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Filed Pursuant to Rule 424(b)(3)
Registration Number 333-44273
PROSPECTUS
FWT, INC.
OFFER TO EXCHANGE
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR ALL THE OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
($105,000,000 PRINCIPAL AMOUNT)
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The Exchange Offer will expire at 5:00 p.m., New York City time, on April
12, 1998, unless extended.
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FWT, Inc., a Texas corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange up to an aggregate principal amount of $105,000,000
of its outstanding 9 7/8% Senior Subordinated Notes due 2007 (the "Outstanding
Notes") for an equal principal amount of its 9 7/8% Senior Subordinated Notes
due 2007 in integral multiples of $1,000 (the "Exchange Notes" and, together
with the Outstanding Notes, the "Notes"). The Exchange Notes will be general
unsecured obligations of the Company and are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the
Outstanding Notes for which they may be exchanged pursuant to this Exchange
Offer, except for certain transfer restrictions and registration rights relating
to the Outstanding Notes. The Outstanding Notes have been, and the Exchange
Notes will be, issued under an Indenture dated as of November 15, 1997 (the
"Indenture"), between the Company and Norwest Bank Minnesota, N.A., as trustee
(the "Trustee"). See "Description of Exchange Notes." There will be no proceeds
to the Company from the Exchange Offer; however, pursuant to that certain
Registration Rights Agreement dated as of November 12, 1997 (the "Registration
Rights Agreement") among the Company and the Initial Purchasers (as defined
herein) of the Outstanding Notes, the Company will bear certain offering
expenses.
(Cover text continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN RISKS
TO BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is March 13, 1998.
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The Company will accept for exchange any and all validly tendered
Outstanding Notes on or prior to 5:00 p.m., New York City time, on April 12,
1998, unless extended (the "Expiration Date"). Tenders of Outstanding Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. Norwest Bank Minnesota,
N.A. is acting as exchange agent (the "Exchange Agent") in connection with the
Exchange Offer. The minimum period of time that the Exchange Offer will remain
open is 30 days (or longer if required by applicable law) after the date notice
of the Exchange Offer is mailed to the holders of the Outstanding Notes. The
Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange, but is otherwise subject to
certain customary conditions.
The Exchange Notes will bear interest from the Issue Date (as defined
below) at a rate equal to 9 7/8% per annum on the same terms as the Outstanding
Notes. Interest on the Exchange Notes will be payable semi-annually in arrears
on May 15 and November 15 of each year, commencing May 15, 1998. Outstanding
Notes that are accepted for exchange will cease to accrue interest upon issuance
of the Exchange Notes.
The Outstanding Notes in an aggregate principal amount of $105.0 million
were sold by the Company on November 17, 1997 (the "Initial Offering"), to BT
Alex. Brown Incorporated, SBC Warburg Dillon Read Inc. and Smith Barney Inc.
(collectively, the "Initial Purchasers") in a transaction not registered under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon
the exemption provided in Section 4(2) of the Securities Act. The Initial
Purchasers subsequently placed the Outstanding Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Outstanding Notes may not be re-offered, resold or otherwise
transferred in the United States unless registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The Exchange Notes are being offered hereunder in order to satisfy the
obligations of the Company under the Registration Rights Agreement. See "The
Exchange Offer."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties (including Exxon Capital Holdings (available April 13, 1989), Morgan
Stanley & Co., Inc. (available June 5, 1991) and Mary Kay Cosmetics, Inc.
(available June 5, 1991)), the Company believes that the Exchange Notes issued
pursuant to this Exchange Offer may be offered for resale, resold and otherwise
transferred by a holder who is not an affiliate of the Company without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the Exchange Notes in its
ordinary course of business and is not participating in and has no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. Persons wishing to
exchange Outstanding Notes in the Exchange Offer must represent to the Company
that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
Exchange Notes. The Letter of Transmittal for the Exchange Offer states that by
so acknowledging and delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed to make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale during
the period required by the Securities Act. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the
Exchange Notes could not rely on the position of the staff of the Commission
enunciated in the foregoing no-action letters or similar no action letters and,
in the absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale transaction. Failure to comply with such requirements in such instance
may result in such holder incurring liability under the Securities Act for which
the holder is not indemnified by the Company.
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The Outstanding Notes are traded on the Private Offering, Resales and
Trading through Automated linkages ("PORTAL") Market of the National Association
of Securities Dealers, Inc. The Company does not intend to list the Exchange
Notes on any national securities exchange or to seek the admission thereof to
trading on the National Association of Securities Dealers automatic quotation
system ("NASDAQ"). The Initial Purchasers have advised the Company that they
intend to make a market in the Exchange Notes; however, they are not obligated
to do so and any market-making may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Outstanding Notes of other holders
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Outstanding Notes could be adversely affected. Following consummation
of the Exchange Offer, the holders of untendered Outstanding Notes will continue
to be subject to the existing restrictions upon transfer thereof.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer will be issued in the form of a Global Exchange Note (as defined
herein), which will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of a nominee of DTC. Beneficial
interests in the Global Exchange Note representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by DTC and its participants. After the
initial issuance of the Global Exchange Note, Exchange Notes in certificated
form will be issued in exchange for the Global Exchange Note on the terms set
forth in the Indenture. See "Book-Entry; Delivery and Form."
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No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the Exchange Notes offered hereby, nor does it constitute an offer to
sell or the solicitation of an offer to buy any of the Exchange Notes to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS AND INDUSTRY PUBLICATIONS. INDUSTRY PUBLICATIONS GENERALLY STATE
THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED
TO BE RELIABLE, BUT THE ACCURACY AND COMPLETENESS OF SUCH INFORMATION IS NOT
GUARANTEED. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED ANY SUCH MARKET DATA.
SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE
RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (which term shall encompass any amendment thereto) under the Securities Act,
for the registration of the Exchange Notes offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain items of which
are contained in the financial statement schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, including the financial statement schedules and exhibits filed as a
part thereof. Statements made in this Prospectus concerning the contents of any
document referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, and at the following regional offices
of the Commission: Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained by mail from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington DC 20549, at prescribed rates. In addition the Commission
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information filed electronically by the Company
with the Commission which can be accessed over the Internet at
http://www.sec.gov.
As a result of the Exchange Offer, the Company will be subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As long as the Company is
subject to such periodic reporting and informational requirements, it will
furnish all reports and other information required thereby to the Commission and
pursuant to the Indenture will furnish copies of such reports and other
information to the Trustee.
The Company will deliver to the Trustee within 15 days after the filing of
the same with the Commission, copies of the quarterly and annual reports and of
the information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide (without
exhibits) the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of Section 314(a) of
the Trust Indenture Act of 1939.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH
TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise stated in this Prospectus, references to "FWT" or
the "Company" mean FWT, Inc. and its predecessors and successors. All references
to a fiscal year in this Prospectus refer to the Company's fiscal year ending on
April 30 (the "Fiscal Year") of the specified year. All references to market
share and demographic data in this Prospectus are based on industry and
government publications and Company data, and unless otherwise indicated,
references to years denote calendar, rather than fiscal, years. The Company's
most recent fiscal quarter for which financial and statistical data are
available ended on October 31, 1997, and all interim historical financial and
statistical data presented herein relating to the Company's financial condition
and results of operations, unless otherwise indicated, are calculated as of
October 31, 1997. All pro forma financial and statistical data presented herein
relating to the Company's financial condition and results of operations, unless
otherwise indicated, reflect the consummation of the Transactions (as defined
below) and the Initial Offering. The description of any agreement or
understanding described in this Prospectus does not purport to be complete, and
is qualified in its entirety by reference to such agreement, which will be made
available upon request to the Company.
THE COMPANY
The Company is a recognized name in the design, manufacture and marketing
of wireless communications infrastructure products, including antenna support
structures such as monopoles and towers. The Company's product line is used by
customers in the cellular, personal communications services ("PCS"), enhanced
specialized mobile radio ("ESMR"), paging, radio and television broadcasting and
microwave industries. The Company's customers include many of the larger
communications service providers, such as AT&T Wireless, MCI, Nextel and Sprint
Spectrum. Because all wireless service providers need infrastructure products,
the Company believes it is well-positioned to capitalize on the continued growth
of the wireless communications industry, regardless of which technologies or
service providers dominate the industry in the future.
The Company's sales have grown from $14.7 million in Fiscal Year 1993 to
$71.2 million in Fiscal Year 1997, representing a compound annual growth rate
("CAGR") of 48.4%. For the 12 months ended April 30, 1997, the Company generated
pro forma sales of $71.2 million, and pro forma earnings before interest, taxes,
depreciation and amortization ("EBITDA") of $15.5 million.
According to the Cellular Telecommunications Industry Association ("CTIA"),
the number of wireless communications cell sites in the U.S. has grown at a CAGR
of 35.3% from mid-1993 through mid-1997. During the same period, FWT outpaced
that growth with a revenue CAGR of 48.4%. The Company believes its success has
resulted from its reputation for customer service, on-time delivery, high
quality products and a position as a low cost provider. The use of a direct
sales force enables the Company to provide a high degree of customer service.
The Company's reputation for customer service has resulted in the Company
entering into master purchase agreements with key customers which, in Fiscal
Year 1997, accounted for approximately 70.0% of sales. The Company's use of
proprietary software in the product design phase has enabled it to reduce
product lead time. The Company's automated design and its manufacturing and job
tracking processes, as well as quality control measures, enable it to
consistently produce and ship products accurately in a timely manner.
Additionally, the Company believes its relationship with certain vendors has
significantly reduced its cost structure and investment in plant and working
capital.
The Company believes considerable growth opportunities exist. Global
communications markets are deregulating, resulting in the entry of new
communications service providers. In addition to deregulation, communications
regulators throughout the world continue to make more spectrum available for new
service providers. Many of the Company's customers are expanding their
operations throughout the world which, in turn, could provide significant growth
opportunities for the Company. The Company believes this trend will continue to
drive demand for its infrastructure products. Further, the Company believes new
product and market opportunities exist, particularly in the area of high
definition television ("HDTV"), electrical utility and wireless local loop
("WLL").
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INDUSTRY OVERVIEW
The monopole and tower segments of the communications infrastructure
industry have seven and six significant participants, respectively, who together
have a large market share position in their particular market segment. Builders
of wireless networks typically seek to purchase antenna support structures from
established manufacturers who can accurately produce large numbers of products
in a timely fashion. The Company believes these requirements often lead wireless
service providers to enter into master purchase agreements with a limited number
of communications infrastructure companies, including the Company.
The Company believes the following four trends are driving the growth of
the communications industry: (i) deregulation of global communications markets;
(ii) introduction of new competitors; (iii) the development of cost efficient
and capacity enhanced technology; and (iv) elasticity of demand for
communications products and services. These factors increase minutes of use
("MOU"), which is the main factor driving wireless communications infrastructure
spending because wireless service providers plan their capital spending based on
anticipated MOU. Emerging digital wireless technologies and an increase in the
number of service providers are increasing capacity and quality and lowering the
cost per minute per subscriber. This lower cost enables service providers to
lower rates which makes wireless services more affordable to a broader consumer
base. This encourages increased MOU which, in turn, drives additional
infrastructure spending.
COMPETITIVE STRENGTHS
The Company believes that its products and customer service distinguish it
as one of the leading designers and manufacturers of telecommunications
infrastructure products and that the Company's strong market position in its
product segments and continued opportunities for growth and profitability are
attributable to the following competitive strengths:
- REPUTATION FOR CUSTOMER SERVICE AND ON-TIME DELIVERY. Management
believes that one of FWT's competitive advantages is its strong tradition
of, and reputation for, customer service. The use of a direct sales force
plays a significant role in customer service. In addition, over the past
three years, the Company has invested in the implementation of a
computer-aided-design/computer-aided-manufacturing ("CAD/CAM") system
which allows the Company to respond efficiently to customers' requests
and helps the Company to ensure on-time delivery. The majority of the
Company's customers are wireless service providers that compete in an
industry where time to market is critical. Because time to market is
critical, if the Company does not continue to provide on-time delivery,
the Company could lose customers. FWT believes it has a significant
competitive advantage in meeting these customers' needs by reliably
meeting their often aggressive time frames.
- REPUTATION FOR HIGH QUALITY PRODUCTS. The Company's design and
production processes allow the Company to achieve and maintain a
consistent product quality. Moreover, the Company maintains rigorous
quality control standards which help to ensure accurate shipments to
customers.
- LOW COST STRUCTURE THROUGH STRATEGIC RELATIONSHIPS. The Company believes
it enjoys a position as a low cost provider. This position has resulted
from the formation of two key relationships which management believes
will enable it to (i) reduce purchasing and manufacturing costs as a
percentage of total sales, (ii) focus on its core competencies in product
design and finishing, quality control, customer service and sales and
marketing, and (iii) limit its plant and working capital investments. The
first of these key strategic relationships allows FWT to take delivery of
steel on a just-in-time basis. The second relationship will allow FWT to
galvanize its monopoles at a third party-owned facility adjacent to its
present manufacturing facility located near Fort Worth, Texas.
Construction has begun on such facility and completion is expected in the
late spring or early summer of 1998. These strategic relationships are
important and, should they terminate, the Company's profits could decline
significantly.
- SOLID MARKET POSITIONS IN GROWTH INDUSTRY. The Company believes it is
currently the second largest participant in each of the monopole and
tower markets and, in recent years, it has significantly increased its
market share in each of these markets. Although the Company believes it
is well
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positioned to benefit from the expected growth in the wireless communications
industry because of its strong market position, there are other competitors in
both the monopole and tower markets who could increase their market share. This
could reduce the benefit that the Company might derive from industry
growth.
- EXPERIENCED MANAGEMENT TEAM. Substantially all of the Company's
executive officers have spent considerable portions of their careers in
manufacturing. Moreover, Roy J. Moore and Carl R. Moore, who are
President and Vice President, respectively, of the Company, have played a
significant role in the Company's growth over the last five years.
Management's expertise and in depth knowledge of the Company's products
and customers are further complemented by the experience of the
principals at Baker Communications Fund, L.P. ("Baker"), a private equity
fund that focuses specifically on investment in telecommunications
services, equipment and applications providers.
BUSINESS AND GROWTH STRATEGY
Management believes that the Company's growth will be driven by leveraging
its competitive strengths, and in particular its excellent reputation, into a
stronger market position, by (i) capitalizing on the growth of the wireless
communications industry, (ii) broadening its base of product offerings, (iii)
pursuing certain acquisitions and alliances on a forward integrated basis, and
(iv) expanding into international markets.
- CAPITALIZE ON GROWTH IN THE WIRELESS COMMUNICATION INDUSTRY. The Company
has grown rapidly over the past five years by taking advantage of the
growing demand for wireless communications services, and by positioning
itself as a reliable, customer focused provider of infrastructure
products. However, the Company must work to manage its growth so that it
can continue to satisfy its customers. The Company believes that there
are several industry trends which indicate an increase in demand for
wireless communications infrastructure products. These include: (i) the
continued construction of cellular networks which is expected to grow as
providers make capacity enhancements and transition from analog to
digital; (ii) the widespread introduction of PCS; (iii) the launch of
HDTV; and (iv) the growth of WLL systems which is expected to increase,
particularly in emerging economies.
- BROADEN PRODUCT OFFERINGS. The Company has developed relationships with
numerous electrical utility companies through the introduction of its
PowerMount(TM) product, which provides a co-location opportunity within a
standard electrical transmission structure. The Company plans to market
this product and other utility applications in the future and believes
these relationships will prove beneficial in entering these markets. In
addition, the introduction of HDTV will require towers of over one
thousand feet and are expected to sell for approximately $1.0 million
each. The Company believes it is well-positioned to take advantage of
each of these opportunities.
- PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. The Company plans to
evaluate selective opportunities that will enhance its position within
the cell site development process. The Company believes there are various
opportunities beyond providing infrastructure products used in the
construction of communication networks. These include site installation
services, tower ownership and management businesses. The Company believes
these closely related businesses could be integrated with its current
operations to increase the value the Company provides to its customer
base. From time to time, the Company engages in discussions or otherwise
evaluates opportunities that may lead to the acquisition by the Company
of one or more closely related businesses. The ability of the Company to
complete any such acquisitions is subject to limitations imposed by the
terms and conditions of the Credit Agreement dated November 12, 1997, as
amended, by and among the Company, Bankers Trust Company and BT
Commercial Corporation (the "Revolving Credit Facility") and the
Indenture. Moreover, Baker has informed the Company that it is in
negotiations relative to an investment in one or more businesses closely
related to that of the Company. It is possible that in the future Baker
may engage in discussions with the Company with a view to combining any
business acquired by Baker with that of the Company. Moreover, in an
acquisition currently under negotiation by Baker, it is contemplated that
the Company would enter into a mutually acceptable management services
agreement with the business that is the subject of such negotiations,
pursuant to which the Company would provide certain management
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services and receive a management fee. The definitive terms and
conditions of such management services agreement have not been
determined. The ability of the Company to engage in any transaction with
Baker or any of its affiliates is limited by the terms and conditions of
the Revolving Credit Facility and the Indenture.
- EXPAND INTO INTERNATIONAL MARKETS. The Company believes there are
considerable opportunities to expand its geographical reach, particularly
into Asia and Latin America. The trend towards global deregulation of
telecommunications markets provides substantial growth opportunities for
wireless infrastructure providers. The Company believes its strong
relationships with its customers, many of whom are already building
networks internationally, provide an advantage in competing for
infrastructure business in new international markets. In addition, the
Company believes there may be strategic opportunities for joint ventures
in foreign markets, and that by allying itself with local businesses the
Company can further position itself to take advantage of growth in
international markets. Although the growth of international markets
provides the Company with significant opportunities, cultural differences
may provide the Company with obstacles that may impede the Company's
expansion into international markets.
The Company's headquarters are at 1901 East Loop 820 South, Fort Worth,
Texas 76112-7899, its telephone number is (817) 457-3060 and its facsimile
number is (817) 429-6010.
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RECAPITALIZATION AND STOCK PURCHASE
On November 12, 1997, the Company, FWT Acquisition, Inc. ("FWT
Acquisition") (a newly formed wholly-owned subsidiary of Baker), T.W. Moore,
Betty Moore, Roy J. Moore, Thomas F. Moore and Carl R. Moore (each of the
natural persons, the "Existing Shareholders") entered into, and consummated the
transactions set forth in, that certain Stock Purchase and Redemption Agreement
and related documents (collectively, the "Transaction Agreements"). The
Transaction Agreements contemplated, among other things, two primary
transactions. The first transaction contemplated by the Transaction Agreements
included (i) the incurrence by the Company of $100.0 million senior secured
indebtedness (the "Senior Credit Facility"), (ii) the redemption by the Company
from the Existing Shareholders of an aggregate of 235.86 shares of the Company's
common stock, par value $10.00 per share (the "Common Stock"), for aggregate
consideration of approximately $83.6 million, including related consulting,
legal and accounting costs of $1.2 million, (iii) the repayment of all the
outstanding funded indebtedness of the Company in an aggregate amount of
approximately $22.1 million, and (iv) the distribution of an immaterial amount
of selected assets to certain Existing Shareholders (such transactions are
collectively referred to as the "Recapitalization"). The redemption price per
share is subject to an adjustment based upon the final determination of the
Company's working capital as determined as of the closing date. The second
transaction contemplated by the Transaction Agreements included the purchase by
FWT Acquisition of an aggregate of 108.91 shares of the Common Stock from
Existing Shareholders for aggregate consideration of approximately $36.0 million
(the "Stock Purchase," and together with the Recapitalization, the
"Transactions"). As a result of the Transactions, FWT Acquisition holds
approximately 80.0% of the issued and outstanding shares of Common Stock, and
Roy J. Moore, Thomas F. Moore and Carl R. Moore (collectively, the "Roll-over
Shareholders") hold in the aggregate approximately 20.0% of the issued and
outstanding shares of the Common Stock. For financial reporting purposes, the
Recapitalization was accounted for as an acquisition of treasury stock.
The borrowings under the Senior Credit Facility, cash from the Company of
approximately $5.0 million, notes payable of approximately $2.5 million, and the
distribution of selected assets, were used to consummate the Recapitalization.
In order to repay the Senior Credit Facility, the Company issued $105.0 million
in the aggregate principal amount of Outstanding Notes in the Initial Offering.
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THE EXCHANGE OFFER
THE OUTSTANDING NOTES...The Outstanding Notes were sold by the Company on
November 17, 1997, in the Initial Offering, to the
Initial Purchasers pursuant to the Purchase Agreement.
The Initial Purchasers subsequently resold the
Outstanding Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act.
REGISTRATION
REQUIREMENTS............Pursuant to the Purchase Agreement dated November 12,
1997, by and among the Company, BT Alex. Brown
Incorporated, SBC Warburg Dillon Read Inc. and Smith
Barney Inc. (the "Purchase Agreement"), the Company and
the Initial Purchasers entered into the Registration
Rights Agreement, which grants the holders of the
Outstanding Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy such
exchange and registration rights, which terminate upon
the consummation of the Exchange Offer. If applicable
law or applicable interpretations of the staff of the
Commission do not permit the Company to effect the
Exchange Offer, the Company has agreed to file a shelf
registration (the "Shelf Registration Statement")
covering resales of the Outstanding Notes. See "The
Exchange Offer -- Resale of Exchange Notes" and "The
Exchange Offer -- Shelf Registration Statement."
THE EXCHANGE OFFER......The Company is offering to exchange $1,000 principal
amount of the Exchange Notes for each $1,000 principal
amount of Outstanding Notes. As of the date hereof,
$105.0 million aggregate principal amount of Outstanding
Notes are outstanding. The Company will issue the
Exchange Notes on April 13, 1998 (the "Exchange Date").
Based on an interpretation by the staff of the
Securities and Exchange Commission (the "Commission")
set forth in no-action letters issued to third parties
(including Exxon Capital Holdings Corporation (available
May 13, 1988), Morgan Stanley & Co. Inc. (available June
5, 1991) and Mary Kay Cosmetics, Inc. (available June 5,
1991)), the Company believes that the Exchange Notes
issued pursuant to this Exchange Offer may be offered
for resale, resold and otherwise transferred by a holder
who is not an affiliate of the Company without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its ordinary
course of business and is not participating in and has
no arrangement or understanding with any person to
participate in the distribution (within the meaning of
the Securities Act) of the Exchange Notes. Persons
wishing to exchange Outstanding Notes in the Exchange
Offer must represent to the Company that such conditions
have been met.
Each Participating Broker-Dealer must acknowledge that
it will deliver a prospectus in connection with any
resale of Exchange Notes. The Letter of Transmittal for
the Exchange Offer states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed to make
this Prospectus available to any
6
<PAGE> 11
Participating Broker-Dealer for use in connection with
any such resale during the period required by the
Securities Act. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes
could not rely on the position of the staff of the
Commission enunciated in the foregoing no-action letters
or similar no action letters and, in the absence of an
exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities
Act in connection with the resale transaction. Failure
to comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not indemnified
by the Company.
EXPIRATION DATE.........5:00 p.m., New York City time, on April 12, 1998.
INTEREST ON THE
EXCHANGE NOTES........The Exchange Notes will bear interest from the Issue
Date at a rate equal to 9 7/8% per annum and will be
payable semi-annually on May 15 and November 15 of each
year commencing May 15, 1998. Interest on each Exchange
Note will accrue (A) from the later of (i) the last
interest payment date on which interest was paid on the
Outstanding Note surrendered in exchange therefor, or
(ii) if the Outstanding Note is surrendered for exchange
on a date in a period which includes the record date for
an interest payment date to occur on or after the date
of such exchange and as to which interest will be paid,
the date of such interest payment date or (B) if no
interest has been paid on the Outstanding Notes, from
the Issue Date.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES.....Each holder of Outstanding Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together with
the Outstanding Notes and any other required
documentation to the Exchange Agent at the address set
forth herein. By executing the Letter of Transmittal,
each holder will represent to the Company that, among
other things, the holder or person receiving such
Exchange Notes, whether or not such person is the
holder, is acquiring the Exchange Notes in the ordinary
course of business and that neither the holder nor any
such other person has any arrangement or understanding
with any person to participate in the distribution of
such Exchange Notes. In lieu of physical delivery of the
certificates representing Outstanding Notes, tendering
holders may transfer Outstanding Notes pursuant to the
procedure for book-entry transfer as set forth under
"The Exchange Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.....Any beneficial owner whose Outstanding Notes are
registered in the name of a broker-dealer, commercial
bank, trust company or other nominee and who wishes to
tender should contact such registered holder promptly
and instruct such registered holder to tender on such
beneficial owner's behalf.
If such beneficial owner wishes to tender on such
owner's own behalf, such owner must prior to completing
and executing the Letter of Transmittal and delivering
its Outstanding Notes, either make appropriate
arrangements to register ownership of the Outstanding
Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
7
<PAGE> 12
GUARANTEED DELIVERY
PROCEDURES............Holders of Outstanding Notes who wish to tender their
Outstanding Notes and whose Outstanding Notes are not
immediately available or who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any
other documents required by the Letter of Transmittal to
the Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date must
tender their Outstanding Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date pursuant to
the procedures described under "The Exchange
Offer -- Withdrawal of Tenders."
ACCEPTANCE OF
OUTSTANDING NOTES AND
DELIVERY OF EXCHANGE
NOTES.................Subject to certain conditions, the Company will accept
for exchange any and all Outstanding Notes that are
properly tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer
will be delivered on the Exchange Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES..........The exchange pursuant to the Exchange Offer will not be
a taxable event for federal income tax purposes. See
"Federal Income Tax Consequences."
EFFECT ON HOLDERS OF
OUTSTANDING NOTES.....As a result of the making of this Exchange Offer, the
Company will have fulfilled one of its obligations under
the Registration Rights Agreement, and holders of
Outstanding Notes who do not tender their Outstanding
Notes will not have any further registration rights
under the Registration Rights Agreement or otherwise.
Such holders will continue to hold the untendered
Outstanding Notes and will be entitled to all the rights
and subject to all the limitations applicable thereto
under the Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease to have
further effectiveness as a result of the Exchange Offer.
All untendered Outstanding Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, if any Outstanding Notes are tendered and
accepted in the Exchange Offer, the trading market of
the untendered Outstanding Notes could be adversely
affected. See "The Exchange Offer" and "Risk
Factors -- Absence of Public Market; Restrictions on
Transfer."
EXCHANGE AGENT..........Norwest Bank Minnesota, N.A.
USE OF PROCEEDS.........There will be no cash proceeds payable to the Company
from the issuance of the Exchange Notes pursuant to the
Exchange Offer. See "Use of Proceeds."
8
<PAGE> 13
SUMMARY AND TERMS OF THE EXCHANGE NOTES
SECURITIES OFFERED......$105.0 million aggregate principal amount of 9 7/8%
Senior Subordinated Notes due 2007.
ISSUER..................FWT, Inc., a Texas corporation.
MATURITY DATE...........November 15, 2007.
INTEREST ON THE
EXCHANGE NOTES........The Exchange Notes will bear interest at a rate equal to
9 7/8% per annum and will be payable semi-annually on
May 15 and November 15 of each year commencing May 15,
1998. Interest on each Exchange Note will accrue (A)
from the later of (i) the last interest payment date on
which interest was paid on the Outstanding Note
surrendered in exchange therefor, or (ii) if the
Outstanding Note is surrendered for exchange on a date
in a period which includes the record date for an
interest payment date to occur on or after the date of
such exchange and as to which interest will be paid, the
date of such interest payment date or (B) if no interest
has been paid on the Outstanding Notes, from the Issue
Date.
INTEREST PAYMENT
DATES...................Interest will be payable semi-annually in arrears on
each May 15 and November 15, commencing May 15, 1998.
