<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION STATEMENT NO. 333-48225
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NBC ACQUISITION CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 47-0793347
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
4700 SOUTH 19TH STREET
LINCOLN, NE 68501-0529
(402) 421-7300
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office)
MARK W. OPPEGARD
4700 SOUTH 19TH STREET
LINCOLN, NE 68501-0529
(402) 421-7300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
MITCHELL S. FISHMAN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
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APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
---------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 12, 1998
NBC ACQUISITION CORP.
[NBC ACQUISITION CORP. LOGO]
OFFER TO EXCHANGE ITS 10 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009 WHICH HAVE
BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED.
NBC Acquisition Corp., a Delaware corporation ("Holdings"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), to exchange its 10 3/4%
Senior Discount Debentures due 2009 (the "Exchange Debentures") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined) of which this Prospectus
constitutes a part, for any and all outstanding 10 3/4% Senior Discount
Debentures due 2009 (the "Initial Debentures," and, together with the Exchange
Debentures, the "Debentures"), of which $76,000,000 principal amount is
outstanding. ALTHOUGH THE EXCHANGE DEBENTURES ARE TITLED "SENIOR," HOLDINGS HAS
NOT ISSUED, AND CURRENTLY DOES NOT HAVE ANY FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE EXCHANGE DEBENTURES WOULD BE SENIOR. THE
EXCHANGE DEBENTURES ALSO WILL BE EFFECTIVELY SUBORDINATED TO ESSENTIALLY ALL OF
THE OUTSTANDING INDEBTEDNESS OF HOLDINGS AND ITS SUBSIDIARIES. The Exchange
Offer is not conditioned upon any minimum aggregate principal amount of Initial
Debentures being tendered for exchange. However, the Exchange Offer is subject
to the absence of certain conditions which may be waived by Holdings. See "The
Exchange Offer -- Certain Conditions to the Exchange Offer." Subject to the
absence or waiver of such conditions, Holdings will accept for exchange any and
all Initial Debentures validly tendered on or prior to 5:00 p.m., New York City
time, on , 1998, unless the Exchange Offer is extended (the
"Expiration Date"). Initial Debentures may be tendered only in integral
multiples of $1,000. The date of acceptance and exchange of the Initial
Debentures (the "Exchange Date") will be the fourth business day following the
Expiration Date, unless an earlier date is selected by Holdings. Initial
Debentures tendered pursuant to the Exchange Offer 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. The Exchange Debentures will be issued and delivered
promptly after the Exchange Date.
The terms of the Exchange Debentures are identical in all material respects
to the terms of the Initial Debentures, except that the Exchange Debentures have
been registered under the Securities Act and are generally freely transferable
by holders thereof and are issued without any covenant upon Holdings regarding
registration under the Securities Act. See "The Exchange Offer -- Resale of
Exchange Debentures." The Exchange Debentures will evidence the same debt as the
Initial Debentures and will be issued under and be entitled to the benefits of
the Indenture (as defined). For a complete description of the terms of the
Exchange Debentures, see "Description of Debentures." There will be no cash
proceeds to Holdings from this Exchange Offer.
The Exchange Debentures are unsecured senior obligations of Holdings and
will rank pari passu in right of payment with all existing and future Senior
Indebtedness (as defined) of Holdings, including Holdings' guarantee of
indebtedness under the Credit Facilities (as defined). However, Holdings has
pledged, as security for its guarantee of indebtedness under the Credit
Facilities all of the issued and outstanding stock of Holdings' only subsidiary,
Nebraska Book Company, Inc. ("Nebraska Book"), which is Holdings' only
significant asset, and the obligations of Nebraska Book under the Credit
Facilities are secured by a first priority lien on substantially all of Nebraska
Book's tangible and intangible assets. As of March 31, 1998, Holdings had no
indebtedness outstanding on a stand-alone basis (other than the Debentures and
Holdings' guarantee of the Credit Facilities) and the outstanding indebtedness
of Nebraska Book was $176.0 million (exclusive of unused commitments), and
Holdings had no indebtedness that was subordinate or junior in right of
repayment to the indebtedness represented by the Debentures. Prior to the second
anniversary of the issuance of the Initial Debentures, subject to certain
exceptions, Holdings may not incur any additional indebtedness.
(continued on the following page)
SEE "RISK FACTORS" ON THE BEGINNING ON PAGE 13 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE EXCHANGE DEBENTURES.
- --------------------------------------------------------------------------------
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 3
Nebraska Book may and, after the second anniversary of the issuance of the
Initial Debentures Holdings may incur additional indebtedness, in each case
provided that certain financial ratio tests are met. See "Description of
Debentures -- Certain Covenants." Neither Holdings nor Nebraska Book has any
current or pending arrangements or agreements or any current intention to incur
any additional significant indebtedness. Upon the occurrence of a Change of
Control (as defined), each holder will have the right to require Holdings to
make an offer to repurchase all of the outstanding Debentures at a price equal
to 101% of the Accreted Value (as defined) thereof, together with accrued and
unpaid interest, if any, to the date of repurchase. There can be no assurance,
however, that in the event of a Change in Control, Holdings will have, or will
have access to, sufficient funds to repurchase the Debentures.
The Initial Debentures were originally issued and sold on February 13,
1998, in a transaction not registered under the Securities Act, in reliance upon
the exemption provided in Section 4(2) of the Securities Act. Accordingly, the
Initial Debentures may not be reoffered, resold, or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. Based upon interpretations by the staff of the Securities and
Exchange Commission (the "SEC") issued to third parties, Holdings believes that
Exchange Debentures issued pursuant to the Exchange Offer in exchange for
Initial Debentures may be offered for resale, resold and otherwise transferred
by holders thereof (other than any holder which is a broker-dealer or an
"affiliate" of Holdings 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 Debentures are acquired in the
ordinary course of business and such holders have no intention to engage, and no
arrangement with any person to participate, in the distribution of such Exchange
Debentures. Based on such interpretations, Holdings also believes that a
broker-dealer may not participate in the Exchange Offer with respect to Initial
Debentures acquired directly from Holdings that it may still hold.
Each broker-dealer that receives Exchange Debentures 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 Debentures. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. 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 Debentures received in exchange for Initial Debentures
where such Initial Debentures were acquired by such broker-dealer as a result of
market-making activities or other trading activities. See "The Exchange
Offer -- Resale of Exchange Debentures." Holdings has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Exchange Debentures will constitute a new issue of securities with no
established trading market. Holdings does not intend to list any Debentures on a
national securities exchange or to apply for quotation of any Debentures through
the National Association of Securities Dealers Automated Quotation System. Any
Initial Debentures not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Initial Debentures are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered and tendered but
unaccepted Initial Debentures could be adversely affected. Following
consummation of the Exchange Offer, the holders of Initial Debentures will
continue to be subject to the existing restrictions on transfers thereof, and
Holdings will have no further obligation to such holders to provide for the
registration under the Securities Act of the Initial Debentures held by them. No
assurance can be given as to the liquidity of the trading market for either the
Initial Debentures or the Exchange Debentures.
<PAGE> 4
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "USE OF PROCEEDS," "CAPITALIZATION,"
"SUMMARY," "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD LOOKING STATEMENTS ARE BASED ON
ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH
BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE
SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH ESTIMATES WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL
RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED
COMPETITION; (2) ABILITY TO INTEGRATE RECENT ACQUISITIONS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF
BORROWING OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL;
(5) INABILITY TO PURCHASE A SUFFICIENT SUPPLY OF USED TEXTBOOKS; (6) CHANGES IN
PRICING OF NEW AND/OR USED TEXTBOOKS; AND (7) CHANGES IN GENERAL ECONOMIC
CONDITIONS AND/OR IN THE MARKETS IN WHICH THE COMPANY COMPETES OR MAY, FROM TIME
TO TIME, COMPETE. MANY OF SUCH FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND
ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE
FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK
FACTORS."
TRADEMARK NOTICE
THE NAMES, LOGOS AND INSIGNIAS OF THE COLLEGES AND UNIVERSITIES PRINTED
HEREIN ARE TRADEMARKS AND SERVICE MARKS OF SUCH INSTITUTIONS, AND SUCH
INSTITUTIONS HAVE NOT SPONSORED, ENDORSED OR PASSED ON THE MERITS OF THIS
OFFERING OR THE SECURITIES OFFERED HEREBY. NO AFFILIATION, CONNECTION OR
ASSOCIATION BETWEEN SUCH INSTITUTIONS AND THE COMPANY OR THE SECURITIES OFFERED
HEREBY IS INTENDED OR SHOULD BE INFERRED.
i
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus. All references in this Prospectus to "Holdings" or the "Company"
mean NBC Acquisition Corp. or NBC Acquisition Corp. together with its
subsidiaries, as applicable, and references to "Nebraska Book" mean Nebraska
Book Company, Inc. Unless otherwise indicated, references to the business of the
Company and Nebraska Book include (i) the business of Collegiate Stores
Corporation ("CSC"), a centralized buying service for college bookstores
acquired in January 1998, and (ii) the operations of Specialty Books, Inc.
("Specialty Books"), a provider of distance education materials acquired in May
1997, and South Carolina Bookstore, Inc. ("SCB"), a company owning and operating
four bookstores in the southeastern United States acquired in November 1997 (the
acquisitions of Specialty Books and SCB are collectively referred to as the
"Acquisitions"). Unless otherwise noted, all market data presented in this
Prospectus is based on the Company's research and estimates and all financial
information presented for wholesale, college bookstores and services operations
includes intercompany sales. References herein to "fiscal year" or "fiscal"
refer to the Company's financial reporting years ending on March 31 in each
calendar year.
THE COMPANY
Nebraska Book is one of the largest wholesale distributors of used college
textbooks in North America, offering approximately 90,000 textbook titles and
selling more than 7.1 million books annually at approximately 2,000 college
campuses. In addition, Nebraska Book owns or manages 54 bookstores on or
adjacent to college campuses through which it sells a variety of new and used
textbooks and general merchandise. Nebraska Book also distributes new textbooks
to college bookstores and is a leading provider of distance education materials
to students in nontraditional courses, which include correspondence and
corporate education courses. Furthermore, Nebraska Book provides the college
bookstore industry with a variety of services including in-store promotions,
buying programs, marketing services and proprietary information systems. With
origins dating to 1915, Nebraska Book has built a consistent reputation for
excellence in order fulfillment, shipping performance and customer service. On a
pro forma basis, for the fiscal year ended March 31, 1998, the Company's
revenues would have been $215.3 million.
According to the National Association of College Stores, an industry trade
association, in the academic year 1995-1996 approximately 4,600 college stores
generated a total of $7.9 billion in annual sales to college students and other
consumers in North America. Sales of textbooks and other educational materials
used for classroom instruction comprised approximately 64% of this amount. The
Company expects this market will grow as a result of anticipated increases in
enrollment at U.S. colleges. The National Center for Education Statistics, an
agency of the United States Department of Education, estimates the college
population will grow by approximately 2.0 million students from 14.4 million in
1996 to 16.4 million in 2006, primarily as a result of children of the baby boom
generation entering the college population.
Sales of textbooks to college stores have grown at a compound annual rate
of 5.4% from $2.3 billion in sales in 1990 to $3.0 billion in 1995, as estimated
by Cowles/Simba Information Inc., a market research firm. Over the same period,
Cowles/Simba Information Inc. estimated that sales of used textbooks have grown
at a compound annual rate of 12.7%, increasing their share of all textbook sales
from 20% in 1990 to 28% in 1995. The Company believes that sales of used
textbooks will continue to grow because used textbooks provide students with a
lower-cost alternative to new textbooks, and because bookstores typically
achieve higher margins through the sale of used rather than new textbooks.
1
<PAGE> 6
The Company considers itself well positioned to capitalize on these
opportunities because of its leading market position, its strong customer
relationships, its broad product and service offerings and its superior order
fulfillment capabilities. These factors have also contributed to the strong,
stable growth of Nebraska Book. The following chart illustrates Nebraska Book's
consistent revenue growth over the last 20 fiscal years, even during economic
downturns, resulting in a compound annual growth rate of over 10%.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Revenues
<S> <C>
1979 27.3
1980 28.8
1981 31.5
1982 36.6
1983 42.1
1984 47.3
1985 50.2
1986 53.4
1987 70.2
1988 80.7
1989 89.6
1990 107.3
1991 118.2
1992 126.9
1993 134.1
1994 137.3
1995 148.4
1996 160.3
1997 172.6
1998 198.8
</TABLE>
The Company's wholesale operations consist primarily of selling used
textbooks to college bookstores, buying them back from students or college
bookstores at the end of each school semester and then reselling them to college
bookstores. The Company purchases used textbooks from and resells them to
college bookstores at many of the nation's largest college campuses. The Company
provides a proprietary Buyer's Guide to its customers, which lists over 36,000
textbook titles with such details as author, new copy retail price and the
Company's repurchase price. The Company also operates 54 college bookstores on
or adjacent to college campuses of which eight are managed by the Company at
institution-owned stores (i.e., contract-managed). In addition to generating
profits, the Company's college bookstore operations provide an exclusive source
of used textbooks for sale across the Company's wholesale distribution network.
The Company generally focuses its college bookstore operations at colleges where
the Company otherwise would not have a significant representation.
MANAGEMENT AND OWNERSHIP
The Company's seven senior managers, led by Mark W. Oppegard, President,
have an average of over 28 years of diverse experience in the college bookstore
industry (of which an average of 22 years has been with Nebraska Book), as well
as experience in managing within the constraints of a leveraged capital
structure. Their experience within the college bookstore industry equips them
with superior knowledge of the Company's business, thereby enabling them to
effectively manage the business and to position the Company to capitalize on
opportunities within the industry. These senior executive officers reinvested an
aggregate of approximately $4.4 million in Holdings as part of the
Recapitalization (as defined), which gave them ownership of approximately 8.7%
of the common stock of Holdings ("Holdings Common Stock").
Haas Wheat & Partners Incorporated ("Haas Wheat") and its predecessors and
affiliates have been engaged in the merchant banking and buyout business for 14
years, and have completed over $7 billion of transactions. Robert B. Haas and
Douglas D. Wheat are the managing officers of Haas Wheat, which is based in
Dallas, Texas. Haas Wheat manages an investment partnership, HWH Capital
Partners, L.P. ("HWH"), which is comprised of limited partners who are
experienced investors in the buyout industry.
2
<PAGE> 7
THE RECAPITALIZATION
Effective September 1, 1995, Nebraska Book was acquired in a leveraged
buyout by Holdings, a corporation owned by investment partnerships affiliated
with Olympus Advisory Partners, Inc. ("Olympus") and certain other investors
(the "1995 Transaction"). The 1995 Transaction was accounted for as a purchase
business combination.
Pursuant to a Merger Agreement (the "Merger Agreement") dated January 6,
1998 among Holdings, certain shareholders of Holdings, including members of
senior management, and NBC Merger Corp., a newly created, indirect wholly-owned
subsidiary of HWH ("Mergerco"), Mergerco merged with and into Holdings (the
"Merger") with Holdings as the surviving corporation. The Merger Agreement
contains customary representations, warranties, covenants and closing
conditions. As a result of the Merger, which occurred on February 13, 1998,
certain stockholders of Holdings received a total of approximately $165.9
million. In addition, upon the consummation of the Merger, Nebraska Book repaid
approximately $82.0 million of outstanding indebtedness.
Concurrently with the consummation of the Merger, Nebraska Book entered
into a senior secured credit agreement (the "Credit Agreement") with The Chase
Manhattan Bank ("Chase"), as administrative agent, and other lenders providing
for the following facilities (the "Credit Facilities"): (i) a $50.0 million
revolving credit facility maturing on March 31, 2004 which was undrawn at
closing (the "Revolving Credit Facility"); (ii) a $27.5 million tranche A term
loan, maturing on March 31, 2004 (the "Tranche A Term Loan"); and (iii) a $32.5
million tranche B term loan, maturing on March 31, 2006 (the "Tranche B Term
Loan" and, together with the Tranche A Term Loan, the "Term Loans"). In
addition, Nebraska Book also raised approximately $103.6 million from the
issuance of the Senior Subordinated Notes. Holdings raised a total of $91.6
million, which it contributed to Nebraska Book as equity (the "Equity
Contribution"), through: (i) the sale of approximately $45.6 million of Holdings
Common Stock to HWH; (ii) the reinvestment of approximately $4.4 million in
Holdings Common Stock by the Company's senior management; and (iii) net proceeds
of approximately $41.6 million from the issuance of the Debentures offered
hereby.
The Merger, the acquisition of CSC, the repayment of substantially all of
Nebraska Book's outstanding indebtedness, the Equity Contribution, the issuance
by Nebraska Book of the Senior Subordinated Notes, the issuance by Holdings of
the Debentures, Nebraska Book's borrowings under the Credit Facilities and the
application of all proceeds thereof are collectively referred to as the
"Recapitalization."
3
<PAGE> 8
The following table sets forth the sources and uses of funds in connection
with the Recapitalization at closing:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Sources:
Credit Facilities:
Revolving Credit Facility(1).............................. $ --
Tranche A Term Loans...................................... 27,500
Tranche B Term Loans...................................... 32,500
Senior Subordinated Notes due 2008(2)....................... 110,000
Holdings Senior Discount Debentures due 2009................ 45,000
Holdings Common Stock(3).................................... 50,000
---------
Total sources of funds............................ $ 265,000
=========
Uses:
Purchase of common stock.................................... $ 165,921
Repayment of existing indebtedness(4)....................... 82,014
Payment of fees and expenses................................ 15,600
Excess cash................................................. 1,465
---------
Total uses of funds............................... $ 265,000
=========
</TABLE>
- ---------------
(1) Total borrowings of up to $50.0 million under the Revolving Credit Facility
are available, subject to borrowing base limitations, for working capital
and general corporate purposes. At March 31, 1998, the Revolving Credit
Facility had an amount of $31.6 million available as determined by the
borrowing base calculation. Of the amount available, $5.4 million was drawn
by Nebraska Book. See "Description of Other Indebtedness."
(2) As part of the Recapitalization, Nebraska Book issued (the "Subordinated
Notes Offering") $110.0 million aggregate principal amount of 8 3/4% Senior
Subordinated Notes due 2008.
(3) HWH invested approximately $45.6 million and senior management of the
Company reinvested approximately $4.4 million in Holdings Common Stock.
(4) Includes $2.3 million of discount on the Nebraska Book's existing
subordinated notes. See "Capitalization."
4
<PAGE> 9
THE EXCHANGE OFFER
The Exchange Offer......... Holdings is offering to exchange pursuant to the
Exchange Offer up to $76,000,000 aggregate
principal amount of the Exchange Debentures for any
and all of its outstanding Initial Debentures. The
terms of the Exchange Debentures are identical in
all material respects (including principal amount,
interest rate and maturity) to the terms of the
Initial Debentures for which they may be exchanged
pursuant to the Exchange Offer, except that the
Exchange Debentures have been registered under the
Securities Act and are freely transferrable by
holders thereof (other than as provided herein),
and are not subject to any covenant regarding
registration under the Securities Act. See "The
Exchange Offer."
Expiration Date; Withdrawal
of Tender.................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless the
Exchange Offer is extended by Holdings, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extension; Termination; Amendment." Tenders
may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. See
"The Exchange Offer -- Withdrawal Rights."
Interest Payments.......... Interest on the Exchange Debentures shall accrue
from the last interest payment date (February 15 or
August 15, each an "Interest Payment Date") on
which interest was paid on the Initial Debentures
so surrendered or, if no interest has been paid on
such Initial Debentures, from February 13, 1998.
No Minimum Condition....... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Initial
Debentures being tendered for exchange.
Exchange Date.............. The date of acceptance and exchange (the "Exchange
Date") of the Initial Debentures will be the fourth
business day following the Expiration Date, unless
an earlier date is selected by Holdings and
Holdings notifies the Exchange Agent (as defined)
of such earlier date.
Conditions to the Exchange
Offer.................... Holdings shall not be required to accept for
exchange, or to issue Exchange Debentures in
exchange for, any Initial Debentures and may
terminate or amend the Exchange Offer, if any of
certain customary conditions exist, the occurrence
of which may be waived by Holdings. Holdings
currently expects that each of the conditions will
be satisfied and that no waivers will be necessary.
See "The Exchange Offer -- Certain Conditions to
the Exchange Offer."
Procedures for Tendering
Initial Debentures....... Each holder of Initial Debentures wishing to tender
such debentures must complete, sign and date the
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 Initial Debentures and any other required
documentation to the Exchange Agent at the address
set forth in the Letter of Transmittal. See "The
Exchange Offer -- Procedures for Tendering Initial
Debentures" and "Plan of Distribution."
5
<PAGE> 10
Use of Proceeds............ There will be no proceeds to Holdings from the
exchange of Debentures pursuant to the Exchange
Offer. For a discussion of the use of the net
proceeds received by Holdings from the issuance of
the Initial Debentures see "Use of Proceeds."
Federal Income Tax
Consequences............. In the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel to Holdings, the exchange
pursuant to the Exchange Offer will not be a
taxable event for federal income tax purposes, and
the holder will not recognize any taxable gain or
loss as a result of the exchange. See "Certain
Federal Income Tax Considerations."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Initial Debentures 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
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering the Initial
Debentures, either make appropriate arrangements to
register ownership of the Initial Debentures in
such beneficial owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering Initial
Debentures."
Guaranteed Delivery
Procedures............... Holders of Initial Debentures who wish to tender
their Initial Debentures and whose Initial
Debentures are not immediately available or who
cannot deliver their Initial Debentures, the Letter
of Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their
Initial Debentures according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Procedures for Tendering Initial
Debentures."
Acceptance of Initial
Debentures and Delivery
of Exchange Debentures... On the Exchange Date, Holdings will accept for
exchange any and all Initial Debentures which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Debentures issued pursuant to
the Exchange Offer will be delivered promptly
following the Exchange Date. See "The Exchange
Offer -- Acceptance of Initial Debentures for
Exchange; Delivery of Exchange Debentures."
Consequences of Failure to
Exchange................. Holders of the Initial Debentures who do not tender
their Initial Debentures in the Exchange Offer will
continue to hold such Initial Debentures and will
be entitled to all the rights and limitations
applicable thereto under the Indenture dated as of
February 13, 1998 between Holdings and United
States Trust Company of New York relating to the
Initial Debentures and the Exchange Debentures (the
"Indenture"), except for any such rights under the
Registration Rights Agreement (as defined) that by
their terms terminate or cease to have further
effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered
Initial Debentures pursuant to, the Exchange Offer.
6
<PAGE> 11
Holders of Initial Debentures who do not exchange
their Initial Debentures for Exchange Debentures
pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such
Initial Debentures as set forth in the legend
thereon as a consequence of the offer or sale of
the Initial Debentures pursuant to an exemption
from, or in a transaction not subject to, the
registration requirements of the Securities Act and
applicable state securities laws. In general, the
Initial Debentures may not be offered or sold,
unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable
state securities laws. Holdings does not currently
anticipate that it will register the Initial
Debentures under the Securities Act. To the extent
that Initial Debentures are tendered and accepted
in the Exchange Offer, the trading market for
untendered or tendered but unaccepted Initial
Debentures could be adversely affected. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
Registration Rights........ Holdings entered into an Exchange and Registration
Rights Agreement dated as of February 13, 1998 (the
"Registration Rights Agreement") with Chase
Securities, Inc. (the "Initial Purchaser"), for the
benefit of all holders of Initial Debentures, in
which it agreed to make the Exchange Offer. The
Registration Rights Agreement provides that if
Holdings fails to consummate the Exchange Offer on
or prior to August 12, 1998, Holdings will file a
shelf registration statement (the "Shelf
Registration Statement") to cover resales of
Debentures by holders who provide certain
information required for inclusion in the Shelf
Registration Statement, and who agree to be bound
by the terms of the Registration Rights Agreement.
Upon a Registration Default (as defined), Holdings
will be required to pay certain Liquidated Damages
(as defined) to the affected holders of Debentures.
See "Exchange Offer; Registration Rights."
Exchange Agent............. United States Trust Company of New York is serving
as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. See "The
Exchange Offer -- Exchange Agent."
Resale of Exchange
Debentures............... Based upon interpretations by the staff of the SEC
issued to third parties, Holdings believes that
Exchange Debentures issued pursuant to the Exchange
Offer in exchange for Initial Debentures may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is a broker-dealer or an "affiliate"
of Holdings 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
Debentures are acquired in the ordinary course of
business and such holders have no intention to
engage, and no arrangement with any person to
participate in the distribution of such Exchange
Debentures. Based on such interpretations, Holdings
also believes that a broker-dealer may not
participate in the Exchange Offer with respect to
Initial Debentures acquired directly from Holdings
that it may still hold. Each broker-dealer that
receives Exchange Debentures for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection
with the resale of such Exchange Debentures. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by such
broker-dealers in connection with such resales. See
"The Exchange Offer -- Resale of Exchange
Debentures."
7
<PAGE> 12
THE EXCHANGE DEBENTURES
Issuer..................... NBC Acquisition Corp.
Securities Offered......... $76,000,000 aggregate principal amount of 10 3/4%
Senior Discount Debentures due 2009.
Maturity Date.............. February 15, 2009.
Interest Rate and Payment
Dates.................... The Exchange Debentures will accrete in value until
February 15, 2003 at a rate per annum of 10 3/4%,
compounded semi-annually. Cash interest will not
accrue on the Exchange Debentures prior to February
15, 2003. Thereafter, interest on the Exchange
Debentures will accrue at a rate per annum of
10 3/4% and will be payable in cash semi-annually
on February 15 and August 15 of each year,
commencing August 15, 2003.
Original Issue Discount.... The Exchange Debentures are being offered at an
original issue discount for United States federal
income tax purposes. Thus, although cash interest
will not be payable on the Exchange Debentures
prior to August 15, 2003, original issue discount
will accrue from the Issue Date of the Exchange
Debentures and will be included as interest income
periodically (including for periods ending prior to
February 15, 2003) in a holder's gross income for
United States federal income tax purposes in
advance of receipt of the cash payments to which
the income is attributable. See "Certain Federal
Income Tax Consequences."
Optional Redemption........ Except as described below, Holdings may not redeem
the Exchange Debentures prior to February 15, 2003.
On or after such date, Holdings may redeem the
Exchange Debentures, in whole or in part, at the
redemption prices set forth herein together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to
February 15, 2001, Holdings may, at its option,
redeem up to 35% of the original principal amount
of the Exchange Debentures with the net proceeds of
one or more Equity Offerings (as defined) received
by, or invested in, Holdings so long as there is a
Public Market (as defined) at the time of such
redemption, at a redemption price equal to 110.75%
of the Accreted Value thereof to be redeemed, to
the date of redemption; provided that at least 65%
of the original principal amount of the Exchange
Debentures remains outstanding immediately after
each such redemption. See "Description of
Debentures -- Optional Redemption."
Change of Control.......... Upon a Change of Control, each holder will have the
right to require Holdings to make an offer to
repurchase the Exchange Debentures at a price equal
to 101% of the Accreted Value thereof, together
with accrued and unpaid interest, if any, to the
date of repurchase. See "Description of
Debentures -- Change of Control."
Ranking.................... ALTHOUGH THE EXCHANGE DEBENTURES ARE TITLED
"SENIOR," HOLDINGS HAS NOT ISSUED, AND CURRENTLY
DOES NOT HAVE ANY FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE EXCHANGE
DEBENTURES WOULD BE SENIOR. The Exchange Debentures
will be unsecured, senior obligations of Holdings
and will rank pari passu in right of payment to all
existing and future senior indebtedness of Holdings
(including the guarantee by Holdings of the Credit
Facilities, which is secured by a pledge of the
capital stock of Nebraska
8
<PAGE> 13
Book) and will rank senior in right of payment to
all future subordinated indebtedness of Holdings.
All the operations of Holdings are conducted
through Nebraska Book and therefore Holdings is
dependent upon the cash flow of Nebraska Book to
meet its obligations, including its obligations on
the Exchange Debentures. The Credit Facilities and
the Senior Subordinated Notes will restrict
Nebraska Book's ability to pay dividends or make
other distributions to Holdings. The Exchange
Debentures will be effectively subordinated to all
existing indebtedness of Holdings and all existing
and future indebtedness and other liabilities of
Holdings' subsidiaries (including the Senior
Subordinated Notes and indebtedness of Nebraska
Book in respect of the Credit Facilities). At March
31, 1998, Holdings had no Indebtedness (as defined)
outstanding on a stand alone basis (other than the
Initial Debentures and Holdings' guarantee of the
Credit Facilities) and the outstanding Indebtedness
of Nebraska Book was $176.0 million including
$110.0 million in aggregate principal amount of the
Senior Subordinated Notes, $65.4 million of
indebtedness in respect of the Credit Facilities
and $0.6 million of other indebtedness. See
"Description of Debentures -- Terms of Debentures"
and "Risk Factors -- Limitation on Access to Cash
Flow of Subsidiaries" and "-- Holding Company
Structure."
Future Guarantees.......... The Indenture provides that any Restricted
Subsidiary (as defined) of Holdings which
guarantees Indebtedness of Holdings will guarantee
the Exchange Debentures. See "Description of
Debentures -- Certain Covenants -- Future
Subsidiary Guarantors."
Restrictive Covenants...... The Indenture limits: (i) the incurrence of
additional indebtedness by Holdings, (ii)
investments, (iii) the payment of dividends on, and
redemption of, capital stock of Holdings and the
redemption of certain subordinated obligations of
Holdings, (iv) sale/leaseback transactions, (v)
sales of assets and subsidiary stock, (vi) certain
transactions with affiliates, (vii) the creation
and existence of liens, (viii) the types of
businesses that Holdings may operate, (ix)
restrictions on distributions from Restricted
Subsidiaries, (x) the sale of capital stock of
Restricted Subsidiaries and (xi) consolidations,
mergers and transfers of all or substantially all
of Holdings' assets. However, all of these
limitations and prohibitions are subject to a
number of important qualifications and exceptions.
See "Description of Debentures -- Certain
Covenants."
Absence of Public Market... There is no public market for the Exchange
Debentures, and the Exchange Debentures will not be
listed on any securities exchange. Holdings has
been advised by Chase Securities Inc. (the "Initial
Purchaser") that, following consummation of the
Exchange Offer, the Initial Purchaser intends to
make a market in the Exchange Debentures; however,
any market making may be discontinued at any time
without notice. If an active public market does not
develop, the market price and liquidity of the
Exchange Debentures may be adversely effected. See
"Risk Factors."
For definitions of certain capitalized terms used herein, see "Description
of Debentures."
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" for risks involved with an investment in the
Exchange Debentures.
9
<PAGE> 14
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited summary pro forma
consolidated statement of operations data of the Company for the fiscal year
ended March 31, 1998. The pro forma unaudited consolidated statement of
operations data gives effect to the Acquisitions and the Recapitalization as if
they had occurred at April 1, 1997. The data presented below should be read in
conjunction with "Unaudited Pro Forma Consolidated Statement of Operations",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the consolidated financial statements of the Company and the
notes thereto included herein.
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED
MARCH 31,
1998
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $215,322
Gross profit................................................ 77,296
Selling, general, and administrative expenses(1)............ 50,513
Income from operations...................................... 18,300
Other income(2)............................................. 870
Loss from continuing operations(1).......................... (2,416)
Loss per share(3)
Basic..................................................... $ (2.54)
Diluted................................................... $ (2.54)
OTHER DATA:
Gross margin................................................ 35.9%
Depreciation and amortization............................... $ 8,483
Cash interest expense(1)(4)................................. 15,632
Total interest expense(1)(5)................................ 20,628
Ratio of earnings to fixed charges(6)....................... (7)
</TABLE>
- ---------------
(1) Excludes certain non-recurring charges attributable to the Recapitalization.
See Note 5 to the "Unaudited Pro Forma Consolidated Statement of Operations"
included herein.
(2) Other income primarily represents recurring income from ancillary activities
of the Company.
(3) Loss per share have been calculated assuming 953,027 shares of common stock
were outstanding.
(4) Cash interest expense excludes amortization of certain deferred finance
costs of $1,852 and accretion of discount of $4,996 on the Debentures. This
definition differs from the definition of Consolidated Interest Expense in
the Indenture. See "Description of Debentures."
(5) Total interest expense excludes amortization of certain deferred finance
costs of $1,852. This definition differs from the definition of Consolidated
Interest Expense in the Indenture. See "Description of Debentures."
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs and the interest portion of Nebraska Book's
rent expense.
(7) Pro forma earnings were insufficient to cover pro forma fixed charges for
the year ended March 31, 1998 by $2,901.
10
<PAGE> 15
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
and other data for the Company and its predecessor for the five fiscal years
ended March 31, 1998. The data presented below should be read in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements of the Company
and the notes thereto included herein.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR(1)
---------------------------------- --------------------------------------
FISCAL YEARS ENDED FIVE SEVEN FISCAL YEARS ENDED
MARCH 31, MONTHS ENDED MONTHS ENDED MARCH 31,
------------------- AUGUST 31, MARCH 31, -----------------------
1994 1995 1995 1996 1997 1998
-------- -------- ------------ ------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $139,437 $149,227 $83,328 $ 79,423 $172,600 $198,773
Gross profit....................................... 48,780 52,910 30,575 27,557 62,134 73,141
Selling, general, and administrative expenses...... 33,063 35,325 14,729 22,517 39,491 47,081
Stock compensation costs........................... -- -- -- 82 297 8,278
Income from operations............................. 13,963 15,696 14,974 1,795 15,568 9,625
Interest expense................................... 616 766 952 6,035 10,760 11,938
Interest income.................................... 180 224 51 433 561 328
Other income(2).................................... 563 416 469 339 390 512
Income (loss) before income taxes and extraordinary
item.............................................. 14,090 15,570 14,542 (3,468) 5,759 (1,473)
Extraordinary loss on extinguishment of debt, net
of taxes.......................................... -- -- -- -- -- (4,021)
Net income (loss).................................. 8,707 9,620 8,959 (2,501) 3,434 (5,552)
Earnings (loss) per share(3)
Basic:
Income (loss) before extraordinary item......... $ (0.89) $ 1.23 $ (0.59)
Extraordinary loss on extinguishment of debt.... -- -- (1.57)
--------- -------- --------
Net income (loss)............................... $ (0.89) $ 1.23 $ (2.16)
========= ======== ========
Diluted
Income (loss) before extraordinary item......... $ (0.89) $ 1.16 $ (0.59)
Extraordinary loss on extinguishment of debt.... -- -- (1.57)
--------- -------- --------
Net income (loss)............................... $ (0.89) $ 1.16 $ (2.16)
========= ======== ========
OTHER DATA:
Gross margin....................................... 35.0% 35.5% 36.7% 34.7% 36.0% 36.8%
EBITDA(4).......................................... $ 16,280 $ 18,001 $16,315 $ 5,379 $ 23,033 $ 26,572
EBITDA margin...................................... 11.7% 12.1% 19.6% 6.8% 13.3% 13.4%
Depreciation and amortization...................... $ 1,754 $ 1,889 $ 872 $ 3,163 $ 6,778 $ 8,157
Net cash flows from operating activities........... 10,338 10,009 1,643 3,423 10,774 (2,842)
Net cash flows from financing activities........... (9,809) (2,087) 437 116,063 (7,471) 10,220
Net cash flows from investing activities........... (1,029) (8,255) 371 (109,385) (3,427) (11,548)
Capital expenditures............................... 1,374 8,260 801 838 2,243 3,690
Business acquisition expenditures(5)............... -- 100 -- 551 1,252 7,714
Ratio of earnings to fixed charges(6).............. 8.9x 8.5x 10.5x (7) 1.5x (7)
Number of bookstores open at end of the period..... 29 34 35 38 46 54
OPERATING DATA:
Revenues:
Wholesale......................................... $ 72,920 $ 75,747 $54,328 $ 27,350 $ 84,487 $ 90,595
College bookstores................................ 70,759 77,667 33,024 52,396 92,508 110,585
Services.......................................... 1,018 2,769 1,905 1,599 4,922 9,598
Intercompany eliminations......................... (5,260) (6,956) (5,929) (1,922) (9,317) (12,005)
-------- -------- ------- --------- -------- --------
Total....................................... $139,437 $149,227 $83,328 $ 79,423 $172,600 $198,773
======== ======== ======= ========= ======== ========
</TABLE>
- ---------------
(1) Effective September 1, 1995, the Company purchased all the outstanding
capital stock of Nebraska Book in a transaction accounted for as a purchase
business combination. Following the 1995 Transaction, the consolidated
results of operations of the Company included higher interest costs due to
the financing of the acquisition and higher amortization expense for
goodwill and other intangibles created by the acquisition. Effective
February 13, 1998, the Company consummated the Merger among Mergerco, the
Company and certain shareholders of the Company pursuant to which the
Company's outstanding debt and stock were restructured. Following this
Recapitalization, the results of operations of the Company included higher
interest costs due to the financing of the Recapitalization, and in fiscal
1998, non-recurring charges associated with the extinguishment of debt and
buyout of stock options.
