<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1997
REGISTRATION NO. 333-37135
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
OMEGA CABINETS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2434 42-1423186
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
----------------
PANTHER TRANSPORT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
IOWA 4212 42-1395277
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
----------------
1205 PETERS DRIVE
WATERLOO, IOWA 50703
(319) 235-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LANCE E. ERLICK
OMEGA CABINETS, LTD.
1205 PETERS DRIVE
WATERLOO, IOWA 50703
(319) 235-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
----------------
COPY TO:
LAUREN I. NORTON, ESQ. ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON,
MASSACHUSETTS 02110 (617) 951-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered or this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO +
+COMPLETION OR AMENDMENT. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 11, 1997
PROSPECTUS
OMEGA CABINETS, LTD.
OFFER TO EXCHANGE
SENIOR SUBORDINATED NOTES DUE JUNE 15, 2007
WHICH HAVE BEEN REGISTERED UNDER THE
LOGO SECURITIES ACT OF 1933, AS AMENDED,
FOR AN EQUAL PRINCIPAL AMOUNT OF IT'S
SENIOR SUBORDINATED NOTES DUE JUNE 15, 2007,
WHICH HAVE NOT BEEN SO REGISTERED
-----------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS THEREUNDER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
-----------
Omega Cabinets, Ltd., a Delaware corporation, ("Omega") hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount of up to $100,000,000 of its
new Senior Subordinated Notes due 2007 guaranteed fully, unconditionally and
jointly and severally by its subsidiary Panther Transport, Inc. (as defined
below) (the "Exchange Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), for a like principal amount of
its outstanding Senior Subordinated Notes due 2007 guaranteed fully,
unconditionally and jointly and severally by its subsidiary Panther Transport,
Inc. (as defined below) (the "Original Notes" and, together with the Exchange
Notes, the "Notes") from the holders (the "Holders") thereof. The terms of the
Exchange Notes are identical in all material respects to the Original Notes,
except for certain transfer restrictions and registration rights relating to
the Original Notes.
Omega will accept for exchange any and all Original Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1997, unless
extended (as so extended, the "Expiration Date"). Tenders of Original Notes may
be withdrawn at any time prior to the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Original Notes being
tendered for exchange pursuant to the Exchange Offer. Pursuant to the terms of
the Registration Rights Agreement (as defined herein), the Exchange Offer will
remain open for at least 20 business days and for not more than 30 business
days after the date hereof, unless extended. The Exchange Offer is subject to
certain other customary conditions. See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually on June 15 and
December 15 of each year, commencing December 15, 1997. The Exchange Notes are
redeemable at the option of Omega, in whole or in part, from time to time on or
after June 15, 2002, at the redemption prices set forth herein, together with
accrued and unpaid interest to the date of redemption. In addition, at any time
or from time to time, prior to June 15, 2000, up to an aggregate of $35.0
million in aggregate principal amount of Notes will be redeemable at the option
of Omega from the net proceeds of public sales of common stock of Omega (or its
parent, Omega Holdings, Inc., to the extent such net proceeds are contributed
to Omega as common equity), at a price of 110.5% of the principal amount of the
Notes, together with accrued and unpaid interest to the date of redemption;
provided that at least $65.0 million in aggregate principal amount of Notes
remains outstanding immediately after each such redemption. Upon the occurrence
of a Change of Control (as defined herein), each holder of Exchange Notes may
require the Company to repurchase all or a portion of such holder's Exchange
Notes at 101% of the aggregate principal amount of the Exchange Notes together
with accrued and unpaid interest to the date of repurchase. See "Description of
Exchange Notes."
The Exchange Notes will be general, unsecured obligations of Omega, will rank
pari passu with all senior subordinated debt of Omega and will be senior in
right of payment to all future subordinated debt of Omega, if any. There is
currently no existing debt of Omega subordinate to the Notes. The Exchange
Notes will be guaranteed fully, unconditionally and jointly and severally by
Omega's subsidiary Panther Transport, Inc. ("Panther," or the "Guarantor"). The
claims of the holders of Exchange Notes will be subordinated to Senior Debt (as
defined herein), which was approximately $39.0 million as of December 10, 1997,
all of which was fully secured borrowings under the New Bank Credit Facility
(as defined herein). See "Capitalization."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of Omega contained in the Registration Rights Agreement dated July
24, 1997, among Omega and the other signatories thereto (the "Registration
Rights Agreement"). Omega believes that based on interpretations by the staff
of the Securities and Exchange Commission (the "Commission"), Exchange Notes
issued pursuant to the Exchange Offer in exchange for Original Notes may be
offered for resale, resold and otherwise transferred by each Holder thereof
(other than any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement with any person to participate in
the distribution of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
Omega will not receive any proceeds from the Exchange Offer and will pay all
expenses incident to the Exchange Offer.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1997.
<PAGE>
The Exchange Offer is not being made to, nor will Omega accept surrenders
for exchange from, Holders of Original Notes in any jurisdiction in which such
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
All resales must be made in compliance with applicable state securities or
"blue sky" laws. Such compliance may require that the Exchange Notes be
registered or qualified in a particular state or that the resales be made by
or through a licensed broker-dealer, unless exemptions from these requirements
are available. The Company assumes no responsibility with regard to compliance
with such requirements.
The Exchange Notes will be available initially only in book-entry form.
Omega expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depositary and its participants. After the initial
issuance of the Global Note, Exchange Notes in certificated form will be
issued in exchange for the Global Note only on the terms set forth in the
Indenture (the "Indenture") among Omega, The Chase Manhattan Bank, as trustee
(the "Trustee"), and the Guarantor, dated as of July 24, 1997. See
"Description of Exchange Notes--Book-Entry Transfer."
Prior to this Exchange Offer, there has been no public market for the
Original Notes. To the extent that Original Notes are tendered and accepted in
the Exchange Offer, a Holder's ability to sell untendered Original Notes could
be adversely affected. If a market for the Exchange Notes should develop, the
Exchange Notes could trade at a discount from their face value. Omega does not
currently intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
Omega has been advised by Goldman, Sachs & Co., Citicorp Securities, Inc.
and Montgomery Securities, the initial purchasers (the "Initial Purchasers")
of the Original Notes, that they intend to make a market in the Original Notes
and that, following the Exchange Offer, they intend to make a market in the
Exchange Notes; however, the Initial Purchasers are under no obligation to do
so and any market making activities with respect to the Exchange Notes may be
discontinued at any time.
Neither Omega nor any of its subsidiaries will receive any cash proceeds
from the issuance of the Exchange Notes offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
<PAGE>
AVAILABLE INFORMATION
The Company (as defined herein) has filed a registration statement on Form
S-4 (herein referred to, together with all exhibits and schedules thereto and
any amendments thereto, as the "Exchange Offer Registration Statement") under
the Securities Act with respect to the Exchange Notes offered hereby. This
Prospectus, which forms a part of the Exchange Offer Registration Statement,
does not contain all of the information set forth in the Exchange Offer
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Exchange Notes offered hereby, reference is
made to the Exchange Offer Registration Statement. Statements made in this
Prospectus as to the contents of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of the document
filed as an exhibit to the Exchange Offer Registration Statement.
The Company is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture, the Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, the Company
will furnish to the holders of the Notes and file with the Commission (unless
the Commission will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company was required to file such
forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its subsidiaries on a
consolidated basis and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports, in each case within the time
periods specified in the Commission's rules and regulations.
Any reports or documents filed by the Company with the Commission (including
the Exchange Offer Registration Statement) may be inspected and copied at the
Public Reference Section of the Commission's office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661). Copies of such reports or other documents may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a Web site that contains reports and other information that is filed
through the Commission's Electronic Data Gathering Analysis and Retrieval
System. The Web site can be accessed at http://www.sec.gov.
Omega(R) and HomeCrest(R) are registered trademarks of Omega (as defined
herein).
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise stated in this Prospectus, references to (a)
"Omega" shall mean Omega Cabinets, Ltd., a Delaware corporation and wholly
owned subsidiary of Omega Holdings, Inc. ("Holdings"); (b) "HomeCrest" shall
mean HomeCrest, a division of Omega; and (c) the "Company" shall mean Omega and
its subsidiary, Panther Transport, Inc. ("Panther"). All references to a fiscal
year refer to the 12 months ended on the last Saturday in December of the year
referenced.
Certain of the information contained in this summary and elsewhere in this
Prospectus, including under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and information with respect to the
Company's plans and strategy for its business are forward-looking statements.
For a discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Forward Looking Statements."
THE COMPANY
The Company is a leading manufacturer of wood and laminate kitchen cabinetry,
bathroom vanities and related accessories. Headquartered in Waterloo, Iowa, the
Company produces a wide array of custom, semi-custom and stock kitchen and bath
cabinetry primarily for use in residential remodeling and, to a lesser extent,
in new construction. Both Omega and HomeCrest manufacture their products in
state-of-the-art, highly-integrated facilities under the Omega(R) (custom),
Dynasty (semi-custom), Embassy (semi-custom), Legend (stock) and HomeCrest(R)
(stock) brand names and sell to a broad network of kitchen and bath dealers,
home centers, builders/contractors and independent distributors.
Omega was founded in 1977 and in 1994 was purchased from its founder by Code,
Hennessy & Simmons, Inc., a private investment firm, and a group of private
investors including the Company's current senior management team. In May 1995,
the Company more than doubled in size, as measured by total sales, through its
acquisition of HomeCrest, a stock cabinetry manufacturer. As measured by 1996
gross sales, the Company believes that it is the seventh largest manufacturer
of kitchen cabinetry in the United States, and one of only two national
manufacturers that produce a full line of kitchen cabinetry for all three
market price points: custom, semi-custom and stock. Custom cabinetry is made-
to-order and is offered in an unlimited choice of design and construction
styles, wood species, configurations, finishes and colors. Semi-custom
cabinetry is less expensive and is made-to-order from a more limited set of
options than custom cabinetry. Stock cabinetry is the least expensive price
point and offers the fewest number of styles, wood species and finishes, with
choices generally limited to the standard guidelines established by the
manufacturer. Management believes that the Company's ability to sell nationally
at all three price points represents a competitive advantage, as it generates
cross-selling opportunities throughout the Company's broad distribution
network.
The Company operates three manufacturing facilities, one located in Iowa, one
in Indiana and one in Tennessee with an aggregate of approximately one million
square feet. Since January 1, 1994, Omega and HomeCrest have invested over
$14.5 million on capital expenditures directed primarily toward improving
product quality, modernizing manufacturing facilities and increasing capacity
and the level of automation in the manufacturing process. The Company's primary
channel of distribution is its
4
<PAGE>
network of over 1,660 kitchen and bath dealer locations, which accounted for
approximately 80% of total 1996 sales. Management believes that its quality
dealer relationships have created a strong, loyal network with low turnover
rates, resulting in a significant competitive advantage for the Company within
the cabinetry industry. In addition, the Company has developed several
relationships with national and regional home centers, including Home
Depot/Home Depot Expo, Lowe's, Menards and Eagle. The Company's sales to home
centers grew from $7.5 million in fiscal 1994 to $13.2 million in fiscal 1996.
According to Specialists in Business Information, a market research firm, the
United States kitchen and bath cabinetry market had sales in 1996 of
approximately $6.4 billion. Expansion in the industry has been driven by the
increasing popularity of kitchen and bathroom remodeling and a relatively
strong market for new home construction. As a result of these trends, growth in
the kitchen and bath cabinetry market over the past ten years has outpaced
growth in both the overall economy and the domestic building materials
industry. According to Specialists in Business Information, between 1986 and
1996, kitchen and bath cabinetry sales increased at a 7.2% compound annual
growth rate ("CAGR"), which represents a growth in the total dollar volume of
U.S. building material shipments made by manufacturers of kitchen and bath
cabinetry from $3.2 billion to $6.4 billion during this same ten-year period.
The United States kitchen and bath cabinetry industry is highly fragmented with
over 4,700 manufacturers. As evidence of ongoing industry consolidation, in
1990 the top twenty-five industry competitors represented 45.1% of total
industry sales, whereas in 1996 the top twenty-five competitors represented
50.8% of total industry sales.
5
<PAGE>
RECENT DEVELOPMENTS
On or about April 28, 1997, Holdings and Holdings' stockholders entered into
a recapitalization agreement (as amended to date, the "Merger Agreement") with
Omega Merger Corp. ("OMC") which provided for a merger (the "Merger") of OMC
with and into Holdings, and a recapitalization (the "Recapitalization") of
Holdings, with Holdings as the surviving corporation. OMC had no operations and
was incorporated on April 24, 1997 in Delaware, solely for the purpose of
effecting a statutory merger with Holdings. No cash was contributed to
capitalize OMC.
One June 13, 1997, the Merger of OMC into Holdings was consummated.
Immediately thereafter, the following transactions occurred (together with the
Merger, the "Transactions"):
(i) Mezzanine Lending Associates III, L.P. ("MLA III"), an investment
fund managed by Butler Capital Corporation ("BCC"), purchased, for cash,
61,865 shares of a new class of common stock of Holdings ("New Common") at
a valuation of $1,000 per share, for a total of approximately $61.9 million
representing 88.38% of the outstanding shares of Holdings;
(ii) management and the Company's founder converted (A) 42.3665 Class A
common stock shares and (B) options to purchase 31.317 Class A shares in
Holdings into 7,751.565 New Common in Holdings at a valuation of $1,000 per
New Common share, such New Common representing 11.07% of the outstanding
shares of Holdings;
(iii) new management stockholders purchased, for cash, 383.435 additional
New Common representing 0.55% of the outstanding shares of Holdings for
$1,000 per share, for a total of $0.38 million;
(iv) Holdings and its subsidiaries, including Omega, entered into a
credit agreement with First Bank National Association as lender and as
agent (the "New Bank Credit Facility") providing for a syndicated senior
secured term loan facility of up to $40.0 million (the "Term Facility") and
a syndicated senior secured revolving credit facility of up to $20.0
million (the "Revolving Facility");
(v) West Street Fund I, L.L.C. and an affiliate of Citicorp Securities,
Inc. provided bridge loans (the "Bridge Loans") to the Company in the
aggregate principal amount of $90.0 million and Holdings issued an 11%
junior subordinated note to MLA III in the principal amount of $10.0
million (the "Junior Subordinated Note");
(vi) Holdings redeemed (A) 926.036 Class A shares, (B) options to
purchase 48.036 Class A shares and (C) 74.363 shares of Class B common
stock from certain stockholders and optionholders of Holdings for
approximately $105,053 per share for a total cash payment of approximately
$109.6 million, which is subject to a post-closing adjustment;
(vii) Holdings issued a contingent promissory note to the selling
stockholders in the principal amount of $3.0 million (the "Contingent
Note"), which is secured by a standby letter of credit and which is payable
on March 31, 1998, subject to offset and reduction to satisfy certain
indemnification obligations of the sellers under the Merger Agreement;
(viii) approximately $89.3 million of debt of Holdings and its
subsidiaries was repaid.
6
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Transactions as of June 13, 1997:
<TABLE>
<CAPTION>
DOLLARS
IN
SOURCES: MILLIONS
-------- --------
<S> <C>
New Bank Credit Facility:
Revolving Facility(1) $ 11.3
Term Facility(2) 36.8
Equity Investment by MLA III 61.9
Equity Investment by management 0.4
Bridge Loans 90.0
Junior Subordinated Note 10.0
------
Total Sources $210.4
======
<CAPTION>
USES:
<S> <C>
Payments in respect of outstanding common stock
and stock options from existing shareholders $109.6
Repayment of Existing Indebtedness 89.3
Transaction Fees and Expenses(3) 11.5
------
Total Uses $210.4
======
</TABLE>
- --------
(1) As of December 10, 1997, the Company had availability of $17.2 million
under the Revolving Facility.
(2) As of December 10, 1997, the Company had $36.2 million outstanding under
the Term Facility.
(3) Includes placement fees, advisory fees, fees paid in connection with the
New Bank Credit Facility, the Bridge Loans and the Notes and legal,
accounting and other fees and expenses.
On July 24, 1997, the Company consummated the sale of the Original Notes in a
transaction exempt from the registration requirements of the Securities Act
(the "Initial Offering"). Concurrently with the Initial Offering, the Company
used the net proceeds from the Initial Offering, cash from operations and
borrowings under the Revolving Facility to repay the indebtedness represented
by the Bridge Loans and the Junior Subordinated Note, and interest thereon, and
to pay certain related expenses. In connection with the Initial Offering, the
Company entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which it agreed to register the Exchange Notes under the
Securities Act and offer them in exchange for the Original Notes. See "Recent
Developments," "Use of Proceeds," "Description of New Bank Credit Facility,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
On October 1, 1997, HomeCrest, a wholly-owned subsidiary of the Company, was
merged with and into the Company (the "HomeCrest Merger") with the Company as
the surviving organization.
The Company's principal executive offices are located at 1205 Peters Drive,
Waterloo, Iowa 50703, and its telephone number is (319) 235-5700.
7
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER............ Up to $100,000,000 aggregate principal amount
of Exchange Notes are being offered in exchange
for a like aggregate principal amount of
Original Notes. The Company is making the
Exchange Offer in order to satisfy its
obligations under the Registration Rights
Agreement relating to the Original Notes. For a
description of the procedures for tendering
Original Notes, see "The Exchange Offer--
Procedures for Tendering Original Notes."
EXPIRATION DATE............... 5:00 p.m., New York City time, on , 1997,
unless the Exchange Offer is extended by the
Company in its sole discretion (in which case
the Expiration Date will be the latest date and
time to which the Exchange Offer is extended).
See "The Exchange Offer--Terms of the Exchange
Offer."
CONDITIONS TO THE EXCHANGE The Exchange Offer is subject to the condition
OFFER........................ that the Exchange Offer does not violate
applicable law or SEC staff interpretation. If
the Company determines that the Exchange Offer
is not permitted by applicable Federal law, it
may terminate the Exchange Offer. The Exchange
Offer is not conditioned upon any minimum
principal amount of Original Notes being
tendered. See "The Exchange Offer--Conditions
to the Exchange Offer."
RESALE OF THE EXCHANGE NOTES.. Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Original Notes
may be offered for resale, resold and otherwise
transferred by any holder thereof (other than
(i) a broker-dealer who purchased such Original
Notes directly from the Company for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a
person that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that the holder
is acquiring the Exchange Notes in its ordinary
course of business and is not participating,
and has no arrangement or understanding with
any person to participate, in the distribution
of the Exchange Notes. Holders of Original
Notes wishing to accept an Exchange Offer must
represent to the Company that such conditions
have been met. In the event that the Company's
belief is inaccurate, holders of Exchange Notes
who transfer Exchange Notes in violation of the
prospectus delivery provisions of the
Securities Act and without an exemption from
registration thereunder may incur liability
8
<PAGE>
under the Securities Act. The Company does not
assume or indemnify holders against such
liability, although the Company does not
believe that any such liability should exist.
A broker-dealer that receives Exchange Notes in
exchange for Original Notes held for its own
account, as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange
Notes. Although such broker-dealer may be an
"underwriter" within the meaning of the
Securities Act, the Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
The Exchange Offer is not being made to, nor
will the Company accept surrenders for exchange
from, holders of Original Notes in any
jurisdiction in which the Exchange Offer or the
acceptance thereof would not be in compliance
with the securities or blue sky laws of such
jurisdiction.
PROCEDURES FOR TENDERING
NOTES......................... Each holder of Original Notes wishing to accept
the Exchange Offer must complete, sign and date
the accompanying Letter of Transmittal, as the
case may be, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Original Notes and
any other required documentation to the
Exchange Agent (as defined herein) at the
address set forth herein. By executing a Letter
of Transmittal, each holder will represent to
the Company conducting the related Exchange
Offer that, among other things, (i) the
Exchange Notes acquired pursuant to such
Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, (ii) neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes and that such holder is not
engaged in, and does not intend to engage in, a
distribution of Exchange Notes, and (iii) that
neither the holder nor any such other person is
an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company. See "The
Exchange Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............ Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust
9
<PAGE>
company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. See
"The Exchange Offer--Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Original Notes who wish to tender
their Original Notes and whose Original Notes
are not immediately available or who cannot
deliver their Original Notes, the Letter of
Transmittal, as the case may be, or any other
documents required by such Letter of
Transmittal to the Exchange Agent (as defined
herein) (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date must tender their Original Notes according
to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery
Procedures."
UNTENDERED NOTES.............. Following the consummation of the Exchange
Offer, Holders of Original Notes eligible to
participate but who do not tender their
Original Notes will not have any further
exchange rights and such Original Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the
market for such Original Notes could be
adversely affected by the Exchange Offer.
CONSEQUENCES OF FAILURE TO
EXCHANGE..................... The Original Notes that are not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such
Original Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some
other exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under
the Securities Act, or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
SHELF REGISTRATION STATEMENT.. In the event that any changes in law or the
applicable interpretations of the staff of the
Commission do not permit the Company to effect
the Exchange Offer or upon the request of a
Holder of Transfer Restricted Securities (as
defined) under certain circumstances the
Company has agreed pursuant to the Registration
Rights Agreement to register the Original Notes
issued by it on a shelf registration statement
(the "Shelf Registration Statement") and use
its best efforts to cause it to be declared
effective by the Commission. The Company has
agreed to maintain the effectiveness of the
Shelf Registration Statement for, under certain
circumstances, at least two years, to cover
resales of the Original Notes held by any such
holders.
10
<PAGE>
WITHDRAWAL RIGHTS............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
ACCEPTANCE OF ORIGINAL NOTES
AND DELIVERY OF EXCHANGE
NOTES........................ The Company will accept for exchange any and
all Original Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
FEDERAL TAX CONSIDERATIONS.... The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
Federal income tax purposes. See "Certain
Federal Income Tax Consequences."
USE OF PROCEEDS............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
EXCHANGE AGENT................ The Chase Manhattan Bank.
THE EXCHANGE NOTES
GENERAL....................... The form and terms of the Exchange Notes are
the same as the form and terms of the
respective Original Notes except that (i) the
Exchange Notes have been registered under the
Securities Act and, therefore, will generally
not bear legends restricting the transfer
thereof, and (ii) the Holders of Exchange Notes
will not be entitled to rights under the
Registration Rights Agreement. See "The
Exchange Offer." The Exchange Notes will
evidence the same debt as the Original Notes
and will be entitled to the benefits of the
Indenture.
SECURITIES OFFERED............ $100.0 million in aggregate principal amount of
10 1/2% Senior Subordinated Notes due 2007.
MATURITY DATE................. June 15, 2007.
GUARANTEES.................... Omega's payment obligations under the Exchange
Notes will be fully, unconditionally and
jointly and severally guaranteed on a senior
subordinated basis (the "Subsidiary Guarantee")
by Omega's Subsidiary. The Subsidiary Guarantee
will be subordinated to all Senior Debt of the
Guarantor. See "Description of Exchange Notes--
Guarantee."
INTEREST PAYMENT DATES........ June 15 and December 15 of each year,
commencing December 15, 1997.
OPTIONAL REDEMPTION........... Except as described below, the Exchange Notes
are not redeemable at Omega's option prior to
June 15, 2002.
11
<PAGE>
From and after June 15, 2002, the Exchange
Notes will be subject to redemption at the
option of Omega, in whole or in part, at the
redemption prices set forth herein, plus
accrued and unpaid interest to the date of
redemption.
In addition, prior to June 15, 2000, up to an
aggregate of $35.0 million in aggregate
principal amount of Notes will be redeemable at
the option of Omega from the net proceeds of
public sales of common stock of Omega (or
Holdings, to the extent such net proceeds are
contributed to Omega as common equity), at a
price of 110.5% of the principal amount of the
Notes, plus accrued and unpaid interest to the
date of redemption; provided that at least
$65.0 million in aggregate principal amount of
Notes remains outstanding immediately after
each such redemption; and provided, further,
that the notice of any such redemption shall be
mailed within 60 days of the receipt by Omega
or Holdings of proceeds from the public
offering.
CHANGE OF CONTROL............. In the event of a Change of Control, Holders of
the Exchange Notes will have the right to
require Omega to repurchase their Exchange
Notes, in whole or in part, at a price equal to
101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase.
There can be no assurance that the Company
would have the funds necessary to effect such a
purchase if a Change of Control were to occur.
In addition, the New Bank Credit Facility
prohibits the Company from purchasing any Notes
and also provides that certain changes in
control would constitute a default thereunder.
In the event a Change of Control occurs at a
time when the Company is prohibited from
purchasing Notes, the Company could seek the
consent of its lenders to purchase the Notes or
would attempt to refinance the borrowings that
contain such prohibition. The Indenture
provides that if the terms of the Senior Debt
(as defined herein) restrict or prohibit the
repurchase of the Exchange Notes, the Company
will either repay all outstanding Senior Debt
or obtain the requisite consents under
agreements governing Senior Debt to permit
repurchase of the Notes. See "Risk Factors --
Payment Upon a Change of Control" and
"Description of Exchange Notes -- Repurchase at
the Option of Holders.
RANKING....................... The Exchange Notes will be general, unsecured
obligations of the Company, will be
subordinated in right of payment to all Senior
Debt, will rank pari passu with all senior
subordinated debt of the Company and will be
senior in right of payment to all existing and
future subordinated debt of the Company, if
any. The claims of the Holders of the
12
<PAGE>
Exchange Notes will be subordinated to the
Senior Debt, which, as of December 10, 1997,
after giving effect to the Initial Offering, is
$39.0 million, all of which is fully secured
borrowings under the New Bank Credit Facility.
See "Description of Notes -- Subordination."
RESTRICTIVE COVENANTS......... The Indenture contains certain covenants that
will, among other things, limit the ability of
Omega and its Subsidiary to incur additional
Indebtedness (as defined herein) and issue
Disqualified Stock (as defined herein), pay
dividends or distributions or make investments
or make certain other Restricted Payments (as
defined herein), enter into certain
transactions with affiliates, dispose of
certain assets, incur liens securing pari passu
and subordinated indebtedness and engage in
mergers and consolidations. See "Description of
Exchange Notes--Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
Set forth below are summary historical and pro forma consolidated financial
data of the Company and its predecessor. The historical Statement of Income and
Balance Sheet Data of the Company for the periods from June 17, 1994 (the date
of the acquisition by the Company of its predecessor) to December 28, 1996 have
been derived from the Company's audited consolidated financial statements for
those periods. The historical Statement of Income and Balance Sheet Data of the
predecessor for each of the two years in the period ended December 31, 1993 and
for the period from January 1, 1994 through June 16, 1994 have been derived
from its audited financial statements for those periods. The historical
Statement of Income and Balance Sheet Data for the nine months ended September
27, 1997 and September 28, 1996 have been derived from the unaudited
consolidated financial statements for those periods and, in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of said information. The
information presented below should be read in conjunction with
"Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto and
other financial information included elsewhere in this Offering Circular.
<TABLE>
<CAPTION>
PREDECESSOR(1)
----------------------------
YEAR ENDED
DECEMBER 31, PERIOD
---------------- FROM
JANUARY 1,
1994 TO
JUNE 16,
1992 1993 1994
------- ------- ----------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........ $40,332 $47,637 $24,917
Cost of goods
sold............ 26,762 32,495 17,564
------- ------- -------
Gross profit..... 13,570 15,142 7,353
Selling, general
and
administrative
expenses........ 4,097 4,949 5,235(7)
Amortization of
goodwill........ -- -- --
------- ------- -------
Operating income. 9,473 10,193 2,118
Interest expense. (192) (60) (22)
Interest and
dividend income. 271 155 --
------- ------- -------
Income before
income taxes and
extraordinary
item............ 9,552 10,288 2,096
Income tax
expense ........ -- -- --
------- ------- -------
Income (loss)
before
extraordinary
item............ 9,552 10,288 2,096
Extraordinary
loss on debt
refinancing(5).. -- -- --
------- ------- -------
Net income
(loss).......... $ 9,552 $10,288 $ 2,096(7)
======= ======= =======
Ratio of earnings
to fixed
charges(6)...... 27.7x 35.8x 14.3x
OTHER DATA:
EBITDA(7)(8)..... $10,289 $11,149 $ 2,643
EBITDA margin(8). 25.5% 23.4% 10.6%
Gross margin..... 33.6% 31.8% 29.5%
Capital
expenditures.... $ 1,398 $ 1,557 $ 1,727
Depreciation and
amortization.... 858 971 538
Net cash provided
(used) by:
Operating
activities...... 10,061 10,658 3,635
Investing
activities...... 979 (1,575) (1,727)
Financing
activities..... (10,123) (11,193) (2,134)
Ratio of EBITDA
to interest
expense.........
Number of active
selling
locations (at
end of year)(9)
................ 1,441
THE COMPANY(1)
------------------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
PERIOD ------------------------------------ -------------------------------------------
FROM
JUNE 17, PRO FORMA PRO FORMA
1994 TO DECEMBER 28, SEPTEMBER SEPTEMBER SEPTEMBER
DECEMBER DECEMBER DECEMBER 1996 28, 1996 27, 1997 27, 1997
31, 1994 30, 1995(2) 28, 1996 (UNAUDITED)(3) (UNAUDITED) (UNAUDITED) (UNAUDITED)(3)
-------- ----------- -------- -------------- ----------- ---------------- --------------
(IN THOUSANDS, EXCEPT RATIOS AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Net sales........ $33,893 $97,958 $136,225 $136,225 $101,965 $115,313 $115,313
Cost of goods
sold............ 22,485 72,690 97,287 97,287 73,000 83,657 83,657
------- ------- -------- -------- -------- -------- --------
Gross profit..... 11,408 25,268 38,938 38,938 28,965 31,656 31,656
Selling, general
and
administrative
expenses........ 3,708 10,964 15,309 15,309 11,445 17,852(4) 17,852
Amortization of
goodwill........ 519 1,163 1,332 1,332 996 1,041 1,041
------- ------- -------- -------- -------- -------- --------
Operating income. 7,181 13,141 22,297 22,297 16,525 12,763 12,763
Interest expense. (4,123) (9,701) (10,441) (15,220) (7,894) (12,616) (11,403)
Interest and
dividend income. -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Income before
income taxes and
extraordinary
item............ 3,058 3,440 11,856 7,077 8,631 147 1,360
Income tax
expense ........ 1,110 1,360 4,700 2,812 3,392 390 869
------- ------- -------- -------- -------- -------- --------
Income (loss)
before
extraordinary
item............ 1,948 2,080 7,156 4,071 5,239 (243) 491
Extraordinary
loss on debt
refinancing(5).. -- -- -- -- -- (947) --
------- ------- -------- -------- -------- -------- --------
Net income
(loss).......... $ 1,948 $ 2,080 $ 7,156 $ 4,265 $ 5,239 $ (1,190)(4) $ 491
======= ======= ======== ======== ======== ======== ========
Ratio of earnings
to fixed
charges(6)...... 1.7x 1.3x 2.1x 1.5x 2.0x 1.0x 1.1x
OTHER DATA:
EBITDA(7)(8)..... $ 7,993 $15,500 $ 25,527 $ 25,527 $ 18,845 $ 20,811 $ 20,811
EBITDA margin(8). 23.6% 15.8% 18.7% 18.7% 18.5% 18.0% 18.0%
Gross margin..... 33.7% 25.8% 28.6% 28.6% 28.4% 27.5% 27.5%
Capital
expenditures.... $ 2,565 $ 3,045 $ 1,421 $ 1,421 $ 836 $ 2,116 $ 2,116
Depreciation and
amortization.... 964 2,781 3,731 3,731 2,738 3,001 3,001
Net cash provided
(used) by:
Operating
activities...... 6,088 9,077 13,262 10,371 11,876 (204) 530
Investing
activities...... (58,598) (33,175) (2,181) (2,181) (1,586) (5,397) (5,397)
Financing
activities..... 52,510 24,103 (11,083) (11,083) (10,292) 5,602 5,602
Ratio of EBITDA
to interest
expense......... 1.9x 1.6x 2.4x 1.7x 2.4x 1.7x 1.8x
Number of active
selling
locations (at
end of year)(9)
................ 1,564 1,624 2,042
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 27,
1997
----------------
ACTUAL
----------------
<S> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital...................................................................................... $ 10,037
Total assets......................................................................................... 115,736
Long-term debt, including current portion............................................................ 145,445
Stockholder's equity (deficit)....................................................................... (47,333)
</TABLE>
14
<PAGE>
(1) The Company commenced operations on June 17, 1994, upon acquiring its
predecessor, Omega Cabinets, Ltd.
