<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 12, 1999
----------------
__________
OMEGA CABINETS, LTD.
-----------------------------
(Exact name of Registrant as specified in its charter)
Delaware 333-37135 42-1423186
-------- --------- ----------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer I.D.
of Incorporation) Number)
__________
1205 Peters Drive, Waterloo, Iowa 50703
--------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(319) 235-5700
------------------------------------------------
Registrant's Telephone Number, including area code
Page 1 of 84
Exhibit Index on page 5
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<PAGE>
Item 5. Other Events
Pursuant to a Consent Solicitation Statement dated January 12, 1999, which
is attached hereto as Exhibit 99.1, Omega Cabinets, Ltd., a Delaware corporation
(the "Company"), has solicited the consent of the holders of the Company's 10-
1/2% Senior Subordinated Notes due June 15, 2007 ("Notes") to amend certain
provisions of the Indenture governing the Notes dated July 24, 1997 among the
Company, the Guarantors (as defined therein) and The Chase Manhattan Bank, as
Trustee.
-2-
<PAGE>
Item 7. Financial Statements and Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit 99.1 Consent Solicitation Statement dated January 12, 1999
</TABLE>
-3-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
OMEGA CABINETS, LTD.
By: /s/ John Horton
--------------------------------------
Name: John Horton
Date: January 12, 1999
-4-
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index Page
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<S> <C>
Exhibit 99.1 Consent Solicitation Statement dated January 12, 1999 6
</TABLE>
<PAGE>
Exhibit 99.1
OMEGA CABINETS, LTD.
Consent Solicitation
in Respect of
10 1/2% Senior Subordinated Notes due June 15, 2007 of
Omega Cabinets, Ltd.
CUSIP 682070AB3
Pursuant to the Consent Solicitation Statement
Dated January 12, 1999
by
OMEGA CABINETS, LTD.
- --------------------------------------------------------------------------------
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JANUARY 25, 1999, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Omega Cabinets, Ltd. (the "Company") is soliciting (the "Consent
Solicitation") the consents (the "Consents") from registered holders of the
Company's 10 1/2% Senior Subordinated Notes due June 15, 2007 (the "Notes") to
certain proposed amendments (the "Proposed Amendments") to certain provisions of
the Indenture dated as of July 24, 1997 by and between the Company, the
Guarantors (as defined therein), and The Chase Manhattan Bank, as Trustee (the
"Trustee"), upon the terms and subject to the conditions set forth in the
Company's Consent Solicitation Statement dated January 12, 1999 (the "Consent
Solicitation Statement") enclosed herewith.
Enclosed herewith are copies of the following documents:
1. The Consent Solicitation Statement;
2. The Consent for your use and for the information of your clients,
together with guidelines of the Internal Revenue Service for
Certification of Taxpayer Identification Number on Substitute Form W-9
providing information relating to backup federal income tax
withholding; and
3. A form of letter which may be sent to your clients for whose account
you hold the Notes in your name or in the name of a nominee, with
space provided for obtaining such client's instructions with regard to
the Consent Solicitation.
PLEASE NOTE THAT THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON JANUARY 25, 1999, UNLESS EXTENDED. WE URGE YOU TO CONTACT
YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
The Company will not pay any fees or commissions to any broker or dealer or
other person for soliciting Consents pursuant to the Consent Solicitation. You
will be reimbursed for customary mailing and handling expenses incurred by you
in forwarding the enclosed materials to your clients.
Any questions or requests for additional copies of the enclosed materials
may be directed to the Financial Advisor, at the address and telephone number
set forth on the back cover of the enclosed Consent Solicitation Statement.
Very truly yours,
OMEGA CABINETS, LTD.
<PAGE>
OMEGA CABINETS, LTD.
Consent Solicitation
in Respect of
10 1/2% Senior Subordinated Notes due June 15, 2007 of
Omega Cabinets, Ltd.
CUSIP 682070AB3
Pursuant to the Consent Solicitation Statement
Dated January 12, 1999
by
Omega Cabinets, Ltd.
FOR A CASH FEE OF $2.50 PER $1,000 PRINCIPAL AMOUNT
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JANUARY 25, 1999, UNLESS EXTENDED.
TO OUR CLIENTS:
Enclosed for your consideration is the Consent Solicitation Statement dated
January 12, 1999 (the "Consent Solicitation Statement") of Omega Cabinets, Ltd.
(the "Company") and the related Consent and instructions thereto (the "Consent")
relating to the Company's solicitation (the "Consent Solicitation") of consents
(the "Consents") from holders of its 10 1/2% Senior Subordinated Notes due June
15, 2007 (the "Notes") to proposed amendments (the "Proposed Amendments") to
certain provisions of the Indenture dated as of July 24, 1997 by and between the
Company, the Guarantors (as defined therein), and The Chase Manhattan Bank, as
Trustee (the "Indenture").
Approval of the Proposed Amendments requires the consent (the "Requisite
Consents") of holders of at least a majority in aggregate principal amount of
the outstanding Notes. The Proposed Amendments becoming operative are
conditioned upon, among other things, satisfaction of the Acquisition Condition
(as defined in the Consent Solicitation Statement).
We are the registered holder of Notes held by us for your account.
Delivery of a Consent with respect to such Notes can be made only by us as the
registered holder and pursuant to your instructions. The Consent is furnished
to you for your information only and cannot be used by you to deliver a Consent
with respect to such Notes held by us for your account.
Accordingly, we request instructions as to whether you wish us to deliver
Consents with respect to such Notes, pursuant to the terms and conditions set
forth in the Consent Solicitation Statement and the Consent. We urge you to
read the Consent Solicitation Statement, the Consent and the other enclosed
materials carefully before instructing us to deliver Consents with respect to
such Notes.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to deliver Consents with respect to such Notes on your behalf
in accordance with the provisions of the Consent Solicitation. The Consent
Solicitation will expire at 5:00 P.M., New York City time, on January 25, 1999
(the "Expiration Date"), unless extended.
If you wish to have us deliver your Consent to the Proposed Amendments,
please so instruct us by completing, executing and returning to us the
instruction form that follows.
<PAGE>
INSTRUCTIONS REGARDING THE CONSENT SOLICITATION
WITH RESPECT TO THE
10 1/2% SENIOR SUBORDINATED NOTES DUE JUNE 15, 2007
OF OMEGA CABINETS, LTD.
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Consent Solicitation of Omega
Cabinets, Ltd.
This will instruct you whether to deliver my Consent to the Proposed
Amendments with respect to the principal amount at maturity of Notes indicated
below held by you for the account of the undersigned, pursuant to the terms of
and conditions set forth in the Consent Solicitation Statement and the Consent.
Box 1 [_] Please deliver my Consent to the Proposed Amendments with respect
to such Notes.
Box 2 [_] Please do not deliver my Consent to the Proposed Amendments with
respect to such Notes.
Date:___________________ _________________________________________
_________________________________________
Signature(s)*
_________________________________________
_________________________________________
Please print name(s) here
_________________________________________
_________________________________________
_________________________________________
_________________________________________
Please type or print address
_________________________________________
Area Code and Telephone Number
_________________________________________
Taxpayer Identification or
Social Security Number
_________________________________________
My Account Number with You
UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S) SHALL
CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO CONSENT TO THE PROPOSED AMENDMENTS
WITH RESPECT TO ALL NOTES OF SUCH BENEFICIAL OWNER(S).
<PAGE>
CONFIDENTIAL
OMEGA CABINETS, LTD.
1205 Peters Drive
Waterloo, Iowa 50703
CONSENT SOLICITATION STATEMENT
For Consent Solicitation
Expiring 5:00 P.M., New York City time, on January 25, 1999, Unless Extended
with respect to:
$100,000,000 Aggregate Principal Amount of
10 1/2% Senior Subordinated Notes due June 15, 2007
in exchange for a cash fee of $2.50
per $1,000 aggregate principal amount of Notes
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THIS CONSENT SOLICITATION
STATEMENT, OMEGA CABINETS, LTD. ("OMEGA" OR THE "COMPANY") WILL ACCEPT ALL
PROPERLY COMPLETED, EXECUTED AND DATED CONSENTS (AS DEFINED HEREIN) RECEIVED BY
THE DEPOSITARY (AND NOT REVOKED AS PROVIDED HEREIN) PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON JANUARY 25, 1999 (AS SUCH TIME AND DATE MAY BE EXTENDED, THE
"EXPIRATION DATE"), FROM HOLDERS (AS DEFINED HEREIN) OF RECORD ON JANUARY 11,
1999 OF THE COMPANY'S 10 1/2% SENIOR SUBORDINATED NOTES DUE JUNE 15, 2007 (THE
"NOTES"). AS SOON AS PRACTICABLE AFTER THE OPERATIVE DATE (AS DEFINED HEREIN),
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, THE COMPANY WILL PAY TO
HOLDERS IN RESPECT OF SUCH CONSENTS A CASH FEE OF $2.50 PER $1,000 AGGREGATE
PRINCIPAL AMOUNT OF NOTES TO WHICH SUCH CONSENT RELATES. THE COMPANY WILL NOT
BE OBLIGATED TO ACCEPT ANY CONSENTS RECEIVED AFTER THE EXPIRATION DATE. THE
COMPANY INTENDS TO ENTER INTO THE SUPPLEMENTAL INDENTURE (AS DEFINED HEREIN) AS
SOON AS PRACTICABLE AFTER THE REQUISITE CONSENTS (AS DEFINED HEREIN) HAVE BEEN
RECEIVED. EXCEPT AS OTHERWISE PROVIDED FOR HEREIN, AFTER THE SUPPLEMENTAL
INDENTURE HAS BEEN EXECUTED, NO CONSENT BY A HOLDER MAY BE REVOKED.
The Company is hereby soliciting the consent (the "Consent Solicitation")
of the Holders of the outstanding Notes to amendments (the "Proposed
Amendments") to certain provisions of the indenture governing the Notes (the
"Indenture").
As more fully described herein, the Company intends to acquire all of the
issued and outstanding shares of capital stock of Kitchen Craft of Canada, Ltd.
(referred to herein collectively with its subsidiaries as "Kitchen Craft", with
such acquisition referred to as the "Kitchen Craft Acquisition"). The
principal purposes of the Proposed Amendments are to (i) modify certain
provisions of the Indenture regarding the creation or acquisition of certain
foreign Subsidiaries (as defined in the Indenture) which will not be required to
deliver a Guarantee (as defined in the Indenture) with respect to the Notes;
(ii) modify certain provisions of the Indenture to permit foreign Subsidiaries
that do not provide a Guarantee of the Notes to otherwise operate under the
terms of the Indenture, subject to the limitations currently in place for the
Company and the Guarantors (as defined in the Indenture); and (iii) make minor
modifications to other Indenture provisions.
Approval of the Proposed Amendments requires the consent of Holders of at
least a majority in aggregate principal amount of the outstanding Notes (the
"Requisite Consents"). The Proposed Amendments becoming operative are
conditioned upon, among other things, the acquisition by the Company of at least
50% of the outstanding capital stock of Kitchen Craft (the "Acquisition
Condition").
This Consent Solicitation Statement does not constitute a solicitation of a
consent in any jurisdiction in which, or to or from any person to or from whom,
it is unlawful to make such a solicitation.
The information contained in this Consent Solicitation Statement is based
upon information provided solely by the Company and Kitchen Craft. Although
management believes it has conducted a reasonable investigation with respect to
Kitchen Craft, the Company makes no representation or warranty, express or
implied, or assumes any responsibility, as to the accuracy or adequacy of the
information relating to Kitchen Craft contained herein. Neither the Financial
Advisor nor the Depositary (each as defined herein) has independently verified
or makes any representation or warranty, express or implied, or assumes any
responsibility, as to the accuracy or adequacy of the information contained
herein.
THIS CONSENT SOLICITATION STATEMENT IS INCLUDED FOR INFORMATIONAL PURPOSES ONLY
IN CONNECTION WITH A HOLDER'S EVALUATION OF THE CONSENT SOLICITATION AND DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OF THE COMPANY.
HOLDERS ARE URGED TO REVIEW THIS CONSENT SOLICITATION STATEMENT CAREFULLY. IN
NO EVENT SHOULD A HOLDER TENDER OR DELIVER ANY NOTES.
The date of this Consent Solicitation Statement is January 12, 1999.
<PAGE>
HOLDERS WHO WISH TO CONSENT SHOULD DELIVER, BY REGULAR MAIL, AIR COURIER,
MESSENGER OR FACSIMILE, THEIR PROPERLY COMPLETED, EXECUTED AND DATED CONSENT
FORMS TO THE DEPOSITARY AT THE ADDRESS SET FORTH ON THE BACK COVER OF THIS
CONSENT SOLICITATION STATEMENT IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
HEREIN AND THEREIN. ALL FACSIMILE TRANSMISSIONS SHOULD BE FOLLOWED BY DELIVERY
OF ORIGINALLY EXECUTED CONSENTS. THE METHOD OF DELIVERY OF ALL DOCUMENTS,
INCLUDING CONSENTS, IS AT THE ELECTION AND RISK OF THE HOLDER.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
INTRODUCTION................................................... 1
AVAILABLE INFORMATION.......................................... 2
FORWARD-LOOKING STATEMENTS..................................... 2
SUMMARY FINANCIAL DATA......................................... 3
BACKGROUND AND PURPOSES OF THE SOLICITATION.................... 4
The Company............................................... 4
Kitchen Craft of Canada Ltd............................... 5
The Proposed Acquisition.................................. 6
The Financing............................................. 7
Capitalization............................................ 8
Amended and Restated Senior Credit Facility............... 9
Additional Equity Financing............................... 12
Purposes of the Solicitation.............................. 12
The Proposed Amendments................................... 12
THE CONSENT SOLICITATION....................................... 13
Interest of Certain Persons in the Proposed Amendments.... 13
Terms of the Consent Solicitation......................... 13
Consent Procedures........................................ 14
The Acquisition Condition................................. 15
Revocation of Consents.................................... 15
The Financial Advisor and the Depositary.................. 16
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS................. 16
General................................................... 16
Consequences of Proposed Amendments and
Receipt of Consent Payments by U.S. Holders............... 17
Backup Withholding........................................ 17
Non-United States Holders................................. 17
EXHIBIT A - PROPOSED AMENDMENTS................................ A-1
CONSENT........................................................ C-1
INDEX TO FINANCIAL STATEMENTS.................................. F-1
</TABLE>
<PAGE>
INTRODUCTION
The Company hereby solicits, upon the terms and subject to the conditions
set forth in this Consent Solicitation Statement and the related form of
Consent, the Consent of the Holders of its Notes to the Proposed Amendments.
The description of the terms of the current Indenture and the Proposed
Amendments set forth below is only a summary and is qualified by the terms and
conditions of the Indenture, certain portions of which are attached to this
Consent Solicitation Statement as Exhibit A, as well as changes to the Indenture
---------
pursuant to the Proposed Amendments, which are marked in the sections of the
Indenture attached in Exhibit A. Holders of Notes should carefully review the
---------
changes to the Indenture pursuant to the Proposed Amendments before granting the
Consents.
Capitalized terms used below that are not defined in this Consent
Solicitation Statement shall have the meanings assigned to them in the Indenture
unless otherwise indicated. The date and time at which the Supplemental
Indenture is executed is referred to herein as the "Effective Date". However,
the Supplemental Indenture will provide that the Proposed Amendments will not
become operative until the Acquisition Condition is satisfied. The date on
which the Effective Date shall have occurred and the Acquisition Condition shall
have been satisfied is referred to herein as the "Operative Date".
The Company is also providing to Holders of Notes certain financial and
business information concerning the Company for the eleven month period ended
November 21, 1998 (the "Third Quarter Update"), which updates the information
contained in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 26, 1998. The information contained herein and in the
Third Quarter Update should be read in conjunction with the financial statements
and other information contained in the Company's reports filed with the
Securities and Exchange Commission (the "Commission"). The Company will provide
without charge to any person to whom this Consent Solicitation Statement is
delivered, upon written or oral request of such person, a copy of any or all of
the documents which have been filed with the Commission by the Company, other
than exhibits to such documents. Requests for such copies should be directed to
the Financial Advisor.
The Company has prepared its financial statements and certain other
selected financial information contained herein in accordance with United States
Generally Accepted Accounting Principles ("U.S. GAAP") using United States
dollars as its reporting currency. Accordingly, as required by U.S. GAAP, assets
and liabilities are translated into U.S. dollars at the exchange rate in effect
at the end of the reporting period, and revenues and expenses are translated at
the average exchange rate during the period. In this Consent Solicitation
Statement, references to "U.S. dollars" or "$" are to the currency of the United
States and references to "Canadian dollars" or "(Cdn) $" are to the currency of
Canada. Solely for the convenience of the reader, Canadian dollar amounts not
contained in or derived from the financial statements contained herein have been
translated into U.S. dollars at an exchange rate of $0.6580 to (Cdn) $1.00, the
New York foreign exchange mid-range rate as quoted at 4:00 pm Eastern time on
January 5, 1999 by Telerate and reported in the Wall Street Journal on January
6, 1999 (the "Exchange Rate"). On January 11, 1999, the Exchange Rate reported
in the Wall Street Journal for January 8, 1999 was $0.6609 to (Cdn) $1.00. The
Exchange Rate translations contained herein should not be construed as a
representation that the Canadian dollar amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollars at the rate indicated or
at any other rate.
The information set forth below under the heading "Kitchen Craft of Canada
Ltd." and contained elsewhere herein relating to Kitchen Craft is based on
information provided by Kitchen Craft. Accordingly, although management believes
it has conducted a reasonable investigation with respect to Kitchen Craft, the
Company makes no representation or warranty, express or implied, or assumes any
responsibility, as to the accuracy or adequacy of the information relating to
Kitchen Craft contained herein, and no assurances can be made that, if the
Company acquires Kitchen Craft, the Company will not thereafter acquire
additional material information concerning Kitchen Craft.
<PAGE>
AVAILABLE INFORMATION
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 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[TM] and HomeCrest[TM] are registered trademarks of the
Company.