RANKING.................The Notes will be unsecured senior subordinated
obligations of the Company and will be subordinated in
right of payment to all existing and future Senior
Indebtedness (as defined herein) of the Company. The
Notes will rank without preference with any future
senior subordinated indebtedness of the Company and will
rank senior to all other subordinated indebtedness of
the Company. As of October 31, 1997, on a pro forma
basis, the Company would have had no Senior Indebtedness
and approximately $11.4 million of availability under
the Revolving Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital
Resources" and "Description of the Revolving Credit
Facility."
OPTIONAL REDEMPTION.....The Notes will be redeemable, in whole or in part, at
the option of the Company on or after November 15, 2002,
at the redemption prices set forth herein, plus accrued
and unpaid interest to the date of redemption. In
addition, at any time on or prior to November 15, 2000,
the Company may, at its option, redeem up to 35% of the
aggregate principal amount of the Notes originally
issued with the net cash proceeds of one or more public
equity offerings, at a redemption price equal to
109.875% of the aggregate principal amount of the Notes
to be redeemed plus accrued and unpaid interest to the
date of redemption; provided, however, that, after
giving effect to any such redemption, at least 65% of
the aggregate principal amount of the Notes originally
issued remain outstanding.
CHANGE OF CONTROL.......Upon a Change of Control (as defined herein), each
holder of the Notes will have the right to require that
the Company make an offer to purchase all outstanding
Notes at a price equal to 101% of the principal amount
thereof plus accrued interest to the date of purchase.
See "Description of Exchange Notes."
CERTAIN COVENANTS.......The Indenture contains certain covenants that limit the
ability of the Company and its subsidiaries to, among
other things, incur additional indebtedness, pay
dividends or make investments and certain other
restricted payments, consummate certain asset sales,
enter into certain transactions with affiliates, incur
liens, impose restrictions on the ability of a
subsidiary to pay dividends or make certain payments to
the Company and its subsidiaries, and merge or
consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. In
addition, the Company will be obligated to offer to
repurchase the Notes at 100% of the
9
<PAGE> 14
principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase in the event
of certain Asset Sales (as defined herein).
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Exchange Offer.
10
<PAGE> 15
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The summary historical income statement data for Fiscal Year 1995, Fiscal
Year 1996 and Fiscal Year 1997 and the summary historical balance sheet data for
Fiscal Year 1996 and Fiscal Year 1997 presented below were derived from the
historical financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants, whose report appears elsewhere in this
Prospectus. The summary historical financial data as of and for the six month
periods ended October 31, 1996 and 1997 were derived from the Company's
unaudited financial statements which, in the opinion of management, reflect all
adjustments (consisting of normal recurring adjustments) necessary for the fair
presentation of the financial condition and results of operations for such
period. The summary unaudited pro forma financial data give effect to the
Transactions and Initial Offering as if they had occurred as of the beginning of
the period presented for the income statement and other data, and as of the last
day of the period presented for the balance sheet data. The summary unaudited
pro forma income statement and other data do not (i) purport to represent what
the Company's results of operations actually would have been if the Transactions
and Initial Offering had actually occurred as of such dates or what such results
will be for any future periods or (ii) give effect to certain non-recurring
charges expected to result from the Transactions and Initial Offering. The
information contained in this table should be read in conjunction with "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and
accompanying notes thereto included elsewhere in this Prospectus.
11
<PAGE> 16
<TABLE>
<CAPTION>
SIX MONTH PRO FORMA
PERIOD -----------------
FISCAL YEAR ENDED ENDED FISCAL YEAR ENDED
APRIL 30, OCTOBER 31, -----------------
--------------------------- ----------------- APRIL 30,
1995 1996 1997 1996 1997 1997
------- ------- ------- ------- ------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.............................. $30,388 $42,701 $71,188.. $27,132 $37,350 $71,188
Cost of sales...................... 23,838 32,006 49,249 18,771 26,652 49,249
------- ------- ------- ------- ------- -------
Gross profit....................... 6,550 10,695 21,939 8,361 10,698 21,939
Selling, general and
administrative................... 4,139 4,244 8,353 2,942 5,389 7,303
------- ------- ------- ------- ------- -------
Operating income................... 2,411 6,451 13,586 5,419 5,309 14,636
Interest income (expense), net..... 69 123 197 102 (157) (10,831)
Other income(1).................... 3 512 571 41 281 125
------- ------- ------- ------- ------- -------
Income before income tax
provision........................ 2,483 7,086 14,354 5,562 5,433 3,930
Income tax provision
(benefit)(2)..................... 53 162 316 125 113 1,493
------- ------- ------- ------- ------- -------
Net income(2)...................... $ 2,430 $ 6,924 $14,038 $ 5,437 $ 5,320 $ 2,437
======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA(3).......................... $ 2,827 $ 7,494 $14,937 $ 5,835 $ 6,248 $15,541
Depreciation....................... 299 375 508 259 412 508
Capital expenditures............... 1,324 1,198 4,341 1,086 664 $ 4,341
Cash flows provided by operating
activities....................... 1,422 4,846 5,783 1,993 7,369 --
Cash flows used in investing
activities....................... (1,262) (1,182) (4,323) (1,076) (466) --
Cash flows provided by (used in)
financing activities............. $ (300) $(1,459) $(1,025) $ 505 $(1,102) --
Ratio of earnings to fixed
charges(4)....................... 56.18x 215.73x 192.39x 398.29x 14.48x 1.35x
BALANCE SHEET DATA:
Working capital.................... $ 5,278 $ 9,815 $18,509 $14,370 $ 2,531 --
Total assets....................... 11,854 19,489 40,203 27,523 40,838 --
Long term debt, less current
maturities....................... 475 375 1,512 325 1,410 --
Shareholders' equity (deficit)..... $ 8,412 $13,977 $25,297 $19,414 $ 9,617 --
<CAPTION>
PRO FORMA
-----------------------------------
SIX MONTH PERIOD ENDED
-----------------------------------
OCTOBER 31, OCTOBER 31,
1996 1997
---------------- ----------------
<S> <C> <C>
INCOME STATEMENT DATA:
Sales.............................. $27,132 $ 37,350
Cost of sales...................... 18,771 26,652
------- --------
Gross profit....................... 8,361 10,698
Selling, general and
administrative................... 3,067 5,514
------- --------
Operating income................... 5,294 5,184
Interest income (expense), net..... (5,435) (5,305)
Other income(1).................... 45 277
------- --------
Income before income tax
provision........................ (96) 156
Income tax provision
(benefit)(2)..................... (37) 59
------- --------
Net income(2)...................... $ (59) $ 97
======= ========
OTHER FINANCIAL DATA:
EBITDA(3).......................... $ 5,714 $ 6,119
Depreciation....................... 259 412
Capital expenditures............... $ 1,086 $ 664
Cash flows provided by operating
activities....................... -- --
Cash flows used in investing
activities....................... -- --
Cash flows provided by (used in)
financing activities............. -- --
Ratio of earnings to fixed
charges(4)....................... .98x 1.03x
BALANCE SHEET DATA:
Working capital.................... -- $ 13,991
Total assets....................... -- 60,284
Long term debt, less current
maturities....................... -- 105,000
Shareholders' equity (deficit)..... -- $(56,365)
</TABLE>
12
<PAGE> 17
- ---------------
(1) Other income consists primarily of income related to farm operations and the
disposition of farm assets. These assets have been distributed in connection
with the Transactions.
(2) The historical financial statements do not include a provision for federal
taxes as the Company has elected to be taxed as a Subchapter S corporation.
A provision for federal taxes has been reflected in the pro forma
information to reflect the change in tax status of the Company from a
Subchapter S corporation to a Subchapter C corporation. The following table
presents historical net income on a pro forma basis adjusted for a federal
tax provision.
<TABLE>
<CAPTION>
SIX MONTH PERIOD
FISCAL YEAR ENDED APRIL 30, ENDED OCTOBER 31, LTM PERIOD
- ------------------------------ ------------------ ENDED
1995 1996 1997 1996 1997 OCTOBER 31, 1997
- ------ ------ ------ ------ ------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$1,604 $4,570 $9,265 $3,588 $3,511 $9,188
</TABLE>
(3) EBITDA consists of net income before interest expense, taxes, depreciation
and amortization. EBITDA is included because it is widely used as a measure
of a company's operating performance, but should not be construed as an
alternative either (i) to net income (determined in accordance with
generally accepted accounting principles) as a measure of profitability or
(ii) to cash flows from operating activities (determined in accordance with
generally accepted accounting principles). EBITDA does not take into account
the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available
for discretionary use. In addition, as EBITDA may not be calculated in the
same manner by all companies and analysts, the EBITDA measures presented may
not be comparable to other similarly titled measures of other companies.
(4) The deficiency in the ratio of earnings to fixed charges was $96 for the Six
Month Period Ended October, 31, 1996.
13
<PAGE> 18
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information set forth in this Prospectus, before making an
investment in the Exchange Notes offered hereby.
HIGH LEVEL OF INDEBTEDNESS
In connection with the Recapitalization and the Initial Offering, the
Company has incurred a significant amount of indebtedness. At October 31, 1997,
the Company's long-term indebtedness would have been $105.0 million and its
total shareholders' deficit would have been $56.4 million, in each case on a pro
forma basis after giving effect to the Recapitalization and the Initial Offering
as if they had occurred on such date. In addition, as of October 31, 1997 on a
pro forma basis including the effect of obtaining the Revolving Credit Facility,
the Company would have had approximately $11.4 million of availability under the
Revolving Credit Facility. Further, subject to the restrictions in the Revolving
Credit Facility and the Indenture, the Company may incur additional
indebtedness, including senior indebtedness with respect to the additional Notes
that may be issued under the Indenture from time to time to finance
acquisitions, capital expenditures, working capital or for other purposes.
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including, but not limited to, the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the repayment of indebtedness and will not be available for other purposes;
(ii) the Company's future ability to obtain additional debt financing for
working capital, capital expenditures, acquisitions or other purposes may be
limited; and (iii) the Company's level of indebtedness could limit its
flexibility in reacting to changes in the industry and general economic
conditions and its ability to withstand a prolonged downturn in the wireless
communications industry or the telecommunications infrastructure industry.
Certain of the Company's competitors currently operate on a less leveraged basis
and have significantly greater operating and financing flexibility than the
Company.
ABILITY TO SERVICE DEBT
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions in the telecommunications
infrastructure industry and financial, business and other factors, certain of
which are beyond its control. Should they occur, factors that will affect
operating performance include loss of market share, prolonged disruption in the
operations at any of the Company's manufacturing facilities and decreased demand
for the Company's products. The Company anticipates that its operating cash
flow, together with borrowings under the Revolving Credit Facility, will be
sufficient to meet its operating expenses and to service its debt requirements
as they become due. However, if the Company is unable to generate sufficient
cash flow from operations to service its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all.
In addition, in the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Notes only after all Senior Indebtedness has been paid in full, and there may
not be sufficient assets remaining to pay amounts due on any or all of the Notes
then outstanding. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is subordinate in right of
payment to any indebtedness and not subordinated in right of payment to the
Notes, impose restrictions on the ability of a subsidiary to pay dividends or
make certain payments to the Company, merge or consolidate with any other
person, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company.
14
<PAGE> 19
In addition, the Revolving Credit Facility contains other and more
restrictive covenants and prohibits the Company from prepaying its indebtedness
(including the Notes). The Revolving Credit Facility also requires the Company
to maintain specified financial ratios and satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the Revolving Credit Facility and the Indenture. If an event
of default should occur under the Revolving Credit Facility, the lenders can
elect to declare all amounts of principal outstanding under the Revolving Credit
Facility, together with all accrued interests, to be immediately due and
payable. If the Company were unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that indebtedness. If
the Revolving Credit Facility indebtedness were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, including the
Notes. Substantially all the assets of the Company are pledged as security under
the Revolving Credit Facility. See "Description of the Revolving Credit
Facility" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON WIRELESS COMMUNICATIONS INDUSTRY
The Company's business depends upon the capital expenditures of wireless
service providers, which, in turn, depend upon the current and anticipated
market demand for wireless communications. The wireless communications industry
may experience downturns, which may result in a decrease in the industry's
demand for capital equipment, including antenna support structures. There can be
no assurance that the wireless communications industry will not experience
severe and prolonged downturns in the future or that the wireless communications
industry will expand as quickly as forecasted. Any significant decrease in the
level of capital expenditures by the wireless communications industry could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Recent Developments" and "Industry Overview."
AVAILABILITY OF WIRELESS COMMUNICATIONS SERVICES
A substantial majority of the Company's revenues are derived from the sale
of antenna support structures and related shelters for wireless communications
networks, and the future success of the Company depends to a considerable extent
upon the continued growth and increased availability of cellular and other
wireless communications services, including PCS, domestically and
internationally. There can be no assurance that either subscriber use or the
implementation of wireless communications services will continue to grow, or
that such factors will create demand for the Company's products. The Company
believes that continued growth in the use of wireless communications services
depends on significant reductions in infrastructure capital equipment cost per
subscriber, the corresponding reductions in wireless service pricing and the
ability of the wireless communications industry to obtain the permits, licenses
and zoning relief necessary for the growth of wireless communications networks.
While in the U.S., the Federal Communications Commission has adopted regulations
requiring local phone companies to reduce the rates charged to cellular carriers
for connection to their wireline networks, it is anticipated that wireless
service rates will remain higher than rates charged by traditional wireline
companies. The growth in the implementation of wireless communications services
is dependent upon both developed countries, such as the U.S., allowing continued
deployment of new networks, and less developed foreign countries deploying
wireless infrastructures. Foreign countries or local government authorities may
decline to construct wireless communications systems, place moratoriums on
building base stations or terminate or delay construction of such systems for a
variety of reasons, including environmental issues, public resistance to tower
construction, political unrest, economic downturns, the availability of
favorable pricing for other communications services, the availability and cost
of related equipment or other delays in the implementation of these systems, in
which event demand for the Company's products will be similarly reduced or
delayed, which would materially adversely affect the Company's business,
financial condition and results of operations. See "-- Risks Associated with
International Sales," "-- Dependence on Permits, Licenses and Zoning."
15
<PAGE> 20
FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences, and expects to continue to experience, significant
fluctuations in sales and operating results from quarter to quarter, which
typically falls in the fourth and first quarters of the calendar year, which
approximately correspond to the third and fourth quarters of FWT's Fiscal Year.
Quarterly results fluctuate due to a number of factors, any of which could have
a material adverse effect on the Company's business, results of operations and
financial condition. In particular, the Company's quarterly results of
operations can vary due to, among other things, the following factors: (i) the
timing, cancellation, or rescheduling of customer orders and shipments; (ii)
variations in manufacturing capacities; (iii) efficiencies and costs; (iv) the
availability and cost of components; (v) capacity and production constraints
associated with single source component suppliers; (vi) changes in the mix of
products having differing gross margins; (vii) customer service expenses; and
(viii) changes in average sales prices. In addition, the Company's quarterly
results of operations are influenced by competitive factors, including pricing,
availability and demand for the Company's products. A large portion of the
Company's expenses are fixed and difficult to reduce in a short period of time.
If sales do not meet the Company's expectations, the Company's fixed expenses
would exacerbate the effect of such sales shortfall. Furthermore, announcements
by the Company or its competitors regarding new products and technologies could
cause customers to defer purchases of the Company's products. See
"-- Concentration of Customers; Dependence on Customer Satisfaction" and "Recent
Developments." Order deferrals and cancellations by the Company's customers,
declining average sales prices, changes in the mix of products sold and longer
than anticipated sales cycles for the Company's products have in the past
adversely affected the Company's quarterly results of operations. There can be
no assurance that the Company's quarterly results of operations will not be
similarly adversely affected in the future.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that the Company will maintain its current
profitability in the future or that future revenues and operating results will
not be below the expectations of management, public market analysts and
investors. In any case, the Company could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONCENTRATION OF CUSTOMERS
During Fiscal Year 1997, sales to AT&T Wireless accounted for approximately
25.0% of the Company's net revenues, and sales to the Company's top five
customers in the aggregate accounted for approximately 55.0% of the Company's
net revenues. As customers seek to establish close relationships with their
suppliers, the Company expects that its customer base will continue to become
more concentrated. If, for any reason, any of the Company's key customers were
to purchase significantly less of the Company's products in the future, such
decreased level of purchases could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Recent
Developments" and "Business -- Customers."
DEPENDENCE ON CUSTOMER SATISFACTION
The Company depends, in large part, on its ability to maintain a high level
of customer satisfaction. From time to time, however, the Company receives
customer complaints regarding the quality of its products and services. While
the Company works to resolve all such customer complaints to the satisfaction of
all parties, there can be no assurance that any customer will continue to
purchase the Company's products.
MANUFACTURING CAPACITY CONSTRAINTS
The Company's success will depend upon its ability to increase its
production volume on a timely basis while maintaining product quality and per
unit production costs. Manufacturers often encounter difficulties in increasing
production volumes, including difficulties involving delays, quality control and
shortages of qualified personnel. Any significant increase in production volume
will require that the Company increase its manufacturing capacity.
The Company has in the past experienced, and may in the future experience,
delays in its ability to fill orders for certain products on a timely basis
because of limits on its production capacity. Significant delays in filling
orders over an extended period would damage customer relations, which would
materially adversely
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affect the Company's business, financial condition and results of operations.
The production schedules for each of the Company's products are based on orders
for such products, and the Company has only limited ability to modify short-term
production schedules. If the Company were to experience a significant increase
in the demand for any of its products, it would not be able, on a short-term
basis, to satisfy such demand fully. The ability of the Company to estimate
demand may be less precise during periods of rapid growth or with respect to new
products. The failure of the Company to forecast its requirements accurately
could lead to inventory shortages or surpluses that could have a material
adverse effect on the results of operations and lead to fluctuations in
quarterly operating results.
GROWTH OPPORTUNITIES
Although management believes that opportunities may exist for the Company
to grow through either acquisitions of related businesses or entering into
strategic joint ventures, there can be no assurance that the Company will be
able to identify appropriate acquisitions or joint venture opportunities on
terms acceptable to the Company. Certain provisions of the Revolving Credit
Facility or the Indenture may limit the Company's ability to effect acquisitions
or enter into joint ventures. See "-- Restrictions Imposed by Terms of the
Company's Indebtedness."
MANAGEMENT OF GROWTH
The Company has undergone a period of significant growth, and its expansion
may significantly strain the Company's management, financial and other
resources. In order to sustain this growth, the Company must attract and retain
highly qualified personnel. It may become increasingly difficult for the Company
to hire such personnel. The Company believes that improvements in management and
operational controls, and operational, financial and management information
systems are needed to manage further growth. The Company currently plans to
augment its information systems. There can be no assurance that the management
information system will produce the desired efficiencies or that other
improvements will not be needed. The failure to implement such improvements
could have a material adverse effect on the Company's business, financial
condition and results of operations.
COMPETITION
The telecommunications infrastructure industry is highly competitive. The
Company faces substantial competition in each of the markets it serves from
established competitors, some of which have greater financial, engineering,
manufacturing and marketing resources than the Company. The Company's
competitors in each product area can be expected to continue to improve the
design of their products, to introduce new products with competitive prices and
performance characteristics and to improve customer satisfaction. Although the
Company has not historically been forced to reduce its prices significantly,
there can be no assurance that competitive pressures will not necessitate price
reductions, adversely affecting operating results, in the future. Although the
Company believes that it has certain advantages over its competitors,
maintaining such advantages will require a continued high level of investment by
the Company in sales, marketing and other services. There can be no assurance
that the Company will have sufficient resources to continue to make such
investments or that the Company will be able to maintain the competitive
advantages it currently enjoys.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for less than 5.0% of the Company's total
revenues for Fiscal Year 1997. The Company's business plan relies on
international sales to account for a portion of its revenue in the future.
International sales are subject to certain risks, including unexpected changes
in exchange rates, regulatory requirements, currency controls, tariffs and other
market barriers, political and economic instability, potentially adverse tax
consequences, natural disasters, outbreaks of hostilities, difficulties in
accounts receivable collection, extended payment terms, difficulties in managing
foreign sales representatives and difficulties in staffing and managing foreign
branch operations. Currently the Company's international sales are denominated
in U.S. dollars, and sales to international customers may be affected by
fluctuations in the U.S. dollar, which could increase the sales price in local
currencies of the Company's products. The Company is also subject to the risks
associated with the imposition of legislation and import and export regulations.
The Company cannot predict whether tariffs, quotas, duties, taxes or other
changes or restrictions will be
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implemented by the U.S. or other countries upon the import or export of the
Company's products in the future. In addition, the laws of certain countries in
which the Company's products are or may be sold may not provide the Company's
products and intellectual property rights with the same degree of protection as
the laws of the U.S. There can be no assurance that these factors will not have
a material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON SUPPLIERS
Certain of the components used in the Company's products are obtained from
a single source or a limited group of suppliers. The Company's reliance on such
suppliers involves several risks, including a potential inability to obtain an
adequate supply of required components in a timely manner, price increases and
component quality. Although the Company seeks to reduce dependence on those sole
and limited source suppliers, the partial or complete loss of certain of those
sources could have at least a temporary material adverse effect on the Company's
results of operations and damage customer relationships. Further, a significant
increase in the price of one or more of these components could materially
adversely affect the Company's results of operations.
The Company relies on Delta Steel, Inc. ("Delta Steel") as its sole source
for braking and shaping the steel for monopoles. While the Company believes that
its contract with Delta Steel is adequate to supply its foreseeable needs, there
can be no assurance that Delta Steel will adequately or fully perform its
contractual obligations or that Delta Steel will not experience a partial or
complete loss of the equipment necessary to perform its contractual obligations.
The failure of Delta Steel to adequately or fully perform its obligations would
have a material adverse effect on the Company's business, financial condition
and results of operations.
AVAILABILITY AND PRICE OF STEEL AND ZINC
The Company's principal raw materials are steel and zinc. The Company's
ability to continue to acquire steel and zinc on favorable terms may be
adversely affected by factors beyond its control. Because steel and zinc
constitute a substantial portion of the Company's cost of goods sold, any
increase in the price of such materials could have a material adverse effect on
the Company's profit margin. There can be no assurance that the Company will be
successful in passing along any of these cost increases to its customers.
RISKS ASSOCIATED WITH THREE MANUFACTURING FACILITIES
The Company produces all of its products in three manufacturing facilities
located in Texas. As a result, any prolonged disruption in the operations at any
of the Company's manufacturing facilities, whether due to labor difficulties,
destruction of or damage to a facility or other reasons, could have a material
adverse effect on the Company's financial condition or results of operations.
See "Business -- Facilities."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support and finance and manufacturing personnel, certain of whom would be
difficult to replace. The loss of the services of certain of these executives
could have a material adverse effect on the Company. There can be no assurance
that the services of such personnel will continue to be available to the
Company. The Company has entered into employment agreements with certain members
of its senior management team. In addition, the Company believes that its
success depends on its ability to attract and retain additional qualified
employees and that the failure to recruit such other skilled personnel could
have a material adverse effect on the Company. See "Management -- Employment
Agreements" and "Certain Relationships and Related Transactions."
DEPENDENCE ON PERMITS, LICENSES AND ZONING
The Company's success will depend on the ability of the telecommunications
infrastructure industry to obtain the permits, licenses and zoning relief
necessary for the growth of the wireless communications networks. The
telecommunications infrastructure industry often encounters significant public
resistance when attempting to obtain the necessary permits, licenses and zoning
relief. There can be no assurance that the telecommunications infrastructure
industry can obtain the number of permits, licenses and zoning changes necessary
to continue the growth of the wireless communications networks. The failure of
the telecommunications infrastructure industry to obtain such permits, licenses
and zoning relief would have a material adverse effect on the Company's
business, financial condition and results of operations.
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DECREASED DEMAND FOR COMPANY'S PRODUCTS
The Company's success will depend on the continued demand for its products.
Certain factors could have the effect of significantly reducing or even
eliminating the demand for the Company's products, including technological
advancements, public resistance to infrastructure build-out, alternatives such
as co-location and non-tower or pole mounts, and the possible linkage of adverse
health consequences to wireless communication devices. Any decrease in demand
for the Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations.
ENVIRONMENTAL AND WORKER HEALTH AND SAFETY REGULATIONS
The Company is subject to various federal, state, local and foreign
environmental laws and regulations relating to the discharge, storage,
treatment, handling and disposal of certain materials, substances and water used
in, or resulting from, its operations and the remediation of contamination
associated with releases of hazardous substances both at the Company's
facilities and at offsite disposal locations. The Company's operations are also
governed by laws and regulations relating to workplace safety and worker health
that, among other things, regulate employee exposure to hazardous substances in
the workplace. The nature of the Company's operations exposes it to the risk of
liabilities or claims with respect to environmental and workplace health and
safety matters, and there can be no assurance that material costs will not be
incurred in connection with such liabilities or claims.
Based on information currently available to management, the Company
believes that the cost of compliance with existing environmental and health and
safety laws and regulations (and liability for known environmental conditions)
will not have a material adverse effect on the Company's business, financial
condition or results of operations. However, management cannot predict which
environmental or health and safety legislation or regulations will be enacted in
the future or how existing or future laws or regulations will be enforced,
administered or interpreted, nor can it predict the amount of future
expenditures that may be required in order to comply with such environmental or
health and safety laws or regulations or the response to such environmental
claims.
CONTROLLING SHAREHOLDERS
As a result of the Transactions, FWT Acquisition, a newly formed
wholly-owned subsidiary of Baker, holds approximately 80.0% of the Company's
outstanding voting stock. Therefore, Baker has the power to control all matters
submitted to shareholders of the Company, to elect a majority of the directors
of the Company and to exercise control over the business, policies and affairs
of the Company. The interests of Baker as an equity holder may differ from the
interests of holders of the Exchange Notes. See "Certain Relationships and
Related Transactions -- Transaction Agreements."
ABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
The source of funds for any repurchase required as a result of a Change of
Control will be the Company's available cash or cash generated from operating or
other sources, including borrowing, sales of assets, sales of equity or funds
provided by a new controlling person. Further, a Change of Control will likely
trigger an event of default under the Revolving Credit Facility, which would
permit the lenders thereto to accelerate the debt under the Revolving Credit
Facility. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required repurchases
of Notes tendered and to repay debt under the Revolving Credit Facility. Any
future credit agreements or other agreements relating to secured indebtedness to
which the Company may become a party may contain similar restrictions and
provisions. See "Description of Exchange Notes" and "Description of the
Revolving Credit Facility."
RISKS ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY
In connection with the Recapitalization, the Company has incurred
substantial indebtedness, including the indebtedness under the Notes and the
Revolving Credit Facility. If under relevant federal and state fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit by or on behalf of unpaid creditors of the
Company, a court were to find that, at the time the Notes were issued, (i) the
Company issued the Notes with the intent of hindering, delaying or defrauding
current or future creditors or (ii) (A) the Company received less than
reasonably equivalent value or fair consideration for issuing the Notes and (B)
the Company, (1) was insolvent or was rendered insolvent by reason of the
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<PAGE> 24
Transactions, (2) was engaged, or about to engage, in a business or transaction
for which its assets constituted unreasonably small capital, (3) intended to
incur, or believed that it would incur, debts beyond its ability to pay as such
debts matured (as all of the foregoing terms are defined in or interpreted under
such fraudulent conveyance statutes) or (4) was a defendant in an action for
money damages, or had a judgment for money damages docketed against it (if, in
either case, after final judgment, the judgment is unsatisfied), such court
could avoid or subordinate the Notes to presently existing and future
indebtedness of the Company and take other action detrimental to the holders of
the Notes, including, under certain circumstances, invalidating the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or local law that is being applied in any such
proceeding. Generally, however, the Company would be considered insolvent if, at
the time it incurs the indebtedness constituting the Notes, either (i) the fair
market value (or fair saleable value) of its assets is less than the amount
required to pay its total existing debts and liabilities (including the probable
liability on contingent liabilities) as they become absolute and mature or (ii)
it is incurring debts beyond its ability to pay as such debts mature.