(2) Other income primarily represents recurring income from ancillary activities
of the Company.
11
<PAGE> 16
(3) Earnings (loss) per share has not been presented for the fiscal years ended
March 31, 1994 and 1995 and for the five months ended August 31, 1995, as
such presentation would not be meaningful.
(4) EBITDA is defined as income from operations plus other income, depreciation,
amortization and non-cash charges relating to stock based compensation
expense in the amounts of $82, $297 and $8,278 for the years ended March 31,
1996, 1997 and 1998, respectively. The Company believes that EBITDA provides
additional information for determining its ability to meet debt service
requirements. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations as determined by
generally accepted accounting principles, and EBITDA does not necessarily
indicate whether cash flow will be sufficient for cash requirements. EBITDA
should not be considered by investors as an indicator of cash flows from
operating activities, investing activities and financing activities as
determined in accordance with generally accepted accounting principles.
Items excluded from EBITDA, such as depreciation and amortization, are
significant components in understanding and assessing the Company's
financial performance. EBITDA measures presented may not be comparable to
similarly titled measures presented by other issuers.
(5) Business acquisition expenditures represent established businesses purchased
by the Company.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs and the interest portion of Nebraska Book's
rent expense.
(7) Earnings were insufficient to cover fixed charges for the seven months ended
March 31, 1996 by $3,468 and for the year ended March 31, 1998 by $1,473.
12
<PAGE> 17
RISK FACTORS
In evaluating an investment in the Exchange Debentures, prospective
investors should carefully consider the following risk factors as well as the
other information set forth elsewhere in this Prospectus.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Debentures who do not exchange their Initial Debentures
for Exchange Debentures pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Initial Debentures as set forth
in the legend thereon as a consequence of the issuance of the Initial Debentures
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Initial Debentures may not be offered or sold unless registered
under the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Holdings does not intend to register the Initial Debentures
under the Securities Act, other than in the limited circumstances contemplated
by the Registration Rights Agreement. In addition, any holder of Initial
Debentures who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Debentures may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent that Initial Debentures
are tendered and accepted in the Exchange Offer, the trading market for
untendered or tendered but unaccepted Initial Debentures could be adversely
affected. See "The Exchange Offer" and "Exchange Offer; Registration Rights."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS; INTEREST RATE FLUCTUATIONS
The Company is highly leveraged. As of March 31, 1998, the Company had an
aggregate of $216.2 million of outstanding long-term indebtedness (including
current portion) and there was $31.6 million available under the Revolving
Credit Facility as determined by the borrowing base calculation as defined in
the Credit Agreement, of which $5.4 million had been drawn by Nebraska Book. The
Indenture permits the Company to incur additional indebtedness, subject to
certain limitations. The degree to which the Company is leveraged could have
important consequences to holders of the Debentures, including the following:
(i) the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on the Senior Subordinated Notes,
the Debentures and other indebtedness, thereby reducing the funds available to
the Company for other purposes; (iii) all of the indebtedness outstanding under
the Credit Facilities is secured by substantially all the assets of the Company,
and will mature prior to the Debentures; (iv) the Company is substantially more
leveraged than certain of its competitors, which might place the Company at a
competitive disadvantage; (v) the Company may be hindered in its ability to
adjust rapidly to changing market conditions; and (vi) the Company may be more
vulnerable in the event of a downturn in general economic conditions or in its
industry or business. See "Capitalization," "Description of Other Indebtedness"
and "Description of Debentures."
The Company's ability to pay the interest on and retire principal of the
Debentures and the Company's other indebtedness is dependent upon its future
operating performance, which in turn is subject to general economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control. For the fiscal year ended March 31, 1998, the Company's
earnings were insufficient to cover its fixed charges. In the event that the
Company is unable to generate cash flow that is sufficient to service its
obligations in respect of the Debentures and its other indebtedness, the Company
may be forced to adopt one or more alternatives, such as reducing or delaying
capital expenditures, attempting to refinance or restructure its indebtedness,
selling material assets or operations or selling equity. There can be no
assurance that any of such actions could be effected on satisfactory terms or at
all, that they would enable the Company to
13
<PAGE> 18
satisfy its debt service requirements or that they would be permitted by the
Credit Facilities, the Senior Subordinated Note Indenture or the Indenture. The
failure to generate such sufficient cash flow or to achieve such alternatives
could significantly adversely affect the market value of the Debentures and the
Company's ability to pay principal of and interest on the Debentures.
A significant portion of the indebtedness of the Company outstanding as a
result of the Recapitalization bears interest at variable rates. Although the
Company will enter into interest rate protection agreements to limit its
exposure to increases in such interest rates, such agreements will not eliminate
the exposure to variable rates. Any increase in the interest rates on the
Company's indebtedness will reduce funds available to the Company for its
operations and future business opportunities as well as for meeting its debt
servicing obligations.
LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES
Holdings is a holding company and its ability to pay interest on the
Exchange Debentures is dependent upon the receipt of dividends from its direct
and indirect subsidiaries. Holdings does not have, and may not in the future
have, any assets other than the common stock of Nebraska Book. Nebraska Book is
a party to the Credit Facilities and the Senior Subordinated Note Indenture,
each of which imposes substantial restrictions on Nebraska Book's ability to pay
dividends to Holdings. Any payment of dividends will be subject to the
satisfaction of certain financial conditions set forth in the Credit Facilities
and the Senior Subordinated Note Indenture. The ability of Nebraska Book to
comply with such conditions in the Credit Facilities and the Senior Subordinated
Note Indenture may be affected by events that are beyond the control of
Holdings. If the loans under the Credit Facilities or the maturity of the Senior
Subordinated Notes were to be accelerated as a result of an event of default
thereunder, all such outstanding debt would be required to be paid in full
before Nebraska Book would be permitted to distribute any assets or cash to
Holdings. There can be no assurance that the assets of Nebraska Book would be
sufficient to repay all of such outstanding debt and to enable Holdings to meet
its obligations under the Indenture. Future borrowings by Nebraska Book can be
expected to contain restrictions or prohibitions on the payment of dividends by
Nebraska Book to Holdings. Applicable state laws, under certain circumstances,
may also impose significant restrictions on the payment of dividends by Nebraska
Book to Holdings.
HOLDING COMPANY STRUCTURE
As a result of the holding company structure of Holdings, the holders of
the Debentures will be structurally subordinate to all creditors of Holdings'
subsidiaries. In the event of insolvency, liquidation, reorganization,
dissolution or other winding-up of Holdings' subsidiaries, Holdings will not
receive any funds available to pay to creditors of the subsidiaries. As of March
31, 1998, the aggregate amount of Indebtedness of Holdings' subsidiaries was
approximately $176.0 million.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture and the Senior Subordinated Note Indenture restrict, among
other things, the Company's ability to incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain asset
sales, create liens on assets, enter into transactions with affiliates, make
investments, loans or advances, consolidate or merge with or into any other
person or convey, transfer or lease all or substantially all of its assets or
change the business conducted by the Company. In addition, the Credit Facilities
contain certain other and more restrictive covenants and prohibit the Company
from prepaying other indebtedness, including the Debentures. In addition, under
the Credit Facilities, Nebraska Book is required to comply with specified
financial ratios and tests, including a minimum interest coverage ratio, minimum
fixed charge coverage ratio and maximum leverage ratio. Nebraska Book's ability
to meet those financial ratios and tests can be affected by events beyond its
control, and there can be no assurance that Nebraska Book will satisfy these
requirements in the future. A breach of any of these covenants could result in a
default under the Credit Facilities the Senior Subordinated Note Indenture,
and/or the Indenture. Upon the
14
<PAGE> 19
occurrence of an event of default under the Credit Facilities and the Senior
Subordinated Notes, the lenders could elect to declare all amounts outstanding
under the Credit Facilities to be due and payable, together with accrued and
unpaid interest, and could terminate their commitments to make further
extensions of credit under the Credit Facilities and the holders of the Senior
Subordinated Notes could elect to declare all amounts outstanding under the
Senior Subordinated Notes to be immediately due and payable. If Nebraska Book
were unable to repay its indebtedness under the Credit Facilities, the lenders
could proceed against the collateral securing such indebtedness. If the
indebtedness under the Credit Facilities were accelerated, there could be no
assurance that the assets of Nebraska Book would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Debentures. Substantially all of the assets of the Company are pledged as
security under the Credit Facilities. See "Description of Other Indebtedness"
and "Description of Debentures -- Certain Covenants."
INTEGRATION OF ACQUISITIONS
No assurance can be given that the integration of CSC or any future
acquisitions will be successful or that the anticipated strategic benefits of
the CSC acquisition or any future acquisitions will be realized or that they
will be realized within time frames contemplated by the Company's management.
Acquisitions may involve a number of special risks, including, but not limited
to, adverse short-term effects on the Company's reported operating results,
diversion of management's attention, standardization of accounting systems,
dependence on retaining, hiring and training key personnel, unanticipated
problems or legal liabilities and actions of the Company's competitors and
customers. If the Company is unable to successfully integrate CSC or future
acquisitions for these or other reasons, the Company's results from operations
may be adversely affected.
Part of the Company's business strategy is to expand sales for its college
bookstore operations by acquiring bookstores. There can be no assurance that the
Company will be able to identify additional bookstores for acquisition or that
any anticipated benefits will be realized from any such acquisitions. Due to the
seasonal nature of business in the Company's bookstores, operations may be
affected by the time of year when a bookstore is acquired. Acquisitions of
bookstores that the Company may make will involve risks, including the
successful integration and management of acquired operations and retention of
key personnel. The process of integrating acquired operations into the Company's
existing operations may result in unforeseen operating difficulties, may require
substantial attention from members of the Company's senior management and may
require financial resources that would otherwise be available for the Company's
existing operations.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. See "Business -- Competition."
There can be no assurance that the Company's business will not be adversely
affected by increased competition in the markets in which it currently operates
or in markets in which it will operate in the future, or that the Company will
be able to improve or maintain its profit margins. In recent years, an
increasing number of institution-owned college stores have decided to
subcontract their bookstore operations; as of 1996, approximately 25% of such
stores, according to The National Association of College Stores, were contract-
managed. The leading managers of such stores include two of the Company's
principal competitors in the wholesale textbook distribution business.
Contract-managed stores primarily purchase their used textbook requirements from
and sell their available supply of used textbooks to their affiliated
operations. A significant increase in the number of contract-managed stores,
particularly at large campuses, could adversely affect the Company's ability to
acquire an adequate supply of used textbooks. The Company is also experiencing
growing competition from the use of course packs, which are collections of
copyrighted materials and professors' original content which are produced
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by college bookstores and sold to students, and from alternative media such as
on-line or CD-ROM material, all of which have the potential to reduce or replace
the need for textbooks. A substantial increase in the use of course packs or
other compilations of course materials, or in the availability of course
materials on CD-ROM or over the Internet, could significantly reduce college
students' use of traditional textbooks and thus have a material adverse effect
on the Company's business and results of operations.
SEASONALITY
The Company's wholesale and bookstore operations experience two distinct
selling periods and the wholesale operations experience two distinct buying
periods. The peak selling periods for the wholesale operations occur prior to
the beginning of each school semester in August and December. The buying periods
for the wholesale operations occur at the end of each school semester in late
December and in May. In fiscal 1998, approximately 42% of the Company's annual
revenues occurred in the second fiscal quarter (July-September), while
approximately 27% of the Company's annual revenues occurred in the fourth fiscal
quarter (January-March). The primary selling periods for the bookstore
operations are in September and January. Accordingly, the Company's working
capital requirements fluctuate throughout the year, increasing substantially at
the end of each semester, in May and December, as a result of the buying
periods. A significant reduction in sales during such periods could have a
material adverse effect on the Company's financial condition or results of
operations for the year.
INABILITY TO OBTAIN SUFFICIENT SUPPLY
The Company is generally able to sell all of its available used textbooks
and, therefore, the Company's ability to purchase a sufficient number of used
textbooks in one semester largely determines its used textbook sales for the
next semester. Successfully acquiring books requires a visible presence on
college campuses at the end of each semester, which requires hiring a
significant number of temporary personnel, and on the Company's access to
sufficient funds under its revolving credit facility or other financing
alternatives. Textbook acquisition also depends upon college students'
willingness to sell their used textbooks at the end of each semester. The
unavailability of sufficient personnel or credit, or a shift in student
preferences, could impair the Company's ability to acquire sufficient used
textbooks to meet its sales objectives and adversely affect its results of
operations.
PRICE INCREASES
The Company buys used textbooks based on publishers' prevailing prices for
new textbooks just prior to the implementation by such publishers of their
annual price increases (which historically have been 4% to 5%) and resells such
textbooks shortly thereafter based upon the new higher prices, thereby creating
an immediate margin increase. The Company's ability to increase its used
textbook prices each year depends on annual price increases on new textbooks
implemented by publishers. The failure of publishers to continue such annual
increases could have an adverse effect on the Company's results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the efforts
and abilities of its management team, particularly its chief executive officer,
Mark W. Oppegard. The loss of the services of Mr. Oppegard could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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OWNERSHIP OF THE COMPANY
HWH owns approximately 91.3% of Holdings' issued and outstanding voting
securities. As a result, Haas Wheat, which manages HWH, is able to control all
matters submitted to a vote of shareholders, including the election of a
majority of Holdings' and the Company's board of directors, the approval of
amendments to Holdings' and the Company's certificate of incorporation and
fundamental corporate transactions such as mergers and asset sales. See
"Principal Stockholders."
OBLIGATION TO PURCHASE THE DEBENTURES UPON CHANGE OF CONTROL
A Change of Control (as defined in the Indenture) could require the Company
to refinance substantial amounts of its indebtedness. Upon the occurrence of a
Change of Control, the holders of the Debentures would be entitled to require
Holdings to repurchase the Debentures at a purchase price equal to 101% of the
Accreted Value of such Debentures, plus accrued and unpaid interest, if any, to
the date of purchase. The occurrence of a Change of Control also gives the
holders of the Senior Subordinated Notes the right to require Nebraska Book to
repurchase the Senior Subordinated Notes. In addition, the occurrence of certain
of the events that would constitute a Change of Control would constitute a
default under the Credit Agreement. Future Indebtedness of Nebraska Book and its
Subsidiaries may also contain prohibitions of certain events that would
constitute a Change of Control or require such Indebtedness to be repurchased
upon a Change of Control. Moreover, the exercise by the holders of their right
to require Holdings to repurchase the Debentures could cause a default under
such Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on Holdings. The Credit Agreement and the
Senior Subordinated Notes restrict Nebraska Book from paying any dividends or
making any other distributions to Holdings. If Holdings is unable to obtain
dividends from Nebraska Book sufficient to permit the repurchase of the
Debentures, Holdings will likely not have the financial resources to purchase
the Debentures. In any event, there can be no assurance that the Subsidiaries or
Holdings will have the resources available to pay any such dividend or make any
such distribution. Finally, Holdings' ability to pay cash to the holders upon a
repurchase may be limited by Holdings' then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. Consequently, if Nebraska Book is not able to (i)
prepay the Credit Agreement and any other indebtedness containing similar
restrictions or obtain requisite consents, as described above, or (ii) to make a
dividend payment to Holdings in an amount sufficient to permit Holdings to
repurchase the Debentures, Holdings will be unable to fulfill its repurchase
obligations if holders of Debentures exercise their repurchase rights following
a Change of Control, thereby resulting in a default under the Indenture. The
provisions of the Indenture may not afford holders of the Debentures the right
to require Holdings to repurchase the Debentures in the event of a highly
leveraged transaction that may adversely affect the holders of the Debentures if
such transaction is not a transaction defined as a Change of Control. See
"Description of Other Indebtedness" and "Description of Debentures -- Change of
Control."
ORIGINAL ISSUE DISCOUNT
The Initial Debentures were and the Exchange Debentures will be issued at a
discount from their principal amount at maturity. Consequently, purchasers of
the Debentures will be required to include amounts in gross income for federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Certain Federal Income Tax Consequences" for a more
detailed discussion of the federal income tax consequences to the purchasers of
the Debentures resulting from the purchase, ownership or disposition thereof.
LIMITATION ON HOLDER'S CLAIM UPON ACCELERATION
Under the Indenture, in the event of an acceleration of the maturity of the
Debentures upon the occurrence of an Event of Default (as defined), the holders
of the Debentures may be entitled to
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recover only the amount which may be declared due and payable pursuant to the
Indenture, which will be less than the principal amount at maturity of such
Debentures. See "Description of Debentures -- Events of Default."
LIMITATION ON HOLDER'S CLAIM UPON A BANKRUPTCY
If a bankruptcy case is commenced by or against Holdings under the
Bankruptcy Code (as defined), the claim of a holder of Debentures with respect
to the principal amount thereof may be limited to an amount equal to the sum of
(i) the issue price of the Debentures as set forth on the cover page hereof and
(ii) that portion of the original issue discount (as determined on the basis of
such issue price) which is not deemed to constitute "unmatured interest" for
purposes of the Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would constitute "unmatured
interest."
FRAUDULENT CONVEYANCE
The incurrence of indebtedness (such as the Debentures) and the use of
proceeds thereof are subject to review under relevant federal and state
fraudulent conveyance statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of creditors of Holdings. Under these statutes, if a
court were to find that obligations (such as the Debentures) were incurred with
the intent of hindering, delaying or defrauding present or future creditors or
that Holdings received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the occurrence of the
obligations, the obligor (i) was insolvent or rendered insolvent by reason
thereof, (ii) was engaged or was about to engage in a business or transaction
for which its remaining unencumbered assets constituted unreasonably small
capital or (iii) intended to or believed that it would incur debts beyond its
ability to pay such debts as they matured or became due, such court could void
Holdings' obligations under the Debentures, subordinate the Debentures to other
indebtedness of Holdings or take other action detrimental to the holders of the
Debentures.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair saleable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature. Holdings believes that, after giving effect to
the Recapitalization, Holdings was (i) neither insolvent nor rendered insolvent
by the incurrence of indebtedness in connection with the Recapitalization, (ii)
in possession of sufficient capital to run its business effectively and (iii)
incurring debts within its ability to pay as the same mature or become due.
There can be no assurance, however, as to what standard a court would apply to
evaluate the parties' intent or to determine whether Holdings was insolvent at
the time of, or rendered insolvent upon consummation of, the Recapitalization or
that, regardless of the standard, a court would not determine that Holdings was
insolvent at the time of, or rendered insolvent upon consummation of, the
Recapitalization.
The Indenture provides that any Restricted Subsidiary of Holdings that
guarantees indebtedness of Holdings will guarantee the Exchange Debentures. Such
guarantees, if made, may be subject to review under relevant federal and state
fraudulent conveyance statutes in a bankruptcy or a reorganization case or a
lawsuit by or on behalf of creditors of any of the guarantors. In such a case,
the analysis set forth above would generally apply, except that the guarantees
could also be subject to the claim that, since the guarantees were incurred for
the benefit of Holdings (and only indirectly for the benefit of the guarantors),
the obligations of the guarantors thereunder were incurred for less than
reasonably equivalent value or fair consideration. A court could avoid a
guarantor's obligation under the guarantee, subordinate the guarantee to other
indebtedness of a guarantor or take other action detrimental to the holders of
the Debentures.
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ABSENCE OF A PUBLIC MARKET FOR EXCHANGE DEBENTURES
The Exchange Debentures will constitute a new issue of securities for which
there is no established trading market. Holdings does not intend to list the
Exchange Debentures on any national securities exchange or to seek the admission
of the Exchange Debentures for quotation through the National Association of
Securities Dealers Automated Quotation System. Although the Initial Purchaser
has advised Holdings that it currently intends to make a market in the Exchange
Debentures, it is not obligated to do so and may discontinue such market making
at any time without notice. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and may be limited during the
pendency of any Shelf Registration Statement. See "Exchange Offer; Registration
Rights." There can be no assurance as to the development or liquidity of any
market for the Exchange Debentures, the ability of the holders of the Exchange
Debentures to sell their Exchange Debentures or the price at which the holders
would be able to sell their Exchange Debentures. Future trading prices of the
Exchange Debentures will depend on many factors, including, among other things,
prevailing interest rates, Holdings' operating results and the market for
similar securities.
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<PAGE> 24
THE EXCHANGE OFFER
GENERAL
Holdings hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $76 million aggregate
principal amount of Exchange Debentures for a like aggregate principal amount of
Initial Debentures properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to any and all of the Initial Debentures.
As of the date of this Prospectus, $76 million aggregate principal amount
of the Initial Debentures is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1998, to
all holders of Initial Debentures registered on the debenture register of
Holdings. Holdings' obligation to accept Initial Debentures for exchange
pursuant to the Exchange Offer is subject to certain conditions set forth under
"Certain Conditions to the Exchange Offer" below. Holdings currently expects
that each of the conditions will be satisfied and that no waivers will be
necessary.
PURPOSE OF THE EXCHANGE OFFER
The Initial Debentures were issued on February 13, 1998 in a transaction
exempt from the registration requirements of the Securities Act. Accordingly,
the Initial Debentures may not be reoffered, resold, or otherwise transferred
unless so registered or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available.
In connection with the issuance and sale of the Initial Debentures,
Holdings entered into the Registration Rights Agreement, which requires Holdings
to file with the SEC a registration statement relating to the Exchange Offer not
later than 45 days after the date of issuance of the Initial Debentures, and to
use its reasonable best efforts to cause the registration statement relating to
the Exchange Offer to become effective under the Securities Act not later than
150 days after the date of issuance of the Initial Debentures and the Exchange
Offer to be consummated not later than 30 days after the date of the
effectiveness of the Registration Statement (or use its reasonable best efforts
to cause to become effective a shelf registration statement with respect to
resales of the Initial Debentures by the 150th day after the date of issuance of
the Initial Debentures). A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement.
The Exchange Offer is being made by Holdings to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Initial Debentures
are registered on the note register of Holdings or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Initial Debentures are held of record by The Depository Trust
Company. Other than pursuant to the Registration Rights Agreement, Holdings is
not required to file any registration statement to register any outstanding
Initial Debentures. Holders of Initial Debentures who do not tender their
Initial Debentures or whose Initial Debentures are tendered but not accepted
would have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Initial Debentures.
Holdings is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, Holdings has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, Holdings believes that the Exchange Debentures issued pursuant to the
Exchange Offer in exchange for Initial Debentures may be offered for resale,
resold and otherwise transferred by a holder (other than any holder who is a
broker-dealer or an "affiliate" of Holdings within the meaning of Rule 405 of
the Securities Act)
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without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Debentures are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Debentures. See "-- Resale of Exchange Debentures." Each
broker-dealer that receives Exchange Debentures for its own account in exchange
for Initial Debentures, where such Initial Debentures 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 Debentures. See "Plan of Distribution."
TERMS OF THE EXCHANGE
Holdings hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Debentures for each $1,000 in principal amount of
the Initial Debentures. The terms of the Exchange Debentures are identical in
all material respects to the terms of the Initial Debentures for which they may
be exchanged pursuant to this Exchange Offer, except that the Exchange
Debentures will generally be freely transferable by holders thereof and will not
be subject to any covenant regarding registration under the Securities Act. The
Exchange Debentures will evidence the same indebtedness as the Initial
Debentures and will be entitled to the benefits of the Indenture. See
"Description of Debentures."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Debentures being tendered for exchange.
Holdings has not requested, and does not intend to request, an
interpretation by the staff of the SEC with respect to whether the Exchange
Debentures issued pursuant to the Exchange Offer in exchange for the Initial
Debentures may be offered for sale, resold or otherwise transferred by any
holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Instead, based on an interpretation by the
staff of the SEC set forth in a series of no-action letters issued to third
parties, Holdings believes that Exchange Debentures issued pursuant to the
Exchange Offer in exchange for Initial Debentures may be offered for sale,
resold and otherwise transferred by any holder of such Exchange Debentures
(other than any such holder that is a broker-dealer or is an "affiliate" of
Holdings 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 Debentures are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Debentures and neither such holder nor any other such person is
engaging in or intends to engage in a distribution of such Exchange Debentures.
Since the SEC has not considered the Exchange Offer in the context of a
no-action letter, there can be no assurance that the staff of the SEC would make
a similar determination with respect to the Exchange Offer. Any holder who is an
affiliate of Holdings or who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Debentures may be deemed to have
received restricted securities and cannot rely on such interpretation by the
staff of the SEC and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of Exchange Debentures.
Each broker-dealer that receives Exchange Debentures for its own account in
exchange for Initial Debentures, where such Initial Debentures 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 Debentures. See "Plan of Distribution."
Interest on the Exchange Debentures will accrue from the last Interest
Payment Date on which interest was paid on the Initial Debentures so surrendered
or, if no interest has been paid on such Initial Debentures, from February 13,
1998.
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Tendering holders of the Initial Debentures shall not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Initial
Debentures pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless Holdings, has extended the period of time for which
the Exchange Offer is open (such date, as it may be extended, is referred to
herein as the "Expiration Date"). The Expiration Date will be at least 20
business days after the commencement of the Exchange Offer in accordance with
Rule 14e-1(a) under the Exchange Act. Holdings expressly reserves the right, at
any time or from time to time, in its sole discretion, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Initial Debentures, by giving oral or written notice to the
Exchange Agent and by timely public announcement no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. During any such extension, all Initial Debentures previously
tendered will remain subject to the Exchange Offer unless properly withdrawn.
Holdings expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Initial Debentures not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "Certain Conditions to the Exchange Offer" which have not
been waived by Holdings and (ii) amend the terms of the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to the holders of the
Initial Debentures, whether before or after any tender of the Initial
Debentures. If any such termination or amendment occurs, Holdings will notify
the Exchange Agent and will either issue a press release or give oral or written
notice to the holders of the Initial Debentures as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless Holdings
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, Holdings will, subject to the conditions described under
"-- Certain Conditions to the Exchange Offer," exchange the Exchange Debentures
for the Initial Debentures on the Exchange Date.
PROCEDURES FOR TENDERING INITIAL DEBENTURES
The tender to Holdings of Initial Debentures by a holder thereof as set
forth below and the acceptance thereof by Holdings will constitute a binding
agreement between the tendering holder and Holdings upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal.
A holder of Initial Debentures may tender the same by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Initial Debentures being tendered
and any required signature guarantees and any other documents required by the
Letter of Transmittal, to the Exchange Agent at its address set forth below on
or prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with guaranteed delivery procedures
described below.
Any beneficial owner whose Initial Debentures 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 beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering the
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Initial Debentures, either make appropriate arrangements to register ownership
of the Initial Debentures in such beneficial owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
THE METHOD OF DELIVERY OF INITIAL DEBENTURES, LETTERS OF TRANSMITTAL AND
ALL OF THE REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO INITIAL DEBENTURES OR LETTERS OF
TRANSMITTAL SHOULD BE SENT TO HOLDINGS.
If tendered Initial Debentures are registered in the name of the signer of
the Letter of Transmittal and the Exchange Debentures to be issued in exchange
therefor are to be issued (and any untendered Initial Debentures are to be
reissued) in the name of the registered holder (which term, for the purposes
described herein, shall include any participant in The Depository Trust Company
(the "Book-Entry Transfer Facility") whose name appears on a security listing as
the owner of Initial Debentures), the signature of such signer need not be
guaranteed. In any other case, the tendered Initial Debentures must be endorsed
or accompanied by written instruments of transfer in form satisfactory to
Holdings and duly executed by the registered holder, and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Debentures and/or Initial Debentures not exchanged
are to be delivered to an address other than that of the registered holder
appearing on the debenture register for the Initial Debentures, the signature in
the Letter of Transmittal must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Initial Debentures at 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 Initial Debentures by causing
such Book-Entry Transfer Facility to transfer such Initial Debentures into the
Exchange Agent's account with respect to the Initial Debentures in accordance
with the Book-Entry Transfer Facility's procedures for such transfer. Although
delivery of Initial Debentures may be effected through book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate
Letter of Transmittal 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.
If a holder desires to tender Initial Debentures in the Exchange Offer and
time will not permit a Letter of Transmittal or Initial Debentures to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its address set forth below on or prior to the
Expiration Date, a letter, telegram or facsimile transmission (receipt confirmed
by telephone and an original delivered by guaranteed overnight courier) from an
Eligible Institution setting forth the name and address of the tendering holder,
the names in which the Initial Debentures are registered and, if possible, the
certificate numbers of the Initial Debentures to be tendered, and stating that
the tender is being made thereby and guaranteeing that within three business
days after the Expiration Date, the Initial Debentures in proper form for
transfer (or a confirmation of book-entry transfer of such Initial Debentures
into the Exchange Agent's account at the Book-Entry Transfer Facility), will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Initial Debentures being tendered by the above-described method are deposited
with the Exchange Agent within the time period set forth
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above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), Holdings may, at its option, reject the tender.
Copies of the notice of guaranteed delivery ("Notice of Guaranteed Delivery")
which may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Initial Debentures (or a confirmation of book-entry transfer
of such Initial Debentures into the Exchange Agent's account at the Book-Entry
Transfer Facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) from an Eligible Institution is received by the
Exchange Agent. Issuances of Exchange Debentures in exchange for Initial
Debentures tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Initial
Debentures.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Initial Debentures tendered for exchange will be
determined by Holdings in its sole discretion, which determination shall be
final and binding on all parties. Holdings reserves the absolute right to reject
any and all tenders of any particular Initial Debentures not properly tendered
or not to accept any particular Initial Debentures which acceptance might, in
the judgment of Holdings or its counsel, be unlawful. Holdings also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Initial Debentures either before or after
the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender Initial Debentures in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal and the instructions thereto) by Holdings shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Debentures for exchange must be cured within
such reasonable period of time as Holdings shall determine. Neither Holdings,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Initial
Debentures for exchange, nor shall any of them incur any liability for failure
to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Initial Debentures, such Initial Debentures
must be endorsed or accompanied by appropriate powers of attorney, in either
case signed exactly as the name or names of the registered holder or holders
appear on the Initial Debentures.
If the Letter of Transmittal or any Initial Debentures or powers of
attorney 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 Holdings, proper evidence satisfactory to Holdings of their
authority to so act must be submitted.
By tendering, each holder will represent to Holdings that, among other
things, the Exchange Debentures acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
Exchange Debentures, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Debentures and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of Holdings, or if it is an affiliate, it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives Exchange Debentures for its own account in
exchange for Initial Debentures where such Initial Debentures were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Initial Debentures acquired directly
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<PAGE> 29
from Holdings) must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Debentures. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Initial Debentures for exchange (the "Transferor")
exchanges, assigns and transfers the Initial Debentures to Holdings and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Initial Debentures to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Initial
Debentures and to acquire Exchange Debentures issuable upon the exchange of such
tendered Initial Debentures, and that, when the same are accepted for exchange,
Holdings will acquire good and unencumbered title to the tendered Initial
Debentures, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim. The Transferor also warrants that it will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or Holdings to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Initial Debentures or transfer
ownership of such Initial Debentures on the account books maintained by a
Book-Entry Transfer Facility. The Transferor further agrees that acceptance of
any tendered Initial Debentures by Holdings and the issuance of Exchange
Debentures in exchange therefor shall constitute performance in full by Holdings
of certain of its obligations under the Registration Rights Agreement. All
authority conferred by the Transferor will survive the death or incapacity of
the Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
The Transferor certifies that it is not an "affiliate" of Holdings within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Debentures offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Debentures. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Debentures. Each Transferor
which is a broker-dealer receiving Exchange Debentures for its own account must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Debentures. 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 Debentures received in exchange for Initial Debentures
where such Initial Debentures were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Holdings will, for a
period of 180 days after the Exchange Date, make copies of this Prospectus
available to any broker-dealer for use in connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Initial Debentures may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Initial Debentures to be withdrawn (the "Depositor"),
(ii) identify the Initial Debentures to be withdrawn (including the certificate
number or numbers and principal amount of such Initial Debentures), (iii)
specify the principal amount of Initial Debentures to be withdrawn, (iv) include
a statement that such holder is withdrawing his election to
25
<PAGE> 30
have such Initial Debentures exchanged, (v) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Initial Debentures were tendered or as otherwise described above (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of such
Initial Debentures into the name of the person withdrawing the tender and (vi)
specify the name in which any such Initial Debentures are to be registered, if
different from that of the Depositor. The Exchange Agent will return the
properly withdrawn Initial Debentures promptly following receipt of notice of
withdrawal. If Initial Debentures have been tendered pursuant to the procedure
for book-entry transfer, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Initial Debentures or otherwise comply with the Book-Entry
Transfer Facility's procedure. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by Holdings in its
sole discretion and such determination will be final and binding on all parties.
Any Initial Debentures so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Initial Debentures
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Initial Debentures tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Initial Debentures will be credited to
an account with such Book-Entry Transfer Facility specified by the holder) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Initial Debentures may be retendered by
following one of the procedures described under "Procedures for Tendering
Initial Debentures" above at any time on or prior to the Expiration Date.
ACCEPTANCE OF INITIAL DEBENTURES FOR EXCHANGE; DELIVERY OF EXCHANGE DEBENTURES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
Holdings will accept, promptly on the Exchange Date, all Initial Debentures
properly tendered and will issue the Exchange Debentures promptly after such
acceptance. See "Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, Holdings shall be deemed to have accepted properly
tendered Initial Debentures for exchange when, as and if Holdings has given oral
or written notice thereof to the Exchange Agent.
For each Initial Debenture accepted for exchange, the holder of such
Initial Debenture will receive an Exchange Debenture having a principal amount
equal to that of the surrendered Initial Debenture.
In all cases, issuance of Exchange Debentures for Initial Debentures that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Initial Debentures
or a timely book-entry confirmation of such Initial Debentures into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Initial Debentures are not accepted for any reason set forth in the
terms or conditions of the Exchange Offer or if Initial Debentures are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Initial Debentures will be returned without expense
for the tendering holder thereof (or, in the case of Initial Debentures tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
above, such non-exchanged Initial Debentures will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the Exchange Date.