FORWARD-LOOKING STATEMENTS
Certain statements in this Consent Solicitation Statement may be regarded
as "forward-looking statements". Such forward-looking statements include
statements qualified by the words "believes," "anticipates" and similar
expressions and statements concerning the Company's expectations regarding
synergies and other benefits arising from the Kitchen Craft Acquisition. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements of the Company expressed or implied by such forward-looking
statements. These risks and uncertainties include the risks identified under the
heading "Risk Factors" in the Offering Memorandum and related Exchange Offer
Prospectus relating to the Notes, which are incorporated herein by reference. In
addition, the Company wishes to caution readers that the following important
factors and others in some cases have affected and in the future could affect
the Company's actual results and could cause the Company's future results to
differ materially from those expressed in any forward-looking 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 manufacturers or to effectively consolidate operations of
businesses acquired, including the business of Kitchen Craft. In light of these
and other uncertainties, the inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company that the Company's
plans and objectives will be achieved and holders of the Notes should not place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to publicly announce or disclose to the holders of the Notes the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
2
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below are summary historical and pro forma consolidated financial
data of the Company. The historical financial data has been derived from the
Company's unaudited consolidated financial statements included elsewhere in this
Consent Solicitation Statement 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" and the consolidated financial statements
and notes thereto and other financial information included elsewhere in this
Consent Solicitation Statement or previously filed by the Company with the
Commission.
<TABLE>
<CAPTION>
Twelve Months Ended
November 21, 1998
Actual Pro Forma
------ ---------
<S> <C> <C>
Net Sales $167,107 $234,469
EBITDA (1) 30,726 41,818
EBITDA Margin 18.4% 17.8%
Capital Expenditures $ 3,934 $ 5,507
Interest Expense 14,129 18,049
Senior Debt 37,000 80,757
Total Debt 137,000 180,757
Senior Debt/EBITDA 1.2x 1.9x
Total Debt/EBITDA 4.5x 4.3x
EBITDA/Interest Expense 2.2x 2.3x
</TABLE>
_________________
(1) EBITDA represents income from operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation,
amortization of goodwill, and certain non-recurring expenses related to a
potential acquisition that did not occur (approximately $750 in the twelve
months ended November 21, 1998). 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, holders of
the Notes 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 U.S. GAAP, (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.
3
<PAGE>
BACKGROUND AND PURPOSES OF THE SOLICITATION
The Company
Omega 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. Omega manufactures its products in state-of-
the-art, highly-integrated facilities under the Omega (custom), Dynasty (semi-
custom), Embassy (semi-custom), and Legend (stock) brand names. Omega's
HomeCrest division ("HomeCrest") manufactures its products under the HomeCrest
(stock) brand name. The Company's line of frameless cabinets, which are
manufactured and sold solely by the Company's HomeCrest division, account for
less than 5% of the Company's sales. The Company sells to a broad network
of kitchen and bath dealers, home centers, builders/contractors and independent
distributors. The independent dealers account for approximately 80% of
the Company's sales.
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.
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 certain of 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.
On or about April 28, 1997, Omega Holdings, Inc. ("Holdings"), the sole
stockholder of the Company, and Holdings' stockholders entered into a
recapitalization agreement with Omega Merger Corp. ("OMC"), a company formed by
affiliates of Butler Capital Corporation ("BCC"), which provided for a merger of
OMC with and into Holdings, and a recapitalization of Holdings, with Holdings as
the surviving corporation (the "OMC Merger"). Concurrently with the OMC Merger,
which occurred on June 13, 1997, aggregate consideration of approximately $201.6
million was paid to certain selling stockholders of Holdings, including
approximately $89.3 million of debt which was repaid in connection therewith.
On July 24, 1997, the Company consummated the sale (the "Initial Offering")
of $100 million in aggregate principal amount of its original notes (the
"Original Notes") in a transaction exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"). Concurrently with
the Initial Offering, the Company used the net proceeds from the Initial
Offering, cash from operations and borrowings under the Revolving Facility (as
defined herein) to repay certain existing indebtedness and to pay certain
related expenses. In connection with the Initial Offering, the Company entered
into a registration rights agreement with the initial purchasers of the Original
Notes pursuant to which it agreed to register the Notes under the Securities Act
and offer them in exchange for the Original Notes. On January 30, 1998, the
Company consummated the exchange of the Notes for the Original Notes.
On October 1, 1997, HomeCrest, a wholly-owned subsidiary of the Company,
was merged with and into the Company with the Company as the surviving
corporation.
4
<PAGE>
Kitchen Craft of Canada Ltd.
Kitchen Craft is the second largest manufacturer of kitchen and bathroom
cabinetry and laminated countertops in Canada and the largest Canadian
manufacturer of semi-custom kitchen and bathroom cabinetry. Kitchen Craft is
also a leading competitor in the United States semi-custom cabinet market.
Kitchen Craft had total sales of (Cdn) $84.6 million in 1997 and (Cdn) $99.1
million during the twelve month period ended November 30, 1998. In contrast to
the Company, 100% of Kitchen Craft's cabinetry sales are generated by frameless
products. Approximately 97% of Kitchen Craft's sales are derived from cabinetry
products with the remaining 3% from laminated countertops.
From its base of operations in Canada, currently contributing approximately
54% of its sales, Kitchen Craft has expanded its United States operations since
1992 and has established a national U.S. presence. Consistent with historical
levels, Kitchen Craft's sales through dealer channels accounted for
approximately 97% of its sales in 1998. Approximately 60% of such sales were
through its dealer network (consisting of approximately 430 active dealers) and
approximately 37% of such sales were through its company owned stores. Sales to
one home center in Canada accounted for the remaining 3% of 1998 sales. Kitchen
Craft operates 12 company owned stores in Canada due to the lack of a strong
distribution channel of independent kitchen and bath dealers in Canada. Kitchen
Craft management attributes this industry dynamic primarily to the prevalence of
nearly exclusive manufacturer representation by dealers and lack of population
density in Canada. Kitchen Craft's company owned stores function in essentially
the same manner and provide substantially equivalent customer services as
independent dealers. Kitchen Craft also owns 3 stores in the United States that
were created due to Kitchen Craft's initial difficulty in penetrating the
independent dealer network in the United States and generating sales volume.
Following the Kitchen Craft Acquisition, Kitchen Craft expects to focus on
growing its base of independent dealers, particularly in the United States.
Substantially all of Kitchen Craft's manufacturing is performed in
Winnipeg, Manitoba at Kitchen Craft's two main facilities totaling approximately
330,000 square feet. The larger facility, which houses Kitchen Craft's entire
cabinet manufacturing plant as well as Kitchen Craft's executive offices, is
comprised of approximately 300,000 square feet and is owned by Kitchen Craft.
The second facility, which is leased, consists of approximately 30,000 square
feet, and houses Kitchen Craft's countertop manufacturing plant. Kitchen Craft
currently employs approximately 1,050 workers, none of whom are covered by a
union or collective bargaining agreement.
Kitchen Craft's manufacturing facilities are currently producing
approximately 1,750 cabinets per day and have the capacity to produce
approximately 2,000 cabinets per day without significant additional capital
expenditures. Kitchen Craft anticipates the need to increase its manufacturing
capacity during 1999 by expanding its manufacturing facilities by approximately
50,000 square feet, at an estimated cost of approximately (Cdn) $1.5 million.
Kitchen Craft is guided by a management team led by Herbert D. Buller, the
Chief Executive Officer, who founded the company in 1971 in Winnipeg, Manitoba.
Mr. Buller and his four sons, all of whom are involved in Kitchen Craft's
management, own, directly and indirectly, approximately 97% of Kitchen Craft's
outstanding capital stock. Mark Buller, Kitchen Craft's President, has managed
the day to day affairs of Kitchen Craft since 1996. Omega management currently
anticipates that, following the Kitchen Craft Acquisition, Kitchen Craft will be
operated as a subsidiary of Omega under the leadership of the existing Kitchen
Craft management team.
The Company believes the opportunity to combine Omega and Kitchen Craft
will create several competitive advantages, including the following:
. Strengthened Position in the Key Distribution Channel and Price Point: The
---------------------------------------------------------------------
Company believes that the combination would enhance the combined enterprise's
competitive position by strengthening the Company's position as a leading
manufacturer of semi-custom cabinets serving the dealer channel of
distribution.
. Broadened Opportunity to Leverage the Omega Franchise: The Company believes
-----------------------------------------------------
that, given the minimal overlap in the dealer bases of the two companies, the
opportunity to leverage the U.S. dealer networks of Omega and Kitchen Craft
should provide the combined entity with the opportunity to take advantage of
cross-selling opportunities. Omega believes that Kitchen Craft's moderately
priced frameless product lines will complement the existing Omega higher
priced framed product lines.
5
<PAGE>
. Synergies of the Combination: Omega believes that the two companies will be
----------------------------
in a position to achieve synergies and benefit from economies of scale in
operations, including, to some degree, raw materials purchasing. The Company
expects to examine opportunities to improve Kitchen Craft's operating margin
through the implementation of automation projects, such as the implementation
of a rough mill facility to prepare lumber for cabinet production.
Additionally, Omega expects the combined entity to utilize, over time, best
practices from each of Kitchen Craft's and the Company's production processes.
The Proposed Acquisition
The Company and Kitchen Craft entered into a non-binding letter of intent
on November 5, 1998 and are currently negotiating the terms and conditions of
definitive agreements to accomplish the Kitchen Craft Acquisition.
The Company intends to acquire all of the issued and outstanding shares of
capital stock of Kitchen Craft. The purchase of a portion of such shares
(expected to be valued at not more than (Cdn) $9.1 million) will be made with
consideration in the form of new shares of Kitchen Craft (the "Rollover Shares")
rather than cash. The Rollover Shares will provide for the exchange of the
Rollover Shares for shares of Holdings upon the occurrence of certain events,
including a change of control of Holdings.
The Company intends to fund the Kitchen Craft Acquisition (i) through
borrowings under its Amended and Restated Senior Credit Facility (as defined
below) and the Canadian Senior Credit Facility (as defined below), and (ii) with
approximately (Cdn) $17.4 million in proceeds from the sale of shares of common
stock of Holdings to one or more of the Company's existing stockholders or their
affiliates, including BCC. Any borrowing made by the Company under the Amended
and Restated Senior Credit Facility to finance the Kitchen Craft Acquisition
will be loaned by the Company to Kitchen Craft and evidenced by an unsecured
intercompany note from Kitchen Craft to the Company.
As noted above, the Kitchen Craft Acquisition is subject to certain
conditions, and no assurances can be made that the Kitchen Craft Acquisition
will be completed. In the event that the Kitchen Craft Acquisition is not
completed, then the terms of the Proposed Amendments will not become operative.
The preceding description of the Kitchen Craft Acquisition is provided only
to allow Holders of Notes to evaluate the merits of the Consent Solicitation,
and does not constitute an offer of any securities, directly or indirectly, in
or into, or by use of the mails, or by any means or instrumentality (including,
without limitation, facsimile transmission, telex, or telephone) of interstate
or foreign commerce of, or any facilities of a national securities exchange of,
the United States or Canada.
6
<PAGE>
The Financing
The Company intends to finance the Kitchen Craft Acquisition through an
amendment to its Existing Bank Credit Facility (as defined below) described
below under "Amended and Restated Senior Credit Facility", including the
establishment of the Canadian Senior Credit Facility (as defined below), and the
equity investments described below under "Additional Equity Financing". The
following table illustrates the estimated sources and uses of funds in
connection with the Kitchen Craft Acquisition.
<TABLE>
<CAPTION>
Sources of Funds(1) U.S. dollars Canadian dollars
(in millions) (in millions)
<S> <C> <C>
Amended and Restated Senior
Credit Facility(2)
New Omega Term Loan....................... $ 25.0 (Cdn) $ 38.0
Canadian Senior Credit Facility(3)
Canadian Term Facility.................... 14.5 22.0
Canadian Revolving Facility............... 4.3 6.5
Additional equity financing....................... 11.4 17.4
Rollover Shares(4)................................ 6.0 9.1
---- ----
Total sources of funds.............. $ 61.2 (Cdn) $ 93.0
==== ====
Uses of Funds
Purchase of Kitchen Craft equity
and retirement of Kitchen Craft indebtedness(5). $ 57.2 (Cdn) $ 87.0
Fees and expenses................................. 4.0 6.0
---- ----
Total uses of funds.................. $ 61.2 (Cdn) $ 93.0
==== ====
</TABLE>
__________
(1) Based on the estimated purchase price of (Cdn) $87.0 million. In the event
that the Company increases the amount payable in the Kitchen Craft
Acquisition, it anticipates that 100% of such increase would be financed
through the incurrence of additional debt.
(2) The Amended and Restated Senior Credit Facility provides for $40.0 million
in existing term loans and $25.0 million in new term loans, and up to $20.0
million of revolving credit borrowings, including up to $2.0 million of
letters of credit.
(3) The Canadian Senior Credit Facility provides for (Cdn) $22.0 million in new
term loans and up to (Cdn) $15.0 million of revolving credit borrowings,
including up to (Cdn) $0.5 million of letters of credit.
(4) Reflects an estimate of the maximum number of Rollover Shares.
(5) The Company anticipates that all of such indebtedness will be repaid in
connection with the closing of the Kitchen Craft Acquisition. In addition,
to the extent that Kitchen Craft's cash balances exceed third party
indebtedness on the closing date of the Kitchen Craft Acquisition, such
excess cash will be retained by the sellers.
7
<PAGE>
Capitalization
The following table sets forth the actual capitalization of the Company as
of November 21, 1998 and the pro forma capitalization of the Company as of
November 21, 1998, giving effect to the Kitchen Craft Acquisition. This table
should be read in conjunction with the related "Unaudited Pro Forma Combined
Financial Data" included elsewhere in this Consent Solicitation Statement.
<TABLE>
<CAPTION>
Actual as of Pro Forma as of
November 21, 1998 November 21, 1998
----------------- -----------------
(in millions) (in millions)
<S> <C> <C>
Amended and Restated Senior
Credit Facility (1)
Term Facility....................... $ 36.5 $ 36.5
New Omega Term Loan................. - 25.0
Revolving Facility.................. 0.5 0.5
Canadian Senior Credit Facility (2)
Canadian Term Facility.............. - 14.5
Canadian Revolving Facility......... - 4.3
10 1/2% Senior Subordinated Notes..... 100.0 100.0
--------- ---------
Total debt............................ 137.0 180.8
Total stockholders' equity (deficit).. (41.4) (24.0)
--------- ---------
Total capitalization.................. $ 95.6 $ 156.8
========= =========
</TABLE>
_______________
(1) The Amended and Restated Senior Credit Facility provides for $40.0 million
in existing term loans and $25.0 million in new term loans, and up to
$20.0 million of revolving credit borrowings, including up to $2.0 million
of letters of credit.
(2) The Canadian Senior Credit Facility provides for (Cdn) $22.0 million in
new term loans and up to (Cdn) $15.0 million of revolving credit
borrowings, including up to (Cdn) $0.5 million of letters of credit.
8
<PAGE>
Amended and Restated Senior Credit Facility
Existing Bank Credit Facility
In June 1997, the Company and its subsidiaries entered into an agreement
with various banks (the "Existing Bank Credit Facility") including U.S. Bank,
National Association (formerly known as First Bank, National Association) as a
bank lender and as agent for the bank lenders party thereto ("U.S. Bank")
providing for a senior credit facility consisting of (i) a term facility of up
to $40.0 million (the "Term Facility") and (ii) a revolving facility of up to
$20.0 million (the "Revolving Facility"). The Existing Bank Credit Facility
(together with any amendments, supplements, extensions, modifications, renewals,
refunds, replacements or refinancings thereof) is permitted by the terms of the
Notes to be increased to a total borrowing capacity of $120.0 million. As of
November 21, 1998, approximately $0.5 million of revolving credit borrowings
were outstanding under the Existing Bank Credit Facility.
The Term Facility requires quarterly principal payments which began in
September 1997 at approximately $0.6 million per quarter, increased to
approximately $1.0 million per quarter in September 1998 and will increase to
approximately $1.4 million, $1.5 million, $1.9 million, and $2.3 million per
quarter during the four-quarter periods beginning in September 1999, 2000, 2001,
and 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 Existing Bank Credit Facility will mature in 2002 and has no scheduled
interim amortization. In addition, the Company is required to make prepayments
on the Existing 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
Existing Bank Credit Facility or, with certain limitations, equity securities
issued to management employees and directors. The Company is also required on an
annual basis to make prepayments on the Existing 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 Facility
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 Existing 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 U.S. Bank's customary
base rate or (b) at the Applicable Margin (as defined therein) plus U.S. Bank's
Eurodollar rate.
The Existing Bank Credit Facility is guaranteed by the Company's sole
stockholder, Holdings. The Existing Bank Credit Facility is secured by all of
the stock of the Company, all of the stock of Panther Transport, Inc., the
Company's subsidiary, and all of the Company's and its subsidiary's properties
and assets.
The Existing 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 Existing 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 Existing Bank Credit
Facility if the Company prepays the Notes prior to maturity. The Existing Bank
Credit Facility contains customary events of default for highly leveraged
financings, including changes in control of the Company.
New Omega Term Loan
In connection with the consummation of the proposed Kitchen Craft
Acquisition, the Company expects to amend and restate its Existing Bank Credit
Facility (the "Amended and Restated Senior Credit Facility") with U.S. Bank, as
agent, and certain other financial institutions parties thereto. The Company
expects that the Amended and Restated Senior Credit Facility will not become
operative until the funding of the Kitchen Craft Acquisition. The Amended and
Restated Senior Credit Facility will contain substantially the same financial
covenants and other terms and conditions as those contained in the Existing Bank
Credit Facility, with certain modifications for purposes of including Kitchen
Craft's financial performance (as summarized below) and to provide for, in
addition to the existing Term Facility and Revolving Facility, up to an
additional $25.0 million of term loan borrowings (the "New Omega Term Loan") to
be used to finance, in part, the Kitchen Craft Acquisition. The principal
amount of the New Omega Term Loan will be payable in four equal quarterly
9
<PAGE>
installments beginning March 31, 2004 with a final maturity on December 31,
2004. There will be no change to the existing Term Facility amortization. In
addition, the Amended and Restated Senior Credit Facility will extend the
Revolving Facility maturity date to December 26, 2003. Mandatory prepayments
under certain circumstances will continue to apply to the New Omega Term Loan,
in addition to the existing Term Loan and Revolving Facility, under the Amended
and Restated Senior Credit Facility, 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 Amended and Restated Senior Credit
Facility or, with certain limitations, equity securities issued to management
employees and directors.