(2) In May 1995, the Company acquired the operating assets of HomeCrest
Corporation in a transaction accounted for as a purchase.
(3) The Pro Forma Statement of Income Data and Other Data gives effect to the
Transactions and the Initial Offering as though these transactions had
occurred on December 31, 1995. The pro forma adjustments as applied to the
respective historical consolidated financial information of the Company
reflect and account for the OMC Merger as a recapitalization. Accordingly,
the historical basis of the Company's assets and liabilities has not been
effected by the Transactions and the Initial Offering.
(4) The loss reported for the nine months ended September 27, 1997 includes
non-cash expenses relating to stock option and warrant grants of $5,481
(before related income tax benefit of $1,972) included in selling, general
and administrative expenses.
(5) As a result of the Transactions and related refinancing, in June 1997 the
Company wrote off existing unamortized deferred financing costs of $1,554,
resulting in an extraordinary loss of $947 (net of a related income tax
benefit of $607).
(6) For purposes of calculating the ratio, earnings consist of income or loss
before income taxes plus fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing costs, and 25% of the rent
expense from operating leases which management believes is a reasonable
approximation of the interest factor included in the rent.
(7) EBITDA represents income from operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation,
amortization of goodwill and non-cash stock option and warrant expense. A
non-cash expense of $5,481 relating to stock option and warrant grants was
incurred in the nine months ended September 27, 1997. EBITDA is presented
because it is a widely accepted financial indicator of a leveraged
company's ability to service and/or incur indebtedness and because
management believes that EBITDA is a relevant measure of the Company's
ability to generate cash without regard to the Company's capital structure
or working capital needs. EBITDA as presented may not be comparable to
similarly titled measures used by other companies, depending upon the non-
cash charges included. When evaluating EBITDA, investors should consider
that EBITDA (i) should not be considered in isolation but together with
other factors which may influence operating and investing activities, such
as changes in operating assets and liabilities and purchases of property
and equipment, (ii) is not a measure of performance calculated in
accordance with generally accepted accounting principles, (iii) should not
be construed as an alternative or substitute for income from operations,
net income or cash flows from operating activities in analyzing the
Company's operating performance, financial position or cash flows and (iv)
should not be used as an indicator of the Company's operating performance
or as a measure of its liquidity. See Note 6 to "Selected Historical
Consolidated Financial Data."
(8) In the predecessor period from January 1, 1994 to June 16, 1994, net
income, EBITDA and EBITDA margin were adversely affected due to special
employee bonuses totaling $2,231 which were paid in connection with the
sale of the predecessor. Excluding the effect of such bonuses, EBITDA and
EBITDA margin would have been $4,874 and 19.6%, respectively.
(9) Active selling locations represent customer locations which have purchased
over five hundred dollars of product in the prior year. No data is
available with respect to active selling locations on December 31, 1992,
September 28, 1996 or September 27, 1997, respectively.
15
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making
an investment in the Exchange Notes offered hereby. This Prospectus contains
certain forward looking statements within the meaning of Section 27A of the
Securities Act. Actual results could differ materially from those projected in
the forward looking statements as a result of certain factors and
uncertainties set forth below and elsewhere in this Prospectus.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE INDEBTEDNESS
As a result of the Transactions and the Offering, the Company will be highly
leveraged. As of September 27, 1997, the Company's indebtedness was
approximately $145.5 million and its deficit in stockholder's equity was $47.3
million. After giving pro forma effect to the Transactions and the Initial
Offering, the Company's ratio of earnings to fixed charges for fiscal 1996
would have been 1.5 to 1 and for the nine month period ended September 27,
1997, would have been 1.1x. In addition, subject to the restrictions in the
New Bank Credit Facility, the Company may incur additional indebtedness from
time to time.
The level of the Company's indebtedness could have important consequences to
Holders of the Notes, including, but not limited to, (i) a substantial portion
of the Company's cash flow from operations must be dedicated to the payment of
principal and interest on the Notes and up to $120 million which may be
borrowed under the New Bank Credit Facility and will not be available for
other purposes; (ii) the Company's ability to obtain additional debt financing
in the future for working capital, capital expenditures or acquisitions may be
limited; (iii) the Company's level of indebtedness could limit its flexibility
in reacting to changes in the industry and economic conditions generally; (iv)
certain of the Company's borrowings are at variable rates of interest, and a
substantial increase in interest rates could adversely affect the Company's
ability to meet its debt service obligations; and (v) borrowings under the New
Bank Credit Facility will become due prior to the time the Notes will become
due, which may adversely affect the ability of the Company to pay principal
and interest when due on the Notes. In addition, the Indenture and the New
Bank Credit Facility will contain financial and other restrictive covenants
that will limit the ability of the Company to, among other things, borrow
additional funds. Failure by the Company to comply with such covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. In addition, the degree to which the
Company is leveraged and the terms of agreements governing Senior Debt could
prevent it from repurchasing all of the Notes tendered to it upon the
occurrence of a Change of Control. As of December 10, 1997 the Company had
approximately $17.2 million in additional borrowing capacity under the
Revolving Facility. See "Description of Exchange Notes -- Repurchase at the
Option of Holders -- Change of Control" and "Description of New Bank Credit
Facility."
The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness (including the Notes), or
to fund planned capital expenditures will depend on its future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond its
control. Based upon the current level of operations, management believes that
cash flow from operations and available cash, together with available
borrowings under the New Bank Credit Facility, will be adequate to meet the
Company's anticipated future requirements for working capital, budgeted
capital expenditures and scheduled payments of principal and interest on its
indebtedness, including the Notes, for the next several years. The Company is
permitted under the Indenture to increase the amounts currently available for
borrowing under the New Bank Credit Facility. The Company may, however, need
to refinance all or a portion of the principal of the Notes on or prior to
maturity. There can be no assurance that the
16
<PAGE>
Company's business will generate sufficient cash flow from operations or that
future borrowings will be available under the New Bank Credit Facility in an
amount sufficient to enable the Company to service its indebtedness, including
the Notes, or make anticipated capital expenditures or acquisitions. In
addition, there can be no assurance that the Company will be able to effect
any such refinancing on commercially reasonable terms, or at all.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture will restrict, among other things, the Company's ability to
incur additional indebtedness, incur liens, pay dividends or make certain
other restricted payments, enter into certain transactions with affiliates,
impose restrictions on the ability of a subsidiary to pay dividends or make
certain payments to the Company, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. In addition, the New Bank
Credit Facility contains other and more restrictive covenants and prohibits
the Company from prepaying its other indebtedness (including the Notes). See
"Description of Exchange Notes -- Certain Covenants" and "Description of New
Bank Credit Facility." The New Bank Credit Facility requires the Company to
maintain specified financial ratios and satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the New Bank Credit Facility and/or the Indenture. Upon the
occurrence of an event of default under the New Bank Credit Facility, the
lenders could elect to declare all amounts outstanding under the New Bank
Credit Facility, together with accrued interest, to be immediately due and
payable. If the Company were unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that indebtedness. If
the lenders under the New Bank Credit Facility accelerate the payment of the
indebtedness, there can be no assurance that the assets of the Company would
be sufficient to repay in full such indebtedness and the other indebtedness of
the Company, including the Notes. Substantially all of the assets of Omega and
its subsidiary are pledged as security under the New Bank Credit Facility. See
"Description of New Bank Credit Facility."
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Debt, including the principal of (and premium, if any) and
interest on and all other amounts due on or payable in connection with Senior
Debt. As of December 10, 1997, there was outstanding approximately $39.0
million of Senior Debt, all of which was fully secured borrowings under the
New Bank Credit Facility. Amounts available for borrowing under the New Bank
Credit Facility are permitted by the terms of the Indenture to be increased up
to $120.0 million. By reason of such subordination, in the event of the
insolvency, liquidation, reorganization, dissolution or other winding-up of
the Company or upon a default in payment with respect to, or the acceleration
of, any Senior Debt, the holders of such Senior Debt and any other creditors
who are holders of Senior Debt, holders of Senior Debt of Guarantors and
creditors of subsidiaries that are not Guarantors must be paid in full before
the Holders of the Notes may be paid. If the Company incurs any additional
pari passu debt, the holders of such debt would be entitled to share ratably
with the Holders of the Notes in any proceeds distributed in connection with
any insolvency, liquidation, reorganization, dissolution or other winding-up
of the Company. This may have the effect of reducing the amount of proceeds
paid to Holders of the Notes. In addition, certain holders of Senior Debt may
prevent cash payments with respect to the principal of (and premium if any) or
interest on the Notes for a period of up to 180 days following a non-payment
default with respect to Senior Debt. In addition, the Indenture permits the
subsidiaries of the Company to incur debt under certain circumstances. Any
such debt incurred by a subsidiary of the Company that is not a Guarantor
would be structurally senior to the Notes. See "Description of Notes."
17
<PAGE>
INDUSTRY CONDITIONS AND CYCLICALITY
The markets for the Company's cabinetry products are cyclical and are
affected by the same economic factors that affect the remodeling and housing
industries in general, including the availability of credit, changes in
interest rates, market demand and general economic conditions, all of which
are beyond the Company's control. Any deterioration in these markets could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
COST OF LUMBER
The Company's results of operations are affected significantly by
fluctuations in the market prices of hardwood lumber, which represent
approximately 20% of the total cost of goods sold by the Company. The Company
buys its hardwood supplies at market-based prices from numerous independent
sawmill operators. The cost of hardwood lumber is subject to fluctuation and
is affected by levels of supply as well as development in the timber cutting
industry. Significant increases in the price of lumber would increase the cost
of goods sold. Unless the Company was able to increase the prices of its
products, such price increases could have a materially adverse affect on the
Company's results of operation.
COMPETITION
The Company is engaged in a highly fragmented and competitive industry. The
Company competes with many local, regional and national cabinetry
manufacturing companies in the markets that it serves. Some of the Company's
principal competitors are less highly-leveraged than the Company and may have
greater financial and operating flexibility. See "Business -- Competition."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
may require the Company to repurchase all or a portion of such Holder's Notes
at 101% of the principal amount of the Notes together with accrued and unpaid
interest and Liquidation Damages, if any, to the date of repurchase. See
"Description of Exchange Notes -- Repurchase at the Option of Holders --
Change of Control" for the definition of "Change of Control." There can be no
assurance that the Company would have the funds necessary to effect such a
purchase if such an event were to occur. In addition, the New Bank Credit
Facility prohibits the Company from purchasing any Notes and also provides
that certain changes in control of the Company would constitute a default
thereunder. Any future credit agreements or other agreements relating to
Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek
the consent of its lenders to purchase the Notes or could attempt to refinance
the borrowings that contain such prohibition. If the Company does not obtain
such a consent or repay such borrowings, the Company will remain prohibited
from purchasing Notes. In such case, the Company's failure to purchase
tendered Notes would constitute an Event of Default under the Indenture. See
"Description of Exchange Notes -- Repurchase at the Option of Holders --
Change of Control."
DEPENDENCE ON KEY MANAGEMENT
The Company's success will continue to depend to a significant extent on its
executive and other key management personnel. Although the Company has entered
into employment agreements with certain of its executive officers, there can
be no assurance that the Company will be able to retain its executive officers
and key personnel or attract additional qualified management in the future. In
addition, the success of certain of the acquisitions contemplated by the
Company may depend, in part, on the Company's ability to retain management
personnel of the acquired companies.
18
<PAGE>
CONTROLLING STOCKHOLDER
MLA III owns in excess of a majority of the outstanding voting stock of
Holdings, the sole stockholder of the Company. By virtue of such ownership,
MLA III has the power to control all matters submitted to stockholders of
Holdings and to elect all directors of Holdings and its subsidiaries,
including the Company. See "Principal Stockholders."
FRAUDULENT CONVEYANCE LAW
In the event of a bankruptcy, reorganization or rehabilitation case or
similar proceeding relating to, or a lawsuit by or on behalf of unpaid
creditors of the Company, a court may review the Initial Offering under
relevant federal and state fraudulent conveyance law (the "fraudulent
conveyance statutes"). Generally, if a court were to find either (a) that the
Company entered into the Initial Offering with the intent ("fraudulent
intent"), which in certain circumstances may be presumed, of hindering,
delaying or defrauding its current or future creditors or (b) that, after
giving effect to the Initial Offering, the Company both (i) received (or was
deemed to have received under applicable law) less than reasonably equivalent
value or fair consideration for or in connection with the transfer of property
or obligations incurred as part of the Initial Offering and (ii) (A) was
insolvent on the date such transfer was made or such obligations were incurred
or was rendered insolvent as a result of such transfer or obligations, (B) was
engaged or about to engage in a business or transaction for which its assets
constituted unreasonably small capital or (C) intended to incur, or believed
that it would incur, debts beyond its ability to pay as such debts matured (as
all of the foregoing terms are defined in or interpreted under the fraudulent
conveyance statutes) (the circumstances that meet the requirements of this
clause (b) are referred to herein as "constructive fraud"), such court could,
under certain fraudulent conveyance statutes and subject to applicable
statutes of limitation, take action detrimental to the holders of the Exchange
Notes, or to the Company, including, under certain circumstances, setting
aside or subordinating to trade or other creditors any of the obligations with
respect to the Exchange Notes, or setting aside any transfer of property
pursuant thereto by the Company.
A legal challenge of the Subsidiary Guarantee on fraudulent conveyance
grounds could, among other things, focus on the benefits, if any, realized by
the Guarantor as a result of the issuance by Omega of the Notes. To the extent
that the Subsidiary Guarantee were held to be unenforceable as a fraudulent
conveyance for any reason, the holders of the Notes would cease to have any
direct claim in respect of the Guarantor and would be solely creditors of
Omega. In the event the Subsidiary Guarantee were held to be subordinated, the
claims of the holders of the Notes would be subordinated to claims of other
creditors of the Guarantor.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the fair saleable value of the debtor's assets
at a fair valuation, or if the present fair saleable value of the debtor's
assets were less than the amount required to repay its probable liabilities on
its existing debts, including contingent liabilities, as they become absolute
and matured. There can be no assurance as to what standard a court would apply
in order to make such determination.
The Company believes (i) that it did not enter into the Initial Offering
with fraudulent intent, (ii) that circumstances constituting constructive
fraud will not have arisen with respect to the Company as a result of, and
after giving effect to, the Initial Offering and (iii) that, accordingly, the
property transferred to the Company as part of the Initial Offering and the
obligations of the Company with respect to the Exchange Notes would not be
subject to such detrimental action. These beliefs are based on the Company's
operating history and analysis of internal cash flow projections and estimated
values of assets and liabilities of the Company and the Guarantor at the time
of the Initial Offering. Since each of the components of the question of
whether the incurrence of the debt represented by the Notes or
19
<PAGE>
any Guarantee constitutes a fraudulent conveyance is inherently fact-based and
fact-specific, there can be no assurance that a court passing on such
questions would agree with the Company.
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON RESALE
The Exchange Notes are new securities for which there currently is no
market. Although the Initial Purchasers have informed the Company that they
intend to make a market in the Exchange Notes, they are not obligated to do so
and any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Exchange Notes. The Exchange Notes are expected to be
eligible for trading by qualified buyers in the PORTAL market. The Company
does not intend to apply for listing of the Exchange Notes, on any securities
exchange or for quotation through the Nasdaq National Market.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
20
<PAGE>
RECENT DEVELOPMENTS
On or about April 28, 1997, Holdings and Holdings' stockholders entered into
a recapitalization agreement (as amended to date, the "Merger Agreement") with
Omega Merger Corp. ("OMC") which provided for a merger (the "Merger") of OMC
with and into Holdings, and a recapitalization (the "Recapitalization") of
Holdings, with Holdings as the surviving corporation. OMC had no operations
and was incorporated on April 24, 1997 in Delaware, solely for the purpose of
effecting a statutory merger with Holdings. No cash was contributed to
capitalize OMC.
One June 13, 1997, the Merger of OMC into Holdings was consummated.
Immediately thereafter, the following transactions occurred (together with the
Merger, the "Transactions"):
(i) Mezzanine Lending Associates III, L.P. ("MLA III"), an investment
fund managed by Butler Capital Corporation ("BCC"), purchased, for cash,
61,865 shares of a new class of common stock of Holdings ("New Common") at
a valuation of $1,000 per share, for a total of approximately $61.9 million
representing 88.38% of the outstanding shares of Holdings;
(ii) management and the Company's founder converted (A) 42.3665 Class A
common stock shares and (B) options to purchase 31.317 Class A shares in
Holdings into 7,751.565 New Common in Holdings at a valuation of $1,000 per
New Common share, such New Common representing 11.07% of the outstanding
shares of Holdings;
(iii) new management stockholders purchased, for cash, 383.435 additional
New Common representing 0.55% of the outstanding shares of Holdings for
$1,000 per share for a total of $0.38 million;
(iv) Holdings and its subsidiaries, including Omega, entered into a
credit agreement with First Bank National Association as lender and as
agent (the "New Bank Credit Facility") providing for a syndicated senior
secured term loan facility of up to $40.0 million (the "Term Facility") and
a syndicated senior secured revolving credit facility of up to $20.0
million (the "Revolving Facility");
(v) West Street Fund I, L.L.C. and an affiliate of Citicorp Securities,
Inc. provided bridge loans (the "Bridge Loans") to the Company in the
aggregate principal amount of $90.0 million and Holdings issued an 11%
junior subordinated note to MLA III in the principal amount of $10.0
million (the "Junior Subordinated Note");
(vi) Holdings redeemed (A) 926.036 Class A shares, (B) options to
purchase 48.036 Class A shares and (C) 74.363 shares of Class B common
stock from certain stockholders and optionholders of Holdings, for
approximately $105,053 per share for a total cash payment of approximately
$109.6 million, which is subject to a post-closing adjustment;
(vii) Holdings issued a contingent promissory note to the selling
stockholders in the principal amount of $3.0 million (the "Contingent
Note"), which is secured by a standby letter of credit and which is payable
on March 31, 1998, subject to offset and reduction to satisfy certain
indemnification obligations of the sellers under the Merger Agreement;
(viii) approximately $89.3 million of debt of Holdings and its
subsidiaries was repaid.
21
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Transactions as of June 13, 1997:
<TABLE>
<CAPTION>
DOLLARS
IN
SOURCES: MILLIONS
-------- --------
<S> <C>
New Bank Credit Facility:
Revolving Facility(1) $ 11.3
Term Facility(2) 36.8
Equity Investment by MLA III 61.9
Equity Investment by Management 0.4
Bridge Loans 90.0
Junior Subordinated Note 10.0
------
Total Sources $210.4
======
<CAPTION>
USES:
<S> <C>
Payments in respect of outstanding common stock
and stock options from existing shareholders $109.6
Repayment of Existing Indebtedness 89.3
Transaction Fees and Expenses(3) 11.5
------
Total Uses $210.4
======
</TABLE>
- --------
(1) As of December 10, 1997, the Company had availability of $17.2 million
under the Revolving Facility.
(2) As of December 10, 1997, the Company had $36.2 million outstanding under
the Term Facility.
(3) Includes placement fees, advisory fees, fees paid in connection with the
New Bank Credit Facility, the Bridge Loan and the Notes and legal,
accounting and other fees and expenses.
On July 24, 1997, the Company consummated the sale of the Original Notes in a
transaction exempt from the registration requirements of the Securities Act
(the "Initial Offering"). Concurrently with the Initial Offering, the Company
used the net proceeds from the Initial Offering, cash from operations and
borrowings under the Revolving Facility to repay the indebtedness represented
by the Bridge Loans and the Junior Subordinated Note, and interest thereon, and
to pay certain related expenses. In connection with the Initial Offering, the
Company entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which it agreed to register the Exchange Notes under the
Securities Act and offer them in exchange for the Original Notes. See "Recent
Developments," "Use of Proceeds," "Description of New Bank Credit Facility,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
On October 1, 1997, HomeCrest, a wholly-owned subsidiary of the Company, was
merged with and into the Company (the "HomeCrest Merger") with the Company as
the surviving organization.
The Company's principal executive offices are located at 1205 Peters Drive,
Waterloo, Iowa 50703, and its telephone number is (319) 235-5700.
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange Notes.
The gross proceeds of $100.0 million from the issuance of the Original Notes,
cash from operations and borrowings under the Revolving Facility were used to
repay the Bridge Loans and the Junior Subordinated Note and interest thereon,
and to pay certain fees and expenses in connection with the Initial Offering.
The Bridge Loans and the Junior Subordinated Note were incurred to finance, in
part, the consideration paid to selling shareholders in the OMC Merger.
22
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company as of September 27, 1997 and the as adjusted consolidated
capitalization as of such date after giving effect to the Exchange Offer. This
table should be read in conjunction with the "Unaudited Pro Forma Condensed
Consolidated Financial Data" and the Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS
ADJUSTED
FOR THE
EXCHANGE
HISTORICAL OFFER
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion:
New Bank Credit Facility
Term Facility(1)..................................... $ 36,195 $ 36,195
Revolving Facility................................... 6,250 6,250
Original Notes......................................... 100,000 --
Exchange Notes......................................... -- 100,000
Contingent Note(1)..................................... 3,000 3,000
-------- --------
Total long-term debt, including current portion.......... 145,445 145,445
Total stockholder's equity (deficit)(2).................. (47,333) (47,333)
-------- --------
Total capitalization..................................... $ 98,112 $ 98,112
======== ========
</TABLE>
- --------
(1) A standby letter of credit of approximately $3.2 million has been issued
under the New Bank Credit Facility to secure the Contingent Note. The
amounts shown under the Term Facility excludes $3.2 million which would be
borrowed thereunder upon a draw under such standby letter of credit.
(2) Omega has 10,000 authorized shares of Common Stock, of which 1,000 are
issued and outstanding and are held by Holdings.
23
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of the
Company and its predecessor. The historical Statement of Income and Balance
Sheet Data of the Company for the periods from June 17, 1994 (the date of the
acquisition by the Company of its predecessor) to December 28, 1996 have been
derived from the Company's audited consolidated financial statements for those
periods. The historical Statement of Income and Balance Sheet Data of the
predecessor for each of the two years in the period ended December 31, 1993
and for the period from January 1, 1994 through June 16, 1994 have been
derived from its audited financial statements for those periods. The
historical Statement of Income and Balance Sheet Data for the nine months
ended September 27, 1997 and September 28, 1996 have been derived from the
unaudited consolidated financial statements for those periods and, in the
opinion of management, include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of said information. The
information presented below should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY(1)
---------------------------- -----------------------------------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, FROM FROM -------------------- ---------------------------
---------------- JANUARY 1, JUNE 17,
1994 TO 1994 TO SEPTEMBER 28, SEPTEMBER 27,
JUNE 16, DECEMBER DECEMBER DECEMBER 1996 1997
1992 1993 1994 31, 1994 30, 1995(2) 28, 1996 (UNAUDITED) (UNAUDITED)
------- ------- ---------- -------- ----------- -------- ------------- -------------
(IN THOUSANDS, EXCEPT RATIOS AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............... $40,332 $47,637 $24,917 $33,893 $ 97,958 $136,225 $101,965 $115,313
Cost of goods sold...... 26,762 32,495 17,564 22,485 72,690 97,287 73,000 83,657
------- ------- ------- ------- -------- -------- -------- --------
Gross profit............ 13,570 15,142 7,353 11,408 25,268 38,938 28,965 31,656
Selling, general and
administrative
expenses............... 4,097 4,949 5,235(7) 3,708 10,964 15,309 11,445 17,852(4)
Amortization of
goodwill............... -- -- -- 519 1,163 1,332 996 1,041
------- ------- ------- ------- -------- -------- -------- --------
Operating income........ 9,473 10,193 2,118 7,181 13,141 22,297 16,525 12,763
Interest expense........ (192) (60) (22) (4,123) (9,701) (10,441) (7,894) (12,616)
Interest and dividend
income................. 271 155 -- -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... 9,552 10,288 2,096 3,058 3,440 11,856 8,631 147
Income tax expense ..... -- -- -- 1,110 1,360 4,700 3,392 390
------- ------- ------- ------- -------- -------- -------- --------
Income before
extraordinary item..... 9,552 10,288 2,096 1,948 2,080 7,156 5,239 (243)
Extraordinary loss on
debt refinancing(3).... -- -- -- -- -- -- -- (947)
------- ------- ------- ------- -------- -------- -------- --------
Net income (loss)....... $ 9,552 $10,288 $ 2,096(7) $ 1,948 $ 2,080 $ 7,156 $ 5,239 $ (1,190)(4)
======= ======= ======= ======= ======== ======== ======== ========
Ratio of earnings to
fixed charges(5)....... 27.7x 35.8x 14.3x 1.7x 1.3x 2.1x 2.0x 1.0x
OTHER DATA:
EBITDA(6)(7)............ $10,289 $11,149 $ 2,643 $ 7,993 $ 15,500 $ 25,527 $ 18,845 $ 20,811
EBITDA margin(7)........ 25.5% 23.4% 10.6% 23.6% 15.8% 18.7% 18.5% 18.0%
Gross margin............ 33.6% 31.8% 29.5% 33.7% 25.8% 28.6% 28.4% 27.5%
Capital expenditures.... 1,398 1,557 1,727 2,565 3,045 1,421 836 2,116
Depreciation and
amortization........... 858 971 538 964 2,781 3,731 2,738 3,001
Net cash provided (used)
by:
Operating activities... 10,061 10,658 3,635 6,088 9,077 13,262 11,876 (204)
Investing activities... 979 (1,575) (1,727) (58,598) (33,175) (2,181) (1,586) (5,397)
Financing activities... (10,123) (11,193) (2,134) 52,510 24,103 (11,083) (10,292) 5,602
Ratio of EBITDA to
interest expense....... 1.9x 1.6x 2.4x 2.4x 1.7x
Number of active
selling locations
(at end of year)(8).... 1,441 1,564 1,624 2,042
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(deficit).............. $ 6,454 $ 4,800 $(4,101) $ (1,971) $ (850) $ (681) $ 10,037
Total assets............ 18,386 16,791 69,434 102,206 103,577 106,021 115,736
Long-term debt,
including
current portion........ 1,346 290 68,000 92,539 81,636 82,426 145,445
Stockholder's equity
(deficit).............. 14,420 13,909 (7,084) (4,354) 2,790 874 (47,333)
</TABLE>
24
<PAGE>
(1) The Company commenced operations on June 17, 1994, upon acquiring its
predecessor Omega Cabinets, Ltd. The Company has not paid or declared any
cash dividends during the periods presented and is restricted in paying
cash dividends under the terms of its borrowing agreements.
(2) In May 1995, the Company acquired the operating assets of HomeCrest
Corporation in a transaction accounted for as a purchase.
(3) As a result of the Transactions and related refinancing, in June 1997 the
Company wrote off existing unamortized deferred financing costs of $1,554,
resulting in an extraordinary loss of $947 (net of a related income tax
benefit of $607).
(4) The loss reported for the nine months ended September 27, 1997 includes
non-cash expenses relating to stock and warrant option grants of $5,481
(before related income tax benefit of $1,972) included in selling, general
and administrative expenses.
(5) For purposes of calculating the ratio, earnings consist of income or loss
before income taxes plus fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing costs, and 25% of the rent
expense from operating leases which management believes is a reasonable
approximation of the interest factor included in the rent.
(6) EBITDA represents income from operations before interest expense
(including amortization of deferred financing costs), income taxes,
depreciation, amortization of goodwill and non-cash stock option and
warrant expense. A non-cash expense of $5,481 relating to stock option and
warrant grants was incurred in the nine months ended September 27, 1997.
EBITDA is presented because it is a widely accepted financial indicator of
a leveraged company's ability to service and/or incur indebtedness and
because management believes that EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating EBITDA, investors
should consider that EBITDA (i) should not be considered in isolation but
together with other factors which may influence operating and investing
activities, such as changes in operating assets and liabilities and
purchases of property and equipment, (ii) is not a measure of performance
calculated in accordance with generally accepted accounting principles,
(iii) should not be construed as an alternative or substitute for income
from operations, net income or cash flows from operating activities in
analyzing the Company's operating performance, financial position or cash
flows and (iv) should not be used as an indicator of the Company's
operating performance or as a measure of its liquidity. The calculations
of EBITDA for the indicated periods are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
-------------------------------- -------------------------------------------------------------------
YEAR ENDED NINE MONTHS
DECEMBER 31 PERIOD FROM YEAR ENDED ENDED
--------------- PERIOD FROM JUNE 17, 1994 ------------------------- -------------------------
JANUARY 1, 1994 TO DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28 SEPTEMBER 27
1992 1993 TO JUNE 16, 1994 1994 1995 1996 1996 1997
------- ------- ---------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income. $ 9,473 $10,193 $2,118 $7,181 $13,141 $22,297 $16,525 $12,763
Add:
Depreciation.... 816 956 525 293 1,196 1,841 1,324 1,526
Amortization of
goodwill....... -- -- -- 519 1,163 1,332 996 1,041
Noncash stock
option and
warrant expense -- -- -- -- -- 57 -- 5,481
------- ------- ------ ------ ------- ------- ------- -------
EBITDA........... $10,289 $11,149 $2,643 $7,993 $15,500 $25,527 $18,845 $20,811
======= ======= ====== ====== ======= ======= ======= =======
</TABLE>
(7) In the predecessor period from January 1, 1994 to June 16, 1994, net
income, EBITDA and EBITDA margin were adversely affected due to special
employee bonuses totaling $2,231 which were paid in connection with the
sale of the predecessor. Excluding the effect of such bonuses, EBITDA and
EBITDA margin would have been $4,874 and 19.6%, respectively.
(8) Active selling locations represent customer locations which have purchased
over five hundred dollars of product in the prior year. No data is
available with respect to active selling locations on December 31, 1992,
September 28, 1996 or September 27, 1997, respectively.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Financial Data are
based on the historical consolidated financial statements of the Company
included elsewhere in this Prospectus, adjusted to give effect to the pro
forma adjustments described in the notes thereto. The Unaudited Pro Forma
Condensed Consolidated Statement of Income Data gives effect to the
Transactions and the Initial Offering as though each had occurred on December
31, 1995.
