notes") to Jefferies & Company, Inc. (the "Initial
Purchaser") in accordance with Rule 144A and Regulation S of the Securities Act
of 1933, as amended. The Notes are governed by the terms of an Indenture, dated
as of August 16, 2007 (the "Base Indenture"), as supplemented by a First
Supplemental Indenture, dated as of July 15, 2008 (the "First Supplemental
Indenture"), and a Second Supplemental Indenture, dated as of September 1, 2009
(the "Second Supplemental Indenture" and together with the Base Indenture and
the First Supplemental Indenture, the "Indenture"), among the Company, the
subsidiary guarantors named therein (the "Subsidiary Guarantors") and U.S. Bank
National Association, as trustee (the "Trustee").
The Notes were issued at 94% of the face value. The Company intends to use
the net proceeds of the issuance for general corporate purposes.
Interest on the Notes will be payable semi-annually on February 15 and
August 15 of each year, commencing on February 15, 2010. The Notes will pay
interest in cash at a rate of 11% per year. Interest on overdue principal and
interest and liquidated damages, if any, will accrue at a rate that is 1% higher
than the then applicable interest rate on the Notes.
The Notes mature on August 15, 2015. The Company may redeem some or all of
the Notes at any time prior to August 15, 2011 at a make-whole redemption price.
On or after August 15, 2011 the Company may redeem some or all of the Notes at a
premium that will decrease over time, plus accrued and unpaid interest and
liquidated damages, if any, to the redemption date. At any time prior to
August 15, 2010, the Company may on any one or more occasions redeem up to 35%
of the aggregate principal amount of all notes outstanding under the Indenture
with the net proceeds of certain equity offerings at 111% of the aggregate
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the redemption date.
The Notes are fully and unconditionally guaranteed on a joint and several
basis by all of the wholly-owned domestic subsidiaries of the Company that are
engaged in the conduct of the Company's cigarette businesses. In addition, some
of the guarantees are secured by second priority or first priority security
interests in certain collateral of some of the Subsidiary Guarantors pursuant to
security and pledge agreements. The Company will not provide any security for
the Notes.
In the event of a Change of Control (as defined in the Indenture), each
holder of the Notes may require the Company to repurchase some or all of its
Notes at a repurchase price equal to 101% of the aggregate principal amount of
the Notes plus accrued and unpaid interest and liquidated damages, if any, to
the date of purchase.
If an Event of Default (as defined in the Indenture) occurs and is
continuing, the Trustee or the holders of at least 25% in aggregate principal
amount of the outstanding 11% Senior Secured Notes due 2015 may declare the
Notes immediately due and payable, except that an Event of Default resulting
from a bankruptcy or similar proceeding with respect to the Company or with
respect to the Subsidiary Guarantors who, individually or as a group, would
constitute a Significant Subsidiary (as defined in the Indenture) will
automatically cause the Notes to become immediately due and payable without any
declaration or other act on the part of the Trustee or any Note holders.
In connection with the issuance of the Notes, on September 1, 2009, the
Company and the Subsidiary Guarantors entered into a Registration Rights
Agreement with the Initial Purchaser. The Company and the Subsidiary Guarantors
have agreed to consummate a registered exchange offer for the Notes within
360 days after the date of the initial issuance of the Notes. The Company and
the Subsidiary Guarantors have agreed to file and keep effective for a certain
time period a shelf registration statement for the resale of the Notes if an
exchange offer cannot be effected and under certain other circumstances. The
Company will be required to pay additional interest on the Notes if it fails to
timely comply with its obligations under the Registration Rights Agreement until
such time as it complies.
The summary of the foregoing transactions is qualified in its entirety by
reference to the text of the related agreements. Copies of the Second
Supplemental Indenture and the Registration Rights Agreement are attached as
Exhibits 4.1 and 4.2 hereto, respectively, and are incorporated herein by
reference. Copies of the Base Indenture and the First Supplemental Indenture
were filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Committee (the "SEC") on August 17, 2007 and
July 15, 2008, respectively. Copies of the security and pledge agreements of
certain of the Subsidiary Guarantors were filed as Exhibits 4.2, 4.3 and 4.4 to
the Company's Current Report on Form 8-K filed with the SEC on August 17, 2007.
The Initial Purchaser or its affiliates from time to time have provided in
the past and may provide in the future investment banking and financial advisory
services to the Company and its affiliates in the ordinary course of business.
The Initial Purchaser and its affiliates beneficially own approximately 5.24% of
the Company's common stock.
U.S. Bank National Association has in the past provided and may from time to
time in the future provide trustee, registrar, exchange agent, paying agent and
other services to the Company.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
See Item 1.01, which is incorporated herein by reference.
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