The Amended and Restated Senior Credit Facility will amend the capital
expenditure negative covenant, the operating lease negative covenant, and the
cash flow leverage ratio test. In order to provide for the Kitchen Craft
Acquisition, the capital expenditure limitation will be increased to
approximately $7.5 million in the aggregate per year (subject to certain
exclusions provided therein). The maximum permitted amount of operating lease
payments in any fiscal year will be increased to $4 million (subject to certain
exclusions provided therein). The existing Cash Flow Leverage Ratio (as defined
therein) will be adjusted to include Kitchen Craft's pre-acquisition EBITDA (as
defined therein) for relevant periods.
In addition to the guarantees provided under the Existing Bank Credit
Facility, the Amended and Restated Senior Credit Facility will be secured by a
pledge of (i) the unsecured intercompany note of Kitchen Craft issued to the
Company in connection with the financing of the Kitchen Craft Acquisition, (ii)
65% of the capital stock of Kitchen Craft acquired by the Company in the Kitchen
Craft Acquisition, and (iii) 100% of the capital stock of any U.S. subsidiary of
Kitchen Craft acquired by the Company in connection with the Kitchen Craft
Acquisition. In addition, each U.S. subsidiary of Kitchen Craft will provide a
guarantee with respect to the Amended and Restated Senior Credit Facility.
The Amended and Restated Senior Credit Facility and the Canadian Senior
Credit Facility (as described below) will rank senior to the Notes, and the
Company's obligations under the Amended and Restated Senior Credit Facility will
be guaranteed by each of the Company's existing and future domestic subsidiaries
on a senior basis and secured by substantially all of the assets of the Company
and its domestic subsidiaries. In addition, the Amended and Restated Senior
Credit Facility will, in certain instances, be guaranteed by certain foreign
subsidiaries of the Company on a senior basis and secured by substantially all
of the assets of certain foreign subsidiaries of the Company. Kitchen Craft and
its Canadian subsidiaries will not provide a guarantee with respect to the
Amended and Restated Senior Credit Facility. Under the terms of the Proposed
Amendments, any foreign subsidiary of the Company that does not provide a
guarantee with respect to the Amended and Restated Senior Credit Facility and
the Canadian Senior Credit Facility will not be required to deliver a Guarantee
with respect to the Notes.
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 Omega Term Loan will bear 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 U.S. Bank's
customary base rate or (b) at the Applicable Margin (as defined therein) plus
U.S. Bank's Eurodollar rate. The Company and Kitchen Craft will pay customary
fees in connection with the execution of the Amended and Restated Senior Credit
Facility and the Canadian Senior Credit Facility, including agent fees, consent
fees, termination fees, and fees with respect to the New Omega Term Loan
commitment, the Canadian Term Facility (as defined below) and the Canadian
Revolving Facility (as defined below), and with respect to the maintenance of
the letter of credit accommodations. In addition to customary covenants, the
Amended and Restated Senior Credit Facility will impose substantially the same
significant limitations as the Existing Bank Credit Facility on the Company's
ability to incur additional indebtedness, incur liens, pay dividends, make other
restricted payments, issue guarantees, make advances to affiliates and dispose
of assets. The Amended and Restated Senior Credit Facility and the Canadian
Senior Credit Facility will constitute Senior Debt for purposes of the Notes
and the Indenture. The Company expects to use the proceeds from borrowings under
the New Omega Term Loan and the Revolving Facility for making loans and equity
contributions for use in financing the Kitchen Craft Acquisition and refinancing
existing Kitchen Craft indebtedness and to provide for working capital, other
acquisitions and general corporate purposes.
Canadian Senior Credit Facility
10
<PAGE>
In connection with the consummation of the proposed Kitchen Craft
Acquisition, the Company expects the Amended and Restated Senior Credit Facility
to be supplemented by a new Canadian dollar term loan and revolving credit
facility for Kitchen Craft (the "Canadian Senior Credit Facility") with Canadian
Imperial Bank of Commerce ("CIBC"), as agent, and certain other financial
institutions parties thereto. The Company expects that, like the Amended and
Restated Senior Credit Facility, the Canadian Senior Credit Facility will not
become operative until the funding of the Kitchen Craft Acquisition.
Indebtedness outstanding under both the Amended and Restated Senior Credit
Facility and the Canadian Senior Credit Facility will represent indebtedness
outstanding under the New Bank Credit Facility (as defined in the Indenture).
The Canadian Senior Credit Facility will contain substantially the same
financial covenants and other terms and conditions as those contained in the
Amended and Restated Senior Credit Facility. In addition to customary covenants,
the Canadian Senior Credit Facility will impose substantially the same
significant limitations as the Amended and Restated Senior Credit Facility on
the ability to incur additional indebtedness, incur liens, pay dividends, make
other restricted payments, issue guarantees, make advances to affiliates and
dispose of assets. The Canadian Senior Credit Facility will provide for up to
(Cdn) $22.0 million of term loan borrowings (the "Canadian Term Facility") and a
revolving facility of up to (Cdn) $15.0 million (the "Canadian Revolving
Facility") to be used to finance, in part, the Kitchen Craft Acquisition and for
Kitchen Craft's working capital purposes.
The Canadian Term Facility will require quarterly principal payments
beginning on April 3, 1999 at (Cdn) $0.4 million per quarter and increasing at
each anniversary. Subsequent payments will be approximately (Cdn) $0.5 million,
(Cdn) $0.6 million, (Cdn) $0.8 million, (Cdn) $0.9 million, and (Cdn) $2.3
million per quarter during four-quarter periods beginning in 2000, 2001, 2002,
2003, and 2004, respectively. The Canadian Term Facility will mature on December
31, 2004. The Canadian Revolving Facility will mature on December 26, 2003 and
has no scheduled interim amortization. In addition, Kitchen Craft will be
required to make prepayments on the Canadian Senior Credit Facility under
substantially the same circumstances as those contained in the Amended and
Restated Senior Credit Facility, 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 Canadian Senior Credit Facility or,
with certain limitations, equity securities issued to management employees and
directors. Kitchen Craft will also be required on an annual basis to make
prepayments on substantially the same terms and conditions as will be required
under the Amended and Restated Senior Credit Facility. All mandatory prepayments
under the Amended and Restated Senior Credit Facility and the Canadian Senior
Credit Facility will be applied on a pro rata basis to the U.S. facilities and
the Canadian Senior Credit Facility. Subject to reduction upon meeting certain
leverage tests, and subject to increase upon the occurrence and during the
continuation of an event of default, the Canadian Senior Credit Facility will
bear interest at an adjusted base rate equal to the Applicable Margin (as
defined therein) plus the Bankers' Acceptance Rate ("BA Rate") (as defined
therein) or, if the BA Rate is unavailable, the Canadian Prime Rate (as defined
therein). Kitchen Craft will also be required to pay a Stamping Fee (as defined
therein) equal to 35 basis points.
The indebtedness under the Canadian Senior Credit Facility will be
guaranteed by the Company and each of Kitchen Craft's Canadian subsidiaries. The
Canadian Senior Credit Facility will be secured by all of Kitchen Craft's and
its Canadian subsidiaries' properties and assets. The Company expects that
U.S. Bank, as agent, and CIBC, and its Canadian Subsidiaries as agent, will
enter into an intercreditor agreement with respect to the application of the
proceeds of collateral pledged under the Amended and Restated Senior Credit
Facility and the Canadian Senior Credit Facility.
Additional Equity Financing
Affiliates of BCC have entered into commitments to purchase up to (Cdn)
$17.4 million of Holdings' common stock, subject to the pre-emptive rights of
existing Holdings stockholders, in order to provide equity financing for the
Kitchen Craft Acquisition. Certain other stockholders of the Company may
participate in this financing by purchasing a portion of such (Cdn) $17.4
million of Holdings common stock. To the extent that additional stockholders
exercise their pre-emptive rights to participate in the equity financing
following the closing of the Kitchen Craft Acquisition, the total equity
investment in Holdings will increase. Currently, affiliates of BCC own
approximately 90% of the fully-diluted equity of Holdings, and following the
Kitchen Craft Acquisition, BCC will continue to control a majority of Holdings'
outstanding common stock. Founded in 1979, BCC is a New York-based private
investment company with approximately $1.4 billion in committed capital,
specializing in the acquisition and equity-based recapitalization of private
businesses.
Purposes of the Solicitation
11
<PAGE>
The purposes of the Proposed Amendments are (i) to give the Company the
flexibility to create or acquire foreign Subsidiaries which would not be
required to deliver a Guarantee with respect to the Notes, (ii) to modify
certain provisions of the Indenture to permit foreign Subsidiaries that do not
guarantee the Notes to otherwise operate under the terms of the Indenture,
subject to the limitations currently in place for the Company and the
Guarantors, and (iii) to make minor modifications to other Indenture provisions.
The Proposed Amendments
Exhibit A attached hereto sets out the Proposed Amendments. If the
---------
Requisite Consents are obtained and the Acquisition Condition is satisfied, the
terms of the Proposed Amendments will become operative on the Operative Date. In
accordance with the Indenture, the Proposed Amendments, when operative, will be
binding upon all holders of Notes regardless of whether or not any particular
holder of Notes has delivered a Consent. The Proposed Amendments, when
operative, will, among other things:
(i) modify certain provisions of the Indenture regarding the
creation or acquisition of certain foreign Subsidiaries, which will not be
required to deliver a Guarantee with respect to the Notes (referred to
below as "Foreign Subsidiaries") if such a guarantee is not permitted under
applicable law or would have a material adverse tax or accounting effect on
the Company; under the terms of the Proposed Amendments, any Subsidiary
that does not provide a guarantee with respect to the Amended and Restated
Senior Credit Facility and the Canadian Senior Credit Facility will not be
required to deliver a Guarantee with respect to the Notes;
(ii) modify certain provisions of the Indenture regarding Agreement
to Subordinate, Asset Sales and Sales of Subsidiary Stock, Dividend and
Other Payment Restrictions Affecting Subsidiaries, Guarantors, Permitted
Investments, Permitted Junior Securities, Permitted Liens, Permitted
Refinancing Indebtedness, Senior Debt, and Unrestricted Subsidiaries so as
to permit Foreign Subsidiaries to make such investments and incur such
obligations, subject to the limitations currently in place for the Company
and the Guarantors; and
(iii) make minor modifications to other Indenture provisions.
Certain definitions under the Indenture will be modified to reflect the
Proposed Amendments.
12
<PAGE>
THE CONSENT SOLICITATION
Interest of Certain Persons in the Proposed Amendments
As of January 11, 1999, none of the Company or any of its affiliates owned,
beneficially or of record, any Notes. The Company has limited information
concerning the beneficial ownership of the Notes, because all of the Notes
are registered in the names of the Depository Trust Company ("DTC") or its
nominee. However, it is possible that one or more persons or groups owns
more than 5% of the aggregate principal amount of the outstanding Notes.
Terms of the Consent Solicitation
If the Requisite Consents are received and the Acquisition Condition is
satisfied, then the Company will pay to each Holder delivering prior to the
Expiration Date the enclosed form of consent (the "Consent") to the
Depositary (provided such Consent is not revoked), a one-time cash payment
in the amount of $2.50 for each $1,000 in principal amount of the Notes as
to which such Consent is given (the "Consent Payments"). Only Holders of
record as of January 11, 1999 (the "Record Date") may submit a Consent.
Holders that do not properly or timely consent to the Proposed Amendments
or whose Consent is revoked will not receive a Consent Payment with respect
thereto, even though the Proposed Amendments, if they become operative,
will be binding upon them. The date and time at which the Supplemental
Indenture is executed is referred to herein as the "Effective Date."
Holders delivering Consents received after the Effective Date but prior to
the Expiration Date will nonetheless be entitled to receive the Consent
Payment. See "The Acquisition Condition" below.
A duly executed Consent (unless revoked as herein provided) shall bind the
Holders executing the same and any subsequent registered holder or
transferee of the Notes to which such Consent relates. However, a Consent
may be revoked at any time prior to the Effective Date by the holder of the
Notes to which such Consent relates in the manner described herein.
The term "Holder" shall mean a registered holder of Notes as reflected in
the records of the Trustee as of the Record Date. The Company anticipates
that DTC, as nominee holder of the Notes, will execute an omnibus proxy
which will authorize its participants ("DTC Participants") to consent with
respect to the Notes owned by it and held in the name of Cede & Co. as
specified on the DTC position listing as of the Record Date. In such case,
all references to Holder shall, unless otherwise specified, include DTC
Participants.
The delivery of a Consent to the Proposed Amendments will not affect a
Holder's right to sell or transfer the Notes. Only Holders of record as of
the Record Date may submit a Consent.
Upon receipt of the Requisite Consents (which may occur prior to the
Expiration Date), the Company, the Guarantors and The Chase Manhattan Bank,
as Trustee, may then execute a supplemental indenture (the "Supplemental
Indenture") containing the Proposed Amendments. The Company intends to
enter into the Supplemental Indenture as soon as practicable after the
Requisite Consents have been received. Except as otherwise provided for
herein, after the Supplemental Indenture has been executed, no Consent by a
Holder may be revoked. However, the Supplemental Indenture will provide
that the Proposed Amendments will not become operative until the
Acquisition Condition is satisfied. The date on which the Effective Date
shall have occurred and the Acquisition Condition shall have been satisfied
is referred to herein as the "Operative Date." If the Requisite Consents
are not received by the Depositary by 5:00 p.m., New York City time, on the
Expiration Date, then the Company, in its sole discretion, may elect to
extend the Expiration Date from time
13
<PAGE>
to time as herein provided, in which case all such Consents shall remain
valid (subject to revocation as herein provided) until the date and time to
which the Expiration Date is so extended.
The Company expressly reserves the right to extend the Expiration Date,
from time to time, until the Requisite Consents have been obtained, and to
terminate the Consent Solicitation at any time prior to the Expiration Date
(whether or not the Requisite Consents have been received). Any such
extension of the Expiration Date shall be effective if the Company gives
oral or written notice thereof to the Depositary no later than 9:00 a.m.
(and, if such notice is given orally, followed by written notice to the
Depositary (given by facsimile or otherwise) no later than 2:00 p.m.), New
York City time, on the first business day following any previously
announced Expiration Date. Any termination of the Consent Solicitation
shall be effective upon written notice thereof from the Company to the
Depositary. As promptly as practicable following any such extension or
termination, notice thereof shall be given by the Company to each Holder in
writing or by press release to the Dow Jones News Service.
The Company expressly reserves the right to modify, at any time or from
time to time prior to the final Expiration Date, the terms of the Consent
Solicitation (including modifying the amount or form of consideration to be
paid to Holders delivering Consents) and the Proposed Amendments in any
manner it deems necessary or advisable. If the Company delivers an
Officers' Certificate to the Trustee certifying that such modifications are
not, in the aggregate, materially adverse to Holders of Notes (compared to
the terms of the Consent Solicitation and the Proposed Amendments described
in this Consent Solicitation Statement), Consents given prior to such
modifications will remain valid and effective and will constitute Consents
to the Proposed Amendments, as so modified. The Trustee is entitled to rely
conclusively on any such certificate. The Company will not be obligated to
deliver notice of such modifications to the Holders of Notes prior to
executing the Supplemental Indenture. Notwithstanding the foregoing, no
reduction of the Consent Payments, or any other modifications to the terms
of the Consent Solicitation that are, in the aggregate, materially adverse
to the Holders of Notes, will be made without at least two business days'
notice thereof by press release or other public announcement or by written
notice to the Holders, with the opportunity for Holders to revoke their
Consents during such notice period even if the Effective Date has occurred.
Consent Procedures
Holders who desire to consent to the Proposed Amendments should so indicate
by marking the appropriate box on the Consent included herewith, and
completing, signing, dating and delivering the same to the Depositary in
the manner set forth below. However, if none of the boxes on the Consent is
checked, but the Consent is otherwise properly completed, signed, dated and
delivered, the Holder will be deemed to have consented to the Proposed
Amendments.
Consents executed by a Holder of Notes should be executed in exactly the
same manner as the name(s) appear(s) on the Notes. If Notes to which a
Consent relates are held by two or more joint Holders, all such Holders
should sign the Consent. If a Consent is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other registered holder acting in a fiduciary or representative capacity,
such person should so indicate when signing and should submit to the
Depositary appropriate evidence (satisfactory to the Company) of such
person's authority to act, along with the Consent. If Notes are registered
in different names, separate Consents must be executed by each such Holder.
Consents by DTC Participants whose Notes are registered in the name of Cede
& Co. should be signed in the manner in which their names appear on the
position listing of Cede & Co. with respect to the Notes.
Subject to the terms and conditions set forth in this Consent Solicitation
Statement, the Company will accept all properly completed and executed
Consents received by the Depositary (and not subsequently revoked) prior to
5:00 p.m., New York City time, on the Expiration Date. All questions as to
the validity, form,
14
<PAGE>
eligibility (including the time of receipt) and acceptance of Consents and
revocations will be resolved by the Company in its sole discretion, whose
determination shall be final and binding, subject only to the review and
approval of the Depositary with respect to proof of execution and
ownership. The Company reserves the right to reject any and all Consents
not validly given or the acceptance of which could, in the opinion of the
Company or its counsel, be unlawful. The Company also reserves the right
(subject to such review and approval of the Depositary) to waive any
defects, irregularities or conditions of delivery as to particular
Consents. Unless waived, all such defects and irregularities must be cured
prior to the Expiration Date, and any Consent with such a defect or
irregularity will not be deemed to have been properly given until so cured
or waived. Neither the Company, the Depositary nor any other person shall
be under any duty to give notification of any such defects or
irregularities, nor shall any of them incur any liability for failure to
give such notification. The Company's interpretation of the terms and
conditions of this Consent Solicitation shall be conclusive and binding.