The pro forma adjustments are based upon available data and certain
assumptions that the Company management believes are reasonable. The Unaudited
Pro Forma Condensed Consolidated Financial Data are not necessarily indicative
of the Company's results of operations that might have occurred had the
aforementioned transactions been completed as of the dates indicated above and
do not purport to represent what the Company's consolidated results of
operations might be for any future period or date. The Unaudited Pro Forma
Condensed Consolidated Financial Data should be read in conjunction with the
Consolidated Financial Statements of the Company and the information contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
The pro forma adjustments as applied to the respective historical
consolidated financial statements of the Company reflect and account for the
OMC Merger as a recapitalization. Accordingly, the historical basis of the
Company's assets and liabilities has not been affected by the OMC Merger.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME DATA FOR THE
YEAR ENDED DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
HISTORICAL COMPANY PRO FORMA COMPANY
FOR YEAR ENDED PRO FORMA FOR YEAR ENDED
DECEMBER 28, 1996 ADJUSTMENTS (1) DECEMBER 28, 1996
------------------ --------------- ------------------
<S> <C> <C> <C>
Net sales................ $136,225 -- $136,225
Cost of goods sold....... 97,287 -- 97,287
-------- ------- --------
Gross profit............. 38,938 -- 38,938
Selling, general and
administrative expenses. 15,309 -- 15,309
Amortization of goodwill. 1,332 -- 1,332
-------- ------- --------
Operating income......... 22,297 -- 22,297
Interest expense......... 10,441 $ 4,779 (2) 15,220
-------- ------- --------
Income before income
taxes................... 11,856 (4,779) 7,077
Income tax expense....... 4,700 (1,888)(3) 2,812
-------- ------- --------
Net income............... $ 7,156 $(2,891) $ 4,265
======== ======= ========
Ratio of earnings to
fixed charges (5)....... 2.1x 1.5x
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997
(IN THOUSANDS, EXCEPT RATIO)
<CAPTION>
HISTORICAL COMPANY PRO FORMA COMPANY
FOR THE NINE FOR THE NINE
MONTHS ENDED PRO FORMA MONTHS ENDED
SEPTEMBER 27, 1997 ADJUSTMENTS(1) SEPTEMBER 27, 1997
------------------ --------------- ------------------
<S> <C> <C> <C>
Net sales................ $115,313 -- $115,313
Cost of goods sold....... 83,657 -- 83,657
-------- ------- --------
Gross profit............. 31,656 -- 31,656
Selling, general and
administrative
expense................. 17,852 -- 17,852
Amortization of goodwill. 1,041 -- 1,041
-------- ------- --------
Operating income......... 12,763 -- 12,763
Interest expense......... 12,616 $(1,213)(2) 11,403
-------- ------- --------
Income before income
taxes................... 147 1,213 1,360
Income tax expense....... 390 479 (3) 869
-------- ------- --------
Net income (loss) (4).... $ (243) $ 734 $ 491
======== ======= ========
Ratio of earnings to
fixed charges (5)....... 1.0x 1.1x
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME DATA
(IN THOUSANDS)
(1) Pro Forma Adjustments include adjustments necessary to complete the
Transactions. The OMC Merger has been accounted for as a recapitalization
which will have no impact on the historical basis of the Company's assets
and liabilities. Certain expenses, which were incurred in connection with
the Transactions, have been excluded from the pro forma adjustments,
including (i) the write-off of $1,554 of deferred financing costs relating
to debt repaid; (ii) $5,570 of fees and expenses incurred in connection
with the Transactions; and (iii) $1,960 of income tax benefit relating to
such expenses. Such amounts represent non-recurring expenses of which the
Company anticipates that approximately $3,004, net of income tax benefit,
will be recorded in the Consolidated Statement of Income for the period
including or subsequent to the OMC Merger; and $2,160, representing costs
related to issuance of new equity capital, will be charged to
stockholder's equity.
(2) Represents the incremental amount of interest expense relating to the
Transactions and the Initial Offering as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 28, SEPTEMBER 27,
1996 1997
------------ -------------
<S> <C> <C>
Interest expense related to new debt:
Revolving Facility......................... $ 827 $ 620
Term Facility.............................. 3,020 2,265
Senior Subordinated Notes due 2007......... 10,500 7,875
Contingent Note............................ 180 135
Amortization of deferred financing costs... 693 508
-------- --------
Subtotal..................................... 15,220 11,403
Less: interest expense relating to debt
repaid and other non-recurring
interest expense............................ (10,441) (12,616)
-------- --------
Pro forma adjustment......................... $ 4,779 $ (1,213)
======== ========
</TABLE>
Interest expense related to the Revolving Facility is based on an annual
average of approximately $9.2 million of borrowings outstanding. Interest
expense was calculated using the following assumed average rates: (a)
Revolving Facility: 9.0%; (b) Term Facility: 8.2%; (c) Notes: 10.5% and (d)
Contingent Note: 6.0%.
A 0.125% increase or decrease in the assumed interest rates for the New
Bank Credit Facility would change the pro forma interest expense by $186.
Pro forma net income would change by $113.
For the year ended December 28, 1996 and for the period of nine months
ended September 27, 1997, each $1,000 increase or decrease in the Revolving
Facility would change pro forma interest expense $90 and $68, respectively,
and pro forma net income would change by $54 and $41, respectively.
(3) Represents the income tax effect of the pro forma adjustments computed
using an effective income tax rate of 39.5%.
(4) Historical net income for the nine months ended September 27, 1997 is
shown before the effect of an extraordinary loss on debt refinancing of
$947.
(5) For purposes of computing the ratio, earnings consist of income or loss
before income taxes plus fixed charges, fixed charges consist of interest
expense, amortization of deferred financing costs and 25% of the rent
expense from operating leases which the Company believes is a reasonable
approximation of the interest factor included in the rent.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial
condition and results of operations of the Company for the nine months ended
September 27, 1997 and September 28, 1996 and the fiscal years ended December
28, 1996, December 30, 1995 and December 31, 1994. This discussion and
analysis should be read in conjunction with, and is qualified in its entirety
by, the sections entitled "Selected Historical Consolidated Financial Data"
and the Consolidated Financial Statements of the Company and its predecessor
and the notes thereto included elsewhere in this Prospectus.
GENERAL
The Company's business is affected by the same general regional and national
economic factors which affect the remodeling and housing industries, including
the availability of credit, changes in interest rates, market demand,
demographic shifts and overall economic conditions. Management's market
research demonstrates that remodeling has historically been less sensitive
than new home construction to general economic conditions. Although the
Company believes that HomeCrest's results have tended to correlate closely
with housing starts, management believes the Company's overall focus on the
remodeling market and high-end product lines (custom and semi-custom
cabinetry) has allowed it to outpace overall industry growth rates over the
past several years. While the average annual price of lumber has fluctuated
somewhat over the past several years, the Company has historically been able
to pass the major portion of most lumber price increases on to the customer
over time.
PREVIOUS ACQUISITIONS
In June 1994, Omega acquired all of the outstanding common stock of the
predecessor to Omega for an aggregate purchase price of approximately $71.1
million. The transaction was accounted for by the purchase method and resulted
in goodwill of approximately $43.1 million, which is being amortized over 40
years. In May 1995, Omega acquired HomeCrest for a total purchase price of
$29.8 million, which was accounted for by the purchase method and resulted in
goodwill of approximately $13.5 million, which is being amortized over 40
years.
POTENTIAL ACQUISITIONS
The Company plans to capitalize on its position as one of the largest
domestic manufacturers of kitchen cabinetry and bathroom vanities by acquiring
other cabinetry companies as the industry consolidates. The Company currently
is exploring potential acquisition opportunities and evaluates potential
acquisition candidates on a regular basis. The Company believes that acquiring
additional cabinetry manufacturers will facilitate growth in product line,
broaden its geographic distribution and promote additional operating
efficiencies.
MERGER
Concurrently with the OMC Merger, MLA III purchased stock of Holdings for
approximately $61.9 million and loaned Holdings an additional $10.0 million
represented by the Junior Subordinated Note, and existing management
shareholders and the Company's founder retained approximately 11.1% of common
stock with a fair value of approximately $7.8 million in Holdings. In
addition, the Company entered into the New Bank Credit Facility. The OMC
Merger was accounted for as a recapitalization. As a result, the historical
basis of the Company's assets and liabilities was not affected by the OMC
Merger.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
28, 1996
Net Sales for the first nine months of 1997 ("first nine months of 1997")
were $115.3 million compared to $102.0 million for the comparable period in
1996 ("first nine months of 1996"), an
29
<PAGE>
increase of 13.1%. Net sales of the Omega lines (custom and semi-custom
cabinetry and bath vanities) were $54.2 million for the first nine months of
1997 compared to $51.9 million for the first nine months of 1996, an increase
of 4.4%, reflecting an increase in the number of dealer locations and a
general price increase in February 1997 of 2.0%. Net sales of stock cabinetry
were $61.1 million for the first nine months of 1997 compared to $50.1 million
for the first nine months of 1996, a 22.1% increase, as the result of an
increase in dealer locations, entry into the manufactured housing channel, and
additional product enhancements introduced in mid-1996.
Gross Profit for the first nine months of 1997 was $31.7 million compared to
$29.0 million for the first nine months of 1996, an increase of 9.3%. As a
percentage of net sales, gross profit declined to 27.5% in the first nine
months of 1997 from 28.4% in the first nine months of 1996 primarily as a
result of a larger share of the sales coming from the HomeCrest stock
cabinetry lines which carry lower margins, higher costs for maple lumber which
is not yet reflected in selling prices, the need to outsource component parts
for HomeCrest because of the increased sales levels, and display costs
associated with dealer base growth.
Selling, General and Administrative Expenses for the first nine months of
1997 were $17.9 million compared to $11.4 million for the same period of 1996.
The increase of $6.5 million for the first nine months of 1997 over the
comparable period of 1996 is primarily attributable to non-cash expense for
stock options and warrants of $5.5 million for the first nine months of 1997.
Selling, general and administrative expenses without giving effect to this
charge would have been $12.4 million compared to $11.4 million for the first
nine months of 1996, an increase of 8.8%. For the first nine months of 1997,
selling, general and administrative expenses as a percentage of net sales,
excluding the non-cash compensation expense referred to above, decreased to
10.7% compared to 11.2% in the first nine months of 1996, primarily due to
lower bad debt expense and lower spending on advertising as a percentage of
net sales.
Operating Income for the first nine months of 1997 was $12.7 million, or
11.1% of net sales, compared to $16.5 million, or 16.2% of net sales, for the
first nine months of 1996. For the first nine months of 1997, operating
income, without giving effect to the non-cash stock option and warrant expense
referred to above, was $18.2 million, or 15.8% of net sales, compared to $16.5
million, or 16.2% of net sales, for the first nine months of 1996. The primary
reason for this decrease in operating income as a percentage of net sales for
the first nine months of 1997 compared to 1996 was the lower gross profit in
the first nine months of 1997, as discussed above.
Interest Expense for the first nine months of 1997 was $12.6 million
compared to $7.9 million for the first nine months of 1996, an increase of
59.8%. This increase is due to amortization of Bridge Loan fees and increased
borrowings associated with the Transactions.
Income Taxes for the first nine months of 1997 consisted of an expense of
$0.4 million compared to an expense of $3.4 million for the first nine months
of 1996.
Net Income (Loss) for the first nine months of 1997 was a loss of $1.2
million compared to net income of $5.2 million for the first nine months of
1996. The net loss for the first nine months of 1997 was primarily
attributable to the extraordinary loss on debt refinancing, amortization of
Bridge Loan fees, and the non-cash stock option and warrant expense discussed
above. The extraordinary loss on debt refinancing for the first nine months of
1997 was $0.9 million, consisting of a $1.6 million write-off of deferred
financing costs associated with the prior long term debt repaid as a result of
the Transactions, net of $0.7 million of income tax benefits.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales for fiscal 1996 were $136.2 million compared to $98.0 million in
1995, an increase of 39.1%. Before giving effect to the acquisition of
HomeCrest in May 1995, Omega net sales were $69.1
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<PAGE>
million and $59.6 million in fiscal 1996 and fiscal 1995, respectively,
representing an increase of 16.0%. The increase was primarily attributable to
the addition of new selling locations in fiscal 1996, maturation of dealer
accounts added in fiscal 1995 and growth in the kitchen and bath remodeling
industry, reflecting a continued improvement in the economy generally. New
locations added in fiscal 1996 included a private label vanity distributor,
new locations with Home Depot and Lowe's and 150 kitchen and bath dealers.
Accounts added in fiscal 1995 more than doubled their sales with Omega in
fiscal 1996, adding $3.0 million of additional revenue. Net sales increased in
all three lines of Omega's traditional business (custom and semi-custom
cabinetry and bath vanities), with net sales to dealers increasing 12.0%. Net
sales at HomeCrest were $64.5 million and $38.1 million in fiscal 1996 and
fiscal 1995, respectively. Comparing to a full year, including the pre-
acquisition period, net sales at HomeCrest were $64.5 million and $64.1
million in fiscal 1996 and fiscal 1995, respectively, essentially unchanged.
During 1996, HomeCrest terminated its relationship with its second largest
distributor, which over the years had become only marginally profitable. The
termination of this $5.0 million account reduced HomeCrest's net sales in 1996
by $3.5 million but had minimal effect on profitability. To offset this
decrease, HomeCrest expanded its distribution into the manufactured housing
industry, which accounted for net sales in fiscal 1996 of approximately $1.6
million.
Gross Profit for fiscal 1996 was $38.9 million compared to $25.3 million for
fiscal 1995, an increase of 54.1%. As a percentage of net sales, gross profit
improved to 28.6% in fiscal 1996 from 25.8% in fiscal 1995. Before giving
effect to the acquisition of HomeCrest in May 1995, gross profit was $23.0
million and $17.8 million in fiscal 1996 and fiscal 1995, respectively,
representing an increase of 29.3%. Omega's gross profit as a percentage of net
sales increased from 29.9% to 33.3% as a result of improved material yields,
negotiated material price reductions, operating efficiencies, improved truck
utilization and favorable worker's compensation experience. Gross profit at
HomeCrest was $14.7 million and $7.3 million in fiscal 1996 and fiscal 1995,
respectively. Comparing to a full year, including the pre-acquisition period,
gross profit at HomeCrest was $14.7 million and $12.9 million in the
comparable periods of fiscal 1996 and fiscal 1995, respectively, an increase
of 13.3%. HomeCrest's gross profit as a percentage of net sales increased from
20.2% to 22.8%, primarily due to negotiated material price reductions,
improved scrap performance and operating efficiencies.
Selling, General and Administrative Expenses for fiscal 1996 were $15.3
million compared to $11.0 million in fiscal 1995, an increase of 39.6%. Before
giving effect to the acquisition of HomeCrest in May 1995, selling, general
and administrative expenses were $7.9 million and $6.8 million in fiscal 1996
and fiscal 1995, respectively, an increase of 15.1%. This increase is due
primarily to commissions and increased support staff to address increased
sales levels. As a percentage of net sales, these expenses were 11.2% in both
fiscal 1996 and fiscal 1995. Selling, general and administrative expenses at
HomeCrest were $7.3 million and $4.1 million in fiscal 1996 and fiscal 1995,
respectively. Compared to a full year, including the pre-acquisition period,
selling, general and administrative expenses at HomeCrest were $7.3 million
and $9.9 million in 1996 and 1995, respectively, a decrease of 26.5%. This
decrease was primarily due to reduced executive salaries, as two prior
owner/executives of HomeCrest left the business concurrently with the
acquisition and were not replaced, and to the closing of distribution
facilities in Florida and Indiana.
Operating Income for fiscal 1996 was $22.3 million compared to $13.1 million
for fiscal 1995, an increase of 69.7%. Before giving effect to the acquisition
of HomeCrest in May 1995, operating income was $14.2 million and $10.0 million
in 1996 and 1995, respectively, an increase of 41.9%. This increase resulted
from higher sales and improved manufacturing costs.
Interest Expense for fiscal 1996 was $10.4 million compared to $9.7 million
for fiscal 1995, an increase of 7.6%. Before giving effect to the acquisition
of HomeCrest in May 1995, net interest
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<PAGE>
expense was $7.5 million and $7.8 million in fiscal 1996 and fiscal 1995,
respectively. The decrease in interest, excluding the effect of the
acquisition of HomeCrest, was due to scheduled repayment of the term notes.
Income Taxes for fiscal 1996 were $4.7 million compared to $1.4 million for
fiscal 1995, which reflects approximately the same effective tax rate.
Net Income for fiscal 1996 was $7.2 million compared to $2.1 million in
fiscal 1995. The increase in net income is primarily attributable to increased
sales and lower manufacturing costs.
FISCAL 1995 COMPARED TO COMBINED RESULTS FOR FISCAL 1994
For purposes of the discussion below, fiscal 1994 consists of the combined
results of the predecessor company of Omega from January 1, 1994 through June
16, 1994 and of the Company for the period June 17, 1994 through December 31,
1994.
Net Sales for fiscal 1995 were $98.0 million compared to $58.8 million in
fiscal 1994, an increase of 66.6%. Before giving effect to the acquisition of
HomeCrest in May 1995, Omega net sales were $59.6 million and $58.8 million in
fiscal 1995 and fiscal 1994, respectively, an increase of 1.3%. This increase
was attributable to placing business with Lowe's, adding locations with Home
Depot, additional product placement with Menards and the addition of new
dealer locations. Partly offsetting this increase was the elimination of
selected accounts due to credit or performance issues. As a consequence,
dealer sales declined 3.5% in 1995. HomeCrest's net sales for the period
following the acquisition in May 1995 were $38.1 million.
Gross Profit for fiscal 1995 was $25.3 million compared to $18.8 million for
fiscal 1994, an increase of 34.7%. As a percentage of sales, gross profit
decreased to 25.8% in fiscal 1995 from 31.9% in fiscal 1994 primarily as a
result of consolidating the lower margin HomeCrest business into Omega. Before
giving effect to the acquisition of HomeCrest in May 1995, Omega gross profit
was $17.8 million and $18.8 million in 1995 and 1994, respectively, a decrease
of 5.1%. The Omega gross profit as a percentage of sales decreased from 31.9%
to 29.9%, primarily due to plant reorganization and startup costs associated
with implementing a new rough mill and a new finishing system and to revamping
the layout of the facility for improved material flow. Aside from the
reorganization costs, material costs were favorable as a result of better
yields with the new rough mill. HomeCrest's gross profit for the period
following the acquisition in May 1995 was $7.3 million.
Selling, General and Administrative Expenses for fiscal 1995 were $11.0
million compared to $8.9 million in fiscal 1994, an increase of 22.6%. Before
giving effect to the acquisition of HomeCrest in May 1995, selling, general
and administrative expenses were $6.8 million and $8.9 million in fiscal 1995
and fiscal 1994, respectively, a decrease of 23.6%. This decrease reflects a
special employee bonus totaling $2.2 million paid in connection with the sale
to Omega in 1994. HomeCrest's selling, general and administrative expenses for
the period following the acquisition in May 1995 were $4.1 million.
Operating Income for fiscal 1995 was $13.1 million compared to $9.3 million
for 1994, an increase of 41.3%. Before giving effect to the acquisition of
HomeCrest in May 1995, operating income was $10.0 million and $9.3 million in
fiscal 1995 and fiscal 1994, respectively, an increase of 7.3%. Operating
income in fiscal 1995 was affected by increased costs associated with plant
reorganization and start-up costs in 1995. Operating income in 1994 was
affected by the special employee bonus referred to above. HomeCrest's
operating income for the period following the acquisition in May 1995 was $3.0
million.
Interest Expense for fiscal 1995 was $9.7 million compared to $4.1 million
for fiscal 1994. Before giving effect to the acquisition of HomeCrest in May
1995, net interest expense was $7.8 million and
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$4.1 million in fiscal 1995 and fiscal 1994, respectively, an increase of
87.7%. The increase in interest expense was primarily due to the borrowings in
June 1994 used to support the acquisition of Omega.
Income Taxes for fiscal 1995 were $1.4 million compared to $1.1 million for
fiscal 1994. Since Omega was an S Corporation prior to the acquisition in
fiscal 1994, taxes for fiscal 1994 reflect only the post-acquisition period.
Net Income for fiscal 1995 was $2.1 million compared to $4.0 million for
fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are working capital, capital expenditures
and debt service. The Company has financed these cash requirements primarily
through internally generated cash flow and funds borrowed under the Company's
credit facilities.
Net cash used by operating activities for the first nine months of 1997 was
$0.2 million compared to net cash provided by operating activities of $11.9
million for the first nine months of 1996, a decrease of $12.1 million. The
decrease was primarily due to changes in operating assets and liabilities. The
increase in working capital of $8.8 million for the first nine months of 1997
compared to a decrease in working capital of $2.9 million for the first nine
months of 1996 was primarily due to changes in accrued interest and taxes
related to the Transactions.
Net cash provided by operating activities for fiscal 1996 was $13.3 million
compared to $9.1 million for fiscal 1995. The major component for both years
was income before non-cash charges of $12.3 million and $6.4 million for
fiscal years 1996 and 1995, respectively, primarily due to increased income
from operations as described above. The portion of net cash from operating
activities due to changes in working capital was $1.0 million and $2.7 million
for fiscal years 1996 and 1995, respectively, due to fluctuations from the
mid-year acquisition of HomeCrest in fiscal 1995.
The Company used cash for investing activities of $5.4 million in the first
nine months of 1997 compared to $1.6 million in the comparable period of 1996.
During the first nine months of 1997, additional contingent purchase price was
paid for the 1994 acquisition of Omega of $3.3 million. The Company used cash
for investing activities of $1.4 million and $3.0 million for capital
expenditures during fiscal years 1996 and 1995, respectively. The Company has
made approximately $2.1 million of capital expenditures through the end of
September 1997 and anticipates, based on current requirements, that it will
incur an additional $0.6 million of capital expenditures through the end of
fiscal 1997.
Cash provided by financing activities was $5.6 million for the first nine
months of 1997 compared to cash used in financing activities of $10.3 million
for the first nine months of 1996, reflecting the debt and equity refinancing
associated with the Transactions. Prior bank term notes and revolver in the
amount of $49.2 million were paid off, along with $32.4 million of
subordinated debt and a dividend related to the Transactions of $114.5
million. New debt consisted of the New Bank Credit Facility in the amount of
$36.8 million of notes and $6.9 million of revolver, the $100.0 million of
Notes, and the $3.0 million Contingent Note. In addition, fees in the amount
of $5.9 million were paid in connection with the New Bank Credit Facility and
the Notes. Cash used in financing activities during fiscal 1996 consisted
primarily of the scheduled repayment of $8.0 million of term notes and a
scheduled repayment of a contingent note related to the fiscal 1994
acquisition of Omega in the amount of $2.0 million.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or premium, if any, on, or to refinance, its indebtedness
(including the Notes), or to fund planned capital expenditures will depend on
its future performance, which, to a certain extent, is subject to general
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economic, financial, competitive, legislative, regulatory and other factors
that are beyond its control. Based upon the current level of operations,
management believes that cash flow from operations and available cash,
together with available borrowings under the New Bank Credit Facility, will be
adequate to meet the Company's anticipated future requirements for working
capital, budgeted capital expenditures and scheduled payments of principal and
interest on its indebtedness, including the Notes, for the next several years.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations or that future borrowings will be available under
the New Bank Credit Facility in an amount sufficient to enable the Company to
service its indebtedness, including the Notes, or make anticipated capital
expenditures.
As a result of the Transactions, the Company's capital structure has changed
substantially. At the closing of the Initial Offering on July 24, 1997, the
Company's capital structure consisted of the $100.0 million of Notes and the
New Bank Credit Facility, consisting of a $40.0 million Term Facility and a
$20.0 million Revolving Facility. The New Bank Credit Facility is permitted by
the terms of the Notes to be increased to a total borrowing capacity of $120.0
million. As of December 10, 1997, approximately $36.2 million of the Term
Facility and approximately $2.8 million of the Revolving Facility were
outstanding. The Company anticipates that it will borrow under the Term
Facility to fund its obligations of up to $3.2 million under the Contingent
Note. As of December 10, 1997, the Company had additional borrowing
availability under the Revolving Facility of approximately $17.2 million. The
Term Facility requires quarterly principal payments beginning in September
1997 at approximately $0.6 million per quarter and increasing at each
anniversary. Subsequent payments will be approximately $1.0 million, $1.4
million, $1.5 million, $1.9 million, and $2.3 million per quarter during the
four-quarter periods beginning in September 1998, 1999, 2000, 2001 and 2002,
respectively, with the balance due in the following two quarters. The
Revolving Facility will mature in 2002 and has no scheduled interim
amortization.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations.
COMPUTER SYSTEMS AND YEAR 2000
The Company is currently developing a plan to insure that its systems and
software infrastructure are Year 2000 compliant. The Company expects that the
scheduled implementation of all phases of the plan will be completed in mid-
year 1999. Given the relatively small size of the Company's systems and the
predominately new hardware, software and operating systems, management does
not anticipate any significant delays in becoming Year 2000 compliant.
However, the Company is unable to control whether its customers' and
suppliers' systems are Year 2000 compliant. To the extent that customers would
be unable to order product or pay invoices or suppliers would be unable to
manufacture and ship product, it could affect the Company's operations.
FORWARD LOOKING STATEMENTS
When used in this Prospectus, the words "believes," "anticipates" and
similar expressions are used to identify forward looking statements. Such
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those projected. The Company wishes to
caution readers that the following important factors, among the factors
discussed in "Risk Factors" above and others, in some cases have affected and
in the future could affect the Company's actual results and could cause the
Company's results for 1997 to differ materially from those expressed in any
forward statements made by the Company: (i) economic conditions in the
remodeling and housing markets, (ii) availability of credit, (iii) increases
in interest rates, (iv) cost of lumber and other raw materials, (v) inability
to maintain state-of-the-art manufacturing facilities, (vi) heightened
competition, including intensification of price and service competition, the
entry of new competitors and the introduction of new products by existing
competitors, (vii) inability to capitalize on opportunities presented by
industry consolidation, (viii) loss or retirement of key executives and (ix)
inability to grow by acquisition of additional cabinetry manufactures or to
effectively consolidate operations of businesses acquired.
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BUSINESS
The Company is a leading manufacturer of wood and laminate kitchen
cabinetry, bathroom vanities and related accessories. Headquartered in
Waterloo, Iowa, the Company produces a wide array of custom, semi-custom and
stock kitchen cabinetry and bathroom vanities primarily for use in residential
remodeling and, to a lesser extent, in new construction. Both Omega and
HomeCrest manufacture their products in state-of-the-art, highly-integrated
facilities under the Omega (custom), Dynasty (semi-custom), Embassy (semi-
custom), Legend (stock) and HomeCrest (stock) brand names and sell to a broad
network of kitchen and bath dealers, home centers, builders/contractors and
independent distributors.
COMPANY HISTORY
Omega was founded in 1977 by Robert J. Bertch. In its early years, Omega
principally manufactured bath vanities. In 1984, Omega began manufacturing
custom kitchen cabinetry under the Omega Custom brand name. In 1990, Omega
introduced a semi-custom kitchen cabinetry line under the Dynasty brand name
as a lower price alternative to the Omega Custom line.
In June 1994, Code, Hennessy & Simmons, Inc. led a group of private
investors, including the Company's current senior management team, in the
acquisition of Omega from its founder. In May 1995, Omega acquired HomeCrest
Corporation, a manufacturer of stock cabinetry under the HomeCrest brand name.
Pursuant to the OMC Merger, OMC, a company formed by affiliates of BCC,
merged with and into Holdings, the sole stockholder of the Company, with
Holdings as the surviving entity. Concurrently with the OMC Merger, aggregate
consideration of approximately $201.6 million was paid to certain selling
stockholders of Holdings, including (i) approximately $89.3 million of debt
which was repaid in connection therewith and (ii) the Contingent Note. The
merger consideration is subject to a post-closing working capital adjustment.
See "Recent Developments."
PRODUCTS
The Company specializes in manufacturing kitchen cabinetry and bathroom
vanities and accessories. The Company offers its customers one of the most
extensive product lines in the cabinetry industry and believes that it is one
of only two national manufacturers that produces a full line of kitchen
cabinetry for all three market price points: custom, semi-custom and stock.
The Company's cabinetry is distinguished by its high quality materials,
superior finishes and expert construction. The following chart illustrates the
Company's fiscal 1996 sales by product line:
1996 SALES BY PRODUCT LINE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRODUCT $ % OF SALES
------- ------ ----------
<S> <C> <C>
Custom Cabinetry........................................ $ 11.4 8.4%
Semi-Custom Cabinetry................................... 41.7 30.6%
Stock Cabinetry......................................... 67.0 49.2%
Bath Vanities & Other................................... 16.1 11.8%
------ -----
Total................................................... $136.2 100.0%
====== =====
</TABLE>
CUSTOM CABINETRY. The Company manufactures and markets custom kitchen
cabinetry under the Omega Custom brand name. Omega Custom cabinets are
manufactured to individual customer specifications and are distinguished by
their high quality design, premium materials and superior
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construction. Omega Custom offers the consumer the widest choice of cabinetry
configurations, door styles and wood species within the Company's product
lines. The Company believes it is one of the few custom cabinetry
manufacturers capable of offering national distribution as well as an
unlimited choice of finishes through its "custom color match" program. The
Company's custom cabinetry is primarily sold to kitchen and bath dealers and
is also sold through Home Depot Expo locations.
SEMI-CUSTOM CABINETRY. The Company manufactures and markets semi-custom
kitchen cabinetry under the Dynasty and Embassy brand names. Dimensional
modifications of size are available in both the Dynasty and Embassy lines, but
not to the extent available with the Omega Custom line. Approximately 36% of
Dynasty/Embassy cabinetry sales are produced from oak, with the balance made
up of maple (33%), pecan (19%) and cherry (12%). The Dynasty line is sold
primarily to kitchen and bath dealers, while the Embassy line is sold
primarily through home centers such as Home Depot/Home Depot Expo and Lowe's.
STOCK CABINETRY. The Company manufactures and markets stock cabinetry under
the HomeCrest and Legend brand names. The HomeCrest brand is sold through the
HomeCrest distribution network of dealers, builder/contractors and independent
distributors. In September 1995, the Company launched its Legend line of stock
cabinetry, a line of 100% framed cabinetry that was developed subsequent to
the acquisition of HomeCrest in order to cross-sell stock cabinetry through
the Omega dealer network. In early 1997, the Company introduced the Legend II
product line, which will extend the Legend product line into the market for
frameless (i.e., European style) stock cabinetry.
The Company provides a number of options and option combinations for its
stock cabinetry. These options include dovetailed wood drawers, plywood
cabinetry side material options (instead of furniture board) and premium
drawer slides, which allow for a level of customization even at this lowest
price point. The Company manufactures 54 different stock door styles in six
types of wood including oak (43%), maple (15%), hickory (8%), ash (6%) and
others (11%), as well as white foil on medium-density fiberboard (17%).
BATHROOM VANITIES AND ACCESSORIES. The Company manufactures and markets
bathroom vanities under a variety of brand names, including Classic, Coventry,
Hallmark, Lancaster, Monticello, Montrose, Omega Custom, Spectrum, Summit and
Sunrise. The Company's vanity line has ten different price points covering the
market from value-priced, frameless cabinetry through high-end, furniture
quality custom vanities. The Company's vanity line includes the same
materials, construction and finishes found in the Company's kitchen cabinetry
lines. Vanities are sold to kitchen and bath dealers, home centers and, on a
private-label basis, to one distributor.
NEW/OTHER PRODUCTS. Although the Company manufactures numerous standard wall
and base cabinetry sizes, the Company also manufactures various corner
cabinets, peninsula cabinets, special wall cabinets, medicine cabinets,
special use cabinets, sink bases, appliance cabinets and tall storage
cabinets. The Company also manufactures furniture products, such as bookcases,
entertainment centers, hutches and desks and offers a line of kitchen and
bath-related accessory products.
In December 1996, the Company began marketing a newly-developed line of all-
wood, value-priced home entertainment centers. The Company currently offers
this line in five styles. Initial distribution plans include some of the
larger selling locations in the Company's distribution network and,
potentially, certain furniture and electronics retailers.
In addition, by the end of 1997 the Company expects to begin offering whole
house mouldings through its existing distribution network. These millwork
products are used throughout a house as trim for baseboards, ceilings, windows
and doors.
MANUFACTURING
GENERAL. The Company operates three manufacturing facilities, one in
Waterloo, Iowa, one in Goshen, Indiana and one in Clinton, Tennessee. Custom
and semi-custom kitchen cabinetry and
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bathroom vanities are manufactured in Waterloo, and stock cabinetry and
vanities are manufactured and assembled in Goshen. Finished cabinetry frames
and flat panel doors for stock cabinetry are manufactured in Clinton.
The plants are primarily machining, assembly and finishing operations. Raw
materials used by the plants consist of raw, kiln-dried lumber and plywood. At
the Waterloo facility, the lumber is cut and moulded in a manner designed to
maximize material usage and minimize waste. At the Goshen facility,
dimensioned lumber and particle board is supplied by third-party vendors and
the Waterloo facility. Prior to assembly, plywood and furniture board is
laminated and machined. Panels, shelves, drawers, drawer fronts, floors and
back parts are then assembled. Semi-custom and stock cabinetry are finished
(sanded, stained, varnished and cured) and then assembled. Custom products are
finished after assembly. Hardware is then added, and the final product is
inspected, packaged and staged for shipment.
SUPPLIERS. In 1996, the Company purchased roughly $30 million of lumber and
other raw materials from 12 different suppliers, the largest of which
represented roughly 22% of such purchases. The Company is not dependent upon
any specific supplier for any of its raw materials or component parts. The
Company believes that its sources of supply are adequate for its needs.
Additionally, the Company recently formed a dedicated materials management
team to help monitor and further reduce its materials purchasing costs.