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<PAGE> 31
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, Holdings shall not be required to accept for exchange, or
to issue Exchange Debentures in exchange for, any Initial Debentures and may
terminate or amend the Exchange Offer (by oral or written notice to the Exchange
Agent or by a timely press release) if at any time before the acceptance of such
Initial Debentures for exchange or the exchange of the Exchange Debentures for
such Initial Debentures, any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority or
any injunction, order or decree is issued with respect to the
Exchange Offer which, in the sole judgment of Holdings, might
materially impair the ability of Holdings to proceed with the
Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to Holdings; or
(b) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties,
assets, liabilities, financial condition, operations, results of
operations or prospects of Holdings that is or may be adverse to
Holdings, or Holdings shall have become aware of facts that have
or may have adverse significance with respect to the value of the
Initial Debentures or the Exchange Debentures or that may
materially impair the contemplated benefits of the Exchange Offer
to Holdings; or
(c) any law, rule or regulation or applicable interpretations of the
staff of the SEC is issued or promulgated which, in the good faith
determination of Holdings, do not permit Holdings to effect the
Exchange Offer; or
(d) any governmental approval has not been obtained, which approval
Holdings, in its sole discretion, deems necessary for the
consummation of the Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation (or an amendment to any existing law,
statute, rule or regulation) which, in the sole judgment of
Holdings, might materially impair the ability of Holdings to
proceed with the Exchange Offer or have a material adverse effect
on the contemplated benefits of the Exchange Offer to Holdings; or
(f) there shall occur a change in the current interpretation by the
staff of the SEC which permits the Exchange Debentures issued
pursuant to the Exchange Offer in exchange for Initial Debentures
to be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is a
broker-dealer or an "affiliate" of Holdings 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 Debentures are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of
such Exchange Debentures; or
(g) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in
securities on any national securities exchange or in the
over-the-counter market (whether or not mandatory), (ii) any
limitation by any governmental agency or authority which may
adversely affect the ability of Holdings to complete the
transactions contemplated by the Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments
in respect of banks by Federal or state authorities in the United
States (whether or not mandatory), (iv) a commencement of a war,
armed hostilities or other international or national crisis
directly or indirectly involving the United States, (v) any
limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of
27
<PAGE> 32
affecting, the extension of credit by banks or other leading
institutions in the United States, or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Exchange
Offer, a material acceleration or worsening thereof.
Holdings expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Initial Debentures upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by Holdings of properly tendered Initial Debentures). In addition,
Holdings may amend the Exchange Offer at any time prior to the Expiration Date
if any of the conditions set forth above occur. Moreover, regardless of whether
any of such conditions has occurred, Holdings may amend the Exchange Offer in
any manner which, in its good faith judgment, is advantageous to holders of the
Initial Debentures.
The foregoing conditions are for the sole benefit of Holdings and may be
asserted by Holdings regardless of the circumstances giving rise to any such
condition or may be waived by Holdings in whole or in part at any time and from
time to time in its reasonable judgment. The failure by Holdings at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If Holdings waives or amends the foregoing
conditions, it will, if required by law, extend the Exchange Offer for a minimum
of five business days from the date that Holdings first gives notice, by public
announcement or otherwise, of such waiver or amendment, if the Expiration Date
would otherwise occur within such five business-day period. Any determination by
Holdings concerning the events described above will be final and binding upon
all parties.
In addition, Holdings will not accept for exchange any Initial Debentures
tendered, and no Exchange Debentures will be issued in exchange for any such
Initial Debentures, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended. In any such event, Holdings is required to
use every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Initial Debentures being tendered for exchange.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
BY OVERNIGHT COURIER: BY HAND:
United States Trust Company of New York United States Trust Company of New York
Attention: Corporate Trust Services Attention: Corporate Trust Services
770 Broadway, 13th Floor 111 Broadway -- Lower Level
New York, New York 10003 New York, New York 10006
BY MAIL: BY FACSIMILE:
(INSURED OR REGISTERED (212) 420-6152
RECOMMENDED) Attention: Corporate Trust Services
United States Trust Company of New York Telephone: 1-800-548-6565
Attention: Corporate Trust Services
P.O. Box 844
Cooper Station
New York, New York 10276-0844
</TABLE>
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
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<PAGE> 33
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH IN THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH IN THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
Holdings has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. Holdings, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. Holdings
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this and other related documents to the beneficial owners of the Initial
Debentures and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Holdings and are estimated in the aggregate to be
approximately $150,000 which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by Holdings.
Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of Holdings since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Initial Debentures in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, Holdings
may, at its discretion, take such action as it may deem necessary to make the
Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders
of Initial Debentures in such jurisdiction.
TRANSFER TAXES
Holdings will pay all transfer taxes, if any, applicable to the exchange of
Initial Debentures pursuant to the Exchange Offer. If, however, certificates
representing Exchange Debentures or Initial Debentures for 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 registered holder of the Initial
Debentures tendered, or if tendered Initial Debentures are registered 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 Initial
Debentures pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The Exchange Debentures will be recorded at the carrying value of the
Initial Debentures as reflected in Holdings's accounting records on the Exchange
Date. Accordingly, no gain or loss for accounting purposes will be recognized by
Holdings upon the exchange of Exchange Debentures for Initial Debentures.
Expenses incurred in connection with the issuance of the Exchange Debentures
will be amortized over the term of the Exchange Debentures.
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<PAGE> 34
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Debentures who do not tender their Initial Debentures
for Exchange Debentures pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Initial Debentures as set forth
in the legend thereon. Initial Debentures not exchanged pursuant to the Exchange
Offer will continue to remain outstanding in accordance with their terms. In
general, the Initial Debentures may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. Holdings does not currently anticipate that it will register the Initial
Debentures under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Initial
Debentures should carefully consider whether to participate. Holders of Initial
Debentures are urged to consult their financial and tax advisors in making their
own decision whether or not to tender their Initial Debentures. See "Certain
Federal Income Tax Consequences".
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Debentures pursuant to the terms of, this Exchange
Offer, Holdings will have fulfilled a covenant contained in the Registration
Rights Agreement. Holders of Initial Debentures who do not tender their Initial
Debentures in the Exchange Offer will continue to hold such Initial Debentures
and will be entitled to all the rights and limitations applicable thereto under
the Indenture, except for any such rights under the Registration Rights
Agreement that by their terms terminate or cease to have further effectiveness
as a result of the making of this Exchange Offer. All untendered Initial
Debentures will continue to be subject to the restrictions on transfer set forth
in the legend thereon. To the extent that Initial Debentures are tendered and
accepted in the Exchange Offer, the trading market for untendered Initial
Debentures could be adversely affected.
Holdings may in the future seek to acquire, subject to the terms of the
Indenture, untendered Initial Debentures in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. Holdings has no
present plan to acquire any Initial Debentures which are not tendered in the
Exchange Offer.
RESALE OF EXCHANGE DEBENTURES
Holdings is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, Holdings has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, Holdings believes that the Exchange Debentures issued pursuant to the
Exchange Offer in exchange for Initial Debentures may be offered for resale,
resold and otherwise transferred by holder (other than any holder who is a
broker-dealer or an "affiliate" of Holdings within the meaning of Rule 405 of
the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Debentures are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no intention to
engage, and no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such Exchange
Debentures. However, any holder who is an "affiliate" of Holdings or who has an
arrangement or understanding with respect to the distribution of the Exchange
Debentures to be acquired pursuant to the Exchange Offer, or any broker-dealer
who purchased Initial Debentures from Holdings to resell pursuant to Rule 144A
or any other available exemption under the Securities Act (i) cannot rely on the
applicable interpretations of the staff and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Initial Debentures that were acquired for its own
account as a result of market-making or other trading activities may be deemed
to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the
30
<PAGE> 35
Securities Act in connection with any resale of Exchange Debentures. Each such
broker-dealer that receives Exchange Debentures for its own account in exchange
for Initial Debentures, where such Initial Debentures were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Initial Debentures acquired directly from Holdings which
may not be exchanged by such broker-dealer in the Exchange Offer) must
acknowledge in the Letter of Transmittal that it will deliver a prospectus in
connection with any resale of such Exchange Debentures. This Prospectus, as it
may be amended or supplemented from time to time, may be used by such
broker-dealers in connection with such resales. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Debentures may not be offered or sold unless they
have been registered or qualified for sale in such jurisdiction or an exemption
from registration or qualification is available and is complied with. Holdings
has agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Debentures
for offer or sale under the securities or blue sky laws of such jurisdictions as
any holder of the Exchange Debentures reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Debentures.
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<PAGE> 36
USE OF PROCEEDS
Holdings will not receive any cash proceeds or incur any additional
indebtedness as a result of the issuance of the Exchange Debentures pursuant to
the Exchange Offer.
The net proceeds from the Offering, approximately $41.6 million (after
deductions of discounts and commissions and expenses of the Offering), together
with the proceeds of the issuance of Holdings Common Stock to HWH and members of
the Company's management, were contributed by Holdings to Nebraska Book as
equity and were used by Nebraska Book to pay amounts due in connection with the
Recapitalization including to repay outstanding indebtedness of Nebraska Book.
See "Summary -- The Recapitalization."
Of the indebtedness repaid by Nebraska Book, $17.3 million of bank
borrowings were due on August 31, 2001 and bore interest at 8.13% as of February
13, 1998; $36.9 million of bank borrowings were due on August 31, 2003 and bore
interest at 8.63% as of February 13, 1998 and $25.5 million principal amount of
subordinated notes due August 31, 2005 (net of discount of $2.3 million) and
bore interest at a fixed rate of 12% per annum.
All of the indebtedness being repaid was incurred in connection with the
1995 Transaction.
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<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations with
respect to the Company is based on the historical consolidated financial
statements of the Company included elsewhere in this Prospectus adjusted to give
effect to the Acquisitions and the Recapitalization as if they had occurred on
April 1, 1997. The historical consolidated balance sheet of the Company as of
March 31, 1998 included elsewhere in this Prospectus includes the effect of the
Acquisitions and the Recapitalization. The Acquisitions, the Recapitalization
and the related adjustments are described below and in the accompanying notes.
In the opinion of management, all adjustments have been made that are necessary
to present fairly the consolidated pro forma data. Actual amounts could differ
from those set forth below.
On February 13, 1998, the Company consummated the Merger among Mergerco,
the Company and certain shareholders of the Company pursuant to which the
Company's outstanding debt and stock were restructured. The Recapitalization was
financed through the issuance of approximately $215 million of new debt, a $45.6
million capital contribution from HWH to Mergerco, and a $4.4 million
reinvestment of capital by existing management shareholders of the Company. Upon
receipt of the capital contribution from HWH, Mergerco was merged into the
Company with the Company being the surviving corporation, and HWH and management
shareholders were reissued surviving corporation shares of Holdings Common
Stock. Proceeds of the Recapitalization were utilized primarily to retire
approximately $82.0 million of existing debt, purchase management's outstanding
options relative to the NBC 1995 Stock Incentive Plan for approximately $8.5
million, purchase outstanding warrants for approximately $16.7 million, and
reacquire certain outstanding shares of the Company's Class A and Class B common
stock for approximately $149.2 million. The early extinguishment of debt
resulted in an extraordinary loss for the write-off of debt issue costs and
payment of prepayment fees and unamortized discount on the retired debt. The
purchase of outstanding warrants was charged to additional paid-in capital and
retained earnings. The reacquisition of shares was accounted for as a treasury
stock transaction and such shares were retired. No step-up in basis was
recognized in conjunction with the Recapitalization.
In May of 1997, the Company acquired Specialty Books, a distributor of
distance education material and operator of a college bookstore at Ohio
University. In November of 1997, the Company acquired SCB, a small regional
wholesale textbook operation and operator of three college bookstores in South
Carolina. In January 1998, the Company acquired CSC, a centralized buying
service for over 500 college bookstores across the United States. These
operations were acquired for an aggregate of $7 million in cash and 3,924 shares
of the Company's common stock. Each acquisition was accounted for as a purchase
and as a result of the acquisitions, the Company recorded approximately $6.6
million excess cost over fair value of net assets acquired as goodwill.
The Unaudited Pro Forma Consolidated Statement of Operations should be read
in conjunction with the notes included herewith, the Company's Consolidated
Financial Statements and notes thereto as of March 31, 1997 and 1998 and for the
fiscal years in the three-year period ended March 31, 1998, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The Unaudited Pro Forma Consolidated
Statement of Operations does not purport to represent what the Company's
consolidated results of operations would have been had the Acquisitions and
Recapitalization occurred on the dates specified, or to project the Company's
consolidated results of operations for any future period or date. The Unaudited
Pro Forma Consolidated Statement of Operations does not give effect to
non-recurring charges directly attributable to the Recapitalization.
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<PAGE> 38
NBC ACQUISITION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
Revenues............................................. $198,773 $16,549(1) $215,322
Cost of sales........................................ 125,632 12,394(1) 138,026
-------- ------- --------
Gross profit............................... 73,141 4,155 77,296
Operating expenses
Selling, general, and administrative............... 47,081 3,432(1) 50,513
Depreciation....................................... 2,531 62(1) 2,593
Amortization....................................... 5,626 264(2) 5,890
Stock compensation costs........................... 8,278 (8,278)(5) --
-------- ------- --------
Income from operations..................... 9,625 8,675 18,300
Other expenses (income)
Interest expense................................... 11,938 10,542(3) 22,480
Interest income.................................... (328) (81)(1) (409)
Other income....................................... (512) (358)(1) (870)
-------- ------- --------
Loss before income taxes................... (1,473) (1,428) (2,901)
Income tax expense (benefit)......................... 58 (543)(4) (485)
-------- ------- --------
Loss from continuing operations(5)......... $ (1,531) $ (885) $ (2,416)
======== ======= ========
Loss per share(6)
Basic.............................................. $ (0.59) $ (2.54)
======== ========
Diluted............................................ $ (0.59) $ (2.54)
======== ========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated statement of
operations.
34
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Reflects the historical results of the Acquisitions during the year ended
March 31, 1998 to the extent they were not previously included in the
historical results of the Company, as well as the historical results of CSC
which was acquired as part of the Recapitalization. The historical amounts
of selling, general and administrative expenses have been adjusted by $362,
for the year ended March 31, 1998, to reflect saving the salary of the
previous owners of the businesses acquired who were no longer employed by
the Company following the Recapitalization, as if the Company owned all
operations for the period. The following table shows the results of
operations for each of the acquisitions included in the pro forma statement
of operations:
<TABLE>
<CAPTION>
DATES PURCHASED
-------------------------------------------------
NOVEMBER 1, 1997 MAY 1, 1997
SOUTH CAROLINA SPECIALTY JANUARY 23, 1998
BOOK BOOK CSC TOTAL
---------------- ----------- ---------------- -------
<S> <C> <C> <C> <C>
Revenues..................... $5,209 $ 492 $10,848 $16,549
Cost of sales................ 3,449 475 8,470 12,394
------ ----- ------- -------
Gross profit....... 1,760 17 2,378 4,155
Operating expenses
Selling, general and
administrative.......... 1,043 150 2,239 3,432
Depreciation............... 15 3 44 62
------ ----- ------- -------
Income (loss) from
operations....... 702 (136) 95 661
Other expenses (income)
Interest expense........... 50 2 22 74
Interest income............ -- 1 (82) (81)
Other income............... -- 2 (360) (358)
------ ----- ------- -------
Income (loss)
before income
taxes............ 652 (141) 515 1,026
Income tax expense
(benefit).................. 202 (54) (10) 138
------ ----- ------- -------
Income (loss) from
continuing
operations....... $ 450 $ (87) $ 525 $ 888
====== ===== ======= =======
</TABLE>
(2) Reflects amortization of goodwill from the CSC acquisition over a three year
period.
(3) Adjusts interest expense to reflect the effect of the Acquisitions and the
Recapitalization:
<TABLE>
<CAPTION>
FISCAL
YEAR
ENDED
MARCH 31,
1998
-----------
<S> <C>
Tranche A Term Loans(a)..................................... $ 2,200
Tranche B Term Loans(b)..................................... 2,681
Senior Subordinated Notes(c)................................ 9,625
Holdings Senior Discount Debentures(d)...................... 4,996
Amortization of deferred financing costs(e)................. 1,852
Historical interest of acquired bookstores.................. 74
-------
Total....................................................... 21,428
Less: historical interest................................... 10,886
-------
Adjustment to interest expense.............................. $10,542
=======
</TABLE>
- ---------------
(a) Interest is calculated at an annual rate of 8.00% for the period
indicated.
35
<PAGE> 40
(b) Interest is calculated at an annual rate of 8.25% for the period
indicated.
(c) Interest is calculated at an annual rate of 8.75% for the period
indicated.
(d) Interest is calculated at an annual rate of 10.75% for the period
indicated.
(e) Deferred financing costs of $14,334, related solely to the
Recapitalization, are being amortized over the term of the related
financings of 6 to 11 years.
(4) Adjusts income tax expense to reflect the effect of pro forma adjustments
that affect taxable income at an assumed effective tax rate of 38%.
(5) The pro forma consolidated statement of operations does not reflect the
impact of certain non-recurring charges directly related to the
Recapitalization:
<TABLE>
<S> <C>
Write off of deferred financing fees on retired debt, net of
income tax effect......................................... $1,806
Non-cash stock based compensation expense from the buyout of
nonqualified stock options, net of income tax effect
($8,278 before tax)....................................... 5,132
Write off of discount on retired debt, net of income tax
effect.................................................... 1,410
------
Total.............................................. $8,348
======
</TABLE>
(6) Historical loss per share has been calculated based upon 2,565,267
weighted-average shares outstanding for the year ended March 31, 1998. Pro
forma loss per share has been calculated assuming 953,027 shares of common
stock were outstanding for the year then ended.
36
<PAGE> 41
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
and other data of the Company and its predecessor as of and for the two fiscal
years ended March 31, 1994 and 1995, the five and seven month periods ended
August 31, 1995 and March 31, 1996, respectively, and the fiscal years ended
March 31, 1997 and 1998. The selected historical consolidated financial data
were derived from the audited consolidated financial statements of the Company
and its predecessor. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and the
related notes thereto included herein.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR(1)
-------------------------------- ---------------------------------
FIVE SEVEN
FISCAL YEARS ENDED MONTHS MONTHS FISCAL YEARS ENDED
MARCH 31, ENDED ENDED MARCH 31,
------------------- AUGUST 31, MARCH 31, ---------------------
1994 1995 1995 1996 1997 1998
-------- -------- ---------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $139,437 $149,227 $83,328 $ 79,423 $172,600 $198,773
Cost of sales.............................................. 90,657 96,317 52,753 51,866 110,466 125,632
-------- -------- ------- --------- -------- --------
Gross profit....................................... 48,780 52,910 30,575 27,557 62,134 73,141
Operating expenses:
Selling, general, and administrative..................... 33,063 35,325 14,729 22,517 39,491 47,081
Depreciation............................................. 1,754 1,889 872 904 2,706 2,531
Amortization............................................. -- -- -- 2,259 4,072 5,626
Stock compensation costs................................. -- -- -- 82 297 8,278
-------- -------- ------- --------- -------- --------
Income from operations..................................... 13,963 15,696 14,974 1,795 15,568 9,625
Other expenses (income)
Interest expense......................................... 616 766 952 6,035 10,760 11,938
Interest income.......................................... (180) (224) (51) (433) (561) (328)
Other income:(2)......................................... (563) (416) (469) (339) (390) (512)
-------- -------- ------- --------- -------- --------
Income (loss) before income taxes and extraordinary
item............................................. 14,090 15,570 14,542 (3,468) 5,759 (1,473)
Income tax expense (benefit)............................... 5,383 5,950 5,583 (967) 2,325 58
-------- -------- ------- --------- -------- --------
Income (loss) before extraordinary item............ 8,707 9,620 8,959 (2,501) 3,434 (1,531)
Extraordinary loss on extinguishment of debt, net of
taxes.................................................... -- -- -- -- -- (4,021)
-------- -------- ------- --------- -------- --------
Net income (loss).................................. $ 8,707 $ 9,620 $ 8,959 $ (2,501) $ 3,434 $ (5,552)
======== ======== ======= ========= ======== ========
Earnings (loss) per share(3)
Basic:
Income (loss) before extraordinary item................ $ (0.89) $ 1.23 $ (0.59)
Extraordinary loss on extinguishment of debt........... -- -- (1.57)
--------- -------- --------
Net income (loss)...................................... $ (0.89) $ 1.23 $ (2.16)
========= ======== ========
Diluted
Income (loss) before extraordinary item................ $ (0.89) $ 1.16 $ (0.59)
Extraordinary loss on extinguishment of debt........... -- -- (1.57)
--------- -------- --------
Net income (loss)...................................... $ (0.89) $ 1.16 $ (2.16)
========= ======== ========
OTHER DATA:
EBITDA(4).................................................. $ 16,280 $ 18,001 $16,315 $ 5,379 $ 23,033 $ 26,572
Net cash flows from operating activities................... 10,338 10,009 1,643 3,423 10,774 (2,842)
Net cash flows from financing activities................... (9,809) (2,087) 437 116,063 (7,471) 10,220
Net cash flows from investing activities................... (1,029) (8,255) 371 (109,385) (3,427) (11,548)
Capital expenditures....................................... 1,374 8,260 801 838 2,243 3,690
Business acquisition expenditures(5)....................... -- 100 -- 551 1,252 7,714
Ratio of earnings to fixed charges(6)...................... 8.9x 8.5x 10.5x (7) 1.5x (7)
Pro forma ratio of earnings to fixed charges(6)(8)......... (9)
Number of bookstores open at end of the period............. 29 34 35 38 46 54
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.................................. $ 2,623 $ 2,291 $ 4,741 $ 10,101 $ 9,977 $ 5,807
Working capital............................................ 39,118 32,781 43,879 52,469 55,936 54,053
Total assets............................................... 65,857 75,179 92,505 129,023 127,169 152,145
Total debt, including current maturities................... 1,027 8,940 9,376 86,712 79,524 221,597
Stockholders' equity (deficit)............................. 53,648 53,269 62,228 28,263 31,697 (90,570)
</TABLE>
(footnotes on following page)
37
<PAGE> 42
- ---------------
(1) Effective September 1, 1995, the Company purchased all the outstanding
capital stock of Nebraska Book in a transaction accounted for as a purchase
business combination. Following the 1995 Transaction, the consolidated
results of operations of the Company contained higher interest costs due to
the financing of the acquisition and higher amortization expense for
goodwill and other intangibles created by the acquisition. Effective
February 13, 1998, the Company consummated the Merger among Mergerco, the
Company and certain shareholders of the Company pursuant to which the
Company's outstanding debt and stock were restructured. Following this
Recapitalization, the results of operations of the Company included higher
interest costs due to the financing of the Recapitalization, and in fiscal
1998, non-recurring charges associated with the extinguishment of debt and
buyout of stock options.
(2) Other income primarily represents recurring income from ancillary activities
of the Company.
(3) Earnings (loss) per share has not been presented for the fiscal years ended
March 31, 1994 and 1995 and for the five months ended August 31, 1995, as
such presentation would not be meaningful.
(4) EBITDA is defined as income from operations plus other income, depreciation,
amortization and non-cash charges relating to stock based compensation
expense in the amounts of $82 for the seven months ended March 31, 1996, and
$297 and $8,278 for the years ended March 31, 1997 and 1998, respectively.
The Company believes that EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and EBITDA does not necessarily indicate whether cash flow will
be sufficient for cash requirements. EBITDA should not be considered by
investors as an indicator of cash flows from operating activities, investing
activities and financing activities as determined in accordance with
generally accepted accounting principles. Items excluded from EBITDA, such
as depreciation and amortization, are significant components in
understanding and assessing the Company's financial performance. EBITDA
measures presented may not be comparable to similarly titled measures
presented by other issuers.
(5) Business acquisition expenditures represent established businesses purchased
by the Company.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs and the interest portion of the Company's rent
expense.
(7) Earnings were insufficient to cover fixed charges for the seven months ended
March 31, 1996 by $3,468 and for the year ended March 31, 1998 by $1,473.
(8) Pro forma interest expense gives effect to the Acquisitions and the
Recapitalization as if they had occurred on April 1, 1997.
(9) Pro forma earnings were insufficient to cover pro forma fixed charges for
the year ended March 31, 1998 by $2,901.
38
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company participates in the college bookstore industry by providing
used textbooks to college bookstores, by operating its own college bookstores,
by providing independent and institution-owned college bookstores with
purchasing, management consulting and information systems services, and by
distributing distance education materials. The Company began operations in 1915
as a single college bookstore in Lincoln, Nebraska. The Company entered the
wholesale used textbook market following World War II, when the supply of new
textbooks could not meet the demand created by the return of ex-GI students. In
1964, the Company became a national, rather than regional, wholesaler of used
textbooks as a result of its purchase of The College Book Company of California.
During the 1970s the Company continued its focus on the wholesale business.
However, realizing the synergies that exist between the wholesale and college
bookstore operations, in the 1980s it expanded its efforts in the college
bookstore market with a new strategy. Under this new strategy, the Company
operates bookstores on or near larger campuses, typically where the
institution-owned college bookstore is contract-managed by a competitor or where
the Company does not have a significant wholesale presence. Today, the Company
services the college bookstore industry through its wholesale, college bookstore
and services operations.
Nebraska Book was acquired by Holdings in a leveraged buyout in September
1995. Holdings was formed for the purpose of acquiring all of the outstanding
capital stock of the Company. Since the 1995 Transaction, and as part of the new
owner's operating strategy, management has focused on expanding its bookstore
and services operations to improve the overall growth of the Company and to
enhance its wholesale operations. Since the 1995 Transaction, the Company has
opened 20 college bookstores and expanded its wholesale and services operations.
In May 1997, the Company acquired the operations of Specialty Books located
in Athens, Ohio. Specialty Books is a distributor of distance education material
to various institutions of higher education as well as corporate education and
correctional facility education programs.
In January 1998, the Company acquired CSC, a centralized buying service for
over 500 college bookstores across the United States. Through the enhanced
purchasing power of such a large group of bookstores, participating bookstores
are able to purchase certain books and general merchandise at lower prices than
those that would be paid by the stores individually. CSC also provides the
Company with increased contact with bookstores from which the Company will seek
to source additional used textbooks.
On February 13, 1998, the Company consummated the Merger among Mergerco,
the Company and certain shareholders of the Company pursuant to which the
Company's outstanding debt and stocks were restructured. Significant components
of the Recapitalization, together with the applicable accounting effects, were
as follows:
(i) HWH contributed $45.6 million in capital to Mergerco, which was then
merged into the Company, with the Company being the surviving corporation.
(ii) Existing management shareholders of the Company reinvested approximately
$4.4 million in the Company. HWH and management shareholders were
reissued shares of Holdings Common Stock.
(iii) The Company obtained approximately $215 million in new debt financing and
retired substantially all of its existing debt. The early extinguishment
of debt resulted in an extraordinary loss on the transaction.
(iv) The Company agreed to purchase management's outstanding options relative
to its 1995 Stock Incentive Plan, for a cash payment in lieu of the
options. This resulted in stock based
39
<PAGE> 44
compensation of approximately $8.3 million for the year ended March 31,
1998. In addition, the Company agreed to purchase all outstanding
warrants for a net cash payment of approximately $16.7 million, which was
charged to additional paid-in capital and retained earnings.
(v) The Company reacquired the outstanding shares of Class A and Class B
Common Stock of certain shareholders for approximately $149.2 million.
This reacquisition of shares was accounted for as a treasury stock
transaction, and such reacquired shares were retired.
40
<PAGE> 45
RESULTS OF OPERATIONS
The following table sets forth the comparative statements of operations
that are the basis of discussion below. For purposes of these tables, fiscal
1996 results reflect the separate historical results for the five months ended
August 31, 1995 for Nebraska Book prior to the 1995 Transaction and the seven
months ended March 31, 1996 for the Company subsequent to the 1995 Transaction
because of the change in the basis of accounting due to the 1995 Transaction.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------- -------------------------------
FIVE SEVEN
MONTHS MONTHS FISCAL YEARS ENDED
ENDED ENDED MARCH 31,
AUGUST 31, MARCH 31, -------------------
1995 1996 1997 1998
----------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Wholesale................................................. $54,328 $27,350 $ 84,487 $ 90,595
College bookstores........................................ 33,024 52,396 92,508 110,585
Services.................................................. 1,905 1,599 4,922 9,598
Intercompany eliminations................................. (5,929) (1,922) (9,317) (12,005)
------- ------- -------- --------
Total revenues.......................................... 83,328 79,423 172,600 198,773
Cost of sales............................................... 52,753 51,866 110,466 125,632
------- ------- -------- --------
Gross profit............................................ 30,575 27,557 62,134 73,141
Operating expenses:
Selling, general and administrative....................... 14,729 22,517 39,491 47,081
Depreciation.............................................. 872 904 2,706 2,531
Amortization.............................................. -- 2,259 4,072 5,626
Stock compensation costs.................................. -- 82 297 8,278
------- ------- -------- --------
Operating income........................................ 14,974 1,795 15,568 9,625
Other expenses (income):
Interest expense, net..................................... 901 5,602 10,199 11,610
Other income.............................................. (469) (339) (390) (512)
------- ------- -------- --------
Income (loss) before income taxes and extraordinary
item.................................................. 14,542 (3,468) 5,759 (1,473)
Income tax expense (benefit)................................ 5,583 (967) 2,325 58
------- ------- -------- --------
Income (loss) before extraordinary item................. 8,959 (2,501) 3,434 (1,531)
Extraordinary loss on extinguishment of debt, net of
taxes..................................................... -- -- -- (4,021)
------- ------- -------- --------
Net income (loss)........................................... $ 8,959 $(2,501) $ 3,434 $ (5,552)
======= ======= ======== ========
</TABLE>
The following sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Company's statements of
operations for the fiscal periods shown below:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------- -------------------------
FIVE SEVEN FISCAL YEARS
MONTHS MONTHS ENDED
ENDED ENDED MARCH 31,
AUGUST 31, MARCH 31, -------------
1995 1996 1997 1998
----------- --------- ----- -----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Wholesale................................................. 65.2% 34.4% 48.9% 45.6%
College bookstores........................................ 39.6 66.0 53.6 55.6
Services.................................................. 2.3 2.0 2.9 4.8
Intercompany eliminations................................. (7.1) (2.4) (5.4) (6.0)
----- ----- ----- -----
Total revenues.......................................... 100.0 100.0 100.0 100.0
Cost of sales............................................... 63.3 65.3 64.0 63.2
----- ----- ----- -----
Gross profit............................................ 36.7 34.7 36.0 36.8
Operating expenses:
Selling, general and administrative....................... 17.7 28.4 22.9 23.7
Depreciation.............................................. 1.0 1.1 1.6 1.3
Amortization.............................................. -- 2.8 2.3 2.8
Stock compensation costs.................................. -- 0.1 0.2 4.2
----- ----- ----- -----
Operating income........................................ 18.0 2.3 9.0 4.8
Other expenses (income):
Interest expense, net..................................... 1.1 7.1 5.9 5.8
Other income.............................................. (0.6) (0.4) (0.2) (0.3)
----- ----- ----- -----
Income (loss) before income taxes and extraordinary
item.................................................. 17.5 (4.4) 3.3 (0.7)
Income tax expense (benefit)................................ 6.7 (1.2) 1.3 0.1
----- ----- ----- -----
Income (loss) before extraordinary item................. 10.8 (3.2) 2.0 (0.8)
Extraordinary loss on extinguishment of debt, net of
taxes..................................................... -- -- -- (2.0)
----- ----- ----- -----
Net income (loss)........................................... 10.8% (3.2)% 2.0% (2.8)%
===== ===== ===== =====
</TABLE>
41
<PAGE> 46
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1997.
Revenues. Revenues for fiscal 1998 increased $26.2 million, or 15.2%, to
$198.8 million from $172.6 million for fiscal 1997. This increase was due to a
$6.1 million, or 7.2%, increase in wholesale sales, a $18.1 million, or 19.5%,
increase in college bookstore sales and a $4.7 million increase in revenues
related to complementary services. Wholesale sales for fiscal 1998 increased to
$90.6 million from $84.5 million for fiscal 1997. The increase in wholesale
sales was due primarily to publisher price increases averaging 4% and unit
volume sales growth of 3%. In part, this unit growth resulted from an increase
in the number of college bookstores operated by the Company, which increased the
Company's ability to procure book inventory, contributing an additional $1.5
million in purchases from this source. College bookstore sales for fiscal 1998
increased to $110.6 million from $92.5 million for fiscal 1997. The increase in
college bookstore sales was a result of same store sales increases of 12.6%
combined with the eight bookstores opened or acquired during fiscal 1998 and the
full year effect of stores opened or acquired in fiscal 1997. As the Company's
wholesale and college bookstore operations have grown, the Company's
intercompany transactions have also increased.
Gross profit. Gross profit for fiscal 1998 increased $11.0 million, or
17.7%, to $73.1 million from $62.1 million for fiscal 1997. This increase was
primarily due to higher revenues, combined with an increase in gross margin
percent. Gross margin for fiscal 1998 increased to 36.8% from 36.0% for fiscal
1997. This increase was primarily due to an increase of $2.4 million in used
textbook sales through the Company's bookstores, which generates an average
gross margin of 58% compared to an average gross margin of 37% for sales through
other channels.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1998 increased $7.6 million, or 19.2%, to
$47.1 million from $39.5 million for fiscal 1997. Selling, general and
administrative expenses as a percentage of revenues increased to 23.7% for
fiscal 1998 from 22.9% for fiscal 1997. These increases resulted primarily from
the higher expense base associated with the Company's expansion of its college
bookstore operations in fiscal 1998 and the full year effect of the fiscal 1997
bookstore expansion.
Amortization expense. Amortization expense for the fiscal year ended March
31, 1998 increased $1.5 million to $5.6 million from $4.1 million for the fiscal
year ended March 31, 1997. This increase resulted primarily from a full year of
amortization on the goodwill associated with the bookstores acquired in fiscal
1997 and amortization on the goodwill associated with the fiscal 1998
acquisitions.
Stock compensation costs. Stock compensation costs for the fiscal year
ended March 31, 1998 increased $8.0 million to $8.3 million from $0.3 million
for the fiscal year ended March 31, 1997. This increase is the result of the
stock options bought out in connection with the Recapitalization.
Operating income. Operating income for fiscal 1998 decreased $6.0 million,
or 38.2%, to $9.6 million from $15.6 million for fiscal 1997. Operating income
as a percentage of revenues decreased to 4.8% for fiscal 1998 from 9.0% for
fiscal 1997. These decreases are primarily the result of the increased stock
compensation costs associated with the Recapitalization.
Interest expense, net. Interest expense, net for fiscal 1998 increased by
$1.4 million to $11.6 million from $10.2 million for fiscal 1997 as a result of
the additional debt incurred relating to the Recapitalization.
Extraordinary loss on extinguishment of debt. During fiscal 1998, the
Company recorded an extraordinary loss of $6.5 million and an associated tax
benefit of $2.5 million as a result of early extinguishment of substantially all
of its previously outstanding debt during the Recapitalization.
42
<PAGE> 47
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED WITH THE COMBINED FISCAL YEAR ENDED
MARCH 31, 1996.
Revenues. Revenues for fiscal 1997 increased $9.8 million, or 6.1%, to
$172.6 million from $162.8 million for fiscal 1996. This increase was due to a
$2.8 million, or 3.4%, increase in wholesale sales, a $7.1 million, or 8.3%,
increase in college bookstore sales and a $1.4 million increase in revenues
related to complementary services. Wholesale sales for fiscal 1997 increased to
$84.5 million from $81.7 million for fiscal 1996. The increase in wholesale
sales was due primarily to publisher price increases averaging 4%. College
bookstore sales for fiscal 1997 increased to $92.5 million from $85.4 million
for fiscal 1996. The increase in college bookstore sales was a result of same
store sales increases of 4.3% combined with the nine bookstores opened or
acquired during fiscal 1997 and the full year effect of stores opened or
acquired in fiscal 1996. As the Company's wholesale and college bookstore
operations have grown, the Company's intercompany transactions have also
increased.
Gross profit. Gross profit for fiscal 1997 increased $4.0 million, or 6.9%,
to $62.1 million from $58.1 million for fiscal 1996. This increase was primarily
due to higher revenues, combined with an increase in gross margin percent. Gross
margin for fiscal 1997 increased to 36.0% from 35.7% for fiscal 1996. This
increase was primarily due to an increase of $1.2 million in used textbook sales
through the Company's bookstores, which generates an average gross margin of 58%
compared to an average gross margin of 37% for sales through other channels.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1997 were $39.5 million, or 22.9% of revenues
for the year. Selling, general and administrative expenses for the seven months
ended March 31, 1996 were $22.5 million, or 28.4% of revenues for the period and
for the five months ended August 31, 1995 were $14.7 million, or 17.7% of
revenues for the period. The fluctuation of selling, general and administrative
expenses as a percentage of revenues is attributable to the seasonality of the
Company's business, in which traditionally over 40% of annual revenues are
realized in the Company's second fiscal quarter (July-September).