After the Operative Date, all holders, including non-consenting holders and
all subsequent holders, of the Notes will become bound by the terms of the
Proposed Amendments.
The Acquisition Condition
The terms of the Proposed Amendments will not become operative until the
Operative Date, which will not occur unless and until the Acquisition
Condition is satisfied. The Company's obligation to make the Consent
Payments is also conditioned on the Acquisition Condition being satisfied.
Revocation of Consents
Each properly completed and executed Consent will be counted,
notwithstanding any transfer of the Notes to which such Consent relates,
unless the procedure for revoking Consents described below has been
followed. A revocation of a Consent (a "Revocation of Consent") delivered
by a Holder of Notes before the Effective Date shall be deemed to supersede
any earlier Consents relating to the same Notes and a Consent delivered by
a Holder of Notes before the Expiration Date shall be deemed to supersede
any earlier Consents or Revocations of Consent relating to the same Notes.
Pursuant to the Indenture, a Consent made by a Holder of Notes on the
Record Date who has sold or otherwise transferred such Notes may be revoked
by a subsequent holder of such Notes prior to the Effective Date by
delivery of a Revocation of Consent by such subsequent holder.
Prior to the Effective Date, any Holder of Notes may revoke any Consent
given as to its Notes or any portion of such Notes (in integral multiples
of $1,000). A Holder of Notes desiring to revoke a Consent (including a
subsequent holder of Notes desiring to revoke a Consent given by a
predecessor Holder) must, prior to the Effective Date, complete, sign and
date a Revocation of Consent and mail, hand deliver, send by overnight
courier, or facsimile (facsimiles should be confirmed by physical delivery)
the signed Revocation of Consent to the Depositary at the address listed on
the Consent, all in accordance with the instructions contained herein.
Consents not properly or timely revoked will become irrevocable upon the
Effective Date; provided, however, that Consents may be revoked following
the Effective Date, as provided in the last paragraph of the "Terms of the
Consent Solicitation" above, in the event that the Company modifies the
terms of the Consent Solicitation subsequent to the Effective Date in a
manner that is materially adverse to the Holders of the Notes.
A Revocation of Consent must be executed by a Holder in exactly the
same manner as such Holder's name appears on the Consent to which the
Revocation of Consent relates or be accompanied by evidence satisfactory to
the Company and the Depositary that the holder revoking such Consent has
succeeded to registered ownership of the Notes to which such Consent
relates or otherwise has the power to revoke such Consent. If a Revocation
of Consent is signed by a trustee, partner, executor, administrator,
guardian,
15
<PAGE>
attorney-in-fact, officer of a corporation, or other person acting in a
fiduciary or representative capacity, such person must so indicate when
signing and must submit with the Revocation of Consent appropriate evidence
of authority to execute the Revocation of Consent. A Revocation of Consent
shall be effective only as to the Notes listed on the Revocation of Consent
and only if such Revocation of Consent complies with the provisions of this
Consent Solicitation Statement. Only a holder of Notes as reflected in the
registry maintained by the Trustee is entitled to revoke a Consent
previously given. A beneficial owner of Notes who is not the Holder of such
Notes desiring to revoke a Consent given with respect to such Notes must
either (i) arrange with the Holder to execute and deliver either to the
Depositary on such beneficial owner's behalf, or to such beneficial owner
for forwarding to the Depositary by such beneficial owner, a Revocation of
Consent with respect to such Notes, or (ii) obtain a duly executed proxy
from the Holder authorizing such beneficial holder to act on behalf of the
Holder as to such Consent. A form of proxy is available from the Financial
Advisor.
A Revocation of Consent may only be rescinded by the execution and delivery
of a new Consent. A holder of Notes who has delivered a Revocation of
Consent may thereafter deliver a new Consent by following one of the
prescribed procedures at any time prior to the Expiration Date.
The Company reserves the right to contest the validity of any Revocation of
Consent and all questions as to validity (including time of receipt) of any
Revocation of Consent will be determined by the Company in its sole
discretion, which determination will be conclusive and binding subject only
to such final review as may be required by the Depositary concerning proof
of ownership and as may be required by the Depositary regarding proof of
execution. None of the Company, any of its affiliates, the Financial
Advisor, the Depositary, the Trustee, or any other person will be under any
duty to give notification of any defects or irregularities with respect to
any Revocation of Consent nor shall any of them incur any liability for
failure to give such notification.
The Financial Advisor and the Depositary
The Company has retained CIBC Oppenheimer Corp. (the "Financial Advisor")
to act as its financial advisor in connection with the Consent
Solicitation. The Financial Advisor will receive customary compensation and
reimbursement of its expenses in connection with its performance of
financial advisory services. Requests for assistance in filling out and
delivering Consents or requests for additional copies of this Consent
Solicitation Statement or the form of Consent may be directed to the
Financial Advisor at its address and telephone number set forth on the back
cover page of this Consent Solicitation Statement.
The Company has retained The Chase Manhattan Bank, which is also the
Trustee under the Indenture, as depositary (the "Depositary") in connection
with the Consent Solicitation. The Depositary will be responsible for
collecting Consents.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion summarizes certain U.S. Federal income tax
consequences arising out of the proposed transaction based on the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
thereunder, Internal Revenue Service ("IRS") rulings and judicial
decisions, all as in effect on the date hereof, and all of which are
subject to change, possibly retroactively. This discussion does not address
all aspects of Federal income taxation that may be relevant to particular
Holders in light of their particular circumstances or to certain types of
Holders subject to special treatment under the Federal income
16
<PAGE>
tax laws (for example, financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, tax-exempt organizations,
foreign holders, broker dealers, taxpayers subject to the alternative minimum
tax and persons holding the Notes as part of a straddle, hedge or conversion
transaction) and does not discuss any aspect of state, local or foreign
taxation. This discussion assumes that Holders hold their Notes as "capital
assets" within the meaning of Section 1221 of the Code (generally property held
for investment).
UNCERTAINTIES EXIST WITH RESPECT TO VARIOUS TAX CONSEQUENCES OF THE CONSENT
SOLICITATION. THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS
INCLUDED HEREIN FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT TO A HOLDER
MIGHT VARY DEPENDING UPON SUCH HOLDER'S PARTICULAR SITUATION. ACCORDINGLY,
HOLDERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF GRANTING OR WITHHOLDING CONSENT TO THE PROPOSED AMENDMENTS,
INCLUDING ANY STATE, LOCAL OR FOREIGN TAX CONSEQUENCES.
Consequences of Proposed Amendments and Receipt of Consent Payments by U.S.
Holders
As used herein, the term "U.S. Holder" means a Holder that is, for U.S.
Federal income tax purposes, (a) a citizen or resident of the United States,
(b) treated as a domestic corporation or domestic partnership, or (c) an estate
or trust other than a "foreign estate" or "foreign trust" as defined in Section
7701(a)(31) of the Code.
The Proposed Amendments to the Notes and the receipt of the Consent Payments
should not be viewed as a significant modification of the Notes for U.S. Federal
income tax purposes and thus should not result in a deemed exchange of the Notes
for new notes. The Consent Payments should be treated either as a separate
payment in the nature of a fee for the Consent or as interest. In either case, a
U.S. Holder would likely recognize ordinary income in an amount equal to the
Consent Payment received. The Company intends to treat the Consent Payments as
ordinary income and to report such payments to U.S. Holders and the IRS for
informational purposes in accordance with such treatment.
Backup Withholding
Certain non-corporate U.S. Holders may be subject to backup withholding at the
rate of 31% with respect to the Consent Payments. Generally, backup withholding
is applied only when (a) the taxpayer (i) fails to furnish its correct taxpayer
identification number to the payor in the manner required, or (ii) fails to
certify that it has not been notified by the IRS that it is subject to backup
withholding for failure to report certain payments or (b) the IRS has notified
the payor that the taxpayer identification number furnished by the taxpayer is
incorrect or has otherwise notified the payor that backup withholding is
required. Amounts withheld under the backup withholding rules may be allowed as
a refund or credit against a U.S. Holder's Federal income tax liability,
provided that such Holder furnishes the required information to the IRS.
Non-United States Holders
Although it is not entirely clear, the Company intends to take the position
that U.S. withholding tax applies to a Consent Payment paid to a non-United
States Holder (a Holder other than a U.S. Holder) at a 30% rate unless (i) such
non-United States Holder is engaged in the conduct of a trade or business in the
United States to which the receipt of the Consent Payment is effectively
connected and provides to the Company a properly executed IRS Form 4224 in
advance of the payments, or (ii) a tax treaty between the United States and the
country of residence of the non-United States Holder eliminates or reduces the
withholding on interest and other income and such non-United States Holder
provides to the Company a properly executed IRS Form 1001 in the name of the
beneficial owner claiming the treaty benefits. The Company intends to treat the
Consent Payments as interest if treating them as other income would result in no
withholding. Consent Payments made to a Non-United States Holder that are
effectively connected with a U.S. trade or business conducted by such Holder are
subject to U.S. Federal income tax at the graduated rates applicable to U.S.
citizens, resident aliens and domestic corporations (an additional branch
profits tax may also apply to corporate Holders). Non-United States Holders
should consult their own tax advisors regarding the application of U.S.
withholding taxes to them and the availability of a refund of any such
withholding taxes.
17
<PAGE>
Exhibit A
To Consent Solicitation Statement
PROPOSED AMENDMENTS
The Proposed Amendments would (i) modify the definitions of "Board of
Directors", "Guarantors", "Permitted Investments", "Permitted Junior
Securities", "Permitted Liens", "Permitted Refinancing Indebtedness", "Senior
Debt" and "Unrestricted Subsidiary" contained in the Indenture, (ii) add the
definitions of "Domestic Subsidiary", "Foreign Subsidiary" and "Guarantor
Subsidiary" to the Indenture, and modify Sections 4.08, 4.10, 4.17, 10.01, 10.02
and 10.10 of the Indenture (language to be deleted is bracketed with strike-
through and language to be added is printed in bold face type and underlined).
SECTION 1.01 DEFINITIONS.
"Board of Directors" means the Board of Directors of the Company, Holdings or
a [Guarantor] Restricted Subsidiary, as context requires, or any authorized
---------------------
committee of such Board of Directors.
"Domestic Subsidiary" means, with respect to the Company, any Restricted
------------------------------------------------------------------------
Subsidiary of the Company that was formed under the laws of the United States of
- --------------------------------------------------------------------------------
America or any state or territory thereof.
- ------------------------------------------
"Foreign Subsidiary" means, with respect to the Company, any Restricted
-----------------------------------------------------------------------
Subsidiary of the Company that is not a Domestic Subsidiary.
- ------------------------------------------------------------
"Guarantors" means (i) [HomeCrest and] Panther and (ii) each of the Guarantor
---------
Subsidiaries of the Company that executes a Subsidiary Guarantee in accordance
with the provisions of this Indenture.
"Guarantor Subsidiary" means, with respect to the Company, any Domestic
-----------------------------------------------------------------------
Subsidiary and, except as otherwise provided in Section 4.17, any Foreign
- -------------------------------------------------------------------------
Subsidiary.
- ----------
"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 [Guarantor] Restricted Subsidiary in a Person,
---------------------
if as a result of such Investment (i) such Person becomes a [Guarantor]
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 [Guarantor] 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
provisions of Section 4.10 hereof; (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 Junior Securities" means (i) Equity Interests (other than
Disqualified Stock, including other Equity Interests containing mandatory
redemption provisions) of the Company or any [Guarantor]
A-1
<PAGE>
Restricted Subsidiary or (ii) debt securities of the Company or any [Guarantor]
- ---------------------
Restricted Subsidiary 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 Notes and the
Subsidiary Guarantees are subordinated to Senior Debt of the Company and [the
Guarantors] its Restricted Subsidiaries pursuant to Article 10 hereof.
---------------------------
"Permitted Liens" means (i) Liens on assets of the Company or any of its
Subsidiaries securing Senior Debt that was permitted by the terms of this
Indenture to be incurred; (ii) Liens in favor of the Company or a Restricted
Subsidiary of the Company; (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 Restricted Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such acquisition
and do not extend to any assets other than those of the Person merged into or
consolidated with the Company; (v) Liens to secure the performance of statutory
or regulatory obligations, leases, surety or appeal bonds, performance bonds,
carriers', warehousemans', mechanics', landlords', materialmans' or repairmans'
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 clauses (iv) and (x) of the second paragraph of
Section 4.09 hereof covering only the assets acquired with such Indebtedness;
(vii) Liens existing on the date hereof; (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 [Guarantors] Restricted Subsidiaries to secure Senior Debt of
-----------------------
such [Guarantors] Restricted Subsidiaries that was permitted by this 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 any of its Restricted Subsidiaries; 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,
A-2
<PAGE>
provided that, except as otherwise provided in Section 4.17, 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 in Article 11 hereof.
"Senior Debt" means (i) all Indebtedness of the Company and [the Guarantors]
its Restricted Subsidiaries outstanding under the New Bank Credit Facility and
- ---------------------------
all Permitted Hedging Obligations with respect thereto, (ii) any other
Indebtedness of the Company and [the Guarantors] its Restricted Subsidiaries
---------------------------
permitted to be incurred under the terms of this 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 Notes or the
Subsidiary Guarantees, 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] any
---
of its Restricted Subsidiaries, 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] any of its Restricted
---------------------
Subsidiaries, (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 this Indenture.
"Unrestricted Subsidiary" means, with respect to any Person, (i) any
Subsidiary of such Person (other than Panther or HomeCrest, 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 any of its Restricted
Subsidiaries 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 any of
its Restricted Subsidiaries; 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 Section 4.07 hereof. 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 this 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 terms of Section 4.09
A-3
<PAGE>
hereof, a Default shall have occurred hereunder). The Board of Directors of 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 by the terms of
Section 4.09 hereof, 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 this
Indenture, and, except as otherwise provided in Section 4.17, such Subsidiary
-----------------------------------------------
shall execute a Subsidiary Guarantee and deliver an Opinion of Counsel, in
accordance with the terms of this Indenture.
SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDARIES.
The Company shall not, and shall not permit any of its Restricted Subsidiaries
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 any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, 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 hereof, (b) the New Bank Credit Facility as in effect as of the Operative
---------
Date of the Supplemental Indenture [date hereof], 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 Operative Date of the Supplemental Indenture
--------------------------------------------
[date hereof], (c) this Indenture, the Notes and the Subsidiary Guarantees,
(d) applicable law, (e) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries 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 this 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 any of its Restricted
Subsidiaries not otherwise prohibited by this Indenture or (C) by virtue of
provisions of security agreements or mortgages securing Indebtedness of a
Restricted Subsidiary that is not otherwise prohibited by this 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.
SECTION 4.10 ASSET SALES AND SALES OF SUBSIDIARY STOCK.
The Company shall not, and shall not permit any of its Restricted Subsidiaries
to: (i) sell, lease, convey or otherwise dispose of any assets or rights
(including 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 distribution 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, shall be governed by the
provisions of Sections 4.14 and 5.01 hereof), or (ii) issue or sell equity
securities of any of the Company's Subsidiaries, in the case of either clause
(i) or (ii) above, whether in a single transaction or a series of related
transactions, (a) 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 (b) for net
proceeds in excess of $1.0 million (each of the foregoing, an "Asset Sale"),
unless (x) 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 set forth in
an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (y) at least 75% of the
consideration received therefor by the Company or such Restricted Subsidiary is
in the form of cash; provided, however, that the amount of (A) any liabilities
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto) 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
(B) 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.
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] Restricted Subsidiary or by a [Guarantor] Restricted Subsidiary to
--------------------- ---------------------
the Company or to another [Guarantor] Restricted Subsidiary, (ii) an issuance of
---------------------
Equity Interests by a [Guarantor] Restricted Subsidiary to the Company or to
---------------------
another [Guarantor] Restricted Subsidiary, (iii) the incurrence of Permitted
---------------------
Liens, (iv) any Restricted Payment that is permitted by Section 4.07 hereof, 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, shall not be
deemed to be Asset Sales.
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, or
(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 considered 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 provisions of this
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph shall be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company shall be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to
A-4
<PAGE>
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, if any, thereon to the date of purchase, in accordance with the
procedures set forth in Section 3.09 hereof. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the 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.
SECTION 4.17 ADDITIONAL GUARANTEES.
In the event that the Company or any of its Subsidiaries shall acquire or
create another Subsidiary after the date hereof, then such newly acquired or
created Subsidiary shall execute a supplemental indenture, the form of which is
attached as Exhibit C hereto, and deliver to the Trustee an Opinion of Counsel,
in accordance with Section 13.05 hereof, except (i) if the issuance of a
---------------------------------
Guarantee by a Foreign Subsidiary is not permitted under applicable law or would
- --------------------------------------------------------------------------------
have a material adverse tax or accounting effect on the Company or its
- ----------------------------------------------------------------------
Subsidiaries, as determined in good faith by the Board of Directors and
- -----------------------------------------------------------------------
evidenced by a copy of applicable board resolutions or an Officer's Certificate
- -------------------------------------------------------------------------------
delivered to the Trustee, then such Foreign Subsidiary shall not be subject to
- ------------------------------------------------------------------------------
the provisions of this Section 4.17, and (ii) for all Subsidiaries that have
- -----------------------------------------------------
properly been designated as Unrestricted Subsidiaries in accordance with the
provisions hereof for so long as they continue to constitute Unrestricted
Subsidiaries; provided, that no Subsidiary will be obligated to give a Guarantee
--------------------------------------------------------------------
of the Notes under this covenant for so long as such Subsidiary has not
- -----------------------------------------------------------------------
Guaranteed any Indebtedness of the Company under the New Bank Credit Facility or
- --------------------------------------------------------------------------------
any other Senior Debt.