TRANSPORTATION/FREIGHT. Panther provides trucking and freight services to
the Company for its Omega product lines. Panther leases 31 tractors, two
trucks and 51 trailers. The Company's stock products are primarily shipped
through contract carriers to customers.
SALES AND MARKETING
The Company sells its products in the United States principally through its
network of over 1,660 active kitchen and bath dealer locations, as well as
through home centers, builder/contractors and independent distributors. An
individual dealer may maintain more than one store location. Active kitchen
and bath dealer selling locations are defined by the Company as only those
dealer locations which have purchased over $500 of products in the past year.
The sales force and distribution network for the Company's Omega product lines
is separate and distinct from the stock product lines manufactured by
HomeCrest. The following chart illustrates the growth in the Company's active
selling locations from 1994 to 1996:
ACTIVE SELLING LOCATIONS
<TABLE>
<CAPTION>
KITCHEN &
BATH HOME TOTAL
YEAR DEALERS CENTERS OTHER(1) LOCATIONS
---- --------- ------- -------- ---------
<S> <C> <C> <C> <C>
1994 1,327 235 2 1,564
1995 1,348 274 2 1,624
1996 1,663 362 17 2,042
</TABLE>
--------
(1) Includes independent distributors and
builders/contractors.
In 1996, over 80% of the Company's sales were through kitchen and bath
dealers. The Company has established strong relationships with its dealers
through superior customer service, timely delivery, quality products and
competitive pricing. Extensive interviews of kitchen and bath cabinetry
dealers indicate that service, timeliness of delivery, and product quality are
all more important than price in choosing a cabinetry supplier. Market
research indicates that cabinetry manufacturers affect dealer profitability
more through service than through price, as dealers can typically pass
manufacturers' price
37
<PAGE>
increases on to customers. The Company has an on-time, accurate completion
record of 95%, which is aided by its newly-implemented bar coding system for
tracking work-in-progress and finished goods inventory. This system enables
the Company to provide its dealers with rapid order status and product
information and options. The Company seeks to establish long-term
relationships with quality dealers and has experienced very low dealer
turnover rates, creating what management believes is a significant competitive
advantage within the industry.
Kitchen and bath dealers primarily service the remodeling market and provide
design consultation services to the consumer. These dealers primarily sell
custom and semi-custom products. The Company added 315 new kitchen and bath
dealer active selling locations in 1996 and believes that the addition of new
dealers is important to future sales growth. It has been the Company's
experience that new selling locations generally mature within a 9- to 18-month
time period. The Company has focused particularly on adding dealers for its
stock products in an effort to increase sales of stock cabinetry into the
remodeling market.
The Company further markets its products through home centers such as Home
Depot, Home Depot Expo, Lowe's, Menards and Eagle. The Company has selectively
targeted certain national and regional chains to distribute its semi-custom
cabinetry and bath vanities. In 1996, the Company grew its home center channel
by 32.1% over 1995 by adding 88 new home center locations to its distribution
network. In 1996, sales in the home center distribution channel represented
approximately 10% of the Company's total net sales.
The Company also sells products through two independent distributors which
accounted for approximately 9.4% of total sales in 1996. In January 1996, the
Company established a pilot builder-direct program to sell stock cabinetry to
contractors in the Chicago-area market. The builder-direct program is
currently supported by one dedicated sales person.
In early 1996, the Company also began targeting the manufactured housing
market and generated $1.6 million in sales in fiscal 1996 from one
manufacturer and is currently in discussions with other manufacturers. The
Company is uniquely positioned to serve the manufactured housing segment
through its Goshen, Indiana stock cabinetry manufacturing facility, which
geographically neighbors Elkhart, Indiana, the center of the U.S. manufactured
housing industry.
The Company produces its cabinetry primarily in response to firm orders. By
producing products only to order, the Company reduces its inventory risk by
lowering its work-in-progress inventory and improving inventory turns, all of
which contribute to the Company's low overall working capital requirements.
The Company generally ships its custom cabinetry within five weeks of order,
its semi-custom cabinetry within four weeks of order and its stock cabinetry
within 10 days of order. The Company possesses an on-time, accurate order
completion record of over 95% which management believes is among the highest
in the industry. Order accuracy and lead times have been enhanced by the
implementation of the bar code system.
The Company maintains separate sales forces for products produced by Omega
and HomeCrest consisting of 74 independent sales representatives, five
Company-employed salespersons and 30 customer service professionals. The sales
force assists the Company's dealers with training, promotions, cabinetry
displays and other services. All orders are placed directly with the Company.
38
<PAGE>
FACILITIES/PROPERTIES
The following are the Company's principal manufacturing facilities and
properties:
<TABLE>
<CAPTION>
CURRENT
ESTIMATED
CAPACITY
LOCATION OWNED/LEASED PRODUCTS SQUARE FT. PRODUCTION UTILIZATION
- -------- ------------ -------- ---------- ------------ -----------
(UNITS/WEEK)
<S> <C> <C> <C> <C> <C>
Waterloo, Owned Custom and semi- 366,323 6,450 66%
Iowa...... custom cabinetry
and vanities
Goshen, Owned
Indiana... Stock cabinetry 476,607 15,000 66%
Clinton, Owned Finished frames and 200,757 N.A.(1) N.A.(1)
Tennessee. flat panel doors
</TABLE>
- --------
(1) The Clinton property is a flexible facility currently utilized for the
sub-assembly of cabinetry and vanities.
The Waterloo facility was reorganized in 1995 to optimize operating
efficiency and capacity. In addition, in late 1995 and early 1996 the bar code
tracking system was installed in the Waterloo facility to improve on-time
delivery, reduce lead times and re-work costs and enhance customer service
through more accurate order processing and faster responsiveness to customer
inquiries.
The Company believes that its plants and properties are generally very well
maintained and in excellent operating condition. While the Company maintains
adequate insurance coverage on all of its properties, the loss of those
facilities could have an adverse effect on the Company's operations.
EMPLOYEES
As of August 22, 1997, the Company employed approximately 1,587 people of
which 1,275 were involved in manufacturing, 94 in warehousing and distribution
and 54 in sales and service. Of such employees, 184 were salaried and 1,403
were hourly. Management considers its employee relations to be good.
INDUSTRY OVERVIEW
The United States kitchen and bath cabinetry market totaled approximately
$6.4 billion in annual sales volume in 1996, according to Specialists in
Business Information. Industry expansion has been driven by the increasing
popularity of kitchen and bathroom remodeling and a relatively strong market
for new home construction. As a result of these trends, growth in the kitchen
and bath cabinetry market over the past two decades has outpaced growth in
both the overall economy and the domestic building material industry.
According to Specialists in Business Information, from 1986 to 1996 kitchen
and bath cabinetry sales increased at a 7.2% CAGR, which represents a growth
in the total dollar volume of U.S. building material shipments made by
manufacturers of kitchen and bath cabinetry from $3.2 billion to $6.4 billion
during this same ten-year period.
According to Wood & Wood Products, 48% of sales in the kitchen and bath
cabinetry market in 1996 were driven by residential remodeling, whereas 52% of
industry sales were driven by new home construction. Residential remodeling
activity is primarily driven by (i) the turnover of existing single-family
homes, (ii) the average age of the housing stock, and (iii) lifestyle changes
and increased wealth within the "baby-boomer" generation. Cabinetmakers have
benefited from the growth in residential remodeling expenditures, which,
according to Kitchen & Bath Business, increased by a CAGR of 6.9% between 1988
and 1996. Industry data indicate that consumers undertaking remodeling
activity have
39
<PAGE>
most frequently looked to the kitchen and bathroom as their primary areas of
focus inside the home, and such kitchen and bathroom remodeling typically
involves the purchase of new cabinetry.
The United States kitchen and bath cabinetry industry is highly fragmented
with over 4,700 manufacturers. As evidence of ongoing industry consolidation,
in 1990 the top twenty-five industry competitors represented 45.1% of total
industry sales, whereas in 1996 the top twenty-five competitors represented
50.8% of total industry sales. Management believes this trend toward industry
consolidation will continue as larger competitors with broader product
offerings and more extensive distribution networks will displace smaller,
less-capable competitors.
The kitchen and bath cabinetry industry consists of three primary price
points: custom, semi-custom and stock. Custom cabinetry is made-to-order and
is offered in an unlimited choice of design and construction styles, wood
species, configurations, finishes and colors. Semi-custom cabinetry is less
expensive and is made-to-order from a more limited set of options than custom
cabinetry. Stock cabinetry is the least expensive price point and offers the
fewest number of styles, wood species and finishes, with choices generally
limited to the standard guidelines established by the manufacturer.
Kitchen cabinetry and bathroom vanities are generally distributed through
four separate channels: kitchen and bath dealers, home centers,
builders/contractors and independent distributors. Management estimates that
there are over 10,000 kitchen and bath dealers in the United States. Dealers
are distinguished by their superior levels of customer service, as they
primarily sell custom and semi-custom products and generally carry no more
than two brands of cabinetry at each price point, generally avoiding any brand
sold by home centers. Dealers also generally provide sales and installation of
cabinetry to existing home owners and small contractors. This sales and
installation process is time intensive and requires significant advance
scheduling. In order for dealers to change their primary cabinetry providers,
they must incur additional costs to replace displays and retrain installation
and purchasing workforce.
Home centers are the fastest growing distribution channel in the kitchen and
bath cabinetry industry, and they typically sell stock cabinetry to the do-it-
yourself and contractor markets. Home centers generally have limited
installation capabilities and sales forces with limited time available to
service customers.
Home builders primarily purchase stock cabinetry and, depending on their
size, will purchase directly through manufacturers, major distributors or
local cabinetry dealers.
Distributors of kitchen and bath cabinetry primarily sell stock cabinetry to
builders, contractors and kitchen and bath dealers, and they typically
maintain high levels of inventory so that they can deliver large quantities on
short notice to customers.
COMPETITION
According to Wood & Wood Products, in 1996 the Company was the seventh
largest producer of kitchen and bath cabinetry, as measured by gross sales.
The cabinetry industry is mature, competitive, regional and fragmented, with
approximately 4,734 manufacturers, many of which are small and compete
primarily on a local or regional basis. According to Kitchen & Bath Business,
the average annual sales per producer is only $2.2 million. There are
relatively low capital requirements for cabinetry assembly, and therefore it
is relatively easy for small competitors to enter the industry.
40
<PAGE>
Despite the relatively low barriers to entry facing small potential industry
entrants, ongoing consolidation is occurring due to customer demands for
shorter lead times and product innovation and the need for manufacturers to
invest in automation and technology. Such consolidation is making it more
difficult for smaller players to compete with larger, more integrated
manufacturers on a cost-effective basis. Management therefore believes that
its principal competitors include only those cabinetry manufacturers with
strong dealer networks and adequate capital supplies to invest in technology
and develop the economies of scale in manufacturing and purchasing required to
deliver the important combination of service, product quality and competitive
pricing demanded by customers.
Key competitive factors in the cabinetry industry include product quality,
customer service, speed of delivery, value and price. The cabinetry industry
is subject to price competition, especially in the stock cabinetry price point
of the market. The Company believes that it competes favorably with other
manufacturers due to the breadth of its product offerings, its production
capacity and its delivery and service. Some of the Company's competitors,
however, are larger and have greater financial resources than the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for certain of the Company's operations, and these permits are
subject to revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violations may result in the payment of fines or the entry of
injunctions, or both. The Company does not believe it will be required under
existing environmental laws and enforcement policies to expend amounts that
will have a material adverse effect on its results of operations or financial
condition. At present, the Company has no plans to make capital expenditures
for environmental control facilities for fiscal year 1997, 1998 or thereafter.
The requirements of such laws and enforcement policies, however, have
generally become stricter in recent years. Accordingly, the Company is unable
to predict the ultimate cost of compliance with environmental laws and
enforcement policies.
LEGAL PROCEEDINGS
The Company is a party to various legal actions arising in the ordinary
course of its business. The Company believes that the resolution of these
legal actions will not have a material adverse effect on the Company's
financial position or results of operations.
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers, including their respective ages as of
December 1, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Henry P. Key.................. 56 Director, President, Chief Executive Officer,
Omega and Panther
Lance E. Erlick............... 46 Vice President, Treasurer, Chief Financial
Officer, Omega and Panther
Robert L. Moran............... 43 Vice President, Operations, Omega and Panther
Henry T. Wellnitz............. 47 Vice President, Sales & Marketing, Omega and
Panther
John A. Goebel, Jr. .......... 54 President, HomeCrest
Michael Hagan................. 45 Vice President, Administration, HomeCrest
Thomas Schmidt................ 44 Vice President, Marketing, HomeCrest
Douglas J. Conley............. 41 Vice President, Manufacturing, HomeCrest
Robert J. Bertch.............. 51 Director, Omega and Panther
Gilbert Butler................ 60 Director, Omega and Panther
Donald E. Cihak............... 49 Director, Omega and Panther
Costa Littas.................. 41 Director, Omega and Panther
</TABLE>
Henry P. Key has served as a director of Omega and has been Chief Executive
Officer of Omega since October 1994. Mr. Key has executive management
responsibility for all functional areas of Omega, including finance,
operations, strategic planning, sales and marketing, management information
systems, quality control and human resources. Mr. Key is also a director of
Holdings, Omega's sole stockholder, and Panther. Mr. Key currently serves as
President and Chief Executive Officer of Holdings and President and Chief
Executive Officer of Panther. From October 1988 to July 1994, Mr. Key was
employed as President and Chief Executive Officer of Pioneer Screw & Nut Co.,
a manufacturer of specialty fasteners for automotive applications, in Elk
Grove, Illinois. Mr. Key was also previously President of Metal Crafters, a
manufacturer of specialty fasteners for automotive applications, and Vice
President of Operations for Ideal Industries, a manufacturer of electrical
supplies.
Lance E. Erlick has served as Vice President, Treasurer and Chief Financial
Officer of Omega since July 1994. Mr. Erlick is also the Vice President and
Chief Financial Officer of each of Holdings and Panther. Mr. Erlick is
responsible for all aspects of accounting, budgeting, management information
systems, corporate cash management and all other finance and reporting
functions for Omega. From September 1992 to June 1994, Mr. Erlick was employed
as chief financial officer of The Hirsh Co., a home shelving manufacturer.
Prior to Hirsh, Mr. Erlick was chief financial officer of Component
Technologies, a custom plastics components manufacturer.
Robert L. Moran has served as Vice President, Operations of Omega since
October 1995 and is also Vice President, Operations at Panther. Mr. Moran has
responsibility for manufacturing operations at Omega, which include
manufacturing engineering, materials planning, purchasing, production,
inventory control and maintenance. From August 1992 to October 1995, Mr. Moran
was employed at Newell Company, a mass merchandise retailer of consumer
products, where he was the Vice President of Operations for the Home Hardware
Division.
Henry T. Wellnitz has served as Vice President, Sales and Marketing of Omega
since 1992. Mr. Wellnitz is responsible for sales and marketing for Omega. Mr.
Wellnitz has been with Omega since 1984.
42
<PAGE>
John A. Goebel, Jr. has served as President of HomeCrest since 1995 and
currently oversees all aspects of HomeCrest's operations, including finance,
manufacturing, sales and marketing, distribution, management information
systems and human resources. Mr. Goebel has been with HomeCrest since 1986. He
was plant manager at the Clinton facility from 1986 to 1990, and served as
Vice President, Operations at HomeCrest from 1990 to 1995. Mr. Goebel also has
certain strategic planning responsibilities at HomeCrest.
Michael Hagan has served as Vice President, Administration, HomeCrest since
1991. Mr. Hagan has been with HomeCrest since 1978.
Thomas Schmidt has served as Vice President, Marketing, HomeCrest since
1991. Mr. Schmidt is responsible for sales and marketing at HomeCrest.
Douglas J. Conley has served as Vice President, Manufacturing, HomeCrest
since 1995. From May 1991 to May 1995, Mr. Conley served as Vice President,
Human Resources for HomeCrest. Mr. Conley has been with HomeCrest since 1989.
Robert J. Bertch has been a director of Omega since its inception. Mr.
Bertch founded the Company in 1977 and has served as its President and Chief
Executive Officer until Omega was sold to Code, Hennessy & Simmons in 1994.
Gilbert Butler became a director of the Company in June 1997. Since its
formation in 1981, he has been the President of BCC, a private investment firm
providing management advisory services to five investment limited
partnerships, including MLA III, that provide financing for leveraged buyouts,
other acquisitions and business expansions. Mr. Butler is also the managing
general partner of five limited partnerships that serve as the respective
general partners of the five investment limited partnerships. Mr. Butler is a
trustee and member of the investment committee of Corporate Property
Investors, a real estate investment trust.
Donald E. Cihak became a director of the Company in June 1997. Mr. Cihak has
served as Managing Director of BCC Industrial Services, Inc. ("ISI"), a
management consulting company wholly owned by certain investment funds managed
by BCC, since September 1993. From April 1990 to September 1993, Mr. Cihak was
the Vice President/Finance and Administration for the Marine Group of
Brunswick Corporation.
Costa Littas became a director of the Company in June 1997. He has been a
Managing Director of BCC since February 1994, a principal from April 1991 to
February 1994 and a Vice President from October 1989 to April 1991. Mr. Littas
is also a general partner of four limited partnerships that serve as the
respective general partners of four of the investment limited partnerships
advised by BCC, including MLA III. From 1978 to 1989, Mr. Littas was employed
by Bank of Boston, most recently as a Vice President and Manager.
DIRECTOR COMPENSATION
The Company pays no compensation to its independent directors, and pays no
additional remuneration to its employees or to executives of the Company for
serving as directors. There are no family relations among any of the directors
or executive officers.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation earned in fiscal 1996
by the Company's Chief Executive Officer and each of the other five most
highly compensated executive officers whose remuneration exceeded $100,000
("Named Executives"). The current compensation arrangements for each of these
officers are described in "Employment Agreements" below.
43
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------
NUMBER OF
SECURITIES ALL
UNDERLYING OTHER
NAME AND POSITION SALARY BONUS OPTIONS(1) COMPENSATION
- ----------------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Henry P. Key........................ $191,644 $150,000 2.00 $5,358(2)
President, Chief Executive Officer,
Omega and Panther
John A. Goebel, Jr. ................ 124,407 77,797 0.34 930(3)
President, HomeCrest
Thomas Schmidt...................... 115,253 72,003 0.20 183(3)
Vice President, Marketing, HomeCrest
Robert L. Moran..................... 120,000 47,000 0.34 --
Vice President, Operations, Omega
and Panther
Michael Hagan....................... 97,990 61,242 0.20 148(3)
Vice President, Administration,
HomeCrest
Lance E. Erlick .................... 100,590 52,013 0.75 2,572(3)
Treasurer, Chief Financial Officer,
Omega and Panther
</TABLE>
- --------
(1) The Options are options to purchase shares of common stock of Holdings
granted in 1996.
(2) Mr. Key's additional compensation reflects a $2,000 annual premium on a
life insurance policy maintained by the Company as well as amounts matched
by the Company under a 401(k) Profit Sharing Plan for fiscal 1996.
(3) Additional compensation amounts refer to amounts matched by the Company
under the Company's 401(k) Profit Sharing Plan for fiscal 1996.
OPTION GRANTS
The table below shows grants of options to purchase common stock of Holdings
made to the Chief Executive Officer and Named Executives during fiscal 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------- ---------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS TO PRICE EXPIRATION
NAME OPTIONS(1) EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Henry P. Key............ 2.00 34.2% $6,257.15 -- $21,211.70 $22,817.70
Lance E. Erlick......... 0.75 12.8% 6,257.15 -- 7,954.39 8,556.64
John A. Goebel, Jr. .... 0.34 5.8% 6,257.15 -- 3,605.99 3,879.01
Robert L. Moran......... 0.34 5.8% 6,257.15 -- 3,605.99 3,879.01
Thomas Schmidt.......... 0.20 3.4% 6,257.15 -- 2,121.17 2,281.77
Michael Hagan........... 0.20 3.4% 6,257.15 -- 2,121.17 2,281.77
</TABLE>
- --------
(1) The Options represent options to purchase shares of common stock of
Holdings in 1996, prior to the Merger.
44
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Key is currently employed as President and Chief Executive Officer of
Holdings pursuant to an agreement dated September 16, 1994. Under this
agreement, Mr. Key is entitled to receive an annual salary of $180,000,
subject to annual increases. In addition, Mr. Key is eligible for an annual
bonus of up to 100% of base salary determined by (i) the achievement of
operating earnings targets and (ii) the achievement of performance plan
objectives. Mr. Key is also entitled to receive twelve months' continued
salary and benefits if he is separated from Holdings other than for cause.
Omega also pays Mr. Key an additional $2,000 per year for incremental life
insurance premiums. Pursuant to a letter agreement dated April 24, 1997, Mr.
Key is entitled to a lump sum payment equal to 18 months of base salary then
in effect, continuation of coverage under group health, group life, group
long-term disability and any other group plans and other benefits for a
maximum of two years if he is terminated without cause or resigns voluntarily
for good reason within 180 days of the OMC Merger. Mr. Key has the right under
a put agreement dated June 13, 1997 to cause Holdings to repurchase his common
stock in the event of his normal retirement from Holdings.
Mr. Moran is currently employed with the Company pursuant to an agreement
dated September 11, 1995, as amended on June 13, 1997. Under this agreement,
Mr. Moran receives an annual salary of $120,000, subject to annual increases,
and is eligible for a bonus of up to 30% of base salary. Mr. Moran is entitled
to receive twelve months' continued salary and benefits if he is terminated
for reasons other than cause. Pursuant to a letter agreement dated April 24,
1997, Mr. Moran is entitled to a lump sum payment equal to 18 months of base
salary then in effect, continuation of coverage under group health, group
life, group long-term disability and any other group plans and other benefits
for a maximum of two years if he is terminated without cause or resigns
voluntarily for good reason within 180 days of the OMC Merger.
Mr. Erlick is currently employed with the Company pursuant to an employment
agreement dated July 11, 1994. Under this agreement, Mr. Erlick receives an
annual salary of $95,000, subject to annual increases, and is eligible to
receive an annual bonus of up to 30% of base salary. Under the agreement, Mr.
Erlick will receive six months continued salary and benefits if he is
terminated without cause after July 1996. Pursuant to a letter agreement dated
April 24, 1997, Mr. Erlick is entitled to a lump sum payment equal to 18
months of base salary then in effect, continuation of coverage under group
health, group life, group long-term disability and any other group plans for a
maximum of 2 years, and other benefits if he is terminated without cause or
resigns voluntarily for good reason within 180 days of the OMC Merger.
Mr. Goebel is currently employed as President, HomeCrest pursuant to an
agreement dated April 10, 1995, as amended on June 13, 1997. Under this
agreement, Mr. Goebel is entitled to receive a base salary, subject to annual
increases, and a bonus in accordance with the Company's Executive Bonus Plan
for senior management ("Bonus Plan"). Mr. Goebel is also entitled to receive
twelve months' continued salary and benefits if he is terminated from the
Company without cause. Pursuant to a letter agreement dated April 24, 1997,
Mr. Goebel is entitled to a lump sum payment equal to 18 months of base salary
then in effect, continuation of coverage under group health, group life, group
long-term disability and any other group plans and other benefits for a
maximum of two years if he is terminated without cause or resigns voluntarily
for good reason within 180 days of the OMC Merger. Mr. Goebel has the right
under a put agreement dated June 13, 1997 to cause Holdings to repurchase his
common stock in the event of his normal retirement from Holdings.
Mr. Hagan is currently employed as Vice President, Administration, HomeCrest
pursuant to an agreement dated April 10, 1995. Under this agreement, Mr. Hagan
is entitled to receive a base salary, subject to annual increases, and a bonus
in accordance with the Company's Bonus Plan. Mr. Hagan is also entitled to
receive six months' continued salary and benefits if he is terminated from the
Company without cause. Pursuant to a letter agreement dated April 24, 1997,
Mr. Hagan is entitled to
45
<PAGE>
a lump sum payment equal to 18 months of base salary then in effect,
continuation of coverage under group health, group life, group long-term
disability and any other group plans and other benefits for a maximum of two
years if he is terminated without cause or resigns voluntarily for good reason
within 180 days of the OMC Merger.
Mr. Schmidt is currently employed as Vice President, Marketing, HomeCrest
pursuant to an agreement dated April 10, 1995. Under this agreement, Mr.
Schmidt is entitled to receive a base salary, subject to annual increases, and
a bonus in accordance with the Company's Bonus Plan. Mr. Schmidt is also
entitled to receive six months' continued salary and benefits if he is
terminated from the Company without cause. Pursuant to a letter agreement
dated April 24, 1997, Mr. Schmidt is entitled to a lump sum payment equal to
18 months of base salary then in effect, continuation of coverage under group
health, group life, group long-term disability and any other group plans and
other benefits for a maximum of two years if he is terminated without cause or
resigns voluntarily for good reason within 180 days of the OMC Merger.
Pursuant to a Deferred Non-Qualified Compensation Agreement between the
Company and Mr. Wellnitz, dated June 28, 1987, Mr. Wellnitz is entitled to
retirement benefits and will receive monthly payments equal to $20,000 per
year ($1,666.67 per month) up to a maximum of $200,000 upon retirement at age
65 if he is employed by the Company at such time, or to his heirs or estate if
he predeceases his retirement age. The Deferred Non-Qualified Compensation
Agreement terminates automatically upon the termination of Mr. Wellnitz's
employment for any reason other than Mr. Wellnitz's death.
The Named Executive Officers of the Company participate in the Bonus Plan
whereby they are eligible to receive a base bonus potential of 30% of base
salary, with the Chief Executive Officer having a base bonus potential of 50%
of salary. Payout is on a sliding scale based on operating profit performance
against budget starting at 85% of budget. There is an opportunity to earn up
to 125% of the base potential based on achieving 105% of planned operating
income performance.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
Omega has 10,000 authorized shares of capital stock, 1,000 of which are
issued and owned by Holdings. Panther has 100,000 authorized shares of
capital, 1,000 of which are issued and owned by Omega.
Holdings' common stock, par value $.01 per share, ("Holdings' Common Stock")
is the only class of Holdings' stock. At consummation of the Initial Offering,
there were 70,000 shares of Holdings' Common Stock issued and outstanding.
Certain Company directors and members of the Company's management own 8,135
shares of Holdings' Common Stock. The following table sets forth the
beneficial ownership of each class of issued and outstanding securities of
Holdings, as of the date hereof, by each director of Omega, each of the
executive officers of Omega listed under "Management," the directors and
executive officers of Omega as a group and each person who beneficially owns
more than 5% of the outstanding shares of Holdings' Common Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES(1) CLASS(1)
---- ---------- ----------
<S> <C> <C>
Mezzanine Lending Associates III, L.P.(2)........ 64,256.402 88.8%
767 Fifth Avenue, 6th Floor
New York, NY 10153
Gilbert Butler(3)................................ 64,256.402 88.8
Costa Littas(3).................................. 64,256.402 88.8
Donald Cihak..................................... 0.000 0.0
Robert J. Bertch................................. 3,500.000 5.0
Henry P. Key..................................... 1,250.000(4) 1.8
John A. Goebel, Jr. ............................. 450.000(5) 0.6
Robert L. Moran.................................. 340.000(4) 0.5
Lance E. Erlick.................................. 300.000 0.4
Henry T. Wellnitz................................ 300.000(4) 0.4
All Directors and Executive Officers Combined.... 6,140.000(6) 8.8
</TABLE>
- --------
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared
power to dispose, or direct the disposition of, a security.
(2) The shares held by MLA III include 2,391.402 shares subject to acquisition
from Holdings by ISI, a corporation wholly-owned by certain investment
funds managed by BCC, pursuant to immediately exercisable warrants issued
by Holdings for the purchase of such shares. See "Certain Relationships
and Related Transactions." Mezzanine Lending Management III, L.P. ("MLM
III") is the general partner of MLA III, and, as such general partner, may
be deemed to own beneficially all the shares deemed to be owned
beneficially by MLA III.
(3) All of such shares are held directly by MLA III or subject to warrants
held directly by ISI, as described in note 2 above. Gilbert Butler and
Costa Littas are managing general partner and general partner,
respectively, of MLM III, and, as such, may be deemed to own beneficially
all shares beneficially owned by MLA III.
(4) All of such shares are beneficially owned by the persons indicated and are
held in the Rabbi Trust. See "Certain Relationships and Related
Transactions."
(5) Includes 323.372 shares which are beneficially owned by Mr. Goebel and are
held in the Rabbi Trust. See "Certain Relationships and Related
Transactions."
(6) Excludes shares deemed to be beneficially owned by Mr. Butler and Mr.
Littas.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OMC MERGER AND RELATED AGREEMENTS
The OMC Merger occurred on June 13, 1997. Concurrently with the OMC Merger,
an aggregate consideration of $201.6 million was paid, subject to adjustment
based on the working capital of Holdings at the closing date. The merger
agreement contains customary representations, warranties, covenants and
indemnification provisions. In connection with the OMC Merger, pursuant to a
Merger Financing Agreement (the "Financing Agreement") with MLA III, MLA III
purchased 61,865 shares of Common Stock of Holdings for $61.9 million and
Holdings issued to MLA III the Junior Subordinated Note. Under the Financing
Agreement, the Company has agreed to indemnify and pay certain expenses of BCC
and its affiliates and their advisors and consultants under certain
circumstances.
MANAGEMENT AGREEMENT
In connection with the OMC Merger, the Company and Holdings entered into a
management agreement ("Management Agreement") with Industrial Services, Inc.
("ISI"), a management consulting company wholly owned by investment funds
managed by BCC, whereby the Company and Holdings agree to pay ISI $325,000 per
year plus certain fees and expenses, including legal and accounting fees and
any out-of-pocket expenses incurred by ISI in connection with providing
services to the Company, and to indemnify ISI under certain circumstances. In
addition, ISI received warrants to purchase an aggregate of 2,391.4020 shares
of common stock of Holdings at an exercise price of $1,000 per share. The
warrants expire in 2007.
DEFERRED COMPENSATION PLAN AND RABBI TRUST
In connection with the OMC Merger, Holdings and its subsidiaries adopted the
1997 Omega Holdings, Inc. Deferred Compensation Plan (the "Plan") for the
purpose of providing the following benefits to those employees of Holdings and
its subsidiaries whose options to purchase shares of Holdings were canceled as
a result of the OMC Merger (the "Plan Participants"). Under the terms of the
Merger agreement, upon consummation of OMC Merger, each option to purchase
shares of Holdings stock held by the Plan Participants prior to the merger was
canceled, and Holdings established a deferred compensation obligation pursuant
to the Plan for the benefit of each Plan Participant. Benefits under the Plan
are payable in cash and in shares of Holdings stock, and are payable to Plan
Participants upon termination of employment or, under certain limited
circumstances, prior to termination. The benefits provided by the Plan
represent the unsecured obligations of Holdings.
As contemplated by the Plan and pursuant to the Rabbi Trust Agreement dated
as of June 13, 1997 between Holdings and American National Bank and Trust
Company of Chicago, as trustee, Holdings established the Rabbi Trust to hold
approximately 3,224.4670 shares of Holdings Common Stock to satisfy Holdings'
obligations as provided in the Plan. The Rabbi Trust maintains separate
accounts for each Plan Participant, which accounts are intended to reflect the
obligation of the Company to distribute cash and shares of Holdings stock to
each Plan Participant. The Rabbi Trust may, at the direction of the Company,
make such distributions to satisfy the obligations of the Company under the
Plan. The Plan does not provide for elective deferrals by Plan Participants.
MANAGEMENT EQUITY ARRANGEMENTS
Holdings adopted a stock option plan for the benefit of employees of
Holdings and its subsidiaries in June 1997 (the "Stock Option Plan"). Pursuant
to the Stock Option Plan, 7,322.0100 shares of Holdings common stock have been
reserved for issuance pursuant to the plan; however, no options have been
granted thereunder. The Stock Option Plan is administered by the Board of
Directors of Holdings, which has discretionary authority to grant options and
determine the terms and conditions of
48
<PAGE>
each award. No awards may be granted under the Stock Option Plan after the
completion of ten years from its adoption, but awards previously granted may
extend beyond that date.