Amortization expense. Amortization expense was $4.1 million, $2.3 million
and $0 for the fiscal year ended March 31, 1997, seven months ended March 31,
1996 and five months ended August 31, 1995, respectively. Amortization expense
pertains to the goodwill and other intangibles created in the 1995 Transaction,
resulting in a full year of amortization in fiscal 1997.
Operating income. Operating income for fiscal 1997 was $15.6 million, or
9.0% of revenues for the year. Operating income for the seven months ended
March 31, 1996 was $1.8 million, or 2.3% of revenues for the period and for the
five months ended August 31, 1995 was $15.0 million, or 18.0% of revenues for
the period. The fluctuation of operating income as a percentage of revenues is
again attributable to the seasonality of the Company's business and the
increased amortization associated with the 1995 Transaction.
Interest expense, net. Interest expense, net was $10.2 million,
$5.6 million and $.9 million for the fiscal year ended March 31, 1997, seven
months ended March 31, 1996 and five months ended August 31, 1995, respectively.
A substantial portion of the increase in interest expense is associated with the
debt utilized to partially finance the 1995 Transaction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity requirements are for debt service under the
Debentures, the Credit Facilities, the Senior Subordinated Notes and other
outstanding indebtedness, for working capital, and for capital expenditures. The
Company has historically funded these requirements primarily through internally
generated cash flow and funds borrowed under the Company's credit facilities. At
March 31, 1998, the Company's total indebtedness was approximately $221.6
million, consisting of approximately $45.6 million of the Debentures, $60.0
million in Term Loans, $110.0 million of the Senior Subordinated Notes, $5.4
million under the Revolving Credit Facility, and
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$0.6 million of other indebtedness. To provide additional financing to fund the
Recapitalization, Holdings raised an additional $50.0 million, consisting of
$45.6 million through the sale to HWH of Holdings Common Stock (representing
91.3% of the outstanding Holdings Common Stock), and $4.4 million from the
reinvestment in Holdings Common Stock by senior management of the Company.
Principal and interest payments under the Debentures, the Credit Facilities
and the Senior Subordinated Notes represent significant liquidity requirements
for the Company. Under the terms of the Term Loans, Nebraska Book is required to
make principal payments totaling approximately $1.3 million in fiscal 1999, $3.1
million in fiscal 2000, $4.4 million in fiscal 2001, $6.3 million in fiscal
2002, and $6.8 million in fiscal 2003. Loans under the Credit Facilities bear
interest at floating rates based upon the interest rate option selected by the
Company. Under the terms of the Credit Facilities, Nebraska Book is required to
purchase and maintain interest rate protection to the extent necessary to
provide that at least 50% of the aggregate principal amount of the Senior
Subordinated Notes and Term Loans are subject to fixed interest rates. For a
description of the Credit Facilities, see "Description of Other Indebtedness."
The Senior Subordinated Notes will mature on February 15, 2008. Interest on
the Senior Subordinated Notes will be payable semi-annually in cash.
The Company's capital expenditures were $0.8 million, $2.2 million and $3.7
million in fiscal years 1996, 1997 and 1998, respectively. In fiscal 1998, the
Company spent $1.1 million for the purchase and upgrade of automation equipment
and $0.8 million to renovate one of its largest bookstores. The Company
estimates that for fiscal 1999, approximately $2.5 million of capital
expenditures will be required, primarily for maintenance. Capital expenditures
consist primarily of bookstore opening costs, bookstore renovations and
miscellaneous maintenance requirements. The Company believes that as a result of
the availability of excess capacity in its distribution facilities, it will be
able to pursue its strategy over the next several years without making
significant additional capital expenditures to expand capacity. The Company's
ability to make capital expenditures is subject to certain restrictions under
the Credit Agreement. See "Description of Other Indebtedness."
Business acquisition expenditures were $0.6 million, $1.3 million and $7.7
million in fiscal years 1996, 1997 and 1998, respectively. Significant
businesses acquired since fiscal 1995 have included Specialty Books, South
Carolina Bookstore, Inc. and other bookstores located in Arizona, Texas and
Oklahoma. In January 1998, the Company acquired CSC for approximately $4.0
million. The Company estimates that for fiscal 1999, it will make approximately
$2.0 million of business acquisition expenditures.
The Company's principal sources of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Revolving Credit
Facility. Net cash flows from operating activities for fiscal 1998 was $(2.8)
million, a decrease of $13.6 million from $10.8 million in fiscal 1997,
primarily due to stock compensation in excess of $8 million paid out during
fiscal 1998 as a result of the Recapitalization and higher uses of cash in
fiscal 1998 to fund increases in accounts receivable and inventory.
Historically, the Company has generated significant cash flows from operating
activities. Management expects this trend to continue, as the use of cash from
operating activities in fiscal 1998 was attributable to the unusual,
non-recurring event of buying out management's stock options in connection with
the Recapitalization.
Access to the Company's principal sources of cash is subject to various
restrictions. The availability of additional borrowings is subject to the
calculation of a borrowing base which at any time is equal to a percentage of
eligible accounts receivable and inventory. The Credit Agreement restricts the
Company's ability to make loans or advances and pay dividends, except that,
among other things, Nebraska Book may pay dividends to the Company (i) after
August 15, 2003 in an amount not to exceed the amount of interest required to be
paid on the Debentures and (ii) to pay corporate overhead expenses not to exceed
$250,000 per year and any taxes due by the Company.
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The Indenture restricts the ability of the Company and its Restricted
Subsidiaries (as defined in the Indenture) to pay dividends or make other
Restricted Payments (as defined in the Indenture) to their respective
stockholders, subject to certain exceptions, unless certain conditions are met,
including that (i) no default under the Indenture shall have occurred and be
continuing, (ii) the Company shall be permitted by the Indenture to incur
additional indebtedness and (iii) the amount of the dividend or payment may not
exceed a certain amount based on, among other things, the Company's consolidated
net income. The indenture governing the Senior Subordinated Notes contains
similar restrictions on the ability of Nebraska Book and its Restricted
Subsidiaries to pay dividends or make other Restricted Payments to their
respective stockholders. Such restrictions are not expected to effect the
Company's ability to meet its cash obligations.
As of March 31, 1998 the $50 million Revolving Credit Facility had an
amount of $31.6 million available as determined by the borrowing base
calculation in the Credit Agreement. Of the amount available, $5.4 million was
drawn by Nebraska Book. Amounts available under the Revolving Credit Facility
may be used for working capital and general corporate purposes (including up to
$10.0 million for letters of credit), subject to certain limitations under the
Credit Agreement.
SEASONALITY
The Company's wholesale and bookstore operations experience two distinct
selling periods and the wholesale operations experiences two distinct buying
periods. The peak selling periods for the wholesale operations occur prior to
the beginning of each school semester in August and December. The buying periods
for the wholesale operations occur at the end of each school semester in late
December and May. In fiscal 1998, approximately 42% of the Company's annual
revenues occurred in the second fiscal quarter (July-September), while
approximately 27% of the Company's annual revenues occurred in the fourth fiscal
quarter (January-March). The primary selling periods for the bookstore
operations are in September and January. Accordingly, the Company's working
capital requirements fluctuate throughout the year, increasing substantially at
the end of each semester, in May and December, as a result of the buying
periods. The Company funds its working capital requirements primarily through a
revolving credit facility, which historically has been paid down in full at the
end of the Company's fiscal year.
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented
based upon historical costs. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of the estimates required, the
Company believes that the effects of inflation, if any, on its results of
operations and financial condition have been minor. However, there can be no
assurance that during a period of significant inflation, the Company's results
of operations would not be adversely affected.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those programs
recognize a date using "00" as the year 1900 rather than the year 2000 (the
"Year 2000 Issue"). This problem could cause a system failure or miscalculations
resulting in disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
The Company has completed an assessment of the impact of the Year 2000
Issue on its operations, and has been modifying and will continue to modify and
replace portions of its software so that its internal computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company has been addressing the Year 2000 Issue consistently as part of its
regular program of updating and rewriting its internal corporate applications
during the last seven years. As a result, all of the Company's own retail
applications have been modified completely. The only remaining internal
corporate application that remains to be replaced is the general ledger
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application, which the Company is currently in the process of addressing by
evaluating commercial software solutions. The Company expects the cost to
replace its current general ledger software with a commercial application that
is "Year 2000 compliant" will be less than $50,000. The Company plans to have
such a new application in place by the fall of 1998. Because the Company has
addressed the Year 2000 Issue over the years as a part of the general upgrading
and updating of corporate applications, there has been little cost in terms of
both time and expense specifically attributable to addressing this issue.
Although the Company's assessment did not address its exposure to third
parties' (e.g., vendors' and customers') failures to correct their systems for
the Year 2000 Issue, the Company believes that there is not a material risk to
the Company's business relating to such failures, because most of its customers
use Company software which has already been corrected and, based on
conversations with its vendors and information provided in trade publications,
the Company believes that its vendors are taking steps to address the Year 2000
Issue. Nonetheless, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely corrected.
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BUSINESS
GENERAL
The Company is one of the largest wholesale distributors of used college
textbooks in North America, offering approximately 90,000 textbook titles and
selling more than 7.1 million books annually at approximately 2,000 college
campuses. In addition, the Company owns or manages 54 bookstores on or adjacent
to college campuses through which it sells a variety of new and used textbooks
and general merchandise. The Company also distributes new textbooks to college
bookstores and is a leading provider of distance education materials to students
in nontraditional courses, which include correspondence and corporate education
courses. Furthermore, the Company provides the college bookstore industry with a
variety of services including in-store promotions, buying programs, marketing
services and proprietary information systems. With origins dating to 1915, the
Company has built a consistent reputation for excellence in order fulfillment,
shipping performance and customer service. On a pro forma basis, for the fiscal
year ended March 31, 1998, the Company's revenues would have been $215.3
million.
The Company entered the wholesale used textbook market following World War
II, when the supply of new textbooks could not meet the demand created by the
return of ex-GI students. In 1964, the Company became a national, rather than
regional, wholesaler of used textbooks as a result of its purchase of The
College Book Company of California. During the 1970's the Company continued its
focus on the wholesale business. However, realizing the synergies that exist
between the wholesale and college bookstore operations in the 1980's it expanded
its efforts in the college bookstore market with a new strategy. Under this new
strategy the Company operates bookstores on or near larger campuses, typically
where the institution-owned college bookstore is contract-managed by a
competitor or where the Company does not have a significant wholesale presence.
Today, the Company services the college bookstore industry through its
wholesale, college bookstore and services operations.
According to the National Association of College Stores, an industry trade
association, in the academic year 1995-1996 approximately 4,600 college stores
generated a total of $7.9 billion in annual sales to college students and other
consumers in North America. Sales of textbooks and other educational materials
used for classroom instruction comprised approximately 64% of this amount. The
Company expects this market will grow as a result of anticipated increases in
enrollment at U.S. colleges. The National Center for Education Statistics, an
agency of the United States Department of Education, estimates the college
population will grow by approximately 2.0 million students from 14.4 million in
1996 to 16.4 million in 2006, primarily as a result of children of the baby boom
generation entering the college population.
Sales of textbooks to college stores have grown at a compound annual rate
of 5.4% from $2.3 billion in sales in 1990 to $3.0 billion in 1995, as estimated
by Cowles/Simba Information Inc. Over the same period, Cowles/Simba Information
Inc. estimated that sales of used textbooks have grown at a compound annual rate
of 12.7%, increasing their share of all textbook sales from 20% in 1990 to 28%
in 1995. The Company believes that sales of used textbooks will continue to grow
because used textbooks provide students with a lower-cost alternative to new
textbooks, and because bookstores typically achieve higher margins through the
sale of used rather than new textbooks.
The Company considers itself well positioned to capitalize on these
opportunities because of its leading market position, its strong customer
relationships, its broad product and service offerings and its superior order
fulfillment capabilities. These factors have also contributed to the strong,
stable growth of the Company. The following chart illustrates the Company's
consistent revenue
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growth over the last 20 fiscal years, even during economic downturns, resulting
in a compound annual growth rate of over 10%.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Revenues
<S> <C>
1979 27.3
1980 28.8
1981 31.5
1982 36.6
1983 42.1
1984 47.3
1985 50.2
1986 53.4
1987 70.2
1988 80.7
1989 89.6
1990 107.3
1991 118.2
1992 126.9
1993 134.1
1994 137.3
1995 148.4
1996 160.3
1997 172.6
1998 198.8
</TABLE>
WHOLESALE. The Company is one of the largest wholesale distributors of used
college textbooks in North America. Its wholesale operations consist primarily
of selling used textbooks to college bookstores, buying them back from students
or college bookstores at the end of each school semester and then reselling them
to college bookstores. The Company purchases used textbooks from and resells
them to college bookstores at many of the nation's largest college campuses,
including: University of Texas, University of Southern California, Indiana
University, University of Florida, University of Arizona, Brigham Young
University, University of Washington and University of Minnesota. Historically,
because the demand for used textbooks has consistently outpaced supply, the
Company's wholesale sales have been determined primarily by the amount of used
textbooks that it could purchase. The Company's strong relationships with the
management of approximately 2,000 independently-owned college bookstores have
provided important access to valuable market information regarding the
campus-by-campus supply and demand of textbooks, as well as an ability to
procure large quantities of a wide variety of textbooks. The Company provides a
proprietary Buyer's Guide to its customers, which lists over 36,000 textbook
titles with such details as author, new copy retail price and the Company's
repurchase price. With the January 1998 acquisition of CSC, the Company intends
to significantly expand its wholesale distribution of new textbooks.
COLLEGE BOOKSTORES. College bookstores are the primary outlets for sales of
new and used textbooks to students. The Company operates 54 college bookstores
on or adjacent to college campuses of which eight are managed by the Company at
institution-owned stores (i.e., contract-managed). Its college bookstores are
located at some of the nation's largest college campuses including: University
of Nebraska, University of Michigan, University of Maryland, Arizona State
University, Pennsylvania State University, University of Kansas, Cornell
University, Baylor University, Oklahoma State University, University of
Tennessee and Ohio University. In addition to generating profits, the Company's
college bookstore operations provide an exclusive source of used textbooks for
sale across the Company's wholesale distribution network. The Company generally
focuses its college bookstore operations at colleges where the Company otherwise
would not have a significant representation.
SERVICES. In the last year, the Company has completed two acquisitions
representing new initiatives for it in the college bookstore industry. In
January 1998, the Company acquired CSC, a centralized buying service for over
500 college bookstores across the United States. Through the enhanced purchasing
power of such a large group of bookstores, participating bookstores are able
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to purchase certain books and general merchandise at lower prices than those
that would be paid by the stores individually. CSC also provides the Company
with increased contact with bookstores from which the Company will seek to
source additional used textbooks. With its acquisition of Specialty Books in May
1997, the Company entered the distance education market, which consists of
providing education materials to students in nontraditional college and other
courses (such as correspondence courses, continuing and corporate education
courses and courses offered through electronic media such as the Internet).
Other services offered to college bookstores include the sale of computer
hardware and software, such as the Company's turnkey bookstore management
software, and related maintenance contracts. These services generate revenue and
assist the Company in enhancing and developing customer relationships.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading provider
of products and services to the college bookstore market, thereby increasing
revenue and cash flow. In order to accomplish its goal, the Company intends to
pursue the following strategies:
ENHANCE GROWTH IN WHOLESALE OPERATIONS. The Company expects the stable
growth of its wholesale operations to continue, primarily as a result of an
expected increase in college enrollments and increased utilization of used
textbooks, as well as through the expansion of its own college bookstore
network. The Company's enhanced presence as a distributor of new textbooks
(resulting from its CSC acquisition) is also expected to positively impact the
Company's wholesale operations.
CAPITALIZE ON COLLEGE BOOKSTORE OPPORTUNITIES. The Company intends to
expand sales for its college bookstore operations by acquiring and opening
bookstores at selected college campuses, increasing its contract-managed store
base and offering additional specialty products and services at its existing
bookstores. The Company also believes there are significant opportunities to
improve cash flow at its college bookstores by reducing certain selling, general
and administrative expenses and by realizing economies of scale through
increased purchasing power for textbooks and general merchandise as a result of
its affiliation with CSC.
PURSUE ADDITIONAL GROWTH OPPORTUNITIES. The Company intends to aggressively
pursue selected growth opportunities in several related markets, including:
- Complementary Services. The Company believes that its acquisition of
CSC will greatly enhance the Company's sales and marketing capabilities,
bolstering growth and positioning the Company as a dominant full-service
provider within the college bookstore industry, by increasing its sources
of used textbooks and providing access to CSC's marketing programs and
capabilities.
- Distance Education. The distance education market is growing due to
the increased popularity of correspondence courses, continuing and
corporate education courses and courses offered through electronic media
such as the Internet. Through its acquisition of Specialty Books, the
Company believes that it is well positioned to take advantage of this
growth trend.
INDUSTRY OVERVIEW
According to The National Association of College Stores, in the academic
year 1995-1996 approximately 4,600 college stores generated a total of $7.9
billion in annual sales to college students and other consumers in North
America. Sales of textbooks and other education materials used for classroom
instruction comprised approximately 64% of this amount. The Company expects this
market will grow as a result of anticipated increases in enrollment at U.S.
colleges. The National Center for Education Statistics estimates the college
population will grow by approximately 2.0 million students from 14.4 million in
1996 to 16.4 million in 2006, primarily as a result of children of the baby boom
generation entering the college population.
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WHOLESALE TEXTBOOK MARKET. Sales of textbooks to college stores, have grown
at a compound annual rate of 5.4%, from $2.3 billion in sales in 1990 to $3.0
billion in 1995, as estimated by Cowles/Simba Information Inc. Over the same
period, Cowles/Simba Information Inc. estimated that sales of used textbooks
have grown at a compound annual rate of 12.7%, increasing their share of all
textbook sales from 20% in 1990 to 28% in 1995. The Company believes that sales
of used textbooks will continue to grow because used textbooks provide students
with a lower-cost alternative to new textbooks, and because bookstores typically
achieve higher margins through the sale of used rather than new textbooks.
The pricing pattern of textbook publishing accounts for a large part of the
growth of the used book market. Because of copyright restrictions, each new
textbook is produced by only one publisher, which is free to set the new copy
retail price and discount terms to bookstores. Publishers generally offer new
textbooks at prices which enable college bookstores to achieve a gross margin of
23% to 25% on new textbooks. Historically, the high retail costs of new
textbooks and the higher margins achieved by bookstores on the sale of used
textbooks (approximately 33%) have encouraged the growth of the market for used
textbooks.
The used textbook cycle begins with new textbook publishers, who purposely
plan obsolescence into the publication of new textbooks. Generally, new editions
of textbooks are produced every two to four years. In the first year of a new
edition, there are few used copies of a new edition available. In the second and
third years, used textbooks become increasingly available. Simultaneously,
publishers begin to plan an updated edition. In years four and beyond, at the
end of the average life cycle of a particular edition, as publishers cut back on
original production, used textbooks generally represent a majority (in unit
terms) of the particular edition in use. While the length of the cycle varies by
title (and sometimes is indefinite, as certain titles are never updated), the
basic supply/demand progression remains fairly consistent.
The following example illustrates the life cycle of a used textbook as it
is purchased from the college bookstore by the wholesaler, then sold back to the
college bookstore which resells it to the student who, at the end of the
semester, sells it back to the college bookstore (assuming a new copy retail
list price of $100.00): The wholesaler begins the cycle by buying the used
textbook from the college bookstore for $32.00. The wholesaler will sell the
used textbook to the college bookstore for $50.00 or 50% of the new copy retail
price. The bookstore in turn, sells it to the student for 75% of the new copy
retail price, or $75.00 (earning a gross margin of 33%). This margin compares
favorably to the gross margin provided by sales of new textbooks, which
historically has been in the range of 23 to 25%. After using the textbook for
the semester, the student sells the book back to the college bookstore for
$28.00, and the bookstore again sells the used book to the wholesaler for
$32.00, for a net commission of $4.00. The wholesaler's mark-up of $18.00
(selling price of $50.00 less acquisition cost of $32.00) represents a gross
margin of 36%, not taking into account the periodic increase in prices of new
textbooks.
College bookstores begin to place orders with used textbook wholesalers
once professors determine which books will be required for their upcoming
courses, usually by the end of May for the fall semester and the end of November
for the spring semester. Bookstore operators must first determine their
allocation between new and used copies for a particular title but, in most
cases, they will order an excessive quantity of used books because: (i) used
book demand from students is typically strong and consistent; (ii) many
operators only have access to a limited supply from wholesalers and believe that
not having used book alternatives could create considerable frustration among
students and with the college administration; (iii) bookstore operators earn
higher margins on used books than on new books; and (iv) both new and used books
are sold with return privileges, eliminating any overstock risk (excluding
freight charges) to the college bookstore.
New textbook ordering usually begins in June, at which time the store
operator augments its expected used book supply by ordering new books. By this
time, publishers typically will have just implemented their annual price
increases. These regular price increases, which historically have run
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4% to 5%, allow the Company and its competitors to buy used textbooks based on
old list prices (in May) and to almost simultaneously sell them based on new
higher prices, thereby creating an immediate margin increase.
While price is an important factor in the store operator's purchasing
decision, available supply, as well as service, usually determine with which
used textbook wholesaler a college bookstore will develop a strong relationship.
Pure exclusive supply arrangements in the Company's market are rare. However,
used textbook wholesalers that are able to significantly service a college
bookstore account typically receive preferential treatment from store operators,
both in selling and in buying used textbooks. Since the Company is usually able
to sell the vast majority of the used textbooks it is able to purchase, its
ability to obtain sufficient supply is the critical factor for the Company's
success.
COLLEGE BOOKSTORE MARKET. College stores generally fall into three
categories: (i) institutional -- stores that are primarily owned and operated by
institutions of higher learning (represent 60% of the market); (ii)
contract-managed -- stores owned by institutions of higher learning and managed
by outside, private companies, typically found on-campus (represent 25% of the
market); and (iii) independent stores -- privately owned and operated stores,
generally located off campus (represent 15% of the market). In general, the
"captive" portion of the college bookstore market includes those
contract-managed stores that sell their used textbooks to affiliated companies,
and institutional and independent stores to the extent that such used textbooks
are repurchased from students and are retained by the bookstore for resale
without involving a wholesaler.
The Company believes that sales at its college bookstores will continue to
grow as a result of increased enrollment at colleges and due to the increasing
number of products and services offered in these bookstores. In addition, it
believes that as a result of the development and implementation of management
information systems to improve productivity and customer service, as well as to
more easily and efficiently track and manage inventory, the profitability of its
college bookstores will increase.
PRODUCTS AND SERVICES
WHOLESALE. The Company's wholesale operations are engaged in the
procurement and redistribution of textbooks on college campuses across the
nation. Although it is primarily a provider of used textbooks, the Company also
offers its customers new textbooks.
The Company also publishes the Buyer's Guide, which lists over 36,000
textbooks according to author, title, new copy retail price and the Company's
repurchase price, and which is an important part of the Company's inventory
control and book procurement system. The Company updates and reprints the
Buyer's Guide ten times each year and makes it available in both print and
various electronic formats, including on all of the Company's proprietary
information systems. A staff of dedicated professionals gathers information from
all over the country in order to make the Buyer's Guide into what the Company
believes to be the most comprehensive and up-to-date pricing and buying aid for
college bookstores. The Company also maintains a database of over 170,000 titles
in order to better serve its customers.
COLLEGE BOOKSTORES. The Company operates 54 college bookstores on or
adjacent to college campuses of which eight are contract-managed by the Company.
These bookstores sell a wide variety of used and new textbooks, general books
and assorted general merchandise, including apparel, sundries and gift items.
Over the past three years, revenues of the Company's bookstores from activities
other than used and new textbook sales has been between 31.5% and 39.2% of total
revenues. The Company has been, and intends to continue, selectively expanding
its product offerings at its bookstores in order to increase sales and
profitability. For example, the Company recently began offering "Clinique"
cosmetics which are popular with the college student population
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and have increased store sales at dedicated "Clinique counters" in certain of
its bookstores. Such products can be sold at a high margin, thereby increasing
profitability.
The college bookstore operations also provide consulting services to other
college bookstores. Using their industry experience, the Company's specialists
work with college bookstore managers to provide them with systems and support
services. The Company offers assistance in areas such as store planning, systems
and merchandise layouts. Following the acquisition of CSC, the Company intends
to combine these consulting operations with the larger consulting operation of
CSC.
SERVICES. As a result of the Company's acquisition of CSC in January 1998,
it is able to offer a variety of products and services to CSC's participating
college bookstores. CSC offers apparel and general merchandise through discount
programs, develops and executes marketing programs and hosts trade shows at
which vendor's showcase their products. As a centralized buying service for
college bookstores with over 500 participating college bookstores having
estimated sales volume of approximately $2.5 billion, CSC has evolved into a
buying group with enough purchasing power to compete with larger, multi-location
store operators.
CSC is the largest distributor of plastic bags to college bookstores in the
United States. CSC's plastic bag program offers bookstores the opportunity to
purchase customized bags at a substantial discount while the Company generates a
profit due to receipt of revenue from advertising inserts which are placed
inside the bags. A similar insert program is being planned for both new and used
textbooks. Other CSC marketing services programs include the sale of magazine
subscriptions and affinity cards, and savings on shipping costs.
CSC also provides an opportunity for interaction and exchange among buyers
and between buyers and vendors to the college bookstore market through
semi-annual trade shows, which are held in February/March for the fall semester
buying period and in October/November ahead of the spring semester. Vendors pay
CSC for the opportunity to attend these trade shows.
Additionally, a staff of experienced CSC professionals consult with the
management of bookstores both by telephone and in person. Services offered
include strategic planning, store review, merchandise planning and help with
most other operational aspects of the business. While consulting has
historically represented a relatively small component of CSC's business, it is
nonetheless strategically important to the ongoing success of this aspect of the
Company's business.
With its acquisition of Specialty Books in May 1997, the Company entered
the market for distance education products and services. Currently, the Company
provides students at over 50 colleges with textbooks and materials for use in
distance education courses, and is a leading provider of textbooks to
nontraditional programs and students such as correspondence or corporate
education students. The Company believes the fragmented distance education
market represents an opportunity for the Company to leverage its fulfillment and
distribution expertise in a rapidly growing sector. Beyond textbooks, the
Company offers services and specialty course materials to distance education
students including videotape duplication and shipping, shipping of specialty,
nontextbook course materials and a sales and ordering function. Students can
order distance education materials from the Company over the Internet. The
Company believes it can significantly increase the service operations revenues
from distance education products over the next several years.
Other services offered to college bookstores include services related to
the Company's turnkey bookstore management software and the sale of other
software and hardware, and related maintenance contracts. These services
generate revenue and assist the Company in gaining access to new sources of used
textbooks. The Company has an installed base of over 400 college bookstore
locations for its textbook management control systems, and it has installed its
proprietary
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total store management system at over 200 college bookstore locations. In total,
over 600 college bookstore locations utilize the Company's software products.
WHOLESALE PROCUREMENT AND DISTRIBUTION
Historically, because the demand for used textbooks has consistently
exceeded supply, the Company's sales have been primarily determined by the
amount of used textbooks that it can purchase. Consequently, the Company
believes that, on average, it receives approximately five orders for every one
order it fills. As a result, the Company's success has depended primarily on its
inventory procurement, and the Company continues to focus its efforts on
obtaining inventory. In order to ensure its ability to both obtain and
redistribute inventory, the Company's wholesale strategy has emphasized
establishing and maintaining strong customer and supplier relationships with
college bookstores (primarily, independent and institutional college bookstores)
through its employee account representatives. These 45 account representatives
(as of March 31, 1998) are responsible for procuring used textbooks from
students, marketing the Company's services on campus, purchasing overstock
textbooks from bookstores and securing leads for sale of the Company's
automation products. The Company has been able to maintain a competitive edge by
providing superior service, made possible primarily through the development and
maintenance of ready access to inventory, information and supply. Other
components of the wholesale strategy and its implementation include: (i)
selectively paying a marginal premium relative to competitors to entice students
to sell back more books to the Company; (ii) gaining access to competitive
campuses (one where the campus bookstore is contract-managed by a competitor) by
opening off-campus, Company-owned college bookstores; (iii) using technology to
gain efficiencies and to improve customer service; (iv) maintaining a
knowledgeable and experienced sales force that is customer-service oriented; and
(v) providing working capital flexibility for bookstores making substantial
purchases.
The two major used textbook purchasing seasons are at the end of each
academic semester, May/June and December/January. Although the Company makes
book purchases during other periods, the inventory purchased in May, before
publishers announce their price increases in June and July, allows the Company
to purchase inventory based on the lower retail prices of the previous year. The
combination of this purchasing cycle and the fact that the Company is able to
sell its inventory in relation to retail prices for the following year permits
the Company to realize additional gross margin. The Company advances cash to its
representatives during these two periods, and the representatives in turn buy
books directly from students, generally through the on-campus bookstore.
The prices wholesalers pay for books are a function of a number of factors,
including the date on which a new edition is scheduled to be released, the
demand pattern for each book, the Company's existing supply and the anticipated
overall supply. Suggested purchase prices typically range from 5% to 33% of the
publisher's new copy retail price. The average price paid for books is
approximately 22% of new copy retail; bookstores and agents earn an additional
commission for allowing the Company to purchase books at their facilities. The
result is a total cost to the Company of between 8% and 40% of the new copy
retail price.
After the Company purchases the books, the Company arranges for shipment to
one of its two warehouses via common carrier. At the warehouse, the Company
refurbishes damaged books and categorizes and shelves all other books in a
timely manner, and enters them into the Company's on-line inventory system. The
Company, which does business in California under the tradename "College Book
Company of California," is the only major national used textbook wholesaler with
facilities in California. However, the Company's primary warehouse is located in
Nebraska. These two locations function as one facility allowing customers to
access inventory at both locations.
In order to ensure prompt, efficient and accurate order fulfillment, the
Company has developed a system of classifying both books and customers in its
database. Based on an in-depth analysis of
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<PAGE> 58
orders received, inventory and publishing trends for the preceding 18 months,
the Company rates books on a scale of 1-9, with 9 being the highest rating. A
high rating generally indicates that a book is in high demand. Highly rated
books move out of inventory quickly, and they produce relatively low gross
margins because the Company must pay a relatively higher price to purchase these
books from students. In contrast, lower-rated books produce higher margins
because the Company pays less to acquire the inventory. If the Company has not
received any orders for a book for six months, it gives that title no value for
inventory purposes, and if there is no demand for the title in 18 months, the
Company may physically remove it from the inventory.
In a similar fashion, the Company also rates customers on a scale of 1-9,
based on a combination of how many used books the customer supplies to the
Company, whether or not the customer uses the Company's management systems,
credit quality and the volume of used books ordered by the customer. The Company
does not permit a customer to order a book with a higher rating than the
customer's. (For instance, a customer with a rating of 7 is unable to purchase
books with a rating of 8 or 9, but is able to order any title with a 7 rating or
below.) This system enables the Company to manage its inventory and its
relationships effectively despite the constraints placed on it by the fact that
demand for used books is greater than supply. The Company rates approximately
80% of its inventory 3 or lower, which allows most of its customers to purchase
sufficient quantities of even the more popular titles.
Customers place orders by phone, mail, fax or other electronic method. Upon
receiving an order, the Company removes the books from available inventory and
holds them for future shipping. Customers may return books within 60 days after
the start of classes if a written request is enclosed. Returns currently average
approximately 20% of sales and generally are attributable to course
cancellations or overstocking. The majority of returns are textbooks that the
Company is able to resell during the next semester. Because customers may change
their orders prior to the shipping date, the Company does not recognize revenue
until an order has been shipped.
CUSTOMERS
The Company sells its products and services to approximately 2,000 college
bookstores in the United States, Canada and Puerto Rico for ultimate use by the
students of the respective colleges. The Company has had relationships with its
25 largest wholesale customers (which accounted for approximately 7% of the
fiscal 1998 revenues) for an average of 20 years. No one customer accounted for
more than 1% of the Company's fiscal 1998 revenues.
The Company's wholesale operations purchase from and resell used textbooks
to many of the nation's largest college campuses including: University of Texas,
University of Southern California, Indiana University, University of Florida,
University of Arizona, Brigham Young University, University of Washington and
University of Minnesota.
The Company's college bookstores are located on many of the nation's
largest college campuses including: University of Nebraska, University of
Michigan, University of Maryland, Arizona State University, Pennsylvania State
University, University of Kansas, Cornell University, Baylor University,
Oklahoma State University, University of Tennessee and Ohio University.
COLLEGE BOOKSTORE OPERATIONS
An important aspect of the Company's business strategy is a program
designed to reach new customers through the opening of bookstores on or adjacent
to college campuses. In addition to generating sales of new and used textbooks
and general merchandise, these outlets enhance the Company's wholesale
operations by increasing the inventory of used books purchased from the campus.
A desirable campus for a Company-operated college bookstore is one on which
the Company does not currently buy or sell used textbooks either because a
competitor of the Company contract-
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<PAGE> 59
manages the college's bookstore or the college bookstore does not have a strong
relationship with the Company. The Company generally will not open a location on
a campus where it already has a strong relationship with the college bookstore
because some college bookstores may view having a competing location as a
conflict of interest.
The Company tailors each bookstore to fit the needs and lifestyles of the
campus on which it is located. Individual bookstore managers are given
significant planning and managing responsibilities, including, hiring employees,
controlling cash and inventory, and purchasing and merchandising product. The
Company has staff specialists to assist individual bookstore managers in such
areas as store planning, merchandise layout and inventory control.
As of March 31, 1998 the Company operated 54 college bookstores nationwide,
having expanded from 27 bookstores in 1993. During fiscal 1998 the Company
purchased four new bookstores through the acquisition of South Carolina Book
Store, Inc. and purchased two additional bookstores located in Flagstaff,
Arizona and Houston, Texas, adding estimated combined annual revenues in excess
of $8 million.
The table below highlights certain information regarding the Company's
bookstores opened through March 31, 1998.
<TABLE>
<CAPTION>
BOOKSTORES APPROXIMATE
OPEN AT BOOKSTORES BOOKSTORES TOTAL
BEGINNING ADDED CLOSED BOOKSTORES SQUARE
OF FISCAL DURING DURING AT END OF FOOTAGE
FISCAL YEAR YEAR FISCAL YEAR FISCAL YEAR(1) FISCAL YEAR (IN THOUSANDS)
----------- ---------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1994............................... 27 2 0 29 330
1995............................... 29 5 0 34 364
1996............................... 34 4 0 38 388
1997............................... 38 9 1 46 438
1998............................... 46 8 0 54 474
</TABLE>
- ---------------
(1) Represents a contract-managed bookstore where the management contract was
not renewed.
The Company plans to increase the number of bookstores in operation by
three bookstores annually. The bookstore expansion plan will focus on campuses
where the Company does not already have a strong relationship with the on-campus
bookstore. In determining to open a bookstore, the Company looks at several
criteria: (i) a large enough market to justify the Company's efforts (typically
this means a campus of at least 10,000 students); (ii) a site in close proximity
to campus with adequate parking and accessability; (iii) the potential of the
bookstore to have a broad product mix (larger bookstores are more attractive
than smaller bookstores because a full line of general merchandise can be
offered in addition to textbooks); (iv) the availability of top-quality
management; and (v) certain other factors, including leasehold improvement
opportunities and personnel costs.
The 46 Company bookstores that were opened prior to April 1, 1997 averaged
approximately $2.3 million per store in annualized sales and produced sales per
gross square foot of approximately $231 for the fiscal year ended March 31,
1998. The Company's bookstores have an average size of 8,800 gross square feet
but range in size from 1,000 to 50,000 square feet. The Company estimates that
leasehold improvements, furniture and fixtures, and automation with the
Company's PRISM system, the Company's proprietary total-store management system,
for new bookstores is approximately $100,000 per bookstore, after giving effect
to construction allowances.