The Company's Board of Directors and management believe that at the time of
its issuance of the Outstanding Notes, the Company (i)(A) was neither insolvent
nor rendered insolvent thereby, (B) had sufficient capital to operate its
business effectively and (C) was incurring debts within its ability to pay as
the same mature or become due and (ii) had sufficient resources to satisfy any
probable money judgment against it in any pending action. In reaching the
foregoing conclusions, the Company has relied upon its analysis of internal cash
flow projections and estimated values of assets and liabilities of the Company.
There can be no assurance, however, that such analysis will prove to be correct
or that a court passing on such questions would reach the same conclusions.
ABSENCE OF PUBLIC MARKET
There is no existing public market for the Outstanding Notes. The Company
does not intend to apply for listing of the Exchange Notes offered hereby on any
national securities exchange or to seek approval for quotation on NASDAQ. There
can be no assurance as to the liquidity of any markets that may develop for the
Exchange Notes, the ability of holders of the Exchange Notes to sell their
Exchange Notes or the price at which holders would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. The Initial Purchasers
have advised the Company that they currently intend to make a market in the
Exchange Notes offered hereby. However, the Initial Purchasers are not obligated
to do so and any market making may be discontinued at any time without notice.
IMPACT OF THE YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by the Year 2000.
The Year 2000 issue affects virtually all companies and organizations.
The Company intends to install new information systems so that its
computers will function properly with respect to dates in the Year 2000 and
thereafter. The Company presently believes that, with the installation of the
new information systems, the Year 2000 issue will not pose significant
operational problems. However, if such modifications are not made, or are not
timely completed, the Year 2000 issue could have a material adverse impact on
the operations of the Company.
The Company has not discussed the Year 2000 issue with its customers and
suppliers. There can be no assurance that the systems of these other companies
will be timely converted and the failure of the Company's significant suppliers
and customers to make necessary Year 2000 modifications could have a material
adverse impact on the Company's results and operations.
The Company is currently in negotiations with several information systems
providers with the view to selecting its new information systems. The Company
intends to obtain the systems through a "turn-key" transaction and finance the
transaction through a license agreement. The Company anticipates completing the
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Year 2000 project by April 30, 1999, which is prior to any impact of the Year
2000 on its operating systems. The Company estimates the cost of the project to
be approximately $2.5 million to $3.0 million.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. However,
there can be no assurance that these estimates and the timetable will be
achieved and actual results could differ materially from those anticipated.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement
with respect to the Outstanding Notes. The Company will not receive any cash
proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes contemplated in this Prospectus,
the Company will receive Outstanding Notes in like principal amount, the form
and terms of which are substantially similar to the form and terms of the
Exchange Notes except as otherwise described herein. The Outstanding Notes
surrendered in exchange for Exchange Notes will be returned to the Company and
canceled and cannot be reissued. Accordingly, the issuance of the Exchange Notes
will not result in any increase or decrease in the indebtedness of the Company.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on November 17, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Outstanding Notes with qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition of the purchase
of the Outstanding Notes by the Initial Purchasers, the Company entered into the
Registration Rights Agreement with the Initial Purchasers, which requires, among
other things, that the Company file with the Commission a registration statement
under the Securities Act with respect to an offer by the Company to the holders
of the Outstanding Notes to issue and deliver to such holders, in exchange for
Outstanding Notes, a like principal amount of Exchange Notes. The Company is
required to use its best efforts to cause the Registration Statement relating to
the Exchange Offer to be declared effective by the Commission under the
Securities Act and commence the Exchange Offer. The Exchange Notes are to be
issued without a restrictive legend and may be reoffered and resold by the
holder without restrictions or limitations under the Securities Act (other than
any such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act). A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
The term "Holder" with respect to the Exchange Offer means any person in
whose name the Outstanding Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all
Outstanding Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. On the Exchange Date, the Company will
issue $1,000 principal amount of Exchange Notes in exchange for $1,000 principal
amount of Outstanding Notes accepted in the Exchange Offer. Holders may tender
some or all of their Outstanding Notes pursuant to the Exchange Offer. However,
Outstanding Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (ii) the holders of the Exchange Notes will not be entitled
to certain rights under the Registration Rights Agreement. The Exchange Notes
will evidence the same debt as the Outstanding Notes and will be entitled the
benefits of the Indenture.
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As of the date of this Prospectus, $105,000,000 aggregate principal amount
of the Outstanding Notes was outstanding and registered in the name of Cede &
Co., as nominee for the Depository Trust Company. The Company has fixed the
close of business of March 13, 1998, as the record date for the Exchange Offer
for purposes of determining the persons to whom this Prospectus and the Letter
of Transmittal will be mailed initially.
The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of the
Commission thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Outstanding
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses."
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 9 7/8% per annum
and will be payable semi-annually on May 15 and November 15 of each year
commencing May 15, 1998. Interest on each Exchange Note will accrue (A) from the
later of (i) the last interest payment date on which interest was paid on the
Outstanding Note surrendered in exchange therefor, or (ii) if the Outstanding
Note is surrendered for exchange on a date in a period which includes the record
date for an interest payment date to occur on or after the date of such exchange
and as to which interest will be paid, the date of such interest payment date or
(B) if no interest has been paid on the Outstanding Notes, from the Issue Date.
PROCEDURES FOR TENDERING
Only a Holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a Holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Outstanding Notes and any other required documents, to the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Outstanding Notes, Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address set forth below
under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date. Delivery of the Outstanding Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representations set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
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CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Outstanding Notes, tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered Holder as such registered Holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Exchange Notes at DTC (the "Book-Entry Transfer Facility") for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Outstanding Notes by
causing such Book-Entry Transfer Facility to transfer such Outstanding Notes
into the Exchange Agent's account with respect to the Outstanding Notes in
accordance with the Book-Entry Transfer Facility's procedures for such transfer.
Although delivery of the Outstanding Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures; provided, however, that a
participant in DTC's book-entry system may, in accordance with DTC's Automated
Tender Offer Program procedures and in lieu of physical delivery to the Exchange
Agent of a Letter of Transmittal, electronically acknowledge its receipt of, and
agreement to be bound by, the terms of the Letter of Transmittal. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding
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Notes must be cured within such time as the Company shall determine. Although
the Company intends to notify Holders of defects or irregularities with respect
to tenders of Outstanding Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Outstanding Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Outstanding Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering Holders, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five Nasdaq Stock Market trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Outstanding Notes (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Outstanding Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility) and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within five Nasdaq Stock Market trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Outstanding Notes to be withdrawn (the
"Depositor"), (ii) identify the Outstanding Notes to be withdrawn (including the
certificate number(s) and principal amount of such Outstanding Notes, or, in the
case of Outstanding Notes transferred by book-entry transfer, the name and
number of the account at the Book-Entry Transfer Facility to be credited), (iii)
be signed by the Holder in the same manner as the original signature on the
Letter of Transmittal by which such Outstanding Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Outstanding Notes register
the transfer of such Outstanding Notes into the name of the person withdrawing
the tender, (iv) specify the name in which any such Outstanding Notes are to be
registered, if different from that of the Depositor and (v) if applicable
because the Outstanding Notes have been tendered pursuant to book-entry
procedures, specify the name and number of the participant's account at DTC to
be credited, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company,
24
<PAGE> 29
whose determination shall be final and binding on all parties. Any Outstanding
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Outstanding Notes so withdrawn are validly retendered. Any
Outstanding Notes which have been tendered but which are not accepted for
exchange, will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by
following one of the procedures described above under "Procedures for Tendering"
at any time prior to the Expiration Date.
EXCHANGE AGENT
Norwest Bank Minnesota, N.A. has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0113
By Hand: By Facsimile:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor (612) 667-4927
608 2nd Avenue Confirm by telephone:
Minneapolis, MN 55402 (612) 667-9764
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone, facsimile or in
person by officers and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and customary fees for its services and registration expenses,
including fees and expenses of the Trustee, filing fees, blue sky fees and
printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Outstanding Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Outstanding Notes for the
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be issued in the name of, any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of the Outstanding Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder or
any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, which is face value, as reflected in the Company's accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
25
<PAGE> 30
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by any holder of
such Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating, in
a distribution of the Exchange Notes may not rely on the position of the staff
of the Commission enunciated in Exxon Capital Holdings Corporation (available
May 13, 1988) or similar no-action letters, but rather must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In addition, any such resale transaction
should be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K of the
Securities Act. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Outstanding Notes, where such Outstanding Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) any Exchange Notes to be received by it
will be acquired in the ordinary course of its business, (ii) at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of Securities
Act) of the Exchange Notes in violation of the Securities Act, (iii) it is not
an "affiliate" (as defined in Rule 405 promulgated under the Securities Act) of
the Company, (iv) if such Holder is not a broker-dealer, it is not engaged in,
and does not intend to engage in, the distribution of Exchange Notes, and (v) if
such Holder is a broker-dealer (a "Participating Broker-Dealer") that will
receive Exchange Notes for its own account in exchange for Outstanding Notes
that were acquired as a result of market-making or other trading activities, it
will deliver a prospectus in connection with any resale of such Exchange Notes.
Further, by tendering in the Exchange Offer, each Holder that may be deemed an
"affiliate" (as defined under Rule 405 of the Securities Act) of the Company
will represent to the Company that such Holder understands and acknowledges that
the Exchange Notes may not be offered for resale, resold or otherwise
transferred by that Holder without registration under the Securities Act or an
exemption therefrom. The Company will agree to make available, during the period
required by the Securities Act, a prospectus meeting the requirements of the
Securities Act for use by Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements for use in connection with
any resale of Exchange Notes.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
SHELF REGISTRATION STATEMENT
If the Company is not permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by any applicable law or applicable
interpretation of the Commission or the staff of the Commission, the Company has
agreed to file with the Commission and use its best efforts to have declared
effective and keep continuously effective for up to three years a registration
statement that would allow resales of Outstanding Notes owned by such holders.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Outstanding Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
26
<PAGE> 31
The Company may in the future seek to acquire untendered Outstanding Notes
in open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company, however, has no present plans to acquire any
Outstanding Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any untendered Outstanding Notes.
THE RECAPITALIZATION AND STOCK PURCHASE
On November 12, 1997, the Company, FWT Acquisition and the Existing
Shareholders entered into, and consummated the transactions set forth in, the
Transaction Agreements. The Transaction Agreements contemplated, among other
things, two primary transactions. The first transaction contemplated by the
Transaction Agreements included (i) the incurrence by the Company of the Senior
Credit Facility, (ii) the redemption by the Company from the Existing
Shareholders of an aggregate of 235.86 shares of the Common Stock for aggregate
consideration of approximately $83.6 million, including related consulting,
legal and accounting costs of $1.2 million, (iii) the repayment of all the
outstanding funded indebtedness of the Company in an aggregate amount of
approximately $22.1 million, and (iv) the distribution of an immaterial amount
of selected assets to certain Existing Shareholders. The redemption price per
share is subject to an adjustment based upon the final determination of the
Company's working capital as determined as of the closing date. The second
transaction contemplated by the Transaction Agreements included the purchase by
FWT Acquisition of an aggregate of 108.91 shares of the Common Stock from
Existing Shareholders for aggregate consideration of approximately $36.0
million. As a result of the Transactions, FWT Acquisition holds approximately
80.0% of the issued and outstanding shares of the Common Stock, and the
Roll-over Shareholders hold in the aggregate approximately 20.0% of the issued
and outstanding shares of the Common Stock. For financial reporting purposes,
the Recapitalization was accounted for as an acquisition of treasury stock.
The borrowings under the Senior Credit Facility, cash from the Company of
approximately $5.0 million, notes payable of approximately $2.5 million, and the
distribution of selected assets, were used to consummate the Recapitalization.
In order to repay the Senior Credit Facility, the Company issued $105.0 million
in the aggregate principal amount of Outstanding Notes in the Initial Offering.
27
<PAGE> 32
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
historical basis as of October 31, 1997 and on a pro forma basis after giving
effect to the Transactions and the Initial Offering as if they had occurred on
October 31, 1997. This table should be read in conjunction with the "Selected
Historical Financial Data" and "Unaudited Pro Forma Financial Statements"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
----------------------
ACTUAL PRO FORMA
-------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Notes payable............................................... $20,468(1) $ 2,494(3)
Long-term debt (including current maturities):
Revolving Credit Facility(2).............................. -- --
Senior Subordinated Notes................................. -- 105,000
Other long-term debt...................................... 1,598 --
------- --------
Total notes payable and long-term debt............ 22,066 107,494
------- --------
Shareholders' equity (deficit):
Common stock.............................................. 4 4
Treasury stock, at cost, 235.86 shares.................... -- (83,602)(4)
Additional paid-in capital................................ 1 29,613(5)
Retained earnings......................................... 9,612 (2,380)
------- --------
Total shareholders' equity (deficit).............. 9,617 (56,365)
------- --------
Total capitalization.............................. $31,683 $ 51,129
======= ========
</TABLE>
- ---------------
(1) Notes payable consist of amounts owing under three notes payable to Bank One
Texas, N.A. in the original aggregate principal amount of $22.8 million and
one note payable to NationsBank of Texas, N.A. in the original principal
amount equal to $0.7 million.
(2) The Revolving Credit Facility will have no more than $25.0 million available
on a revolving basis. As of October 31, 1997, approximately $11.4 million
would have been available under the Revolving Credit Facility. See
"Description of the Revolving Credit Facility."
(3) Notes payable issued to certain Existing Shareholders in connection with the
redemption.
(4) Amount represents the aggregate redemption price paid to the Existing
Shareholders, including related consulting, legal and accounting costs of
$1.2 million, in connection with the Recapitalization.
(5) Represents the recording of a $40.0 million deferred tax asset net of a
$20.0 million valuation allowance in connection with the Stock Purchase. The
parties to the Transaction Agreements elected jointly to treat the
Transactions as an asset acquisition under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended. As a result, a deferred tax asset
has been recorded related to future tax deductions for the net excess of the
tax bases of the assets and liabilities over the financial statement
carrying amounts with a corresponding credit to additional paid-in capital.
The Company anticipates future taxable income after debt service sufficient
to realize the net deferred tax asset. In addition, the amount includes an
adjustment to reclassify undistributed Subchapter S corporation earnings to
additional paid-in capital.
28
<PAGE> 33
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements (the "Pro Forma
Financial Statements") of the Company are based on the audited and unaudited
financial statements of the Company included elsewhere in this Prospectus, as
adjusted to illustrate the estimated effects of the Transactions, which are
described in more detail below, the changing of the Company's federal tax status
from a Subchapter S corporation to a Subchapter C corporation and the Initial
Offering.
Two transactions were consummated in November 1997, the Recapitalization
and the Stock Purchase. The first transaction, the Recapitalization, included
(i) the incurrence by the Company of the Senior Credit Facility, (ii) the
redemption by the Company from the Existing Shareholders of an aggregate of
235.86 shares of the Common Stock, (iii) the issuance of notes payable to
certain Existing Shareholders in connection with the redemption, (iv) the
distribution of selected assets to certain Existing Shareholders, and (v) the
repayment of certain notes payable and all outstanding long term debt of the
Company. The second transaction, the Stock Purchase, included the purchase by
FWT Acquisition of an aggregate of 108.91 shares of the Common Stock from
Existing Shareholders. As a result of the Transactions, FWT Acquisition holds
approximately 80.0% of the issued and outstanding shares of Common Stock.
The Pro Forma Financial Statements of the Company have been prepared to
give effect to the Transactions, the changing of the Company's federal tax
status from a Subchapter S corporation to a Subchapter C corporation and the
Initial Offering (and the application of the net proceeds therefrom) as though
such transactions had occurred as of October 31, 1997, for the balance sheet
data, and as of May 1, 1996, for the results of operations data. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The Pro Forma Financial Statements should
be read in conjunction with the historical financial statements of the Company
included elsewhere herein.
The Pro Forma Financial Statements do not purport to be indicative of what
the Company's financial position or results of operations would have been had
the Transactions, the changing of the Company's federal tax status from a
Subchapter S corporation to a Subchapter C corporation and the Initial Offering
been completed as of the assumed dates and for the periods presented or that may
be obtained in the future.
29
<PAGE> 34
FWT, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
PRO FORMA AS PRO FORMA
ADJUSTMENTS FOR ADJUSTED FOR ADJUSTMENTS
THE TRANSACTIONS THE TRANSACTIONS FOR THE
THE AND CHANGE IN AND CHANGE IN INITIAL
COMPANY TAX STATUS TAX STATUS OFFERING TOTAL
------- ---------------- ---------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Sales........................ $71,188 $ -- $ 71,188 $ -- $71,188
Cost of sales................ 49,249 -- 49,249 -- 49,249
------- -------- -------- -------- -------
Gross profit............... 21,939 -- 21,939 -- 21,939
Selling, administrative and
general expenses........... 8,353 (1,300)(1) 7,053 250(2) 7,303
------- -------- -------- -------- -------
Operating income........... 13,586 1,300 14,886 (250) 14,636
Interest income.............. 272 -- 272 -- 272
Interest expense............. (75) (11,813)(4) (11,983) (10,369)(5) (11,103)
(170)(14) (564)(3)
75(6) 11,813(7)
Other income................. 571 (446)(8) 125 -- 125
------- -------- -------- -------- -------
Income before income tax
provision............... 14,354 (11,054) 3,300 630 3,930
Income tax provision......... 316 938(9) 1,254 239(9) 1,493
------- -------- -------- -------- -------
Net income................. $14,038 $(11,992) $ 2,046 $ 391 $ 2,437
======= ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
30
<PAGE> 35
FWT, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR SIX MONTH PERIOD ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
PRO FORMA AS
ADJUSTMENTS FOR ADJUSTED FOR PRO FORMA
THE TRANSACTIONS THE TRANSACTIONS ADJUSTMENTS
THE AND CHANGE IN AND CHANGE IN FOR THE
COMPANY TAX STATUS TAX STATUS INITIAL OFFERING TOTAL
------- ---------------- ---------------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Sales............................. $37,350 $ -- $37,350 $ -- $37,350
Cost of sales..................... 26,652 -- 26,652 -- 26,652
------- ------- ------- ------- -------
Gross profit............ 10,698 -- 10,698 -- 10,698
Selling administrative and general
expenses........................ 5,389 -- 5,389 125(2) 5,514
------- ------- ------- ------- -------
Operating income........ 5,309 -- 5,309 (125) 5,184
Interest income................... 246 -- 246 -- 246
Interest expense.................. (403) (5,906)(4) (5,991) (5,184)(5) (5,551)
403(6) (282)(3)
(85)(14) 5,906(7)
Other income...................... 281 (4)(8) 277 -- 277
------- ------- ------- ------- -------
Income before income
taxes................. 5,433 (5,592) (159) 315 156
Income tax provision.............. 113 (173)(9) (60) 119(9) 59
------- ------- ------- ------- -------
Net income.............. $ 5,320 $(5,419) $ (99) $ 196 $ 97
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
31
<PAGE> 36
FWT, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR SIX MONTH PERIOD ENDED OCTOBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
PRO FORMA AS PRO FORMA
ADJUSTMENTS FOR ADJUSTED FOR ADJUSTMENTS
THE TRANSACTIONS THE TRANSACTIONS FOR THE
THE AND CHANGE IN AND CHANGE IN INITIAL
COMPANY TAX STATUS TAX STATUS OFFERING TOTAL
------- ---------------- ---------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Sales................................ $27,132 $ -- $27,132 $ -- $27,132
Cost of sales........................ 18,771 -- 18,771 -- 18,771
------- ------- ------- ------ -------
Gross profit.................... 8,361 -- 8,361 -- 8,361
Selling, administrative and general
expenses........................... 2,942 -- 2,942 125(2) 3,067
------- ------- ------- ------ -------
Operating income................ 5,419 -- 5,419 (125) 5,294
Interest income...................... 116 -- 116 -- 116
Interest expense..................... (14) (5,906)(4) (5,991) (5,184)(5) (5,551)
14(6) (282)(3)
(85)(14) 5,906(7)
Other income......................... 41 4(8) 45 -- 45
------- ------- ------- ------ -------
Income (loss) before income
taxes......................... 5,562 (5,973) (411) 315 (96)
Income tax provision (benefit)....... 125 (281)(9) (156) 119(9) (37)
------- ------- ------- ------ -------
Net income (loss)............... $ 5,437 $(5,692) $ (255) $ 196 $ (59)
======= ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
32
<PAGE> 37
FWT, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF OCTOBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY
PRO FORMA AS PRO FORMA
ADJUSTMENTS FOR ADJUSTED FOR ADJUSTMENTS
THE TRANSACTIONS THE TRANSACTIONS FOR THE
THE AND CHANGE IN AND CHANGE IN INITIAL
COMPANY TAX STATUS TAX STATUS OFFERING TOTAL
-------- ---------------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $10,284 $100,000(4) $ 4,971 $ 105,000(5) $ 4,332
(2,380)(10) (5,639)(12)
(80,358)(11) (100,000)(7)
(22,066)(6)
(509)(14)
Accounts receivable, less allowance for
doubtful accounts of $175................... 7,433 -- 7,433 -- 7,433
Inventories................................... 11,427 -- 11,427 -- 11,427
Prepaid expenses.............................. 2,341 -- 2,341 -- 2,341
Other assets.................................. 857 (625)(11) 107 -- 107
(125)(11)
------- -------- -------- --------- --------
Total current assets................... 32,342 (6,063) 26,279 (639) 25,640
------- -------- -------- --------- --------
Property, Plant, and Equipment:
Land and land improvements.................... 818 -- 818 -- 818
Buildings and building improvements........... 4,488 -- 4,488 -- 4,488
Machinery and equipment....................... 6,079 -- 6,079 -- 6,079
------- -------- -------- --------- --------
11,385 -- 11,385 -- 11,385
Less accumulated depreciation................. (2,889) -- (2,889) -- (2,889)
------- -------- -------- --------- --------
Net property, plant and equipment...... 8,496 -- 8,496 -- 8,496
Other noncurrent assets......................... -- 20,000(13) 22,889 5,639(12) 26,148
2,380(10) (2,380)(7)
509(14)
------- -------- -------- --------- --------
Total assets........................... $40,838 $ 16,826 $ 57,664 $ 2,620 $ 60,284
======= ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Current portion of long-term debt............. $ 188 $ (188)(6) $ -- $ -- $ --
Accounts payable.............................. 5,184 -- 5,184 -- 5,184
Accrued expenses and other liabilities........ 3,971 -- 3,971 -- 3,971
Notes payable................................. 20,468 (20,468)(6) 2,494 -- 2,494
2,494(11)
------- -------- -------- --------- --------
Total current liabilities.............. 29,811 (18,162) 11,649 -- 11,649
------- -------- -------- --------- --------
Long-term debt, less current portion............ 1,410 100,000(4) 100,000 105,000(5) 105,000
-- (1,410)(6) -- (100,000)(7) --
------- -------- -------- --------- --------
Total liabilities...................... 31,221 80,428 111,649 5,000 116,649
------- -------- -------- --------- --------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $10 par value; 1,000 shares
authorized; 372 shares issued............... 4 -- 4 -- 4
Treasury stock, at cost, 235.86 shares........ -- (83,602)(11) (83,602) -- (83,602)
Additional paid-in capital.................... 1 20,000(13) 29,613 -- 29,613
9,612(9)
Retained earnings............................. 9,612 (9,612)(9) -- (2,380)(7) (2,380)
------- -------- -------- --------- --------
Total shareholders' equity (deficit)... 9,617 (63,602) (53,985) (2,380) (56,365)
------- -------- -------- --------- --------
Total liabilities and shareholders' equity.... $40,838 $ 16,826 $ 57,664 $ 2,620 $ 60,284
======= ======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
33
<PAGE> 38
FWT, INC.
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) Represents the reversal of a $1.3 million bonus paid in Fiscal Year 1997 to
certain Existing Shareholders of the Company, who transferred 100.0% of
their Common Stock in connection with the Transactions and whose employment
by the Company is not continuing.
(2) Represents an annual financial advisory fee of $0.25 million owed to Baker
Capital, an affiliate of FWT Acquisition, under the terms of the Financial
Advisory Agreement between the Company and Baker Capital. In addition,
Baker Capital can earn an additional fee of $0.25 million if the Company
achieves established EBITDA targets. No pro forma adjustment has been
reflected related to these additional fees as the Company's EBITDA on a pro
forma basis was below the established target.
(3) Represents recurring amortization of the deferred financing costs
associated with the Initial Offering over the life of the Notes.
(4) Represents the Senior Credit Facility and the related interest expense at a
rate of the greater of the 3 month LIBOR plus 6.0% and the ten-year
treasury rate plus 5.0% (subject to certain adjustments) and matures on
November 12, 2003.
(5) Represents the Notes and the related interest expense at a rate of 9.875%.
A one-half percent change in the interest rate of the Note would increase
or decrease interest expense by $0.525 million annually.
(6) Represents the $22.1 million repayment of all outstanding notes payable, of
which $20.0 million has been outstanding since July 23, 1997, and long term
debt of the Company and the related reduction of interest expense.
(7) Represents the repayment of the Senior Credit Facility with the proceeds
from the Initial Offering, the related reduction of interest expense and
for balance sheet purposes, the write-off of all deferred financing costs
associated with the Senior Credit Facility.
(8) Represents the elimination of the income and expenses related primarily to
farm assets distributed to certain Existing Shareholders in connection with
the redemption discussed in Note 11.
(9) Represents the provision for federal and state taxes assuming an effective
tax rate of 38.0% in connection with the Company changing its federal tax
status from a Subchapter S corporation to a Subchapter C corporation and
the tax effect of the pro forma adjustments. For balance sheet purposes, an
adjustment has been made to reclassify undistributed Subchapter S
corporation earnings to additional paid-in capital.
(10) Represents the capitalization of $2.4 million deferred financing costs
associated with the Senior Credit Facility. The deferred financing costs
associated with the Senior Credit Facility will be fully expensed at the
time of the Initial Offering. Therefore, the amortization of these costs
have not been considered in the Pro Forma Statements of Income as it
represents a non-recurring charge that will be included in the operations
of the Company within the next 12 months.
(11) Represents the redemption of an aggregate of 235.86 shares of the Common
Stock, at a total price of approximately $83.6 million including related
consulting, legal and accounting costs of $1.2 million, by the Company from
the Existing Shareholders. The total redemption price is detailed as
follows:
<TABLE>
<S> <C>
Cash to sellers............................................. $79.3
Notes payable to sellers.................................... 2.5
Assets distributed to sellers............................... .6
Consulting, legal and accounting costs...................... 1.2
-----
$83.6
=====
</TABLE>
The Company has recorded the redemption as a purchase of treasury stock.
(12) Represents the capitalization of approximately $5.6 million of deferred
financing costs associated with the Initial Offering, and includes a $1.0
million fee payable to Baker Capital in connection with the Initial
Offering.
(13) Represents the recording of a $40.0 million deferred tax asset net of a $20
million valuation allowance in connection with the Stock Purchase. The
parties to the Transaction Agreements elected jointly to treat the
Transactions as an asset acquisition under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended. As a result, a deferred tax
asset has been recorded related to future tax deductions for the net excess
of the tax bases of the assets and liabilities over the financial statement
carrying amounts with a corresponding credit to additional paid-in capital.
The Company anticipates future taxable income after debt service sufficient
to realize the net deferred tax asset. Any future change in the valuation
reserve will be reflected as a component of the Company's tax provision.
(14) Represents the capitalization of $.5 million of deferred financing costs
associated with the Revolving Credit Facility and the related amortization
of these costs over the life of the facility.