- ---------------------
SECTION 10.01 AGREEMENT TO SUBORDINATE.
(a) The Company and its Restricted Subsidiaries agree[s], and each Holder by
-------------------------------
accepting a Note agrees, that the Indebtedness evidenced by the Notes (including
the payment of principal of, interest on and premium and Liquidated Damages, if
any, with respect to, the Notes, and the exercise of rights of rescission or
other claims, if any, in respect of the issuance of the Notes) is subordinated
in right of payment, to the extent and in the manner provided in this Article
10, to the prior payment in full of all Senior Debt of the Company and its
-------
Restricted Subsidiaries (whether outstanding on the date hereof or hereafter
- -----------------------
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Debt of the Company and its Restricted
------------------
Subsidiaries.
- ------------
(b) The Guarantors agree, and each Holder by accepting a Note agrees, that
the Indebtedness evidenced by the Subsidiary Guarantees (including the payment
of principal of, interest on and premium and Liquidated Damages, if any, with
respect to, the Notes, and the exercise of rights of rescission or other claims,
if any, in respect of the issuance of the Notes) is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full in cash or cash equivalents of all Senior Debt of the
Guarantors (whether outstanding on the date hereof or thereafter incurred), and
that the subordination is for the benefit of holders of Senior Debt of the
Guarantors.
SECTION 10.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
A-5
<PAGE>
(a) 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, in
an assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(1) holders of Senior Debt of the Company shall 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
Holders of the Notes shall be entitled to receive any payment with respect to
the Notes, and until all Obligations with respect to Senior Debt are paid in
full in cash, any distribution to which the Holders of Notes would be entitled
shall be made to holders of Senior Debt (except that Holders may receive (i)
Permitted Junior Securities and (ii) payments and other distributions made from
any defeasance trust created pursuant to Section 8.01 hereof); and
(2) until all Senior Debt of the Company (as provided in subsection (a)(1)
above) is paid in full in cash, any distribution to which Holders would be
entitled but for this Article 10 shall be made to holders of Senior Debt of the
Company as provided above in (1) as their interests may appear (except that
Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments
and other distributions made from any defeasance trust created pursuant to
Section 8.01 hereof).
(b) Upon any distribution to creditors of any Guarantor in a liquidation or
dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Guarantor or its property,
in an assignment for the benefit of creditors or any marshalling of such
Guarantor's assets and liabilities:
(1) holders of Senior Debt of such Guarantor shall 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
Holders of the Notes shall be entitled to receive any payment with respect to
the Notes, and until all Obligations with respect to Senior Debt are paid in
full in cash, any distribution to which the Holders of Notes would be entitled
shall be made to holders of Senior Debt (except that Holders may receive (i)
Permitted Junior Securities and (ii) payments and other distributions made from
any defeasance trust created pursuant to Section 8.01 hereof); and
(2) until all Senior Debt of the Guarantors (as provided in subsection (b)(1)
above) is paid in full in cash, any distribution to which Holders would be
entitled but for this Article 10 shall be made to holders of Senior Debt of such
Guarantor as provided above in (1) as their interests may appear (except that
Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments
and other distributions made from any defeasance trust created pursuant to
Section 8.01 hereof).
(c) Upon any distribution to creditors of any Restricted Subsidiary of the
---------------------------------------------------------------------------
Company in a liquidation or dissolution of such Restricted Subsidiary or in a
- -----------------------------------------------------------------------------
bankruptcy, reorganization, insolvency, receivership or similar proceeding
- --------------------------------------------------------------------------
relating to such Restricted Subsidiary or its property, in an assignment for the
- --------------------------------------------------------------------------------
benefit of creditors or any marshalling of such Restricted Subsidiary's assets
- ------------------------------------------------------------------------------
and liabilities:
- ----------------
(1) holders of Senior Debt of such Restricted Subsidiary shall 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 Holders of the Notes shall be entitled to receive any payment
- --------------------------------------------------------------------------------
with respect to the Notes, and until all Obligations with respect to Senior Debt
- --------------------------------------------------------------------------------
are paid in full in cash, any distribution to which the Holders of Notes would
- ------------------------------------------------------------------------------
be entitled shall be made to holders of Senior Debt (except that Holders may
- ----------------------------------------------------------------------------
receive (i) Permitted Junior Securities and (ii) payments and other
- -------------------------------------------------------------------
distributions made from any defeasance trust created pursuant to Section 8.01
- -----------------------------------------------------------------------------
hereof); and
- ------------
A-6
<PAGE>
(2) until all Senior Debt of such Restricted Subsidiary (as provided in
------------------------------------------------------------------------
subsection (c)(1) above) is paid in full in cash, any distribution to which
- ---------------------------------------------------------------------------
Holders would be entitled but for this Article 10 shall be made to Holders of
- -----------------------------------------------------------------------------
Senior Debt of such Restricted Subsidiary as provided above in (1) as their
- ---------------------------------------------------------------------------
interests may appear (except that Holders of Notes may receive (i) Permitted
- ----------------------------------------------------------------------------
Junior Securities and (ii) payments and other distributions made from any
- -------------------------------------------------------------------------
defeasance trust created pursuant to Section 8.01 hereof).
- ----------------------------------------------------------
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given hereunder to holders
of Senior Debt, the distribution may be made and the notice given, (a) with
respect to Senior Debt under the New Bank Credit Facility, to the Bank Agent, or
(b) with respect to any other Senior Debt, to the Representative of the holders
of such Senior Debt.
Upon any payment or distribution of assets of the Company, any of its
------------
Restricted Subsidiaries, or any Guarantor referred to in this Article 10, the
- ------------------------
Trustee and the Holders of Notes shall be entitled to rely upon (i) any order or
decree made by any court of competent jurisdiction or (ii) any certificate of
the liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior Debt and
other Indebtedness of the Company, any of its Restricted Subsidiaries, or such
-------------------------------------
Guarantor, as applicable, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article 10.
A-7
<PAGE>
OMEGA CABINETS, LTD.
CONSENT
in Respect of
10 1/2% Senior Subordinated Notes due June 15, 2007 of
Omega Cabinets, Ltd.
CUSIP 682070AB3
Pursuant to the Consent Solicitation Statement
dated January 12, 1999
by
Omega Cabinets, Ltd.
Please return this consent form to the Depositary:
Via First Class Mail or By Hand or Overnight Delivery
The Chase Manhattan Bank
c/o Chase Bank of Texas, N.A.
Corporate Trust Services
1201 Main Street
18th Floor
Dallas, Texas 75202
Attention: Mr. Frank Ivins
Facsimile Confirm by
Transmission: Telephone:
(214) 672-5746 (214) 672-5678
(Originally executed Consents must follow)
Consents should not be delivered to any person other than the Depositary.
In no event should a Holder deliver any certificates representing the 10 1/2%
Senior Subordinated Notes due June 15, 2007.
The instructions accompanying this Consent should be read carefully before
this Consent is completed. Any requests for assistance or additional copies of
the Consent Solicitation Statement or this Consent may be directed to the
Financial Advisor at its address and telephone number and location set forth
below. You may also contact your broker, dealer, commercial bank or trust
company or other nominee for assistance concerning the Consent Solicitation.
The undersigned is a Holder of 10 1/2% Senior Subordinated Notes due June
15, 2007 (the "Notes") of Omega Cabinets, Ltd. (the "Company") issued under an
Indenture dated as of July 24, 1997 (the "Indenture") by and between the
Company, the Guarantors (as defined therein), and The Chase Manhattan Bank, as
Trustee (the "Trustee").
The term holder ("Holder") as used herein shall mean a registered holder of
Notes as reflected in the records of the Trustee as of January 11, 1999 (the
"Record Date"). The Company anticipates that The Depository Trust
C-1
<PAGE>
Company ("DTC"), as nominee holder of Notes, will execute an omnibus proxy which
will authorize its participants ("DTC Participants") to consent with respect to
the Notes owned by it and held in the name of Cede & Co. as specified on a DTC
position listed as of the Record Date. In such case, all references to Holder
shall, unless otherwise specified, include DTC Participants.
HOLDERS WHO WISH TO RECEIVE PAYMENTS IN CONSIDERATION FOR THEIR CONSENT OF
$2.50 PER $1,000 PRINCIPAL AMOUNT OF NOTES (THE "CONSENT PAYMENT") (SEE PAYMENT
INSTRUCTIONS) MUST CONSENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON JANUARY
25, 1999 (AS SUCH DATE MAY BE EXTENDED AT THE ELECTION OF THE COMPANY, THE
"EXPIRATION DATE") BY DELIVERING AN EXECUTED CONSENT TO THE DEPOSITARY (AND SUCH
CONSENT IS NOT REVOKED). SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE
CONSENT SOLICITATION STATEMENT DATED JANUARY 12, 1999, THE COMPANY WILL ACCEPT
ALL CONSENTS RECEIVED PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 25,
1999 FROM THE HOLDERS OF RECORD AS OF THE RECORD DATE.
Upon receipt by the Company of consent to the proposed amendments (the
"Proposed Amendments") to certain provisions of the Indenture as described in
the Consent Solicitation Statement dated January 12, 1999 (the "Consent
Solicitation Statement") from the Holders of at least a majority of the
aggregate principal amount of the outstanding Notes (the "Requisite Consents"),
the Company and The Chase Manhattan Bank, as Trustee, may then execute an
amendment to the Indenture (the "Supplemental Indenture") containing the
Proposed Amendments. The Company intends to enter into the Supplemental
Indenture as soon as practicable after the Requisite Consents have been
received. The date and time at which the Supplemental Indenture is executed is
the "Effective Date." Except as specifically set forth in the Consent
Solicitation Statement, Consents may not be revoked after the Effective Date.
The Supplemental Indenture will provide that the Proposed Amendments will become
operative on the date on which the Effective Date shall have occurred and the
Acquisition Condition (as defined in the Consent Solicitation Statement) shall
have been satisfied.
AS A HOLDER OF SAID NOTES, THE UNDERSIGNED HEREBY:
CONSENTS [_] DOES NOT CONSENT [_]
with respect to the Proposed Amendments to be made to certain provisions of the
Indenture as described in the Consent Solicitation Statement. If no election is
specified, any otherwise properly completed, signed, dated and delivered consent
form (a "Consent") will be deemed a consent to the Proposed Amendments. By
execution hereof, the undersigned acknowledges receipt of the Consent
Solicitation Statement and hereby represents and warrants that the undersigned
has full power and authority to give the Consent contained herein. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company to be necessary or desirable to perfect the undersigned's
Consent.
Unless otherwise specified by the undersigned, this Consent relates to all
Notes as to which the undersigned is the Holder. If this Consent relates to
less than all Notes as to which the undersigned is a Holder, the specific Notes
to which this Consent relates shall be identified herein (see "Description of
Notes to which Consent Is Given").
This Consent, if effective, will be binding upon the Holder of the Notes
who gives such Consent and upon any subsequent transferee(s) of such Notes,
subject only to a valid revocation of the Consent by the holder by delivery to
the Depositary in the manner described in the Consent Solicitation statement.
Except as specifically set forth in the Consent Solicitation Statement, Consents
may not be revoked after the Effective Date. The Holder shall be entitled to
receive Consent Payments only in respect of a valid Consent which has been
properly and timely delivered and which has not been revoked.
C-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES TO WHICH CONSENT IS GIVEN
- -------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of registered
Holders(s) (Please fill in, if blank,
exactly as name(s) appear(s) on Notes) Notes with Respect to Which This Consent is Given
or DTC Participant(s) (attach additional schedule, if necessary)
- -------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Principal
Amount at
Maturity of
Certificate or Aggregate Notes to Which
DTC Participant Principal Amount Consent Is
Account Number(s) at Maturity of Given (If less
Notes than all)*
- -------------------------------------------------------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Total:
-----------------------------------------------------------
* If this consent form relates to less than the aggregate principal amount at maturity of Notes
registered in the name of the registered Holder(s), or held by DTC for the account of DTC
Participant(s), named above, list the certificate or account numbers and principal amounts at
maturity of Notes to which this Consent form relates. Unless otherwise indicated in the column
labeled "Principal Amount at Maturity of Notes to which Consent Is Given," the undersigned Holder
will be deemed to have consented in respect of the entire aggregate principal amount at maturity
represented by the Notes indicated in the column labeled "Aggregate Principal Amount at Maturity of
Notes."
- -------------------------------------------------------------------------------------------------------
IMPORTANT--READ CAREFULLY
- -------------------------------------------------------------------------------------------------------
This Consent must be executed by the registered Holder(s), or the DTC Participant(s), in exactly the
same manner as the name(s) of such Holder(s) appear(s) on the Notes or the position listing of Cede &
Co. If Notes to which this Consent relates are held of record by two or more joint registered Holders,
all such Holders must sign this Consent form. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing and must submit proper evidence
satisfactory to the Company of such person's authority so to act. Signatures on this Consent must be
guaranteed by a firm that is a member of the National Association of Securities Dealers, Inc., or a
member of a registered national securities exchange or by a commercial bank or trust company having an
office in the United States.
- -------------------------------------------------------------------------------------------------------
</TABLE>
C-3
<PAGE>
________________________________________________________________________________
SIGN HERE
________________________________________________________________________________
(Signature(s))
Dated:__________________________________________________________________________
Names:__________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ( )_______________________________________________
Tax Identification or Social Security No._______________________________________
________________________________________________________________________________
________________________________________________________________________________
GUARANTEE OF SIGNATURES
Authorized Signature:___________________________________________________________
Name and Title:_________________________________________________________________
(Please Print)
Dated:__________________________________________________________________________
Name of Firm:___________________________________________________________________
________________________________________________________________________________
C-4
<PAGE>
PAYMENT INSTRUCTIONS
If the Company receives the Requisite Consents and the Acquisition
Condition is satisfied, then as soon as practicable after the Operative Date (as
defined in the Consent Solicitation Statement), the Company will pay to each
Holder who has delivered a valid Consent, and which Consent has not been duly
revoked, a one-time cash payment in the amount of $2.50 for each $1,000
principal amount at maturity of Notes as to which such Consent relates.
In order to be valid and effective, a Consent must (a) be properly
completed and executed and (b) have been received by The Chase Manhattan Bank
prior to the Expiration Date and not validly revoked as provided in the Consent
Solicitation Statement.
Consent Payments will be made by The Chase Manhattan Bank, on behalf of the
Company, by delivery of a check to the Holder at an address as it appears on the
records of the Trustee as of the Record Date. If you desire the payments to be
sent otherwise, please so indicate below.
- -----------------------------------------------------------
PAYMENT INSTRUCTIONS
(SEE INSTRUCTION 6)
To be completed ONLY if the checks for the
Consent Payments are to be issued in the name of
someone OTHER than the registered Holder(s) of the
Notes. Please give a full address to which the checks
for the Consent Payments should be sent.
Issue checks to:
Name:______________________________________________________
(Please Print)
Address:___________________________________________________
___________________________________________________________
(Including Zip Code)
___________________________________________________________
(Taxpayer Identification or
Social Security Number
(Complete Form W-9)
___________________________________________________________
- -----------------------------------------------------------
PAYMENT INSTRUCTIONS
(SEE INSTRUCTION 6)
To be completed ONLY if the checks for the
Consent Payments, issued in the name of
undersigned, are to be sent to someone other than the
undersigned at any address other than that shown below
the undersigned's signature.
Name:______________________________________________________
(Please Print)
Address:___________________________________________________
___________________________________________________________
(Including Zip Code)
___________________________________________________________
(Taxpayer Identification or
Social Security Number
(Complete Form W-9)
___________________________________________________________
C-5
<PAGE>
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a U.S. Holder (as defined in the Consent
Solicitation Statement) whose Consent is given for payment is required by law to
provide the Company (as payer) with such U.S. Holder's correct Taxpayer
Identification Number (TIN) on Substitute Form W-9 below (or other applicable
form or statement specified by the United States Treasury Department regulations
in lieu thereof). If such Holder is an individual, the TIN is his or her social
security number. If the Company is not provided with the correct TIN, a $50
penalty may be imposed by the Internal Revenue Service, and Consent Payments
will be subject to backup withholding.
Certain U.S. Holders (including, among others, corporations) are not
subject to these backup withholding and reporting requirements. Exempt Holders
should indicate their exempt status on Substitute Form W-9. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payments made to the U.S. Holder or other payee. Backup withholding is not
an additional tax; any amounts so withheld may be credited against the U.S.
Federal income tax liability of the Holder subject to the withholding. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made with respect to Consents,
the Holder is required to notify the Company of such Holder's correct TIN by
completing the form below, certifying that the TIN provided on the Substitute
Form W-9 is correct and that (a) such Holder is exempt from backup withholding,
(b) such Holder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest or
dividends or (c) the Internal Revenue Service has notified such Holder that such
Holder is no longer subject to backup withholding.
What Number to Provide
The Holder is required to give the Company the TIN (i.e., social security
number or employer identification number) of the registered Holder of the Notes
tendered hereby. If the Notes are held in more than one name or are not held in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance.
Non-United States Holders
Consent Payments made to Non-United States Holders (as defined in the
Consent Solicitation Statement) will be subject to withholding at a 30% rate
unless the Holder provides the Company with a properly executed IRS Form 4224
(with respect to Consent Payments that are effectively connected with a U.S.
trade or business of the Holder) or a properly executed IRS Form 1001 (with
respect to Consent Payments that are subject to reduced withholding tax rates
under a tax treaty).
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<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: Omega Cabinets, Ltd.
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN ______________________
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW
OR
___________________________
Employer Identification Number
-------------------------------------------------------------------------------------------
Part 2-Certification Part 3
Under penalties of perjury, I certify that: Awaiting TIN [_]
(1) the number shown on this form is my
correct Taxpayer Identification Number
(or I am waiting for a number to be
issued to me); and
-----------------------------------------
(2) I am not subject to backup withholding Part 4
because (a) I am exempt from backup
withholding, (b) I have not been notified Exempt [_]
by the IRS that I am subject to backup
withholding as a result of failure to
report all interest or dividends or (c) the
IRS has notified me that I am no longer
subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------------------
Department of Certification instructions-You must cross out item (2) in Part 2 above if you have been
Treasury Internal notified by the IRS that you are subject to backup withholding because of underreporting
Revenue Service interest or dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from the IRS
Payee's Request for stating that you are no longer subject to backup withholding, do not cross out item (2). If
Taxpayer you are exempt from backup withholding, check the box in Part 4 above.