In addition, pursuant to a stockholders agreement (the "Stockholders
Agreement") among Holdings, MLA III and ISI, management stockholders, Robert
Bertch, the American National Bank and Trust Company of Chicago as trustee of
the Rabbi Trust and participants in the Rabbi Trust, certain management
stockholders have the right to cause Holdings to repurchase Holdings common
stock held by such management stockholders upon their death or disability. In
addition, Mr. Goebel and Mr. Key have entered into put agreements with
Holdings dated as of June 13, 1997, respectively, whereby Mr. Goebel and Mr.
Key have the right, in addition to their respective rights under the
Stockholders Agreement, to cause Holdings to repurchase Holdings common stock
held by each, respectively in the event of normal retirement from Holdings.
49
<PAGE>
DESCRIPTION OF NEW BANK CREDIT FACILITY
The Company and its subsidiaries have entered into an agreement with various
banks including First Bank National Association as a bank lender and as agent
for the bank lenders party thereto ("First Bank", and collectively with such
other lenders, the "Lenders") providing for the New Bank Credit Facility
consisting of the Term Facility of up to $40.0 million and (ii) a Revolving
Facility of up to $20.0 million. The New Bank Credit Facility is permitted by
the terms of the Notes to be increased to a total borrowing capacity of $120.0
million.
The Term Facility requires quarterly principal payments beginning in
September 1997 at approximately $0.6 million per quarter and increasing at
each anniversary. Subsequent payments will be approximately $1.0 million, $1.4
million, $1.5 million, $1.9 million, and $2.3 million per quarter during four-
quarter periods beginning in 1998, 1999, 2000, 2001, 2002, respectively, with
the balance due in the following two quarters. The Term Facility matures on
December 26, 2003. The Revolving Facility portion of the New Bank Credit
Facility will mature in 2002 and has no scheduled interim amortization. In
addition, the Company is required to make prepayments on the New Bank Credit
Facility under certain circumstances, including certain sales of assets and
the issuance of debt or equity securities other than issuances of equity
securities to finance acquisitions permitted under the New Bank Credit
Facility or equity securities issued to management employees and directors up
to $500,000. The Company is also required on an annual basis to make
prepayments on the New Bank Credit Facility in an amount equal to 75% of the
Company's Excess Cash Flow (as defined therein). These mandatory prepayments
will be applied first to prepay the Term Loan and then to the permanent
reduction of the Revolving Facility. Subject to reduction in the event the
Company meets certain leverage tests, and subject to increase upon the
occurrence and during the continuation of an event of default, the New Bank
Credit Facility bears interest, at the Company's option, (a) at an adjusted
base rate equal to the Applicable Margin (as defined therein) plus the greater
of the federal funds rate plus 0.5% or First Bank's customary base rate or (b)
at the Applicable Margin (as defined therein) plus First Bank's Eurodollar
rate.
The New Bank Credit Facility is guaranteed by the Company's sole
stockholder, Holdings. The New Bank Credit Facility is secured by all of the
stock of the Company, all of the stock of the Company's subsidiary and all of
the Company's and its subsidiary's properties and assets.
The New Bank Credit Facility contains certain financial covenants,
including, but not limited to, covenants related to interest coverage, fixed
charge coverage and a leverage test. In addition, the New Bank Credit Facility
contains other affirmative and negative covenants relating to (among other
things) liens, negative pledges, limitations on additional debt, transactions
with affiliates, maintenance of lockbox, mergers and dispositions of assets,
subsidiaries and acquisitions, operating leases, restricted payments
(including junior debt payments), guarantees, capital expenditures and
investments. It is also an event of default under the New Bank Credit Facility
if the Company prepays the Notes prior to maturity. The New Bank Credit
Facility contains customary events of default for highly leveraged financing,
including changes in control of the Company.
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<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an Indenture (the "Indenture")
among the Company, Panther, as Guarantor, and The Chase Manhattan Bank, as
trustee (the "Trustee"). The terms of the Exchange Notes include those stated
in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended, (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and Holders of Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary is a description of the material provisions of
the Indenture, which is filed as an exhibit to this Registration statement of
which this Prospectus forms a part. Copies of the Indenture are available as
set forth above under "-- Additional Information." The definitions of certain
terms used in the following summary are set forth below under "-- Certain
Definitions." For purposes of this summary, the term "Company" refers only to
Omega Cabinets, Ltd. and not to its Subsidiary.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all current and future Senior
Debt. As of December 10, 1997, the Company had Senior Debt outstanding of
approximately $39.0 million. The Indenture will permit the incurrence of
additional Senior Debt in the future.
As of the date hereof, the Company's sole Subsidiary, Panther, is a
Restricted Subsidiary. However, under certain circumstances, the Company will
be able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited to $100.0 million in aggregate principal
amount. The Exchange Notes will mature on June 15, 2007. Interest on the
Exchange Notes will accrue at the rate of 10 1/2% per annum and will be
payable semi-annually in arrears on June 15 and December 15, commencing on
December 15, 1997, to Holders of record on the immediately preceding June 1
and December 1, respectively. Interest on the Exchange Notes will accrue from
the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Principal,
premium, if any, and interest on the Exchange Notes will be payable at the
office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest
may be made by check mailed to the Holders of the Exchange Notes at their
respective addresses set forth in the register of Holders of Exchange Notes;
provided that all payments of principal, premium, interest with respect to
Exchange Notes the Holders of which have given wire transfer instructions to
the Company will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Trustee maintained for such purpose. The
Exchange Notes will be issued in denominations of $1,000 and integral
multiples thereof.
GUARANTEE
The Company's payment obligations under the Exchange Notes will be fully,
unconditionally and jointly and severally guaranteed (the "Subsidiary
Guarantee") by the Guarantor, Panther. Panther is a non-material subsidiary of
the Company. The Subsidiary Guarantee of the Guarantor will be subordinated to
the prior payment in full of all Senior Debt of such Guarantor, which includes
approximately $39.0 million of Senior Debt outstanding as of December 10,
1997, and the amounts
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<PAGE>
for which the Guarantor will be liable under the guarantees issued from time
to time with respect to Senior Debt. The obligations of the Guarantor under
the Subsidiary Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. See "Risk Factors--Fraudulent Conveyance
Law."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all or substantially all of the assets
of such Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "Mandatory Redemption" or "Repurchase at the Option of
Holders--Asset Sales and Sales of Subsidiary Stock."
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Exchange
Notes and the exercise of rights of rescission or other claims, if any, in
respect of the issuance of the Exchange Notes, will be subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full of all
Senior Debt, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations (including, without limitation,
Post-Petition Interest) due or to become due in respect of such Senior Debt
before the Holders of Exchange Notes will be entitled to receive any payment
with respect to the Exchange Notes, and until all Obligations with respect to
Senior Debt are paid in full in cash, any distribution to which the Holders of
Exchange Notes would be entitled shall be made to the holders of Senior Debt
(except that Holders of Exchange Notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "-- Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Exchange
Notes and may not acquire any Exchange Notes from the Trustee or any holder
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity and
the Company and the Trustee each receive a notice of such default (a "Payment
Blockage Notice") from a representative of the holders of such Designated
Senior Debt. Payments on the Exchange Notes may and shall be resumed (a) in
the case of a payment default on any Designated Senior Debt, upon the date on
which such default is cured or waived in accordance with the terms of such
Designated Senior Debt and (b) in case of a nonpayment default on any
Designated Senior Debt, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received. Notwithstanding the provisions in clause
(b) of the immediately preceding sentence, unless the holders of any
Designated Senior Debt or the representative thereof have accelerated the
maturity of such Designated Senior Debt or a payment default has occurred and
is continuing with respect to such Designated Senior Debt, the Company may and
shall resume payments on the Exchange Notes after the end of such payment
blockage period. No new Payment Blockage Notice may be delivered unless
52
<PAGE>
and until 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall
be, or be made, the basis for a subsequent Payment Blockage Notice (although a
subsequent breach of the same provision of the New Bank Credit Facility or any
Permitted Refinancing Indebtedness in respect thereof may be made the basis
for a subsequent Payment Blockage Notice if the original breach has been cured
or waived for at least 90 consecutive days prior to the effective date of such
subsequent Payment Blockage Notice).
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an
Event of Default.
The Guarantor's obligations under the Subsidiary Guarantee will be
subordinated to the Senior Debt of the Guarantor, and subject to blockage
provisions, on terms comparable to those described for the Company above.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt.
"Designated Senior Debt" means (i) so long as the New Bank Credit Facility
is in effect, all Indebtedness outstanding under the New Bank Credit Facility
and (ii) after the New Bank Credit Facility is no longer in effect or with the
prior written consent of the lenders under the New Bank Credit Facility, any
other Senior Debt permitted under the Indenture the principal amount of which
is $10 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Permitted Junior Securities" means (i) Equity Interests (other than
Disqualified Stock, including other Equity Interests containing mandatory
redemption provisions) of the Company or any Guarantor or (ii) debt securities
of the Company or any Guarantor with respect to which no scheduled principal
payment is due before the scheduled maturity date of the Senior Debt (and any
debt securities issued in exchange for Senior Debt) and that are subordinated
to all Senior Debt (and any debt securities issued in exchange for Senior
Debt) to substantially the same extent as, or to a greater extent than, the
Exchange Notes and the Subsidiary Guarantee are subordinated to Senior Debt of
the Company and the Guarantor.
"Senior Debt" means (i) all Indebtedness of the Company and the Guarantor
outstanding under the New Bank Credit Facility and all Permitted Hedging
Obligations with respect thereto, (ii) any other Indebtedness of the Company
and the Guarantor permitted to be incurred under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the Exchange Notes or the Subsidiary Guarantee, as applicable, and (iii) all
Obligations with respect to the foregoing; provided that if any payment or
proceeds of any collateral is applied to the Senior Debt and is subsequently
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization
of the Company or any Guarantor, or any claim of fraudulent or preferential
transfer), the Senior Debt to which such payment was applied will, for
purposes of the Indenture, be deemed to have continued in existence,
notwithstanding such application, and the subordination provisions of the
Indenture will be enforceable as to such Senior Debt as fully as if such
application had never been made. Notwithstanding anything to the contrary in
the foregoing, Senior Debt shall not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company or any Guarantor, (x)
any Indebtedness of the Company to any of its Subsidiaries or Affiliates, (y)
any trade payables or (z) any Indebtedness that is incurred in violation of
the Indenture.
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<PAGE>
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the Company's
option prior to June 15, 2002. On and after such date, the Exchange Notes will
be subject to redemption at any time at the option of the Company, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on June 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. 105.25%
2003.............................. 103.50%
2004.............................. 101.75%
2005 and thereafter............... 100.00%
</TABLE>
In addition, at any time on or prior to June 15, 2000, the Company may (but
shall not have the obligation to) redeem, on one or more occasions, up to an
aggregate of $35.0 million in aggregate principal amount of Notes at a
redemption price equal to 110.5% of the principal amount thereof, plus accrued
and unpaid interest thereon, to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings by Holdings or the Company (to
the extent that the net proceeds therefrom are contributed by Holdings to the
Company as common equity); provided that at least $65.0 million in aggregate
principal amount of Notes remains outstanding immediately after the occurrence
of such redemption; and provided further, that the notice of redemption with
respect to any such redemption shall be mailed within 60 days of the date of
the receipt by the issuer of the proceeds of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed or repurchased in an offer
to purchase at any time, selection of Notes for redemption or repurchase will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed, or, if
the Notes are not so listed, on a pro rata basis, by lot or in accordance with
any other method the Trustee considers fair and appropriate; provided that no
Notes of $1,000 or less shall be redeemed or repurchased in part. Notices of
redemption may not be conditional. Notices of redemption or repurchase shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date or repurchase date to each Holder of Notes to be redeemed or
repurchased at its registered address. If any Note is to be redeemed or
repurchased in part only, the notice of redemption or repurchase that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed or repurchased. A new Note in principal amount equal to the
unredeemed or unrepurchased portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
redemption or repurchase date, interest ceases to accrue on Notes or portions
of them called for redemption or repurchase.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Exchange Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Exchange Notes in the
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<PAGE>
manner described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon, to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control (unless notice of
the redemption of the Notes has been given as provided above under the
caption, "-- Selection and Notice"), the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Notes on the date specified in such
notice, which date shall be no earlier than 30 business days and no later than
60 business days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control. To the extent that the provisions of any securities laws or
regulations conflict with this covenant, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations hereunder by virtue thereof. The "Change of Control"
provisions of the Indenture may be waived only with the consent of the Holders
of at least a majority in principal amount of the Notes then outstanding.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to
the Trustee the Exchange Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Exchange Notes or
portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Notes so tendered the Change of Control
Payment for such Exchange Notes, and the Trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each Holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided that each such new Exchange Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any
event within 40 days following a Change of Control, if the terms of the Senior
Debt restrict or prohibit the repurchase of Exchange Notes under this
covenant, the Company will either repay all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of Notes required by this covenant. As of
December 10, 1997, the Company had Senior Debt outstanding of approximately
$39.0 million. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Exchange Notes to require
that the Company repurchase or redeem the Exchange Notes in the event of a
takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the New Bank Credit Facility. Future
Senior Debt of the Company and its Subsidiary may also contain prohibitions of
certain events that would constitute a Change of Control or require such
Senior Debt to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require the Company to repurchase the Notes
could cause a default under such Senior
55
<PAGE>
Debt, even if the Change of Control itself does not, due to the financial
effect of such repurchase on the Company. Finally, the Company's ability to
pay cash to the holders upon a repurchase may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. Even if
sufficient funds were otherwise available, the terms of the New Bank Credit
Facility will (and other Senior Debt may) prohibit the Company's prepayment of
Notes prior to their scheduled maturity. Consequently, if the Company is not
able to prepay the amount outstanding under the New Bank Credit Facility and
any other Senior Debt containing similar restrictions or obtain requisite
consents, as described above, the Company will be unable to fulfill its
repurchase obligations if holders of Notes exercise their repurchase rights
following a Change of Control, thereby resulting in a default under the
Indenture.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiary 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 Exchange Notes to
require the Company to repurchase such Exchange Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the
assets of the Company and its Subsidiary taken as a whole to another Person or
group may be uncertain.
Asset Sales and Sales of Subsidiary Stock
The Indenture will provide that the Company will not, and will not permit
its Restricted Subsidiary to, consummate an Asset Sale unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors of the Company set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes
or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company or
such Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company or such
Restricted Subsidiary into cash within 90 days of receipt thereof by the
Company or such Restricted Subsidiary (to the extent of the cash received),
shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior
Debt, (b) to the acquisition of a controlling interest in another business,
the making of a capital expenditure or the acquisition of other long-term
assets (i.e., assets that would not be classified as short-term assets under
GAAP) or (c) to an investment in properties or assets that replace the
properties or assets that are the subject of such Asset Sale. Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
Senior Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer
to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the
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Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis. Upon completion of such
offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Restrictions Affecting or Resulting from Change of Control and Asset Sales
and Sales of Subsidiary Stock
The New Bank Credit Facility prohibits the Company from purchasing any Notes
and provides that certain change of control events with respect to the Company
would constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
or Asset Sale occurs at a time when the Company is prohibited from purchasing
Notes, the Company could seek the consent of its lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a
default under the New Bank Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to
the Holders of Notes. The Company's ability to pay cash to the Holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
its Restricted Subsidiary to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or its Restricted Subsidiaries' Equity Interests (including, without
limitation, any such payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's
or its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or its Restricted
Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, any such payment in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Restricted Subsidiary of
the Company); (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Notes, except a payment at Stated Maturity; or (iv)
make any Restricted Investment (all such payments and other actions set forth
in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated EBITDA Ratio test set forth in the first paragraph of the
covenant described below under caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
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(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiary
after the date of the Indenture (including Restricted Payments permitted by
clauses (i), (v) and (xi) of the next succeeding paragraph), does not
exceed the sum (without duplication) of (i) 50% of the aggregate amount of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company (other than Disqualified Stock) or of Disqualified Stock of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or Disqualified Stock) sold to a Subsidiary of the
Company and other than Disqualified Stock that has been converted into
Disqualified Stock), plus (iii) 100% of the aggregate amounts contributed
as common equity to the Company since the date of the Indenture, plus (iv)
the amount by which Indebtedness of the Company or its Restricted
Subsidiary is reduced on the Company's consolidated balance sheet upon the
conversion or exchange subsequent to the date of the Indenture of any
Indebtedness of the Company or its Restricted Subsidiary issued after the
date of the Indenture that is convertible into or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of
any cash or other property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange), plus (v) to the extent that
any Restricted Investment that was made after the date of the Indenture is
sold for cash or otherwise liquidated or repaid for cash, the lesser of (A)
the cash return of capital with respect to such Restricted Investment (less
the cost of disposition, if any) and (B) the initial amount of such
Restricted Investment, plus (vi) 50% of any dividends received by the
Company or a Wholly Owned Restricted Subsidiary after the date of the
Indenture from an Unrestricted Subsidiary of the Company to the extent that
such dividends were not otherwise included in Consolidated Net Income of
the Company for such period.
The foregoing provisions will not prohibit, without duplication, (i) the
payment of any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with the
provisions of the Indenture; (ii) the redemption, repurchase, retirement,
defeasance or other acquisition of any subordinated Indebtedness or Equity
Interests of the Company in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of, Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded (to the extent otherwise included) from clause (c) (ii) of
the preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Restricted Subsidiary of the Company to the holders of its
common Equity Interests on a pro rata basis; (v) payments to Holdings or by
the Company, in either case, for the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of Holdings, the
Company or the Company's Restricted Subsidiary held by any director, officer,
employee or consultant or any of such Persons' heirs, estates or assigns
pursuant to or in connection with any management, employee or consultant
agreement, equity subscription agreement, stock option agreement or
stockholders' agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.5 million in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (vi)
cash payments to Holdings or by the Company, in either case, in lieu of
fractional shares issuable as dividends on preferred securities of the Company
or its Restricted Subsidiary; provided that such cash payments shall not
exceed $20,000 in the aggregate in any twelve-month period and no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction; (vii) payments to Holdings or by the Company,
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in either case to fund the repurchase, redemption, retirement or other
acquisition of the Contingent Note; (viii) cash dividends on any series of
Disqualified Stock of the Company or its Restricted Subsidiary to the extent
included in Consolidated Interest Expense; provided that the Company would, at
the time of such Restricted Payment and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated EBITDA Ratio test set forth in the
first paragraph of the covenant described below under caption "Incurrence of
Indebtedness and Issuance of Preferred Stock;" (ix) payments to Holdings in
amounts equal to the amounts required to pay its franchise taxes and other
fees required to maintain its corporate existence and to provide for other
operating costs in an amount not to exceed $250,000 per fiscal year; (x)
payments to Holdings in amounts required for Holdings to pay federal, state
and local taxes to the extent such taxes are actually owed by Holdings and are
attributable to the Company and its Subsidiary; (xi) so long as no Default or
Event of Default shall have occurred and be continuing, other Restricted
Payments in an amount not to exceed $2.0 million; (xii) payments to Holdings
in the amounts required for Holdings to make payments pursuant to the Rabbi
Trust in existence on the date of the Indenture and established for the
benefit of officers and employees pursuant to the 1997 Omega Holdings Deferred
Compensation Plan, in accordance with the terms thereof as in effect on such
date; (xiii) payments to Holdings of amounts required to enable Holdings to
satisfy its obligations under the purchase price adjustment provisions of the
Merger Agreement; and (xiv) payments to Holdings to repay interest and
principal in respect of the Junior Subordinated Note and the Bridge Loans. To
the extent that any Restricted Payment is permitted by any one of the
foregoing clauses (i) through (xiv), such Restricted Payment shall not be
taken into account for purposes of calculating the amount of Restricted
Payments permitted by any other such clauses.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
by the Board of Directors of the Company whose resolution with respect thereto
shall be delivered to the Trustee. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
The Board of Directors the Company may designate any Restricted Subsidiary
(other than Panther Transport, Inc.) to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiary (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of (x) the
net book value of such Investments at the time of such designation, (y) the
fair market value of such Investments at the time of such designation and (z)
the original fair market value of such Investments at the time they were made.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit its
Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and that the Company will not issue any Disqualified Stock and will not
permit its Subsidiary to
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issue any shares of preferred stock; provided, however, that the Company or
its Restricted Subsidiary may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock or preferred stock if the Consolidated
EBITDA Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding
the date on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued would have been at least 2.0
to 1.0, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant do not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) Indebtedness of the Company and its Restricted Subsidiaries under the
New Bank Credit Facility;
(ii) Existing Indebtedness;
(iii) Indebtedness represented by the Notes and the Subsidiary Guarantee;
(iv) Indebtedness represented by Capital Lease Obligations in an
aggregate principal amount not to exceed $5.0 million at any time
outstanding;
(v) Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted by the Indenture to be incurred;
(vi) intercompany Indebtedness between or among the Company and its
Restricted Subsidiary; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary of the Company and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary of the Company shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be, that is not permitted by
this clause (vi);
(vii) Indebtedness consisting of Permitted Hedging Obligations;
(viii) Indebtedness in respect of performance, surety and similar bonds
provided by the Company in the ordinary course of business;
(ix) the guarantee of Indebtedness of the Company or a Restricted
Subsidiary that was permitted to be incurred by another provision of this
covenant;
(x) Indebtedness in respect of industrial revenue bonds or other similar
governmental and municipal bonds, mortgage financings or purchase money
obligations in an aggregate amount not to exceed $5.0 million;
(xi) Indebtedness in respect of (A) letters of credit (other than letters
of credit issued under the New Bank Credit Facility) incurred in the
ordinary course of business for the purpose of securing foreign trade
credit obligations of the Company or a Restricted Subsidiary of the Company
and (B) Acquired Debt in connection with the acquisition of new assets or a
new Subsidiary; provided that such Indebtedness was incurred by the prior
owner of such assets or such Subsidiary prior to the acquisition by the
Company or its Restricted Subsidiary and was not incurred in connection
with, or in contemplation of, such acquisition by the Company or such
Restricted Subsidiary; and provided further that the aggregate principal
amount (or accredited value, as applicable) of all Indebtedness incurred
pursuant to this clause (xi) shall not exceed $5.0 million at any one time
outstanding;
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(xii) additional Indebtedness in an aggregate principal amount (or
accredited value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (xii), not to exceed
$10.0 million; and
(xiii) Non-Recourse Debt of an Unrestricted Subsidiary, provided,
however, that if any such Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness that is not permitted by this clause (xiii).
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xiii) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Liens
The Indenture provides that the Company will not, and will not permit its
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) securing Pari Passu
Indebtedness or Subordinated Indebtedness on any asset now owned or hereafter
acquired by the Company or its Restricted Subsidiary, or any income or profits
therefrom or assign or convey any right to receive income therefrom, unless
the Notes are equally and ratably secured with the obligations so secured
until such time as such obligations are no longer secured by a Lien; provided
that in any case involving a Lien securing Subordinated Indebtedness, such
Lien is subordinated to the Lien securing the Notes on a basis no less
favorable than such Subordinated Indebtedness is subordinated to the Notes.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit its
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary of the Company to (i)(a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any indebtedness owed to the Company or its Restricted Subsidiary, (ii) make
loans or advances to the Company or its Restricted Subsidiary or (iii)
transfer any of its properties or assets to the Company or its Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness and Liens with respect thereto as in
effect or entered into on the date of the Indenture, (b) the New Bank Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the New Bank
Credit Facility as in effect on the date of the Indenture, (c) the Indenture,
the Notes and the Subsidiary Guarantee, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
its Restricted Subsidiary as in effect at the time of such acquisition (except
to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the
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Indenture to be incurred, (f) customary non-assignment provisions in (A)
leases, licenses, encumbrances, contracts or similar assets entered into or
acquired in the ordinary course of business (B) any agreement to transfer, or
option or right with respect to the transfer of, any property or assets of the
Company or its Restricted Subsidiary not otherwise prohibited by the Indenture
or (C) provisions of security agreements or mortgages securing Indebtedness of
a Restricted Subsidiary that is not otherwise prohibited by the Indenture to
the extent that such provisions restrict the transfer of the property or
assets subject to the Lien created thereby, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in clause (iii) above on the property so acquired, (h)
any restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Restricted Subsidiary or (i) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit its
Restricted Subsidiary to, make any payment to or Investment in, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board
of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of
the Board of Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness of such Affiliate
Transaction to the Company from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing;
provided that (i) any employment agreement entered into by the Company or its
Restricted Subsidiary which provides for aggregate annual payments not in
excess of $350,000, (ii) transactions between or among the Company and/or its
Restricted Subsidiary, (iii) Restricted Payments that are permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments," (iv) existing transactions and arrangements described in the
Offering Circular of the Original Notes dated July 18, 1997, including,
without limitation, the transactions described under the caption "Use of
Proceeds," "Certain Relationships and Related Transactions" and "The
Transactions," (v) reasonable and customary fees, indemnification and similar
arrangements for directors and officers, (vi) collective bargaining
agreements, employee and director benefit plans, related trust agreements or
other similar arrangements entered into in the ordinary course of business,
(vii) payment of compensation to employees, officers, directors or consultants
who are not otherwise Affiliates of the Company in the ordinary course of
business, (viii) any transaction between the Company and a Wholly Owned
Restricted Subsidiary of the Company, (ix) the payment of fees and obligations
under the Management Agreement in accordance with its terms as in effect on
the date of the Indenture, or as the same may be amended from time to time
(except any such amendment that would increase the fees and obligations
thereunder) and (x) payments to reimburse Holdings for costs, fees and
expenses incident to a public offering of Equity Securities of Holdings,
provided that the proceeds therefrom (other than any such proceeds used to
redeem Notes as described above in the second paragraph under the caption
"Optional Redemption"), are contributed to the Company, in each case, shall
not be deemed Affiliate Transactions.
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Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, and (ii) no Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to Senior Debt
of such Guarantor and senior in any respect in right of payment to the
Subsidiary Guarantee.
Issuances and Sales of Capital Stock of Wholly Owned Restricted Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or
a Wholly Owned Restricted Subsidiary of the Company), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the Capital
Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds
from such transfer, conveyance, sale, lease or other disposition are applied
in accordance with the covenant described above under the caption "Repurchase
at the Option of Holders--Asset Sales and Sales of Subsidiary Stock," and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to
the Company or a Wholly Owned Restricted Subsidiary of the Company.
Payments for Consent
The Indenture provides that neither the Company nor its Subsidiary will,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Additional Guarantees
The Indenture provides that if the Company or its Subsidiary shall acquire
or create another Subsidiary after the date of the Indenture, then such newly
acquired or created Subsidiary shall execute a supplemental indenture and
deliver an opinion of counsel, in accordance with the terms of the Indenture;
provided that this covenant shall not apply to any Subsidiaries that have
properly been designated as Unrestricted Subsidiaries in accordance with the
Indenture for so long as they continue to constitute Unrestricted
Subsidiaries.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) definitive reports containing all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its consolidated Subsidiary
(showing in reasonable detail, either on the face of the financial statements
or in the footnotes thereto and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the financial condition and
results of operations of the Company and its Restricted Subsidiary separate
from the financial
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condition and results of operations of the Unrestricted Subsidiaries of the
Company) and, with respect to the annual information only, a report thereon by
the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K, if the
Company were required to file such reports, in each case within the time
periods set forth in the Commission's rules and regulations. In addition,
whether or not required by the rules and regulations of the Commission, at any
time after the consummation of the Exchange Offer contemplated by the
Registration Rights Agreement, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods set forth in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition,
the Company and the Guarantors have agreed that, for so long as any Notes
remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger or to which such sale,assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) the entity or Person formed by or surviving
any such consolidation or merger or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Restricted Subsidiary of the Company,
the Company or the entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated EBITDA Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Notwithstanding the foregoing, any Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its properties or assets to the Company
or another Restricted Subsidiary.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company or its Subsidiary
to comply with the provisions described under the captions "Repurchase at the
Option of Holders--Change of Control," "Repurchase at the Option of Holders--
Asset Sales and Sales of Subsidiary Stock," "Certain Covenants--Restricted
Payments," "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" or "--Merger, Consolidation or Sale of Assets" and the
continuance of such failure for a period of 30 days after written notice is
given to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least
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25% in aggregate principal amount of the Notes then outstanding; (iv) failure
by the Company or its Restricted Subsidiary for 60 days after notice by the
Trustee or by the Holders of at least 25% of Notes then outstanding to comply
with any of its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or its Restricted Subsidiary (or the payment of which is
guaranteed by the Company or its Restricted Subsidiary), whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness the maturity of which has been so accelerated, aggregates $5.0
million or more; (vi) failure by the Company or its Restricted Subsidiary to
pay final judgments aggregating in excess of $5.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days; (vii) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting
on behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency
with respect to the Company or its Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events
of bankruptcy or insolvency with respect to the Company, all outstanding Notes
will become due and payable without further action or notice. Holders of the
Exchange Notes may not enforce the Indenture or the Exchange Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
June 15, 2002, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to June 15, 2002, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes rescind an acceleration and waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default
or Event of Default in the payment of interest on, or the principal of, the
Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Subsidiary
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Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantor discharged with respect to
the outstanding Notes ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Notes to receive payments in respect of the principal
of, premium, if any, and interest on such Notes when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect
to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events of the Company
but not its Subsidiaries) described under "Events of Default and Remedies"
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the Holders
of the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) the Company must have delivered to the Trustee an opinion of
counsel to the effect that such Legal Defeasance or Covenant Defeasance will
not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the
Company or its Subsidiary is a party or by which the Company or its Subsidiary
is bound; (v) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vi) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent
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of preferring the Holders of Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of
the Company or others; and (vii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER
A Holder may transfer Exchange Notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer any Exchange Note selected
for redemption. Also, the Company is not required to transfer any Exchange
Note for a period of 15 days before a selection of Exchange Notes to be
redeemed.
The registered Holder of an Exchanged Note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Subsidiary Guarantee or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture,
the Subsidiary Guarantee or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes, (vii) waive a redemption payment
with respect to any Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders," (viii) make any changes to the subordination provisions of the
Indenture that adversely affects the rights of any Holder, or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantor and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantee or the Notes to cure any ambiguity, defect
or inconsistency in the Indenture, the Notes or any Guarantee, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or a Guarantor's obligations to
Holders of Notes in the case of a merger or consolidation or successor
corporation, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
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The Indenture will prohibit any amendment to the subordination provisions
thereof without the prior written consent of the lenders under the New Bank
Credit Facility. The New Bank Credit Facility will contain provisions which
prohibit amendments to the Indenture that would materially affect the lenders
under the New Bank Credit Facility.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form, without coupons. Except as described below, the Exchange
Notes will be deposited with, or on behalf of, The Depository Trust Company,
New York, New York (the "Depository"), and registered in the name of Cede &
Co., as the Depositary's nominee (such nominee being referred to herein as the
"Global Note Holder") in the form of a global Exchange Note certificate (the
"Global Note") or will remain in the custody of the Trustee pursuant to a FAST
Balance Certificate Agreement between the Depositary and the Trustee.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only by the Depositary to its nominee or by its nominee to such
Depositary or another nominee of the Depositary or by the Depositary or its
nominee to a successor of the Depositary or a nominee of such successor.
Exchange Notes that were issued as described below under "Certificated
Securities," will be issued in registered form (the "Certificated
Securities"). Upon the transfer to a qualified institutional buyer of
Certificated Securities initially issued to a Non-Global Purchaser, such
Certificated Securities will, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Exchange Notes being
transferred.
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchaser), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's
system is also available to other entities such as banks, brokers, dealers and
trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depositary only through the Depositary's Participants or the
Depositary's Indirect Participants.
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The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Trustee with portions of the
principal amount of the Global Note and (ii) ownership of the Exchange Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interests
of the Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants. The laws of some states require that
certain Persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Exchange Notes will be limited
to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole owner or Holder of
such Exchange Notes outstanding under the Indenture. Except as provided below,
owners of Exchange Notes will not be entitled to have Exchange Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Exchange Notes in definitive form, and will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. As a result, the ability of a Person having a beneficial
interest in Exchange Notes represented by the Global Note to pledge such
interest to Persons or entities that do not participate in the Depositary's
system or to otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Exchange Notes by the Depositary, or for
maintaining, supervising or reviewing any records of the Depositary relating
to such Exchange Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Exchange Notes registered in the name of a Global Note Holder on the
applicable record date will be made by the Company through a paying agent to
or at the direction of such Global Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the Persons in whose names the Exchange
Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Trustee nor any paying agent has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of Exchange Notes.