34
<PAGE> 39
SELECTED HISTORICAL FINANCIAL DATA
The selected historical income statement data for Fiscal Year 1995, Fiscal
Year 1996 and Fiscal Year 1997 and the summary historical balance sheet data for
Fiscal Year 1996 and Fiscal Year 1997 presented below were derived from the
historical financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants, whose report appears elsewhere in this
Prospectus. The summary historical financial data as of and for Fiscal Year
1993, Fiscal Year 1994 and the six month periods ended October 31, 1996 and 1997
were derived from the Company's unaudited financial statements which, in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for the fair presentation of the financial condition and
results of operations as of and for such period. The information contained in
this table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTH PERIOD
FISCAL YEAR ENDED APRIL 30, ENDED OCTOBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.......................... $14,663 $20,233 $30,388 $42,701 $71,188 $27,132 $37,350
Cost of sales.................. 11,552 16,041 23,838 32,006 49,249 18,771 26,652
------- ------- ------- ------- ------- ------- -------
Gross profit................... 3,111 4,192 6,550 10,695 21,939 8,361 10,698
Selling, general and
administrative.............. 3,197 3,849 4,139 4,244 8,353 2,942 5,389
------- ------- ------- ------- ------- ------- -------
Operating income............... (86) 343 2,411 6,451 13,586 5,419 5,309
Interest income (expense),
net......................... 63 44 69 123 197 102 (157)
Other income(1)................ 17 (50) 3 512 571 41 281
------- ------- ------- ------- ------- ------- -------
Income before income tax
provision................... (6) 337 2,483 7,086 14,354 5,562 5,433
Income tax provision(2)........ -- -- 53 162 316 125 113
------- ------- ------- ------- ------- ------- -------
Net income(2).................. $ (6) $ 337 $ 2,430 $ 6,924 $14,038 $ 5,437 $ 5,320
======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA(3)...................... $ 253 $ 633 $ 2,827 $ 7,494 $14,937 $ 5,835 $ 6,248
Depreciation................... 248 275 299 375 508 259 412
Capital expenditures........... 449 988 1,324 1,198 4,341 1,086 664
Cash flows provided by
operating activities........ 141 259 1,422 4,846 5,783 1,993 7,369
Cash flows used in investing
activities.................. (374) (971) (1,262) (1,182) (4,323) (1,076) (466)
Cash flows provided by (used
in) financing activities.... $ (13) $ 675 $ (300) $(1,459) $(1,025) $ 505 $(1,102)
Ratio of earnings to fixed
charges(4).................. .4x 17.05x 56.18x 215.73x 192.39x 398.29x 14.48x
BALANCE SHEET DATA:
Working capital................ $ 3,443 $ 3,660 $ 5,278 $ 9,815 $18,509 $14,370 $ 2,531
Total assets................... 6,929 8,716 11,854 19,489 40,203 27,523 40,838
Long term debt, less current
maturities.................. -- 575 475 375 1,512 325 1,410
Shareholders' equity........... $ 5,845 $ 6,182 $ 8,412 $13,977 $25,297 $19,414 $ 9,617
</TABLE>
(Footnotes continued on following page)
35
<PAGE> 40
- ---------------
(1) Other income consists primarily of income related to farm operations and the
disposition of farm assets. These assets have been distributed in connection
with the Transactions.
(2) The historical financial statements do not include a provision for federal
taxes as the Company has elected to be taxed as a Subchapter S corporation.
A provision for federal taxes has been reflected in the pro forma
information to reflect the change in tax status of the Company from a
Subchapter S corporation to a Subchapter C corporation. The following table
presents historical net income on a pro forma basis adjusted for a federal
tax provision (benefit).
<TABLE>
<CAPTION>
SIX MONTH PERIOD
FISCAL YEAR ENDED APRIL 30, ENDED OCTOBER 31,
-------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
$(4) $222 $1,604 $4,570 $9,265 $3,588 $3,511
</TABLE>
(3) EBITDA consists of net income before interest expense, taxes, depreciation
and amortization. EBITDA is included because it is widely used as a measure
of a company's operating performance, but should not be construed as an
alternative either (i) to net income (determined in accordance with
generally accepted accounting principles) as a measure of profitability or
(ii) to cash flows from operating activities (determined in accordance with
generally accepted accounting principles). EBITDA does not take into account
the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available
for discretionary use. In addition, as EBITDA may not be calculated in the
same manner by all companies and analysts, the EBITDA measures presented may
not be comparable to other similarly titled measures of other companies.
(4) The ratio of earnings to fixed charges on a pro forma basis is 1.35x for the
fiscal year ended April 30, 1997, and 1.03x and .98x for the six month
periods ended October 31, 1997 and 1996, respectively.
36
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company as of and for Fiscal Year 1995, Fiscal Year 1996 and
Fiscal Year 1997 and for the six month periods ended October 31, 1996 and
October 31, 1997. The discussion should be read in conjunction with the
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus. This Prospectus contains, in addition to historical
information, forward-looking statements that include risks and uncertainties.
The Company's actual results may differ materially from those anticipated in
these forward-looking statements.
OVERVIEW
The Company is a recognized name in the design, manufacture and marketing
of communications infrastructure products, including monopoles, towers,
Cell-Sites-on-Wheels ("COWS"), shelters and PowerMount(TM), used primarily in
the construction of wireless communications networks. The Company's product line
is used by customers in the cellular, PCS, enhanced ESMR, paging, radio and
television broadcasting and microwave industries. The Company's customers
include many of the larger domestic communications service providers, such as
AT&T Wireless, MCI, Nextel and Sprint Spectrum.
The following table summarizes FWT's historical sales by product line.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTH PERIOD ENDED
----------------------------------- --------------------------
APRIL 30, APRIL 30, APRIL 30, OCTOBER 31, OCTOBER 31,
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Towers................................ $20,429 $17,862 $25,092 $10,114 $16,758
Monopoles............................. 2,377 5,852 28,080 8,982 10,255
Other(1).............................. 7,582 18,987 18,016 8,036 10,337
------- ------- ------- ------- -------
Total Sales................. $30,388 $42,701 $71,188 $27,132 $37,350
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes Shelters, COWS, PowerMount(TM), Generators, Freight and Engineering
Services.
The Company's sales have grown from $14.7 million in Fiscal Year 1993 to
$71.2 million in Fiscal Year 1997, representing a CAGR of 48.4%. This growth has
been driven by external and internal factors. The primary external factor is the
growth of wireless communications networks in the U.S., which in turn has fueled
demand for the Company's products. In order to capitalize on this growth, the
Company has made a variety of strategic internal changes, including (i)
introducing a direct sales force; (ii) developing strategic relationships with
key suppliers; (iii) investing in automation; and (iv) increasing investment in
customer service. These internal and external trends are expected to continue to
benefit the Company in the future.
The Company's operations are characterized by a high degree of automation
in the design process and strategic outsourcing of non-core functions.
Management believes that these initiatives have led to decreases in purchasing
and manufacturing costs as a percentage of revenue and have limited investment
in plant and working capital.
The Company's principal raw materials are steel and zinc. Because price
increases in materials affect all competitors equally and because most contracts
have provisions for materials price increases, any increases in the cost of
goods sold resulting from raw material price increases have historically been
passed along to the customer. Furthermore, the Company's outsourcing contracts
have reduced its inventory risk by supplying a number of components on a
just-in-time basis.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of each statement of income item to total sales and selected cash
flow data. The information for the six month periods is unaudited, but includes
all adjustments which management considers necessary for a fair presentation
thereof. The results
37
<PAGE> 42
of operations are not necessarily indicative of results for any future period.
The following data should be read in conjunction with the Financial Statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTH PERIOD ENDED
----------------------------------- --------------------------
APRIL 30, APRIL 30, APRIL 30, OCTOBER 31, OCTOBER 31,
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales......................... 78.4 75.0 69.2 69.2 71.4
------- ------- ------- ------- -------
Gross Profit.......................... 21.6 25.0 30.8 30.8 28.6
Selling, General and Administrative... 13.6 10.0 11.7 10.8 14.4
------- ------- ------- ------- -------
Operating Income...................... 8.0 15.0 19.1 20.0 14.2
------- ------- ------- ------- -------
Earnings before State Taxes........... 8.2 16.6 20.2 20.5 14.5
Provision for State Taxes(1).......... 0.2 0.4 0.4 0.5 0.3
------- ------- ------- ------- -------
Net Income............................ 8.0% 16.2% 19.7% 20.0% 14.2%
Other Data:
EBITDA................................ 9.3% 17.6% 21.0% 21.5% 16.7%
OTHER FINANCIAL DATA: ($ IN THOUSANDS)
Cash flows provided by operating
activities.......................... $ 1,422 $ 4,846 $ 5,783 $ 1,933 $ 7,369
Cash flows used in investing
activities.......................... (1,262) (1,182) (4,323) (1,076) (466)
Cash flows provided by (used in)
financing activities................ $ (300) $(1,459) $(1,025) $ 505 $(1,102)
</TABLE>
- ---------------
(1) As an S corporation, the Company historically has not incurred federal
income taxes. Earnings for federal tax purposes have been taxed to the
individual owners as they are earned.
SIX MONTH PERIOD ENDED OCTOBER 31, 1997 COMPARED TO SIX-MONTH PERIOD ENDED
OCTOBER 31, 1996
Sales. Sales increased by $10.2 million to $37.4 million, an increase of
37.7%. The increase in sales was driven primarily by a $1.3 million or 14.2%
increase in sales of monopoles and a $6.6 million or 65.7% increase in sales of
towers. The Company's percentage increase in sales for the six-month period of
37.7% is below the Company's CAGR from 1993 to 1997 of 48.4%. The Company's
quarterly results fluctuate due to, among other reasons, the timing of shipments
to customers. The Company's revenue recognition policy recognizes revenue when
the earnings process is complete, which is generally at the time of product
shipment. In circumstances where shipments are delayed at the request of a
customer, revenue is recognized upon completion of the product and payment by
the customer. Management believes that payment represents acknowledgment by the
customer that all contractual terms are binding, the product has been
manufactured according to customer specifications and engineering design, the
product is available for delivery according to the schedule fixed by the
customer, and the Company is not responsible for delivery or installation. As a
result, the Company believes that the risk of ownership has passed and the
earnings process is complete. The Company maintains "care and custody" insurance
coverage on these products even though not contractually required to do so by
its customer base. The Company typically holds orders for which it has received
payment 100 days or less before shipment and these orders have historically
represented less than 10% of sales. For the six-month period ended October 31,
1997, completed orders not yet shipped and recognized as revenue increased $4.6
million over the comparable period ended October 31, 1996. During the six-month
period ended October 31, 1997, the Company experienced an increase in
manufacturing activities to bring orders to completion, however, the timing of
shipments, which is largely outside the control of the Company, did not occur on
several completed orders due to the customer sites not being ready for delivery.
Cost of Sales. Cost of sales for the six month period ended October 31,
1997 increased $7.9 million to $26.7 million. Cost of sales as a percentage of
revenue increased to 71.4% as compared to 69.2% for the comparable period in
1996. The Company attributes the increase in cost of sales for the period to
inefficiencies, primarily resulting from the transition of previously
out-sourced monopole production to in-house production. The Company believes
this transition to in-house production will reduce its material
38
<PAGE> 43
handling cost in future periods and provide better control over the production
scheduling of these tasks. In addition, the Company experienced pricing pressure
during the period due to increased competition in the market. The Company
believes this pricing pressure may continue in some markets and could have some
deteriorating effect on margins in future periods until full-capacity levels in
the manufacturing of monopoles and towers is reached.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six month period ended October 31, 1997
increased by $2.5 million to $5.4 million. As a percentage of sales, selling,
general and administrative expenses increased to 14.4% as compared to 10.8% for
the comparable period in 1996. For the six month period ended on both October
31, 1997 and 1996, selling expenses were 21%, and general and administrative
expenses were 79% of total selling, general and administrative expense. Cost of
personnel for the six month period ended October 31, was $3.9 million in 1997
and $1.9 million in 1996. All other selling, general and administrative
expenses, including information systems support, was $1.5 million in 1997 and
$1.0 in 1996 for the six month period ended October 31. The increase reflects
the investment made by the Company to build the in-house direct sales force, to
enhance manufacturing information systems, and increase administrative
personnel. The Company believes the investment will enable it to gain market
share, improve customer service and response, and more closely monitor
production costs with better information reporting systems.
The Company also recognized charges of $.6 million that related to
incentive based bonus arrangements paid to certain members of management for the
six-month period, as compared to $0 for the same period in 1996.
FISCAL YEAR ENDED APRIL 30, 1997 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1996
Sales. Sales increased by $28.5 million to $71.2 million, an increase of
66.7%. The increase in sales was fueled by an increase in demand for PCS and
cellular cell sites among several of the Company's key customers. The addition
of a direct sales force resulted in increased sales to key customers.
Cost of Sales. Cost of sales increased by $17.2 million to $49.2 million.
Cost of sales as a percentage of revenue decreased from 75.0% in 1996 to 69.2%
in 1997 because of price increases of the Company's products combined with
purchasing economies of scale and volume-based manufacturing efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.1 million to $8.4 million. As a
percentage of sales, this represents an increase from 10.0% in 1996 to 11.7% in
1997. For the period ended April 30, 1997, selling expenses represented 21% and
general and administrative expenses represented 79% of total selling, general
and administrative expenses compared to 18% and 82% for the respective expense
categories in 1996. During this period, the Company significantly expanded its
direct sales force and increased its engineering and project management staff
and as a result, cost of personnel was $5.6 million in 1997 compared to $2.4
million in 1996. Additionally, bonuses in the amount of $1.3 million were paid
to certain Existing Shareholders in 1997 and are included in the cost of
personnel. All other selling, general and administrative expenses, including
information systems support, was $2.8 million in 1997 and $1.7 million in 1996.
FISCAL YEAR ENDED APRIL 30, 1996 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1995
Sales. Sales increased by $12.3 million to $42.7 million, an increase of
40.5%. The sales increase was fueled by an increase in demand for cellular and
ESMR cell sites.
Cost of Sales. Cost of sales increased by $8.2 million to $32.0 million.
Cost of sales as a percentage of revenue decreased from 78.4% in 1995 to 75.0%
in 1996, due to purchasing economies of scale resulting from volume-based
contracts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained relatively constant at $4.2 million compared to
$4.1 million in 1995. As a percentage of sales, however, this represented a
decrease from 13.6% to 10.0% as the Company leveraged off its master contracts
and increased volume without increasing its sales force. For the period ended
April 30, 1996, selling expenses were 18% and
39
<PAGE> 44
general and administrative expenses were 82% of total selling, general and
administrative expenses compared to 13% and 87%, respectively, for 1995. Cost of
personnel was $2.4 million for 1996 compared to $3.0 million in 1995. In
addition, the Company decreased its expenditures on advertising and trade shows
in anticipation of a shift in the Company's focus to direct sales.
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. Management believes this
quarterly fluctuation is due to the capital budgeting cycle of many of its
customers who often purchase a disproportionately higher share of the Company's
products at the end of such customer's fiscal year to reach their annual cell
site development goals. This typically falls in the fourth and first quarters of
the calendar year, which approximately corresponds to the third and fourth
quarters of FWT's Fiscal Year. In addition, the zoning approval process adds an
element of unpredictability to the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through internally
generated funds and existing cash reserves. Other than the Distribution, the
Company has not historically distributed its earnings. The Company produced net
cash flow of $5.8 million for the six month period ended October 31, 1997 and
$1.4 million for the comparable period ended October 31, 1996. The net cash flow
for the six month period ended October 31, 1997 includes $7.4 million in cash
provided by operations and $0.5 million in cash used for investing activities.
The net cash used in financing activities for the six month period ended October
31, 1997 was $1.1 million. The $1.1 million primarily reflects the net of $20
million in borrowings used to finance a $21 million distribution to T.W. Moore
and Betty Moore. The loan was repaid in November 1997 in connection with the
Recapitalization.
The Company produced net cash flow of $.4 million for the year ended April
30, 1997, and $2.2 million for the year ended April 30, 1996. The net cash flow
for the year ended April 30, 1997, includes $5.8 million in cash from
operations, which was partially offset by a use of $4.3 million in investing
activities and a use of $1.0 million in financing activities. Included in the
$5.8 million in cash from operations is an increase of $7.4 million in
inventories. The increase in inventories primarily relates to the significant
growth in the business. In addition, this increase was a result of completed
orders not yet shipped and recognized as revenue under the terms of the
Company's revenue recognition policy. Historically, inventory obsolescence has
not been a significant cost. Management periodically reviews inventory
throughout the year to determine that its carrying value of inventory is valued
at the lower of cost or market.
The net cash flow for the year ended April 30, 1996, includes $4.8 million
in cash from operations and the use of $1.2 million and $1.5 million in cash
related to investing and financing activities, respectively. The Company
produced net cash flow of $(.1) for the year ended April 30, 1995, which
consisted of $1.4 million in cash from operations and the use of $1.3 million
and $.3 million in cash related to investing and financing activities,
respectively.
The Company determines its short term liquidity needs based upon its needs
over the next twelve months, and its long term liquidity needs based upon its
needs over periods in excess of twelve months. In connection with the
Transactions, the Company incurred indebtedness of $100.0 million under the
Senior Credit Facility and $2.5 million in notes payable to certain Existing
Shareholders. The Company has used substantially all of the net proceeds from
the Initial Offering to repay the Senior Credit Facility. The Company will be
required to repay the notes payable within the next twelve months, which could
affect short-term liquidity. In addition to the Notes, the Company entered into
the Revolving Credit Facility which, subject to borrowing base limitations and
the satisfaction of customary borrowing conditions, allows the Company to borrow
up to $25.0 million. As a result of the Transactions, the Company's principal
sources of short term and long term liquidity are cash flow generated from
operations and borrowings under the Revolving Credit Facility. The Company's
principal uses of liquidity are to meet debt service requirements, finance the
Company's capital expenditures and provide for working capital needs. As of
October 31, 1997, the Company would have had approximately $11.4 million of
availability under the Revolving Credit Facility. The Revolving Credit Facility
40
<PAGE> 45
requires the Company to maintain, on the basis of the latest twelve months of
operations: (A) a ratio of consolidated EBITDA to consolidated interest expense
of no less than (i) 1.10:1 until October 30, 1998; (ii) 1.60:1 from November 1,
1998 until October 30, 1999; (iii) 1.80:1 from November 1, 1999 until October
30, 2000 and (iv) 1.90:1 from November 1, 2000 until October 30, 2001; (B) a
ratio of consolidated total debt to consolidated EBITDA of no more than (i)
10.85:1 until October 30, 1998; (ii) 6.25:1 from November 1, 1998 until October
30, 1999; (iii) 5.75:1 from November 1, 1999 until October 30, 2000 and (iv)
5.25:1 from November 1, 2000; until October 30, 2001; and (C) a minimum
consolidated EBITDA of (i) $10,000,000 until October 30, 1998; (ii) $18,200,000
from November 1, 1998 until October 30, 1999; (iii) $19,800,000 from November 1,
1999 until October 30, 2000; and (iv) $20,200,000 from November 1, 2000 until
October 30, 2001. The Revolving Credit Facility also limits the Company to the
following maximum amount of consolidated capital expenditures: (i) $9,500,000
until October 30, 1998 and (ii) $4,800,000 for the periods November 1, 1998 to
October 30, 1999, November 1, 1998 to October 30, 1999, November 1, 1999 to
October 30, 2000 and November 1, 2000 to October 30, 2001, provided that any
amount specified above for any period can be increased by 50% of the excess, if
any, of the amount permitted for the preceding period over the actual amount of
consolidated capital expenditures for such previous period. Also, the Revolving
Credit Facility limits the indebtedness that the Company may incur. The
permitted indebtedness includes, but is not limited to (i) indebtedness incurred
under the Indenture and the Transactions, (ii) indebtedness incurred under the
Revolving Credit Facility, (iii) indebtedness incurred with respect to
contingent obligations in respect of customary indemnification and purchase
price adjustment obligations incurred in connection with sales of assets; and
(iv) indebtedness incurred in connection with capital leases or purchase money
indebtedness, as long as such indebtedness does not exceed $100,000. The Company
is presently in compliance with all financial ratio requirements and similar
limitations set forth in the Revolving Credit Facility.
The Company has a capital expenditure budget of approximately $4.5 million
for calendar year 1998, of which an estimated $3.1 million is expected to be
spent in Fiscal Year 1998. The Company has budgeted $1.9 million for
enhancements to production capacity and $1.8 million for manufacturing equipment
and additions to manufacturing buildings. Of the $3.7 million budgeted for these
items, the Company expects to spend $2.7 million in Fiscal Year 1998. The
additional capital expenditures in Fiscal Year 1998 are to be spent on site
development and miscellaneous office equipment. Moreover, the Company has leased
additional office space in Arlington, Texas for its administrative staff. The
Company plans to sell the property it owns in Ft. Worth, Texas and to
consolidate the manufacturing operations at that location into the operations at
the site in Kennedale, Texas. The Company expects the occupation of the office
space and the consolidation of manufacturing operations to occur in the fourth
quarter of Fiscal Year 1998. The Company expects annual capital expenditures on
a going forward basis of approximately $3.0 million.
The Company is currently in negotiations with several information systems
providers in order to select new information systems. The Company's intent is to
obtain the system as a "turn-key" transaction and to finance the transaction as
a license agreement. The selected provider will be expected to provide a
financing arrangement, which should allow a cash outflow over a three to four
year period with a minimum initial capital outlay. The Company believes it will
be able to find such a provider based upon the negotiations at this time.
Management believes that the estimated cost of the system change, depending on
the software selected, will be between $2.5 million and $3.0 million. The
Company continues to make enhancements to its existing information system to
assure that the Company's information systems continue to meet the Company's
internal needs and the needs of its customers. However, the cost of those
enhancements is not expected to be significant. The new information systems
licensing arrangement will also address existing systems that will be adversely
affected by the date change in the Year 2000.
As the Company's business grows, its equipment and working capital
requirements will also continue to increase. These funding requirements will be
met through a combination of cash from operations and funds drawn under the
Revolving Credit Facility. The Company believes that these sources will be
sufficient to meet short-term liquidity needs and to finance working capital and
capital expenditures for the next twelve months. There can be no assurance,
however, that such resources will be sufficient to meet the Company's
anticipated requirements or that the Company will not require additional debt or
equity financing within this time frame.
41
<PAGE> 46
INFLATION
Certain of the Company's expenses, such as compensation benefits, raw
materials and equipment repair and replacement, are subject to normal
inflationary pressures. While the Company to date has been able to offset
inflationary cost increases through increased operating efficiencies and price
increases to its customers, there can be no assurance that the Company will be
able to offset any future inflationary cost increases through these or similar
means.
RECENT DEVELOPMENTS
The Company expects to report total sales of $20.7 million for the quarter
ended January 31, 1998 as compared to total sales of $22.2 million for the same
period in 1997. The decrease in revenue for the three month period ended January
31, 1998 compared to the same period in 1997, is primarily attributed to a
decrease in demand for monopoles and monopole products. The Company believes the
decrease in demand for these products reflects the focus in the market on
heavier structures, such as towers, which are used in co-location and corridor
sites. In addition, the Company's customer base of primary telecommunication
service providers has, in some instances, postponed the capital expenditure
process for the construction of cell site locations due to the recent entry into
the market of build-to-suit suppliers, who are also part of the Company's
customer base. As a result of the entry of build-to-suit providers into the
market, the Company believes the demand for the Company's products has been
pushed to future periods. This information is unaudited and preliminary in
nature and is subject to internal analysis and procedures necessary to finalize
the Company's financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------
1998 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Statement of Income
Sales..................................................... $20,691 $22,169
Cost of sales............................................. 14,692 15,337
Selling, general and administrative expenses.............. 2,874 3,237
------- -------
Operating income.................................. 3,125 3,595
Interest expense(2)....................................... (2,601) (30)
Other income.............................................. 170 154
------- -------
Income before provision for income taxes and
extraordinary item.............................. 694 3,719
Provision for income taxes................................ 255 99
------- -------
Income before extraordinary item.................. 439 3,620
Extraordinary item (net of taxes)(3)...................... (1,517) --
------- -------
Net income........................................ $(1,078) $ 3,620
======= =======
Other Data:
EBITDA(1)................................................. $ 3,560 $ 3,871
Depreciation.............................................. $ 265 $ 122
Ratio of earnings to fixed charges........................ 1.27 124.97
</TABLE>
- ---------------
(1) EBITDA consists of net income before interest expense, taxes, depreciation,
amortization and extraordinary items. EBITDA is included because it is
widely used as a measure of a company's operating performance, but should
not be construed as an alternative either (i) to net income (determined in
accordance with generally accepted accounting principles) as a measure of
profitability or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles). EBITDA does not
take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use. In addition, as EBITDA may not be
calculated in the same manner by all companies and analysts, the EBITDA
measures presented may not be comparable to other similarly titled measures
of other companies.
(2) Increase in expense relates to interest on the Outstanding Notes.
(3) Represents the write-off of all deferred financing costs associated with the
Senior Credit Facility. The Senior Credit Facility was paid with the
proceeds from the Initial Offering.
42
<PAGE> 47
BUSINESS
GENERAL
The Company is a recognized name in the design, manufacture and marketing
of wireless communications infrastructure products, including monopoles and
towers. The Company's product line is used by customers in the cellular, PCS,
ESMR, paging, radio and television broadcasting and microwave industries. The
Company's customers include many of the larger wireless service providers, such
as AT&T Wireless, MCI, Nextel and Sprint Spectrum. During Fiscal Year 1997,
sales to AT&T Wireless accounted for approximately 25.0% of the Company's net
revenues. Because all wireless service providers need infrastructure products,
the Company believes it is well-positioned to capitalize on the continued growth
of the wireless communications industry, regardless of which technologies or
service providers dominate the industry in the future.
The Company's sales have grown from $14.7 million in Fiscal Year 1993 to
$71.2 million in Fiscal Year 1997, representing a CAGR of 48.4%. For the 12
months ended April 30, 1997, the Company generated pro forma sales of $71.2
million, and pro forma EBITDA of $15.5 million.
PRODUCTS
The Company has grown from a small manufacturing shop into an industry
leader with three manufacturing facilities that provide a broad array of
infrastructure products for the telecommunications industry, including:
Monopoles. Monopoles are tapered, sleeve-fit or round flange-fit antenna
structures that serve as an alternative to towers, and are generally regarded as
more aesthetically pleasing and easier to install than towers.
Towers. Lattice towers are vertical structures most frequently used by
wireless and broadcast service providers to support antennas. They can be
self-supporting, typically three-legged structures, or supported by guy wires
attached to anchors in the ground.
COWS. COWS are mobile structures that combine an antenna support
structure, power supply and radio equipment enclosure. COWS are used when
temporary coverage is needed, often before a permanent site is built, for
special high usage events or for disaster recovery.
Shelters. Shelters are small, pre-fabricated buildings which are used to
house the electronic equipment required at cell sites. Shelters generally range
from 100 to 500 square feet and are typically made with an aluminum exterior.
PowerMount(TM). The PowerMount(TM) is a patented product that allows a
wireless service provider to install a fully sectored antenna array on an
electrical utility support structure, thereby taking advantage of an existing
site.
The following chart displays sales of the Company by product category.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED ($ IN THOUSANDS)
---------------------------------------------------
SALES BY PRODUCT CATEGORY APRIL 30, 1995 APRIL 30, 1996 APRIL 30, 1997
------------------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Towers....................................... $20,429 67.2% $17,862 41.8% $25,092 35.2%
Monopoles.................................... 2,377 7.8% 5,852 13.7% 28,080 39.5
Other(1)..................................... 7,582 25.0% 18,987 44.5% 18,016 25.3
------- ---- ------- ---- ------- -----
Total Sales........................ $30,388 100% $42,701 100% $71,188 100.0%
======= ==== ======= ==== ======= =====
</TABLE>
- ---------------
(1) Includes Shelters, COWS, PowerMount(TM), Generators, Freight and Engineering
Services.