Identification Number
(TIN)
Please fill in your
name and address
below.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
SIGNATURE_________________________ _________________________________________
DATE
NAME____________________________________________________________________________
ADDRESS_________________________________________________________________________
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE CONSENT SOLICITATION.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FROM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
C-7
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future.
__________________________________________________ ___________________, 1999
Signature Date
- --------------------------------------------------------------------------------
C-8
<PAGE>
INSTRUCTIONS FOR CONSENTING HOLDERS
FORMING PART OF THE TERMS AND CONDITIONS OF THE CONSENT
1. Delivery of This Consent. Subject to the terms and conditions of the
Consent Solicitation Statement, a properly completed and duly executed copy of
this Consent and any other documents required by this Consent must be received
by the Depositary at its address or facsimile number set forth above prior to
5:00 p.m. New York City time, on January 25, 1999, or such later date as the
Expiration Date of the Consent Solicitation may be extended to, in order for the
Holder to receive Consent Payments, if made. Each Holder delivering a Consent
should also deliver, together with the Consent, a Substitute Form W-9 (or
facsimile thereof or other applicable form or statement specified by the United
States Treasury Department regulations in lieu thereof). The method of delivery
of this Consent and all other required documents to the Depositary is at the
election and risk of the Holder, but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Depositary. In
all cases, sufficient time should be allowed to assure timely delivery. No
Consent should be sent to any person other than The Chase Manhattan Bank. In no
event should you deliver or tender any Notes.
2. Questions Regarding Validity, Form, Legality, etc. All questions as
to the validity, form, eligibility (including time of receipt) and acceptance of
Consents and revocation will be resolved by the Company in its sole discretion,
whose determination will be final and binding subject only to the review and
approval of The Chase Manhattan Bank with respect to proof of execution and
ownership. The Company reserves the right to reject any and all Consents not
validly given or any Consents the acceptance of which could, in the opinion of
the Company or its counsel, be unlawful. The Company also reserves the right
(subject to such review and approval of the Depositary) to waive any defects,
irregularities or conditions of delivery as to particular Consents. Unless
waived, all such defects or irregularities must be cured prior to the Expiration
Date. Neither the Company, the Depositary nor any other person shall be under
any duty to give such notification. Consents will not be deemed to have been
properly given until all defects and irregularities have been cured or waived.
The Company's interpretations of the terms and conditions of this Consent
Solicitation shall be conclusive and binding. After the Effective Date, all
holders, including non-consenting holders and all subsequent holders, of the
Notes will become bound by the Proposed Amendments (to the extent they become
operative).
3. Holders Entitled to Consent. Only a registered Holder as of the
Record Date (or his or her representative or attorney-in-fact) or a beneficial
owner who has complied with the procedures set forth in the next sentence may
deliver a Consent. Any beneficial owner of Notes who is not the registered
Holder must arrange with such registered Holder to execute and deliver this
Consent on his or her behalf by executing and returning the form accompanying
the letter to clients or must have his or her Notes registered in his or her own
name and execute and deliver this Consent himself or herself. Consents by DTC
Participants whose Notes are registered in the name of Cede & Co. should be
signed in the manner in which their names appear on the position listing of Cede
& Co. with respect to the Notes. Under the Indenture, a Consent by a registered
Holder is a continuing consent notwithstanding that registered ownership of such
Notes has been transferred subsequent to the date of the Consent, unless the
registered Holder validly revokes the Consent.
4. Signatures on This Consent: Guarantee of Signatures. All signatures
on this Consent must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States, in either case that is a participant in a recognized
signature guaranty medallion program (an "Eligible Institution"). However,
signature need not be guaranteed if this Consent is given for the account of an
Eligible Institution.
If this Consent is signed by the registered Holder(s) of the Notes with
respect to which this Consent is given, the signature must correspond with the
names as contained on the books of the register maintained by the Trustee,
without alteration, enlargement or any change whatsoever. If this Consent is
signed by a DTC Participant, the signature must correspond with the names
indicated in the position listing of Cede & Co.
If any of the Notes with respect to which this Consent is given are owned
of record by two or more joint owners, all such owners must sign this Consent.
If any Notes with respect to which this Consent is given are held in different
names, it will be necessary to complete, sign and submit as many separate copies
of this Consent and any necessary accompanying documents as there are names in
which Notes are held.
C-9
<PAGE>
If this Consent is 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, unless waived by the Company, evidence satisfactory to the Company
of their authority so to act must be submitted with this Consent.
5. Revocation of Consent. Consents may be revoked only prior to the
Effective Date by the registered Holder who submits a Consent or a subsequent
holder of such Notes if accompanied by evidence satisfactory to the Company and
the Depositary that the holder revoking such Consent has the power to revoke
such Consent. Such person may revoke such Consent by delivering written notice
of such revocation to the Depositary at any time prior to the Effective Date or,
in certain circumstances described in the Consent Solicitation Statement, after
the Effective Date. To be valid, any such notice of revocation must indicate the
certificate number or numbers of the Notes to which it relates and the aggregate
principal amount at maturity represented by such Notes and must be signed by the
Holder(s) in the same manner as the original Consent or be accompanied by
evidence satisfactory to the Company and the Depositary that the holder revoking
such Consent has the power to revoke such Consent. Holders of Notes delivering
Consents delivered after the Effective Date, but on or prior to the Expiration
Date, will nonetheless be entitled to receive Consent Payments. The Company
intends to enter into the Supplemental Indenture as soon as practicable after
the Requisite Consents have been received. After the Supplemental Indenture has
been executed, no Consent by a Holder may be revoked. Notwithstanding the
foregoing, if the Company modifies the terms of the Consent Solicitation in a
manner that is, in the aggregate, materially adverse to the Holders of Notes,
the Company will provide at least two business days' notice thereof by press
release or other public announcement or by written notice to the Holders, with
the opportunity for Holders to revoke their Consents during such notice period
even if the Effective Date has occurred.
6. Payment and Delivery Instructions. Holders should indicate, in the
applicable box or boxes, the name and address to which the checks for any
Consent Payments are to be issued or sent, if different from the name and
address of the Holder as it appears in the records of the Depositary as of the
Record Date. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
7. Transfer Taxes. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the giving of this Consent.
If, however, payment of any Consent Payment is to be made to any person other
than the registered Holder, or if the Notes with respect to which this Consent
is given are registered in the name of any person other than the person signing
this Consent, or if a transfer tax is imposed for any reason other than the
giving of this Consent to the Company pursuant to the Consent Solicitation
Statement, then the amount of any such transfer taxes (whether imposed on the
registered Holder or on any other person) will be payable by the consenting
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with this Consent, the amount of transfer taxes will be
deducted from the Consent Payments.
C-10
<PAGE>
The Financial Advisor is:
CIBC Oppenheimer Corp.
425 Lexington Avenue
3rd Floor
New York, New York 10017
Contact Person: Jay Hegenbart
Telephone: (212) 855-4487
Facsimile: (212) 855-4941
C-11
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Condensed Consolidated Financial Data of Omega Cabinets, Ltd.
(Unaudited)................................................................... F-2
Pro Forma Condensed Consolidated Balance Sheet as of
November 21, 1998............................................................. F-3
Pro Forma Condensed Consolidated Statement of Income Data for the
year ended December 27, 1997.................................................. F-6
Pro Forma Condensed Consolidated Statement of Income Data for the
eleven months ended November 21, 1998......................................... F-7
Pro Forma Condensed Consolidated Statement of Income Data for the
trailing twelve months ended November 21, 1998................................ F-8
Condensed Consolidated Financial Statements of Omega Cabinets, Ltd.
(Unaudited)
Condensed Consolidated Balance Sheet as of November 21, 1998................... F-10
Condensed Consolidated Statements of Income for the eleven months
ended November 21, 1998 and November 22, 1997................................. F-11
Condensed Consolidated Statements of Cash Flows for the eleven months
ended November 21, 1998 and November 22, 1997................................. F-12
Notes to Condensed Consolidated Financial Statements........................... F-13
Consolidated Financial Statements of Kitchen Craft of Canada Ltd............... F-15
Auditors' Report............................................................... F-16
Consolidated Balance Sheets as of December 31, 1997 and 1996................... F-17
Consolidated Statements of Income and Retained Earnings for
the years ended December 31, 1997, 1996 and 1995.............................. F-18
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.............................................. F-19
Notes to Consolidated Financial Statements..................................... F-20
Consolidated Financial Statements of Kitchen Craft of Canada Ltd. (Unaudited)
Unaudited Consolidated Balance Sheet as of November 30, 1998................... F-28
Unaudited Consolidated Statement of Income for the eleven months
ended November 30, 1998 and 1997.............................................. F-29
Unaudited Consolidated Statement of Cash Flows for the eleven months
ended November 30, 1998 and 1997.............................................. F-30
Notes to Unaudited Consolidated Financial Statements........................... F-31
</TABLE>
F-1
<PAGE>
Pro Forma Condensed Consolidated Financial Data
The following unaudited Pro Forma Condensed Consolidated Financial Data is based
on the historical consolidated financial information of the Company, adjusted to
give effect to the pro forma adjustments described in the notes herein. The Pro
Forma Condensed Consolidated Balance Sheet gives effect to the acquisition of
Kitchen Craft, and the related debt and equity financing as described elsewhere
in this Consent Solicitation Statement, as though the transactions had occurred
on November 21, 1998 (Omega's most recent balance sheet date). The Pro Forma
Condensed Consolidated Statement of Income Data gives effect to the acquisition
of Kitchen Craft and the related financing as though the transactions had
occurred at the beginning of each of the respective reporting periods presented.
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 is not necessarily indicative of the
Company's financial position or 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 financial
position or 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 included
in its 1997 Annual Report on Form 10-K, its condensed consolidated financial
statements included elsewhere herein, and other information contained in this
Consent Solicitation Statement and the Company's 1997 Annual Report on Form
10-K.
The acquisition will be accounted for using the purchase method of accounting.
The total purchase price will be allocated to the tangible and intangible assets
and the liabilities of Kitchen Craft based upon their respective fair values.
The allocation of the aggregate purchase price included in the unaudited Pro
Forma Condensed Consolidated Financial Data is preliminary. However, the Company
does not expect that the final allocation of the purchase price will materially
alter the pro forma financial position and results of operations appearing in
the following pages.
F-2
<PAGE>
Pro Forma Condensed Consolidated Balance Sheet
(in thousands of U. S. dollars)
<TABLE>
<CAPTION>
Historical
Historical Omega Kitchen Craft Pro Forma Pro Forma Omega
November 21, 1998 November 30, 1998 Adjustments November 21, 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 297 $ 3,660 $(3,660)(1) $ 297
Accounts receivable 16,952 8,149 25,101
Inventories 12,218 4,433 400 (2) 17,051
Other current assets 1,646 277 1,923
------------------------------------------------------------------------------
Total current assets 31,113 16,519 (3,260) 44,372
Property, plant and equipment, less
accumulated depreciation 28,385 7,011 2,800 (3) 38,196
Goodwill, net 51,539 44,082 (4) 95,621
Deferred financing costs, net 5,414 1,148 (5) 6,562
Other assets 713 713
------------------------------------------------------------------------------
Total assets $117,164 $23,530 $44,770 $185,464
==============================================================================
Liabilities and stockholder's equity
(deficit)
Current liabilities:
Accounts payable and accrued
expenses $ 20,757 $ 8,010 $(2,100)(6) $ 26,667
Current portion of long-term debt 4,875 400 650 (7) 5,925
------------------------------------------------------------------------------
Total current liabilities 25,632 8,410 (1,450) 32,592
Other noncurrent liabilities 825 397 799 (8) 2,021
Long-term debt, less current portion 132,125 2,742 39,965 (7) 174,832
------------------------------------------------------------------------------
Total liabilities 158,582 11,549 39,314 209,445
Stockholder's equity (deficit) (41,418) 11,981 5,456 (9) (23,981)
------------------------------------------------------------------------------
Total liabilities and stockholder's
equity (deficit) $117,164 $23,530 $44,770 $185,464
==============================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet
(in thousands of U. S. dollars)
Pro forma adjustments include adjustments necessary to complete the acquisition.
Sources and uses of cash in connection with the transaction are as follows:
Cash sources:
Additional equity financing $17,437
Additional debt financing:
Revolving facility 4,281
Term facilities 39,476
--------
Total cash sources $61,194
========
Cash uses:
Aggregate consideration to acquire Kitchen Craft $57,246
Transaction fees and expenses 3,948
--------
Total cash uses $61,194
========
A description of pro forma adjustments is as follows:
(1) Kitchen Craft cash balances are excluded from assets to be acquired.
(2) To increase certain inventories to fair value, representing estimated
selling price less the cost of reasonable profit margin.
(3) To increase acquired property, plant and equipment assets to estimated fair
value.
(4) To increase goodwill for the excess of cost of acquisition over the
allocated fair value of the underlying tangible net assets as follows:
Estimated purchase price $60,046
Fair value of underlying tangible net assets acquired 15,964
--------
Excess of cost of acquisition over the allocated fair value
of the underlying tangible net assets $44,082
========
(5) Deferred financing costs consist of fees and expenses relating to financing
arrangements in connection with the acquisition.
(6) The adjustment consists of:
Certain payable amounts excluded from the acquisition which
will not be assumed $(2,600)
Accruals necessary to conform certain Kitchen Craft
accounting policies to Omega policies 500
--------
Net pro forma adjustment $(2,100)
========
F-4
<PAGE>
Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet (continued)
(in thousands of U. S. dollars)
(7) The adjustments to long-term debt, including current portion, consist of:
Proceeds from new bank credit facilities $ 43,757
Repayment of existing Kitchen Craft long-term debt (3,142)
--------
Pro forma adjustments to current and noncurrent
long-term debt $ 40,615
========
(8) The adjustment consists of:
Certain liabilities excluded from the acquisition $ (301)
Deferred tax liabilities provided for basis differences of
acquired net assets 1,100
--------
$ 799
========
(9) The adjustment represents the net change to stockholder's equity as a result
of the acquisition and related financing:
Proceeds from new Omega equity financing $ 17,437
To eliminate historical Kitchen Craft equity (11,981)
--------
Net pro forma adjustment $ 5,456
========
F-5
<PAGE>
Pro Forma Condensed Consolidated
Statement of Income Data (Unaudited)
(in thousands of U. S. dollars)
<TABLE>
<CAPTION>
Historical Historical
Omega for the Kitchen Craft for Pro Forma Omega
year ended the year ended Pro Forma for the year ended
December 27, 1997 December 31, 1997 Adjustments December 27, 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $155,898 $61,151 $ - $217,049
Cost of goods sold 112,556 43,964 140 (1) 156,660
------------------------------------------------------------------------------------
Gross profit 43,342 17,187 (140) 60,389
Selling, general and administrative
expenses 22,171 13,354 (347)(2) 35,178
Amortization of goodwill 1,398 - 1,102 (3) 2,500
------------------------------------------------------------------------------------
Operating income 19,773 3,833 (895) 22,711
Interest expense 16,312 164 3,756 (4) 20,232
Other expense - 46 - 46
------------------------------------------------------------------------------------
Income before income taxes 3,461 3,623 (4,651) 2,433
Income tax expense 1,695 1,431 (1,419)(5) 1,707
------------------------------------------------------------------------------------
Net income (6) $ 1,766 $ 2,192 $(3,232) $ 726
====================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Pro Forma Condensed Consolidated
Statement of Income Data (Unaudited)
(in thousands of U. S. dollars)
<TABLE>
<CAPTION>
Historical Omega Historical Pro Forma Omega
for the eleven Kitchen Craft for for the eleven
months ended the eleven months Pro Forma months ended
November 21, 1998 ended November 30, 1998 Adjustments November 21, 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $153,153 $62,644 $ $215,797
Cost of goods sold 109,924 41,999 128 (1) 152,051
-----------------------------------------------------------------------------------
Gross profit 43,229 20,645 (128) 63,746
Selling, general and administrative
expenses 18,237 11,841 (875)(2) 29,203
Amortization of goodwill 1,320 _ 1,010 (3) 2,330
-----------------------------------------------------------------------------------
Operating income 23,672 8,804 (263) 32,213
Interest expense 13,730 190 3,403 (4) 17,323
Other expense - 64 - 64
-----------------------------------------------------------------------------------
Income before income taxes 9,942 8,550 (3,666) 14,826
Income tax expense 3,786 3,360 (1,062)(5) 6,084
-----------------------------------------------------------------------------------
Net income $ 6,156 $ 5,190 $(2,604) $ 8,742
===================================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
Pro Forma Condensed Consolidated
Statement of Income Data (Unaudited)
(in thousands of U. S. dollars)
<TABLE>
<CAPTION>
Historical Omega Historical Pro Forma Omega
for the twelve Kitchen Craft for for the twelve
months ended the twelve months Pro Forma months ended
November 21, 1998 ended November 30, 1998 Adjustments November 21, 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $167,107 $67,362 $ - $234,469
Cost of goods sold 119,782 45,613 140 (1) 165,535
-----------------------------------------------------------------------------------
Gross profit 47,325 21,749 (140) 68,934
Selling, general and administrative
expenses 19,770 12,796 (887)(2) 31,679
Amortization of goodwill 1,439 - 1,102 (3) 2,541
-----------------------------------------------------------------------------------
Operating income 26,116 8,953 (355) 34,714
Interest expense 14,129 203 3,717 (4) 18,049
Other expense - 54 - 54
-----------------------------------------------------------------------------------
Income before income taxes 11,987 8,696 (4,072) 16,611
Income tax expense 4,219 3,413 (1,188)(5) 6,444
-----------------------------------------------------------------------------------
Net income $ 7,768 $ 5,283 $(2,884) $ 10,167
===================================================================================
</TABLE>
See accompanying notes.