MANAGEMENT INFORMATION SYSTEMS
The Company has committed substantial resources to its MIS operations. This
commitment reflects the Company's belief that it can significantly enhance
efficiency, profitability and competitiveness through investments in technology.
The Company's MIS operations process order entry,
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<PAGE> 60
control inventory, generate purchase orders and customer invoices, generate
various sales reports and process and retrieve textbook information. All the
Company's divisions operate with state-of-the-art IBM RS/6000s. At the center of
its MIS operations are the Company's self-developed, proprietary software
programs such as PRISM, its whole store management system, PC-Text, its
management and inventory control system, and PC-Trade, which tracks sales data.
This software is maintained and continuously enhanced by the Company, which is
staffed by an experienced team of development and design professionals. The
Company believes that its MIS capabilities will serve the Company's needs for
the foreseeable future.
None of the Company's proprietary software programs is copyrighted, nor
does the Company have registered trademarks for the names of its software
programs, or for the term "Buyers' Guide." In addition to using its software
programs for its own management and inventory control, the Company licenses the
use of its software programs to bookstores. Although none of the Company's
software programs is material to its business, they enhance the efficiency and
cost-effectiveness of the Company's operations, and their use by bookstores that
are customers or suppliers of the Company tends to solidify the relationship
between the Company and such customers or suppliers, resulting in increased
sales or supplies for the Company.
MIS operations consist of three operating units: (i) the mainframe unit,
which develops and supports all systems utilized in the Company's warehouses;
(ii) a system sales unit, which markets the Company's college store management
systems to colleges; and (iii) the College Bookstore Management Systems
("CBMS"), which develops and supports the systems that are sold to bookstores.
The Company conducts training courses for all systems users at the
Company's headquarters in Lincoln, Nebraska. Classes are small and provide hands
on demonstrations of the various systems. Printed reference manuals and training
materials also accompany each system. The customer support unit of CBMS is
staffed with approximately 25 experienced personnel who are available 24 hours a
day to answer questions on a toll-free number.
COMPETITION
The Company's two major competitors in the college store industry and used
textbook business are Follett Campus Resources ("Follett") and MBS Textbook
Exchange ("MBS"). The remaining competitors are smaller regional companies,
including Wallace College Book Company, ABS Corp., Texas Book Company and
Southeastern Book Company. Most of the leading companies in the industry also
have an established retail presence, either through direct store
ownership/operation or through contract-management.
Follett's college bookstore operations have enabled it to preclude
potential competitors such as the Company from entering certain campuses, which
in turn affects both the Company's ability to buy books and its ability to add
new accounts. However, because it is required to supply used texts to all of its
own stores, Follett must balance the demands of its own bookstores with those of
its other independent customers.
MBS is controlled by the same shareholder that controls Barnes & Noble.
Consequently, MBS supplies approximately 350 Barnes & Noble college stores. MBS
faces the same challenges that Follett faces in supplying existing institutional
accounts. MBS has a strong systems division that competes actively with the
Company for new customers, and that also fulfills all of the needs of the Barnes
& Noble stores.
The Company's college bookstore operations compete with other college
campus bookstores, including the on-campus bookstore in those locations where
the Company's bookstore is off-campus. Its two primary competitors in college
bookstores are Follett, which contract-manages approximately 515 stores, and
Barnes & Noble, which contract-manages approximately 350 stores.
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<PAGE> 61
The Company also increasingly competes against the expansion of electronic
media as a source of textbook information, such as on-line resources and CD-ROM,
which may replace the need for students to purchase textbooks.
PROPERTIES
The Company owns its two warehouses (totaling 244,000 square feet) in
Lincoln, Nebraska (one of which is also the location of its headquarters), and
leases its 60,000 square foot warehouse in Cypress, California. The Cypress
lease expires on August 31, 2002 and has one five-year option to renew.
Listed below, set forth as of March 31, 1998, are the Company's college
bookstores, their location, college served and the school's enrollment. The
bookstores are leased by the Company unless otherwise noted:
<TABLE>
<CAPTION>
INSTITUTION LOCATION ENROLLMENT(1) STORE NAME
----------- -------- ------------- ----------
<S> <C> <C> <C>
University of Alabama Tuscaloosa, AL 19,800 The College Store
Northern Arizona University Flagstaff, AZ 16,800 The College Store
Northern Arizona University Flagstaff, AZ 16,800 University Text and Tools
Coconino Community College Flagstaff, AZ 6,000 Coconino Community College
Bookstore(2)
Arizona State University Tempe, AZ 45,000 The College Store
University of Arizona Tucson, AZ 34,300 Arizona Book Store
University of Arizona Tucson, AZ 34,300 Arizona Book Store II
University of Arkansas--Little Rock Little Rock, AR 12,000 Campus Bookstore
Georgia State University Atlanta, GA 28,000 Georgia Book Store
Ball Sate University Muncie, IN 20,300 Collegiate Book Exchange
Valparaiso University Valparaiso, IN 3,200 University Book Center(2)
Drake University Des Moines, IA 5,700 University Book Store
University of Kansas Lawrence, KS 29,100 University Book Shop
Johnson County Community College Overland Park, KS 15,159 The College Store
University of Maryland College Park, MD 42,200 Maryland Book Exchange
Prince Georges Community College Largo, MD 13,000 Prince Georges Community
College Bookstore(2)
University of Michigan Ann Arbor, MI 36,500 Michigan Book & Supply
University of Michigan Ann Arbor, MI 36,500 Ulrich's Bookstore
Ferris State University Big Rapids, MI 10,200 The College Store
Michigan State University East Lansing, MI 42,000 The College Store
Kettering Engineering & Management Institute Flint, MI 2,600 Kettering Campus Store(2)
Eastern Michigan University and Ypsilanti, MI 25,400 & Campus Book & Supply
Washtenaw Community College 11,500
Mankato State University Mankato, MN 14,300 Maverick Bookstore
Chadron State College Chadron, NE 3,700 Eagle Bookstore(2)
University of Nebraska -- Kearney Kearney, NE 7,500 The Antelope Bookstore(2)
University of Nebraska -- Lincoln Lincoln, NE 23,900 Nebraska Bookstore
Nebraska Wesleyan University Lincoln, NE 1,550 Plainsman Bookstore(2)
Wayne State College Wayne, NE 3,900 Student Bookstore
University of Nevada Las Vegas Las Vegas, NV 20,700 Rebelbooks
State University of New York -- Buffalo Amherst, NY 23,500 The College Store
Cornell University Ithaca, NY 17,800 Triangle Book Shop
University of Akron Akron, OH 23,000 The College Store
Ohio University Athens, OH 27,386 Specialty Books
Wright State University Fairborn, OH 17,000 The College Store
Oklahoma State University Stillwater, OK 19,900 Cowboy Book
Indiana University of Pennsylvania Indiana, PA 16,500 The College Store
University of Pittsburgh Pittsburgh, PA 24,000 The College Store
Pennsylvania State University State College, PA 35,000 University Book Centre
College of Charleston Charleston, SC 11,000 University Books of Charleston
Columbia College Columbia, SC 1,500 C-Squared Bookstore(2)
University of South Carolina Columbia, SC 25,000 South Carolina Bookstore
(2 locations)
University of Tennessee Knoxville, TN 25,000 Campus Bookstore
University of North Texas Denton, TX 26,000 Voertman's
University of Texas -- Pan American Edinburg, TX 14,000 South Texas Book & Supply
North Harris County Community College Houston, TX 10,000 College Bookstore
Texas Tech University Lubbock, TX 24,000 Spirit Shop
Texas Tech University Lubbock, TX 24,000 Double T Bookstores
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
INSTITUTION LOCATION ENROLLMENT(1) STORE NAME
----------- -------- ------------- ----------
<S> <C> <C> <C>
San Antonio College San Antonio, TX 25,000 L&M
University of Texas -- San Antonio San Antonio, TX 18,000 L&M -- UTSA
Southwest Texas State San Marcos, TX 21,000 Colloquium Books (2 locations)
Baylor University Waco, TX 12,200 University Bookstore and
Spirit Shop
Virginia Polytechnic and State University Blacksburg, VA 24,000 Tech Bookstore
Old Dominion University Norfolk, VA 16,000 Dominion Bookstore
Tidewater Community College Virginia Beach, VA 19,000 The College Store
</TABLE>
- ---------------
(1) Source: National Association of College Stores. Includes part-time students.
(2) Denotes contract-managed stores.
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and the presence of hazardous substances in the
workplace and establish standards for vehicle and employee safety and for the
handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clear Air Act, the Hazardous Materials
Transportation Act and the Occupational Safety and Health Act. Future
developments, such as stricter environmental or employee health and safety laws
and regulations thereunder, could affect the Company's operations. The Company
does not currently anticipate that the cost of its compliance with, or of any
foreseeable liabilities under, environmental and employee health and safety laws
and regulations will have a material adverse affect on its business or financial
condition.
EMPLOYEES
As of March 31, 1998 the Company had a total of 1,925 employees, of which
834 are full-time, 195 are part-time and 896 are temporary. The Company has no
unionized employees and believes that its relationship with its employees is
satisfactory.
In view of the seasonal nature of its wholesale business, the Company
utilizes seasonal labor to improve operating efficiency. The Company employs a
small number of "flex-pool" workers who are cross-trained in a variety of
warehouse functions. Over the past seven years, the Company has employed about
50 and 30 flex-pool workers in the Nebraska and Cypress facilities,
respectively, thereby enabling the Company to lower its wholesale operating
expenses. Temporary employees augment the flex-pool to meet periodic labor
demands.
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
currently it is not a party to any litigation the outcome of which would have a
material adverse affect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
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<PAGE> 63
MANAGEMENT
EXECUTIVE OFFICERS AND MEMBERS OF BOARD OF DIRECTORS
The executive officers and members of the Board of Directors of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert B. Haas................. 51 Chairman and Director
Mark W. Oppegard............... 48 President and Director
Bruce E. Nevius................ 46 Chief Financial Officer and Treasurer
Kenneth F. Jirovsky............ 55 Vice President of Wholesale Sales and Marketing
William H. Allen............... 55 Vice President of Wholesale Operations
Thomas A. Hoff................. 50 Vice President of College Bookstore Operations
Larry R. Rempe................. 49 Vice President of Information Systems
Ardean A. Arndt................ 56 Vice President of Administration and Secretary
Douglas D. Wheat............... 47 Director
</TABLE>
The business experience, principal occupation and employment as well as the
periods of service of each of the directors and executive officers of the
Company during the last five years are set forth below.
Robert B. Haas became Chairman and a Director of the Company upon the
consummation of the Recapitalization. Mr. Haas has been actively involved in
private investments since 1978. He has served as Chairman of the Board and Chief
Executive Officer of Haas Wheat since 1995; he has also been Chairman of the
Board and Chief Executive Officer of Haas Wheat Advisory Partners Incorporated
since 1992 and Chairman of the Board of Haas & Partners Incorporated since 1989
(each of which is a private investment firm specializing in leveraged
acquisitions). Mr. Haas serves as a director of Specialty Foods Acquisition
Corporation, Specialty Foods Corporation (a producer of specialty food
products), Sybron International Corporation, Smarte Carte Corporation and Walls
Holding Company, Inc. and is the Chairman of the Board of Playtex Products, Inc.
(a consumer products company).
Mark W. Oppegard has served in the college bookstore industry for 28 years
(all of which have been with the Company), has been the President and a Director
of the Company since 1992 and has been Vice President, Secretary, Assistant
Treasurer and a Director of Holdings since 1995. Upon consummation of the
Recapitalization, Mr. Oppegard became Chief Executive Officer of Nebraska Book
and Chief Executive Officer, President and a Director of Holdings. Prior to
1992, Mr. Oppegard served in a series of positions, including Vice President of
the college bookstore operations. He is currently a director of NACSCORP, INC.,
a distribution company serving the college bookstore industry.
Bruce E. Nevius has served in the college bookstore industry for 22 years
(all of which have been with the Company) and has been the Chief Financial
Officer of the Company since 1995 and Treasurer since 1984. Upon the
consummation of the Recapitalization, Mr. Nevius became Vice President and
Secretary of Holdings. From 1976 to 1984 Mr. Nevius served as Controller of the
Company. Prior thereto, he served in various positions for Lincoln Industries,
Inc. ("Lincoln"), a holding company that owned the Company until 1995.
Kenneth F. Jirovsky has served in the college bookstore industry for 37
years (all of which have been with the Company) and has been Vice President of
Wholesale Sales and Marketing of the Company since 1986. Prior to 1986 Mr.
Jirovsky served in a series of positions, including assistant manager of the
wholesale operations.
William H. Allen has served in the college bookstore industry for 33 years
(of which 24 have been with the Company) and has been the Vice President of
Wholesale Operations since 1994. Prior
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<PAGE> 64
to that time Mr. Allen served in a series of positions, including assistant
manager of the wholesale operations. Prior to joining the Company in 1974, Mr.
Allen was employed by the Missouri Store Company, a predecessor of MBS.
Thomas A. Hoff has served in the college bookstore industry for 11 years
(all of which have been with the Company) and has been the Vice President of
College Bookstore Operations of the Company since 1992. Mr. Hoff served as an
assistant to the Vice President of the College Bookstore Operations from 1987 to
1992.
Larry R. Rempe has served in the college bookstore industry for 12 years
(all of which have been with the Company) and has been the Vice President of
Information Systems of the Company since 1986. Prior to that time Mr. Rempe
served in various positions for Lincoln.
Ardean A. Arndt has served in the college bookstore industry for 13 years
(all of which have been with the Company) and has been the Vice President of
Administration and Secretary of the Company since 1985. Prior to that time, Mr.
Arndt was Vice President of Administration of Lincoln from 1981.
Douglas D. Wheat became a Director of the Company upon the consummation of
the Recapitalization. Mr. Wheat has been President of Haas Wheat since 1995 and
President of Haas Wheat Advisory Partners Incorporated since 1992; he was
Co-Chairman of Grauer & Wheat, Inc. (a private investment firm) from 1989 to
1992 and Senior Vice President of Donaldson, Lufkin & Jenrette Securities
Corporation from 1985 to 1989. Mr. Wheat serves as a director of Specialty Foods
Acquisition Corporation, Specialty Foods Corporation, Smarte Carte Corporation,
Walls Holding Company, Inc. and Playtex Products, Inc.
EXECUTIVE COMPENSATION
The following table provides information concerning compensation paid by
the Company to its President and each of its two other most highly compensated
officers (the "Named Executive Officers") for the fiscal year ended March 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1)
--------------------------- ------- --------- ---------------
<S> <C> <C> <C>
Mark W. Oppegard
Chief Executive Officer and President.............. 1998 $176,539 $3,017
Kenneth F. Jirovsky
Vice President of Wholesale Sales and Marketing.... 1998 $ 98,923 $3,017
Larry R. Rempe
Vice President of Information Systems.............. 1998 $102,846 $3,017
</TABLE>
- ---------------
(1) Consists of the sum of (i) Company matching contributions to the NBC
Retirement Plan in the following amounts: Mr. Oppegard, $2,621; Mr.
Jirovsky, $2,621; and Mr. Rempe, $2,621; and (ii) life insurance premiums in
the following amounts: Mr. Oppegard, $396; Mr. Jirovsky, $396; and Mr.
Rempe, $396.
COMPENSATION OF DIRECTORS
Directors of the Company receive no compensation for services but are
reimbursed for out-of-pocket expenses.
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<PAGE> 65
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
At the end of fiscal 1998 no Named Executive Officer held any option to
purchase Holdings Common Stock nor did any Named Executive Officer exercise any
options to purchase Holdings Common Stock in fiscal 1998. However, in
conjunction with the Recapitalization, all outstanding options under the NBC
1995 Stock Incentive Plan were bought out and cancelled by the Company. See
"Certain Transactions."
EMPLOYMENT AGREEMENTS
Upon consummation of the Recapitalization, the Company entered into
employment agreements expiring March 31, 2001 ("Employment Agreements") with
Mark W. Oppegard and six other senior executive officers (each, an "Executive")
of the Company. Such agreements provide for a base salary for the balance of the
current fiscal year and thereafter as determined by the Board of Directors, for
incentive compensation based upon the attainment of financial objectives to be
established by the Board of Directors (or a committee thereof) after considering
the recommendation of the chief executive officer, and for customary fringe
benefits. The amounts of salaries are as follows: Mr. Oppegard, $187,000 per
annum; Mr. Rempe, $105,000 per annum; Mr. Jirovsky, $100,000 per annum. The
Employment Agreements provide that their term will be automatically extended
from year to year after March 31, 2001, unless terminated upon specified notice
by either party.
The Employment Agreements also provide that each Executive will be granted
a number of options to acquire shares of Holdings Common Stock determined by the
Board of Directors. Each such option has an exercise price equal to the fair
market value per share as of the date of grant and is exercisable as to 25% of
the shares covered thereby on the date of grant and as to an additional 25% of
the shares covered thereby on each of the first three anniversaries of the date
of grant, subject to the Executive's continued employment by the Company on such
dates.
The Employment Agreements also provide for specified payments to the
Executive in the event of termination of employment by the Company without
"cause" (as defined in the respective agreements) and in the event of death or
disability of the Executive during the term. The Employment Agreements also
contain customary confidentiality obligations and three year non-competition
agreements for each Executive.
Finally, the Employment Agreements provide that, prior to the consummation
by Holdings of an initial public offering of Holdings Common Stock, the
Executives will not sell, transfer, pledge or otherwise dispose of any shares of
Holdings Common Stock, except for certain transfers to immediate family members,
in the event of disability and for estate planning purposes. The Employment
Agreements also provide that, in the event of the sale of a majority of the
outstanding Holdings Common Stock the Executives will have the option, and (at
the option of HWH) will be required, to sell their shares ratably with, and on
the same terms and conditions as, the other selling shareholders.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The information in the following table gives effect to the Recapitalization
and sets forth the ownership of Holdings Common Stock by (i) each person who
beneficially owns more than 5% of the outstanding shares of Holdings Common
Stock, (ii) each named director, (iii) each named executive officer and (iv) all
directors and executive officers of the Company treated as a group. To the
knowledge of Holdings, each of such holders of shares has sole voting and
investment power as to the shares owned unless otherwise noted. The address for
each executive officer and director is 4700 South 19th Street, Lincoln, Nebraska
68501 unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS SHARES OWNED(1) OWNERSHIP(1)
---------------- --------------- ------------
<S> <C> <C>
HWH(2).................................................. 869,735 91.3%
Robert B. Haas(2)....................................... 869,735 91.3
Mark W. Oppegard........................................ 20,966 2.2
Bruce E. Nevius......................................... 11,436 1.2
Kenneth F. Jirovsky..................................... 9,530 1.0
William H. Allen........................................ 7,624 0.8
Thomas A. Hoff.......................................... 10,864 1.1
Larry R. Rempe.......................................... 15,248 1.6
Ardean A. Arndt......................................... 7,624 0.8
Douglas D. Wheat(2)..................................... -- --
All directors and executive officers as a group (9
persons).............................................. 953,027 100.0
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting and investment power with respect to the shares of
Holdings Common Stock.
(2) The sole general partner of HWH is a limited partnership, and the sole
general partner of the limited partnership is a corporation controlled by
Mr. Haas. Mr. Wheat is a stockholder, director and officer of the
corporation. The address of HWH and of Messrs. Haas and Wheat is 300
Crescent Court, Suite 1700, Dallas, TX 75201.
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CERTAIN TRANSACTIONS
As a result of the Merger, HWH acquired $45.6 million in Holdings Common
Stock, which gave it control of Holdings, and seven senior managers of Holdings
acquired $4.4 million in Holdings Common Stock. HWH was unaffiliated with
Holdings prior to the Merger and the terms of the Merger resulted from arm's
length negotiations. The managers' investment in Holdings was made on the same
terms as HWH's investment and, therefore, Holdings believes that these
transactions were on terms no less favorable than those it could reasonably
obtain from unaffiliated third parties. The Merger by which these transactions
occurred was approved by all of the shareholders and directors of Holdings prior
to the Merger, which included independent directors.
In addition, in connection with the Recapitalization, Haas Wheat received a
$4.0 million transaction fee from the Company and was reimbursed for
out-of-pocket expenses.
In conjunction with the Recapitalization and in accordance with the Merger
Agreement, the Company simultaneously granted the remaining 30,000 options
authorized under the NBC 1995 Stock Incentive Plan to the Company's seven senior
managers and then bought out and cancelled all 200,000 unexercised options at a
cost of approximately $8.5 million. Such managers reinvested an aggregate of
approximately $4.4 million of the proceeds from the buyout to purchase
approximately 8.7% of Holdings Common Stock.
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Recapitalization, the authorized common stock
of Holdings consisted of 5,000,000 shares of Class A common stock, par value
$.01 per share (the "Common Stock"). At such time, there were 953,027 shares of
Common Stock issued and outstanding, 869,735 shares held by HWH and 83,292
shares held by the senior managers of the Company. Each share of Common Stock
entitles the holder thereof to one vote on all matters to be voted on by
shareholders of the Company. Increases or decreases in the number of authorized
shares of Common Stock requires the affirmative vote or consent of the holders
of a majority of the issued and outstanding Common Stock.
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DESCRIPTION OF OTHER INDEBTEDNESS
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Credit Facilities.
At the Closing, the Company entered into a Credit Agreement with the Chase
Manhattan Bank ("Chase") and other lenders for which Chase acts as agent
(collectively, the "Lenders") under which the Lenders provided Nebraska Book
with the Credit Facilities in an aggregate principal amount of $110 million. The
Credit Facilities consist of (i) the Tranche A Term Loan in the amount of $27.5
million, (ii) the Tranche B Term Loan in the amount of $32.5 million and (iii)
the Revolving Credit Facility. The Revolving Credit Facility includes a $10
million letter of credit facility and a $5 million swing line facility.
CREDIT FACILITIES
Availability. The availability of the Credit Facilities is subject to
various conditions precedent typical for bank loans of this type including,
among other things, the absence of any material adverse change with respect to
the Company. The full amount of the Term Loans was made in single drawings on
the date of the initial borrowing under the Credit Facilities (the "Closing
Date") and amounts repaid or prepaid under the Term Loans may not be reborrowed.
The availability of the commitments under the Revolving Credit Facility is
subject to a borrowing base which generally equals the sum of specified
percentages of the Eligible Accounts Receivable and Eligible Inventory (each as
defined in the Credit Agreement), plus an over-advance amount of up to $10
million, depending upon the time of year. An additional $10 million is available
to finance certain permitted acquisitions, provided that in no case may the
amount of loans outstanding under the Revolving Credit Facility exceed $50
million. In addition, all extensions of credit will be subject to the condition
that, at the time such credit is extended, the representations and warranties in
the Loan Documents (as defined in the Credit Agreement) shall be true and
correct and that no Default or Event of Default (each as defined in the Credit
Agreement) shall have occurred and be continuing. As of March 31, 1998, $31.6
million under the Revolving Credit Facility was available to Nebraska Book, of
which $5.4 million had been drawn.
Loans under the Revolving Credit Facility are available at any time prior
to the final maturity of the Revolving Credit Facility. Letters of credit are
available at any time prior to the final maturity of the Revolving Credit
Facility provided that no letter of credit may have an expiration date after the
earlier of (a) one year after the date of issuance and (b) five business days
prior to March 31, 2004. Any letter of credit with a one-year term may provide
for the renewal thereof for additional one-year periods (which shall in no event
extend beyond the date referred to in clause (b) in the previous sentence).
Amounts repaid under the Revolving Credit Facility may be reborrowed. Letters of
credit will be issued by Chase (the "Issuing Bank").
Guarantees; Security. The obligations of Nebraska Book under the Credit
Facilities and any interest rate protection agreements entered into with a
Lender (or any affiliate thereof) are guaranteed by Holdings and will be
guaranteed by each subsequently acquired or organized subsidiary of Nebraska
Book (the "Guarantors"), other than any foreign subsidiary if such guarantee
would result in adverse tax consequences to Nebraska Book (the "Guarantees").
The Credit Facilities is, and any interest rate protection agreements in respect
thereof provided by any Lender (or any affiliate of a Lender) and the Guarantees
will be, secured by a perfected first priority security interest in
substantially all of the tangible and intangible assets of the Company and the
Guarantors (including, without limitation, intellectual property, real property
and all of the capital stock of Nebraska Book and each of its direct and
indirect subsidiaries (limited to 65% of such capital stock in the case of
foreign subsidiaries)).
Final Maturity and Amortization. The Tranche A Term Loan will mature on
March 31, 2004. The Tranche B Term Loan will mature on March 31, 2006. The
Tranche A Term Loan will amortize in
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quarterly installments totalling $0.9 million in fiscal 1999, $2.6 million in
fiscal 2000, $3.9 million in fiscal 2001, $5.8 million in fiscal 2002, $6.3
million in fiscal 2003 and $8.0 million in fiscal 2004. The Tranche B Term Loan
will amortize in quarterly installments totalling $0.4 million in fiscal 1999,
$0.5 million in fiscal 2000 through fiscal 2004, $11.2 million in fiscal 2005
and $18.4 million in fiscal 2006. The Revolving Credit Facility will mature on
the earlier of March 31, 2006 and the date on which the Tranche A Term Loan is
paid in full.
Interest. The interest rate under the Credit Facilities is, at the option
of Nebraska Book, either (i) the Alternate Base Rate ("ABR") (which is the
highest of (a) Chase's prime rate, (b) the federal funds effective rate plus
0.50% and (c) the secondary market rate for three-month certificates of deposit
(adjusted for statutory reserve requirements) plus a customary charge for FDIC
deposit insurance and 1.00%) plus the Applicable Margin (as defined below) or
(ii) the rate for specified Eurodollar bank deposits (adjusted for statutory
reserve requirements) (the "Eurodollar Rate") plus the Applicable Margin.
Nebraska Book may elect interest periods of one, two, three, or six months for
Eurodollar borrowings. The "Applicable Margin" means (a) with respect to the
Revolving Credit Facility and the Tranche A Term Loan, (i) 1.25% in the case of
ABR loans and (ii) 2.25% in the case of Eurodollar Rate loans; and (b) with
respect to the Tranche B Term Loan, (i) 1.50% in the case of ABR loans and (ii)
2.50% in the case of Eurodollar Rate loans. The Applicable Margin with respect
to Revolving Credit Loans and the Tranche A Term Loan is subject to reduction
after four full fiscal quarters have been completed after the Closing Date based
on Nebraska Book's Consolidated Leverage Ratio (as defined in the Credit
Agreement), and is subject to increase based on Nebraska Book's failure to
maintain a specified Consolidated Senior Debt to EBITDA Ratio (as defined in the
Credit Agreement).
Mandatory Prepayments; Voluntary Prepayments. Nebraska Book is required to
make mandatory prepayments of the Credit Facilities (i) following each fiscal
year with 75% (which percentage may be reduced commencing with the fiscal year
ending March 31, 2000 to 50% based upon the achievement by Nebraska Book of
certain financial performance standards to be agreed upon) of Excess Cash Flow
(as defined in the Credit Agreement) for the immediately preceding fiscal year
and (ii) 100% of the net cash proceeds of (a) all asset sales or other
dispositions of property by Nebraska Book and its subsidiaries (including
insurance proceeds), subject to certain customary exceptions, (b) all issuances
of debt obligations of Holdings, Nebraska Book and any of their respective
subsidiaries, subject to certain exceptions, and (c) any sale or issuance of
equity, except for up to $15 million in equity provided by Haas Wheat under
certain circumstances and certain other exceptions. Mandatory prepayments will
be applied pro rata to the Term Loans and then to permanently reduce commitments
under the Revolving Credit Facility. As among the Term Loans of any tranche,
prepayments will be applied 75% ratably to the respective remaining installments
thereof and 25% in the direct order to the respective next four installments
thereof. The holders of the Tranche B Term Loan may decline to accept any
mandatory prepayment so long as the Tranche A Term Loan is outstanding and,
under such circumstances, in which event all amounts must be used to prepay the
Tranche A Term Loan.
Voluntary prepayments of loans under the Credit Facilities are permitted in
whole or in part, at the option of Nebraska Book, in a minimum principal amount
of $500,000, without premium or penalty. Any voluntary prepayment of loans under
the Credit Facilities will be subject to reimbursement of the Lender's
redeployment costs in the case of a prepayment of Eurodollar Rate borrowings
other than on the last day of the relevant interest period. As among the Term
Loans of any tranche, prepayments will be applied 75% ratably to the respective
remaining installments thereof and 25% in the direct order to the respective
next four installments thereof. The holders of the Tranche B Term Loan may
decline to accept any voluntary prepayment so long as the Tranche A Term Loan is
outstanding, in which event all amounts must be used to prepay loans under the
Tranche A Term Loan.
Fees. Nebraska Book has agreed to pay certain fees with respect to the
Credit Facilities, including (i) fees on the unused commitments of the Lenders
equal to 0.50% per annum of the
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undrawn portion of the commitments in respect of the Credit Facilities, subject
to reduction after four full fiscal quarters following the Closing Date to an
amount not less than 0.30% per annum based on achievement of certain performance
targets; (ii) a per annum letter of credit fee equal to the Applicable Margin
then in effect with respect to Eurodollar Rate loans under the Revolving Credit
Facility on the aggregate face amount of outstanding letters of credit plus a
0.25% per annum fronting bank fee for the Issuing Bank; (iii) annual
administration fees; and (iv) agent, arrangement and other similar fees that
will be paid on or prior to the Closing Date.
Covenants. The Credit Agreement contains a number of covenants that, among
other things, restrict the ability of Nebraska Book and its subsidiaries to
incur additional indebtedness, prepay, redeem or repurchase other indebtedness
or amend certain other debt instruments, pay dividends, grant liens on assets,
enter into sale and leaseback transactions, make investments, loans or advances,
dispose of assets, make acquisitions, engage in mergers or consolidations,
change the business conducted by Nebraska Book or its subsidiaries, make capital
expenditures or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, the Credit Agreement
requires, among other things, that Nebraska Book maintain specified financial
ratios and meet certain tests, including minimum interest coverage ratios,
maximum leverage ratios and a minimum working capital requirement.
Events of Default. The Credit Agreement contains customary events of
default, including, but not limited to, nonpayment of principal or interest;
violation of covenants; incorrectness of representations and warranties in any
material respect; cross default and cross acceleration; bankruptcy; material
judgments; certain events related to ERISA; actual or asserted invalidity of
security documents; failure to maintain senior status; and a change of control.
SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes were issued in an aggregate principal amount
of $110,000,000 and will mature on February 15, 2008. The Senior Subordinated
Notes were issued under an indenture dated as of February 13, 1998 (the "Senior
Subordinated Note Indenture") between Nebraska Book, as issuer, and United
States Trust Company of New York, as trustee, and are senior subordinated
unsecured obligations of Nebraska Book. Cash interest on the Senior Subordinated
Notes accrues at a rate of 8 3/4% per annum and is payable semi-annually in
arrears on each February 15 and August 15 of each year, commencing August 15,
1998 to the holders of record on the immediately preceding February 1 and August
1, respectively.
On or after February 15, 2003, the Senior Subordinated Notes may be
redeemed at the option of Nebraska Book, in whole at any time or in part from
time to time, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued and unpaid interest, if
any, to the redemption date, if redeemed during the twelve-month period
commencing on February 15 in the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................ 104.375%
2004........................................................ 102.917%
2005........................................................ 101.458%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to February 15,
2001, Nebraska Book may use the net proceeds of one or more Equity Offerings (as
defined therein) to redeem up to 35% of the Senior Subordinated Notes at a
redemption price equal to 108.75% of the principal amount thereof plus accrued
and unpaid interest, if any, to the redemption date; provided, however, that
after any such redemption the aggregate principal amount of the Senior
Subordinated Notes
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outstanding must equal at least 65% of the original principal amount of the
Senior Subordinated Notes.
In the event of a Change of Control (as defined therein), each holder of
Senior Subordinated Notes has the right to require the repurchase of such
holder's Senior Subordinated Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date.
The Senior Subordinated Note Indenture contains covenants that, among other
things, limit the ability of Nebraska Book to incur additional indebtedness, pay
dividends and make certain other Restricted Payments (as defined therein), enter
into certain mergers or consolidations, incur certain liens, and engage in
certain transactions with affiliates. Under certain circumstances Nebraska Book
is required to make an offer to purchase Senior Subordinated Notes at a price
equal to 100% of the principal amount thereof, plus accrued interest to the date
of purchase with the proceeds of certain Asset Dispositions (as defined
therein). The Senior Subordinated Note Indenture contains certain customary
events of default which includes the failure to pay interest and principal, the
failure to comply with certain covenants in the Senior Subordinated Notes or
such Indenture, a default under certain indebtedness, the imposition of certain
final judgments or warrants of attachment and certain events occurring under
bankruptcy laws. See "Risk Factors -- Limitation on Access to Cash Flow of
Subsidiaries; Holding Company Structure."
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DESCRIPTION OF DEBENTURES
GENERAL
The Initial Debentures were, and the Exchange Debentures will be, issued
under an Indenture, dated as of February 13, 1998 (the "Indenture"), between
Holdings and United States Trust Company of New York, as Trustee (the
"Trustee"), a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary of
certain provisions of the Indenture and the Debentures does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Indenture (including the definitions of certain
terms therein and those terms made a part thereof by the Trust Indenture Act of
1939, as amended) and the Debentures. For purposes of this summary the term
"Holdings" refers only to NBC Acquisition Corp. and not to any of its
Subsidiaries.
Interest is computed on the basis of a 360-day year comprised of twelve 30
day months. Principal of, premium, if any, and interest on the Debentures are
payable, and the Debentures may be exchanged or transferred, at the office or
agency of Holdings in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee in New York, New
York), except that, at the option of the Holdings, payment of interest may be
made by check mailed to the address of the holders as such address appears in
the Note Register. No service charge will be made for any registration of
transfer or exchange of Debentures, but Holdings may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
The Debentures are issued in fully registered form without interest
coupons, in denominations of $1,000 and any integral multiple of $1,000. The
Debentures are represented by one or more registered notes in global form and in
certain circumstances may be represented by Debentures in definitive form. See
"Book Entry, Delivery and Form."
TERMS OF DEBENTURES
The Debentures were issued at a discount to their aggregate principal
amount at maturity to generate gross proceeds to Holdings on the Issue Date of
approximately $45.0 million and will mature on February 15, 2009. The Debentures
will accrete in value until February 15, 2003 at a rate per annum shown on the
cover of this Prospectus, compounded semi-annually, to an aggregate principal
amount of $76.0 million. Cash interest does not accrue on the Debentures prior
to February 15, 2003. Thereafter, interest accrues at the rate per annum shown
on the cover of this Prospectus and is payable semi-annually in cash and in
arrears to the holders of record on February 1 or August 1 immediately preceding
the interest payment date on February 15 and August 15 of each year, commencing
August 15, 2003. Cash interest on the Debentures accrues from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from February 15, 2003. All references to the principal amount of the
Debentures herein are references to the principal amount at final maturity.
The Debentures are unsecured, senior obligations of Holdings and rank pari
passu in right of payment to all existing and future senior indebtedness of
Holdings (including the guarantee by Holdings of the Credit Agreement, which is
secured by a pledge of the capital stock of Nebraska Book). All the operations
of Holdings are conducted through Nebraska Book and therefore Holdings is
dependent upon the cash flow of Nebraska Book and its Subsidiaries to meet its
obligations, including its obligations on the Debentures. See "Risk
Factors -- Holding Company Structure". The Credit Facilities and the Senior
Subordinated Notes restrict Nebraska Book's ability to pay dividends or make
other distributions to Holdings. The Debentures are effectively subordinated to
all existing and future indebtedness and liabilities of Holdings' Subsidiaries
(including trade credit, the Senior Subordinated Notes and Indebtedness of
Nebraska Book Subsidiaries in respect of the Credit Agreement). Any right of
Holdings to receive assets of any of its Subsidiaries upon
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such Subsidiary's liquidation or reorganization (and the consequent right of
Holders of the Debentures to participate in those assets) are effectively
subordinated to the claims of that Subsidiary's creditors except to the extent
that Holdings itself is recognized as a creditor of such Subsidiary, in which
case the claims of Holdings would still be subordinate to the claims of such
creditors who hold security in the assets of such Subsidiary. At March 31, 1998,
Holdings had no Indebtedness outstanding on a stand alone basis (other than the
Debentures and Holdings' guarantee of the Credit Agreement) and the outstanding
Indebtedness of Nebraska Book, Holdings' only Subsidiary, was $176.0 million
(exclusive of unused commitments), $110.0 million in aggregate principal amount
of the Senior Subordinated Notes, $65.4 million of Indebtedness in respect of
the Credit Facilities and $0.6 million of other Indebtedness.