COMPETITIVE STRENGTHS
The Company believes that its products and customer service distinguish it
as one of the leading designers and manufacturers of telecommunications
infrastructure products and that the Company's strong
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<PAGE> 48
market position in its product segments and continued opportunities for growth
and profitability are attributable to the following competitive strengths:
- REPUTATION FOR CUSTOMER SERVICE AND ON-TIME DELIVERY. Management
believes that one of FWT's greatest competitive advantages is its strong
tradition of, and reputation for, customer service. The use of a direct
sales force plays a significant role in customer service. In addition,
over the past three years, the Company has invested in the implementation
of a CAD/CAM system which allows the Company to respond efficiently to
customers' requests and helps the Company to reduce delivery times. The
majority of the Company's customers are wireless service providers that
compete in an industry where time to market is critical. Because time to
market is critical, if the Company does not continue to provide on-time
delivery, the Company could lose customers. FWT believes it has a
significant competitive advantage in meeting these customers' needs by
reliably meeting their often aggressive time frames.
- REPUTATION FOR HIGH QUALITY PRODUCTS. The Company's design and
production processes allow the Company to achieve and maintain a
consistent product quality. Moreover, the Company maintains rigorous
quality control standards which helps to ensure accurate shipments to
customers.
- LOW COST STRUCTURE THROUGH STRATEGIC RELATIONSHIPS. The Company believes
it enjoys a position as a low cost provider. This position has resulted
from the formation of two key strategic relationships which management
believes will enable it to (i) reduce purchasing and manufacturing costs
as a percentage of total sales, (ii) focus on its core competencies in
product design and finishing, quality control, customer service and sales
and marketing, and (iii) limit its plant and working capital investments.
The first of these key strategic relationships allows FWT to take
delivery of steel on a just-in-time basis. The second relationship will
allow FWT to galvanize its monopoles at a third party-owned facility
adjacent to its present manufacturing facility located near Fort Worth,
Texas. Construction has begun on such facility and completion is expected
in the late spring or early summer of 1998. These strategic relationships
are important and, should they terminate, the Company's profits could
decline significantly.
- SOLID MARKET POSITIONS IN GROWTH INDUSTRY. The Company believes it is
currently the second largest participant in each of the monopole and
tower markets and, in recent years, it has significantly increased its
market share in each of these markets. Although the Company believes it
is well positioned to benefit from the expected growth in the wireless
communications industry because of its strong market positions, there are
other competitors in both the monopole and tower markets who could
increase their market share. This could reduce the benefit that the
Company might derive from industry growth.
- EXPERIENCED MANAGEMENT TEAM. Substantially all of the Company's
executive officers have spent considerable portions of their careers in
manufacturing. Moreover, Roy J. Moore and Carl R. Moore, who are
President and Vice President, respectively, of the Company, have played a
significant role in the Company's growth over the last five years.
Management's expertise and in depth knowledge of the Company's products
and customers are further complemented by the experience of the
principals at Baker, a private equity fund that focuses specifically on
telecommunications services, equipment and applications.
BUSINESS AND GROWTH STRATEGY
Management believes that the Company's growth will be driven by leveraging
its competitive strengths, and in particular its excellent reputation, into a
stronger market position, by (i) capitalizing on the growth of the wireless
communications industry, (ii) broadening its base of product offerings, (iii)
pursuing certain acquisitions and alliances on a forward integrated basis, and
(iv) expanding into international markets.
- CAPITALIZE ON GROWTH IN THE WIRELESS COMMUNICATION INDUSTRY. The Company
has grown rapidly over the past five years by taking advantage of the
growing demand for wireless communications services, and by positioning
itself as a reliable, customer focused provider of infrastructure
products. However, the Company must work to manage its growth so that it
can continue to satisfy its customers. The Company believes that there
are several industry trends which indicate an increase in demand for
44
<PAGE> 49
wireless communications infrastructure products. These include: (i) the
continued construction of cellular networks which is expected to grow as
providers make capacity enhancements and transition from analog to
digital; (ii) the widespread introduction of PCS; (iii) the launch of
HDTV; and (iv) the growth of WLL systems which is expected to increase,
particularly in emerging economies.
- BROADEN PRODUCT OFFERINGS. The Company has developed relationships with
numerous electrical utility companies through the introduction of its
PowerMount(TM) product, which provides a co-location opportunity within a
standard electrical transmissions structure. The Company plans to market
this product and other utility applications in the future and believes
these relationships will prove beneficial in entering these markets. In
addition, the introduction of HDTV will require towers of over one
thousand feet and are expected to sell for approximately $1.0 million
each. The Company believes it is well-positioned to take advantage of
each of these opportunities.
- PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. The Company plans to
evaluate selective opportunities that will enhance its position within
the cell site development process. The Company believes there are various
opportunities beyond providing infrastructure products used in the
construction of communication networks. These include site installation
services, tower ownership and management businesses. The Company believes
these closely related businesses could be integrated with its current
operations to increase the value the Company provides to its customer
base. From time to time, the Company engages in discussions or otherwise
evaluates opportunities that may lead to the acquisition by the Company
of one or more closely related businesses. The ability of the Company to
complete any such acquisitions is subject to limitations imposed by the
terms and conditions of the Revolving Credit Facility and the Indenture.
Moreover, Baker has informed the Company that it is in negotiations
relative to an investment in one or more businesses closely related to
that of the Company. It is possible that in the future Baker may engage
in discussions with the Company with a view to combining any business
acquired by Baker with that of the Company. Moreover, in an acquisition
currently under negotiation by Baker, it is contemplated that the Company
would enter into a mutually acceptable management services agreement with
the business that is the subject of such negotiations, pursuant to which
the Company would provide certain management services and receive a
management fee. The definitive terms and conditions of such management
services agreement have not been determined. The ability of the Company
to engage in any transaction with Baker or any of its affiliates is
limited by the terms and conditions of the Revolving Credit Facility and
the Indenture.
- EXPAND INTO INTERNATIONAL MARKETS. The Company believes there are
considerable opportunities to expand its geographical reach particularly
into Asia and Latin America. The trend towards global deregulation of
telecommunications markets provides substantial growth opportunities for
wireless infrastructure providers. The Company believes its strong
relationships with its customers, many of whom are already building
networks internationally, provides an advantage in competing for
infrastructure business in new international markets. In addition, the
Company believes there may be strategic opportunities for joint ventures
in foreign markets, and that by allying with local businesses the Company
can further position itself to take advantage of growth in international
markets. Although the growth of international markets provides the
Company with significant opportunities, cultural differences may provide
the Company with obstacles that may impede the Company's expansion into
international markets.
MANUFACTURING
The Company's operations are characterized by a high degree of automation
in the design process, which enables it to achieve a higher level of efficiency
in manufacturing than those competitors not having the same design process.
Management also believes that strategic alliances with key suppliers have led to
decreases in manufacturing costs. The typical delivery time for most of FWT's
products is six weeks.
Monopoles. FWT performs the initial phase of monopole manufacturing
pursuant to an agreement with Delta Steel. Flat sheet steel is initially
purchased by Delta Steel and stored at its facility. Delta Steel burns or cuts
the steel to produce the proper shape, and performs the braking operation to
bend the steel into two sections. Ownership of this work-in-process inventory is
then passed to FWT, which performs the seam
45
<PAGE> 50
welding operation and joins the two sections together to form the monopole.
Finishing operations are performed to customer specifications, including
attaching footholds and connectors, cable openings and base plate attachment.
Finished steel is currently shipped to Houston for galvanizing, but will be
galvanized at a site adjacent to the Company's Fort Worth facility which is
expected to be operational in early 1998.
Towers. Each tower is designed and manufactured to customer
specifications. Factors such as weight and technology of attachments, expected
wind load, deflection parameters and icing load are used as inputs to the design
process and affect manufacturing. Tower components, including legs, braces and
cross bars are manufactured as components for each individual tower order.
Sections are welded together and sent to a local facility for galvanizing.
Management believes the Company is at approximately 50.0% of tower manufacturing
capacity.
PowerMounts(TM). Plate steel is burned to form attachment plates which are
then welded to pipe steel sections. Steel antenna platforms developed by welding
various angle and tubular components are then consolidated with pipe sections
for shipment.
Shelters and COWS. Shelters are manufactured by welding together a steel
skid frame that serves as the base of the shelter. Aluminum walls and a roof are
then attached to the skid. The interior of the shelter is then finished with
paneling, electrical wires, alarms, heating, ventilation and air conditioning
and other accessories according to the customer's specifications. COWS are
shelters which have been augmented with a trailer frame, generator and
retractable antenna support structure.
CUSTOMERS
FWT sells its products to leading wireless service providers throughout the
U.S., and to a lesser extent, Canada and Mexico. In Fiscal Year 1997, the
Company's largest five customers collectively represented approximately 55.0% of
the Company's sales. The following table presents the customers of the Company
that represent over 10% of the Company's sales by Fiscal Year.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
----------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
AT&T Wireless............................................... 25.0% -- --
Northern Telecom............................................ -- 19.79% --
PCS Primeco................................................. -- 14.26% --
Palmer Wireless............................................. -- 10.65% --
Cellular One/Southwestern Bell.............................. -- -- 17.62%
Nextel Mid-Atlantic......................................... -- -- 17.24%
Sprint Cellular............................................. -- -- 11.57%
GTE Mobilnet................................................ -- -- 10.63%
</TABLE>
Due to fluctuations in the network construction schedules of different
service providers, the Company's largest customers vary considerably from
year-to-year.
The Company provides its customers with comprehensive design assistance and
support before, during and after delivery of its products. In addition, the
Company's customer service professionals are available to respond to order
tracking, design, installation and other questions.
The Company generally warrants its products for a period of one year,
although some warranties are extended for as long as twenty years. Once the
warranty expires, the customer typically employs local contractors to modify the
structure as needed. Historically, FWT's warranty expenses have not been
material.
46
<PAGE> 51
SALES AND MARKETING
The Company sells its products through a direct sales force who have
relationships with most of the major wireless service providers. The Company
believes that its direct sales force provides a strong competitive advantage in
the market, as most of FWT's competitors either do not have a sales force or
rely on third party representatives. This enables the Company to keep abreast of
new business opportunities while being able to respond quickly to the customer's
questions and needs. The Company's sales force is paid a base salary plus a
bonus based upon the Company reaching certain profit levels. As of January 14,
1998, the Company employed nine sales people.
The Company believes that many of its customers, or prospective customers,
have procedures by which they identify a limited number of suppliers to become
approved vendors for the construction of their infrastructure network. Customers
award master purchase agreements only to such approved vendors. The Company's
sales strategy focuses on signing agreements whereby FWT becomes a primary or
approved vendor. These agreements typically establish general terms and
conditions, as well as pricing for the Company's products. These agreements do
not generally guarantee a particular quantity of sales, but they allow Company
personnel easier access to these customers, thereby fostering relationships with
local personnel.
The Company estimates that for Fiscal Year 1997, approximately 70.0% of its
revenue came from sales under these master agreements. The Company believes
these agreements enhance the consistency and stability of the Company's revenue
stream.
FACILITIES
As of the end of Fiscal Year 1997, the Company owns the following two
manufacturing facilities: (i) the Loop 820 location, with 9,802 square feet of
office space and 58,675 square feet of covered production space on approximately
13 acres and (ii) the Kennedale location, with 7,000 square feet of office space
and 142,400 square feet of covered production space on approximately 56 acres.
In addition, the Company leases 500 square feet of office space and 22,120
square feet of covered production space at Delta Steel's manufacturing facility
located in the Fort Worth area. The Company believes, in light of the capital
expenditure budget, that these facilities provide adequate capacity for the
expected growth in the future.
CONTRACT WITH DELTA STEEL
FWT entered into a five-year agreement with Delta Steel that expires March
10, 2002. This cooperative production agreement provides that Delta Steel,
subject to certain exceptions, will be the exclusive supplier of the unwelded
steel components of FWT's monopoles, and gives FWT the right to schedule its
orders first on designated Delta Steel burning and press-braking equipment. In
addition, the agreement contains incentive pricing based on the volume of steel
FWT purchases. The agreement is renewable at the end of the initial five year
period.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company's ability to compete in these markets depend to a large extent on its
ability to provide high quality, competitively priced products within a
customer's delivery time schedule. In these key areas, the Company believes that
its strong tradition of customer service combined with its sophisticated and
CAD/CAM system help to differentiate FWT from its competition.
There are a number of participants that compete in the Company's markets
including Andrew, EEI, PiRod, Summit, UNR Industries and Valmont Industries.
Management believes that the Company has a significant market position in each
of its product segments.
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<PAGE> 52
BACKLOG
As of December 31, 1997, the Company had a sales backlog of approximately
$13.0 million of which approximately $5.2 million was finished goods backlog.
Although the sales backlog consists of firm orders for which products are yet to
be completed, these orders can be modified or terminated. However, when compared
to total contract volume, the amount of modifications and terminations has
historically not been material.
EMPLOYEES
As of January 14, 1998, the Company had approximately 413 full-time
employees, of which 323 work in manufacturing facilities and 90 work in
corporate or administrative functions. None of the Company's employees are
unionized, and the Company believes that its relationship with employees is
good.
PATENTS AND TRADEMARKS
FWT has an approved patent for the PowerMount(TM), a product that allows a
wireless service provider to install a full sectored antenna array on an
electrical utility tower. FWT has also secured a trademark on the name
PowerMount(TM).
ENVIRONMENTAL REGULATION
The Company is subject to various federal, state and local health, safety
and environmental laws and regulations. The Company believes that it is in
material compliance with existing applicable health, safety and environmental
laws and regulations and has all necessary permits and licenses.
LEGAL PROCEEDINGS
The Company is from time to time involved in ordinary litigation incidental
to the conduct of its business. Management believes that none of the Company's
pending litigation will have a material adverse effect on the Company's
business, financial condition or results of operations.
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<PAGE> 53
INDUSTRY OVERVIEW
The monopole and tower segments of the communications infrastructure
industry have seven and six significant participants, respectively, who together
have a large market share position in their particular market segment. Builders
of wireless networks typically seek to purchase antenna support structures from
established manufacturers who can accurately produce large numbers of products
in a timely fashion. The Company believes these requirements often lead wireless
service providers to enter into master purchase agreements with a limited number
of communications infrastructure companies, including the Company.
The Company believes the following four trends are driving the
communications industry: (i) deregulation of global communications markets; (ii)
introduction of new competitors; (iii) the development of cost efficient and
capacity enhanced technology; and (iv) elasticity of demand for communications
products and services. These factors increase MOU, which is the main factor
driving wireless communications infrastructure spending because wireless service
providers plan their capital spending based on anticipated MOU. Emerging digital
wireless technologies are increasing capacity and quality and lowering the cost
per minute per subscriber. This lower cost enables service providers to lower
rates which makes wireless services more affordable to a broader consumer base.
This encourages increased MOU which, in turn, drives additional infrastructure
spending.
The demand for wireless communications services in the U.S. has grown
dramatically during the last seven years. According to the CTIA, as of June 30,
1997 there were approximately 48.7 million wireless subscribers in the U.S. In
addition, according to CTIA, the CAGR of cellular telephone subscribers was
approximately 41.1% from 1990 to 1997 and the CAGR of cell sites over this time
was 34.8%. Industry analysts expect this growth trend to continue in the future
based on (i) the widespread introduction of PCS into the market, (ii) capacity
enhancements of existing wireless communications networks, (iii) growing
acceptance of SMR/ESMR systems, (iv) increased focus on WLL systems and (v) the
introduction of HDTV.
INDUSTRY FACTORS
Co-location. One factor that will have a significant impact on the
wireless infrastructure business is the ability or inability of wireless service
providers to co-locate antenna on existing monopoles or towers. As a result of
local zoning restrictions and the cost savings realized from leasing space, PCS
and other wireless providers have a strong incentive to co-locate on existing
towers. Despite the appeal of co-location, it is not practical for all tower
sites. PCS is an inherently low power design, which means that coverage of any
given market requires more cell sites than traditional cellular. A standard PCS
cell provides coverage for a significantly smaller square mile region as
relative to a traditional cell. As a result of the differences in frequencies
and deflection requirements, PCS cells tend to require shorter antenna support
structure. In addition, structures older than two or three years often require
extensive modification or replacement in order to effect site sharing while
maintaining structural integrity. As a result, co-location does not always
account for a sufficient number of sites within a given market nor is it always
the most economical solution. Moreover, certain carriers limit their co-location
sites as a result of regulatory concerns; for example, major wireless service
providers limit their site co-location with any particular competitor to 15%.
Capacity/Coverage. In order to compete effectively, wireless service
providers constantly need to improve coverage and capacity in their respective
service areas. Improved coverage and capacity reduces blocked or dropped calls,
improves call quality and decreases the churn rates from unsatisfied
subscribers. Coverage and capacity additions, however, will differ for cellular
and PCS service providers. Existing cellular providers have established coverage
for an estimated 70.0% of the U.S. market. In contrast, as PCS service providers
build their networks for the higher frequency spectrum, they will require the
simultaneous construction of a coverage and capacity network. This deployment of
PCS networks will be further encouraged by PCS service providers' claims of
offering a better technology.
GROWTH IN DEMAND FOR WIRELESS SERVICES
Cellular. According to the U.S. Department of Commerce, as of December 31,
1996 there were 43.5 million cellular telephone subscribers in the U.S.,
representing a 29.0% growth rate over the prior year, and an
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<PAGE> 54
overall penetration of 16.3%. In the future, demand for cellular services is
expected to grow as the costs for cellular phones and services continue to
decrease in response to competition in the cellular and other competing markets.
In addition, as the cellular market reacts to the advent of PCS by making the
transition from analog to digital, costs are expected to further decrease as the
additional capacity provided by the digital systems results in lower costs which
are passed on to the consumer. The market for wireless communications services,
in this regard, has proven to be fairly price elastic in the past, and decreased
prices are expected to result in increased MOU in the future.
PCS. PCS is an emerging digital wireless technology that offers a clearer
signal, fewer dropped signals and greater privacy than typical analog, cellular
systems. PCS can carry data and images as well as voice and is suitable for
computer-to-computer communication, paging, short messaging and fax. Currently,
industry experts estimate that there are approximately 305,000 PCS subscribers
in the U.S. Industry experts estimate that a considerable number of PCS cell
sites will be needed by the year 2000. While some of these cell sites may use an
existing structure, a large number of new structures will be required in the
context of the PCS introduction.
ESMR. As a result of advances in digital technology, some wireless service
providers have begun to design or modify networks that utilize SMR and ESMR
technologies. ESMR increases the capacity of radio networks allowing more
efficient use of allocated frequencies. These efficiencies and improvements in
switching technologies allow ESMR to compete with PCS and cellular. Due to
significantly lower licensing fees in some geographic areas, ESMR enjoys a
potential cost advantage over cellular or PCS. Currently, Nextel uses ESMR to
provide wireless telephone services in several large metropolitan areas in the
U.S. and may soon be joined by other carriers.
Wireless Local Loop. WLL systems are seen as an alternative to traditional
copper and fiber-optic based fixed services with the potential to be implemented
more quickly and at lower cost than wireline services. WLL systems provide
non-mobile telecommunications services to users by transmitting voice messages
over radio waves from the public switched network to the location of the fixed
telephone. The installation of WLL systems minimizes the need to obtain
right-of-ways and excavate existing roads and infrastructure or lay copper or
fiber cables in order to install or upgrade a local telephone system serving
non-mobile telephones.
HDTV. On April 3, 1997, the FCC allocated the broadcast spectrum and
mandated that the top ten markets are to start digital TV broadcasts by April
1999, promising radical improvements in television picture quality. Digital TV
broadcasting in the top 30 markets is mandated to be in place by April 1999; a
few stations, in Seattle, Washington, Raleigh, North Carolina and Washington, DC
have already begun HDTV broadcasts on a limited basis. Meeting the mandated
targets will require significant construction of the transmission
infrastructure. HDTV antennas require towers that are significantly higher than
most current towers, often over 1,000 feet.
International. The international marketplace is growing in importance with
respect to the future of the communications industry. Developing countries
realize that in order to compete effectively in the world economy they must have
an adequate communications infrastructure. In addition to the general cellular
build-out trends in industrialized countries throughout the world, many emerging
economies are introducing wireless systems as the primary communication
infrastructure, bypassing the entire wireline-based systems. The growing
international demand for wireless services, particularly for cellular networks
and WLL solutions should result in increased demand for infrastructure products
on an international basis.
Cellular communications are gaining mass market appeal on a global basis.
In 1986, there were cellular networks in 32 countries. By 1996, there were
networks in 140 countries. According to the U.S. Department of Commerce, as of
the end of 1996, there were approximately 139.7 million cellular subscribers in
the world, 68.9% of whom were located outside of the U.S. This growth has fueled
world investment in infrastructure.
In addition, WLL systems are becoming viable primary communications systems
in many emerging economies. WLL systems provide several competitive advantages
over wire line systems, including (i) quicker time-to-market, (ii) lower per
subscriber deployment and maintenance costs, and (iii) easy adaptability to a
variety of markets. WLL systems are ideal for countries with little or no wired
infrastructure due to their time and cost advantages, such as China, India,
Brazil, Russia, and Indonesia.
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<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roy J. Moore.............................. 35 Director, President and Chief
Executive Officer
Douglas A. Standley....................... 40 Chief Operations Officer and
President, Ft. Worth Division
William R. Estill......................... 49 Vice President of Finance
Carl R. Moore............................. 42 Vice President and Secretary
John C. Baker............................. 47 Director
Edward W. Scott........................... 35 Director
Lawrence A. Bettino....................... 37 Director
</TABLE>
ROY J. MOORE became a director and the Chief Executive Officer upon the
consummation of the Transactions on November 12, 1997. From the time Mr. Moore
joined the Company in 1991 until the consummation of the Transactions, Mr. Moore
served as Vice President of Marketing and Sales. Prior to joining the Company,
Mr. Moore was a Manager with the MAC Group, a general management consulting
firm. He worked on projects in the computer and communications industries with
companies such as AT&T, Southwestern Bell, Bell Atlantic, Pacific Telesis,
British Telecom and Apple Computer. Mr. Moore holds a Bachelor of Administration
degree in Accounting and Finance from Texas Christian University with honors,
and an MBA from the University of Virginia, where he also graduated with honors.
Mr. Moore, Carl R. Moore and Thomas F. Moore are brothers.
DOUGLAS A. STANDLEY joined the Company in November 1997 and, since that
time, has served as Chief Operations Officer and President of the Fort Worth
Division. For approximately one and a half years prior to joining the Company,
Mr. Standley was a director of Synergetics, an international management
consulting company which specialized in consulting with manufacturing companies.
Mr. Standley has been a business consultant for the past 19 years, specializing
in turnaround environments, business integration, production planning and
management and strategic implementation. Mr. Standley holds a bachelor's degree
in business management from the University of California at Fullerton and
professional certifications from the American Production and Inventory Control
Society, the American Society of Quality Control and the Deming Institute.
WILLIAM R. ESTILL joined the Company in January 1998 and, since that time,
has served as Vice President of Finance. From May 1996 to November 1997, Mr.
Estill served as Chief Financial Officer of Bearcom, Inc., a privately-held
distributor of two-way radios. From April 1985 to May 1996, Mr. Estill served as
Vice President, Chief Financial Officer, Secretary and Treasurer of Sport Supply
Company, Inc., a New York Stock Exchange company. Mr. Estill was also a member
of the board of directors of Sport Supply Group, Inc. Mr. Estill holds a
Bachelor of Business Administration degree in Accounting from the University of
Texas at Arlington and passed the CPA exam in 1983.
CARL R. MOORE joined the Company in 1973 and, since that time, has served
as Vice President, specializing in the design, manufacturing and installation of
towers, buildings and COWS. Mr. Moore became Secretary of the Company in
November 1997. Mr. Moore holds a Bachelor of Science degree in Civil Engineering
from the University of Texas at Arlington. Mr. Moore, Roy J. Moore and Thomas F.
Moore are brothers.
JOHN C. BAKER became a director of the Company upon the consummation of the
Transactions on November 12, 1997. In September 1995, Mr. Baker co-founded Baker
Capital Corp. ("Baker Capital"), a private investment management firm focused on
investments in communications equipment, services and applications companies.
Previously, Mr. Baker spent fifteen years as an investment professional with
Patricof & Co. Ventures, a multinational private equity firm. Mr. Baker
currently serves on the board of directors of FORE Systems (a communications
switch manufacturer and vendor), Intermedia Communications Inc. (a
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competitive local exchange company), Xpedite Systems (a fax messaging provider)
and Resource Bancshares Mortgage Group. Mr. Baker holds a Bachelor of Arts
degree from Harvard College and received an MBA from the Harvard Business
School.
EDWARD W. SCOTT became a director of the Company upon the consummation of
the Transactions on November 12, 1997. Since May 1996, Mr. Scott has been an
officer of Baker Capital Partners, LLC ("Baker Partners") which acts as the
general partner of Baker. In September 1995, Mr. Scott co-founded Baker Capital.
From 1991 until 1996, Mr. Scott was employed as an investment professional by
the Apollo Investment Fund, a large leveraged buyout and private equity firm.
Mr. Scott currently serves on the board of directors of Virtual Resources, Inc.,
a private company headquartered in Atlanta. Mr. Scott holds a Bachelor of Arts
degree from Columbia College and received an MBA from the Harvard Business
School.
LAWRENCE A. BETTINO became a director of the Company upon the consummation
of the Transactions on November 12, 1997. Since May 1996, Mr. Bettino has been
an officer of Baker Partners which acts as the general partner of Baker. In
September 1995, Mr. Bettino co-founded Baker Capital. From 1989 to 1996, Mr.
Bettino was a General Partner of Dillon Read Venture Capital. Mr. Bettino
currently serves on the board of directors of Virtual Resources, Inc., a private
company headquartered in Atlanta. Mr. Bettino holds a Bachelor of Science degree
from Renssalaer Polytechnic Institute and received an MBA from the Harvard
Business School.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
each of the last three Fiscal Years for the President and the four other most
highly compensated executive officers of the Company. No stock options are
outstanding.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------
---------------------------------- LONG-TERM
FISCAL OTHER ANNUAL INCENTIVE ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION PLAN PAYOUTS COMPENSATION
- ----------------- ------ -------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
T. W. Moore.................... 1997 $112,800 $650,000 -- -- --
President 1996 $112,800 -- -- -- --
1995 $112,800 -- -- -- --
Betty J. Moore................. 1997 $210,000 $650,000 -- -- --
Secretary/Treasurer 1996 $210,000 -- -- -- --
1995 $210,000 -- -- -- --
Thomas F. Moore................ 1997 $200,000 -- -- -- --
Vice President 1996 $166,826 $101,471 -- -- --
of Manufacturing(1) 1995 $150,240 $355,849 -- -- --
Carl R. Moore.................. 1997 $200,000 -- -- -- --
Vice President 1996 $166,826 $101,471 -- -- --
1995 $150,240 $355,849 -- -- --
Roy J. Moore................... 1997 $200,000 -- -- -- --
Vice President 1996 $150,154 $101,471 -- -- --
of Marketing 1995 $125,232 $356,374 -- -- --
and Sales
</TABLE>
- ---------------
(1) The Company and Thomas F. Moore have entered into a Voluntary Retirement
Agreement, pursuant to which Mr. Moore has agreed to resign from office as
an executive officer of the Company and voluntarily retire. See "Certain
Relationships and Related Transactions -- Voluntary Retirement Agreement."