F-8
<PAGE>
Notes to Unaudited Pro Forma Condensed
Consolidated Statement of Income Data
(in thousands of U. S. dollars)
(1) Represents the incremental depreciation expense as a result of the increased
cost basis of property, plant and equipment due to recording at estimated
fair value in purchase accounting.
(2) Represents a reduction of expense for past discretionary charitable
donations made to family charitable foundations of the seller, to the extent
such amounts exceed the agreed-upon future level of charitable donations.
(3) Represents the incremental amount of goodwill amortization (over a period of
40 years) as a result of the increase in goodwill attributable to the
acquisition.
(4) Represents the incremental amount of interest expense related to the
acquisition:
<TABLE>
<CAPTION>
Eleven months Twelve months
Year ended ended November ended November
December 27, 1997 21, 1998 21, 1998
----------------------------------------------------------
<S> <C> <C> <C>
Interest expense related to new debt:
Senior bank loans $3,732 $3,421 $3,732
Amortization of deferred financing costs 188 172 188
Less interest expense relating to debt to be
repaid (164) (190) (203)
----------------------------------------------------------
Pro forma adjustment $3,756 $3,403 $3,717
==========================================================
</TABLE>
Interest expense was calculated using an assumed average rate of 8.5% on the
senior bank loans for all periods presented, which approximates the average
rate which would have been in effect during the periods pursuant to the
defined rates in the new debt facilities (and based on the historical
underlying index rate during the periods).
A 0.125% increase or decrease in the assumed interest rates for the
additional borrowings related to the acquisition would change the pro forma
interest expense by $55. Pro forma net income would change by $33.
(5) Represents the income tax effect of the pro forma adjustments computed using
an effective income tax rate of 40%. No tax benefit was provided related to
the pro forma adjustment for the incremental amount of goodwill amortization
since such goodwill will not be deductible for income tax purposes.
(6) Historical net income of Omega for the year ended December 27, 1997 is shown
before the effect of an extraordinary loss on debt refinancing of $947.
F-9
<PAGE>
Omega Cabinets, Ltd.
Condensed Consolidated Balance Sheet (Unaudited)
November 21, 1998
(in thousands)
Assets
Current assets:
Cash $ 297
Accounts receivable 16,952
Inventories (Note 2) 12,218
Other current assets 1,646
--------
Total current assets 31,113
Property, plant and equipment 35,863
Less accumulated depreciation (7,478)
--------
28,385
Deferred financing costs, net 5,414
Goodwill, net 51,539
Other assets 713
--------
Total assets $117,164
========
Liabilities and stockholder's equity (deficit)
Current liabilities:
Accounts payable and accrued expenses $ 20,757
Current portion of long-term debt 4,875
--------
Total current liabilities 25,632
Long-term debt, less current portion 132,125
Other noncurrent liabilities 825
Stockholder's equity (deficit):
Common stock, $.01 par value; 10,000 shares authorized,
1,000 shares issued and outstanding 10
Additional paid-in capital 60,594
Predecessor basis adjustment (11,032)
Retained earnings (deficit) (Note 3) (90,990)
--------
Total stockholder's equity (deficit) (41,418)
--------
Total liabilities and stockholder's equity (deficit) $117,164
========
See accompanying notes.
F-10
<PAGE>
Omega Cabinets, Ltd.
Condensed Consolidated Statements of Income (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Eleven months ended
November 21 November 22
1998 1997
----------------------------------
<S> <C> <C>
Net sales $153,153 $141,945
Cost of goods sold 109,924 102,698
----------------------------------
Gross profit 43,229 39,247
Selling, general and administrative expenses (Note 4) 18,237 20,638
Amortization of goodwill 1,320 1,279
----------------------------------
Operating income 23,672 17,330
Interest expense 13,730 14,966
----------------------------------
Income before income taxes and extraordinary item 9,942 2,364
Income tax expense 3,786 1,262
----------------------------------
Income before extraordinary item 6,156 1,102
Extraordinary loss on debt refinancing (Note 5) - (947)
----------------------------------
Net income $ 6,156 $ 155
==================================
</TABLE>
See accompanying notes.
F-11
<PAGE>
Omega Cabinets, Ltd.
Condensed Consolidated Statements
of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Eleven months ended
November 21 November 22
1998 1997
--------------------------------------
<S> <C> <C>
Operating activities
Net income $ 6,156 $ 155
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss - 947
Depreciation and amortization 4,215 3,692
Noncash stock option and warrant expense - 5,481
Deferred income taxes 475 385
(Gain) loss on asset disposal 18 -
Changes in operating assets and liabilities:
Accounts receivable (15) (4,597)
Inventories (721) (1,878)
Other assets (43) 1,963
Accounts payable, accrued expenses and other
liabilities 7,356 (1,165)
--------------------------------------
Net cash provided by operating activities 17,441 4,983
Investing activities
Purchases of property, plant, and equipment (3,368) (2,475)
Additions to goodwill - (2,450)
--------------------------------------
Net cash used in investing activities (3,368) (4,925)
Financing activities
Payments for deferred financing costs (227) (8,119)
Payments of long-term debt (10,050) (186,311)
Proceeds from long-term debt 930 246,670
Capital contribution by parent 119 62,248
Payments to parent to redeem common stock and
options at parent level (4,551) (114,546)
--------------------------------------
Net cash provided (used) by financing activities (13,779) (58)
--------------------------------------
Net increase in cash 294 -
Cash at beginning of period 3 3
--------------------------------------
Cash at end of period $ 297 $ 3
======================================
</TABLE>
See accompanying notes.
F-12
<PAGE>
Omega Cabinets, Ltd.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
November 21, 1998
(in thousands)
1. Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated 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 eleven month period ended November 21, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 2, 1999. For further information, refer to the Company's
consolidated financial statements and footnotes thereto for the year ended
December 27, 1997.
2. Inventories
Inventories consist of the following at November 21, 1998:
Raw materials $ 4,652
Work-in-process 4,712
Finished goods 2,854
---------
$12,218
=========
3. Capital Transactions
During 1998, the Company's parent paid a final defined post-closing adjustment
of $2,200 for the redemption of stock and options in connection with its 1997
merger and recapitalization. As with the original redemption cost (all of which
was pushed down and reflected by the Company), the Company has charged the
amount to retained earnings during 1998.
In May and November 1998, the Company's parent redeemed an aggregate of
approximately $2,350 of the parent's common stock and options, which the Company
in turn paid to the parent and charged to additional paid-in capital during
1998.
F-13
<PAGE>
Omega Cabinets, Ltd.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
4. Selling, General and Administrative Expenses
Selling, general and administrative expenses in the eleven months ended November
22, 1997 include compensation expense related to stock options of $4,894 and
stock warrant expense of $587 (none in the eleven months ended November 21,
1998).
In the eleven months ended November 21, 1998, certain nonrecurring expenses were
incurred which included $750 initial expenses for a potential acquisition which
did not occur, and $270 of certain senior management severance costs.
5. Extraordinary Loss
As a result of its 1997 merger and recapitalization, the Company wrote off
existing unamortized deferred financing costs of $1,554 in June 1997, resulting
in an extraordinary loss of $947 (net of related income tax benefit of $607).
6. Subsidiary Debt Guarantee
The Company's senior subordinated notes in aggregate principal amount of $100
million are fully and unconditionally guaranteed by Panther Transport, Inc.
("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 accounts and
transactions represent less than 1% of each 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-14
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
KITCHEN CRAFT OF CANADA LTD.
December 31, 1997
F-15
<PAGE>
AUDITORS' REPORT
To the Directors of
Kitchen Craft of Canada Ltd.
We have audited the consolidated balance sheets of Kitchen Craft of Canada Ltd.
as at December 31, 1997 and 1996, and the consolidated statements of income and
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1997. 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 auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1997
and 1996, and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1997
in accordance with accounting principles generally accepted in Canada.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chartered Accountants
Winnipeg, Canada,
February 13, 1998
F-16
<PAGE>
Kitchen Craft of Canada Ltd.
Incorporated under the Canada Business Corporations Act
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31
1996 1997
Cdn.$ Cdn.$
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS [note 4]
Current
Cash 1,240,272 851,012
Receivables 7,807,033 10,205,737
Inventories [note 2] 5,232,619 8,538,149
Prepaid expenses 470,921 430,645
- --------------------------------------------------------------------------------
Total current assets 14,750,845 20,025,543
Fixed [notes 3 and 7] 9,043,406 10,152,816
- --------------------------------------------------------------------------------
23,794,251 30,178,359
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness [note 4] -- 3,836,307
Accounts payable and accrued liabilities 5,815,126 8,926,582
Note payable - Buller Foundation [note 5] 400,000 --
Income taxes payable 910,281 90,089
Due to shareholder [note 6] 51,671 500,000
Due to EPSP Trust 1,000,000 53,000
Current portion of long-term debt [note 7] 600,327 599,172
Current portion of obligation under capital leases 8,020 --
- --------------------------------------------------------------------------------
Total current liabilities 8,785,425 14,005,150
Long-term debt [note 7] 4,199,658 3,598,866
Deferred income taxes 109,690 147,690
- --------------------------------------------------------------------------------
13,094,773 17,751,706
- --------------------------------------------------------------------------------
Non-controlling interest 302,558 366,151
- --------------------------------------------------------------------------------
Commitments [note 10]
Shareholders' equity
Share capital [note 8] 2,674 2,674
Retained earnings 10,394,246 12,057,828
- --------------------------------------------------------------------------------
10,396,920 12,060,502
- --------------------------------------------------------------------------------
23,794,251 30,178,359
================================================================================
</TABLE>
See accompanying notes
F-17
<PAGE>
Kitchen Craft of Canada Ltd.
CONSOLIDATED STATEMENTS OF
INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31
1995 1996 1997
Cdn.$ Cdn.$ Cdn.$
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 57,833,639 72,151,966 84,630,195
Cost of sales 38,479,041 46,551,368 59,329,081
- --------------------------------------------------------------------------------
Gross margin 19,354,598 25,600,598 25,301,114
- --------------------------------------------------------------------------------
Expenses
Selling and administrative 14,003,953 18,166,270 18,480,654
Depreciation and amortization 1,117,223 1,455,109 1,516,021
Interest - short-term 170,810 140,782 98,620
Interest - long-term 185,262 191,977 127,338
- --------------------------------------------------------------------------------
15,477,248 19,954,138 20,222,633
- --------------------------------------------------------------------------------
Income before income taxes and
non-controlling interest 3,877,350 5,646,460 5,078,481
- --------------------------------------------------------------------------------
Income taxes
Current 1,486,789 2,310,844 1,943,310
Deferred 85,800 (23,175) 38,000
- --------------------------------------------------------------------------------
1,572,589 2,287,669 1,981,310
- --------------------------------------------------------------------------------
Income before non-controlling interest 2,304,761 3,358,791 3,097,171
Non-controlling interest in income
of subsidiary (91,023) (33,254) (63,593)
- --------------------------------------------------------------------------------
Net income for the year 2,213,738 3,325,537 3,033,578
Retained earnings, beginning of year 5,758,157 7,971,895 10,394,246
- --------------------------------------------------------------------------------
7,971,895 11,297,432 13,427,824
- --------------------------------------------------------------------------------
Deduct
Dividends paid on common shares -- 723,254 1,190,064
Dividends paid on preferred shares -- 179,932 179,932
- --------------------------------------------------------------------------------
-- 903,186 1,369,996
- --------------------------------------------------------------------------------
Retained earnings, end of year 7,971,895 10,394,246 12,057,828
================================================================================
</TABLE>
See accompanying notes
F-18
<PAGE>
Kitchen Craft of Canada Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
1995 1996 1997
Cdn.$ Cdn.$ Cdn.$
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the year 2,213,738 3,325,537 3,033,578
Add charges (deduct credits) to operations not
requiring a current cash payment
Depreciation and amortization 1,117,223 1,455,109 1,516,021
Loss (gain) on disposal of fixed assets 34,210 (1,528) (1,268)
Deferred income taxes 85,800 (23,175) 38,000
Non-controlling interest in income 91,023 33,254 63,593
- ----------------------------------------------------------------------------------------
3,541,994 4,789,197 4,649,924
Net change in non-cash working capital
balances related to operations [note 12] (1,578,478) (124,993) (4,719,694)
- ----------------------------------------------------------------------------------------
Cash provided by (used in)
operating activities 1,963,516 4,664,204 (69,770)
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds on disposition of fixed assets -- 30,644 21,760
Purchase of fixed assets - net of investment
tax credits of Cdn.$175,061
[1996 - Cdn.$312,711; 1995 - Cdn.$68,924] (2,690,530) (3,503,943) (2,645,923)
Decrease in other assets 713 -- --
- ----------------------------------------------------------------------------------------
Cash used in investing activities (2,689,817) (3,473,299) (2,624,163)
- ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Advances from (to) shareholders 1,129,655 (1,077,984) 448,329
Increase (decrease) in long-term debt (591,612) 2,878,154 (601,947)
Decrease in obligation under capital lease (54,715) (20,202) (8,020)
Investment by minority shareholders -- 57,982 --
Dividends paid on common shares -- (723,254) (1,190,064)
Dividends paid on preferred shares -- (179,932) (179,932)
- ----------------------------------------------------------------------------------------
Cash provided by (used in)
financing activities 483,328 934,764 (1,531,634)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash
during the year (242,973) 2,125,669 (4,225,567)
Cash position, beginning of year (642,424) (885,397) 1,240,272
- ----------------------------------------------------------------------------------------
Cash position, end of year (885,397) 1,240,272 (2,985,295)
========================================================================================
Cash position consists of
Cash -- 1,240,272 851,012
Bank indebtedness (885,397) -- (3,836,307)
- ----------------------------------------------------------------------------------------
(885,397) 1,240,272 (2,985,295)
========================================================================================
</TABLE>
See accompanying notes
F-19
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management on the historical
cost basis in accordance with accounting principles generally accepted in
Canada. These accounting principles are, in all material respects, in
accordance with those generally accepted in the United States except as
described in note 12, "Summary of Significant Differences Between Canadian and
U.S. - Generally Accepted Accounting Principles".
[a] Principles of consolidation
These consolidated financial statements include the accounts of the company
and the accounts of its subsidiaries, Bulrad Illinois Inc., Bulrad
Enterprises Inc., Kitchen Craft Cabinetry Ltd., and Mobil Enterprises
Northwest L.L.C.
[b] Inventories
Raw material inventories are valued at the lower of cost and replacement
cost. Work in progress and finished goods inventories include costs for
materials, Labour and overhead and are valued at the lower of cost and net
realizable value. Costs are determined on a first in first out [FIFO]
basis.
[c] Fixed assets and accumulated depreciation and amortization
Fixed assets are stated at cost. Depreciation is charged to income using
the diminishing balance method at the following annual rates:
Buildings 5% and 10%
Parking areas 4% and 8%
Reservoir 6% and 10%
Equipment 20% and 30%
Office furniture and equipment 20%
Trucks and trailers 30%
Leasehold improvements are being amortized on a 20% straight line basis.
[d] Income taxes
The company follows the tax allocation basis of accounting whereby the
provision for income taxes relates to the accounting income for the year.
F-20
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
[e] Advertising costs
Advertising costs are expensed as incurred.
[f] Preferred shares
The redeemable preferred shares have been accounted for as equity.
[g] Translation of foreign currencies
Foreign currency denominated balances have been translated to Canadian
dollars using the temporal method. Under this method, monetary assets and
liabilities, both current and long-term, are translated at year end rates
of exchange. Other assets and liabilities, revenues and costs are
translated at historical rates of exchange in effect at the dates of
transactions. Gains or losses on translation are included in income.
[h] Derivative financial instruments
The company enters into forward foreign exchange contracts to protect
itself from the possibility of loss should the value of the U.S. dollar
decline relative to the Canadian dollar. The company hedges using forward
foreign exchange contracts for purposes of hedging U.S. dollar denominated
sales contracts. Amounts paid or received under these derivative financial
instruments are recognized as part of sales.
2. INVENTORIES
1996 1997
$ $
- --------------------------------------------------------------------------------
Raw materials 2,784,370 5,511,203
Work in progress 945,959 1,493,149
Finished goods 1,502,290 1,533,797
- --------------------------------------------------------------------------------
5,232,619 8,538,149
================================================================================
F-21
<PAGE>
3. FIXED ASSETS
<TABLE>
<CAPTION>
1996 1997
---------------------------------- -----------------------------------
Accumulated Net book Accumulated Net book
Cost depreciation value Cost depreciation value
$ $ $ $ $ $
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land 183,155 -- 183,155 183,155 -- 183,155
Buildings 6,937,960 2,646,354 4,291,606 6,931,913 2,873,037 4,058,876
Parking areas 360,238 141,316 218,922 408,739 160,479 248,260
Reservoir 137,224 57,660 79,564 137,224 62,542 74,682
Equipment 9,796,695 6,618,183 3,178,512 11,054,804 7,409,067 3,645,737
Office
furniture
and
equipment 1,945,759 1,386,816 558,943 2,890,078 1,558,760 1,331,318
Trucks and
trailers 351,564 196,514 155,050 329,964 196,045 133,919
Leasehold
improve-
ments 709,076 331,422 377,654 1,052,993 576,124 476,869
- ------------------------------------------------------------------------------------------------
20,421,671 11,378,265 9,043,406 22,988,870 12,836,054 10,152,816
================================================================================================
</TABLE>
4. BANK INDEBTEDNESS
The company has operating credit facilities of $6,000,000.
The company's operating loan was $2,985,295 at year end. Interest is payable at
prime. The company has provided the following as collateral for the operating
loan:
[a] General assignment of accounts receivable;
[b] General security agreement over all assets;
[c] $2,000,000 demand debenture providing a second fixed charge on the
company's premises and a first floating charge on all other assets;
[d] Guarantee from Bulrad Illinois Inc. secured by security agreement;
[e] Assignment of fire and other perils insurance.
5. NOTE PAYABLE
The note bears interest at prime plus 1%, payable upon demand.