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants
with such payment, in accounts proportionate to their respective holdings in
principal amount of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and
the Depositary's Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practice and
will be the responsibility of the Depositary's Participants or the
Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in
the Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Securities.
Upon any such issuance, the Trustee is required to register such Exchange
Notes in the name of, and cause the same to be delivered to, such Person or
Persons (or the nominee of any thereof). In addition, if (i) the Depositary or
the Company notifies the Trustee in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that they elect to cause the issuance of
Exchange Notes in the form of Certificated Securities
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under the Indenture, then, upon surrender by the relevant Global Note Holder
of its Global Note, Exchange Notes in such form will be issued to each Person
that such Global Note Holder and the Depositary identifies as the beneficial
owner of the related Exchange Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners or the related Exchange Notes and each such Person may conclusively
rely on, and shall be protected in relying on, instructions from such Global
Note Holder or of the Depositary for all purposes (including with respect to
the registration and delivery, and the respective principal amounts, of the
Exchange Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
(including principal, premium, if any, and interest, if any) be made by wire
transfer of immediately available funds to the accounts specified by the
Global Note Holders. Secondary trading in long-term Exchange Notes and
debentures of corporate issuers is generally settled in clearing-house or
next-day funds. In contrast, the Exchange Notes are expected to be eligible to
trade in the PORTAL Market and to trade in the Depositary's Next-Day Funds
Settlement System, and any permitted secondary market trading activity in the
Exchange Notes will therefore be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in the
Exchange Notes also will be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of the Voting Stock, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole, or the merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, or the merger of a Wholly Owned
Restricted Subsidiary of the Company with or into another Wholly Owned
Restricted Subsidiary of the Company, will be governed by the provisions of
the Indenture described above under the caption "Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any
of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries,
in the case of either clause (i)
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or (ii), whether in a single transaction or a series of related transactions
that have a fair market value (as determined in good faith by the Board of
Directors of the Company) in excess of $1.0 million or for net cash proceeds
in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of
assets, including the sale, lease, conveyance or other disposition of any
assets, by the Company to a Guarantor or by a Guarantor to the Company or to
another Guarantor, (ii) an issuance of Equity Interests by a Guarantor to the
Company or to another Guarantor, (iii) the incurrence of Permitted Liens, (iv)
a Restricted Payment that is permitted by the covenant described above under
the caption "Certain Covenants--Restricted Payments" and (v) a disposition of
goods held for sale or obsolete equipment in the ordinary course of business
of the Company or a Restricted Subsidiary will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments, excluding all amounts
required to be paid on account of maintenance, repairs, taxes, insurance and
similar items, during the remaining term of the lease included in such sale
and leaseback transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
"Bank Agent" means First Bank National Association in its capacity as Agent
under the New Bank Credit Facility or any successor or replacement agent under
the New Bank Credit Facility or any refinancing Indebtedness in respect
thereof.
"Bridge Loans" means Indebtedness pursuant to that certain Senior
Subordinated Bridge Loan Agreement, dated as of June 13, 1997, by and among
the Company, the Guarantors, Holdings, West Street Fund I, L.L.C., a Delaware
limited liability company, and Citicorp USA, Inc., a Delaware corporation.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability or obligation that is required to be
accounted for as a capital lease for financial reporting purposes in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the full faith and credit of
the United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any lender party to the New Bank Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $500.0 million and a
Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing
within six months after the date of acquisition or (vi) money market mutual
funds investing at least 95% of their assets in Investments of the types
permitted in clauses (i) through (v) above.
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"Change of Control" means the occurrence of any of the following: (i) prior
to the first public offering of Voting Stock of the Company or Holdings, as
the case may be, the Permitted Holders cease to be the "beneficial owners" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of majority voting power of the Voting Stock of Holdings or
Holdings shall cease to own, directly or indirectly, 100% of the issued and
outstanding Voting Stock of the Company, whether as a result of issuance of
securities of the Company or Holdings, as the case may be, any merger,
consolidation, liquidation or dissolution of the Company or Holdings, as the
case may be, any direct or indirect transfer of securities by any Permitted
Holder or otherwise (for purposes of this clause (i) and clause (ii) below,
the Permitted Holders will be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation (the
"parent corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, a majority of the Voting Stock of the parent
corporation); and (ii) following the first public offering of Voting Stock of
the Company or Holdings, as the case may be, any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in clause
(i) above, except that a person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 50% of the total voting power of the Voting Stock
of the Company or Holdings, as the case may be; provided that Permitted
Holders beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power of
the Voting Stock of the Company or Holdings, as the case may be, than such
other person and do not have the right or ability, by voting power, contract
or otherwise, to elect or designate for election a majority of the Board of
Directors of the Company or Holdings, as the case may be (for purposes of this
clause (ii), such other person shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation if such other
person "beneficially owns" (as defined in this clause (ii)), directly or
indirectly, more than 50% of the voting power of the Voting Stock of such
parent corporation and the Permitted Holders "beneficially own" (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent corporation
and do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of such
parent corporation).
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes on income or profits
of such Person and its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income,
plus (iii) Consolidated Interest Expense of such Person for such period, to
the extent that any such expense was deducted in computing such Consolidated
Net Income, plus (iv) depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash charges
(excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash charges were deducted in computing such
Consolidated Net Income, plus (v) in the case of the Company's Consolidated
Net Income, non-cash compensation charges arising from the grant of stock
options to employees under Holdings' 1996 Stock Option Plan to the extent such
non-cash compensation charges are deducted in determining the Company's
Consolidated Net Income for such period, minus (vi) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated EBITDA only to the
extent (and in the same
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proportion) that the Net Income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended to such
Person by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated EBITDA Ratio" means with respect to any Person for any period,
the ratio of the Consolidated EBITDA of such Person for such period to the
Consolidated Interest Expense of such Person for such period. In the event
that such Person or its Restricted Subsidiary incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the
Consolidated EBITDA Ratio is being calculated but prior to the date on which
the event for which the calculation of the Consolidated EBITDA Ratio is being
made (the "Calculation Date"), then the Consolidated EBITDA Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee
or redemption of Indebtedness, or such issuance or redemption of preferred
stock, as if the same had occurred at the beginning of the applicable four-
quarter reference period. In addition, for purposes of making the computation
referred to above, (i) acquisitions that have been made by such Person or its
Restricted Subsidiary (including any Person which became a Restricted
Subsidiary during such period), including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated EBITDA for such reference
period shall be calculated on a pro forma basis giving effect to any
adjustments (including adjustments for cost savings) relating to such
transaction that would be permitted or required pursuant to Regulation S-X to
be reflected in any pro forma financial statements that would be included in a
registration statement on Form S-1 under the Securities Act and without giving
effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated EBITDA attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded,
and (iii) the Consolidated Interest Expense attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Consolidated
Interest Expense will not be obligations of the referent Person or its
Restricted Subsidiary following the Calculation Date.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiary for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) but
excluding amortization of deferred financing and debt issuance costs on such
Person's balance sheet on the date of the Indenture and (ii) the consolidated
interest expense of such Person and its Restricted Subsidiary that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or its Restricted
Subsidiary or secured by a Lien on assets of such Person or its Restricted
Subsidiary (whether or not such Guarantee or Lien is called upon) and (iv) the
product of (a) all cash dividend payments, on any series of preferred stock of
such Person or its Restricted Subsidiary, other than dividend payments on
Equity Interests payable solely in Equity Interests (other than Disqualified
Stock) of such Person, times (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiary
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders, (iii) except as provided in clause (i) above, the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition shall be excluded, (iv) the cumulative
effect of a change in accounting principles shall be excluded and (v) the Net
Income (but not loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Contingent Note" means the contingent promissory note, dated June 13, 1997
in the principal amount of $3.0 million, issued to the former stockholders of
Holdings in connection with the Merger, as in effect on the date of the
Indenture.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that a class of Capital Stock shall
not be Disqualified Stock hereunder solely as the result of any maturity or
redemption that is conditioned upon, and subject to, compliance with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and the Guarantor
(other than Indebtedness under the New Bank Credit Facility) in existence on
the date of the Indenture, until such amounts are repaid.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means (i) Panther Transport, Inc. and (ii) each of the
Subsidiaries of the Company that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in interest rates.
"Junior Subordinated Notes" means Indebtedness evidenced by those certain
11% payment-in-kind junior subordinated notes due December 13, 2007 of
Holdings and guaranteed by the Company pursuant to a junior subordinated
guarantee in an initial aggregate principal amount of $10,000,000.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past
due, in the case of any other Indebtedness.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness), advances or capital
contributions (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If such
Person or any Subsidiary of such Person sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of such Person such
that, after giving effect to any such sale or disposition, such Subsidiary is
no longer a Subsidiary of the referent Person, the referent Person shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided
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in the final paragraph of the covenant described above under the caption
"Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Agreement" means the Management Agreement among ISI, Holdings
and the Company, dated as of June 13, 1997, as in effect on the date of the
Indenture.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate proceeds in cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of
any Asset Sale (including, without limitation, any cash received upon the sale
or other disposition of any non-cash consideration received in any Asset
Sale), net of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and brokerage and
sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness (other than
Indebtedness under the New Bank Credit Facility) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"New Bank Credit Facility" means, collectively, (i) that certain Credit
Agreement, dated as of June 13, 1997, by and among the Company, HomeCrest
Corporation (subsequently merged into Omega) and Panther Transport, Inc., as
Borrowers, and First Bank National Association, as agent, and First Bank
National Association and such other lenders who may at any time be a party
thereto, as lenders, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, supplemented, extended, modified, renewed, refunded,
replaced or refinanced from time to time in one or more successive
transactions (including any such transaction that changes the amount available
thereunder, replaces such agreement or document, or provides for other agents
or lenders) and (ii) each of the other "Loan Documents" under and as defined
in the Credit Agreement referenced in the preceding clause (i); provided that
in no event will the aggregate principal amount outstanding under the New Bank
Credit Facility (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and the
Guarantors thereunder), including all Indebtedness incurred to refund,
supplement, refinance or replace any Indebtedness under the New Bank Credit
Facility, at any time exceed $120.0 million.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor its Restricted Subsidiary (a) provides credit support of any kind
(including any undertaking, agreement or instrument
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that would constitute Indebtedness), (b) is directly or indirectly liable (as
a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default
with respect to which (including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of
the Company or its Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its stated maturity; and (iii) as to which the lenders have been notified
in writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"Pari Passu Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiary that ranks pari passu in right of payment to the Notes
or any Guarantee thereof.
"Permitted Holders" means BCC, any Person controlled by BCC or under common
control with BCC and any other Person during the period in which such Person
is acting as an underwriter in connection with a public offering of the
Capital Stock of Holdings or the Company.
"Permitted Hedging Obligation" shall mean any Hedging Obligation entered
into in the ordinary course of business and not for speculation or trading
purposes.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary; (b) any Investment in Cash Equivalents; (c) any
Investment by the Company or any Restricted Subsidiary in a Person, if as a
result of such Investment (i) such Person becomes a Restricted Subsidiary or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary; (d) any Restricted Investment
made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above
under the caption "-- Repurchase at the Option of Holders, Asset Sales and
Sales of Subsidiary Stock;" (e) any acquisition of assets solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company; (f) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (f) that are at the time outstanding,
not to exceed $2.0 million; (g) any Investment existing on the date of the
Indenture and any extension or renewals thereof, in each case, on terms that
are substantially similar to those in effect on the date hereof with respect
to such Investment; (h) Permitted Hedging Obligations; (i) loans and advances
to customers or vendors in the ordinary course of business; and (j) loans to
officers, directors and employees in the ordinary course of business.
"Permitted Liens" means (i) Liens on assets of the Company or its Subsidiary
securing Senior Debt that was permitted by the terms of the Indenture to be
incurred; (ii) Liens in favor of the Company or a Restricted Subsidiary; (iii)
Liens on property of a Person existing at the time such Person is merged into
or consolidated with the Company or any Subsidiary of the Company; provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property or assets
existing at the time of acquisition thereof by the Company or any Subsidiary
of the Company or such Subsidiary, provided that such Liens were in existence
prior to the contemplation of such acquisition; (v) Liens to secure the
performance of statutory or regulatory obligations, leases, surety or appeal
bonds, performance bonds, carriers' warehouseman's, mechanic's, landlord's,
materialman's or repairman's Liens or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by
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clauses (iv) and (x) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the
assets acquired with such Indebtedness; (vii) Liens existing on the date of
the Indenture; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (ix) Liens incurred in
the ordinary course of business of the Company or any Subsidiary of the
Company with respect to obligations that do not exceed $5.0 million at any one
time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (x)
Liens on assets of the Guarantor to secure Senior Debt of such Guarantor that
was permitted by the Indenture to be incurred; and (xi) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund Indebtedness of the Company or its Restricted Subsidiary; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith including premiums
paid, if any, to the holders thereof); (ii) such Permitted Refinancing
Indebtedness has a final maturity date at or later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded, or, in
the case of the New Bank Credit Facility, such Indebtedness is incurred by the
Company or any Subsidiary of the Company, provided that any such Subsidiary
that is not a Guarantor prior to the incurrence of such Indebtedness shall
execute a supplemental indenture and deliver an opinion of counsel in the
manner described above under the caption "Additional Guarantees."
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person
in accordance with and at the contract rate (including, without limitation,
any rate applicable upon default) specified in the agreement or instrument
creating, evidencing or governing such Indebtedness, whether or not, pursuant
to applicable law or otherwise, the claim for such interest is disallowed in
such Insolvency or Liquidation Proceeding.
"Public Equity Offering" means an underwritten public offering of common
stock (other than Disqualified Stock) of Holdings or the Company, pursuant to
an effective registration statement filed with the Commission in accordance
with the Securities Act, other than an offering pursuant to Form S-8 (or any
successor thereto).
"Rabbi Trust" means the irrevocable trust created by that certain Rabbi
Trust Agreement, dated as of June 13, 1997, by and between Holdings and
American National Bank & Trust Company of Chicago, as Trustee.
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"Representative" means the Bank Agent, with respect to the New Bank Credit
Facility, and the indenture trustee or other trustee, agent or representative
for any other Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on, or any other payments with respect to, any series of
Indebtedness, the date on which such payment of interest or principal or other
payment (including any sinking fund payment) was scheduled or required to be
paid, and shall not include any acceleration of such payment or any contingent
obligations to repay, redeem or repurchase any such interest or principal
prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness of the Company or its
Restricted Subsidiary which is by its terms expressly subordinated in right of
payment to any other Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Unrestricted Subsidiary" means, with respect to any Person (i) any
Subsidiary of such Person (other than Panther Transport, Inc. in the case of
the Company) that is designated by the Board of Directors of such Person as an
Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent
that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt;
(b) is not when designated as an Unrestricted Subsidiary party to any
agreement, contract, arrangement or understanding with the referent Person or
any Restricted Subsidiary of such Person unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to
such Person or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of the referent Person; (c) is a
Person with respect to which neither the referent Person nor its Restricted
Subsidiary has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Subsidiary's
financial condition or to cause such Subsidiary to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the referent Person
or its Restricted Subsidiary; and (e) has at least one director on its board
of directors that is not a director or executive officer of the referent
Person or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the referent Person or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors of such Person shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary of the Company would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an
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Unrestricted Subsidiary of the Company for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under
the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The Board
of Directors any Person may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary of such Person; provided that such designation
shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary
of such Person of any outstanding Indebtedness of such Unrestricted Subsidiary
and such designation shall only be permitted if (i) such Indebtedness is
permitted under the covenant described under the caption "Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would
be in existence following such designation. If, at any time, any Unrestricted
Subsidiary of the Company would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary of the Company for purposes of the Indenture, and such Subsidiary
shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in
accordance with the terms of the Indenture.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is then outstanding and at the time is entitled to vote in the
election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person, or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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THE EXCHANGE OFFER
REGISTRATION RIGHTS
At the Closing, the Company entered into the Registration Rights Agreement
with the Initial Purchasers pursuant to which the Company agreed, at its cost,
(i) within 120 days after the date of the original issue of the Original
Notes, to file the Exchange Offer Registration Statement with the Commission
with respect to the Exchange Offer for the Exchange Notes, (ii) to use its
best efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 180 days after the date of original
issuance of the Original Notes, and (iii) unless the Exchange Offer is not
then permitted by a policy of the Commission, to use its best efforts to issue
within 30 business days of the effective date (the "Effective Date") of the
Exchange Offer Registration Statement, Exchange Notes in exchange for
surrender of Original Notes. The Company agreed to keep its Exchange Offer
open for not less than 20 Business Days (or longer if required by applicable
law) after the date on which notice of the Exchange Offer is mailed to the
holders of the Original Notes. The Registration Rights Agreement also provides
an agreement to include in the prospectus for the Exchange Offer certain
information necessary to allow broker-dealers who hold Original Notes (other
than Original Notes acquired directly from the Company) to exchange such
Original Notes pursuant to the Exchange Offer and to satisfy the prospectus
delivery requirements in connection with resales of Exchange Notes received by
such broker-dealers in the Exchange Offer.
This Prospectus covers the offer and sale of the Exchange Notes pursuant to
the Exchange Offer made hereby and the resale of Exchange Notes received in
the Exchange Offer by any Participating Broker-Dealer who held Original Notes
(other than Original Notes acquired directly from the Company or one of its
affiliates).
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in
general be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Original
Notes who is an "affiliate" of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation of the staff of the Commission, (ii)
will not be able to tender its Original Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Original Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each holder of the Original Notes (other than certain specified holders) who
wishes to exchange Original Notes for Exchange Notes in the Exchange Offer
will be required to make certain representations, including that (i) it is not
an affiliate of the Company (ii) any Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. If the Holder is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Original Notes that were acquired as a result of market-making activities
or other trading activities, it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect its
Exchange Offer, (ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the consummation of the Exchange
Offer that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and this prospectus is not appropriate or available
for such resales by such Holder or (C) such Holder is a broker-dealer and
holds Original
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Notes acquired directly from the Company or one of its affiliates, the Company
will, at its cost, (a) use its best efforts to file, within 30 days after such
filing obligation arises, a Shelf Registration Statement (which may be an
amendment of the Exchange Offer Registration Statement of which this
Prospectus is a part) covering resales of the Original Notes, (b) use its best
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act within 90 days after such filing obligation arises
and (c) use its best efforts to keep effective the Shelf Registration
Statement for at least two years after its effective date or such shorter
period that will terminate when all securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Original Notes eligible
to participate in such Shelf Registration Statement copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement for the Original Notes has become
effective and take certain other actions as are required to permit resales of
the Original Notes. A holder of Original Notes that sells such Original Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
In addition, each such holder will be required to deliver information to be
used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Original Notes
included in the Shelf Registration Statement and to benefit from the
provisions regarding liquidated damages set forth in the following paragraph.
If (i) the Company fails to consummate the Exchange Offer within 30 business
days of the effectiveness of the Exchange Offer Registration Statement, or
(ii) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted Securities without
being succeeded immediately by a post-effective amendment to such Shelf
Registration Statement that cures such failure and that is itself declared
effective immedately (each such event referred to above a "Registration
Default"), then the Company will pay Liquidated Damages to each Holder of
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to 0.25% per annum, increasing by 0.25% every 90 days up to a maximum of
1.0% per annum until such Registration Default has been cured. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will
cease.
"Transfer Restricted Securities" means each Original Note, until the
earliest to occur of (a) the date on which such Original Note is exchanged in
the Exchange Offer and entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the
Act, (b) the date on which such Original Note has been disposed of in
accordance with a Shelf Registration Statement, (c) the date on which such
Original Note is disposed of by a broker-dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Original Note is distributed to the public pursuant to Rule 144
under the Act.
The summary herein of certain provisions of the Registration Rights
Agreement is a description of the material provisions of the Registration
Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer
Registration Statement.
Except as set forth herein, after consummation of the Exchange Offer,
holders of Original Notes have no registration or exchange rights under the
Registration Rights Agreement. See""--Consequences of Failure to Exchange,"
and "--Resales of Exchange Notes; Plan of Distribution."
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CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes which are not exchanged for Exchange Notes pursuant to an
Exchange Offer and are not included in a resale prospectus will remain
Transfer Restricted Securities. Accordingly, such Original Notes may not be
offered, sold or otherwise transferred prior to the date which is two years
after the later of the date of original issue and the last date that the
Company or any affiliate of the Company was the owner of such securities (or
any predecessor thereto) (the "Resale Restriction Termination Date") only (a)
to the Company (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) for so long as the Original
Notes are eligible for resale pursuant to Rule 144A, to a person the owner
reasonably believes is a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d)
to an "accredited investor" within the meaning of subparagraph (1), (2), (3)
or (7) of paragraph (a) of Rule 501 under the Securities Act that is
purchasing for his own account or for the account of such an "accredited
investor" in each case in a minimum of Original Notes with a purchase price of
$500,000 or (c) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its property
or the property of such investor account or accounts be at all times within
its or their control. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or other
transfer of the Original Notes is proposed to be made pursuant to clause (d)
above prior to the Resale Restriction Termination Date, the transferor shall
deliver a letter from the transferee to the Company and the Trustee, which
shall provide, among other things, that the transferee is an "accredited
investor" within the meaning of subparagraph (1), (2), (3) or (7) of paragraph
(a) of Rule 501 under the Securities Act and that it is acquiring such
Securities for investment purposes and not for distribution in violation of
the Securities Act. Prior to any offer, sale or other transfer of Original
Notes prior to the Resale Restriction Termination Date pursuant to clauses (d)
or (e) above, the issuer and the Trustee may require the delivery of an
opinion of counsel, certifications and/or other information satisfactory to
each of them.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in the Prospectus and
in the Letter of Transmittal, the form of which is included as Exhibit 99.1 to
the Registration Statement of which this prospectus is a part, the Company
will accept any and all Original Notes validly tendered and not withdrawn
prior to the applicable Expiration Date. The Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal
amount of Original Notes accepted in the Exchange Offer. Holders may tender
some or all of their Original Notes pursuant to the Exchange Offer. However,
Original Notes may be tendered only in integral multiples of $1,000 principal
amount.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes, except that (i) the Exchange Notes have been registered
under the Securities Act and therefore will not bear legends restricting their
transfer pursuant to the Securities Act, and (ii) the holders of Exchange
Notes will not be entitled to rights under the Registration Rights Agreement
(except under certain limited circumstances). The Exchange Notes will evidence
the same debt as the Original Notes (which they replace), and will be issued
under, and be entitled to the benefits of, the Indenture.
Solely for reasons of administration (and for no other purpose) the Company
has fixed the close of business on , 1997 as the record date for the
Exchange Offer for purpose of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered
holder of Original Notes (or such holder's legal representative or attorney-
in-fact) as reflected on the records of the trustee under the governing
indenture may participate in the Exchange Offer. There will be no fixed record
date for determining registered holders of the Original Notes entitled to
participate in the relevant Exchange Offer.
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Holders of the Original Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or under the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original Notes
when, as and if it has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of the
Original Notes for the purposes of receiving the Exchange Notes.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be
returned without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the
Original Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
their Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on ,
1997, unless the Company extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which such Exchange
Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, prior to 9:00 a.m., New York City time, on the next
Business Day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) extend the Exchange Offer, (iii) if the
condition set forth below under "--Conditions of the Exchange" shall not have
been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv)
to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
it will promptly disclose such amendment by means of a prospectus supplement
that will be distributed to the registered holders of the Original Notes and
the Exchange Offer will be extended for a period of five to ten business days,
as required by law, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of its Exchange
Offer, the Company shall not have an obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, have the signatures thereon
guaranteed if required by such Letter of Transmittal, and mail or otherwise
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deliver such Letter of Transmittal to the Exchange Agent at the address set
forth below under "--Exchange Agent" for receipt prior to the applicable
Expiration Date. In addition, either (i) certificates for such Original Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Original Notes into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the applicable Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below. To be
tendered effectively, the Letter of Transmittal and all other required
documents must be received by the Exchange Agent at the address set forth
below under "--Exchange Agent" prior to the applicable Expiration Date.
The tender by a holder will constitute an agreement between such holder and
the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal applicable to such Exchange
Offer.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR
ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such beneficial owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal designated for such Original Notes,
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a participant
in a recognized signature guarantee medallion program within the meaning of
Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Original Notes listed therein, such Original Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes, with signature guaranteed by an Eligible Institution.
If a Letter of Transmittal or any Original Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Company, as applicable, of their authority to so act must be submitted with
the Letter of Transmittal designated for such Original Notes.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Original Notes not properly tendered or any Original Notes the issuer's
acceptance of which would, in the opinion of counsel for such issuer, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Original Notes. The
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) by the Company will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Original Notes issued by
it, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Original Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Original Notes received by the Exchange Agent that
are not validly tendered and as to which the defects or irregularities have
not been cured or waived, or if Original Notes are submitted in a principal
amount greater than the principal amount of Original Notes being tendered by
such tendering holder, such unaccepted or non-exchanged Original Notes will be
returned by the Exchange Agent to the tendering holders (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such unaccepted or non-exchanged Original
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility), unless otherwise provided in the Letter of Transmittal designated
for such Original Notes, as soon as practicable following the applicable
Expiration Date.
By tendering Original Notes in the Exchange Offer, each registered holder
will represent to the issuer of such Original Notes that, among other things,
(i) the Exchange Notes to be acquired by the holder and any beneficial
owner(s) of such Original Notes ("Beneficial Owner(s)") in connection with the
Exchange Offer are being acquired by the holder and any Beneficial Owner(s) in
the ordinary course of business of the holder and any Beneficial Owner(s),
(ii) the holder and each Beneficial Owner are not participating, do not intend
to participate, and have no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes, (iii) the holder and
each Beneficial Owner acknowledge and agree that (x) any person participating
in an Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction with respect
to the Exchange Notes acquired by such person and cannot rely on the position
of the Staff of the Commission set forth in no-action letters that are
discussed herein under "--Resales of the Exchange Notes," and (y) any
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Original Notes pursuant to an Exchange Offer must deliver a
prospectus in connection with any resale of such Exchange Notes, but by so
acknowledging, the holder shall not be deemed to admit that, by delivering a
prospectus, it is an "underwriter" within the meaning of the Securities Act,
(iv) neither the holder nor any Beneficial Owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing, and (v) the holder and each Beneficial
Owner understands that a secondary resale transaction described in clause
(iii) above should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Book-Entry Transfer Facility, for purposes of the
Exchange Offers, within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing
the Book-Entry Transfer Facility to transfer such Original Notes into the
Exchange Agent's account at the
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Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Original
Notes may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the applicable Letter of Transmittal, with any required signature
guarantees and any other documents, must be transmitted to and received by the
Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the applicable Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original Notes
are not immediately available, or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the applicable Expiration Date, may effect a tender
if:
(1) The tender is made through an Eligible Institution;
(2) Prior to the applicable Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by mail, hand delivery or facsimile
transmission) setting forth the name and address of the holder, the
certificate number(s) of such Original Notes and the principal amount of
the Original Notes being tendered, stating that the tender is being made
thereby and guaranteeing that, within five business days after the
applicable Expiration Date, the applicable Letter of Transmittal together
with the certificate(s) representing the Original Notes (or a Book-Entry
Confirmation) and any other documents required by the applicable Letter of
Transmittal will be delivered by the Eligible Institution to the Exchange
Agent; and
(3) Such properly completed and executed Letter of Transmittal, as well
as the certificate(s) representing all tendered Original Notes in proper
form for transfer (or a Book-Entry Confirmation) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within five business days after the applicable Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to
an Exchange Offer may be withdrawn, unless theretofore accepted for exchange
as provided in the applicable Exchange Offer, at any time prior to the
Expiration Date of that Exchange Offer.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior
to the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Original Notes to be withdrawn (the
"Depositor"), (ii) identify the Original Notes to be withdrawn (including the
certificate number or numbers and aggregate principal amount of such Original
Notes), and (iii) be signed by the holder in the same manner as the original
signature on the applicable Letter of Transmittal (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company
in its sole respective discretion, which determination shall be final and
binding on all parties. Any Original Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Original Notes so
withdrawn are retendered. Properly withdrawn Original Notes may be retendered
by following one of the procedures described above under""--Procedures for
Tendering" at any time prior to the applicable Expiration Date.
Any Original Notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the
prior termination of the applicable Exchange Offer, or which have been validly
withdrawn, will be returned to the holder thereof (unless otherwise provided
in the Letter of Transmittal), as soon as practicable following the applicable
Expiration Date
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or, if so requested in the notice of withdrawal, promptly after receipt by the
issuer of the Original Notes of notice of withdrawal without cost to such
holder.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is subject to the condition that the Exchange Offer, or
the making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in commission policy such that in the reasonable opinion of Counsel to
the Company there is a substantial question whether the Exchange Offer is
permitted by applicable federal law, the Company has agreed to seek a no-
action letter or other favorable decision from the Commission allowing the
Company to consummate the Exchange Offer.
If the Company determines that the Exchange Offer is not permitted by
applicable Federal law, it may terminate the Exchange Offer. In connection
therewith the Company may (i) refuse to accept any Original Notes and return
any Original Notes that have been tendered by the holders thereof, (ii) extend
the Exchange Offer and retain all Original Notes tendered prior to the
Expiration of the Exchange Offer, subject to the rights of such holders of
tendered Original Notes to withdraw their tendered Original Notes, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered Original Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, the Company will disclose
such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Original Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders of the Original Notes, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as "Exchange Agent" for the
Exchange Offer. Questions and request for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and other documents
should be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail or Hand or Overnight Delivery:
The Chase Manhattan Bank
55 Water Street
Room 234, North Building
New York, New York 10041
Attention: Carlos Esteves
Confirm By Telephone:
Carlos Esteves: (212) 638-0828
Facsimile Transmissions:
(ELIGIBLE INSTITUTIONS ONLY)
Carlos Esteves: (212) 638-7375 or (212) 344-9367
Delivery to other than the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
88
<PAGE>
No dealer-manager has been retained in connection with the Exchange Offer
and no payments will be made to brokers, dealers or others soliciting
acceptance of the Exchange Offer. However, reasonable and customary fees will
be paid to the Exchange Agent for its service and it will be reimbursed for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
[$ .] Such expenses include fees and expenses of the Exchange Agent and the
Trustee under the Indenture, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Original Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of the Original Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The carrying values of the Original Notes are not expected to be materially
different from the fair value of the Exchange Notes at the time of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by any holder thereof (other than (i) a
broker-dealer who purchased such Original Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes.
Holders of Original Notes wishing to accept the Exchange Offer must represent
to the Company that such conditions have been met. In the event that the
Company's belief is inaccurate, holders of Exchange Notes who transfer
Exchange Notes in violation of the prospectus delivery provisions of the
Securities Act and without an exemption from registration thereunder may incur
liability under the Securities Act. The Company does not assume or indemnify
holders against such liability.
Each affiliate of the Company must acknowledge that such person will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable. Each Participating Broker-Dealer that receives
Exchange Notes in exchange for Original Notes held for its own account, as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. Although a Participating Broker-Dealer may be an "underwriter" within
the meaning of the Securities Act, the Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes.
89
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
associated with the receipt, ownership, and disposition of the Exchange Notes
by holders who exchange original Notes for Exchange Notes. The following
summary does not discuss all of the aspects of federal income taxation that
may be relevant to a prospective holder of the Exchange Notes in light of his
or her particular circumstances, or to certain types of holders (including
dealers in securities, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, S corporations, and except as
discussed below, foreign corporations, persons who are not citizens or
residents of the United States and persons who hold the Notes as part of a
hedge, straddle, "synthetic security" or other integrated investment) which
are subject to special treatment under the federal income tax laws. This
discussion also does not address the tax consequences to nonresident aliens or
foreign corporations that are subject to United States federal income tax on a
net basis on income with respect to an Exchange Note because such income is
effectively connected with the conduct of a U.S. trade or business. Such
holders generally are taxed in a similar manner to U.S. Holders (as defined
below); however, certain special rules may apply. In addition, this discussion
is limited to holders who hold the Exchange Notes as capital assets within the
meaning of Section 1221 of the Code. This summary also does not describe any
tax consequences under state, local, or foreign tax laws.
The discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings
and pronouncements and judicial decisions all in effect as of the date hereof,
all of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a
manner that could adversely affect a holder of the Exchange Notes. The Company
has not sought and will not seek any rulings or opinions from the IRS or
counsel with respect to the matters discussed below. There can be no assurance
that the IRS will not take positions concerning the tax consequences of the
purchase, ownership or disposition of the Exchange Notes which are different
from those discussed herein.
PROSPECTIVE HOLDERS OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO
THEM, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which is (i) a citizen or resident of the
United States; (ii) treated as a domestic corporation or domestic partnership;
(iii) an estate other than a "foreign estate" as defined in Section
7701(a)(31) of the Code; or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States fiduciaries have the authority to control all
substantial decisions of the trust.
Exchange of Original Notes for Exchange Notes. The exchange by a U.S. Holder
of an Original Note for an Exchange Note pursuant to the Exchange Offer will
not constitute a taxable exchange of the Original Note if the economic terms
of the Exchange Note (including the interest rate) are identical to the
economic terms of the Original Note. Under recently promulgated Treasury
regulations (the "Section 1001 Regulations") relating to modifications and
exchanges of debt instruments, with certain exceptions, an alteration of a
legal right or obligation that occurs by operation of the terms of a debt
instrument is not a modification of the debt instrument and thus does not
result in a taxable exchange. Therefore, even if Liquidated Damages were
payable with respect to the Original Notes but not with respect to the
Exchange Notes, the exchange of an Original Note for an Exchange Note would
not be treated as a taxable exchange. Accordingly, the Company intends to take
the position that in the circumstances described in the preceding sentence,
the exchange will not constitute a taxable exchange of the Original Notes. As
a result, there should be no U.S. Federal income tax consequences to Holders
exchanging the Original Notes for the Exchange Notes.
90
<PAGE>
TAXATION OF STATED INTEREST. In general, U.S. Holders of the Notes will be
required to include interest received thereon in taxable income as ordinary
income at the time it accrues or is received, in accordance with the holder's
regular method of accounting for federal income tax purposes.
SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES. The sale, exchange,
redemption, retirement or other taxable disposition of a Note will result in
the recognition of gain or loss to a U.S. Holder in an amount equal to the
difference between (a) the amount of cash and fair market value of property
received in exchange therefor (except to the extent attributable to the
payment of accrued but unpaid stated interest) and (b) the holder's adjusted
tax basis in such Note. A holder's initial tax basis in a Note purchased by
such holder will be equal to the price paid for the Note.
Any gain or loss on the sale or other taxable disposition of a Note
generally will be capital gain or loss and will be long-term capital gain or
loss if the Note had been held for more than one year (the maximum rate of tax
on any such long-term capital gain being further reduced if the Note were held
for more than eighteen months). If the Note has been held for one year or
less, the gain or loss will be short-term capital gain or loss. Payments on
such disposition for accrued interest not previously included in income will
be treated as ordinary interest income.
BACKUP WITHHOLDING. The backup withholding rules require a payor to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of "reportable payments" and the IRS has notified
the payor that withholding is required, or (iv) the payee fails to certify
under the penalty of perjury that such payee is not subject to backup
withholding. If any one of the events discussed above occurs with respect to a
holder of Notes, the Company, its paying agent or other withholding agent will
be required to withhold a tax equal to 31% of any interest and, in certain
circumstances, cash received upon the disposition of a Note. Any amounts
withheld from a payment to a U.S. Holder under the backup withholding rules
will be allowed as a refund or credit against such holder's U.S. federal
income tax, provided that the U.S. Holder furnished the required information
to the IRS. Certain holders (including, among others, corporations and certain
tax-exempt organizations) are not subject to the backup withholding
requirements.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder of
Notes. For purposes hereof, a "Non-U.S. Holder" is any person who is not a
U.S. Holder and is not subject to U.S. federal income tax on a net basis on
income with respect to a Note because such income is effectively connected
with the conduct of a U.S. trade or business.
INTEREST. Payments of interest to a Non-U.S. Holder that do not qualify for
the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30% unless a U.S. income
tax treaty applies to reduce the rate of withholding. To claim a treaty
reduced rate, the Non-U.S. Holder must provide a properly executed Form 1001
(or successor form).
Interest that is paid to a Non-U.S. Holder on a Note will not be subject to
U.S. income or withholding tax if the interest qualified as "portfolio
interest." Generally, interest on the Notes that is paid by the Company will
qualify as portfolio interest if (i) the Non-U.S. Holder does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote; (ii) the Non-U.S. Holder
is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership for U.S. federal income tax
purposes; (iii) the Non-U.S. Holder is not a bank receiving interest on a loan
entered into in the ordinary course of business; and (iv) either (x) the
beneficial owner of the Note provides the Company or its paying agent, a
properly executed certification on IRS Form W-8 (or a suitable substitute
form)
91
<PAGE>
signed under penalties of perjury that the beneficial owner is not a "U.S.
person" for U.S. federal income tax purposes and that provides the beneficial
owner's name and address, or (y) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its business holds the Note and certifies to the Company or its
agent under penalties of perjury that the IRS Form W-8 (or a suitable
substitute) has been received by it from the beneficial owner of the Note or a
qualifying intermediary and furnishes the payor a copy thereof.
SALE, EXCHANGE OR RETIREMENT OF NOTES. Any gain realized by a Non-U.S.
Holder on the sale, exchange or retirement of the Notes, will generally not be
subject to U.S. federal income tax or withholding unless (i) the Non-U.S.
Holder is an individual who was present in the U.S. for 183 days or more in
the taxable year of the disposition and meets certain other requirements; or
(ii) the Non-U.S. Holder is an individual who is a former citizen of the
United States who lost such citizenship within the preceding ten-year period
(or former long-term permanent resident of the United States who relinquished
residency on or after February 6, 1995) whose loss of citizenship or permanent
residency had as one of its principal purposes the avoidance of U.S. tax. If a
Non-U.S. Holder falls under (ii) above, the holder will be taxed on the net
gain derived from the sale under the graduated U.S. federal income tax rates
that are applicable to U.S. citizens and resident aliens, and may be subject
to withholding under certain circumstances. If a Non-U.S. Holder falls under
(i) above, the holder generally will be subject to U.S. federal income tax at
a rate of 30% on the gain derived from the sale (or reduced treaty rate) and
may be subject to withholding in certain circumstances.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX. Back-up withholding
and information reporting generally will not apply to a Note issued in
registered form that is beneficially owned by a Non-U.S. Holder if the
certification of Non-U.S. Holder status is provided to the Company or its
agent as described above in "Certain Federal Income Tax Consequences to Non-
U.S. Holders -- Interest", provided that the payor does not have actual
knowledge that the holder is a U.S. person. The Company may be required to
report annually to the IRS and to each Non-U.S. Holder the amount of interest
paid to, and the tax withheld, if any, with respect to each Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner of a
Note by or through the foreign office of a foreign custodian, foreign nominee
or other foreign agent of such beneficial owner, or if the proceeds of the
sale of Notes are paid to the beneficial owner of a Note through a foreign
office of a foreign "broker" (as defined in the pertinent Regulations), the
proceeds will not be subject to backup withholding or information reporting
(absent actual knowledge that the payee is a U.S. person). Information
reporting (but not backup withholding) will apply, however, to a payment by a
foreign office of a custodian, nominee, agent or broker that is (i) a U.S.
person, (ii) a controlled foreign corporation for U.S. federal income tax
purposes, or (iii) derives 50% or more of its gross income from the conduct of
a U.S. trade or business for a specified three-year period; unless the broker
has in its records documentary evidence that the holder is a Non-U.S. Holder
and certain conditions are met (including that the broker has no actual
knowledge that the holder is a U.S. Holder) or the holder otherwise
establishes an exemption. Payment through the U.S. office of a custodian,
nominee, agent or broker is subject to both backup withholding at a rate of
31% and information reporting, unless the holder certifies that it is a Non-
U.S. Holder under penalties of perjury or otherwise establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such
holder's U.S. federal income tax liability, provided that certain information
is provided by the holder to the IRS.
PROSPECTIVE FINAL REGULATIONS. On October 6, 1997, the IRS released Treasury
regulations that revise the procedures for withholding tax, and the associated
backup withholding and information reporting rules described above for
payments of interest and gross proceeds made after December 31,
92
<PAGE>
1998. The regulations modify the requirements imposed on a Non-U.S. Holder or
certain intermediaries for establishing the recipient's status as a Non-U.S.
Holder eligible for exemption from withholding and backup withholding. In
particular, the final regulations impose more stringent conditions on the
ability of financial intermediaries acting for a Non-U.S. Holder to provide
certifications on behalf of the Non-U.S. Holder, which may include entering
into an agreement with the IRS to audit certain documentation with respect to
such certifications. Non-U.S. Holders should consult their tax advisors to
determine how the regulations will affect their particular circumstances.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offers may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
the purchaser or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offers and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed upon for the Company by Ropes & Gray, One International Place,
Boston, Massachusetts 02110. Certain legal matters in connection with the
Exchange Notes offered hereby will be passed upon for the Subsidiary Guarantor
by Nyemaster, Goode, Voigts, West, Hansel & O'Brien P.C., 700 Walnut Street,
Suite 1600, Des Moines, Iowa 50309.
EXPERTS
The consolidated financial statements of Omega Cabinets, Ltd. as of December
28, 1996 and December 30, 1995 and for each of the years then ended and for
the period from June 17, 1994 through December 31, 1994, and the financial
statements of the Predecessor for the period from January 1, 1994 through June
16, 1994, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The statements of income and cash flows of Home-Crest Corporation for the
year ended December 31, 1994 and for the period from January 1, 1995 through
May 25, 1995, included in this Prospectus have been audited by Crowe, Chizek
and Company LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
93
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Omega Cabinets, Ltd. and Predecessor
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets as of December 30, 1995, December 28, 1996
and September 27, 1997 (unaudited)..................................... F-3
Consolidated Statements of Income for the period from January 1, 1994
through
June 16, 1994 (Predecessor), period from June 17, 1994 through December
31, 1994
and years ended December 30, 1995 and December 28, 1996 and for the
nine months ended September 28, 1996 and September 27, 1997 (unaudited)
....................................................................... F-4
Consolidated Statements of Stockholder's Equity (Deficit) for the period
from January 1, 1994 through June 16, 1994 (Predecessor), period from
June 17, 1994 through
December 31, 1994 and years ended December 30, 1995 and December 28,
1996 and for the nine months ended September 27, 1997 (unaudited) ..... F-5
Consolidated Statements of Cash Flows for the period from January 1,
1994 through
June 16, 1994 (Predecessor), period from June 17, 1994 through December
31, 1994
and years ended December 30, 1995 and December 28, 1996 and for the
nine months ended September 28, 1996 and September 27, 1997 (unaudited)
....................................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Financial Statements of Home-Crest Corporation
Report of Independent Auditors.......................................... F-17
Statements of Income for the year ended December 31, 1994 and period
from
January 1, 1995 through May 25, 1995................................... F-18
Statements of Cash Flows for the year ended December 31, 1994 and period
from
January 1, 1995 through May 25, 1995................................... F-19
Notes to Financial Statements........................................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Omega Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Omega
Cabinets, Ltd. (a wholly-owned subsidiary of Omega Holdings, Inc.) as of
December 28, 1996 and December 30, 1995, and the related consolidated
statements of income, stockholder's equity (deficit), and cash flows for the
years then ended and for the period from June 17, 1994 through December 31,
1994, and the statements of income, stockholder's equity, and cash flows of
the Predecessor for the period from January 1, 1994 through June 16, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Omega
Cabinets, Ltd. at December 28, 1996 and December 30, 1995, and the
consolidated results of its operations and its cash flows for the years then
ended and for the period from June 17, 1994 through December 31, 1994 and of
the Predecessor for the period from January 1, 1994 through June 16, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Des Moines, Iowa
February 28, 1997,
except for Note 9,
as to which the date
is July 24, 1997
F-2
<PAGE>
OMEGA CABINETS, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 4)
Current assets:
Cash.............................. $ 5,247 $ 3,797 $ 3,797
Accounts receivable, less allow-
ance for doubtful
accounts of $1,534,000 in 1995,
$1,628,000
in 1996 and $1,810,000 in 1997... 8,555,847 10,766,086 14,915,988
Inventories (Note 3).............. 8,487,059 9,295,879 11,349,443
Prepaid expenses and other........ 233,305 332,027 785,796
Deferred income taxes (Note 6).... 625,000 1,005,000 1,235,000
------------ ------------ ------------
Total current assets................ 17,906,458 21,402,789 28,290,024
Property, plant, and equipment, at
cost:
Land and improvements............. 857,560 931,330 931,330
Buildings......................... 14,171,820 14,269,945 14,289,169
Machinery and equipment........... 10,853,305 13,297,860 13,997,665
Construction in progress.......... 2,285,995 1,053,331 2,442,993
------------ ------------ ------------
28,168,680 29,552,466 31,661,157
Less accumulated depreciation..... (1,479,958) (3,283,729) (4,802,859)
------------ ------------ ------------
26,688,722 26,268,737 26,858,298
Deferred financing costs, less
accumulated
amortization of $574,279 in 1995,
$1,132,077
in 1996 and $172,675 in 1997....... 2,201,674 1,812,041 5,748,658
Goodwill, less accumulated
amortization of
$1,681,906 in 1995, $3,013,847 in
1996
and $4,054,374 in 1997............. 51,196,742 51,455,741 52,865,152
Deferred income taxes (Note 6)...... 3,500,000 1,790,000 1,175,000
Other assets........................ 712,152 847,438 799,366
------------ ------------ ------------
Total assets........................ $102,205,748 $103,576,746 $115,736,498
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................. $ 4,091,989 $ 4,917,090 $ 7,215,552
Accrued interest.................. 929,429 564,127 1,891,472
Other accrued expenses............ 4,855,898 7,771,431 6,271,440
Current portion of long-term debt
(Note 4)......................... 10,000,000 9,000,000 2,875,000
------------ ------------ ------------
Total current liabilities........... 19,877,316 22,252,648 18,253,464
Noncurrent accrued interest (Note
4)................................. 4,092,533 5,780,414 --
Long-term debt, excluding current
portion (Notes 4 and 9):
Related parties................... 29,439,167 27,426,145 --
Other............................. 53,100,000 45,210,000 142,570,000
------------ ------------ ------------
82,539,167 72,636,145 142,570,000
Other liabilities................... 50,936 60,203 72,553
Deferred compensation (Note 8)...... -- 57,268 2,173,000
Commitments (Note 5)
Stockholder's equity (deficit)
(Notes 4, 8 and 9):
Common stock, $.01 par value;
10,000 shares
authorized; 1,000 shares issued
and outstanding.................. 10 10 10
Additional paid-in capital........ 2,649,915 2,638,163 62,835,425
Predecessor basis adjustment (Note
2)............................... (11,031,662) (11,031,662) (11,031,662)
Retained earnings (deficit)....... 4,027,533 11,183,557 (99,136,292)
------------ ------------ ------------
Total stockholder's equity (defi-
cit)............................... (4,354,204) 2,790,068 (47,332,519)
------------ ------------ ------------
Total liabilities and stockholder's
equity (deficit)................... $102,205,748 $103,576,746 $115,736,498
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
--------------- --------------------------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED NINE MONTHS ENDED
JANUARY 1, 1994 JUNE 17, 1994 ------------------------ -------------------------
THROUGH THROUGH DECEMBER 30 DECEMBER 28 SEPTEMBER 28 SEPTEMBER 27
JUNE 16, 1994 DECEMBER 31, 1994 1995 1996 1996 1997
--------------- ----------------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $24,916,530 $33,892,913 $97,958,492 $136,225,643 $101,965,284 $115,313,374
Cost of goods sold...... 17,563,224 22,485,237 72,690,674 97,287,215 72,999,601 83,657,397
----------- ----------- ----------- ------------ ------------ ------------
Gross profit............ 7,353,306 11,407,676 25,267,818 38,938,428 28,965,683 31,655,977
Selling, general and ad-
ministrative expenses
(Notes 7 and 8)........ 5,235,033 3,707,537 10,964,260 15,309,281 11,444,736 17,852,349
Amortization of
goodwill............... -- 518,918 1,162,988 1,331,941 995,914 1,040,527
----------- ----------- ----------- ------------ ------------ ------------
Operating income........ 2,118,273 7,181,221 13,140,570 22,297,206 16,525,033 12,763,101
Interest expense........ 22,321 4,123,344 9,700,914 10,441,182 7,894,083 12,615,987
----------- ----------- ----------- ------------ ------------ ------------
Income before income
taxes and extraordinary
item................... 2,095,952 3,057,877 3,439,656 11,856,024 8,630,950 147,114
Income tax expense (Note
6)..................... -- 1,110,000 1,360,000 4,700,000 3,392,000 390,000
----------- ----------- ----------- ------------ ------------ ------------
Income (loss) before
extraordinary item..... 2,095,952 1,947,877 2,079,656 7,156,024 5,238,950 (242,886)
Extraordinary loss on
debt refinancing, net
of income tax benefit
of $607,000 (Note 9)... -- -- -- -- -- (947,443)
----------- ----------- ----------- ------------ ------------ ------------
Net income (loss)....... $ 2,095,952 $ 1,947,877 $ 2,079,656 $ 7,156,024 $ 5,238,950 $ (1,190,329)
=========== =========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREDECESSOR
ADDITIONAL BASIS RETAINED
COMMON PAID-IN ADJUSTMENT EARNINGS
STOCK CAPITAL (NOTE 2) (DEFICIT) TOTAL
------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Balance at January 1,
1994................... $15,000 $ -- $ -- $ 13,893,532 $ 13,908,532
Net income for period
ended June 16, 1994... -- -- -- 2,095,952 2,095,952
Distributions to
stockholders.......... -- -- -- (1,814,216) (1,814,216)
------- ----------- ------------ ------------ ------------
Balance at June 16,
1994................... $15,000 $ -- $ -- $ 14,175,268 $ 14,190,268
======= =========== ============ ============ ============
THE COMPANY
Initial capitalization
of Company............. $ 10 $ 1,874,990 $ -- $ -- $ 1,875,000
Adjustment for cost in
excess of predecessor
basis attributable to
continuing ownership
interest (Note 2)...... -- -- (11,031,662) -- (11,031,662)
------- ----------- ------------ ------------ ------------
Balance at inception,
June 17, 1994.......... 10 1,874,990 (11,031,662) -- (9,156,662)
Issuance of common
stock at parent-level
credited to the
Company............... -- 125,000 -- -- 125,000
Net income for period
ended December 31,
1994................... -- -- -- 1,947,877 1,947,877
------- ----------- ------------ ------------ ------------
Balance at December 31,
1994................... 10 1,999,990 (11,031,662) 1,947,877 (7,083,785)
Issuance of common
stock at parent-level
credited to the
Company............... -- 756,862 -- -- 756,862
Redemption of common
stock at parent-level
charged to the
Company............... -- (106,937) -- -- (106,937)
Net income for 1995.... -- -- -- 2,079,656 2,079,656
------- ----------- ------------ ------------ ------------
Balance at December 30,
1995................... 10 2,649,915 (11,031,662) 4,027,533 (4,354,204)
Common stock issued for
stock options
exercised at parent-
level credited to the
Company............... -- 3,879 -- -- 3,879
Redemption of common
stock at parent-level
charged to the
Company............... -- (15,631) -- -- (15,631)
Net income for 1996.... -- -- -- 7,156,024 7,156,024
------- ----------- ------------ ------------ ------------
Balance at December 28,
1996................... 10 2,638,163 (11,031,662) 11,183,557 2,790,068
Capital contribution by
parent (Note 9)....... 10 62,248,425 -- -- 62,248,435
Dividend to parent to
redeem common stock at
parent-level (Note 9). (10) (2,638,163) -- (109,129,520) (111,767,693)
Noncash capital
contribution (Note 5). -- 587,000 -- -- 587,000
Net loss for period
ended September 27,
1997.................. -- -- -- (1,190,329) (1,190,329)
------- ----------- ------------ ------------ ------------
Balance at September 27,
1997 (unaudited)....... $ 10 $62,835,425 $(11,031,662) $(99,136,292) $(47,332,519)
======= =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
--------------- --------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 JUNE 17, 1994 YEAR ENDED NINE MONTHS ENDED
THROUGH THROUGH DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
JUNE 16, 1994 DECEMBER 31, 1994 1995 1996 1996 1997
--------------- ----------------- ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ 2,095,952 $ 1,947,877 $ 2,079,656 $ 7,156,024 $ 5,238,950 $ (1,190,329)
Adjustments to reconcile
net income (loss) to
net cash provided
(used) by operating
activities:
Extraordinary loss..... -- -- -- -- -- 947,443
Depreciation........... 524,697 293,016 1,195,909 1,840,936 1,324,337 1,526,658
Amortization........... 13,658 670,753 1,585,432 1,889,739 1,414,090 1,473,877
Noncash stock option
and warrant expense... -- -- -- 57,268 -- 5,481,000
Deferred income taxes.. -- 535,000 1,545,000 1,330,000 995,000 385,000
Changes in operating
assets and
liabilities:
Accounts receivable.. (1,263,001) (264,453) 2,737,200 (2,210,239) (4,393,314) (4,149,902)
Inventories.......... (752,631) 17,168 2,040,271 (808,820) (1,342,522) (2,053,564)
Prepaid expenses and
other............... (6,859) 179,779 (24,494) (98,722) 20,344 (453,769)
Other assets......... 68,584 16,470 (534,685) (135,286) (81,876) 48,072
Accounts payable..... 1,303,084 382,895 (1,032,173) 825,101 1,768,945 2,298,462
Accrued interest..... -- 1,940,470 3,081,492 1,322,579 2,917,456 (4,453,069)
Other accrued
expenses............ 1,647,127 367,419 (3,602,518) 2,084,487 4,007,622 (61,945)
Other liabilities.... 4,325 2,102 5,886 9,267 7,358 (2,174)
----------- ----------- ----------- ------------ ------------ -------------
Net cash provided (used)
by operating
activities............. 3,634,936 6,088,496 9,076,976 13,262,334 11,876,390 (204,240)
INVESTING ACTIVITIES
Purchases of property,
plant, and equipment... (1,726,625) (2,565,301) (3,044,655) (1,420,951) (835,993) (2,116,219)
Payment for acquisition
of businesses, net of
cash acquired (Note 2). -- (55,076,328) (29,812,853) -- -- --
Additions to goodwill... -- (956,802) (317,425) (759,894) (750,000) (3,281,046)
----------- ----------- ----------- ------------ ------------ -------------
Net cash used in
investing activities... (1,726,625) (58,598,431) (33,174,933) (2,180,845) (1,585,993) (5,397,265)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... -- 57,162,574 31,139,167 1,000,000 300,000 146,670,000
Payments for deferred
financing costs........ -- (1,689,865) (1,086,088) (168,165) (167,423) (5,908,392)
Payments of long-term
debt................... (319,971) (4,562,574) (6,600,000) (11,903,022) (10,413,022) (82,861,145)
Capital contribution by
parent................. -- 1,600,000 756,862 3,879 -- 62,248,435
Payment to parent to
redeem common stock and
options at parent-
level.................. -- -- (106,937) (15,631) (11,752) (114,547,393)
Distributions to
stockholders........... (1,814,216) -- -- -- -- --
----------- ----------- ----------- ------------ ------------ -------------
Net cash provided (used)
by financing
activities............. (2,134,187) 52,510,135 24,103,004 (11,082,939) (10,292,197) 5,601,505
----------- ----------- ----------- ------------ ------------ -------------
Net increase (decrease)
in cash................ (225,876) 200 5,047 (1,450) (1,800) --
Cash at beginning of
period................. 535,759 -- 200 5,247 5,247 3,797
----------- ----------- ----------- ------------ ------------ -------------
Cash at end of period... $ 309,883 $ 200 $ 5,247 $ 3,797 $ 3,447 $ 3,797
=========== =========== =========== ============ ============ =============
SUPPLEMENTAL DISCLOSURES
Interest paid in cash... $ 23,928 $ 2,010,952 $ 6,215,915 $ 8,533,032 $ 4,976,627 $ 20,372,056
Income taxes paid in
cash................... -- $ 437,500 $ 673,466 $ 2,809,445 1,659,709 2,735,823
Noncash investing and
financing activities
(Note 2):
Securities issued for
acquisition of
business:
Long-term debt....... $15,400,000 $ -- $ -- $ -- $ --
Common stock of
parent.............. $ -- $ 400,000 $ -- $ -- $ -- $ --
Accrued goodwill
addition for
additional purchase
price payment......... $ -- $ 892,000 $ -- $ 831,046 $ -- $ --
</TABLE>
See accompanying notes.
F-6
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH JUNE 16, 1994
(PREDECESSOR) AND PERIOD FROM JUNE 17, 1994 THROUGH DECEMBER 31, 1994 AND
YEARS ENDED DECEMBER 30, 1995 AND DECEMBER 28, 1996 AND NINE MONTHS ENDED
SEPTEMBER 28, 1996 (UNAUDITED) AND SEPTEMBER 27, 1997 (UNAUDITED)
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Omega Cabinets, Ltd. commenced operations in 1994 upon acquiring the former
Omega Cabinets, Ltd. ("Predecessor"--see Note 2). Omega Cabinets, Ltd.
individually or collectively with the Predecessor is hereafter referred to as
"the Company." The Company manufactures custom, semi-custom and stock
cabinetry for the home, including primarily kitchen and bath cabinets, for
sale to independent dealers, home centers and lumber yards throughout the
United States.
The Company is a wholly-owned subsidiary of Omega Holdings, Inc.
("Holdings"). Holdings has no operations and its sole asset is its investment
in the common stock of the Company. Certain junior subordinated notes issued
by Holdings to its stockholders have been "pushed down" to the Company for
financial reporting purposes. Holdings' acquisition cost of acquiring the
Predecessor and HomeCrest Corporation ("HomeCrest")--see Note 2, including a
predecessor basis adjustment, have been reflected in the accounts of the
Company.
FISCAL YEAR
The Company follows a 52/53 week fiscal year. Both fiscal 1995 and 1996
consisted of 52 weeks.
INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of September 27, 1997 and for the
nine months ended September 28, 1996 and September 27, 1997 and related
disclosures in these notes have not been audited. The interim financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine month
period ended September 27, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 27, 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for periods since June 17, 1994
include the accounts of the Company and its wholly-owned subsidiaries,
HomeCrest and Panther Transport, Inc. ("Panther"). Significant intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTS RECEIVABLE
Concentrations of credit risk with respect to trade receivables are limited
due to the number of customers and their geographic dispersion. The Company
performs initial and periodic credit evaluations of its customers and
generally does not require collateral.
INVENTORIES
The Company states inventories at the lower of cost or market using the
first-in, first-out (FIFO) method.
The Predecessor stated inventory cost on the last-in, first-out (LIFO)
method. At June 16, 1994, current cost exceeded the LIFO value by
approximately $198,000.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets, including 40 years for buildings and 5-10 years
for machinery and equipment.
DEFERRED FINANCING COSTS AND GOODWILL
Deferred financing costs are amortized over the term of the related loans
ranging primarily from 6 to 10 years. Goodwill, representing the excess of
purchase price over the underlying net assets of businesses acquired, is
amortized on the straight-line method over 40 years. The carrying value of
goodwill is reviewed continually to determine whether any impairment has
occurred. This review takes into consideration the recoverability of the
unamortized amounts based on the estimated undiscounted cash flows of the
related business. To the extent that the estimated undiscounted future cash
flows are less than the carrying value of the related goodwill, an impairment
loss can be measured based upon various methods, including undiscounted cash
flows, discounted cash flows and fair value. Based upon undiscounted cash
flows, no impairment of goodwill was determined to exist and, accordingly, no
measurement was required.
INCOME TAXES
The Company files a consolidated income tax return with Holdings. All income
taxes allocated to the Company have been computed on a separate return basis.
The Company follows the liability method of accounting for income taxes,
under which deferred income tax assets and liabilities are determined based on
the difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expense
is based on the changes in the asset or liability from period to period.
Temporary differences result primarily from goodwill basis differences,
amortization of goodwill, depreciation, inventory valuation, stock option
expense, and certain reserves and accruals.
See Note 6 regarding Predecessor's accounting for income taxes.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was
approximately $366,000 for the period from January 1, 1994 through June 16,
1994 (Predecessor), $570,000 for the
F-8
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
period from June 17, 1994 through December 31, 1994, $1,297,000 in 1995,
$1,677,000 in 1996, and $1,625,000 and $1,471,000 in the nine months ended
September 28, 1996 and September 27, 1997, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include accounts receivable, accounts payable, and
long-term debt. Management believes the fair value of accounts receivable and
accounts payable approximate their carrying value in the balance sheet as of
each balance sheet date. The fair value of the long-term debt is estimated
based on anticipated interest rates which management believes would currently
be available to the Company for similar issues of debt, taking into account
the current credit risk of the Company and other market factors. The fair
value of the senior bank loans and junior subordinated notes is estimated to
approximate the carrying amount in the December 28, 1996 balance sheet. The
estimated fair value of other long-term debt at December 28, 1996 is as
follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Senior subordinated note......................... $ 5,000,000 $ 5,700,000
Subordinated notes............................... 11,000,000 13,500,000
</TABLE>
The fair value of the Company's long-term debt at December 30, 1995 was
estimated to approximate its carrying amount in the balance sheet.
EMERGING ACCOUNTING ISSUES
The Company is not aware of any accounting standards which have been issued
and which will require the Company to change current accounting policies or
adopt new policies, the effect of which would be material to the consolidated
financial statements.
2. ACQUISITIONS
On May 26, 1995, the Company acquired the operating assets of HomeCrest in a
transaction accounted for as a purchase. The cash purchase price was
$29,000,000, subject to certain defined adjustments which had not yet been
finalized as of December 30, 1995. The aggregate purchase price, including
fees and expenses of $812,853, was allocated based on fair value as follows:
<TABLE>
<S> <C>
Accounts receivable.......................................... $ 6,140,077
Inventories.................................................. 6,551,831
Prepaids and other assets.................................... 184,902
Property, plant, and equipment............................... 11,276,265
Goodwill..................................................... 12,710,201
Accounts payable............................................. (2,826,199)
Accrued expenses............................................. (4,224,224)
-----------
$29,812,853
===========
</TABLE>
The adjusted purchase price for HomeCrest was finalized in 1996 resulting in
additional purchase price of $759,894, which was allocated to goodwill.
F-9
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The results of operations of HomeCrest from the date of purchase are
included in the accompanying consolidated statements of income. Pro forma
amounts for 1995, assuming that the purchase occurred at the beginning of the
period, are as follows:
<TABLE>
<S> <C>
Net sales.................................................... $123,988,000
Net income................................................... $ 1,470,000
</TABLE>
On June 17, 1994, the Company acquired all of the outstanding common stock
of the Predecessor in a transaction accounted for as a purchase. The aggregate
purchase price of $71,137,709, including fees and expenses of $967,709,
consisted of cash of $55,337,709, notes to the sellers of $13,000,000, and
issuance of $400,000 of Holdings common stock and $2,400,000 of junior
subordinated debt. The purchase price was allocated, based on fair values, as
follows:
<TABLE>
<S> <C>
Cash......................................................... $ 261,381
Accounts receivable.......................................... 4,888,517
Inventories.................................................. 3,992,667
Property, plant, and equipment............................... 11,291,426
Goodwill..................................................... 38,894,220
Deferred income taxes........................................ 6,205,000
Other assets................................................. 397,625
Liabilities assumed.......................................... (5,824,789)
Predecessor basis adjustment to equity....................... 11,031,662
-----------
$71,137,709
===========
</TABLE>
Certain additional purchase price amounts, up to a maximum of $7 million,
may be due each year through 1999 based on whether specified levels of
operating income are achieved. Additional amounts, if earned, are recorded as
goodwill when they become due ($892,000, none, and $831,046 earned in 1994,
1995 and 1996, respectively). In June 1997, the Company's obligation to pay
any future contingent amounts was terminated in exchange for a final purchase
price payment of $2,450,000.