EMPLOYMENT AGREEMENTS
In connection with the Transactions, the Company entered into employment
agreements (the "Employment Agreements") with Roy J. Moore, Carl R. Moore and
Thomas F. Moore (the "Roll-over Shareholders"). The terms of the Employment
Agreements are substantially similar. Each of the Employment Agreements
commenced on November 12, 1997. The Company and Thomas F. Moore have entered
into a
52
<PAGE> 57
Voluntary Retirement Agreement, pursuant to which Mr. Moore has agreed to resign
from office as an executive officer of the Company and voluntarily retire. See
"Certain Relationships and Related Transactions -- Voluntary Retirement
Agreement." The Employment Agreements provide for a term of employment that will
end on the third anniversary of the effective date of the Employment Agreements
(the "Employment Period"); provided that the Employment Period will
automatically terminate upon death, disability, for Cause (which is defined in
the Employment Agreements as, among other things, commission by the employee of
a felony or embezzlement or fraudulent conduct by the employee) or for Good
Reason (which is defined in the Employment Agreements as, among other things, a
change in the employee's title and a material reduction in the nature of the
employee's responsibilities). Under the Employment Agreements, each of the named
employees will receive (i) an annual base salary of $200,000, (ii) an annual
bonus based on the earnings and performance of the Company, and (iii) other
benefits as described in the Employment Agreements. Each of the Employment
Agreements provides for director or officer indemnification and insurance, and
contains a non-competition clause and a confidentiality provision.
The Company has entered into an employment agreement with Douglas A.
Standley (the "Standley Agreement") that commenced on November 14, 1997 and will
remain in effect until December 31, 2000. The Standley Agreement will terminate
before the above date upon death, disability, or Cause (which is defined in the
Standley Agreement as, among other things, commission by the employee of a
felony or embezzlement or fraudulent conduct by the employee). Under the
Standley Agreement, Mr. Standley will receive, among other things, an annual
base salary of $250,000 and an annual bonus based on the earnings and
performance of the Company. The Standley Agreement also provides for director or
officer indemnification and insurance, and contains a non-competition clause and
a confidentiality provision.
53
<PAGE> 58
PRINCIPAL SHAREHOLDERS
The outstanding equity securities of the Company consist of 136.14 shares
of Common Stock.
The following table sets forth certain information regarding the ownership
of the voting securities of the Company as of January 12, 1998. To the knowledge
of the Company, each of such shareholders has sole voting and investment power
as to the shares shown unless otherwise noted.
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
- ---------------- ---------------- -------------------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS:
FWT Acquisition Inc................................ 108.91(1) 80.00%
575 Madison Avenue, 10th Floor
New York, NY 10022
Thomas F. Moore.................................... 9.08 6.67%
1901 E. Loop 820 South
Fort Worth, TX 76112
Carl R. Moore...................................... 9.08 6.67%
1901 E. Loop 820 South
Fort Worth, TX 76112
Roy J. Moore....................................... 9.08 6.67%
1901 E. Loop 820 South
Fort Worth, TX 76112
</TABLE>
- ---------------
(1) FWT Acquisition, Inc. is a wholly-owned subsidiary of Baker. The general
partner of Baker, which is treated as the beneficial owner of the shares held by
Baker, is Baker Partners. The address of each of Baker and Baker Partners is 575
Madison Ave., 10th Floor, New York, New York 10022. Each of Messrs. Baker, Scott
and Bettino is a manager and an officer of Baker Partners.
54
<PAGE> 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTION AGREEMENTS
On November 12, 1997, the Company, FWT Acquisition and the Existing
Shareholders entered into, and consummated the transactions set forth in, the
Transaction Agreements. The Transaction Agreements contemplated, among other
things, two primary transactions. The first transaction contemplated by the
Transaction Agreements included the Recapitalization. The second transaction
contemplated by the Transaction Agreements included the Stock Purchase. As a
result of the Transactions, FWT Acquisition holds approximately 80.0% of the
issued and outstanding shares of the Common Stock, and the Roll-over
Shareholders hold in the aggregate approximately 20.0% of the issued and
outstanding shares of the Common Stock. See "The Recapitalization and Stock
Purchase."
The Transaction Agreements contain customary representations and warranties
and standard covenants. Such agreements provide that the Existing Shareholders
will indemnify FWT Acquisition for losses arising from any breach of a covenant,
representation or warranty made by the Existing Shareholders in the Transaction
Agreements. Under the Transaction Agreements, the Existing Shareholders will not
be required to indemnify FWT Acquisition until the amount of the claim or claims
for indemnification exceeds $1,000,000. Also, the Existing Shareholders will be
subject to a maximum potential indemnification liability of $75,000,000 or, in
the case of willful misconduct or fraud or the breach of certain representations
or warranties, a maximum potential indemnification liability of approximately
$116 million. The indemnification obligations of the Existing Shareholders with
respect to the inaccuracy of all representations or warranties, except certain
representations and warranties discussed below, shall continue through May 11,
1999. The Existing Shareholders' indemnification obligations for inaccuracies
involving tax-related representations or warranties shall continue until 30 days
after the expiration of the applicable statute of limitations. The Existing
Shareholders' indemnification obligations for representations and warranties
related to capitalization, outstanding securities of the Company, title to the
Company's real property and adequacy of the Company's assets shall continue
forever, subject to the expiration of any applicable statute of limitations.
FINANCIAL ADVISORY AGREEMENT
In connection with the Transactions, the Company entered into a ten-year
agreement with Baker Capital, pursuant to which Baker Capital provided financial
advisory services to the Company in connection with the Transactions. The
agreement commenced on November 12, 1997 and will terminate upon the earlier of
(i) November 12, 2007 or (ii) the date on which Baker Capital and its affiliates
cease to beneficially own directly or indirectly at least five percent of the
outstanding Common Stock of the Company or its successors. In payment for these
services the Company paid Baker Capital a fee of $1.0 million upon the closing
of the Transactions, and paid Baker Capital a fee of $1.0 million upon the
closing of the Initial Offering. In addition, Baker Capital will provide
oversight and monitoring services to the Company on an ongoing basis and will
receive a base fee of $250,000 per year commencing in 1998 with an additional
$250,000 for each year the Company meets a specified EBITDA target. The Company
has agreed to indemnify Baker Capital in respect of its services under the
Financial Advisory Agreement and to reimburse it for certain out-of-pocket
expenses.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
In connection with the Transactions, the Company entered into employment
agreements (the "Employment Agreements") with Roy J. Moore, Carl R. Moore and
Thomas F. Moore (the "Roll-over Shareholders"). The terms of the Employment
Agreements are substantially similar. Each of the Employment Agreements
commenced on November 12, 1997. The Company and Thomas F. Moore have entered
into a Voluntary Retirement Agreement, pursuant to which Mr. Moore has agreed to
resign from office as an executive officer of the Company and voluntarily
retire. See "-- Voluntary Retirement Agreement." The Employment Agreements
provide for a term of employment that will end on the third anniversary of the
effective date of the Employment Agreements (the "Employment Period"); provided
that the Employment Period will automatically terminate upon death, disability,
for Cause (which is defined in the Employment Agreements as, among other things,
commission by the employee of a felony or embezzlement or fraudulent
55
<PAGE> 60
conduct by the employee), or for Good Reason (which is defined in the Employment
Agreements as, among other things, a change in the employee's title and a
material reduction in the nature of the employee's responsibilities). Under the
Employment Agreements, each of the named employees will receive (i) an annual
base salary of $200,000, (ii) an annual bonus based on the earnings and
performance of the Company, and (iii) other benefits as described in the
Employment Agreements. Each of the Employment Agreements provides for director
or officer indemnification and insurance, and contains a non-competition clause
and a confidentiality provision.
The Company has entered into an employment agreement with Douglas A.
Standley (the "Standley Agreement") that commenced on November 14, 1997 and will
remain in effect until December 31, 2000. The Standley Agreement will terminate
before the above date upon death, disability, or Cause (which is defined in the
Standley Agreement as, among other things, commission by the employee of a
felony or embezzlement or fraudulent conduct by the employee). Under the
Standley Agreement, Mr. Standley will receive, among other things, an annual
base salary of $250,000 and an annual bonus based on the earnings and
performance of the Company. The Standley Agreement also provides for director or
officer indemnification and insurance, and contains a non-competition clause and
a confidentiality provision.
THE DISTRIBUTION
The Company made a distribution in the amount of $21.0 million to T.W.
Moore and Betty Moore. The distribution was financed primarily by a loan from
Bank One, Texas, N.A., which was repaid in connection with the Recapitalization.
SHAREHOLDERS' AGREEMENT
In connection with the Transactions, the Company, FWT Acquisition, Baker
and the Roll-over Shareholders entered into a Shareholders Agreement which
provides for, among other things, agreements and restrictions regarding
issuances and transfers of Common Stock. This agreement commenced on November
12, 1997 and will continue until the earliest of (i) the date on which the
Roll-over Shareholders no longer hold any capital stock of the Company, (ii) the
date of closing of a public offering or private placement of equity securities
of the Company, the proceeds of which to the Company are not less than 20
million, (iii) the date on which the agreement is terminated by written
agreement of all the shareholders or (iv) the date on which the Company ceases
to exist. The agreements and restrictions include the following: (i) rights of
first refusal; (ii) preemptive rights; (iii) tag-along rights; (iv) pledge
restrictions; (v) transfer restrictions; and (vi) a carry-along provision in
favor of Baker. Further, during the Initial Period (which is defined in the
Shareholders' Agreement as so long as either Roy Moore is Chief Executive
Officer of the Company or Roy Moore, Carl Moore and Fred Moore collectively own
not less than five percent of the issued and outstanding shares of capital stock
of the Company) any transaction between the Company and FWT Acquisition and the
Roll-over Shareholders will require unanimous consent of the Company's board of
directors prior to consummation of such transaction.
REGISTRATION RIGHTS AGREEMENT
In connection with the Transactions, the Company, FWT Acquisition and the
Roll-over Shareholders entered into a Registration Rights Agreement. This
agreement provides for, among other things, piggy-back rights with customary
cut-backs.
STOCK APPRECIATION RIGHTS AGREEMENTS
The Company and each of Roy J. Moore and Douglas A. Standley have entered
into stock appreciation rights agreements (the "SAR Agreements"). Each of the
SAR Agreements provides for, among other things, the payment of an amount based
on a formula set forth in the SAR Agreement by the Company to both Mr. Moore and
Mr. Standley upon the occurrence of a Liquidity Event (which is defined in the
SAR Agreement as, among other things, the completion by the Company of an
initial public offering of common
56
<PAGE> 61
stock and a situation in which FWT Acquisition ceases to hold more than 50% of
the outstanding common stock of the Company).
VOLUNTARY RETIREMENT AGREEMENT
On February 27, 1998, Thomas F. Moore, who had served prior to that date as
the Vice President of Manufacturing of the Company, entered into a Voluntary
Retirement Agreement with the Company, in connection with which he agreed to
resign from office as an executive officer of the Company and voluntarily
retire. As part of its arrangements with Mr. Moore, the Company has agreed to
pay Mr. Moore $237,500 per year through December 31, 2000, and one-half of any
bonus that otherwise would have been payable to him under his employment
agreement with the Company had his employment with the Company continued through
such date.
57
<PAGE> 62
DESCRIPTION OF THE REVOLVING CREDIT FACILITY
The Company entered into a loan agreement with BT Commercial Corporation
(the "Agent"), which provides to the Company the Revolving Credit Facility from
November 12, 1997 through November 29, 2000. Subject to borrowing base
limitations and the satisfaction of customary borrowing conditions, the Company
expects to be able to borrow up to $25.0 million under the Revolving Credit
Facility. The terms of such Revolving Credit Facility are substantially as
follows:
(i) The Revolving Bank Facility enables the Company to obtain
revolving credit loans from time to time for working capital and general
corporate purposes in an aggregate amount outstanding not to exceed the
lesser of (x) $25.0 million and (y) the sum of 85% of the Company's
eligible accounts receivable, as defined, and 60% of the Company's eligible
inventory, as defined;
(ii) The revolving credit loans bear interest at a rate based upon the
lender's prime rate or the LIBOR-based rate. The term of any LIBOR-based
loan is, at the Company's option, either one, two, three or six months,
subject to certain requirements described in the Revolving Credit Facility.
The Company also paid fees in the amount of $400,000 upon the closing of
the Revolving Credit Facility and has agreed to pay an additional fee in
the amount of 1/2 of 1% per year based upon the amount of the daily average
unused commitments. The Revolving Credit Facility will terminate on the
third anniversary of the date of the consummation of the Initial Offering,
unless terminated sooner upon an Event of Default (which is defined in the
Revolving Credit Facility as, among other things, the failure of the
Company to make payments when due and a breach of warranty and certain
specified covenants by the Company), and all loans outstanding under the
Revolving Credit Facility will be payable on such date or such earlier date
as may be accelerated following the occurrence of any event of default; and
(iii) The Revolving Credit Facility ranks senior to the Notes and is
secured by a lien on substantially all of the Company's personal property,
including accounts receivable and inventory. The Revolving Credit Facility
contains various restrictive covenants and events of default customary for
transactions of this type. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
58
<PAGE> 63
DESCRIPTION OF EXCHANGE NOTES
The Outstanding Notes were, and the Exchange Notes will be, issued under
the Indenture. The terms of the Exchange Notes are identical in all material
respects to the Outstanding Notes, except that the Exchange Notes have been
registered under the Securities Act, and therefore, will not bear legends
restricting their transfer. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. A copy of the
Indenture may be obtained from the Company or the Initial Purchasers. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions." For purposes of this section,
references to the "Company" include only the Company and not its Subsidiaries. A
copy of the Indenture can be obtained by contacting William R. Estill by mail at
1901 East Loop 820 South, Forth Worth, Texas 76112-7899, by telephone at (817)
457-3060 or by facsimile at (817) 429-6010.
The Outstanding Notes are, and the Exchange Notes will be, unsecured
obligations of the Company, ranking subordinate in right of payment to all
Senior Indebtedness of the Company, including all obligations of the Company
under the Revolving Credit Facility. As of October 31, 1997, on a pro forma
basis, the Company would have had no Senior Indebtedness outstanding and had
approximately $11.4 million of availability under the Revolving Credit Facility.
The Outstanding Notes have been, and the Exchange Notes will be, issued in
fully registered form only, without coupons, in denominations of $1,000 and
integral multiples thereof. Initially, the Trustee will act as Paying Agent and
Registrar for the Exchange Notes. The Notes may be presented for registration or
transfer and exchange at the offices of the Registrar, which initially will be
the Trustee's corporate trust office. The Company may change any Paying Agent
and Registrar without notice to holders of the Notes (the "Holders"). The
Company will pay principal (and premium, if any) on the Notes at the Trustee's
corporate office in New York, New York. At the Company's option, interest may be
paid at the Trustee's corporate trust office or by check mailed to the
registered address of Holders. Any Outstanding Notes that remain outstanding
after the completion of this Exchange Offer, together with the Exchange Notes
issued in connection with this Exchange Offer, will be treated as a single class
of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125 million (of
which $105 million was issued in the Initial Offering) and will mature on
November 15, 2007. Additional amounts may be issued in one or more series from
time to time, subject to the limitations set forth under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness." Interest on
the Notes will accrue at the rate of 9 7/8% per annum and will be payable
semi-annually in cash on each May 15 and November 15 commencing on May 15, 1998,
to the persons who are registered Holders at the close of business on May 1 and
November 1 immediately preceding the applicable interest payment date. Interest
on the Exchange Notes will accrue (A) from the later of (i) the last interest
payment date on which interest was paid on the Outstanding Note surrendered in
exchange therefor, or (ii) if the Outstanding Note is surrendered for exchange
on a date in a period which includes the record date for an interest payment
date to occur on or after the date of such exchange and as to which interest
will be paid, the date of such interest payment date or (B) if no interest has
been paid on the Outstanding Notes, from the Issue Date.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after November
15, 2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
59
<PAGE> 64
redeemed during the twelve-month period commencing on November 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption (the "Redemption Date"):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................. 104.938%
2003.............................................. 103.292%
2004.............................................. 101.646%
2005 and thereafter............................... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from
time to time, on or prior to November 15, 2000, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings (as defined
below) to redeem the Notes at a redemption price equal to 109.875% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided that at least 65% of the principal amount of
Notes originally issued remains outstanding immediately after any such
redemption. In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Exchange Notes are not then
listed on a national securities exchange, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided, however, that
no Notes of a principal amount of $1,000 or less shall be redeemed in part;
provided, further, that if a partial redemption is made with the proceeds of a
Public Equity Offering, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to DTC procedures), unless such
method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the Paying Agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Indebtedness. Upon any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of assets
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, whether
voluntary or involuntary, all Obligations due or to become due upon all Senior
Indebtedness shall first be paid in full in cash or Cash Equivalents, or such
payment duly provided for before any payment or distribution of any kind or
character (other than any payment in the form of Permitted Junior Securities) is
made on account of any Obligations on the Notes, or for the acquisition of any
of the Notes for cash or property or otherwise. If any default occurs and is
continuing in the payment when due, whether at maturity, upon any redemption, by
declaration or otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing fees with respect
to, any Senior Indebtedness, no payment of any kind or character shall be made
by or on behalf of
60
<PAGE> 65
the Company or any other Person on its or their behalf with respect to any
Obligations on the Notes or to acquire any of the Notes for cash or property or
otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness then
outstanding to accelerate the maturity thereof and if the Representative for the
respective issue of Designated Senior Indebtedness gives written notice of the
event of default to the Trustee (a "Default Notice"), then, unless and until all
events of default have been cured or waived or have ceased to exist or the
Trustee receives notice from the Representative for the respective issue of
Designated Senior Indebtedness terminating the Blockage Period (as defined
below), during the 180 days after the delivery of such Default Notice (the
"Blockage Period"), neither the Company nor any other Person on its behalf shall
(x) make any payment of any kind or character with respect to any Obligations on
the Notes (other than any payment in the form of Permitted Junior Securities) or
(y) acquire any of the Notes for cash or property or otherwise. Notwithstanding
anything herein to the contrary, in no event will a Blockage Period extend
beyond 180 days from the date the payment on the Notes was due and only one such
Blockage Period may be commenced within any 360 consecutive days. No event of
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Indebtedness shall be, or
be made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Indebtedness whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the Holders of the Notes, may recover less, ratably, than holders of
Senior Indebtedness.
As of October 31, 1997, on pro forma basis, the Company would have had no
Senior Indebtedness outstanding and had approximately $11.4 million of
availability under the Revolving Credit Facility.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have an Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. A Change of Control Offer might constitute
an event of default under the terms of Senior Indebtedness, including the
Revolving Credit Facility. In addition, any instruments governing Senior
Indebtedness may prohibit the Company from purchasing any Notes prior to their
maturity (including pursuant to a Change of Control Offer). If on the purchase
date for the Change of Control Offer the Company does not have sufficient funds
to pay the Change of Control Purchase Price or is unable to obtain the consent
of the holders of such Senior Indebtedness or to repay such Senior Indebtedness,
an Event of Default would occur under the Indenture. In the event the Company is
required to purchase
61
<PAGE> 66
outstanding Notes pursuant to a Change of Control Offer, the Company expects
that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. In addition,
one of the events that constitutes a Change of Control under the Indenture is a
sale, conveyance, transfer or lease of all or substantially all of the assets of
the Company. The Indenture is governed by New York law, and there is no
established quantitative definition under New York law of what constitutes
"substantially all" of the assets of a corporation. Accordingly, if the Company
were to engage in a transaction in which it disposed of less than all of the
assets of the Company, a question or interpretation could arise as to whether
such disposition was of "substantially all" of its assets and whether the
Company was required to make a Change of Control Offer. If the Company did not
make a Change of Control Offer after a disposition of assets and a court of law
later determined that the disposition was of "substantially all" of the
Company's assets, a Change of Control Offer would then be required. There can be
no assurance that the Company would have available funds sufficient to pay the
Change of Control Purchase Price to all Holders seeking to accept the Change of
Control Offer. If a court of law were to agree with the Company's decision not
to make a Change of Control Offer because the disposition was not of
"substantially all" of the Company's assets, the Holders would not be entitled
to a Change of Control Offer and would not be entitled to receive the Change of
Control Purchase Price.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries, if any, to incur additional Indebtedness, to grant
liens on its property, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Moreover, any instrument
governing Senior Indebtedness of the Company (including the Revolving Credit
Agreement) may prohibit the Company from purchasing any Notes prior to their
maturity (including pursuant to a Change of Control Offer). Consummation of any
such transaction in certain circumstances may require redemption or repurchase
of the Notes, and there can be no assurance that the Company or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase or, if the Company is unable to obtain the consent of Holders of such
Senior Indebtedness, to repay such Senior Indebtedness. Such restrictions and
the restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company or any of
its Subsidiaries by the management of the Company. While such restrictions cover
a wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
repurchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply with the requirements of Rule 14e-1 under the Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of Notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the Indenture, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the "Change of Control" provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness) provided, however, that if no Default or
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Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company and any
Restricted Subsidiary that is a Guarantor may incur Indebtedness (including,
without limitation, Acquired Indebtedness) if on the date of the incurrence of
such Indebtedness, after giving effect to the incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to
1.0; provided that any guarantee of Indebtedness permitted to be incurred
hereunder shall not be a separate incurrence of Indebtedness.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than dividends
or distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness ("Subordinated Indebtedness") of the
Company that is subordinate or junior in right of payment to the Notes or (d)
make any Investment (other than Permitted Investments) (each of the foregoing
actions set forth in clauses (a), (b) (c) and (d) being referred to as a
"Restricted Payment"), if at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) the Company is not able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined in good faith by the Board of Directors of the
Company) shall exceed the sum of: (w) 50% (or 100% for the purpose of making a
Restricted Payment described in clause (d) above) of the cumulative Consolidated
Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100%
of such loss) of the Company earned subsequent to the Issue Date and on or prior
to the date the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus (x) 100% of the aggregate net cash
proceeds received by the Company from any Person (other than a Subsidiary of the
Company) from the issuance and sale subsequent to the Issue Date and on or prior
to the Reference Date of Qualified Capital Stock of the Company or any options,
warrants or rights to purchase Qualified Capital Stock of the Company (other
than options, warrants or rights initially issued and sold together with
Disqualified Capital Stock or debt securities comprising a unit), together with
the aggregate cash received by the Company at the time of exercise of such
options, warrants or rights; plus (y) 100% of the aggregate net cash proceeds
received on or after the Issue Date by the Company from the issuance or sale
(other than to a Subsidiary of the Company) of convertible debt or convertible
Disqualified Capital Stock that has been converted into or exchanged for
Qualified Capital Stock of the Company, together with the aggregate cash
received by the Company at the time of such conversion or exchange; plus (z)
without duplication of any amounts included in clause (iii)(y) above, (1) 100%
of the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock (excluding, in the case of
clauses (iii)(x) and (z), any net cash proceeds from a Public Equity Offering to
the extent used to redeem the Notes) and (2) to the extent not otherwise
included in the Company's Consolidated Net Income, an amount equal to the net
reduction in any investment made by the Company and its Restricted Subsidiaries
subsequent to the Issue Date in any Person resulting from (a) payments of
interest on debt, dividends, repayments of loans or advances, or other transfers
or distributions of Property, in each case to the Company or any Restricted
Subsidiary from any Person, and in an amount not to exceed the book value of
such investment previously made in such Person that were treated as Restricted
Payments, or (b) the designation of any Unrestricted Subsidiary as a Restricted
Subsidiary, in each case in an amount not to exceed the lesser of (x) the book
value of such Investment previously made in such Unrestricted Subsidiary that
were treated as Restricted Payments, and (y) the Fair Market Value of such
Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall
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have occurred and be continuing, the acquisition of any shares of Capital Stock
of the Company, either (i) solely in exchange for shares of Qualified Capital
Stock of the Company or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes either (i) solely in exchange for shares of Qualified
Capital Stock of the Company, or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; and (4) so long as no Default or Event of Default
shall have occurred and be continuing, repurchases by the Company of Common
Stock of the Company from employees of the Company or any of its Subsidiaries or
their authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed $250,000 in
any calendar year; (5) payments under Affiliated Transactions permitted by
paragraph (b)(v) of the covenant described in "Limitation on Transactions with
Affiliates" that would otherwise constitute Restricted Payments; (6) the
purchase of any Subordinated Indebtedness at a purchase price not greater than
101% or 100%, respectively, of the principal amount thereof in the event of a
"Change of Control Offer" or a "Net Proceeds Offer," respectively, in accordance
with provisions similar to those contained in the "-- Change of Control" and
"-- Limitation on Asset Sales" covenants, provided that, prior to any such
purchase of Subordinated Indebtedness, the Company has made the Change of
Control Offer or the Net Proceeds Offer, as the case may be, in accordance with
such covenants and has purchased all Notes validly tendered pursuant to such
offer and that no Default or Event of Default is in existence prior to or as a
result of such purchases, and (7) the payment of the Transaction Fee to Baker
Capital Corporation pursuant to the Recapitalization Agreement. In determining
the aggregate amount of Restricted Payments made subsequent to the Issue Date in
accordance with clause (iii) of the immediately preceding paragraph, amounts
expended pursuant to clauses (1) (if not already taken into consideration for
determining such amount upon the declaration thereof), (2) and (4) shall be
included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale at the time of such disposition shall be in the form of cash or
Cash Equivalents (or the assumption of indebtedness and liabilities of the
Company or such Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability thereon) or notes or marketable
securities that are converted into cash or Cash Equivalents within 180 days
after the date of such Asset Sale; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof
either (A) to prepay any Senior Indebtedness and, in the case of any such
Indebtedness under any revolving credit facility, effect a permanent reduction
in the availability under such revolving credit facility, (B) to make an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that will be
used in the business of the Company and its Subsidiaries or in businesses
reasonably related thereto ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). Within 30 days after such 360 day period after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the
next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (the "Excess Proceeds") shall be
applied by the Company or such Restricted Subsidiary to make an offer to
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purchase (the "Net Proceeds Offer") Notes and Pari Passu Indebtedness, if
applicable, on a date (the "Net Proceeds Offer Payment Date") not less than 30
nor more than 45 days following the applicable Net Proceeds Offer Trigger Date,
from all Holders and from holders of Pari Passu Indebtedness, if applicable, on
a pro rata basis, that amount of Notes and Pari Passu Indebtedness, if
applicable, equal to the Excess Proceeds, with regard to the Notes, at a price
equal to 100% of the principal amount of the Notes to be purchased, plus accrued
and unpaid interest thereon, if any, to the date of purchase; provided, however,
that if at any time within one year of the date of the Asset Sale any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this covenant. The Company may defer
the Net Proceeds Offer until there are aggregate unutilized Excess Proceeds
equal to or in excess of $10,000,000 resulting from one or more Asset Sales (at
which time, the entire unutilized Excess Proceeds, and not just the amount in
excess of $10,000,000, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets" and if the Company has not made a Change of Control Offer in
connection with any such transfer, the successor corporation shall be deemed to
have sold the properties and assets of the Company and its Restricted
Subsidiaries not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale. In addition, the fair market value of such properties and
assets of the Company or its Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. A Net Proceeds Offer shall remain open for a period of 20
business days or such longer period as may be required by law. Any amounts not
utilized to repurchase Notes shall no longer constitute Net Cash Proceeds with
respect to such Asset Sale.