OPTIONAL REDEMPTION
Except as set forth below, the Debentures are not redeemable at the option
of Holdings prior to February 15, 2003. On and after such date, the Debentures
are redeemable, at Holdings' option, in whole or in part, at any time upon not
less than 30 nor more than 60 days prior notice mailed by first-class mail to
each holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
If redeemed during the 12-month period commencing on February 15 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2003........................................................ 105.375%
2004........................................................ 103.583%
2005........................................................ 101.792%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001,
Holdings may redeem in the aggregate up to 35% of the original principal amount
of the Debentures with the net proceeds of one or more Equity Offerings received
by, or invested in, Holdings so long as there is a Public Market at the time of
such redemption, at a redemption price (expressed as a percentage of Accreted
Value thereof of 110.75%; provided, however, that at least 65% of the original
principal amount of the Debentures must remain outstanding after each such
redemption.
In the case of any partial redemption, selection of the Debentures for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Debenture of $1,000 in original principal amount or
less will be redeemed in part. If any Debenture is to be redeemed in part only,
the notice of redemption relating to such Debenture shall state the portion of
the principal amount thereof to be redeemed. A new Debenture in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Debenture.
The Debentures do not have the benefit of any sinking fund.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require Holdings to repurchase all
or any part of such holder's Debentures at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date) or, in the case of
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purchases of Debentures prior to February 15, 2003, at a purchase price equal to
101% of the Accreted Value thereof as of the date of purchase:
(i) (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power
of the Voting Stock of Holdings or Nebraska Book (or its successor by
merger, consolidation or purchase of all or substantially all of its
assets) (for the purposes of this clause, such person shall be deemed to
beneficially own any Voting Stock of Holdings or Nebraska Book held by a
parent corporation, if such person "beneficially owns" (as defined above),
directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation); and (B) the Permitted Holders
"beneficially own" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of Holdings (or its successor by
merger, consolidation or purchase of all or substantially all of its
assets) than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of Holdings or such successor (for the
purposes of this clause, such other person shall be deemed to beneficially
own any Voting Stock of a specified corporation held by a parent
corporation, if such other person "beneficially owns" (as defined in clause
(A) above), directly or indirectly, more than 35% of the voting power of
the Voting Stock of such parent corporation and the Permitted Holders
"beneficially own" (as defined in this clause (B)), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent corporation and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation); or
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of Holdings
or Nebraska Book (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
Holdings or Nebraska Book, as the case may be, was approved by a vote of at
least a majority of the directors of Holdings or Nebraska Book 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 or is
a designee of the Permitted Holders or was nominated or elected by such
Permitted Holders or any of their designees) cease for any reason to
constitute a majority of the Board of Directors of Holdings or Nebraska
Book then in office; or
(iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of Holdings
and its Restricted Subsidiaries taken as a whole to any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a
Permitted Holder; or
(iv) the adoption by the stockholders of a plan for the liquidation or
dissolution of Holdings.
Within 30 days following any Change of Control, unless Holdings has mailed
a redemption notice with respect to all the outstanding Debentures in connection
with such Change of Control as described under "-- Optional Redemption",
Holdings shall mail a notice to each holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such holder has the right to
require Holdings to purchase such holder's Debentures at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on a record date to receive interest on the relevant interest payment
date) or, in the case of purchases of Debentures prior to February 15, 2003, at
a purchase
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price equal to 101% of the Accreted Value thereof as of the date of purchase;
(ii) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (iii) the procedures
determined by Holdings, consistent with the Indenture, that a holder must follow
in order to have its Debentures purchased.
Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Debentures pursuant to this covenant. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of the Indenture, Holdings will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The occurrence of a Change of Control also gives the holders of the Senior
Subordinated Notes the right to require Nebraska Book to repurchase the Senior
Subordinated Notes. In addition, the occurrence of certain of the events that
would constitute a Change of Control would constitute a default under the Credit
Agreement. Future Indebtedness of Nebraska Book and its Subsidiaries may also
contain prohibitions of certain events that would constitute a Change of Control
or require such Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require Holdings to
repurchase the Debentures could cause a default under such Indebtedness, even if
the Change of Control itself does not, due to the financial effect of such
repurchase on Holdings. The Credit Agreement and the Senior Subordinated Notes
restrict Nebraska Book from paying any dividends or making any other
distributions to Holdings. If Holdings is unable to obtain dividends from
Nebraska Book sufficient to permit the repurchase of the Debentures, Holdings
will likely not have the financial resources to purchase the Debentures. In any
event, there can be no assurance that the Subsidiaries or Holdings will have the
resources available to pay any such dividend or make any such distribution.
Finally, Holdings' ability to pay cash to the holders upon a repurchase may be
limited by Holdings' then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. Consequently, if Nebraska Book is not able to (i) prepay
the Credit Agreement and any other indebtedness containing similar restrictions
or obtain requisite consents, as described above, or (ii) to make a dividend
payment to Holdings in an amount sufficient to permit Holdings to repurchase the
Debentures, Holdings will be unable to fulfill its repurchase obligations if
holders of Debentures exercise their repurchase rights following a Change of
Control, thereby resulting in a default under the Indenture. The provisions of
the Indenture may not afford holders of the Debentures the right to require
Holdings to repurchase the Debentures in the event of a highly leveraged
transaction that may adversely affect the holders of the Debentures if such
transaction is not a transaction defined as a Change of Control.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving Holdings by increasing the
capital required to effectuate such transactions. The definition of "Change of
Control" includes a disposition of all or substantially all of the property and
assets of Holdings and its Restricted Subsidiaries. With respect to the
disposition of property or assets, the phrase "all or substantially all" as used
in the Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which is the
choice of law under the Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the property or assets of a Person, and therefore
it may be unclear as to whether a Change of Control has occurred and whether
Holdings is required to make an offer to repurchase the Debentures as described
above.
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CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) Holdings will not, and will not permit any
of its Restricted Subsidiaries to, Incur any Indebtedness; provided,
however,that prior to the second anniversary of the Issue Date, Nebraska Book
and its Restricted Subsidiaries may Incur Indebtedness permitted to be Incurred
pursuant to the Senior Subordinated Note Indenture and provided further, that
Holdings and its Restricted Subsidiaries may Incur Indebtedness after the second
anniversary of the Issue Date if on the date thereof the Consolidated Coverage
Ratio for Holdings and its Restricted Subsidiaries is at least 1.75 to 1.00, if
such Indebtedness is Incurred on or prior to the fifth anniversary of the Issue
Date and 2.00 to 1.00, if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a) Holdings and its Restricted
Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred
pursuant to the Credit Agreement; provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause (i) does
not exceed $110 million at any time outstanding, less the aggregate principal
amount of all scheduled repayments of principal thereof and all mandatory
prepayments of principal thereof applied to permanently reduce the outstanding
Indebtedness and commitments thereunder; (ii) the Subsidiary Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness
of Holdings owing to and held by any Wholly-Owned Subsidiary or Indebtedness of
a Restricted Subsidiary owing to and held by Holdings or any Wholly-Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly-Owned
Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of
any such Indebtedness (except to Holdings or a Wholly-Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by the
issuer thereof; (iv) Indebtedness represented by (x) the Debentures and the
Senior Subordinated Notes, (y) any Indebtedness (other than the Indebtedness
described in clauses (i), (ii) and (iii)) outstanding on the Issue Date and (z)
any Refinancing Indebtedness Incurred in respect of any Indebtedness described
in this clause (iv) or clause (v) or Incurred pursuant to paragraph (a) above;
(v) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date
on which such Restricted Subsidiary was acquired by Holdings (other than
Indebtedness Incurred to provide all or any portion of the funds utilized to
consummate the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary or was otherwise acquired by
Holdings); provided, however, that at the time such Restricted Subsidiary is
acquired by Holdings, Holdings would have been able to Incur $1.00 of additional
Indebtedness pursuant to paragraph (a) above after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (v); (vi) Indebtedness
under (a) Interest Rate Agreements entered into in connection with the Credit
Agreement and (b) other Interest Rate Agreements; provided, however, that such
other Interest Rate Agreements are entered into for bona fide hedging purposes
of Holdings or its Restricted Subsidiaries (as determined in good faith by the
Board of Directors or senior management of Holdings) and correspond in terms of
notional amount, duration, currencies and interest rates, as applicable, to
Indebtedness of Holdings or its Restricted Subsidiaries Incurred without
violation of the Indenture; (vii) Purchase Money Indebtedness of Holdings or any
Subsidiary Guarantor Incurred on or after the Issue Date, provided, that (i) the
aggregate principal amount of such Indebtedness Incurred on or after the Issue
Date and outstanding at any time pursuant to this clause (vii) (including any
Indebtedness issued to refinance, replace, renew, repay, extend or refund such
Indebtedness) shall not exceed $5 million, and (ii)in each case, such
Indebtedness as originally Incurred shall not constitute more than 100% of the
cost (determined in accordance with GAAP) to Holdings or such Subsidiary
Guarantor, as applicable, of the property so purchased or leased and (viii)
Indebtedness (in addition to Indebtedness described in clauses (i) - (vii)) in a
principal amount which, when taken together with the principal amount of all
other Indebtedness Incurred pursuant to this clause (viii) and then outstanding,
will not exceed $10 million (which Indebtedness may be Incurred under the Credit
Agreement).
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(c) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in paragraph (b) above, Holdings, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) Holdings will not, and will not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving Holdings or any of its Restricted Subsidiaries) except
(A) dividends or distributions payable in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock and (B) dividends or distributions payable to Holdings or a
Restricted Subsidiary of Holdings (and if such Restricted Subsidiary is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata
basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Holdings held by Persons other than a Restricted Subsidiary of Holdings
or any Capital Stock of a Restricted Subsidiary of Holdings held by any
Affiliate of Holdings, other than another Restricted Subsidiary (in either case,
other than in exchange for its Capital Stock (other than Disqualified Stock)),
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase, repurchase
or other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of purchase, repurchase or
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
in clauses (i) through (iv) as a "Restricted Payment"), if at the time Holdings
or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall
have occurred and be continuing (or would result therefrom); or (2) Holdings
shall not be able to incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) under "Limitation on Indebtedness"; or (3) the aggregate amount of
such Restricted Payments and all other Restricted Payments declared or made
subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the first day of the quarter in which the Issue Date occurs to the
end of the most recent fiscal quarter ending prior to the date of such
Restricted Payment as to which financial results are available (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by Holdings from the issue or sale of its
Capital Stock (other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an issuance
or sale of such Capital Stock to a Subsidiary of Holdings or an employee stock
ownership plan or similar trust to the extent such sale to an employee stock
ownership plan or similar trust is financed by loans from or guaranteed by
Holdings or any Restricted Subsidiary unless such loans have been repaid with
cash on or prior to the date of determination); (C) the amount by which
Indebtedness of Holdings is reduced on Holdings' balance sheet upon the
conversion or exchange (other than by a Subsidiary of Holdings) subsequent to
the Issue Date of any Indebtedness of Holdings convertible or exchangeable for
Capital Stock of Holdings (less the amount of any cash, or other property,
distributed by Holdings upon such conversion or exchange); (D) the amount equal
to the net reduction in Investments made by Holdings or any of its Restricted
Subsidiaries in any Person resulting from (i) repurchases or redemptions of such
Investments by such Person, proceeds realized upon the sale of such Investment
to an unaffiliated purchaser, repayments of loans or advances or other transfers
of assets (including by way of dividend or distribution) by such Person to
Holdings or any Restricted Subsidiary of Holdings or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by Holdings
or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted Payments; provided,
however,
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that no amount shall be included under this clause (D) to the extent it is
already included in Consolidated Net Income and (E) until December 31, 1999, $1
million (reduced on a dollar for dollar basis, by the sum of the amounts
described in (A), (B), (C) and (D)). For purposes of this covenant, the amount
of any Restricted Payments, if other than in cash, shall be determined in good
faith by the Board of Directors as evidenced by a certificate filed with the
Trustee, except that in the event the value of any non-cash consideration shall
be $5 million or more, the value shall be as determined in writing by an
Independent Appraiser.
(b) The provisions of paragraph (a) will not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of Holdings made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of Holdings (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary or an employee stock ownership plan or
similar trust to the extent such sale to an employee stock ownership plan or
similar trust is financed by loans from or guaranteed by Holdings or any
Restricted Subsidiary unless such loans have been repaid with cash on or prior
to the date of determination); provided, however, that (A) such purchase or
redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clause (3) (B) of paragraph (a); (ii) any purchase or redemption
of Subordinated Obligations of Holdings made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations of
Holdings; provided, however, that such purchase or redemption shall be excluded
in subsequent calculations of the amount of Restricted Payments; (iii) any
purchase or redemption of Subordinated Obligations from Net Available Cash to
the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock"
below; provided, however, that such purchase or redemption shall be excluded in
subsequent calculations of the amount of Restricted Payments; (iv) dividends
paid within 60 days after the date of declaration if at such date of declaration
such dividend would have complied with this provision; provided, however, that
such dividends shall be included in subsequent calculations of the amount of
Restricted Payments; (v) payments for the purpose of, and in amounts equal to,
amounts required to permit Holdings (A) to redeem or repurchase Capital Stock of
Holdings from existing or former employees or management of Holdings or any
Subsidiary or their assigns, estates or heirs, in each case in connection with
the repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees; provided that
such redemption or repurchases pursuant to this clause shall not exceed $2
million in the aggregate; provided, however, that such dividends shall be
included in the calculation of the amount of Restricted Payments, and (B) to
make loans or advances to employees or directors of Holdings or any Subsidiary
the proceeds of which are used to purchase Capital Stock of Holdings, in an
aggregate amount not in excess of $1 million at any one time outstanding;
provided, however, that such dividends shall be included in the calculation of
the amount of Restricted Payments; and (vi) repurchases of Capital Stock deemed
to occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price thereof; provided, however, that such repurchases
shall be excluded from the calculation of the amount of Restricted Payments.
Limitation on Liens. Holdings will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur or suffer to
exist any Lien (other than Permitted Liens) upon any of its property or assets
(including Capital Stock), whether owned on the date of the Indenture or
thereafter acquired, securing any Indebtedness of Holdings or, in the case of a
Restricted Subsidiary, any Guarantee of Indebtedness of Holdings, unless
contemporaneously therewith effective provision is made to secure the
Indebtedness due under the Indenture and the Debentures or, in respect of Liens
on any Restricted Subsidiary's property or assets securing Indebtedness of
Holdings, the Guarantee by such Restricted Subsidiary of the Debentures required
by "-- Future Subsidiary Guarantors", equally and ratably with (or prior to in
the case of Liens with respect to Subordinated Obligations) the Indebtedness
secured by such Lien for so long as such Indebtedness is so secured.
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Limitation on Sale/Leaseback Transactions. Holdings will not, and will not
permit any of its Restricted Subsidiaries to, enter into any Sale/Leaseback
Transaction unless (i) Holdings or such Restricted Subsidiary, as the case may
be, receives consideration at the time of such Sale/ Leaseback Transaction at
least equal to the fair market value (as evidenced by a resolution of the Board
of Directors delivered to the Trustee) of the property subject to such
transaction; (ii) Holdings or such Restricted Subsidiary with respect thereto
could have Incurred Indebtedness in an amount equal to the Attributable
Indebtedness in respect of such Sale -- Leaseback Transaction pursuant to the
covenant described under "-- Limitation on Indebtedness"; (iii) Holdings or such
Restricted Subsidiary would be permitted to create a Lien on the property
subject to such Sale-Leaseback Transaction without securing the Debentures by
the covenant described under "-- Limitation on Liens"; and (iv) the
Sale/Leaseback Transaction is treated as an Asset Disposition and all of the
conditions of the Indenture described under "-- Limitation on Sale of Assets and
Subsidiary Stock" (including the provisions concerning the application of Net
Available Cash) are satisfied with respect to such Sale/Leaseback Transaction,
treating all of the consideration received in such Sale/Leaseback Transaction as
Net Available Cash for purposes of such covenant.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Holdings will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligations owed to Holdings,
(ii) make any loans or advances to Holdings or (iii) transfer any of its
property or assets to Holdings, except (a) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the date of the
Indenture (including, without limitation, the Credit Agreement and the Senior
Subordinated Notes); (b) any encumbrance or restriction imposed by Indebtedness
incurred under the Credit Agreement in accordance with the Indenture, provided,
however that such encumbrance or restriction is not materially more restrictive
than that imposed by the Credit Agreement as of the Issue Date; (c) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by
Holdings (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Holdings) and outstanding on
such date; (d) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness
Incurred pursuant to an agreement referred to in clause (a), (b) or (c) of this
covenant or this clause (d) or contained in any amendment to an agreement
referred to in clause (a), (b) or (c) of this covenant or this clause (d);
provided, however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such agreement or amendment are not
materially more restrictive than encumbrances and restrictions contained in such
agreements; (e) in the case of clause (iii) above, any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, or the assignment or transfer of any such lease, license or
other contract, (B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of Holdings or any
Restricted Subsidiary not otherwise prohibited by the Indenture (including any
Permitted Lien), (C) contained in mortgages, pledges or other security
agreements securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject to
such mortgages, pledges or other security agreements or (D) pursuant to
customary provisions restricting dispositions of real property interests set
forth in any reciprocal easement agreements of Holdings or any Restricted
Subsidiary; (f) any restriction with respect to a Restricted Subsidiary (or any
of its property or assets) imposed pursuant to an agreement entered into for the
direct or indirect sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary (or the property or assets that
are subject to such restriction) pending the closing of such sale or
disposition; (g) encum-
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brances or restrictions arising or existing by reason of applicable law; (h)
restrictions on transfer contained in Purchase Money Indebtedness incurred
pursuant to paragraph (b)(vii) of the covenant "Limitation on Indebtedness,"
provided such restrictions relate only to the transfer of the property acquired
with the proceeds of such Purchase Money Indebtedness and (i) any restriction
pursuant to the Senior Subordinated Note Indenture and the Senior Subordinated
Notes of the Company.
Limitation on Sales of Assets and Subsidiary Stock. (a) Holdings will not,
and will not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless (i) Holdings or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors (including
as to the value of all non-cash consideration), of the shares and assets subject
to such Asset Disposition, (ii) at least 75% of the consideration thereof
received by Holdings or such Restricted Subsidiary is in the form of cash or
Cash Equivalents and (iii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by Holdings (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent Holdings or any
Restricted Subsidiary, as the case may be, elects (or is required by the terms
of any Senior Indebtedness), to prepay, repay or purchase Indebtedness (other
than Indebtedness owed to Holdings or an Affiliate of Holdings) within 180 days
from the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), at Holdings' election to
the investment in Additional Assets within one year from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; (C) third,
to the extent of the balance of such Net Available Cash after application and in
accordance with clauses (A) and (B), to make an offer to purchase the Senior
Subordinated Notes at par plus accrued and unpaid interest, if any, thereon; and
(D) fourth, to make an offer to purchase (an "Offer") the Debentures at a price
in cash equal to, prior to February 15, 2003, 100% of the Accreted Value thereof
on the purchase date and, thereafter, 100% of the Accreted Value thereof plus
accrued and unpaid interest to the purchase date, and other pari passu debt
obligations subject to a similar covenant (collectively, the "pari passu debt
obligations") at par plus accrued and unpaid interest to the purchase date; and
(E) fifth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B), (C) and (D), for other general
corporate purposes not prohibited by the Indenture; provided, however, that, in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A) above, Holdings or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, Holdings and its
Restricted Subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
covenant exceed $500,000. Holdings shall not be required to make an Offer for
the Debentures and for the pari passu debt obligations pursuant to this covenant
if the Net Available Cash available therefor (after application of the proceeds
as provided in clauses (A) and (B)) are less than $5 million for any particular
Asset Disposition (which lesser amounts shall be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
The Credit Agreement and the Senior Subordinated Notes restrict Nebraska
Book from paying any dividends or making any other distributions to Holdings. If
Holdings is unable to obtain dividends from Nebraska Book sufficient to permit
the repurchase of the Debentures, Holdings will likely not have the financial
resources to purchase Debentures. In any event, there can be no assurance that
the Subsidiaries of Holdings will have the resources available to pay any such
dividend or make any such distribution.
(b) If the aggregate principal amount (or accreted value, as applicable) of
Debentures and pari passu debt obligations validly tendered and not withdrawn in
connection with an Offer pursuant to clause (C) above exceeds the funds
available therefor ("Offer Proceeds"), the Offer Proceeds will
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be apportioned between the Debentures and such pari passu debt obligations, with
the portion of the Offer Proceeds payable in respect of the Debentures equal to
the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Debentures and the
denominator of which is the sum of the outstanding principal amount of the
Debentures and the outstanding principal amount (or accreted value, as
applicable) of the relevant pari passu debt obligations, and (ii) the aggregate
principal amount of Debentures validly tendered and not withdrawn.
(c) For the purposes of this covenant, the following are deemed to be cash:
(x) the assumption by the transferee of Indebtedness of Holdings or Indebtedness
of any Restricted Subsidiary of Holdings and the release of Holdings or such
Restricted Subsidiary from all liability on such Indebtedness or Indebtedness in
connection with such Asset Disposition (in which case Holdings shall, without
further action, be deemed to have applied such assumed Indebtedness in
accordance with clause (A) of the preceding paragraph) and (y) securities
received by Holdings or any Restricted Subsidiary of Holdings from the
transferee that are promptly converted by Holdings or such Restricted Subsidiary
into cash.
(d) In the event of an Asset Disposition that requires the purchase of
Debentures pursuant to clause (a)(iii)(C), Holdings will be required to purchase
Debentures tendered pursuant to an Offer made by Holdings for the Debentures at
a price in cash equal to, prior to February 15, 2003, 100% of the Accreted Value
thereof on the purchase date and, thereafter, 100% of the Accreted Value thereof
plus accrued and unpaid interest, if any, to the purchase date in accordance
with the procedures (including prorating in the event of oversubscription) set
forth in the Indenture. If the aggregate purchase price of the Debentures
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase of the Debentures, Holdings will apply the remaining Net Available
Cash in accordance with clause (a)(iii)(E) above.
(e) Holdings will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Debentures pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Holdings will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) Holdings will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of Holdings (an
"Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are
no less favorable to Holdings or such Restricted Subsidiary, as the case may be,
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $1
million, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of Holdings and by a majority of the members
of such Board having no personal stake in such transaction, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $5 million,
Holdings has received a written opinion from an independent investment banking
firm of nationally recognized standing that such Affiliate Transaction is not
materially less favorable than those that might reasonably have been obtained in
a comparable transaction at such time on an arms-length basis from a Person that
is not an Affiliate.
(b) The foregoing paragraph (a) will not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of Holdings, (iii) loans or advances to
employees in the ordinary
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course of business of Holdings or any of its Restricted Subsidiaries, (iv) the
fees payable by Holdings and Nebraska Book in connection with the
Recapitalization, or (v) any transaction between Holdings and a Wholly-Owned
Subsidiary or between Wholly-Owned Subsidiaries.
Limitation on Capital Stock of Restricted Subsidiaries. Holdings will not
sell any shares of Capital Stock of a Restricted Subsidiary, and will not permit
any Restricted Subsidiary, directly or indirectly, to issue or sell any shares
of its Capital Stock except: (i) to Holdings or a Wholly-Owned Subsidiary; or
(ii) in compliance with the covenant described under "-- Limitation on Sales of
Assets and Subsidiary Stock" if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would continue to constitute a
Restricted Subsidiary. Notwithstanding the foregoing, Holdings is permitted to
sell all the Capital Stock of a Subsidiary as long as Holdings is in compliance
with the terms of the covenant described under "-- Limitation on Sales of Assets
and Subsidiary Stock".
SEC Reports. Notwithstanding that Holdings may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent
permitted by the Exchange Act, Holdings will file with the SEC, and provide,
within 15 days after Holdings is required to file the same with the SEC, the
Trustee and the holders of the Debentures with the annual reports and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) that are
specified in Sections 13 and 15(d) of the Exchange Act. In the event that
Holdings is not permitted to file such reports, documents and information with
the SEC pursuant to the Exchange Act, Holdings will nevertheless deliver such
Exchange Act information to the Trustee and the holders of the Debentures as if
Holdings were subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act.
Merger and Consolidation. Holdings will not consolidate with or merge with
or into, or convey, transfer or lease all or substantially all its assets to,
any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not Holdings) shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of Holdings under the Debentures and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Company or any Subsidiary of the
Successor Company as a result of such transaction as having been incurred by the
Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of "Limitation on Indebtedness"; and (iv)
Holdings shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Holdings under the Indenture, but, in the
case of a lease of all or substantially all its assets, Holdings will not be
released from the obligation to pay the principal of and interest on the
Debentures.
Notwithstanding the foregoing clauses (ii) and (iii), (i) any Restricted
Subsidiary of Holdings may consolidate with, merge into or transfer all or part
of its properties and assets to Holdings and (ii) Holdings may merge with an
Affiliate incorporated solely for the purpose of reincorporating Holdings in
another jurisdiction to realize tax or other benefits.
Future Subsidiary Guarantors. After the Issue Date, Holdings will cause
each Restricted Subsidiary which Guarantees Indebtedness of Holdings to execute
and deliver to the Trustee a Subsidiary Guarantee pursuant to which such
Subsidiary Guarantor will unconditionally Guarantee, on a joint and several
basis, the full and prompt payment of the principal of, premium, if any and
interest on
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the Debentures on the same terms as the Guarantee of such Indebtedness except
that if such Indebtedness is a Subordinated Obligation, any such Guarantee of
such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated to such Subsidiary Guarantor's Subsidiary Guarantee of the
Debentures to the same extent as such Indebtedness is subordinated to the
Debentures.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
guarantees under the Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
Each Subsidiary Guarantor will be permitted to consolidate with or merge
into or sell its assets to Holdings or another Subsidiary Guarantor without
limitation. Each Subsidiary Guarantor will be permitted to consolidate with or
merge into or sell all or substantially all its assets to a corporation,
partnership or trust other than Holdings or another Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor). Upon the sale or
disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of all
or substantially all of its assets) to a Person (whether or not an Affiliate of
the Subsidiary Guarantor) which is not a Subsidiary of Holdings, which sale or
disposition is otherwise in compliance with the Indenture (including the
covenant described under "Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock"), such Subsidiary Guarantor shall be deemed released from all
its obligations under the Indenture and its Subsidiary Guarantee and such
Subsidiary Guarantee shall terminate; provided, however, that any such
termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, any other Indebtedness of
Holdings shall also terminate upon such release, sale or transfer.
Limitation on Lines of Business. Holdings will not, and will not permit any
Restricted Subsidiary to, engage in any business other than a Related Business.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Debenture when due, continued
for 30 days, (ii) a default in the payment of principal of any Debenture when
due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise, (iii) the failure by Holdings to comply with its
obligations under "Certain Covenants -- Merger and Consolidation above, (iv)
failure by Holdings to comply for 30 days after notice with any of its
obligations under the covenants described under "Change of Control" above or
under covenants described under "Certain Covenants" above (in each case, other
than a failure to purchase Debentures which shall constitute an Event of Default
under clause (ii) above), (v) the failure by Holdings to comply for 60 days
after notice with its other agreements contained in the Indenture, (vi)
Indebtedness of Holdings or any Restricted Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of Holdings or a
Significant Subsidiary (the "bankruptcy provisions"), or (viii) any judgment or
decree for the payment of money in excess of $10 million is rendered against
Holdings or a Significant Subsidiary and such judgment or decree shall remain
undischarged or unstayed for a period of 60 days after such judgment becomes
final and non-appealable (the "judgment default provision") or (ix) any
Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms of the Indenture) or any Subsidiary Guarantor denies
or disaffirms its obligations under the Indenture or its Subsidiary Guarantee.
However, a default under
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clauses (iv) and (v) will not constitute an Event of Default until the Trustee
or the holders of more than 25% in principal amount of the outstanding
Debentures notify Holdings of the default and Holdings does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Debentures by notice to
Holdings and the Trustee may declare the principal of (or if prior to February
15, 2003, the Accreted Value of) and accrued and unpaid interest, if any, on all
the Debentures to be due and payable. Upon such a declaration, such principal or
Accreted Value and accrued and unpaid interest shall be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of Holdings occurs and is continuing, the principal
of and accrued and unpaid interest on all the Debentures will become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders. Under certain circumstances, the holders of a
majority in principal amount of the outstanding Debentures may rescind any such
acceleration with respect to the Debentures and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal or Accreted Value, premium, if any, or interest when due, no holder
may pursue any remedy with respect to the Indenture or the Debentures unless (i)
such holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Debentures have requested the Trustee to pursue the remedy, (iii) such holders
have offered the Trustee reasonable security or indemnity against any loss,
liability or expense, (iv) the Trustee has not complied with such request within
60 days after the receipt of the request and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding
Debentures have not given the Trustee a direction that, in the opinion of the
Trustee, is inconsistent with such request within such 60-day period. Subject to
certain restrictions, the holders of a majority in principal amount of the
outstanding Debentures are given the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of (or if prior to February 15, 2003, the Accreted Value of)
premium, if any, or interest on any Debentures, the Trustee may withhold notice
if and so long as a committee of its Trust officers in good faith determines
that withholding notice is in the interests of the Note holders. In addition,
Holdings is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any Default that occurred during the previous year. Holdings also is required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any events which would constitute certain Defaults, their status and
what action Holdings is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Debentures then
outstanding and any past default or
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compliance with any provisions may be waived with the consent of the holders of
a majority in principal amount of the Debentures then outstanding. However,
without the consent of each holder of an outstanding Debenture affected, no
amendment may, among other things, (i) reduce the amount of Debentures whose
holders must consent to an amendment, (ii) reduce the stated rate of or extend
the stated time for payment of interest on any Debenture, (iii) reduce the
principal of or extend the Stated Maturity of any Debenture, (iv) reduce the
premium payable upon the redemption or repurchase of any Debenture or change the
time at which any Debenture may be redeemed as described under "Optional
Redemption" above, (v) make any Debenture payable in money other than that
stated in the Debenture, (vi) impair the right of any holder to receive payment
of principal of and interest on such holder's Debentures on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such holder's Debentures or (vii) make any change in the
amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of any holder, Holdings and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership, trust or limited
liability company of the obligations of Holdings under the Indenture, to provide
for uncertificated Debentures in addition to or in place of certificated
Debentures (provided that the uncertificated Debentures are issued in registered
form for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Debentures are described in Section 163(f)(2)(B) of the Code), to
add Guarantees with respect to the Debentures, to secure the Debentures, to add
to the covenants of Holdings for the benefit of the holders or to surrender any
right or power conferred upon Holdings, to make any change that does not
adversely affect the rights of any holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
Indenture becomes effective, Holdings is required to mail to the holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
Holdings at any time may terminate all its obligations under the Debentures
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Debentures, to replace mutilated, destroyed, lost or
stolen Debentures and to maintain a registrar and paying agent in respect of the
Debentures. In such event, the Subsidiary Guarantees in effect at such time
shall terminate. Holdings at any time may terminate its obligations under
covenants described under "Certain Covenants" (other than "Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries, the judgment
default provision and the Subsidiary Guarantee provision described under "Events
of Default" above and the limitations contained in clause (iii) under "Certain
Covenants -- Merger and Consolidation" above ("covenant defeasance"). If
Holdings exercises its covenant defeasance option, Holdings may, by written
notice to the Trustee prior to the delivery of the Opinion of Counsel referred
to below, elect to have any Subsidiary Guarantees in effect at such time
terminate.
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Debentures may not be accelerated because of
an Event of Default with respect thereto. If Holdings exercises its covenant
defeasance option, payment of the Debentures may not be accelerated because of
an Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries), (viii) or (ix) under "Events of Default" above or
because of the failure of Holdings to comply with clause (iii) under "Certain
Covenants -- Merger and Consolidation" above.
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In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the Debentures to redemption or maturity, as the case may be, and
must comply with certain other conditions, including delivery to the Trustee of
an Opinion of Counsel to the effect that holders of the Debentures will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by Holdings as Registrar and Paying Agent with regard to
the Debentures.
GOVERNING LAW
The Indenture provides that it and the Debentures are governed by, and
construed in accordance with, the laws of the State of New York 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.
CERTAIN DEFINITIONS
"Accreted Value" means as of the date of determination prior to February
15, 2003, with respect to any Debenture, the sum of (a) the initial offering
price of such Debenture and (b) the portion of the excess of the principal
amount of such Debenture over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at the rate of 10 3/4% per annum of the initial offering price of such
Debenture, compounded semi-annually on each February 15 and August 15 from the
Issue Date through the date of determination, computed on the basis of a 360-day
year of twelve 30-day months. The Accreted Value of any Debenture on or after
February 15, 2003 shall be 100% of the principal amount thereof.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by Holdings or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by Holdings or a Restricted Subsidiary of Holdings; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary of Holdings; provided, however, that, in the case of clauses (ii) and
(iii), such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by Holdings or any of its Restricted Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction) other
than (i) a disposition by a Restricted Subsidiary to Holdings or by Holdings or
a Restricted Subsidiary to a Subsidiary Guarantor, (ii) the disposition of Cash
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Equivalents in the ordinary course of business, (iii) a disposition of inventory
or other property in the ordinary course of business, (iv) a disposition of
obsolete, damaged or worn out equipment or equipment that is no longer useful in
the conduct of the business of Holdings and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (v) transactions
permitted under "Certain Covenants -- Merger and Consolidation" above, (vi) for
purposes of "Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to "Limitation on Restricted Payments", (vii) transactions
permitted by paragraph (b) under the covenant "Limitation on Affiliate
Transactions" above, (viii) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of any kind,
and (ix) pursuant to foreclosure or other exercise of remedies.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest (or accretion) rate borne by the Senior Subordinated Notes, compounded
semi-annually) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable by Nebraska Book under or in respect
of the Credit Agreement and any related notes, collateral documents, letters of
credit and guarantees and any interest protection agreements entered into with a
Lender (as defined in the Credit Agreement) in connection with the Credit
Agreement, including principal, premium, if any, interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Nebraska Book at the rate specified therein whether
or not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general 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 thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Rating Group, or "A" or the equivalent thereof by Moody's Investors Service,
Inc., and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
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rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof by
Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means, with
respect to any Person, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the period of the most recent four consecutive fiscal
quarters ending prior to the date of such determination to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided, however, that (1) if
Holdings or any Restricted Subsidiary (x) has Incurred any Indebtedness since
the beginning of such period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (except that in
making such computation, the amount of Indebtedness under any revolving credit
facility outstanding on the date of such calculation shall be computed based on
(A) the average daily balance of such Indebtedness during such four fiscal
quarters or such shorter period for which such facility was outstanding or (B)
if such facility was created after the end of such four fiscal quarters, the
average daily balance of such Indebtedness during the period from the date of
creation of such facility to the date of such calculation) and the discharge of
any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, or (y) has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of the period that is
no longer outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio involves a
discharge of Indebtedness (in each case other than Indebtedness incurred under
any revolving credit facility unless such Indebtedness has been permanently
repaid), Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such discharge
of such Indebtedness, including with the proceeds of such new Indebtedness, as
if such discharge had occurred on the first day of such period, (2) if since the
beginning of such period Holdings or any Restricted Subsidiary shall have made
any Asset Disposition or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Asset Disposition, the Consolidated EBITDA
for such period shall be reduced by an amount equal to the Consolidated EBITDA
(if positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period or increased by an amount equal to the
Consolidated EBITDA (if negative) directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of Holdings or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to Holdings and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent Holdings and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period Holdings or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary
or is merged with or into Holdings) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, Consolidated EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such Investment or
acquisition
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occurred on the first day of such period and (4) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into Holdings or any Restricted Subsidiary since the beginning of
such period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(2) or (3) above if made by Holdings or a Restricted Subsidiary during such
period, Consolidated EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset
Disposition or Investment occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of Holdings. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of twelve months). Notwithstanding anything herein to the contrary, if at the
time the calculation of the Consolidated Coverage Ratio is to be made, Holdings
does not have available consolidated financial statements reflecting the
ownership by Holdings of CSC and Specialty Books for a period of at least four
full fiscal quarters, all calculations required by the Consolidated Coverage
Ratio shall be prepared on a pro forma basis, as though each such transaction
(to the extent not otherwise reflected in the consolidated financial statements
of Holdings) had occurred on the first day of the four fiscal quarter period for
which such calculation is being made.