The former owners of the Predecessor acquired a 20% continuing ownership
interest in Holdings. Generally accepted accounting principles require
Holdings and the Company to record a reduction to stockholder's equity
representing the cost in excess of the predecessor basis attributable to the
continuing ownership interest. Accordingly, a predecessor basis adjustment of
$11,031,662 has been reflected in Holdings and the Company's stockholder's
equity.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30 DECEMBER 28 SEPTEMBER 27
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Raw materials........................ $3,700,929 $3,857,984 $ 4,574,525
Work-in-process...................... 2,836,554 3,398,280 3,931,795
Finished goods....................... 1,949,576 2,039,615 2,843,123
---------- ---------- -----------
$8,487,059 $9,295,879 $11,349,443
========== ========== ===========
</TABLE>
F-10
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30 DECEMBER 28 SEPTEMBER 27
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Senior bank loans; interest at LIBOR plus
2.625% (8.25% at December 28, 1996)...... $58,100,000 $49,210,000 $ --
Senior subordinated note; interest at
13.5%, partially deferred................ 5,000,000 5,000,000 --
Senior bank revolving loan, due December
2002, interest at LIBOR plus 2.5% (8.17%
at September 27, 1997)................... -- -- 6,250,000
Senior bank term loan, payable in
increasing quarterly installments through
December 2003; interest at LIBOR plus
2.5% (8.23% at September 27, 1997)....... -- -- 36,195,000
Senior subordinated notes, due June 2007,
interest at 10.5%........................ -- -- 100,000,000
Subordinated notes to related parties;
interest at 15.458%, partially deferred.. 11,000,000 11,000,000 --
Junior subordinated notes to common
stockholders of Holdings; interest at
14%, deferred to June 1997............... 16,439,167 16,426,145 --
Other..................................... 2,000,000 -- 3,000,000
----------- ----------- ------------
92,539,167 81,636,145 145,445,000
Less amounts due within one year.......... 10,000,000 9,000,000 2,875,000
----------- ----------- ------------
Long-term debt, excluding current portion. $82,539,167 $72,636,145 $142,570,000
=========== =========== ============
</TABLE>
Concurrent with the OMC Merger described in Note 9, the Company repaid all
of its existing long-term debt as of June 13, 1997 and entered into an
agreement with a bank syndicate providing for a New Bank Credit Facility,
consisting of a Term Facility of up to $40 million and a Revolving Facility of
up to $20 million. The New Bank Credit Facility is permitted by the terms of
the senior subordinated notes to be increased to a total borrowing capacity of
$120 million. The New Bank Credit Facility is guaranteed by Holdings and is
secured by all of the stock and assets of the Company.
The Term Facility is payable in graduated quarterly installments increasing
from approximately $600,000 in 1997 to $2,300,000 in 2002 with the balance due
in the two quarters after September 2003. The Term Facility matures December
2003. The Revolving Facility matures December, 2002 and has no scheduled
interim payments. Amounts are drawn against the Term and Revolving facilities
in the form of term and revolver loans with various maturity dates. Interest
on both the term and revolver loans is payable at the maturity date of each of
the individual loans. Additional loan payments are due each year based on 75%
of the Company's defined excess cash flow, if any. These mandatory payments
will be applied first to repay the term loan and then to the permanent
reduction of the revolving loan. In addition, the Company is required to make
prepayments on the term and revolving loans under certain other circumstances,
including certain sales of assets or issuance of debt or equity securities.
The agreement contains various restrictive covenants including requirements to
meet certain financial covenants.
The 10.5% senior subordinated notes were issued to retire certain bridge
loans related to the OMC Merger (see Note 9). Interest on the notes is payable
semi-annually. The senior subordinated
F-11
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
notes are subordinated in right and payment to the senior bank loans, and are
generally not redeemable at the Company's option prior to June 2002, except in
certain circumstances. Beginning in June 2002, the notes may be redeemed at
the Company's option at 105.25% of principal, declining 1.75% annually to 100%
in June 2005. The related indenture agreement contains various restrictive
covenants, including a restriction on payment of dividends.
In November 1996, the Company voluntarily paid all cumulative deferred
interest on its senior subordinated note and subordinated notes to related
parties. Interest expense incurred on these related party notes was
approximately $996,000 for the period ended December 31, 1994, $1,776,000 in
1995, $1,824,000 in 1996, and $1,338,000 and $778,000 in the nine months ended
September 28, 1996 and September 27, 1997, respectively. Interest expense on
the junior subordinated notes to Holdings' stockholders was approximately
$873,000 for the period from June 17, 1994 through December 31, 1994,
$2,162,000 in 1995, $2,715,000 in 1996, and $1,997,000 and $1,322,000 in the
nine months ended September 28, 1996 and September 27, 1997, respectively.
As of September 27, 1997, aggregate future maturities of long-term debt are
as follows:
<TABLE>
<S> <C>
1997............................................................ $ 625,000
1998............................................................ 3,250,000
1999............................................................ 4,750,000
2000............................................................ 5,750,000
2001............................................................ 6,750,000
Thereafter...................................................... 124,320,000
------------
$145,445,000
============
</TABLE>
5. COMMITMENTS
The Company leases transportation equipment, facilities and equipment under
noncancelable operating leases with lease terms of 3 to 8 years. The Company
expects that generally leases will be renewed under renewal options or the
leased assets will be replaced in the normal course of business. Total rental
expense under operating leases was approximately $543,000 for the period from
January 1, 1994 through June 16, 1994 (Predecessor) and $646,000 for the
period from June 17, 1994 through December 31, 1994, $1,335,000 in 1995,
$1,686,000 in 1996, and $1,327,000 and $1,137,000 in the nine months ended
September 28, 1996 and September 27, 1997, respectively.
F-12
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Minimum future rental commitments applicable to operating leases at December
28, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................. $1,196,000
1998.............................. 876,000
1999.............................. 501,000
2000.............................. 289,000
2001.............................. 78,000
----------
$2,940,000
==========
</TABLE>
The Company incurred management fees to an affiliate of the majority
stockholder of Holdings of approximately $125,000 for the period from June 17,
1994 through December 31, 1994, $308,000 in 1995, $350,000 in 1996, and
$263,000 and $242,000 in the nine months ended September 28, 1996 and
September 27, 1997, respectively.
In June 1997, the Company entered into a management agreement with an
affiliate of the new majority stockholder of Holdings. The agreement requires
the Company to pay $325,000 per year for management services provided, plus
certain fees and expenses. In addition, Holdings issued a fully-exercisable
warrant (for the purchase of Holdings' common stock) to the management company
in connection with the management agreement. Holdings has recorded a charge
for the fair value of the warrant as of the issuance date and the related
expense is "pushed-down" and reflected in the financial statements of the
Company. Expense under the management agreement for the period from June 13,
1997 (inception) to September 27, 1997, including $587,000 for the warrant,
was approximately $683,000.
The Company is jointly and severally liable, under a stockholders agreement
of Holdings, for Holdings' obligation to repurchase its common shares held by
management stockholders solely in the event of the death or disability of such
stockholders. The management stockholders include 25 individuals representing
a total of approximately 6% of Holdings' fully-diluted common shares. The
aggregate repurchase amount of all stock subject to the repurchase was
approximately $4.5 million at September 27, 1997.
6. INCOME TAXES
The Predecessor had elected to be taxed as an S Corporation under federal
and state income tax laws. Accordingly, its taxable income was includable in
the individual income tax returns of the stockholders and the Predecessor
generally was not subject to tax and therefore did not report a provision for
income taxes.
Components of income tax expense (benefit), including amount relating to
extraordinary loss in 1997, are as follows:
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
JUNE 17, 1994 -------------------------
THROUGH DECEMBER 30 DECEMBER 28 SEPTEMBER 28 SEPTEMBER 27
DECEMBER 31, 1994 1995 1996 1996 1997
----------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current expense
(benefit).............. $ 575,000 $ (185,000) $3,370,000 $2,397,000 $(602,000)
Deferred expense........ 535,000 1,545,000 1,330,000 995,000 385,000
---------- ---------- ---------- ---------- ---------
$1,110,000 $1,360,000 $4,700,000 $3,392,000 $(217,000)
========== ========== ========== ========== =========
</TABLE>
F-13
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of income tax expense with the amount computed by applying
the statutory federal income tax rate to pretax income is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 17, 1994 NINE MONTHS ENDED
THROUGH -------------------------
DECEMBER 31, DECEMBER 30 DECEMBER 28 SEPTEMBER 28 SEPTEMBER 27
1994 1995 1996 1996 1997
------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Amount based on federal
statutory rate......... $1,040,000 $1,169,000 $4,031,000 $2,935,000 $(480,000)
State income taxes, net
of federal benefit..... 61,000 187,000 615,000 415,000 263,000
Other................... 9,000 4,000 54,000 42,000 --
---------- ---------- ---------- ---------- ---------
Income tax expense
(benefit).............. $1,110,000 $1,360,000 $4,700,000 $3,392,000 $(217,000)
========== ========== ========== ========== =========
</TABLE>
Components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 28, 1996 SEPTEMBER 27, 1997
------------------- --------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT CURRENT NONCURRENT
-------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Goodwill.............. $ -- $3,800,000 $ -- $2,645,000 $ -- $ 1,857,000
Accruals and reserves. 579,000 -- 909,000 -- 1,140,000 --
Stock options and
warrants............. -- -- -- 21,000 -- 510,000
Other................. 46,000 117,000 96,000 106,000 95,000 --
-------- ---------- ---------- ---------- ---------- -----------
625,000 3,917,000 1,005,000 2,772,000 1,235,000 2,367,000
Deferred tax liability:
Depreciation.......... -- (417,000) -- (982,000) -- (1,192,000)
-------- ---------- ---------- ---------- ---------- -----------
Net deferred tax asset.. $625,000 $3,500,000 $1,005,000 $1,790,000 $1,235,000 $ 1,175,000
======== ========== ========== ========== ========== ===========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has profit-sharing and 401(k) plans covering substantially all
full-time employees. Under the terms of one plan, participants may contribute
up to 12% of their salary to the plan and the Company will make a matching
contribution equal to 50% of the participant's contribution up to a maximum of
3% of their salary. In addition, the Company may elect to contribute an
additional amount to the plan at the discretion of the Company's Board of
Directors. Expense related to the plans was $181,000 for the period from
January 1, 1994 through June 16, 1994 (Predecessor) and $113,000 for the
period from June 17, 1994 through December 31, 1994, $210,000 in 1995,
$233,000 in 1996, and $208,000 and $319,000 in the nine months ended September
28, 1996 and September 27, 1997, respectively.
In the period ended June 16, 1994, the Predecessor paid discretionary
employee bonuses totaling $2,231,405 which are included in selling, general
and administrative expenses in the consolidated statement of income.
8. STOCK OPTION PLAN
Holdings has an incentive stock option plan pursuant to which key employees
may be granted options to purchase shares of its Class A common stock. Options
are granted at the discretion of the
F-14
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
board of directors and are fully vested and exercisable as of the grant date.
Holdings accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25. Compensation expense relating to Holdings stock option
plan and reflected in the financial statements of the Company amounted to:
none in 1994 or 1995; $57,000 in 1996, none in the nine months ended September
28, 1996 and $4,894,000 in the nine months ended September 27, 1997.
Under FASB Statement No. 123, certain pro forma information is required as
if Holdings had accounted for options under the alternative fair value method
of Statement 123. Holdings used a Minimum Valuation model to determine the per
share fair value of the options at the grant date. The following assumptions
were used in the valuation:
<TABLE>
<S> <C>
Risk-free interest rate.............. 5.63%
Expected dividend yield.............. None
Expected volatility.................. None
Expected life of option.............. 5 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options at the grant date is expensed, net of related pro forma tax benefits,
in the year of the grant since the options are fully vested at the grant date.
Pro forma net income (loss) of the Company is $2,067,146 in 1995, $7,150,643
in 1996, and $(1,380,000) for the nine months ended September 27, 1997.
9. MERGER AND REFINANCING
Pursuant to an Agreement and Plan of Merger (the "OMC Merger") dated as of
April 28, 1997 among the Company's parent, Omega Holdings, Inc. ("Holdings"),
the stockholders of Holdings, and Omega Merger Corp. ("OMC"). OMC merged on
June 13, 1997 into Holdings, with Holdings as the surviving entity. Concurrent
with the OMC Merger, certain investors affiliated with Butler Capital
Corporation ("BCC") invested approximately $61.9 million in the voting equity
stock of Holdings. This investment plus the proceeds from $100 million in
bridge loans and $48.3 million borrowed under a new senior credit facility
were used to repay debt of approximately $89.3 million (representing all of
the Company's outstanding long-term debt at that date), to repurchase the
majority of Holding's voting equity stock outstanding prior to the OMC Merger
at an aggregate cost of approximately $112.3 million, and to pay transaction
fees and expenses. In July 1997, $100 million of 10.5% Senior Subordinated
Notes were issued to retire the Bridge Loans (see Note 4). As a result of the
OMC Merger and related transactions described above, BCC owned 88.4% of
Holdings subsequent to the OMC Merger.
The OMC Merger was accounted for as a recapitalization and, accordingly, did
not impact the historical basis of the Company's assets or liabilities. All
OMC Merger and recapitalization transactions of Holdings have been pushed down
and reflected in the accounts of the Company. The Company paid an aggregate of
$114.5 million to Holdings, representing the parent's cost to redeem common
stock and stock options and to pay merger expenses. The Company recorded the
$114.5 million as a charge to deferred compensation for $2.8 million to redeem
stock options, and the balance representing a dividend to parent of $111.7
million was charged to stockholder's equity.
As a result of the OMC Merger and related debt refinancing, the Company
wrote off existing unamortized deferred financing costs of $1,554,443 in June
1997, resulting in an extraordinary loss of $947,443 (net of related income
tax benefit of $607,000).
F-15
<PAGE>
OMEGA CABINETS, LTD. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. GUARANTEE OF SENIOR SUBORDINATED NOTES
The senior subordinated notes described in Note 4 are guaranteed jointly and
severally, fully and unconditionally, by Panther, the Company's wholly-owned
subsidiary.
Separate financial statements or summarized financial information for
Panther have not been presented since its operations are inconsequential and
its stock does not represent a significant portion of the collateral securing
the notes. Panther's accounts and transactions represent less than 1% of the
consolidated total assets, liabilities, equity, net sales, operating income,
and net income of the Company. Management believes that the separate financial
statements and summarized financial information of Panther are not material to
investors.
F-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Home-Crest Corporation and Home-Crest Acquisition Corp.
Goshen, Indiana
We have audited the accompanying statements of income and cash flows of
Home-Crest Corporation for the period ended May 25, 1995 and for the year
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows for Home-
Crest Corporation for the period ended May 25, 1995 and for the year ended
December 31, 1994 in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Elkhart, Indiana
June 28, 1995
F-17
<PAGE>
HOME-CREST CORPORATION
STATEMENTS OF INCOME
PERIOD ENDED MAY 25, 1995 AND YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net sales............................................. $26,029,065 $65,371,682
Cost of goods sold.................................... 20,412,030 50,562,837
----------- -----------
Gross margin.......................................... 5,617,035 14,808,845
Operating expenses.................................... 5,784,674 11,267,540
----------- -----------
Income (loss) from operations......................... (167,639) 3,541,305
Other income (expense)
Interest expense (Note 3)........................... (129,850) (438,813)
Interest income..................................... 54,730 143,985
----------- -----------
(75,120) (294,828)
----------- -----------
Net income (loss) (Note 4)............................ $ (242,759) $ 3,246,477
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
HOME-CREST CORPORATION
STATEMENTS OF CASH FLOW
PERIOD ENDED MAY 25, 1995 AND YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................. $ (242,759) $ 3,246,477
Adjustments to reconcile net income (loss) to net
cash from operating activities....................
Depreciation..................................... 685,659 1,602,531
Loss (gain) on sale of equipment................. 3,221 (18,766)
Provision for losses on accounts receivable...... 675,000 102,384
Pension expense.................................. 97,652 295,200
Change in assets and liabilities.................
Accounts and notes receivable.................. (2,446,803) 620,882
Inventories.................................... (963,689) 218,793
Other current assets........................... 20,095 (44,447)
Other assets................................... -- 14,774
Accounts payable............................... 863,586 (143,169)
Other current liabilities...................... 614,642 825,236
----------- -----------
Net cash from operating activities........... (693,396) 6,719,895
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of equipment................ 5,200 54,852
Advance on note receivable......................... (15,000) (85,000)
Advance to shareholders............................ (101,674) --
Capital expenditures............................... (1,205,784) (2,408,393)
Increase in cash surrender value................... (24,732) (52,934)
----------- -----------
Net cash from investing activities........... (1,341,990) (2,491,475)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under term line credit.................. 3,200,000 3,200,000
Checks written in excess of bank balance........... 463,392 79,122
Payments under term line of credit................. (100,000) (5,500,000)
Payments on other long-term debt................... (197,273) (222,727)
Dividends paid..................................... (1,271,444) (1,741,841)
----------- -----------
Net cash from financing activities........... 2,094,675 (4,185,446)
----------- -----------
Net change in cash................................... 59,289 42,974
Cash at beginning of period.......................... 138,713 95,739
----------- -----------
CASH AT END OF PERIOD................................ $ 198,002 $ 138,713
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest........... $ 195,710 $ 389,352
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
HOME-CREST CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 25, 1995 AND DECEMBER 31, 1994
NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: The Company manufactures cabinets primarily for
residential cabinet distributors and dealers throughout the United States. The
Company maintains its primary checking account at a local bank which is
insured up to $100,000 by an agency of the federal government.
BASIS OF PRESENTATION: The Company's fiscal year end is December 31. These
financial statements include the period from January 1, 1995 to May 25, 1995
and the year ended December 31, 1994.
INVENTORIES: Inventories are stated at the lower of cost (last-in, first-out
method) or market value.
PROPERTY, PLANT AND EQUIPMENT: Assets are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets.
NOTE 2--EMPLOYEE BENEFIT PLANS
The Company has a defined benefit plan which covers substantially all full-
time employees. Benefits under the plan are based on employees' average
compensation during the five consecutive calendar years when compensation was
highest, or a fixed monthly dollar amount based on years of service. Plan
assets are invested in fixed income and equity securities. Prior service costs
are amortized on a straight-line basis over the average remaining expected
employee service period.
Net pension expense for the period ended May 25, 1995 and for the year end
December 31, 1994 included the following components:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Service cost benefits earned during the period........ $129,583 $359,364
Interest cost on projected benefit obligation......... 141,438 270,765
Expected return on plan assets........................ (151,746) 34,679
Net amortization and deferral......................... (21,623) (369,608)
-------- --------
$ 97,652 $295,200
======== ========
</TABLE>
Assumptions used by the Company in the determination of the pension plan
information consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount rate................................................. 7.75% 7.75%
Expected long-term rate of return on plan assets.............. 8.00% 8.00%
</TABLE>
The Company has a profit sharing plan containing Internal Revenue Code
Section 401(k) provisions. The plan covers substantially all employees.
Company contributions are discretionary. During the period ended May 25, 1995,
the Company contributions to the plan were $25,001. There were no
contributions to the plan for the year ended December 31, 1994.
F-20
<PAGE>
HOME-CREST CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MAY 25, 1995 AND DECEMBER 31, 1994
NOTE 3--INTEREST EXPENSE
The Company had bank notes payable totaling $6,410,000 and $3,170,000 at May
25, 1995 and December 31, 1994, respectively at interest rates ranging from 7%
to 10%. For the period ended May 25, 1995, the Company capitalized interest of
$44,062 on fixed asset projects in process.
NOTE 4--INCOME TAXES
The Company, with the consent of its shareholders, elected to have its
income taxed under Section 1362 (S Corporation) of the Internal Revenue Code
and similar sections of the Indiana income tax laws. These sections provide
that, in lieu of corporate income taxes, the shareholders are taxed on their
proportionate share of the Company's taxable income.
NOTE 5--LEASE COMMITMENTS
The Company leases certain warehouses, delivery equipment and automobiles,
under several noncancelable long-term operating leases, with expiring terms
ranging through 2000. Total rental expense for all operating leases for the
period ended May 25, 1995 and the year ended December 31, 1994 was $154,089
and $468,839, respectively.
NOTE 6--SUBSEQUENT EVENTS
Effective May 26, 1995, the Company sold substantially all of its assets. In
addition, certain liabilities were assumed by the purchaser and all notes
payable were paid in full. The transaction resulted in a gain.
In addition, management plans to liquidate the pension plan and distribute
all assets to the participants. No gain or loss is expected upon liquidation.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 4
Risk Factors............................................................... 16
Recent Developments........................................................ 21
Use of Proceeds............................................................ 22
Capitalization............................................................. 23
Selected Historical Consolidated
Financial Data............................................................ 24
Unaudited Pro Forma Condensed Consolidated Financial Data.................. 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................. 29
Business................................................................... 35
Management................................................................. 42
Principal Stockholders..................................................... 47
Certain Relationships and Related
Transactions.............................................................. 48
Description of New Bank Credit Facility.................................... 50
Description of Exchange Notes.............................................. 51
Certain Federal Income Tax
Consequences.............................................................. 90
Plan of Distribution....................................................... 93
Legal Matters.............................................................. 93
Experts.................................................................... 93
Index to Consolidated Financial Statements................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OMEGA CABINETS, LTD.
EXCHANGE OFFER
$100,000,000
10 1/2% SENIOR
SUBORDINATED
NOTES DUE 2007
--------------
LOGO
--------------
-----------------
PROSPECTUS
-----------------
DECEMBER , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Omega's Certificate of Incorporation, as amended, and its By-laws provide
that Omega shall indemnify its directors and officers to the fullest extent
permitted by the DGCL as in effect at the time of incorporation and as amended
to the extent such amendment provides broader indemnification rights.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by
or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or such other court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv) for any transaction from which the director
derived an improper personal benefit.
The directors and officers of Omega and Panther are covered under directors'
and officers' liability insurance policies maintained by Holdings.
As permitted by the Iowa Business Corporation Act (the "IBCA"), Panther's
Articles of Incorporation provide that a director of the corporation shall not
be personally liable to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for a breach of the director's duty of loyalty to the corporation or its
shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for a transaction
from which the director derives an improper personal benefit; or (iv) for an
unlawful distribution under section 833 of the IBCA.
II-1
<PAGE>
Panther's By-laws provide that the company shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by the Iowa
Business Corporation Act. The IBCA requires a company to indemnify officers
and directors against reasonable expenses incurred in connection with any
proceeding in which they are wholly successful, on the merits or otherwise, to
which the person may be a part because of the person's position with the
company. Further, the IBCA provides that a company may, as a permissive
matter, indemnify its officers and directors if (i) the person acted in good
faith, and (ii) the person reasonably believed, in the case of conduct in the
person's official capacity with the company, that the conduct was in the
company's best interests, and in all other cases, that the person's conduct
was at least not opposed to the company's best interests, and (iii) in the
case of any criminal proceeding, the person had no reasonable cause to believe
the person's conduct was unlawful. Any such person may not be indemnified in
respect of any proceeding that charges improper personal benefit to the
person, in which the person shall have been adjudged to be liable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1* Omega Certificate of Incorporation, as amended.
3.2* Omega By-laws.
3.3* Panther Articles of Incorporation, as amended.
3.4* Panther By-laws.
4.1* Indenture dated as of July 24, 1997.
4.2* Registration Rights Agreement dated as of July 24, 1997.
5.1* Opinion of Ropes & Gray re: legality.
5.2* Opinion of Nyemaster, Goode, Voigts, West, Hansell & O'Brien re:
legality.
10.1* New Bank Credit Facility dated as of June 13, 1997.
10.2* Panther Security Agreement.
10.3* Omega Security Agreement.
10.4* Pledge Agreement.
10.5* Collateral Assignment of Trademarks.
10.6* Management Agreement dated June 13, 1997.
10.7* Financing Agreement dated June 13, 1997.
10.8* Deferred Compensation Plan dated June 13, 1997.
10.9* Rabbi Trust Agreement dated June 13, 1997.
10.10* Key Employment Agreement dated September 16, 1994.
10.11* Key Severance Agreement dated April 24, 1997.
10.12* Moran Employment Agreement dated September 11, 1995,
as amended June 13, 1997.
10.13* Moran Severance Agreement dated April 24, 1997.
10.14* Erlick Employment Agreement dated July 11, 1994.
10.15* Erlick Severance Agreement dated April 24, 1997.
10.16* Goebel Employment Agreement dated April 10, 1995,
as amended June 13, 1997.
10.17* Goebel Severance Agreement dated April 24, 1997.
10.18* Hagan Employment Agreement dated April 10, 1995.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.19* Hagan Severance Agreement dated April 24, 1997.
10.20* Schmidt Employment Agreement dated April 10, 1995.
10.21* Schmidt Severance Agreement dated April 24, 1997.
10.22* Deferred Non-Qualified Compensation Agreement dated June 28, 1987.
10.23* Company Bonus Plan.
10.24* Stockholders Agreement dated June 13, 1997.
10.25* Omega Holdings, Inc. Stock Option Plan.
10.26* Key Put Agreement dated June 13, 1997.
10.27* Goebel Put Agreement dated June 13, 1997.
12.1* Statement regarding computation of ratio of earnings to fixed charges.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Crowe, Chizek and Company LLP.
23.4* Consent of Ropes & Gray (included in Exhibit 5.1).
24.1* Powers of Attorney (included on signature page).
25.1* Statement of Eligibility on Form T-1 of The Chase Manhattan Bank as Trustee under
the Indenture.
27.1* Financial Data Schedules.
99.1* Form of Letter of Transmittal used in connection with the Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery used in connection with The Exchange Offer.
99.3* Form of Exchange Agent Agreement.
</TABLE>
- --------
* Previously filed as part of this Registration Statement.
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES OF THE COMPANY OR ITS
PREDECESSOR FOR THE THREE YEARS ENDED DECEMBER 28, 1996 ARE INCLUDED IN
THIS REGISTRATION STATEMENT.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants, pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer
or controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by any such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether or not such indemnification is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
The undersigned registrants hereby undertake:
(1) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
II-3
<PAGE>
(2) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(3) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Omega Cabinets, Ltd. has
duly caused this Amendment No. 2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waterloo, State of
Iowa, on the 11th day of December, 1997.
OMEGA CABINETS, LTD.
/s/ Lance E. Erlick
By: ___________________________________
NAME: LANCE E. ERLICK
TITLE: VICE PRESIDENT,
CHIEF FINANCIAL AND
ACCOUNTING OFFICER AND
TREASURER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed below by the following persons in the capacities
indicated on the 11th day of December, 1997.
SIGNATURE TITLE
* President, Chairman of the Board of
- ------------------------------------ Directors and Chief Executive Officer
HENRY P. KEY (principal executive officer)
/s/ Lance E. Erlick Vice President, Chief Financial and
- ------------------------------------ Accounting Officer and Treasurer
LANCE E. ERLICK (principal financial and accounting
officer)
* Director
- ------------------------------------
ROBERT J. BERTCH
* Director
- ------------------------------------
GILBERT BUTLER
* Director
- ------------------------------------
DONALD E. CIHAK
* Director
- ------------------------------------
COSTA LITTAS
/s/ Lance E. Erlick
- ------------------------------------
LANCE E. ERLICK
ATTORNEY-IN-FACT*
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Panther Transport, Inc.
has duly caused this Amendment No. 2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waterloo, State of
Iowa, on the 11th day of December, 1997.
PANTHER TRANSPORT, INC.
/s/ Lance E. Erlick
By: ___________________________________
NAME: LANCE E. ERLICK
TITLE: VICE PRESIDENT,
CHIEF FINANCIAL AND
ACCOUNTING OFFICER AND
TREASURER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed below by the following persons in the capacities
indicated on the 11th day of December, 1997.
SIGNATURE TITLE
* President, Chairman of the Board of
- ------------------------------------ Directors and Chief Executive Officer
HENRY P. KEY (principal executive officer)
/s/ Lance E. Erlick Vice President, Chief Financial and
- ------------------------------------ Accounting Officer and Treasurer
LANCE E. ERLICK (principal financial and accounting
officer)
* Director
- ------------------------------------
ROBERT J. BERTCH
* Director
- ------------------------------------
GILBERT BUTLER
* Director
- ------------------------------------
DONALD E. CIHAK
* Director
- ------------------------------------
COSTA LITTAS
/s/ Lance E. Erlick
- ------------------------------------
LANCE E. ERLICK
ATTORNEY-IN-FACT*
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
3.1* Omega Certificate of Incorporation, as amended.
3.2* Omega By-laws.
3.3* Panther Articles of Incorporation, as amended.
3.4* Panther By-laws.
4.1* Indenture dated as of July 24, 1997.
4.2* Registration Rights Agreement dated as of July 24, 1997.
5.1* Opinion of Ropes & Gray re: legality.
5.2* Opinion of Nyemaster, Goode, Voigts, West, Hansell & O'Brien
re: legality.
10.1* New Bank Credit Facility dated as of June 13, 1997.
10.2* Panther Security Agreement.
10.3* Omega Security Agreement.
10.4* Pledge Agreement.
10.5* Collateral Assignment of Trademarks.
10.6* Management Agreement dated June 13, 1997.
10.7* Financing Agreement dated June 13, 1997.
10.8* Deferred Compensation Plan dated June 13, 1997.
10.9* Rabbi Trust Agreement dated June 13, 1997.
10.10* Key Employment Agreement dated September 16, 1994.
10.11* Key Severance Agreement dated April 24, 1997.
10.12* Moran Employment Agreement dated September 11, 1995,
as amended June 13, 1997.
10.13* Moran Severance Agreement dated April 24, 1997.
10.14* Erlick Employment Agreement dated July 11, 1994.
10.15* Erlick Severance Agreement dated April 24, 1997.
10.16* Goebel Employment Agreement dated April 10, 1995, as amended
June 13, 1997.
10.17* Goebel Severance Agreement dated April 24, 1997.
10.18* Hagan Employment Agreement dated April 10, 1995.
10.19* Hagan Severance Agreement dated April 24, 1997.
10.20* Schmidt Employment Agreement dated April 10, 1995.
10.21* Schmidt Severance Agreement dated April 24, 1997.
10.22* Deferred Non-Qualified Compensation Agreement dated June 28,
1987.
10.23* Company Bonus Plan.
10.24* Stockholders Agreement dated June 13, 1997.
10.25* Omega Holdings, Inc. Stock Option Plan.
10.26* Key Put Agreement dated June 13, 1997.
10.27* Goebel Put Agreement dated June 13, 1997.
12.1* Statements regarding computation of ratio of earnings to
fixed charges.
23.1 Consent of Ernst & Young LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
23.2 Consent of Crowe, Chizek and Company LLP.
23.4* Consent of Ropes & Gray (included in Exhibit 5.1).
24.1* Powers of Attorney (included on signature page).
25.1* Statement of Eligibility on Form T-1 of The Chase Manhattan
Bank as Trustee under the Indenture.
27.1* Financial Data Schedules.
99.1* Form of Letter of Transmittal used in connection with the
Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery used in connection
with The Exchange Offer.
99.3* Form of Exchange Agent Agreement.
</TABLE>
- --------
* Previously filed as part of this Registration Statement.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 28, 1997, except for Note 9, as to which
the date is July 24, 1997, in Amendment No. 2 to the Registration Statement
(Form S-4 No. 333-37135) and related Prospectus of Omega Cabinets, Ltd. for
the registration of its $100 million 10 1/2% Senior Subordinated Notes due
2007.
/s/ Ernst & Young LLP
Ernst & Young LLP
Des Moines, Iowa
December 10, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement Amendment No. 2 to Form
S-4 of Omega Cabinets, Ltd. of our report dated June 28, 1995 on the
statements of income and cash flows of Home-Crest Corporation for the year
ended December 31, 1994 and the period ended May 25, 1995 and to the reference
to us in the section entitled "Experts".
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Elkhart, Indiana
December 11, 1997