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000,
the Company shall make an offer to purchase, from all Holders of the Notes and
any then outstanding Pari Passu Indebtedness required to be repurchased or
repaid on a permanent basis in connection with an Asset Sale, an aggregate
principal amount of Notes and any such Pari Passu Indebtedness equal to such
Excess Proceeds as follows:
(i) (A) The Company shall make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds multiplied
by a fraction, the numerator of which is the outstanding principal amount
of the Notes and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu Indebtedness, if any
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined in clause (ii) below) of all Notes tendered), and
(B) to the extent required by any such Pari Passu Indebtedness and provided
there is a permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase such Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in an
amount equal to 100% of the principal amount of the Notes tendered pursuant
to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the
date such Net Proceeds Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the extent
that the aggregate Offered Price of the Notes tendered pursuant to a Net
Proceeds Offer is less than the Payment Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or repaid
pursuant to the Pari
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Passu Offer is less than the Pari Passu Indebtedness Amount (such shortfall
constituting a "Net Proceeds Deficiency"), the Company may use such Net
Proceeds Deficiency, or a portion thereof, for general corporate purposes,
subject to the limitations of the "Limitation on Restricted Payments"
covenant.
(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such Net
Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be
reset to zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) Indebtedness existing on
the Issue Date; (4) the Revolving Credit Facility; (5) restrictions imposed by
Liens permitted by the Indenture; (6) restrictions imposed by an agreement for
the sale of Capital Stock or assets of a Restricted Subsidiary, provided that
such restrictions apply to the Capital Stock or Assets being sold; (7) customary
non-assignment provisions of any contract, any license, any lease governing a
leasehold interest or similar agreement of any Restricted Subsidiary of the
Company; (8) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person so
acquired; or (9) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clauses (2), (3), (4) or (8) above; provided, however, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable taken as a whole to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clauses (2), (3), (4) or (8).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured, except for (A) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (B) Liens
securing Senior Indebtedness; (C) Liens securing the Notes; (D) Liens of the
Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any
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Subsidiary of the Company; (E) Liens securing Refinancing Indebtedness which is
incurred to Refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens (A) are not
materially less favorable to the Holders and are not materially more favorable
to the lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (B) do not extend to or cover any property or
assets and improvements and attachments thereto and proceeds thereof of the
Company or any of its Subsidiaries not securing the Indebtedness so Refinanced;
and (F) Permitted Liens.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) to any Person, unless: (i) either (1)
the Company shall be the surviving or continuing corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and of the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on all of the Notes and the performance of every covenant of the Notes,
the Indenture and the Registration Rights Agreement on the part of the Company
to be performed or observed; (ii) immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "-- Limitation on Incurrence of Additional
Indebtedness" covenant; (iii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and (iv) the Company or
the Surviving Entity shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with the applicable provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such, and, except in the case of a lease, the
predecessor Person shall be released from all such obligations.
Each Subsidiary Guarantor (other than any Guarantor whose Guarantee (as
defined) is to be released in accordance with the terms of the Guarantee and the
Indenture in connection with any transaction complying
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with the provisions of "-- Limitation on Asset Sales") will not, and the Company
will not cause or permit any Subsidiary Guarantor to, consolidate with or merge
with or into any Person other than the Company or any other Subsidiary Guarantor
unless: (i) the entity formed by or surviving any such consolidation or merger
(if other than the Subsidiary Guarantor) or to which such sale, lease,
conveyance or other disposition shall have been made is a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia or the jurisdiction of incorporation of the Subsidiary
Guarantor; (ii) such entity assumes by supplemental indenture all of the
obligations of the Subsidiary Guarantor on the Guarantee; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (iv) immediately after giving effect to
such transaction and the use of any net proceeds therefrom on a pro forma basis,
the Company could satisfy the provisions of subclause (2) of clause (ii) of the
first paragraph of this covenant. Any merger or consolidation of a Subsidiary
Guarantor with and into the Company (with the Company being the surviving
entity) or another Subsidiary Guarantor that is a Wholly Owned Restricted
Subsidiary of the Company need only comply with clause (iv) of the first
paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary
(and, in the case of a transaction between the Company and a Restricted
Subsidiary that is not a Wholly Owned Restricted Subsidiary, fair to the
Company). All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $1,000,000
shall be approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $5,000,000, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) any agreement
as in effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; (iv) Restricted
Payments permitted by the Indenture; (v) advances, loans and relocation
allowances made to officers and employees of the Company in the ordinary course
of business, not to exceed $500,000 outstanding at any one time; and (vi)
payments made pursuant to the Financial Advisory Agreement, provided, however,
no Default or Event of Default shall have occurred and be continuing at the time
any such payment is made.
Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property with a fair market value in excess
of $500,000 to any Restricted Subsidiary that is not a Guarantor, or if the
Company or any of its Restricted Subsidiaries shall organize, acquire or
otherwise invest in another Restricted Subsidiary having
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total assets with a book value in excess of $500,000, then such transferee or
acquired or other Restricted Subsidiary shall (i) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee (a
"Guarantee") on a senior subordinated basis all of the Company's obligations
under the Notes and the Indenture on the terms set forth in the Indenture and
(ii) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restricted
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of the Indenture. The Obligations of a Guarantor
under its Guarantee will be subordinated to the prior payment in full of
Guarantor Senior Indebtedness of such Guarantor to substantially the same extent
as the Notes are subordinated to Senior Indebtedness.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company without limitation, or with or into or to other Persons upon the terms
and conditions set forth in the Indenture. See "-- Merger, Consolidation and
Sale of Assets." In the event all of the Capital Stock of a Guarantor is sold by
the Company and/or by one or more of the Company's Restricted Subsidiaries or in
the event all or substantially all assets of a Guarantor are sold by the Company
and/or by one of the Company's Restricted Subsidiaries and (i) such sale
complies with the provisions set forth in "-- Limitation on Asset Sales" and
(ii) such Guarantor is released from all of its obligations under the Revolving
Credit Agreement, the Guarantor's Guarantee will be automatically and
unconditionally released. In addition, any Guarantor that is designated as an
Unrestricted Subsidiary in accordance with the terms of the Indenture will be
relieved of its obligations under its Guarantee.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses the majority of the revenues of which are not derived
from the same or reasonably similar, ancillary or related to, or a reasonable
extension, development or expansion of, the businesses in which the Company is
engaged on the Issue Date.
Reports to Holders. The Indenture provides that the Company will deliver
to the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide (without
exhibits) the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA sec.314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal or premium, if any, on any
Notes, when such principal becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to
purchase Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
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(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness, if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $3.5 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $3.5
million (exclusive of amounts covered by insurance as to which the insurer
has acknowledged coverage) shall have been rendered against the Company or
any of its Restricted Subsidiaries and such judgments remain undischarged,
unpaid, unstayed, unvacated or unbonded for a period of 60 days after such
judgment or judgments become final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees ceases to be in force and effect or any of
the Guarantees is declared to be null and void and unenforceable or any of
the Guarantees is found to be invalid or any of the Guarantors denies its
liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration", and the
same shall become immediately due and payable. If an Event of Default specified
in clause (vi) above with respect to the Company occurs and is continuing, then
all unpaid principal of, and premium, if any, and accrued and unpaid interest on
all of the outstanding Notes, as a result of the occurrence of the Event of
Default, shall become and be immediately due and payable without any declaration
or other act on the part of the Trustee or any Holder. If, prior to the delivery
of any such "notice of acceleration" with respect to an Event of Default
specified in clause (iv) above, any such payment default or acceleration
relating to such other Indebtedness shall have been cured or rescinded or such
Indebtedness shall have been discharged, in each count within 30 days of such
default or acceleration, then such Event of Default specified in clause (iv)
shall be deemed cured for all purposes of the Indenture.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in aggregate principal amount of the Notes may rescind
and cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in aggregate principal amount of the Notes may
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount
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of the then outstanding Notes have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes and the Company and the Guarantors shall be
discharged from all their obligations with respect to the Notes, the Guarantees
and the Indenture, except for (i) the rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on the Notes when
such payments are due, (ii) the Company's rights of optional redemption, (iii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iv) the rights, powers, trust,
duties and immunities of the Trustee and the Company's obligations in connection
therewith and (v) the Legal Defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company and the Guarantors released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an
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opinion of counsel, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with; (viii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all outstanding Notes when (i) either (a) all the Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or will become due and
payable within one year or are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name and at the expense of the Company, and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company has paid all other sums then due and payable under the
Indenture by the Company; and (iii) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors, if any, and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies so
long as any such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect. In formulating
its opinion on such matters, the Trustee will be entitled to rely on such
evidence as it deems appropriate, including, without limitation, solely on an
opinion of counsel. Other modifications and amendments of the Indenture may be
made with the consent of the Holders of a majority in principal amount of the
then outstanding Notes issued under the Indenture, except that, without the
consent of each Holder affected thereby, no amendment may: (i) reduce the amount
of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Notes; (iii) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or change
the date on which any Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor; (iv) make any Notes payable
in money other than that stated in the Notes; (v) make any change in provisions
of the Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (vi) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto following the consummation of such event; or (vii) release any Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
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THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary (or a
Wholly Owned Restricted Subsidiary of a Restricted Subsidiary) of the Company of
(a) any Capital Stock of any Restricted Subsidiary of the Company other than
directors' qualifying shares; or (b) any other property or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course of
business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $500,000,
(ii) a disposition of Cash Equivalents, (iii) any Restricted Payment that is
permitted to be made, and is made, under the first paragraph of the covenant
described above under "Limitation on Restricted Payments", and (iv) the sale,
lease, conveyance, disposition or other transfer of all or substantially all of
the assets (including cash or Cash Equivalents) of the Company as permitted
under "Merger, Consolidation and Sale of Assets" and in compliance with the
Change of Control Covenant.
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"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000 and deposits in bank
accounts in the ordinary course of business; (v) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; (vi) investments in money market
funds which invest substantially all their assets in securities of the types
described in clauses (i) through (v) above; and (vii) investments made by
Foreign Subsidiaries in local currencies in instruments issued by or with
entities of such jurisdiction having correlative attributes to the foregoing.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture), other than
a Wholly-Owned Restricted Subsidiary; (ii) the approval by the holders of
Capital Stock of the Company of any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in compliance with the
provisions of the Indenture); (iii) any Person or Group (other than the
Permitted Holders(s)) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding Capital Stock of
the Company; or (iv) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Company's Board of Directors
(together with any new directors whose election or appointment by such board or
whose nomination for election by the stockholders of the Company was approved by
a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Company's Board of Directors then in office.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
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"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business), (B) Consolidated Interest
Expense and (C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment not constituting a permanent repayment and/or
termination of a related commitment of Indebtedness in the ordinary course of
business for working capital purposes pursuant to revolving credit working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (provided that such
Consolidated EBITDA shall be included only to the extent includable pursuant to
the definition of "Consolidated Net Income") attributable to the assets which
are the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence, assumption
or liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock or dividends, accrued or scheduled to be accrued on Qualified Capital
Stock), without duplication, paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is
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one and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
deferred financing costs, (b) the net costs under Interest Swap Obligations, (c)
all capitalized interest and (d) the interest portion of any deferred payment
obligation; and (ii) the interest component of Capitalized Lease Obligations,
without duplication, paid, accrued and/or scheduled to be paid or accrued by
such Person and its Restricted Subsidiaries during such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or reserves relating thereto, (b) after-tax items classified as
extraordinary or nonrecurring gains, (c) the net income (or net loss) of any
Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a Wholly
Owned Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means the Indebtedness under the Revolving
Credit Facility and any other Senior Indebtedness in an amount of more than $10
million that is designated Senior Indebtedness by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value (in
excess of $100,000) shall be conclusively determined by the Board of Directors
of the Company acting in good faith and shall be evidenced by a Board Resolution
of the Board of Directors of the Company delivered to the Trustee.
"Financial Advisory Agreement" means the management agreement between the
Company and Baker Capital as in effect on the Issue Date.
"Foreign Subsidiary" means any Subsidiary of the Company (i) organized
under the laws of a jurisdiction other than the United States of America or any
State thereof or the District of Columbia and (ii) conducting substantially all
of its business outside of the United States of America.
"FWT Acquisition" means FWT Acquisition, Inc., a Delaware corporation.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States as of the date of determination; provided that
all calculations made for purposes of determining compliance with the provisions
of the Indenture shall use GAAP as in effect on the Issue Date.
"Guarantor" means each of the Company's Restricted Subsidiaries, if any,
that in the future executes a supplemental indenture in which such Restricted
Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of such Guarantor,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to such Guarantor's Guarantee. Without limiting the generality of the
foregoing, "Guarantor Senior Indebtedness" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, to the extent such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations of every nature of the Guarantor. under the Revolving Credit
Facility, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" shall not include (i) any Indebtedness of the Guarantor to a
Subsidiary of the Guarantor or any Affiliate of the Company or any of such
Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of the Guarantor or any Subsidiary of
the Guarantor (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Guarantor, (vi) Indebtedness incurred in violation of
the Indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Guarantor and
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(viii) any Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of the Guarantor.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments (but
excluding trade account payables and other accrued liabilities excluded from
clause (iv) hereof), (iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all Obligations under
any title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
obligations in respect of Indebtedness referred to in clauses (i) through (v)
above and clause (viii) below (exclusive of endorsements of negotiable
instruments in the ordinary course of business), (vii) all Obligations of any
other Person of the type referred to in clauses (i) through (vi) which are
secured by any lien on any property or asset of such Person, the amount of such
Obligation being deemed to be the lesser of the fair market value of such
property or asset or the amount of the Obligation so secured, (viii) all
Obligations under currency agreements and interest swap agreements of such
Person and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined in good faith by the
Board of Directors of the issuer of such Disqualified Capital Stock, which
determination shall be conclusive. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any guarantees at
such date; provided, further, that for purposes of calculating the amount of any
non-interest bearing or other discount security, such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP but that
such security shall be deemed to have been incurred only on the date of the
original issuance thereof.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Initial Offering" means the offering and sale of the $105 million of
Outstanding Notes by the Initial Purchasers.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit (including
relating to accounts receivable) by the Company and its Restricted Subsidiaries
on commercially reasonable terms in
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accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be, prepaid expenses and workers' compensation,
utility, lease and similar deposits in the ordinary course of business, and
negotiable instruments held for collection. For the purposes of the "Limitation
on Restricted Payments" covenant, (i) "Investment" shall include and be valued
at the fair market value of the net assets of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary, (ii) in determining the amount of any Investment
involving a transfer of any property or assets other than cash, such property or
assets shall be valued at the fair market value at the time of such transfer,
and (iii) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by the Company or any of
its Restricted Subsidiaries, without any adjustments for increases or decreases
in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions, repayments or
repurchases in connection with such Investment or any other amounts received in
respect of such Investment; provided that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Common
Stock of any direct or indirect Restricted Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, 100% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Outstanding Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) out-of-pocket expenses and fees relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale and (d) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means any Indebtedness of the Company or any
Guarantor ranking pari passu in right of payment with the Exchange Notes or the
Guarantee of such Guarantor, as applicable.
"Permitted Holder(s)" means FWT Acquisition, Baker Communications Fund
L.P., Baker Partners, LLC and Baker Capital Corp. (including existing
stockholders of each such entity on the Issue Date), Thomas W. Moore, Betty J.
Moore, Fred Moore, Carl R. Moore and Roy J. Moore, their successors and assigns
who are Affiliates of the Permitted Holders, members of their families and their
heirs or executors.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Outstanding Notes and the Guarantees
thereof, if any, and the Exchange Notes;
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(ii) Indebtedness incurred pursuant to the Revolving Credit Facility
in an aggregate principal amount at any time outstanding not to exceed the
greater of (A) $25 million in the aggregate or (B) the sum of (x) 85% of
the Company's eligible accounts receivable, as defined, and (y) 60% of the
Company's eligible inventory, as defined, reduced by any required permanent
repayments in connection with any asset sale (which are accompanied by a
corresponding permanent commitment reduction) thereunder;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments, in each case when
actually paid or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; provided, however, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a Wholly
Owned Restricted Subsidiary of the Company, in each case subject to no Lien
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company; provided that if as of any date any Person other
than the Company or a Wholly Owned Restricted Subsidiary of the Company
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such Indebtedness shall be deemed to have been a separate
incurrence of Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien; provided that (a) any Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under the
Indenture and the Notes and (b) if as of any date any Person other than a
Wholly Owned Restricted Subsidiary of the Company owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such Indebtedness shall be deemed to have been a separate incurrence of
Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness; and
(xi) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $15 million at
any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted
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Subsidiary of the Company, (ii) Investments in the Company by any Restricted
Subsidiary of the Company; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Notes and the Indenture; (iii) investments
in cash and Cash Equivalents; (iv) loans and advances to employees and officers
of the Company and its Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes not in excess of $500,000 at any one
time outstanding; (v) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (vi) Investments in
Unrestricted Subsidiaries and less than Wholly Owned Subsidiaries not to exceed
$15 million at any one time outstanding, provided no Default or Event of Default
shall have occurred and be continuing at the time such Investment is made; (vii)
Investments in stock, obligations and securities received in settlement of debts
owing to the Company or any Restricted Subsidiary, received pursuant to any plan
of reorganization or similar arrangement upon the bankruptcy or insolvency of
such trade creditors or customers of the Company or a Restricted Subsidiary or
upon the foreclosure, perfection or enforcement of a Lien in favor of the
Company or any Restricted Subsidiary that arose in the ordinary course of
business of the Company or such Restricted Subsidiary; and (viii) Investments
made by the Company or its Restricted Subsidiaries as a result of consideration
received in connection with an Asset Sale made in compliance with the
"Limitation on Asset Sales" covenant.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations, including letters of credit issued in connection therewith
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (A) the related
purchase money Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary of the Company other than the property and assets
so acquired and (B) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
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(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements; and
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are not materially more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company.
"Permitted Junior Securities" means any equity securities or subordinated
debt securities of the Company or any successor obligor with respect to the
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time be outstanding
to substantially the same degree as, or to a greater extent than, the Notes are
so subordinated as provided in the Indenture.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Recapitalization" means the transaction contemplated by the
Recapitalization Agreement.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix) or (xi) of the
definition of Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of fees and expenses actually incurred by the
Company in connection with such Refinancing) or (2) create Indebtedness with (A)
a Weighted Average Life to Maturity that is less than the Weighted Average Life
to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being
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Refinanced is Indebtedness of the Company, then such Refinancing Indebtedness
shall be Indebtedness solely of the Company and (y) if such Indebtedness being
Refinanced is subordinate or junior to the Notes, then such Refinancing
Indebtedness shall be subordinate to the Notes at least to the same extent and
in the same manner as the Indebtedness being Refinanced.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means the Revolving Credit Facility dated as of
November 12, 1997, between the Company, the lenders party thereto in their
capacities as lenders thereunder and BT Commercial Corporation, as agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement or agreements
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder (provided
that such increase in borrowings is permitted by the "Limitation on Incurrence
of Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or agreements or any successor or
replacement agreement or agreements and whether by the same or any other agent,
lender or group of lenders.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, to the extent such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations of every nature of the Company under the Revolving Credit Facility,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall
not include (i) any Indebtedness of the Company to a Subsidiary of the Company
or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Subsidiary of the Company (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by the Company, (vi) Indebtedness incurred in violation of the Indenture
provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act and the Exchange Act.
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"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by one or more permanent Global Exchange Notes. The Global
Exchange Notes will be deposited on the Exchange Date with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC") and registered in the name
of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
(ii) held by qualified institutional buyers who elect to take physical delivery
of their certificates instead of holding their interests through a Global
Exchange Note (and which are thus ineligible to trade through DTC) (collectively
referred to herein as the "Non-Global Purchasers") will be issued in registered
form (the "Certificated Security"). Upon the transfer of any Certificated
Security initially issued to a Non-Global Purchaser, such Certificated Security
will, unless the transferee requests otherwise or the Global Exchange Notes have
previously been exchanged in whole for Certificated Securities, be exchanged for
an interest in a Global Exchange Note.
The Global Exchange Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Exchange Notes, DTC or
its custodian will credit, on its internal system, the principal amount of
Exchange Notes of the individual beneficial interests represented by such Global
Exchange Notes to the respective accounts of persons who have accounts with such
depositary and (ii) ownership of beneficial interests in the Global Exchange
Notes will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Ownership of beneficial interests in the
Global Exchange Notes will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Holders may
hold their interests in the Global Exchange Notes directly through DTC if they
are participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Exchange
Notes for all purposes under the Indenture. No beneficial owner of an interest
in the Global Exchange Notes will be able to transfer that interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture with respect to the Exchange Notes.
Payments of the principal of premium (if any) or interest on, the Global
Exchange Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Exchange Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium (if any) and interest on the Global Exchange Notes, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Exchange
Notes as shown on the records of DTC or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Exchange Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Exchange Notes to
persons in states which require physical delivery of the Exchange Notes, or to
pledge such securities, such holder must transfer its interest in a Global
Exchange Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction
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of one or more participants to whose account the DTC interests in the Global
Exchange Notes are credited and only in respect of such portion of the aggregate
principal amount of Exchange Notes as to which such participant or participants
has or have given such direction. However, if there is an Event of Default under
the Indenture, DTC will exchange the Global Exchange Notes for Certificated
Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Note among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Exchange Note and a successor depositary
is not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Exchange Notes.
FEDERAL INCOME TAX CONSEQUENCES
THE DISCUSSION BELOW IS INTENDED TO BE A DESCRIPTION OF THE UNITED STATES
TAX CONSIDERATIONS MATERIAL TO AN INVESTMENT IN THE EXCHANGE NOTES. IT DOES NOT
TAKE INTO ACCOUNT THE INDIVIDUAL CIRCUMSTANCES OF ANY PARTICULAR INVESTOR AND
DOES NOT PURPORT TO DISCUSS ALL OF THE POSSIBLE TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES, AND IS NOT
INTENDED AS TAX ADVICE. THEREFORE, PROSPECTIVE INVESTORS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF AN INVESTMENT IN
THE EXCHANGE NOTES, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
GENERAL
The following is a summary of the material United States federal income tax
consequences associated with the acquisition, ownership, and disposition of the
Exchange Notes. The following summary does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective holder of the
Exchange Notes in light of its particular circumstances, or to certain types of
holders that are subject to special treatment under the federal income tax laws
(including persons who hold the Exchange Notes as part of a conversion, straddle
or hedge, dealers in securities, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers and S corporations). Further, except as
specifically provided, this summary pertains only to holders that are citizens
or residents of the United States, corporations, partnerships, or other entities
created in or under the laws of the United States or any political subdivision
thereof, or estates or trusts the income of which is subject to United States
federal income taxation regardless of its source. A trust will be considered a
U.S. holder of an Exchange Note only if the trust is subject to the supervision
of a court within the United States and the control of a United States fiduciary
as described in Section 7701(a)(30) of the Internal Revenue Code of 1986 (the
"Code"). Under newly enacted legislation, the Secretary of the Treasury has the
authority to issue Regulations allowing certain trusts in existence on
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August 20, 1996 (other than a grantor trust within the meaning of subpart E of
part I of subchapter J of chapter 1 of the Internal Revenue Code of 1986) which
were as treated as United States persons before August 20, 1996, to elect to
continue to be treated as a United States person. However, such Regulations have
not yet been promulgated. In addition, this summary does not describe any tax
consequences under state, local, or foreign tax laws or other tax laws or estate
or gift tax considerations and is limited to holders who hold Exchange Notes as
"Capital Assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code.
The legal conclusions expressed in this summary are based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations ("Regulations"), judicial authority and
administrative rulings and practice, all as in effect as of the date of this
Prospectus, and all of which are subject to change, either prospectively or
retroactively and have been prepared based on advice of tax counsel to the
Company. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no rulings from the Service have
been or will be sought with respect to any matter involving the tax aspects of
the purchase, ownership or exchange or other disposition of the Exchange Notes.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders.
THE EXCHANGE OFFER
Pursuant to recently finalized Regulations, the exchange of Outstanding
Notes for Exchange Notes pursuant to the Exchange Offer will not constitute a
significant modification of the terms of the Outstanding Notes and, accordingly,
such exchange will be treated as a "non-event" for federal income tax purposes.
Therefore, such exchange will have no federal income tax consequences to holders
of the Outstanding Notes, the holding period of an Exchange Note would include
the holding period of the Outstanding Notes for which it was exchanged, and each
holder of Outstanding Notes would continue to be required to include interest on
the Outstanding Notes in its gross income in accordance with its method of
accounting for federal income tax purposes.
PAYMENT OF INTEREST
Interest on an Exchange Note generally will be includable in the income of
a holder as ordinary income at the time such interest is received or accrued, in
accordance with such holder's method of accounting for United States federal
income tax purposes.
The Outstanding Notes were issued on November 17, 1997 at par, and without
discount, in integral multiples of $1,000. The Company has determined that the
Outstanding Notes were not issued at an original issue discount. In making this
determination, the Company considered that upon a Change of Control, the Company
is required to offer to redeem all outstanding Exchange Notes for a price equal
to 101% of the principal amount thereof plus accrued interest to the date of
purchase. Under the Regulations, such Change of Control redemption requirements
will not affect the yield or maturity date of the Exchange Notes unless, based
on all the facts and circumstances as of the Issue Date, it was more likely than
not that a Change of Control giving rise to the redemption would occur. The
Company has not treated the Change of Control redemption provisions of the
Exchange Notes as affecting the determination of the amount of original issue
discount on the Outstanding Notes or the Exchange Notes.
OPTIONAL REDEMPTION
The Company, at its option, may redeem part or all of the Exchange Notes at
any time on or after November 15, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption. In addition,
at any time on or prior to November 15, 2000, the Company may, at its option,
redeem up to 35% of the aggregate principal amount of the Exchange Notes
originally issued with the net cash proceeds of one or more public equity
offerings, at a redemption price equal to 109.875% of the aggregate principal
amount of the Exchange Notes to be redeemed plus accrued and unpaid interest to
the date of
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redemption; provided, however, that, after giving effect to any such redemption,
at least 65% of the aggregate principal amount of the Exchange Notes originally
issued remain outstanding. The Regulations provide that, for purposes of
calculating yield and maturity, an issuer will be treated as exercising any such
option if its exercise would lower the yield of the debt instrument. A
redemption of Exchange Notes at the optional redemption prices, however, would
increase the effective yield of the debt instrument as calculated from the Issue
Date. The Company does not currently intend to exercise such options with
respect to the Exchange Notes and, in accordance with the Regulations, as of the
Issue Date, the optional redemption provisions will not be taken into account in
calculating the yield to maturity of the Exchange Notes.
MARKET DISCOUNT
If a holder purchases an Exchange Note for less than the stated redemption
price at maturity (the "Exchange Note Issue Price") (the sum of all payments on
the Exchange Note other than qualified stated interest), the difference is
considered "market discount," unless such difference is "de minimis," (i.e., the
discount is less than one-fourth of one percent of the Exchange Note Issue Price
multiplied by the number of complete years to maturity (after the holder
acquires the Exchange Note)). Under the market discount rules, any gain realized
by the holder on a taxable disposition of an Exchange Note having "market
discount," as well as on any partial principal payment made with respect to such
Exchange Note, will be treated as ordinary income to the extent of the then
"accrued market discount" of the Exchange Note. An overview of the rules
concerning the calculation of "accrued market discount" is set forth in the
paragraph immediately below. In addition, a holder of such Exchange Note may be
required to defer the deduction of all or a portion of the interest expense on
any indebtedness incurred or continued to purchase or carry an Exchange Note.
Any market discount will accrue ratably from the date of acquisition to the
maturity date of the Exchange Note, unless the holder elects, irrevocably, to
accrue market discount on a constant interest rate method. The constant interest
rate method generally accrues interest at times and in amounts equivalent to the
result which would have occurred had the market discount been original issue
discount computed from the holder's acquisition of the Exchange Note through the
maturity date. The election to accrue market discount on a constant interest
rate method is irrevocable but may be made separately as to each Exchange Note
held by the holder. Accrual of market discount will not cause the accrued
amounts to be included currently in a holder's taxable income, in the absence of
a disposition of, or principal payment on the Exchange Note. However, a holder
of an Exchange Note may elect to include market discount in income currently as
it accrues on either a ratable or constant interest rate method. In such event,
interest expense relating to the acquisition of an Exchange Note which would
otherwise be deferred would be currently deductible to the extent otherwise
permitted by the Code. The election to include market discount in income
currently, once made, applies to all market discount obligations acquired by
such holder on or after the first day of the first taxable year to which the
election applies, and may not be revoked without the consent of the Service.