"Consolidated EBITDA" for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation). Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
interest, depreciation and amortization of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA of such
Person only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its consolidated Subsidiaries, plus, to the extent not
included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations and the interest portion of rent expense
associated with Attributable Indebtedness in respect of the relevant lease
giving rise thereto, determined as if such lease were a capitalized lease in
accordance with GAAP, (ii) amortization of debt discount and debt issuance cost
(other than such discounts and costs incurred in connection with the
Recapitalization), (iii) capitalized interest and accrued interest, (iv)
non-cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by Holdings or any such Subsidiary under any Guarantee of
Indebtedness or other obligation of any other Person, (vii) net costs associated
with Hedging Obligations (including amortization of fees), (viii) dividends in
respect of all Disqualified Stock of Holdings and all Preferred Stock of
Subsidiaries, in each case, held by Persons other than Holdings or a
Wholly-Owned Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than Holdings)
in connection with Indebtedness Incurred by such plan or trust; provided,
however, that there shall be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed
or paid by Holdings or any Restricted Subsidiary;
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less interest income. For purposes of the foregoing, total interest expense
shall be determined after giving effect to any net payments made or received by
Holdings and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of Holdings that was not a Wholly-Owned Subsidiary
shall be included only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income.
"Consolidated Net Income" means, for any period, the net income (loss) of
Holdings and its Consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (loss) of
any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in (iv) below, Holdings' equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to Holdings or a Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
to a Restricted Subsidiary, to the limitations contained in clause (iii) below)
and (B) Holdings' equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income to the extent such loss has been funded with cash from
Holdings or a Restricted Subsidiary; (ii) any net income (loss) of any Person
acquired by Holdings or a Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any net income of any
Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to Holdings, except that (A)
subject to the limitations contained in (iv) below Holdings' equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to Holdings or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
to another Restricted Subsidiary, to the limitation contained in this clause)
and (B) Holdings' equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
any gain (loss) realized upon the sale or other disposition of any property,
plant or equipment of Holdings or its consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (loss) realized upon
the sale or other disposition of any Capital Stock of any Person; (v) any
extraordinary gain or loss and (vi) the cumulative effect of a change in
accounting principles.
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill, deferred financing costs and other intangibles less
accumulated amortization, shown on the balance sheet of Holdings and its
Restricted Subsidiaries as of the most recent date for which such balance sheet
is available, determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means (i) the Senior Secured Credit Agreement to be
entered into among Holdings, Nebraska Book, The Chase Manhattan Bank, as
Administrative Agent, and the lenders parties thereto from time to time, as the
same may be amended, supplemented or otherwise modified from time to time and
any guarantees issued thereunder and (ii) any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
Administrative Agent and lenders or another administrative agent or agents or
other lenders and whether provided under the original Credit Agreement or any
other credit or other agreement or indenture).
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness in the
case of Nebraska Book and (ii) any other Senior Indebtedness which, at the date
of determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $25.0 million and is specifically designated in the instrument
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evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person 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 (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of Holdings or a Restricted Subsidiary) or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Notes, provided, that only the
portion of Capital Stock which so matures or is mandatorily redeemable, is so
convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such Stated Maturity shall be deemed to be Disqualified Stock.
"Equity Offering" means an offering or issuance for cash by Holdings of its
respective common stock, or options, warrants or rights with respect to its
common stock.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those 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 approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holdings" means NBC Acquisition Corp., a Delaware corporation, or any
successor thereto which assumes the obligations under the Debentures pursuant to
the Indenture.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except trade payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person; (vi) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any
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Subsidiary, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vii) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons; (viii) all
Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix)
to the extent not otherwise included in this definition, net obligations of such
Person under Interest Rate Agreements (the amount of any such obligations to be
equal at any time to the termination value of such agreement or arrangement
giving rise to such obligation that would be payable by such Person at such
time). 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, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Independent Appraiser" means, with respect to any transaction or series of
related transactions, an independent, nationally recognized appraisal or
investment banking firm or other expert with experience in evaluating or
appraising the terms and conditions of such transaction or series of related
transactions.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) 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 of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall
include the portion (proportionate to Holdings' equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of Holdings at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Holdings shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) Holdings' "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to Holdings' equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time that such Subsidiary is so redesignated a Restricted Subsidiary; and (ii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors of Holdings.
"Issue Date" means the date on which the Initial Debentures were originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, accounting, investment banking, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness
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which is secured by any assets subject to such Asset Disposition, in accordance
with the terms of any Lien upon such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Disposition, or by applicable
law be repaid out of the proceeds from such Asset Disposition, (iii) all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by Holdings or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of Holdings.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
Holdings or the Trustee.
"Permitted Holders" means each of (i) HWH Capital Partners, L.P. (the
"Partnership") or Haas Wheat & Partners Incorporated and any of their respective
Affiliates; (ii) any officer or other member of management employed by Holdings
or any Subsidiary as of the date of the Indenture; (iii) Robert B. Haas and
Douglas D. Wheat; (iv) family members or relatives of the persons described in
clauses (ii) and (iii); (v) any trusts created for the benefit of the persons
described in clause (ii), (iii) or (iv); (vi) in the event of the incompetence
or death of any of the persons described in clauses (ii), (iii) and (iv), such
person's estate, executor, administrator, committee or other personal
representatives or beneficiaries; and (vii) upon a distribution by the
Partnership of all or any of the stock of Holdings, the affiliated partners of
the Partnership and any Affiliate thereof.
"Permitted Investment" means an Investment by Holdings or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a Restricted Subsidiary; provided,
however, that such Person's primary business is a Related Business; (iii) cash
and Cash Equivalents; (iv) receivables owing to Holdings or any Restricted
Subsidiary created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as Holdings or any
such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of Holdings or such Restricted Subsidiary; and (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to Holdings or any Restricted Subsidiary
or in satisfaction of judgments.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal
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bonds to which such Person is a party, or deposits as security for contested
taxes or import duties or for the payment of rent, in each case Incurred in the
ordinary course of business; (b) Liens imposed by law, including carriers',
warehousemen's and mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings; or other Liens arising out
of judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review; (c)
Liens for taxes, assessments or other governmental charges not yet subject to
penalties for non-payment or which are being contested in good faith by
appropriate proceedings provided appropriate reserves have been taken on the
books of Holdings; (d) Liens in favor of issuers of surety bonds or letters of
credit issued pursuant to the request of and for the account of such Person in
the ordinary course of its business; provided, however, that such letters of
credit do not constitute Indebtedness; (e) encumbrances, easements or
reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing an Interest Rate Agreement so long
as the related Indebtedness is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing the Interest Rate Agreement; and
(g) leases and subleases of real property which do not materially interfere with
the ordinary conduct of the business of Holdings or any of its Restricted
Subsidiaries; (h) 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; (i) Liens for the purpose of securing the payment (or
the refinancing of the payment) of all or a part of Purchase Money Indebtedness
relating to assets or property acquired or constructed in the ordinary course of
business provided that (x) the aggregate principal amount of Indebtedness
secured by such Liens shall not exceed the cost of the assets or property so
acquired or constructed and (y) such Liens shall not encumber any other assets
or property of Holdings or any Restricted Subsidiary other than such Assets or
property and assets affixed or appurtenant thereto; (j) Liens arising solely by
virtue of any statutory or common law provision relating to banker's Liens,
rights of set-off or similar rights and remedies as to deposit accounts or other
funds maintained with a creditor expository institution; provided that (x) such
deposit account is not a dedicated cash collateral account and is not subject to
restrictions against access by Holdings in excess of those set forth by
regulations promulgated by the Federal Reserve Board, and (y) such deposit
account is not intended by Holdings or any Restricted Subsidiary to provide
collateral to the depository institution; (k) Liens arising from Uniform
Commercial Code financing statement filings regarding operating leases entered
into by Holdings and its Restricted Subsidiaries in the ordinary course of
business (l) Liens existing on the Issue Date; (m) Liens on property or shares
of stock of a Person at the time such Person becomes a Subsidiary; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming a Subsidiary; provided
further, however, that any such Lien may not extend to any other property owned
by Holdings or any Restricted Subsidiary; (n) Liens on property at the time
Holdings or a Subsidiary acquired the property, including any acquisition by
means of a merger or consolidation with or into Holdings or any Restricted
Subsidiary; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition; provided
further, however, that such Liens may not extend to any other property owned by
Holdings or any Restricted Subsidiary; (o) Liens securing Indebtedness or other
obligations of a Subsidiary owing to Holdings or a Wholly-Owned Subsidiary; and
(p) Liens securing Refinancing Indebtedness incurred to Refinance Indebtedness
that was previously so secured, provided that any such Lien is limited to all or
part of the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or, under the
written arrangements under which the original Lien arose, could secure) the
obligations to which such Liens relate.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock of
Holdings if (i) the common stock of Holdings, as the case may be, is then
registered with the Securities Exchange Commission pursuant to Section 12(b) or
12(g) of Exchange Act and traded either on a national securities exchange or in
the National Association of Securities Dealers Automated Quotation System and
(ii) at least 15% of the total issued and outstanding common stock of Holdings
has been distributed prior to such time by means of an effective registration
statement under the Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred to finance the acquisition or
construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of Holdings is related
to a Related Business of Holdings and which is incurred concurrently with, or
within 180 days of, such acquisition or the completion of such construction and,
if secured, is secured only by the assets so financed.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinance", "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
date of the Indenture or Incurred in compliance with the Indenture (including
Indebtedness of Holdings that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness, provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced, and (iii)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding (plus
fees and expenses, including any premium and defeasance costs) of the
Indebtedness being refinanced.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Holdings and its
Restricted Subsidiaries on the date of the Indenture.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of Holdings other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Holdings or a Restricted Subsidiary
transfers such property to a Person and Holdings or a Subsidiary leases it from
such Person.
"Senior Subordinated Notes" means the $110.0 million aggregate principal
amount of 8 3/4% Senior Subordinated Notes due 2008 of Nebraska Book.
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"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of Holdings within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of Holdings (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Debentures pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of Holdings.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Debentures by a Subsidiary Guarantor pursuant to the terms of the Indenture,
and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be
in the form prescribed in the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary created or acquired
by Holdings after the Issue Date which Guarantees Indebtedness of Holdings.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Holdings (including any newly acquired or newly formed Subsidiary of Holdings)
to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, Holdings or any Restricted Subsidiary of Holdings that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $10,000 or less or (B) if such Subsidiary has consolidated assets greater
than $10,000, then such designation would be permitted under "Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) Holdings could Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) under "Limitation on
Indebtedness" and (y) no 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.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of Holdings, all of
the Capital Stock of which (other than directors' qualifying shares) is owned by
Holdings or another Wholly-Owned Subsidiary.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Company, the following discussion is an accurate general description of the
material anticipated federal income tax consequences of the purchase, ownership
and disposition of the Debentures. It is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary
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and proposed regulations promulgated thereunder and administrative rulings and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, persons that
hold Debentures as part of a straddle, shortsale or conversion transaction, or
holders subject to the alternative minimum tax, may be subject to special rules.
In addition, the summary is limited to persons that will hold the Debentures as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. As used herein, a "U.S. Holder" of a Debenture means a
holder that is (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to U.S. federal income taxation regardless of its source or
(iv) a trust which is subject to the supervision of a court within the United
States and the control of a U.S. person as described in section 7701(a)(30) of
the Code. A "Non-U.S. Holder" is a holder that is not a U.S. Holder. ALL
INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
NOTES.
TAXATION OF HOLDERS ON EXCHANGE
The exchange of an Initial Debenture for an Exchange Debenture will not be
a taxable event to the holder of an Initial Debenture, and a holder will not
recognize any taxable gain or loss as a result of such an exchange. Accordingly,
a holder will have the same adjusted basis and holding period in an Exchange
Debenture as it had in an Initial Debenture immediately before the exchange.
Further, the tax consequences of ownership and disposition of any Exchange
Debenture will be the same as the tax consequences of ownership and disposition
of an Initial Debenture.
ORIGINAL ISSUE DISCOUNT
The Debentures will have original issue discount for federal income tax
purposes. The amount of original issue discount ("OID") on a Debenture is the
excess of its "stated redemption price at maturity" (the sum of all payments to
be made on the Debenture, whether denominated as interest or principal) over its
"issue price." The "issue price" of each Debenture will be the initial offering
price at which a substantial amount of Debentures are sold. Each U.S. Holder
(whether a cash or accrual method taxpayer) will be required to include in
income such OID as it accrues, in advance of the receipt of some or all of the
related cash payments.
The amount of OID includable in income by the initial U.S. Holder of a
Debenture is the sum of the "daily portions" of OID with respect to the
Debenture for each day during the taxable year or portion of the taxable year on
which such holder held such Debenture ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The accrual periods for a Debenture
will be periods that are each selected by the holder that are no longer than one
year, provided that each scheduled payment occurs either on the final day of an
accrual period or on the first day of an accrual period. The amount of OID
allocable to any accrual period other than the initial short accrual period (if
any) and the final accrual period is an amount equal to the product of the
Debenture's "adjusted issue price" at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period).
The amount of OID allocable to the final accrual period is the difference
between the amount payable at maturity and the adjusted issue price of the
Debenture at the beginning of the final accrual period. The amount of OID
allocable to any initial short accrual period may be computed under any
reasonable method. The adjusted issue price of the Debenture at the start of any
accrual period is equal to its issue price increased by the accrued OID for each
prior accrual period and
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reduced by any prior payments with respect to such Debenture. Holdings is
required to report the amount of OID accrued on Debentures held of record by
persons other than corporations and other exempt holders, which may be based on
accrual periods other than those chosen by the holder. A holder will not be
required to recognize any income upon the receipt of interest payments on the
Debentures.
The tax basis of a Debenture in the hands of the U.S. Holder will be
increased by the amount of OID, if any, on the Debenture that is included in the
holder's income pursuant to these rules, and will be decreased by the amount of
any payments made with respect to the Debenture.
ACQUISITION PREMIUM
A subsequent U.S. Holder of a Debenture is generally subject to rules for
accruing OID described above. However, if the U.S. Holder's purchase price for
the Debenture exceeds the "revised issue price" (the sum of the issue price of
the Debenture and the aggregate amount of the OID includible in the gross income
of all holders for periods before the acquisition of the Debenture by such
holder), the excess (referred to as "acquisition premium") is offset ratably
against the amount of OID otherwise includible in such holder's taxable income
(i.e., such holder may reduce the daily portions of OID by a fraction, the
numerator of which is the excess of such holder's purchase price for the
Debenture over the revised issue price, and the denominator of which is the
excess of the sum of all amounts payable on the Debenture after the purchase
date over the Debenture's revised issue price).
MARKET DISCOUNT
If a subsequent U.S. Holder purchases a Debenture for an amount that is
less than its revised issue price, the amount of the difference will be treated
as "market discount" for federal income tax purposes, unless such difference is
less than a specified de minimis amount. Under the market discount rules, a U.S.
Holder will be required to treat any principal payment on, or any gain on the
sale, exchange, retirement or other disposition of, a Debenture as ordinary
income to the extent of the market discount which has not previously been
included in income and is treated as having accrued on such a Debenture at the
time of such payment or disposition. In addition, the U.S. Holder may be
required to defer, until the maturity of the Debenture or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Debenture.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Debenture, unless the
U.S. Holder elects to accrue on a constant interest method. A U.S. Holder of a
Debenture may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
Internal Revenue Service (the "IRS").
SALE, EXCHANGE AND RETIREMENT
A U.S. Holder's tax basis in a Debenture will, in general, be the U.S.
Holder's cost therefor, increased by any accrued OID or market discount
previously included in income by the holder and reduced by any previous payments
with respect to a Debenture. Upon the sale, exchange or retirement of a
Debenture, a U.S. Holder will recognize gain or loss equal to the difference
between the amount realized upon the sale, exchange or retirement and the
adjusted tax basis of the Debenture. Except as described above with respect to
market discount, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Debenture has been held for more than one year. Under current law, long-term
capital
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gains of individuals are, under certain circumstances, taxed at lower rates than
items of ordinary income. The deductibility of capital losses is subject to
limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Debentures and to the
proceeds of sale of a Debenture made to U.S. Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax will apply to
such payments if the holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such U.S. Holder's U.S. federal income tax
liability provided the required information is furnished to the IRS.
REPORTING REQUIREMENTS
Holdings will provide annual information statements to holders of the
Debentures and to the IRS, setting forth the amount of original issue discount
determined to be attributable to the Debentures for that year.
SPECIAL CONSIDERATIONS FOR NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with
respect to the payment by Holdings or any Paying Agent of principal or
interest (which for purposes of this discussion includes OID) on a
Debenture owned by a Non-U.S. Holder, provided (i) that the beneficial
owner does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of Holdings entitled to vote
within the meaning of section 871(h)(3) of the Code and the regulations
thereunder, (ii) the beneficial owner is not a controlled foreign
corporation that is related to Holdings through stock ownership, (iii) the
beneficial owner is not a bank whose receipt of interest on a Debenture is
described in section 881(c)(3)(A) of the Code and (iv) the beneficial owner
satisfies the statement requirement (described generally below) set forth
in section 871(c)(3)(A) of the Code;
(b) no withholding of U.S. federal income tax will be required with
respect to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange or retirement of a Debenture; and
(c) a Debenture beneficially owned by an individual who at the time of
death is a Non-U.S. Holder will not be subject to U.S. federal estate tax
as a result of such individual's death, provided that such individual does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the company entitled to vote within the
meaning of section 871(h)(3) of the Code and provided that the interest
payments with respect to such Debenture would not have been, if received at
the time of such individual's death, effectively connected with the conduct
of a U.S. trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Debenture, or a financial institution holding the Debenture on
behalf of such owner, must provide, in accordance with specified procedures, a
paying agent of Holdings with a statement to the effect that the beneficial
owner is not a U.S. person. Pursuant to current temporary Treasury regulations,
these requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a U.S. person
(which certification may be made on an IRS Form W-8 (or successor form)) or (2)
a financial institution holding the Debenture on behalf of
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the beneficial owner certifies, under penalties of perjury, that such statement
has been received by it and furnishes a paying agent with a copy thereof. Under
recently finalized Treasury regulations (the "Final Regulations"), the statement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interests paid after December 31, 1998 with respect to an offshore
account or through certain foreign intermediaries.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of premium, if any, and
interest (including OID) made to such Non-U.S. Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Debenture provides Holdings
or its paying agent, as the case may be, with a properly executed (1) IRS Form
1001 (or successor form) claiming an exemption from withholding under the
benefit of a tax treaty or (2) IRS Form 4224 (or successor form) stating that
interest paid on the Debenture is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States. Under the Final Regulation, Non-U.S. Holders will
generally be required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS
Form 4224, although alternative documentation may be applicable in certain
situations.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and premium, if any, or interest on the Debenture is effectively connected with
the conduct of such trade or business, the Non-U.S. Holder, although exempt from
the withholding tax discussed above, will be subject to U.S. federal income tax
on such interest and OID on a net income basis in the same manner as if it were
a U.S. Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, such premium, if any, and interest on a Debenture will be included in
such foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange or retirement of a
Debenture generally will not be subject to U.S. federal income tax unless (i)
such gain or income is effectively connected with a trade or business in the
United States of the Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder
who is an individual, such individual is present in the United States for 183
days or more in the taxable year of such sale, exchange or retirement, and
certain other conditions are met.
No information reporting or backup withholding will be required with
respect to payments made by Holdings or any paying agent to Non-U.S. Holders if
a statement described in (a)(iv) under "Non-U.S. Holders" has been received and
the payor does not have actual knowledge that the beneficial owner is a U.S.
person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on a Debenture are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Debenture, or if a foreign office of a
broker (as defined in applicable Treasury regulations) pays the proceeds of the
sale of a Debenture to the owner thereof. If, however, such nominee, custodian,
agent or broker is, for U.S. federal income tax purposes, a U.S. Person, a
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, or, after December 31, 1998, if such nominee, custodian,
agent or broker is a foreign partnership, in which one or more U.S. persons, in
the aggregate, own more than 50% of the income or capital interests in the
partnership or if the partnership is engaged in a trade or business in the
United States, such payments will not be subject to backup withholding but will
be subject to information reporting, unless (1) such custodian, nominee, agent
or broker has documentary evidence in its records that the beneficial owner is
not a U.S. person and certain other conditions are met or (2) the beneficial
owner otherwise establishes an exemption.
Payments of principal, interest, OID and premium on a Debenture paid to the
beneficial owner of a Debenture by a United States office of a custodian,
nominee or agent, or the payment by the United States office of a broker of the
proceeds of sale of a Debenture, will be subject to both backup withholding and
information reporting unless the beneficial owner provides the statement
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referred to in (a)(iv) above and the payor does not have actual knowledge that
the beneficial owner is a U.S. person or otherwise establishes an exemption.
As mentioned above, any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against such holder's U.S. federal
income tax liability provided the required information is furnished to the IRS.
THE FOREGOING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES TO
HOLDERS DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER OF A DEBENTURE IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF A DEBENTURE SHOULD
CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH
HOLDER OF THE OWNERSHIP AND DISPOSITION OF A DEBENTURE, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR
SUBSEQUENT VERSIONS THEREOF.
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BOOK-ENTRY; DELIVERY AND FORM
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL DEBENTURES
Except as set forth below, the Exchange Debentures will initially be issued
in the form of one or more registered Exchange Debentures in global form without
coupons (each a "Global Debenture"). Each Global Debenture will be deposited on
the date of the closing of the exchange of the Exchange Debentures for Initial
Debentures (the "Exchange Offer Closing Date") with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee of DTC, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate Agreement between DTC and the Trustee.
The descriptions of the operations and procedures of DTC set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of DTC and are subject to change by it from time
to time. The Company takes no responsibility for these operations or procedures,
and holders are urged to contact DTC or its participants directly to discuss
these matters.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York Banking Law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Investors who are not
Participants may beneficially own securities held by or on behalf of DTC only
through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of each Global Debenture, DTC will credit the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Debenture and
(ii) ownership of the Debentures will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interests of Participants) and the records of Participants and the
Indirect Participants (with respect to the interests of persons other than
Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Debenture to such persons may be limited. In addition, because DTC can
act only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in Debentures represented by a Global Debenture to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global
Debenture, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Debentures represented by the Global Debenture for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Debenture will not be entitled to have Debentures
represented by such Global Debenture registered in their names, will not receive
or be entitled to receive physical delivery of Certificated Debentures, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any
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direction, instruction or approval to the Trustee thereunder. Accordingly, each
holder owning a beneficial interest in a Global Debenture must rely on the
procedures of DTC and, if such holder is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such holder owns
its interest, to exercise any rights of a holder of Notes under the Indenture or
such Global Debenture. The Company understands that under existing industry
practice, in the event that the Company requests any action of holders of
Debentures, or a holder that is an owner of a beneficial interest in a Global
Debenture desires to take any action that DTC, as the holder of such Global
Debenture, is entitled to take, DTC would authorize the Participants to take
such action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Debentures by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such Debentures.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any Debentures represented by a Global
Debenture registered in the name of DTC or its nominee on the applicable record
date will be payable by the Trustee to or at the direction of DTC or its nominee
in its capacity as the registered holder of the Global Debenture representing
such Debentures under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names the Debentures,
including the Global Debentures, are registered as the owners thereof for the
purpose of receiving payment thereon and for any and all other purposes
whatsoever. Accordingly, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global Debenture (including principal, premium, if
any, Liquidated Damages, if any, and interest). Payments by the Participants and
the Indirect Participants to the owners of beneficial interests in a Global
Debenture will be governed by standing instructions and customary industry
practice and will be the responsibility of the Participants or the Indirect
Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
CERTIFICATED DEBENTURES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Notes in definitive form under the Indenture or (iii) upon the occurrence of
certain other events as provided in the Indenture, then, upon surrender by DTC
of the Global Notes, Certificated Debentures will be issued to each person that
DTC identifies as the beneficial owner of the Debentures represented by the
Global Debentures. Upon any such issuance, the Trustee is required to register
such Certificated Debentures in the name of such person or persons (or the
nominee of any thereof) and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Debentures to be issued).
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Debentures 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 Debentures. 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 Debentures received in
exchange for Debentures where such Debentures were acquired as a result of
market-making activities or other trading activities. Holdings has agreed that,
for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all
dealers effecting transactions in the Exchange Debentures may be required to
deliver a prospectus.
Holdings will not receive any proceeds from any sale of Exchange Debentures
by broker-dealers. Exchange Debentures 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 Debentures or a combination of
such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at 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 Debentures.
Any broker-dealer that resells Exchange Debentures 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 Debentures may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Debentures and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date Holdings will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. Holdings has agreed to pay all expenses incident to the Exchange
Offer (including the expenses of one counsel for the Holders of the Debentures)
other than commissions or concessions of any broker-dealers and will indemnify
the Holders of the Debentures (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Debentures offered hereby will be passed upon
for Holdings by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The financial statements of the Company as of March 31, 1998, 1997 and 1996
and August 31, 1995 and for the years ended March 31, 1998 and 1997, seven
months ended March 31, 1996 and five months ended August 31, 1995 included in
this Prospectus and the financial statement schedules as of March 31, 1998 and
1997 and for the years ended March 31, 1998 and 1997 and the seven months ended
March 31, 1996 included elsewhere in the registration statement, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
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AVAILABLE INFORMATION
Holdings filed with the SEC the Registration Statement under the Securities
Act with respect to the Exchange Debentures being offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement. For further
information with respect to Holdings and the Exchange Debentures, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions is
such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be examined without charge at the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the SEC's
Regional Offices located at the Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement can be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon payment of certain
fees prescribed by the SEC. The SEC maintains a World Wide Web site
(http://www.sec.gov that contains such material regarding issuers that file
electrically with the SEC. The Registration Statement has to be filed.
Holdings is not currently subject to the information requirements of the
Exchange Act, and in accordance therewith, will file periodic reports and other
information with the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of any material so filed can be obtained from the Public Reference
Section of the SEC at the address set forth above, upon payment of certain fees
prescribed by the SEC.
Pursuant to the Indenture, Holdings has agreed to provide the Trustee and
holders of the Debentures with annual, quarterly and other reports at the times
and containing in all material respects the information specified in Section 13
and 15(d) of the Exchange Act and to file such reports with the SEC.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NBC ACQUISITION CORP.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF NBC ACQUISITION CORP.
(AS SUCCESSOR)
YEARS ENDED MARCH 31, 1998 AND 1997 AND SEVEN MONTHS
ENDED MARCH 31, 1996
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets............................ F-3
Consolidated Statements of Operations.................. F-4
Consolidated Statements of Stockholders' Equity
(Deficit)............................................. F-5
Consolidated Statements of Cash Flows.................. F-6
Notes to Consolidated Financial Statements............. F-7
FINANCIAL STATEMENTS OF NEBRASKA BOOK COMPANY, INC. (AS
PREDECESSOR)
FIVE MONTHS ENDED AUGUST 31, 1995
Independent Auditors' Report........................... F-19
Balance Sheet.......................................... F-20
Statement of Operations................................ F-21
Statement of Stockholder's Equity...................... F-22
Statement of Cash Flows................................ F-23
Notes to Financial Statements.......................... F-24
</TABLE>
F-1
<PAGE> 107
NBC ACQUISITION CORP.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NBC Acquisition Corp.
Lincoln, Nebraska
We have audited the accompanying consolidated balance sheets of NBC
Acquisition Corp. and subsidiary as of March 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended March 31, 1998 and 1997 and the seven months ended
March 31, 1996. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of NBC Acquisition Corp. and
subsidiary as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for the years ended March 31, 1998 and 1997 and the seven
months ended March 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 22, 1998
F-2
<PAGE> 108
NBC ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,806,890 $ 9,976,964
Receivables............................................... 21,383,146... 15,322,275
Inventories............................................... 48,810,714... 44,288,392
Recoverable income tax.................................... 4,374,048 574,375
Deferred income tax benefit............................... 1,183,529 1,156,540
Prepaid expenses and other assets......................... 189,950 330,523
------------- ------------
Total current assets............................... 81,748,277 71,649,069
PROPERTY AND EQUIPMENT...................................... 28,716,839 25,436,653
Less accumulated depreciation............................. (5,984,932) (3,534,097)
------------- ------------
22,731,907 21,902,556
GOODWILL AND OTHER INTANGIBLES, net of amortization......... 44,866,800 31,898,517
OTHER ASSETS................................................ 2,798,270 1,719,118
------------- ------------
$ 152,145,254 $127,169,260
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 14,882,760 $ 10,870,820
Accrued employee compensation and benefits................ 3,797,242 2,960,075
Accrued interest.......................................... 1,788,547 1,265,880
Accrued expenses.......................................... 498,740 352,942
Current maturities of long-term debt...................... 1,327,696 263,654
Revolving credit facility................................. 5,400,000 --
------------- ------------
Total current liabilities.......................... 27,694,985 15,713,371
LONG-TERM DEBT, net of current maturities................... 214,869,495 79,260,024
OTHER LONG-TERM LIABILITIES................................. 150,604 498,686
COMMITMENTS (Note J)
STOCKHOLDERS' EQUITY (DEFICIT) (Note A):
Class A common stock, voting, authorized 5,000,000 shares
at March 31, 1998 and 4,500,000 shares at March 31, 1997
of $.01 par value; issued and outstanding 953,027 and
2,751,852 shares, respectively.......................... 9,530 27,519
Class B common stock, non-voting, none authorized at March
31, 1998, and 500,000 shares authorized at March 31,
1997 at $.01 par value; issued and outstanding 48,148
shares at March 31, 1997................................ -- 481
Additional paid-in capital................................ 49,025,135 30,972,000
Notes receivable from stockholders........................ (211,800) (236,110)
Retained earnings (deficit)............................... (139,392,695) 933,289
------------- ------------
Total stockholders' equity (deficit)............... (90,569,830) 31,697,179
------------- ------------
$ 152,145,254 $127,169,260
============= ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 109
NBC ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEVEN MONTHS
MARCH 31, MARCH 31, ENDED MARCH 31,
1998 1997 1996
------------ ------------ ---------------
<S> <C> <C> <C>
REVENUES, net of returns.................... $198,772,938 $172,600,193 $79,422,740
COSTS OF SALES.............................. 125,632,403 110,465,930 51,865,640
------------ ------------ -----------
Gross profit...................... 73,140,535 62,134,263 27,557,100
OPERATING EXPENSES:
Selling, general and administrative....... 47,080,571 39,491,174 22,517,326
Depreciation.............................. 2,531,181 2,705,687 904,169
Amortization.............................. 5,626,334 4,072,450 2,259,181
Stock compensation costs.................. 8,277,748 296,642 81,821
------------ ------------ -----------
63,515,834 46,565,953 25,762,497
------------ ------------ -----------
INCOME FROM OPERATIONS...................... 9,624,701 15,568,310 1,794,603
OTHER EXPENSES (INCOME):
Interest expense.......................... 11,937,787 10,760,139 6,035,099
Interest income........................... (328,750) (561,494) (432,744)
Other income.............................. (511,812) (389,446) (339,314)
------------ ------------ -----------
11,097,225 9,809,199 5,263,041
------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM........................ (1,472,524) 5,759,111 (3,468,438)
INCOME TAX EXPENSE (BENEFIT)................ 58,188 2,324,619 (967,235)
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..... (1,530,712) 3,434,492 (2,501,203)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT
(net of income tax benefit of
$2,460,238)............................... (4,020,893) -- --
------------ ------------ -----------
NET INCOME (LOSS)........................... $ (5,551,605) $ 3,434,492 $(2,501,203)
============ ============ ===========
EARNINGS (LOSS) PER SHARE (Note N):
Basic:
Income (loss) before extraordinary
item................................. $ (0.59) $ 1.23 $ (0.89)
Extraordinary loss on extinguishment of
debt................................. (1.57) -- --
------------ ------------ -----------
Net income (loss)...................... $ (2.16) $ 1.23 $ (0.89)
============ ============ ===========
Diluted:
Income (loss) before extraordinary
item................................. $ (0.59) $ 1.16 $ (0.89)
Extraordinary loss on extinguishment of
debt................................. (1.57) -- --
------------ ------------ -----------
Net income (loss)...................... $ (2.16) $ 1.16 $ (0.89)
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 110
NBC ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
COMMON COMMON ADDITIONAL RECEIVABLE RETAINED
STOCK STOCK PAID-IN FROM EARNINGS
A B CAPITAL STOCKHOLDERS (DEFICIT) TOTAL
-------- ------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 1,
1995................... $ -- $ -- $ -- $ -- $ -- $ --
Proceeds from stock
issued
Class A common...... 27,519 -- 27,491,001 (250,000) -- 27,268,520
Class B common...... -- 481 480,999 -- -- 481,480
Fair value of warrants
issued.............. -- -- 3,000,000 -- -- 3,000,000
Payment on stockholder
note................ -- -- -- 13,890 -- 13,890
Net loss............... -- -- -- -- (2,501,203) (2,501,203)
-------- ----- ------------ --------- ------------- -------------
BALANCE, March 31,
1996................... 27,519 481 30,972,000 (236,110) (2,501,203) 28,262,687
Net income............. -- -- -- -- 3,434,492 3,434,492
-------- ----- ------------ --------- ------------- -------------
BALANCE, March 31,
1997................... 27,519 481 30,972,000 (236,110) 933,289 31,697,179
Proceeds from stock
issued
Class A common...... 39 -- 147,111 -- -- 147,150
Repurchases of common
stock and
warrants............ (27,558) (481) (31,119,111) -- (134,774,379) (165,921,529)
Proceeds from stock
issued from
Recapitalization.... 9,530 -- 49,993,150 -- -- 50,002,680
Costs of
Recapitalization.... -- -- (968,015) -- -- (968,015)
Payment on stockholder
note................ -- -- -- 24,310 -- 24,310
Net loss............... -- -- -- -- (5,551,605) (5,551,605)
-------- ----- ------------ --------- ------------- -------------
BALANCE, March 31,
1998................... $ 9,530 $ -- $ 49,025,135 $(211,800) $(139,392,695) $ (90,569,830)
======== ===== ============ ========= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 111
NBC ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEVEN MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (5,551,605) $ 3,434,492 $ (2,501,203)
Adjustment to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation....................................... 2,531,181 2,705,687 904,169
Amortization of intangibles........................ 9,336,363 4,747,486 2,652,954
Original issue discount amortization............... 3,139,848 282,500 192,500
Loss on disposal of assets......................... 264,285 113,925 --
Deferred income taxes.............................. (902,458) (278,326) (1,049,196)
Changes in operating assets and liabilities, net of
effect of acquisitions:
Receivables...................................... (6,060,871) (798,645) 18,096,622
Inventories...................................... (4,522,322) (789,386) (7,356,808)
Recoverable income tax........................... (3,799,673) (574,375) --
Prepaid expenses and other assets................ 140,573 (123,502) (52,611)
Other assets..................................... 5,852 153,838 (705,034)
Accounts payable................................. 1,419,267 1,052,933 (5,022,274)
Accrued employee compensation and benefits....... 837,167 326,063 1,100,599
Accrued interest................................. 522,667 238,832 1,003,000
Accrued expenses................................. 145,798 (19,620) (247,529)
Income taxes payable............................. -- (107,001) (3,611,970)
Other liabilities................................ (348,082) 408,853 19,585
------------- ----------- -------------
Net cash flows from operating activities....... (2,842,010) 10,773,754 3,422,804
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Nebraska Book Company, Inc.:
Working capital, net of cash acquired.............. -- -- (46,959,761)
Property and equipment............................. -- -- (22,645,662)
Other assets....................................... -- -- (257,043)
Assumed liabilities................................ -- -- 134,341
Excess of costs over fair value of assets
acquired......................................... -- -- (32,665,499)
Covenant not to compete............................ -- -- (6,000,000)
Purchases of property and equipment.................. (3,689,571) (2,242,816) (837,633)
Bookstore acquisitions, net of cash acquired......... (1,231,825) (1,252,345) (550,901)
Acquisition of other businesses...................... (6,481,832) -- --
Proceeds from sale of property and equipment......... 64,754 68,585 31,189
Software development costs........................... (209,535) -- --
Issuance of notes receivable......................... -- -- (35,000)
Proceeds from notes receivable....................... -- -- 400,798
------------- ----------- -------------
Net cash flows from investing activities....... (11,548,009) (3,426,576) (109,385,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............. 214,997,320 -- 89,500,000
Deferred financing costs............................. (14,443,839) -- (3,594,007)
Principal payments on long-term debt................. (81,463,655) (7,471,157) (606,573)
Fair value of warrants issued........................ -- -- 3,000,000
Proceeds from issuance of stock...................... 49,034,665 -- 27,750,000
Net proceeds from revolving credit facility.......... 5,400,000 -- --
Payment of merger consideration...................... (163,328,856) -- --
Proceeds from payment on stockholder note............ 24,310 -- 13,890
------------- ----------- -------------
Net cash flows from financing activities....... 10,219,945 (7,471,157) 116,063,310
------------- ----------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (4,170,074) (123,979) 10,100,943
CASH AND CASH EQUIVALENTS, Beginning of period......... 9,976,964 10,100,943 --
------------- ----------- -------------
CASH AND CASH EQUIVALENTS, End of period............... $ 5,806,890 $ 9,976,964 $ 10,100,943
============= =========== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest......................................... $ 13,518,646 $ 9,555,267 $ 4,576,845
============= =========== =============
Income taxes..................................... $ 2,300,081 $ 3,284,321 $ 3,663,531
============= =========== =============
Noncash investing and financing activities:
Stock repurchases accrued in accounts payable...... $ 2,592,673 $ -- $ --
============= =========== =============
Common stock issued for business acquisitions...... $ 147,150 $ -- $ --
============= =========== =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 112
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF OPERATIONS
NBC Acquisition Corp. (the Company) was formed for the purpose of acquiring
all of the outstanding capital stock of Nebraska Book Company, Inc. (NBC),
effective September 1, 1995. The Company did not have substantive operations
prior to the acquisition of NBC. The purchase price of NBC was $106 million,
which was funded primarily through the issuance of long-term debt. The
acquisition was accounted for by the purchase method of accounting and resulted
in excess of cost over fair value of net assets acquired (goodwill) of
$28,093,126, a covenant not to compete of $6,000,000 and debt issue costs of
$4,572,373.