F-22
<PAGE>
6. DUE TO SHAREHOLDER
The advance is non-interest bearing with no specific repayment terms.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1997
$ $
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Canadian Imperial Bank of Commerce mortgage payable, maturing
December 1, 1999 with interest at 6.32% per annum, principal
and interest of $21,577.57 payable monthly, with 1180
Springfield Road property and various equipment pledged as
collateral 1,790,985 1,627,538
Canadian Imperial Bank of Commerce capital loan maturing May
30, 1999 with interest at prime plus 1/2% per annum, monthly
principal payments of $35,000 1,010,000 590,000
Manitoba Industrial Opportunities Program loan, collateralized by
first charge on all new machinery and equipment purchased with
funds; second fixed charge on 1180 Springfield Road property
and various equipment, quarterly payments of $60,937 beginning
July 1, 1999; interest bearing thereafter at a yearly rate given by
Province of Manitoba to Her Crown Corporations 975,000 975,000
Manitoba Industrial Opportunities Program loan, collateralized by
first charge on all new machinery and equipment purchased with
funds, second fixed charge on 1180 Springfield Road property and
various equipment, quarterly payments of $59,375 beginning
September 1, 1999; interest bearing thereafter at a yearly rate
given by the Province of Manitoba to Her Crown Corporations 950,000 950,000
General Motors Acceptance Corporation of Canada loan
collateralized by vehicle, with monthly principal and
interest payments of $735 maturing December 27, 2000 35,279 26,460
General Motors Acceptance Corporation of Canada loan
collateralized by vehicle, with monthly principal and
interest payments of $807 maturing December 23, 2000 38,721 29,040
- ---------------------------------------------------------------------------------------------------------------
4,799,985 4,198,038
Less current portion due within one year 600,327 599,172
- ---------------------------------------------------------------------------------------------------------------
4,199,658 3,598,866
===============================================================================================================
</TABLE>
F-23
<PAGE>
7. LONG-TERM DEBT (continued)
Principal repayments on long-term debt required in each of the next five years
are as follows:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
1998 599,172
1999 580,978
2000 682,009
2001 675,368
2002 687,997
Subsequent 972,514
- --------------------------------------------------------------------------------
4,198,038
================================================================================
</TABLE>
Principal repayments of the mortgage payable has been calculated based on the
assumption that the mortgage will be renewed on the maturity date under the same
terms.
8. SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996 1997
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Authorized
7,000 12% non-cumulative, redeemable
preferred shares, issued for the maximum
aggregate consideration of $7,000
Unlimited number of common shares, issuable
for an unlimited aggregate consideration
Issued
2,624 preferred shares 2,624 2,624 2,624
5,000 common shares 50 50 50
- --------------------------------------------------------------------------------
2,674 2,674 2,674
================================================================================
</TABLE>
Preferred shares are redeemable for cancellation at the option of the company or
the holder of the shares, at a redemption value of $571.43 per share.
9. INCOME TAXES
The company has allowable capital losses in the amount of $179,860 which may be
carried forward indefinitely to reduce capital gains. The potential income tax
benefit of these losses has not been recorded in the accounts.
F-24
<PAGE>
10. COMMITMENTS
The company leases its various premises. The company is committed under the
terms of these operating leases to make the following total minimum payments:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
1998 902,409
1999 784,646
2000 625,250
2001 491,549
2002 265,555
- --------------------------------------------------------------------------------
3,069,409
================================================================================
</TABLE>
11. NET CHANGE IN NON-CASH WORKING CAPITAL
BALANCES RELATED TO OPERATIONS
<TABLE>
<CAPTION>
1995 1996 1997
$ $ $
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sources of non-cash working capital
Decrease in inventories 48,741 -- --
Decrease in prepaids -- 21,751 40,276
Increase in accounts payable 902,256 470,314 3,111,456
Increase in notes payable -- 400,000 --
Increase in income taxes payable 1,699,574 -- --
Increase in contribution payable to
EPSP Trust -- 313,330 --
- -----------------------------------------------------------------------------------
2,650,571 1,205,395 3,151,732
- -----------------------------------------------------------------------------------
Uses of non-cash working capital
Increase in receivables 2,266,155 938,100 2,398,704
Increase in inventories -- 141,187 3,305,530
Increase in prepaids 34,009 -- --
Decrease in note payable -- -- 400,000
Decrease in income taxes payable -- 251,101 820,192
Decrease in contribution payable to
EPSP Trust 1,928,885 -- 947,000
- -----------------------------------------------------------------------------------
4,229,049 1,330,388 7,871,426
- -----------------------------------------------------------------------------------
(1,578,478) (124,993) (4,719,694)
===================================================================================
</TABLE>
F-25
<PAGE>
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which, in the case of Kitchen Craft of
Canada Ltd., conform in all material respects with those in the United States
except that:
[a] Short-term bank borrowings have been presented in the consolidated
statement of cash flows as a component of cash and cash equivalents rather
than as a financing activity. If U.S. generally accepted accounting
principles had been followed, the amounts of the consolidated statement of
cash flows would be adjusted as follows:
<TABLE>
<CAPTION>
1995 1996 1997
$ $ $
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in) financing activities 242,973 (885,397) 3,836,307
Net increase (decrease) in cash during the year 242,973 (885,397) 3,836,307
Cash position, end of year -- 1,240,272 851,012
</TABLE>
[b] The interest expense for each period approximates the interest paid for
each period. The amount of income taxes paid in each period was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
$ $ $
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes paid 102,854 2,025,347 2,328,867
</TABLE>
[c] The company has a potential income tax benefit on allowable capital losses
in the amount of $179,860 which has not been recorded in the accounts. The
valuation allowance under U.S. generally accepted accounting principles is
$71,900.
[d] Under U.S. generally accepted accounting principles, the preferred shares,
which are redeemable for cash at the option of the holder would be
presented outside of shareholders' equity at their redemption amount. Upon
issuance, the redemption amount of these shares in excess of their stated
amount would have been recorded as a distribution of retained earnings. The
redemption amounts of these shares and the effect of this adjustment on the
balance sheet is as follows:
F-26
<PAGE>
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (continued)
<TABLE>
<CAPTION>
1995 1996 1997
$ $ $
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Other liabilities 11,290,834 13,094,773 17,751,706
Redeemable preferred shares -
at redemption amount 1,499,432 1,499,432 1,499,432
Shareholders' equity 6,475,137 8,897,488 10,561,070
----------------------------------------------------------------------------------
</TABLE>
[e] Comprehensive Income - Net income equals comprehensive income.
[f] The following table sets forth at the end of and for the periods indicated,
certain information concerning the closing, average, high and low exchange
rates for United States dollars ["U.S.$"] as a ratio of Canadian dollars
["Cdn.$"]. On December 31, 1997 the closing ratio of United States dollar
per Canadian dollar was .699.
<TABLE>
<CAPTION>
1995 1996 1997
$ $ $
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Ratio of U.S.$ per Cdn.$
Exchange rate at end of year .733 .729 .699
Average exchange rate during year .728 .733 .722
Highest exchange rate during year .753 .753 .749
Lowest exchange rate during year .701 .721 .691
</TABLE>
13. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
F-27
<PAGE>
UNAUDITED CONSOLIDATED BALANCE SHEET
November 30,
1998
Cdn$
- --------------------------------------------------------
ASSETS
Current
Cash 5,610,891
Receivables 12,492,451
Inventories [note 2] 6,797,582
Prepaid expenses 424,063
- --------------------------------------------------------
Total current assets 25,324,987
Fixed 25,265,635
Less accumulated depreciation 14,517,184
- --------------------------------------------------------
36,073,438
========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 12,278,578
Current portion of long-term debt 613,200
- --------------------------------------------------------
Total current liabilities 12,891,778
Long-term debt 4,204,414
Deferred income taxes 147,690
- --------------------------------------------------------
17,243,882
- --------------------------------------------------------
Non-controlling interest 461,179
Shareholders' equity
Share capital 2,674
Retained earnings 18,365,703
- --------------------------------------------------------
18,368,377
- --------------------------------------------------------
36,073,438
========================================================
See accompanying notes
F-28
<PAGE>
Kitchen Craft of Canada Ltd.
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Eleven-month period ended
November 30,
--------------------------
1997 1998
Cdn$ Cdn$
- -------------------------------------------------------------------------------------
<S> <C> <C>
Sales 77,953,473 92,468,615
Cost of sales 54,350,454 60,313,791
- -------------------------------------------------------------------------------------
Gross margin 23,603,019 32,154,824
Selling and administrative expenses 17,125,583 17,479,246
Depreciation and amortization 1,354,485 1,681,130
Interest expense 207,379 280,673
- -------------------------------------------------------------------------------------
Income before income taxes and non-controlling interest 4,915,572 12,713,775
Income taxes 1,917,073 4,958,372
Non-controlling interest in income of subsidiary (79,663) (95,028)
- -------------------------------------------------------------------------------------
Net income for the period 2,918,836 7,660,375
=====================================================================================
</TABLE>
See accompanying notes
F-29
<PAGE>
Kitchen Craft of Canada Ltd.
UNAUDITED CONSOLIDATED STATEMENT OF
CASH FLOWS
<TABLE>
<CAPTION>
Eleven-month period ended
November 30,
---------------------------
1997 1998
Cdn$ Cdn$
- ---------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income for the period 2,918,836 7,660,375
Add charges to operations not requiring a
current cash payment
Depreciation and amortization 1,354,485 1,681,130
Non-controlling interest in income of subsidiary 79,663 95,028
- ---------------------------------------------------------------------------------
4,352,984 9,436,533
Changes in operating assets and liabilities
Receivables (4,115,401) (2,286,714)
Inventories (3,589,265) 1,740,567
Prepaid expense 64,344 6,582
Accounts payable and accrued liabilities 3,199,907 2,708,907
- ---------------------------------------------------------------------------------
Net cash provided by operating activities (87,431) 11,605,875
- ---------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (2,608,139) (2,276,765)
- ---------------------------------------------------------------------------------
Net cash used in investing activities (2,608,139) (2,276,765)
- ---------------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease) increase in long-term debt (519,707) 619,575
Dividends (1,179,616) (1,352,500)
- ---------------------------------------------------------------------------------
Net cash used in financing activities (1,699,323) (732,425)
- ---------------------------------------------------------------------------------
Net increase (decrease) in cash during the period (4,394,893) 8,596,185
Cash position, beginning of period 1,240,272 (2,985,294)
- ---------------------------------------------------------------------------------
Cash position, end of period (3,154,621) 5,610,891
=================================================================================
</TABLE>
See accompanying notes
F-30
<PAGE>
Kitchen Craft of Canada Ltd.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(All Amounts are in Cdn$)
November 30, 1998
1. ACCOUNTING POLICY
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in Canada for
interim financial information. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
[consisting of normal recurring accruals] considered necessary for a fair
presentation have been included. Operating results for the eleven-month period
ended November 30, 1998 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 1998. For further
information, refer to the company's audited consolidated financial statements
and notes thereto for the year ended December 31, 1997 included elsewhere in the
Form 8-K. These accounting principles are, in all material respects, in
accordance with those generally accepted in the United States except as
described in note 3, "Summary of Significant Differences Between Canadian and
U.S. Generally Accepted Accounting Principles".
2. INVENTORIES
Inventories consist of the following:
November 30,
1998
- -------------------------------
Raw materials 3,068,074
Work-in-process 1,368,465
Finished goods 2,361,043
- -------------------------------
6,797,582
- -------------------------------
3. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which, in the case of Kitchen Craft of
Canada Ltd. conform in all material respects with those in the United States
except that:
F-31
<PAGE>
Kitchen Craft of Canada Ltd.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(All Amounts are in Cdn$)
November 30, 1998
3. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (continued)
[a] Short-term bank borrowings have been presented in the consolidated
statement of cash flows as a component of cash and cash equivalents
rather than as a financing activity. If U.S. generally accepted
accounting principles had been followed, the amounts on the
consolidated statement of cash flows would be adjusted as follows:
Eleven-month
period ended
November 30, 1998
- ----------------------------------------------------------------
Cash provided by financing activities (3,836,307)
Net increase in cash during the period (3,836,307)
Cash position, end of year 5,610,891
[b] The interest expense for each period approximates the interest paid
for each period. The amount of income taxes paid in each period was as
follows:
Eleven-month
period ended
November 30, 1998
- ----------------------------------------------------------------
Income taxes paid 368,366
[c] Under U.S. generally accepted accounting principles, the preferred
shares, which are redeemable for cash at the option of the holder
would be presented not as shareholder's but outside of shareholders'
equity at their redemption amount. Upon issuance, the redemption
amount of these shares in excess of their stated amount would have
been recorded as a distribution of retained earnings. The redemption
amounts of these shares and the effect of this adjustment on the
balance sheet is as follows:
Eleven-month
period ended
November 30, 1998
- ----------------------------------------------------------------
Other liabilities 17,243,882
Redeemable preferred shares -
redemption amount 1,499,432
Total liabilities 18,743,314
Shareholders' equity 16,868,945
F-32
<PAGE>
Kitchen Craft of Canada Ltd.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(All Amounts are in Cdn$)
November 30, 1998
3. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (continued)
[d] Comprehensive income - In the period, net income equals
comprehensive income.
[e] The following table sets forth at the end of and for the periods
indicated, certain information concerning the closing, average, high
and low exchange rates for United States Dollars ["US$"] as a ratio of
Canadian Dollars ["Cdn$"]. On November 30, 1998, the closing ratio of
United States Dollar per Canadian Dollar was .652.
Eleven-month period
ended November 30,
-------------------
1997 1998
- ------------------------------------------------------------------
Ratio of US$ per Cdn$
Exchange rate at end of period .703 .652
Average exchange rate during the period .724 .677
Highest exchange rate during period .749 .712
Lowest exchange rate during period .701 .631
4. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
F-33
<PAGE>
HOLDERS WHO WISH TO CONSENT AND RECEIVE THE CONSENT PAYMENT SHOULD DELIVER, BY
REGULAR MAIL, AIR COURIER, MESSENGER OR FACSIMILE, THEIR PROPERLY COMPLETED,
EXECUTED AND DATED CONSENT FORMS (TOGETHER WITH THE COMPLETED FORM W-9 ATTACHED
THERETO) TO THE DEPOSITARY IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN
AND THEREIN. ALL FACSIMILE TRANSMISSIONS MUST BE FOLLOWED BY DELIVERY OF
ORIGINALLY EXECUTED CONSENTS. THE METHOD OF DELIVERY OF ALL DOCUMENTS,
INCLUDING CONSENTS, IS AT THE ELECTION AND RISK OF THE HOLDER. THE ADDRESS OF
THE DEPOSITARY IS AS FOLLOWS:
Via First Class Mail or By Hand or Overnight Delivery:
The Chase Manhattan Bank
c/o Chase Bank of Texas, N.A.
Corporate Trust Services
1201 Main Street
18th Floor
Dallas, Texas 75202
Attention: Mr. Frank Ivins
Facsimile Transmission:
(214) 672-5746
(Originally executed Consents must follow)
Confirm by Telephone:
(214) 672-5678
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS SOLICITATION OF CONSENTS OTHER THAN AS
SET FORTH HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE DELIVERY OF
THIS CONSENT SOLICITATION STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AFTER THE DATE HEREOF.
Any questions or requests for assistance in filling out and delivering
Consents or for additional copies of this Consent Solicitation Statement or the
form of Consent may be directed to the Financial Advisor at its telephone number
and location set forth below. You may also contact your broker, dealer,
commercial bank or trust company or other nominee for assistance relating to the
Consent Solicitation.
The Financial Advisor is:
CIBC Oppenheimer Corp.
425 Lexington Avenue
3rd Floor
New York, New York 10017
Contact Person: Jay Hegenbart
(212) 885-4487
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer. -
- - Social Security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
For this type of account: Give the SOCIAL SECURITY number of --
- ------------------------- --------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the account or, if
account) combined funds, any one of the individual(s)
3. Custodian account of a minor The minor
(Uniform Gift to Minors Act)
4. Account in the name of guardian or The ward, minor, or incompetent person
committee for a designated ward,
minor, or incompetent person
5. a. The usual revocable savings The grantor-trustee
trust account (grantor is also
trustee)
b. So-called trust account that is The actual owner
not a legal or valid trust
under State law.
</TABLE>
<TABLE>
<CAPTION>
For this type of account: Give the EMPLOYER IDENTIFICATION
- ------------------------- number of --
------------
<S> <C>
6. Sole proprietorship account The owner (or the owner's Social Security
number)
7. A valid trust, estate, or pension trust The legal entity (Do not furnish the
identifying number of the personal
representative or trustee unless the legal
entity itself is not designated in the account
title.)
8. Corporate account The corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9. Religious, charitable, or The organization
educational organization account
or an association, club or other
tax-exempt organization
10. Partnership account held in the The partnership
name of the business
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
</TABLE>
-2-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you don't have a taxpayer, identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number or Form W-7, Application
for International Taxpayer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
To complete Substitute Form W-9, if you do not have a taxpayer identification
number, write "Applied For" in the space for the taxpayer identification number
in Part 1, sign and date the Form, and give it to the requester.
Payee Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodian account under section 403(b)(7) if the account
satisfies the requirements of section 401(f)(2).
- - The United States, or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities.
- - An international organization or any agency, or instrumentality thereof.
- - A foreign government or any of its political subdivisions, agencies or
instrumentalities.
Payees that are specifically exempted from backup withholding on payments of
interest and certain other payments include the following:
- - A corporation.
- - A financial institution.
- - A dealer in securities or commodities registered in the U.S., the District of
Columbia or a possession of the U.S.
-3-
<PAGE>
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remained trust, or a non-exempt trust described in
section 4947(a) (1).
- - An entity registered at all time under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, CHECK THE BOX IN PART 4 OF THE FORM, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER.
Privacy Act Notice. --Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer identification Number. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty or $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
-4-
<PAGE>
(2) Civil Penalty for False Information With Respect to Withholding. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information. -- Falsifying certifications
or affirmations may be subject to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
-5-