Accrued market discount which is included in a holder's gross income will
increase the adjusted tax basis of the Exchange Note in the hands of the holder.
AMORTIZABLE BOND PREMIUM
If a subsequent holder acquires an Exchange Note for an amount which is
greater than the amount payable at maturity, such holder will be considered to
have purchased such Exchange Note with "amortizable bond premium" equal to the
amount of such excess. The holder may elect to amortize the premium, using a
constant yield method employing six-month compounding, over the period from the
acquisition date to the maturity date of the Exchange Note. The "amount payable
at maturity" will be determined as of an earlier call date, using the call price
payable on such earlier date, if the combination of such earlier date and call
price will produce a smaller amortizable bond premium than would result from
using the scheduled maturity date and its amount payable. If an earlier call
date is used and the Exchange Note is not called, the Exchange Note will be
treated as having matured on such earlier call date and then as having been
reissued on such date for the amount so payable. Amortized amounts may be offset
only against interest payments due under the Exchange Note and will reduce the
holder's adjusted tax basis in the Exchange Note to the extent so used.
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Once made, an election to amortize and offset interest on bonds, such as
the Exchange Notes, will apply to all bonds in respect of which the election was
made that were owned by the taxpayer on the first day of the taxable year to
which the election relates and to all bonds of such class or classes
subsequently acquired by such taxpayer. Such election may only be revoked with
the consent of the Service. If a holder of an Exchange Note does not elect to
amortize the premium, the premium will decrease the gain or increase the loss
which would otherwise be recognized upon disposition of the Exchange Note.
SALE, EXCHANGE, OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement (including redemption) of an Exchange
Note, other than the exchange of an Outstanding Note for an Exchange Note, a
holder of an Exchange Note generally will recognize gain or loss in an amount
equal to the difference between the amount of cash and the fair market value of
any property received on the sale, exchange or retirement of the Exchange Note
(other than in respect of accrued and unpaid interest on the Exchange Note,
which such amounts are treated as ordinary interest income) and such holder's
adjusted tax basis in the Exchange Note. If a holder holds the Exchange Note as
a capital asset, such gain or loss will be capital gain or loss, except to the
extent of any accrued market discount, and will be long-term capital gain or
loss if the Exchange Note has a holding period of more than one year at the time
of sale, exchange or retirement (and may be subject to lower tax rates
applicable to capital gains depending on the holder's status and the length of
the holding period of the Exchange Note).
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to interest
payments on the Exchange Notes made to holders other than certain exempt
recipients (such as corporations) and to proceeds realized by such holders on
dispositions of Exchange Notes. A 31% backup withholding tax will apply to such
amounts only if the holder (i) fails to furnish its social security or other
taxpayer identification number ("TIN") within a reasonable time after request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly
interest or dividend income, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that it is not subject to backup withholding.
Any amount withheld from a payment to a holder under the backup withholding
rules is allowable as a refund or as a credit against such holder's federal
income tax liability, provided that the required information is furnished to the
Service. Holders of Exchange Notes should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
Once made, an election to amortize and offset interest on bonds, such as
the Exchange Notes, will apply to all bonds in respect of which the election was
made that were owned by the taxpayer on the first day of the taxable year to
which the election relates and to all bonds of such class or classes
subsequently acquired by such taxpayer. Such election may only be revoked with
the consent of the Service.
PLAN OF DISTRIBUTION
Each broker-dealer that received Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. The Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where such Outstanding Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 60 days after the date of this Prospectus, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with such resale. In addition, until June 11, 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a Prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market
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prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Securities and any
commission or concessions received by any such person may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the Holders of the Outstanding Notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Exchange Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act. Any
Outstanding Notes not exchanged in the Exchange Offer for Exchange Notes will
remain subject to certain transfer restrictions.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes offered
hereby will be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., Dallas, Texas.
90
<PAGE> 95
FWT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Income........................................ F-4
Statements of Shareholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7 to F-13
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
FWT, Inc.:
We have audited the accompanying balance sheets of FWT, Inc., a Texas
corporation (the "Company"), as of April 30, 1997 and 1996, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended April 30, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FWT, Inc. as of April 30,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended April 30, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 1, 1997 (except with respect to the
matters discussed in Note 7, as to which
the date is February 27, 1998)
F-2
<PAGE> 97
FWT, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
----------------- -----------
1997 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,483 $ 4,048 $10,284
Accounts receivable, less allowance for doubtful accounts
of $75,
$14, and $175, respectively............................ 17,560 9,511 7,433
Inventories............................................... 8,357 963 11,427
Prepaid expenses.......................................... 984 122 2,341
Other assets.............................................. 519 308 857
------- ------- -------
Total current assets.............................. 31,903 14,952 32,342
------- ------- -------
Property, Plant, And Equipment:
Land and land improvements................................ 867 789 818
Buildings and building improvements....................... 4,467 2,327 4,488
Machinery and equipment................................... 5,463 3,800 6,079
------- ------- -------
10,797 6,916 11,385
Less accumulated depreciation............................. (2,497) (2,379) (2,889)
Net property, plant, and equipment................ 8,300 4,537 8,496
------- ------- -------
Total assets................................................ $40,203 $19,489 $40,838
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 188 $ 100 $ 188
Accounts payable.......................................... 10,195 3,573 5,184
Accrued expenses and other liabilities.................... 2,543 1,464 3,971
Notes payable............................................. 468 -- 20,468
------- ------- -------
Total current liabilities......................... 13,394 5,137 29,811
------- ------- -------
Long-Term Debt, less current portion........................ 1,512 375 1,410
------- ------- -------
Total liabilities................................. 14,906 5,512 31,221
------- ------- -------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $10 par value; 1,000 shares authorized; 372
shares issued and outstanding.......................... 4 4 4
Additional paid-in capital................................ 1 1 1
Retained earnings......................................... 25,292 13,972 9,612
------- ------- -------
Total shareholders' equity........................ 25,297 13,977 9,617
------- ------- -------
Total liabilities and shareholders' equity.................. $40,203 $19,489 $40,838
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 98
FWT, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH PERIOD
YEAR ENDED APRIL 30, ENDED OCTOBER 31,
----------------------------- ------------------
1997 1996 1995 1997 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales.................................... $71,188 $42,701 $30,388 $37,350 $27,132
Cost of sales............................ 49,249 32,006 23,838 26,652 18,771
------- ------- ------- ------- -------
Gross profit............................. 21,939 10,695 6,550 10,698 8,361
Selling, administrative and general
expenses............................... 8,353 4,244 4,139 5,389 2,942
------- ------- ------- ------- -------
Operating income....................... 13,586 6,451 2,411 5,309 5,419
Interest income.......................... 272 156 114 246 116
Interest expense......................... (75) (33) (45) (403) (14)
Other income............................. 571 512 3 281 41
------- ------- ------- ------- -------
Income before state tax provision...... 14,354 7,086 2,483 5,433 5,562
State tax provision...................... 316 162 53 113 125
------- ------- ------- ------- -------
Net income............................. $14,038 $ 6,924 $ 2,430 $ 5,320 $ 5,437
======= ======= ======= ======= =======
Pro Forma Information:
Pro Forma adjustment for federal tax
provision........................... 4,773 2,354 826 1,809 1,849
------- ------- ------- ------- -------
Pro Forma net income................... $ 9,265 $ 4,570 $ 1,604 $ 3,511 $ 3,588
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 99
FWT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES ISSUED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
SHARES COMMON PAID-IN RETAINED SHAREHOLDERS'
ISSUED STOCK CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1994................ 372 $4 $1 $ 6,177 $ 6,182
Net income........................... -- -- -- 2,430 2,430
Distributions........................ -- -- -- (200) (200)
--- -- -- -------- --------
Balance, April 30, 1995................ 372 4 1 8,407 8,412
Net income........................... -- -- -- 6,924 6,924
Distributions........................ -- -- -- (1,359) (1,359)
--- -- -- -------- --------
Balance, April 30, 1996................ 372 4 1 13,972 13,977
Net income........................... -- -- -- 14,038 14,038
Distributions........................ -- -- -- (2,718) (2,718)
--- -- -- -------- --------
Balance, April 30, 1997................ 372 4 1 25,292 25,297
Net income (unaudited)............... -- -- -- 5,320 5,320
Distributions (unaudited)............ -- -- -- (21,000) (21,000)
--- -- -- -------- --------
Balance, October 31, 1997
(unaudited).......................... 372 $4 $1 $ 9,612 $ 9,617
=== == == ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 100
FWT, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED
YEAR ENDED APRIL 30, OCTOBER 31,
----------------------------- ------------------
1997 1996 1995 1997 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income........................... $14,038 $ 6,924 $ 2,430 $ 5,320 $ 5,437
Adjustments to reconcile net earnings to
net cash provided by operating
activities
Depreciation......................... 508 375 299 412 259
Net loss (gain) on sale of property
and equipment...................... 52 (21) (20) (142) (15)
Adjustments to working capital accounts
Accounts receivable.................. (8,049) (4,205) (2,286) 10,127 (1,101)
Inventories.......................... (7,394) (311) (325) (3,070) (3,773)
Prepaid expenses..................... (862) (116) 284 (1,357) (824)
Other assets......................... (211) 31 32 (338) (82)
Accounts payable..................... 6,622 1,480 898 (5,011) 1,548
Accrued expenses and other
liabilities........................ 1,079.. 689 110 1,428 544
------- ------- ------- ------- -------
Net cash provided by operating
activities.................... 5,783 4,846 1,422 7,369 1,993
------- ------- ------- ------- -------
Cash Flows From Investing Activities:
Expenditures for property and
equipment.......................... (4,341) (1,198) (1,324) (664) (1,086)
Proceeds from sale of property and
equipment.......................... 18 16 62 198 10
------- ------- ------- ------- -------
Net cash used in investing
activities.................... (4,323) (1,182) (1,262) (466) (1,076)
------- ------- ------- ------- -------
Cash Flows From Financing Activities:
Proceeds from notes payable.......... 468 -- -- 20,000 555
Proceeds from long-term debt
issued............................. 1,325 -- -- -- --
Payments of long-term debt, including
current maturities................. (100) (100) (100) (102) (50)
Distributions paid................... (2,718) (1,359) (200) (21,000) --
------- ------- ------- ------- -------
Net cash used in financing
activities.................... (1,025) (1,459) (300) (1,102) 505
------- ------- ------- ------- -------
Net Increase (Decrease) In Cash And Cash
Equivalents............................. 435 2,205 (140) 5,801 1,422
------- ------- ------- ------- -------
Cash And Cash Equivalents, beginning of
period.................................. 4,048 1,843 1,983 4,483 4,048
------- ------- ------- ------- -------
Cash And Cash Equivalents, end of
period.................................. $ 4,483 $ 4,048 $ 1,843 $10,284 $ 5,470
======= ======= ======= ======= =======
Supplemental Cash Flow Information:
Cash paid during the period for
Interest............................. $ 73 $ 31 $ 43 $ 279 14
Taxes................................ 23 1 -- 24 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 101
FWT, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997, 1996, AND 1995, AND OCTOBER 31, 1997 (UNAUDITED) AND OCTOBER 31,
1996 (UNAUDITED)
1. NATURE OF OPERATIONS:
FWT, Inc., formerly Fort Worth Tower Company, Inc., ("FWT" or the
"Company"), a Texas corporation, manufactures, sells and installs transmitting
towers, poles, PowerMounts(TM) and related accessories used principally to
support communications and broadcasting antennae for the telecommunications
infrastructures industry. This includes cellular telephone, personal
communications systems (PCS), commercial and amateur broadcasting, private
microwave and television. Operating results are strongly influenced by growth in
demand for telecommunications infrastructures services. The Company also
produces shelters and cabinets used to house electronic communications and
broadcasting equipment. The Company conducts its business principally through
its two plants located near Fort Worth, Texas.
The Company's products are sold directly to customers throughout the United
States and in some international markets. The Company sold towers and shelters
to AT&T Wireless for use in both the PCS and cellular markets that provided
approximately 25 percent of its 1997 sales. Three other customers each comprised
approximately 6 percent of 1997 sales. In fiscal years 1996 and 1995, the
Company had three and four customers, respectively, which represented sales over
ten percent. These customers accounted for approximately 20 percent, 14 percent,
and 11 percent of 1996 sales and approximately 18 percent, 17 percent, 12
percent, and 11 percent of 1995 sales. International sales accounted for less
than five percent of sales in each of the years presented in the accompanying
statements of income.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
The Company considers all highly liquid short-term investments purchased
with original maturities of three months or less to be cash equivalents. The
cost of such short-term investments approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory costs include material,
labor and factory overhead.
Total inventories as of April 30, 1997 and 1996, included the following (in
thousands):
<TABLE>
<CAPTION>
APRIL 30,
----------------
1997 1996
------ ------
<S> <C> <C>
Finished goods.............................................. $6,408 $ 482
Work-in-process and raw materials........................... 1,949 481
------ ------
Total inventories................................. $8,357 $ 963
====== ======
</TABLE>
Property, Plant and Equipment
Property and equipment are carried at cost. Expenditures for maintenance
and repairs are charged directly against income; major renewals and betterments
are capitalized. When properties are retired or otherwise disposed of, the
original cost and accumulated depreciation are removed from the respective
accounts and the gain or loss resulting from the disposal is reflected in
income.
The Company provides for depreciation of plant and equipment over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings & Building Improvements........................... 5 to 40 years
Machinery and Equipment..................................... 3 to 10 years
Office Furniture and Equipment.............................. 5 to 10 years
Computer Equipment and Software............................. 3 to 5 years
</TABLE>
F-7
<PAGE> 102
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is provided on the straight-line method for financial
reporting purposes. Depreciation expense was $507,622, $374,859, and $299,105
for 1997, 1996, and 1995, respectively.
Other Assets
Other assets consist primarily of farm-related assets. Farm assets as of
April 30, 1997 and 1996, were $518,947 and $162,782, respectively.
Revenue Recognition
Revenue from sales is recognized when the earnings process is complete,
which is generally at the time of product shipment. In circumstances where
shipments are delayed at the request of a customer, revenue is recognized upon
completion of the product and payment by the customer. Management believes that
payment represents acknowledgment by the customer that all contractual terms are
binding, the product has been manufactured according to customer specifications
and engineering design, the product is available for delivery according to the
schedule fixed by the customer, and the Company is not responsible for delivery
or installation. As a result, the Company believes that the risk of ownership
has passed and the earnings process is complete.
Other Income
Other income consists primarily of gains recognized in the disposition of
farm assets. Total farm-related income (expense) was $445,907, $306,112, and
$(68,071) for the years ended April 30, 1997, 1996, and 1995, respectively.
Federal Income Taxes
Effective May 1, 1987, the Company elected to be taxed as a Subchapter S
corporation. A Subchapter S corporation is not taxed on its net income but,
instead, the Company's shareholders are taxed on their proportionate share of
the Company's taxable income. Therefore, no provision for federal income tax is
included in the accompanying historical financial statements. A pro forma charge
for federal income taxes is supplementally disclosed on the statements of
income. Annual distributions are made to shareholders to fund, among other
things, federal taxes related to income of the Company.
The Company has made an election under Section 444 of the Internal Revenue
Code to retain a fiscal year which ends on April 30 of each year. As a result of
this election, the Company is required to pay an amount which will be held by
the IRS to offset timing differences in the payment of estimated taxes by the
Company's shareholders as a result of the fiscal year election. The amount of
this required payment is calculated annually and is either increased by the
Company making additional payments, or decreased by the IRS refunding amounts
previously paid. As of April 30, 1997 and 1996, the required payments were
$729,160 and $94,864 and are reflected in prepaid expenses in the accompanying
balance sheets. Should the Company discontinue its election to retain its fiscal
year, the entire amount of the required payment (if any at that time) would be
refunded.
State Income Taxes
The Company is subject to state income taxes in various states that do not
recognize Subchapter S corporations. A provision for state income taxes is
included in the accompanying statements of income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-8
<PAGE> 103
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and the disclosure of contingent assets and liabilities as of the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
Interim Period Financial Statements
The accompanying interim period financial statements as of October 31,
1997, and for the each of the six month periods ended October 31, 1997 and 1996,
are unaudited, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of the results for the interim period
presented. The results for the interim period are not necessarily indicative of
the results to be obtained for the full fiscal year.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current period presentations.
3. BENEFIT PLANS:
Profit Sharing Plan
The Company has a profit sharing plan which covers substantially all
employees of the Company who have at least six months of service and are age 20
or older. The Company makes discretionary contributions at the option of the
Company's board of directors. Discretionary contributions charged to expense
related to the profit sharing plan were $314,000, $250,000 and $299,000, in
1997, 1996 and 1995, respectively. In accordance with the profit sharing plan
provisions, the Company absorbs all costs associated with the administration of
the profit sharing plan.
Pension Plan
The Company's pension plan is a non-contributory defined benefit plan. The
defined benefit plan covers all employees of the Company who have completed six
months of service and have attained the age of 20. Plan assets consist of
overnight bank repurchase agreements. These repurchase agreements are supported
by United States Government Treasury Securities. Historically, the Company has
made annual contributions to the benefit pension plan equal to the maximum
amount that can be deducted for federal income tax purposes.
Net periodic pension costs related to the defined benefit pension plan for
the years ended April 30, 1997 and 1996 (actuarial data for 1995 is not
available) consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Service cost of current period.............................. $ 60,559 $ 61,305
Interest on projected benefit obligation.................... 162,688 154,485
Actual return on plan assets................................ (68,769) (72,684)
Net amortization and deferral............................... (65,820) (50,886)
-------- --------
Net periodic pension cost......................... $ 88,658 $ 92,220
======== ========
</TABLE>
F-9
<PAGE> 104
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status, the assumptions used to
calculate the funded status and the amounts recognized in FWT's balance sheets.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $2,560,287 $2,162,968
Non-vested benefits....................................... -- 26,917
---------- ----------
Accumulated benefit obligation......................... $2,560,287 $2,189,885
========== ==========
Pension liability:
Plan assets at fair value................................. 2,342,251 2,018,973
Projected benefit obligation.............................. 2,560,287 2,278,841
---------- ----------
Projected benefit obligation in excess of plan assets..... (218,036) (259,868)
Unrecognized net actuarial loss........................... -- 14,619
Initial unrecognized net asset being recognized over 17
years.................................................. 23,434 219,666
Adjustment to recognize additional minimum liability...... -- (145,324)
---------- ----------
Pension liability included in accrued expenses and other
liabilities............................................... $ (194,602) $ (170,907)
========== ==========
Major assumptions:
Assumed discount rate..................................... 7.5% 7.5%
Rate of increase in compensation levels................... -- 4.0%
Expected long-term rate of return on plan assets.......... 7.5% 7.5%
</TABLE>
The pension plan was terminated as of April 30, 1997, resulting in a plan
curtailment. The 1997 information above reflects a loss of $330,000 as a result
of the curtailment of the plan. The Company expects to settle the plan in early
calendar 1998, either by making lump sum distributions to participants or
purchasing nonparticipating annuity contracts to cover vested benefits.
4. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt of the Company as of April 30, 1997 and
1996, and October 31, 1997, consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
-------------------- -----------
1997 1996 1997
-------- -------- -----------
(UNAUDITED)
-----------
<S> <C> <C> <C>
Notes Payable
Unsecured note payable to a bank, maximum borrowing of
$1,500,000, bearing interest at Adjusted LIBOR, as
defined; principal due at maturity with monthly interest
payments; matures January 1, 1998. ...................... $468,000 $ -- $ 468,000
Note payable to a bank, bearing interest at the bank's
certificate of deposit rate plus one percent; principal
due at maturity with monthly interest payments; matures
July 23, 1998; secured by certain assets of the
shareholders of the Company. The note has various
financial covenants related to debt and equity, and cash
flow ratios.............................................. -- -- 20,000,000
-------- -------- -----------
Notes payable.................................. $468,000 $ -- $20,468,000
======== ======== ===========
</TABLE>
F-10
<PAGE> 105
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, the Company entered into a note payable for $20,000,000. The
Company subsequently distributed all proceeds related to this note payable to
certain shareholders of the Company.
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
---------------------- -----------
1997 1996 1997
---------- -------- -----------
(UNAUDITED)
-----------
<S> <C> <C> <C>
Long-Term Debt
Note payable to a bank, bearing interest at 6%, payable
in quarterly installments of $25,000; matures December
31, 2000; secured by all Company receivables. The note
has various financial covenants related to debt and
equity, and cash flow ratios. .......................... $ 375,000 $475,000 $ 325,000
Unsecured note payable to a bank, bearing interest at
Adjusted LIBOR, as defined; payable in monthly
installments of $7,361; matures April 1, 2000. ......... 1,325,000 -- 1,273,473
---------- -------- ----------
Less -- Current portion....................... 188,332 100,000 188,332
---------- -------- ----------
Long-term, less current portion............... $1,511,668 $375,000 $1,410,141
========== ======== ==========
</TABLE>
Principal maturities of long-term debt outstanding as of April 30, 1997,
are as follows:
<TABLE>
<CAPTION>
APRIL 30,
---------
<S> <C>
1998.......................................... $ 188,332
1999.......................................... 188,332
2000.......................................... 1,248,336
2001.......................................... 75,000
Thereafter.................................... --
----------
$1,700,000
==========
</TABLE>
The majority of the Company's notes payable and long-term debt bear
interest at variable rates which re-price frequently and, therefore, their
carrying amounts approximate their fair values. The carrying amount of the note
payable bearing interest at a fixed rate approximates its fair value. The fair
value of this note has been estimated using a discounted cash flow calculation
that applies an estimated interest rate which would currently be available to
the Company for a similar note. The Company has also entered into an agreement
with a bank to borrow up to $2,200,000 at an interest rate of Adjusted LIBOR, as
defined, due on or before February 1, 1998. The Company has yet to borrow under
this credit facility and does not anticipate any future borrowings under this
credit facility due to restrictive covenants of the Senior Subordinated Notes
discussed in Note 7.
F-11
<PAGE> 106
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
Leases
In February, the Company entered into a five-year renewable lease agreement
with a third party pole vendor to lease manufacturing and warehouse space. Rent
expense under this lease in 1997 was approximately $46,300. Future minimum
payments under the lease are as follows:
<TABLE>
<CAPTION>
APRIL 30,
---------
<S> <C>
1998........................................... $185,004
1999........................................... 185,004
2000........................................... 185,004
2001........................................... 185,004
2002........................................... 138,753
Thereafter..................................... --
--------
$878,769
========
</TABLE>
As part of this lease agreement, the Company agreed to purchase any
remaining steel plate inventory held by the lessor for FWT's exclusive use. The
steel will be provided at cost, as defined in the lease agreement, plus $.01 per
pound.
Employment Agreements
As of April 30, 1997, the Company maintains employment agreements with
several employees. Each agreement is typically for a five-year period and
terminates at the option of the employee or for termination of employment for
just cause, as defined in the agreement. Total annual compensation under these
employment agreements is approximately $500,000.
Legal
In the normal course of business, the Company is involved in various
pending legal proceedings and claims. In the opinion of management, after
consultation with counsel, the ultimate resolution of such matters will not have
a material impact on the financial condition or the future results and
operations of the Company.
License Agreement
During fiscal year 1997, the Company signed a license agreement with a
customer which grants that customer "Most Favored Customer" status with respect
to all terms and conditions (including price) relating to one of the Company's
patented products. Under the agreement, the customer also has the right to have
the product produced by another manufacturer in exchange for a license fee to
the Company. To date no license fees have been paid or are payable to the
Company. In addition, the licensing agreement restricts the transferability of
the patent related to this product. The agreement may be terminated by the
Company in the event the licensee fails to pay the license fee or defaults under
the terms of the agreement.
6. RELATED-PARTY TRANSACTIONS:
The Company occasionally pays expenses on behalf of certain shareholders
and officers. These amounts are recorded as a receivable from the shareholder or
officer until they are repaid. Additionally, certain shareholders and officers
have advanced the Company funds in the normal course of business. These amounts
are recorded as a payable to the shareholder or officer until they are repaid.
The net receivable (payable) related to these transactions were $14,983,
($35,453), and ($28,044) for the years ended April 30, 1997, 1996, and 1995,
respectively.
F-12
<PAGE> 107
FWT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Bonuses to related parties are paid on a discretionary basis and are
recorded in the accompanying statements of income as follows:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
------------------------------------ -----------
1997 1996 1995 1997
---------- -------- ---------- -----------
(UNAUDITED)
--------
<S> <C> <C> <C> <C>
Related party bonuses.............. $1,300,000 $304,414 $1,068,072 $608,829
</TABLE>
7. SUBSEQUENT EVENTS:
On September 26, 1997, the Company's majority shareholders signed a letter
of intent to sell their shares in the Company. In November 1997, the Company
used borrowings from a $105 million 9 7/8% Senior Subordinated Notes offering to
repay existing indebtedness and to effect a stock redemption. The Company also
entered into a $25 million revolving credit facility, subject to borrowing base
limitations, which is secured by substantially all of the assets of the Company.
Concurrent with this transaction, FWT Acquisition, an affiliate of Baker
Capital, purchased 80% of the remaining ownership for approximately $36 million.
For financial reporting purposes, this recapitalization will be accounted for as
an acquisition of treasury stock. No amounts were outstanding under the
revolving credit facility as of February 27, 1998.
Subsequent to October 31, 1997, the Company and two executives of the
Company entered into stock appreciation rights agreements (the "SAR
Agreements"). These SAR Agreements provide for, among other things, the payment
of an amount based on a formula set forth in the SAR Agreements by the Company
to the executives upon the occurrence of a Liquidity Event (which is defined in
the SAR Agreements as, among other things, the completion by the Company of an
initial public offering of common stock and a situation in which FWT Acquisition
ceases to hold more than 50% of the outstanding common stock of the Company).
Any value earned under the SAR Agreements will be accounted for as compensation
expense by the Company. In addition to the SAR Agreements the Company entered
into three year employment agreements with certain executive officers.
On February 27, 1998, an executive officer and shareholder of the Company,
entered into a Voluntary Retirement Agreement with the Company, in connection
with which he agreed to resign from office as an executive officer of the
Company and voluntarily retire. As part of this arrangement, the Company has
agreed to pay the executive officer and shareholder $237,500 per year through
December 31, 2000, and one-half of any bonus that otherwise would have been
payable to him under his employment agreement with the Company had his
employment with the Company continued through such date. This agreement will
result in a fourth quarter charge to operations.
F-13
<PAGE> 108
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NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 14
Use of Proceeds....................... 21
The Exchange Offer.................... 21
The Recapitalization and Stock
Purchase............................ 27
Capitalization........................ 28
Unaudited Pro Forma Financial
Statements.......................... 29
Selected Historical Financial Data.... 35
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
Recent Developments................... 42
Business.............................. 43
Industry Overview..................... 49
Management............................ 51
Principal Shareholders................ 54
Certain Relationships and Related
Transactions........................ 55
Description of the Revolving Credit
Facility............................ 58
Description of Exchange Notes......... 59
Book-Entry; Delivery and Form......... 85
Federal Income Tax Consequences....... 86
Plan of Distribution.................. 89
Independent Public Accountants........ 90
Legal Matters......................... 90
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
---------------------------------------
PROSPECTUS
---------------------------------------
[FWT COLOR LOGO]
[FWT LOGO]
FWT, INC.
$105,000,000
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007
FOR
$105,000,000
9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007
MARCH 13, 1998
======================================================