NBC participates in the college bookstore industry by providing used
textbooks to college bookstore operators, by operating its own college
bookstores and by providing proprietary college bookstore information systems
and consulting services. NBC was founded in 1915 as a college bookstore at the
University of Nebraska. NBC entered the wholesale business during World War II,
when the production of new textbooks slowed and the need for buying and
reselling used textbooks became apparent. Today, NBC serves the college
bookstore industry through its wholesale, college bookstore and services
operations.
Recapitalization: On February 13, 1998, the Company consummated a Merger
Agreement among NBC Merger Corp. (a newly created, indirect wholly-owned
subsidiary of HWH Capital Partners, LP. [HWH]), the Company and certain
shareholders of the Company pursuant to which the Company's outstanding debt and
stock were restructured (the Recapitalization). Significant components of the
Recapitalization, together with the applicable accounting effects, were as
follows:
(i) HWH contributed $45.6 million in capital to NBC Merger Corp.,
which was then merged into the Company, with the Company being the
surviving corporation.
(ii) Existing management shareholders of the Company reinvested
approximately $4.4 million in the Company. HWH and management shareholders
were reissued surviving corporation shares of Class A Common Stock.
(iii) The Company obtained approximately $215 million in new debt
financing and retired substantially all of its existing debt. The early
extinguishment of debt resulted in an extraordinary loss on the
transaction.
(iv) The Company agreed to purchase management's outstanding options
relative to its 1995 Stock Incentive Plan, for a cash payment in lieu of
the options. This resulted in stock based compensation of approximately
$8.3 million for the year ended March 31, 1998. In addition, the Company
agreed to purchase all outstanding warrants for approximately $16.7
million, which was charged to additional paid-in capital and retained
earnings.
(v) The Company reacquired the outstanding shares of Class A and Class
B Common Stock of certain shareholders for approximately $149.2 million.
This reacquisition of shares was accounted for as a treasury stock
transaction, and such reacquired shares were retired.
In connection with the Recapitalization, a transaction fee of approximately
$4.1 million was paid to HWH. Approximately $600,000 of such fee was recorded
against additional paid-in capital for non-deductible costs of the
Recapitalization. The remaining $3.5 million was recorded as debt issue costs
and is being amortized over the life of the related debt.
F-7
<PAGE> 113
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of NBC Acquisition Corp. and its
subsidiary are as follows:
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and NBC. All significant intercompany accounts and
transactions are eliminated in consolidation.
Revenue Recognition: The Company recognizes revenue from product sales at
the time of shipment. The Company has established a program which, under certain
conditions, enables its customers to return product. The effect of this program
is estimated and the current period accounts are adjusted accordingly. The
Company recognizes revenues from the licensing of its software products upon
delivery or installation if the Company is contractually obligated to install
the software.
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
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash on
hand and in the bank as well as short-term investments with maturities of three
months or less when purchased.
Fair Value of Financial Instruments: The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value as of March 31, 1998 and 1997, because
of the relatively short maturity of these instruments. The carrying value of
long-term debt, including the current portion, and revolving credit facility,
approximated fair value as of March 31, 1998 and 1997, based upon prevailing
interest rates for the same or similar debt issues.
The fair value of the interest rate swap agreement (see note H) that
existed at March 31, 1997, was $182,650 using quotes from brokers and represents
the cash proceeds if the existing agreement had been settled on that date.
Inventories: Inventories are stated at the lower of cost or market.
Inventories for wholesale operations are determined on the weighted average cost
method. Other inventories are determined on the first-in, first-out cost method.
Software Development Costs: Development costs included in the research and
development of new software products and enhancements to existing software
products associated with the Company's proprietary college bookstore information
systems are expensed as incurred until technological feasibility has been
established. After technological feasibility is established, additional
development costs are capitalized in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed and amortized over the lesser
of five years or the economic life of the related product. Recoverability of
such capitalized costs is evaluated based upon estimates of future undiscounted
net revenues. As of March 31, 1998, software costs capitalized approximated
$210,000 and pertained to the Company's new Windows-based product scheduled for
release in the third quarter of Fiscal 1999. There were no such costs
capitalized as of March 31, 1997.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is determined using a combination of the straight-line and
accelerated methods. The majority of property
F-8
<PAGE> 114
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and equipment have useful lives of five to six years, with the exception of
buildings which are depreciated over 30 years.
Goodwill and Intangible Assets: Intangible assets were acquired through
the acquisition of 100% of the stock of NBC effective September 1, 1995, and the
acquisition of various bookstores operations and other businesses.
Recoverability of goodwill is evaluated based upon estimates of future
undiscounted operating income. Goodwill is amortized on a straight-line basis
over a period ranging from 3-15 years. Covenants not to compete are amortized on
a straight-line basis over 3 years.
Debt Issue Costs: The costs related to the issuance of debt are
capitalized and amortized to interest expense over the lives of the related
debt.
Income Taxes: The Company provides for deferred income taxes based upon
temporary differences between financial statement and income tax bases of assets
and liabilities, and tax rates in effect for periods in which such temporary
differences are estimated to reverse.
Stock Based Compensation: The company accounts for its stock-based
compensation under provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25).
Earnings Per Share: Earnings per share are calculated in accordance with
SFAS No. 128, Earnings Per Share. Basic earnings per share data are based on the
weighted-average number of common shares outstanding during the period.
Diluted earnings per share data are based on the weighted-average number of
common shares outstanding and the effect of the dilutive potential common shares
including stock options and warrants.
Reclassifications: Certain items on the prior periods' statements have
been reclassified to conform to the current year presentation.
C. ACQUISITIONS
In May 1997, the Company acquired the operations of Specialty Books, Inc.
located in Athens, Ohio. Specialty Books, Inc. is a distributor of distance
education material to various institutions of higher education as well as
corporate education and correctional facility education programs. Additionally,
Specialty Books, Inc. operated a college bookstore serving Ohio University,
which also was part of the acquisition. In November 1997, the Company acquired
the operations of South Carolina Bookstore, Inc. This acquisition included three
college bookstores, two located in Columbia, SC and one in Charleston, SC, as
well as a small regional wholesale textbook operation in Columbia, SC. In
January 1998, the operations of Collegiate Stores Corporation (CSC) were
acquired by the Company. CSC is a centralized buying service for over 500
college bookstores across the United States, allowing the participating
bookstores to purchase certain books and general merchandise at lower prices
than those that would be paid by the stores individually through the enhanced
purchasing power of a large group.
These operations were acquired for an aggregate of $7.0 million in cash and
3,924 shares of the Company's common stock. The acquisitions were made utilizing
cash on hand as well as amounts borrowed under the Company's revolving credit
facility. Each of the acquisitions was accounted for as a purchase and the
results of operations of the acquired businesses are included in the
consolidated results of the Company from their respective dates of acquisition.
As a result of the acquisitions, approximately $6.6 million excess cost over
fair value of net assets acquired was recorded as goodwill by the Company.
F-9
<PAGE> 115
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizing unaudited pro forma financial information
assumes the acquisitions discussed above had occurred at the beginning of each
year.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
PRO FORMA INFORMATION MARCH 31, 1998 MARCH 31, 1997
- --------------------- -------------- --------------
<S> <C> <C>
Sales, net of returns..................... $215,322,319 $198,729,390
Net income (loss)......................... (5,185,808) 4,534,251
Earnings (loss) per share:
Basic..................................... (2.02) 1.62
Diluted................................... (2.02) 1.54
</TABLE>
Additionally, the Company from time to time acquires bookstore operations,
which generally are minimal in their impact to the Company. The purchase
generally involves paying cash for the inventory and fixed assets, as well as an
amount for goodwill.
Goodwill recorded in the above transactions is amortized on a straight-line
basis over a period of three years. A covenant not to compete is being amortized
on a straight-line basis over a period of three years.
D. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Trade receivables, less allowance for
doubtful accounts of $164,829 and $239,296
at March 31, 1998 and 1997,
respectively.............................. $12,771,977 $ 8,516,407
Suppliers and vendors....................... 5,790,255 4,050,981
Buying funds................................ 1,446,732 1,950,510
Notes receivable, current portion........... 55,798 78,118
Computer finance agreements, current
portion................................... 92,201 89,880
Other....................................... 1,226,183 636,379
----------- -----------
Receivables................................. $21,383,146 $15,322,275
=========== ===========
</TABLE>
Trade receivables include the effect of estimated product returns. The
amount of product returns estimated at March 31, 1998 and 1997 is $2,505,117 and
$2,535,732, respectively.
E. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Wholesale................................... $23,974,308 $21,198,983
College bookstores.......................... 21,889,631 22,023,298
Other....................................... 2,946,775 1,066,111
----------- -----------
Inventories................................. $48,810,714 $44,288,392
=========== ===========
</TABLE>
Wholesale inventories include the effect of estimated product returns. The
amount of product returns estimated at March 31, 1998 and 1997 is $1,568,830 and
$1,588,069, respectively.
F-10
<PAGE> 116
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. PROPERTY AND EQUIPMENT
A summary of the cost of property and equipment follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land........................................ $ 2,385,293 $ 2,333,733
Buildings and improvements.................. 12,997,096 12,435,235
Leasehold improvements...................... 3,894,501 2,981,532
Furniture and fixtures...................... 2,984,270 2,440,286
Information systems......................... 5,080,869 3,987,573
Automobiles and trucks...................... 502,998 670,339
Machinery................................... 323,248 253,764
Projects in process......................... 548,564 334,191
----------- -----------
Property and equipment...................... $28,716,839 $25,436,653
=========== ===========
</TABLE>
G. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets and related amortization are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Goodwill.................................... $36,287,391 $28,426,584
Covenants not to compete.................... 6,300,000 6,300,000
Debt issue costs............................ 14,443,839 4,572,373
57,031,230 39,298,957
Less: accumulated amortization............. 12,164,430 7,400,440
----------- -----------
$44,866,800 $31,898,517
=========== ===========
</TABLE>
H. LONG-TERM DEBT
On February 13, 1998, the Company obtained new financing as part of the
Recapitalization (See Note A). Substantially all of the Company's previous debt
facilities were paid off with the proceeds of the new financing. The early
retirement of the previous debt facilities resulted in an extraordinary loss for
the prepayment fees and unamortized discount on the subordinated notes as well
as the write-off of the debt issue costs on the retired debt. Such financing
included a bank-administered Senior Credit Facility provided through a syndicate
of investors. The facility was comprised of a $27,500,000 term loan (Tranche A
Loan), a $32,500,000 term loan (Tranche B Loan) and a $50,000,000 Revolving
Credit Facility.
The Revolving Credit Facility (Revolver) expires on March 31, 2004.
Availability under the Revolver is determined by the calculation of a borrowing
base which at any time is equal to a percentage of eligible accounts receivable
and inventory. The calculated borrowing base at March 31. 1998 was approximately
$31.6 million. The interest rate is based on prime plus 1.50% or, if a
Eurodollar borrowing, the LIBOR rate plus 2.50%. Additionally, there is a .5%
commitment fee for the average daily unused amount. The average borrowings under
the Company's Revolving Credit Facilities for the years ended March 31, 1998 and
1997 were $9,715,800 and $6,708,800, respectively, at an average rate of 10%.
F-11
<PAGE> 117
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Credit Facility is collateralized by substantially all of the
Company's assets. The Senior Credit Facility also stipulates that, effective for
fiscal years ending on or after March 31, 1999, excess cash flows as defined in
the Credit Agreement are required to be applied initially towards prepayment of
the term loans and then utilized to permanently reduce commitments under the
Revolver.
Additional funding of the Recapitalization included the proceeds of the
issuance by NBC of $110,000,000 face amount of 8.75% notes due 2008 and the
issuance by the Company of $76,000,000 face amount of 10.75% discounted
debentures due 2009. The proceeds of the debentures were discounted in the
amount of $31,002,680 and will accrete in value at the rate of 10.75% compounded
semiannually until February 15, 2003, at which time interest payments will
begin.
F-12
<PAGE> 118
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Borrowings consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
Tranche A Loan, due March 31, 2004,
quarterly principal payments beginning
July 31, 1998, plus interest at a
floating rate based on LIBOR plus 2.25%
(7.88% at March 31, 1998)................ $ 27,500,000 $ --
Tranche B Loan, due March 31, 2006,
quarterly principal payments beginning
July 31, 1998, plus interest at a
floating rate based on LIBOR plus 2.50%
(8.13% at March 31, 1998)................ 32,500,000 --
Subordinated notes, unsecured, due February
15, 2008, semi-annual interest payments,
commencing August 15, 1998, at a fixed
rate of 8.75%............................ 110,000,000 --
Senior discount debentures, unsecured,
maturing February 15, 2009, semi-annual
interest payments at a rate of 10.75%
commencing August 15, 2003, net of a
discount of $30,387,832 at March 31,
1998..................................... 45,612,168 --
Mortgage note payable with an insurance
company assumed with the acquisition of a
bookstore facility, due December 1, 2013,
monthly payments of $6,446 including
interest at 10.75%....................... 585,023 598,678
Tranche A Loan, quarterly principal
payments, plus interest at a floating
rate, paid off in February, 1998......... -- 17,275,000
Tranche B Loan, quarterly principal
payments, plus interest at a floating
rate, paid off in February, 1998......... -- 37,175,000
Subordinated notes, quarterly interest
payments at a fixed rate, net of discount
of $2,525,000 at March 31, 1997, paid off
in February, 1998........................ -- 24,475,000
------------ -----------
216,197,191 79,523,678
Less current portion....................... (1,327,696) (263,654)
------------ -----------
Long-term debt............................. $214,869,495 $79,260,024
============ ===========
</TABLE>
The Senior Credit Facility requires the Company to maintain certain
financial ratios and contains a number of other covenants that among other
things, restrict the ability to incur additional indebtedness, dispose of
assets, make capital expenditures, make loans or advances and pay dividends,
except that, among other things, NBC may pay dividends to the Company (i) after
August 15, 2003 in an amount not to exceed the amount of interest required to be
paid on the Senior Discount Debentures and (ii) to pay corporate overhead
expenses not to exceed $250,000 per year and any taxes due by the Company. The
Company is in compliance with all covenants at March 31, 1998.
The indenture governing the Senior Discount Debentures restricts the
ability of the Company and its Restricted Subsidiaries (as defined in the
indenture) to pay dividends or make other
F-13
<PAGE> 119
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Payments (as defined in the indenture) to their respective
stockholders, subject to certain exceptions, unless certain conditions are met,
including that (i) no default under the indenture shall have occurred and be
continuing, (ii) the Company shall be permitted by the indenture to incur
additional indebtedness and (iii) the amount of the dividend or payment may not
exceed a certain amount based on, among other things, the Company's consolidated
net income. The indenture governing the Subordinated Notes contains similar
restrictions on the ability of NBC and its Restricted Subsidiaries to pay
dividends or make other Restricted Payments to their respective stockholders.
The Company entered into an interest rate swap agreement at no cost which
effectively exchanged variable interest rates for a fixed interest rate (before
add-on) of 5.93% on $35 million of long-term debt without the exchange of
underlying principal. The Company accounted for this agreement utilizing hedge
accounting. The difference to be paid or received varied as short-term interest
rates changed and was accrued and recognized as an adjustment to interest
expense. The agreement was settled in February, 1998 as part of the
Recapitalization at a cost to the Company of approximately $450,000. Such cost
is reflected in the consolidated statement of operations as part of the
extraordinary loss on extinguishment of debt.
At March 31, 1998, the aggregate maturities of long-term debt for the next
five years were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999........................................................ 1,327,696
2000........................................................ 3,079,413
2001........................................................ 4,456,324
2002........................................................ 6,308,450
2003........................................................ 6,823,316
</TABLE>
I. INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal................... $848,562 $2,192,687 $ 73,248
State..................... 112,084 410,258 8,713
Deferred.................. (902,458) (278,326) (1,049,196)
-------- ---------- -----------
Total............. $ 58,188 $2,324,619 $ (967,235)
======== ========== ===========
</TABLE>
The actual income tax benefit associated with the extraordinary item
differs from the benefit computed by applying the Federal income tax rate as a
result of the effect of state income tax benefits associated with the
extraordinary loss. In fiscal 1998, the income tax benefit allocated to the
extraordinary item consisted of the following:
<TABLE>
<S> <C>
Current................................................... $2,460,238
Deferred.................................................. --
----------
$2,460,238
==========
</TABLE>
F-14
<PAGE> 120
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents a reconciliation between the actual income tax
expense (benefit) and income taxes computed by applying the Federal income tax
rate to income (loss) before income taxes and extraordinary item:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEVEN MONTHS
MARCH 31, MARCH 31, ENDED MARCH 31,
1998 1997 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Statutory rate.................. (34.0)% 34.0% (34.0)%
State income tax effect......... (4.0) 4.0 (4.0)
Amortization in excess of
purchase price over net assets
acquired...................... 17.6 0.4 0.6
Change in estimate of income tax
liabilities................... 17.1 -- 7.6
Other........................... 7.3 2.0 1.9
----- ---- -----
4.0% 40.4% (27.9)%
===== ==== =====
</TABLE>
The components of the deferred tax assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred income tax assets (liabilities),
current:
Vacation accruals........................... $ 355,523 $ 310,455
Inventory................................... 480,432 452,160
Allowance for doubtful accounts............. 65,932 95,718
Product returns............................. 374,515 379,065
Other....................................... (92,873) (80,858)
---------- ----------
1,183,529 1,156,540
---------- ----------
Deferred income tax assets, noncurrent:
Deferred compensation agreements............ 60,241 48,089
Stock compensation costs.................... -- 151,385
Book over tax goodwill amortization......... 438,564 63,865
Covenant not to compete..................... 1,653,341 1,013,338
---------- ----------
2,152,146 1,276,677
---------- ----------
$3,335,675 $2,433,217
========== ==========
</TABLE>
The non-current portion of deferred tax assets are classified in other
assets.
F-15
<PAGE> 121
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. COMMITMENTS
The Company leases bookstore facilities and data processing equipment under
noncancelable operating leases expiring at various dates through April, 2010.
Certain of the leases are based on a percentage of sales, ranging from 3.0% to
9.0%. Aggregate minimum lease payments under these agreements for the years
ending March 31 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -----------
<S> <C>
1999..................................................... $ 4,239,035
2000..................................................... 3,801,290
2001..................................................... 3,266,793
2002..................................................... 2,553,154
2003..................................................... 1,738,294
Thereafter............................................... 3,878,492
-----------
Total.......................................... $19,477,058
===========
</TABLE>
Total rent expense for the years ended March 31, 1998 and 1997 and the
seven months ended March 31, 1996 was $6,045,897, $4,551,645 and $2,434,560,
respectively. Percentage rent expense for the years ended March 31, 1998 and
1997 and the seven months ended March 31, 1996 was $1,523,695, $605,774 and
$331,553, respectively.
K. RETIREMENT PLAN
The Company's subsidiary participates in and sponsors a 401(k) compensation
deferral plan. The plan covers substantially all employees. The plan provisions
include employee contributions based on a percentage of compensation along with
a sponsor base contribution in addition to a limited matching feature. The
sponsor contributions for the year ended March 31, 1998 and 1997, and the seven
months ended March 31, 1996 were $678,965, $668,686 and $365,876, respectively.
L. STOCK BASED COMPENSATION
The Company had a stock incentive plan that provided for granting of
options to purchase 200,000 shares of common stock to designated employees,
officers and directors. The options could be in the form of incentive stock
options or non-qualified stock options. The options granted vested with respect
to a certain percentage of the options through March 31, 2000, provided that the
Company's cumulative earnings before interest, income taxes, depreciation and
amortization met certain targeted amounts as defined in the plan. The options
generally expired ten years from the date of grant and were granted at an
exercise price of $10 per share. At March 31, 1997, 30,000 options were
available for grant under the option plan. All of the options were bought out as
part of the Recapitalization on February 13, 1998 (See Note A) and at March 31,
1998, no stock incentive plans existed.
The Company accounts for its stock-based compensation under the provisions
of APB 25, which utilizes the intrinsic value method. Compensation cost related
to stock-based compensation was $8,277,748, $296,642 and $81,821 for the years
ended March 31, 1998 and 1997 and the seven months ended March 31, 1996,
respectively.
F-16
<PAGE> 122
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock-based compensation activity related to
stock options for the years ended March 31, 1998 and 1997 and the seven months
ended March 31, 1996 is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
-------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year........ 170,000 $10.00 170,000 $10.00 -- --
Granted.............................. 30,000 10.00 -- -- 170,000 $10.00
Expired/terminated................... (200,000) 10.00 -- -- -- --
Exercised............................ -- -- -- -- -- --
-------- ------ ------- ------ ------ ------
Outstanding-end of year.............. -- $ -- 170,000 $10.00 170,000 $10.00
======== ====== ======= ====== ====== ======
</TABLE>
There were 0, 17,000 and 0 options exercisable at March 31, 1998, 1997 and
1996, respectively.
If the Company accounted for their stock-based compensation using the fair
value method prescribed by SFAS 123, Accounting for Stock-Based Compensation,
the weighted average fair value of options granted during the seven months ended
March 31, 1996 would have been $4.77 per option. The fair value of options
granted was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
MARCH 31, 1996
--------------
<S> <C>
Risk-free interest rate..................................... 6.59%
Dividend yield.............................................. --
Expected volatility......................................... --
Expected life (years)....................................... 10 years
</TABLE>
The weighted average fair value of options granted during the year ended
March 31, 1998 was $42.47 per option. The fair value was determined based upon
the buy-out price as part of the Recapitalization on February 13, 1998.
The pro forma impact on net income (loss) and diluted income (loss) per
share of accounting for stock-based compensation using the fair value method
required by SFAS 123 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH YEAR ENDED SEVEN MONTHS ENDED
31, 1998 MARCH 31, 1997 MARCH 31, 1996
---------------- -------------- ------------------
<S> <C> <C> <C>
Net Income (loss):
As reported................... $(5,551,605) $3,434,492 $(2,501,203)
Pro forma..................... $(1,692,220) $3,502,981 $(2,500,775)
Diluted Income (loss) per share:
As reported................... $(2.16) $1.16 $(0.89)
Pro forma..................... $(0.66) $1.19 $(0.89)
</TABLE>
M. DEFERRED COMPENSATION
The Company has a non-qualified deferred compensation plan for selected
employees. This plan allows participants to voluntarily elect to defer portions
of their current compensation. The amounts can be distributed upon death,
resignation or termination, voluntary or involuntary. Interest
F-17
<PAGE> 123
NBC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is accrued at the prime rate adjusted semi-annually on January 1 and July 1 and
is compounded as of March 31. The liability for the deferred compensation is
included in other long-term liabilities.
N. EARNINGS PER SHARE
SFAS 128 requires dual presentation of Basic and Diluted Earnings Per Share
(EPS), as well as restatement of EPS for all periods for which an income
statement or summary of earnings is presented. The following table provides a
reconciliation between Basic and Diluted EPS.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997
----------------------------------- ----------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT INCOME SHARES AMOUNT
----------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per
Share:
Income (Loss) Before
Extraordinary
Item.............. $(1,530,712) 2,565,267 $(.59) $3,434,492 2,800,000 $1.23
Effect of Dilutive
Securities:
Stock Options....... -- 14,877
Warrants............ -- 135,006
----------- --------- ----- ---------- --------- -----
Diluted Earnings Per
Share............... $(1,530,712) 2,565,267 $(.59) $3,434,492 2,949,883 $1.16
=========== ========= ===== ========== ========= =====
<CAPTION>
SEVEN MONTHS ENDED
MARCH 31, 1996
-----------------------------------
PER-SHARE
LOSS SHARES AMOUNT
----------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per
Share:
Income (Loss) Before
Extraordinary
Item.............. $(2,501,203) 2,800,000 $(.89)
Effect of Dilutive
Securities:
Stock Options....... --
Warrants............ --
----------- --------- -----
Diluted Earnings Per
Share............... $(2,501,203) 2,800,000 $(.89)
=========== ========= =====
</TABLE>
The stock options and warrants outstanding for the year ended March 31,
1998 and seven months ended March 31, 1996 were antidilutive as a result of the
net loss for the period and therefore were not included in the above
reconciliation.
F-18
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Nebraska Book Company, Inc.
Lincoln, Nebraska
We have audited the accompanying balance sheet of Nebraska Book Company,
Inc. as of August 31, 1995, and the related statements of operations,
stockholder's equity and cash flows for the five months then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the August 31, 1995 financial statements present fairly, in
all material respects, the financial position of the Company as of August 31,
1995, and the results of its operations and its cash flows for the five months
then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 24, 1996
F-19
<PAGE> 125
NEBRASKA BOOK COMPANY, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
1995
------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,740,649
Receivables (Note C)...................................... 32,434,984
Inventories (Note D)...................................... 36,142,198
Prepaid expenses and other assets......................... 162,560
------------
Total current assets.............................. 73,480,391
PROPERTY AND EQUIPMENT (Note E)............................. 32,114,954
Less accumulated depreciation............................. (13,507,638)
------------
18,607,316
OTHER ASSETS................................................ 417,534
------------
$ 92,505,241
============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 13,924,672
Accrued employee compensation and benefits................ 1,299,113
Accrued expenses.......................................... 644,139
Revolving credit facility................................. 8,750,000
Current maturities of long-term debt...................... 20,415
Income taxes payable...................................... 3,718,971
Deferred income taxes (Note H)............................ 1,243,803
------------
Total current liabilities......................... 29,601,113
LONG-TERM DEBT, net of current maturities (Note G).......... 605,993
OTHER LONG-TERM LIABILITIES................................. 70,248
COMMITMENTS (Note I)
STOCKHOLDER'S EQUITY:
Class A common stock, authorized 50,000 shares of $1 par
value; issued and outstanding 1,000 shares............. 1,000
Additional paid-in capital................................ 245,060
Retained earnings......................................... 61,981,827
------------
Total stockholder's equity........................ 62,227,887
------------
$ 92,505,241
============
</TABLE>
See notes to financial statements.
F-20
<PAGE> 126
NEBRASKA BOOK COMPANY, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
AUGUST 31,
1995
-----------------
<S> <C>
REVENUE..................................................... $83,328,391
COST OF SALES............................................... 52,753,735
-----------
Gross profit...................................... 30,574,656
OPERATING EXPENSES
Selling, general and administrative....................... 14,728,740
Depreciation.............................................. 871,803
-----------
15,600,543
-----------
INCOME FROM OPERATIONS...................................... 14,974,113
OTHER EXPENSES (INCOME)
Interest expense.......................................... 952,091
Interest income........................................... (51,318)
Other income.............................................. (468,825)
-----------
431,948
-----------
INCOME BEFORE INCOME TAXES.................................. 14,542,165
PROVISION FOR INCOME TAXES (Note H)......................... 5,582,991
-----------
NET INCOME.................................................. $ 8,959,174
===========
</TABLE>
See notes to financial statements
F-21
<PAGE> 127
NEBRASKA BOOK COMPANY, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE April 1, 1995........................ $1,000 $245,060 $53,022,653 $53,268,713
Net income................................. -- -- 8,959,174 8,959,174
------ -------- ----------- -----------
BALANCE August 31, 1995...................... $1,000 $245,060 $61,981,827 $62,227,887
====== ======== =========== ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 128
NEBRASKA BOOK COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
AUGUST 31, 1995
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 8,959,174
Adjustment to reconcile net income to net cash flows from
operating activities:
Depreciation........................................... 871,803
Gain on disposal of assets............................. (284,680)
Deferred tax provision................................. 1,451,487
Decrease in non-current portion of other assets........ 1,143,044
Increase in non-current portion of other liabilities... 10,587
(Increase) decrease in current assets:
Receivables.......................................... (21,618,781)
Inventories.......................................... 4,328,837
Prepaid expenses and other assets.................... 105,614
Increase (decrease) in current liabilities:
Accounts payable..................................... 4,386,244
Accrued employee compensation and benefits........... (958,749)
Accrued expenses..................................... 290,422
Income taxes payable................................. 2,957,626
------------
Net cash flows from operating activities.......... 1,642,628
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (801,014)
Proceeds from sale of property and equipment.............. 924,668
Issuance of notes receivable.............................. (252,994)
Receipts from notes receivable............................ 500,000
------------
Net cash flows from investing activities.......... 370,660
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net addition in revolving credit facility................. 450,000
Principal payments on long-term debt...................... (13,339)
------------
Net cash flows from financing activities.......... 436,661
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,449,949
CASH AND CASH EQUIVALENTS, Beginning of period.............. 2,290,700
------------
CASH AND CASH EQUIVALENTS, End of period.................... $ 4,740,649
============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 813,560
============
Income taxes........................................... $ 1,173,878
============
</TABLE>
See notes to financial statements.
F-23
<PAGE> 129
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
A. NATURE OF OPERATIONS
Nebraska Book Company, Inc. (a wholly-owned subsidiary of Lincoln
Industries, Inc., (the Company) participates in the college bookstore industry
by providing used textbooks to college bookstore operators, by operating its own
college bookstores and by providing proprietary college bookstore information
systems and offering consulting services to college bookstores. The Company was
founded in 1915 as a retail bookstore at the University of Nebraska. The Company
entered the wholesale business following World War II, when the production of
new textbooks slowed and the need for buying and reselling used textbooks became
apparent. The Company currently services the college bookstore industry through
its wholesale college bookstore and services operation.
On July 11, 1995, the Company's parent entered into a Stock Purchase
Agreement with NBC Acquisition Corp. to sell 100% of the stock of Nebraska Book
Company, Inc. effective as of the close of business August 31, 1995.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Nebraska Book Company, Inc. employ
accounting policies that are in accordance with generally accepted accounting
principles.
Revenue Recognition: The Company recognizes revenue from product sales at
the time of shipment. The Company has established a program, which under certain
conditions, enables its customers to return product. The effect of this program
is estimated and the current period accounts are adjusted accordingly. The
Company recognizes revenues from the licensing of its software products upon
delivery or installation if the Company is contractually obligated to install
the software.
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
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on
hand and in the bank as well as short-term investments with maturities of three
months or less when purchased.
Fair Value of Financial Instruments: The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value as of August 31, 1995, because of the
relatively short maturity of these instruments. The carrying value of long-term
debt, including the current portion, approximated fair value as of August 31,
1995, based upon prevailing interest rates for the same or similar debt issues.
Inventories: Inventories are stated at the lower of cost or market.
Inventories for wholesale operations are determined on the average weighted cost
method. College bookstore and other inventories are determined on the first-in,
first-out cost method.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is determined by the straight-line and accelerated method. The
majority of property and equipment have useful lives of five to six years, with
the exception of buildings which are depreciated over 30 years.
Income taxes: The Company provides for deferred income taxes based upon
temporary differences between financial statement and income tax bases of assets
and liabilities, and tax rates in effect for periods in which such temporary
differences are estimated to reverse.
Earnings Per Share: Earnings per share has not been presented within the
financial statements as such presentation would not be meaningful.
F-24
<PAGE> 130
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
C. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
1995
-----------
<S> <C>
Trade receivables........................................... $26,474,873
Suppliers and vendors....................................... 1,390,005
Buying funds................................................ 1,208,705
Notes receivable, current................................... 1,150,798
Computer finance............................................ 45,895
Other....................................................... 2,164,708
-----------
Receivables................................................. $32,434,984
===========
</TABLE>
Trade receivables include the effect of estimated product returns. The
amount of product returns estimated at August 31, 1995 is $2,946,310.
D. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
1995
-----------
<S> <C>
Wholesale................................................... $11,171,165
College bookstore........................................... 24,654,775
Other....................................................... 316,258
-----------
Inventories................................................. $36,142,198
===========
</TABLE>
Wholesale inventories include the effect of estimated product returns. The
amount of product returns estimated at August 31, 1995 is $1,944,565.
E. PROPERTY AND EQUIPMENT
A summary of the cost of property and equipment follows:
<TABLE>
<CAPTION>
AUGUST 31,
1995
-----------
<S> <C>
Land........................................................ $ 2,333,733
Buildings and improvements.................................. 13,476,334
Leasehold improvements...................................... 3,078,297
Furniture and fixtures...................................... 3,930,136
Information systems......................................... 7,150,586
Automobiles and trucks...................................... 877,926
Machinery................................................... 568,921
Projects in process......................................... 699,021
-----------
Property and equipment...................................... $32,114,954
===========
</TABLE>
F-25
<PAGE> 131
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
F. TRANSACTIONS WITH RELATED PARTIES
The Company and affiliated companies or individuals have participated in
various related party transactions during the period. Transactions with related
parties which affect the statement of operations include rental income from
parent of $11,500 included in other income.
G. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 31,
1995
----------
<S> <C>
Mortgage note payable to an insurance company assumed with
the acquisition of a bookstore facility, due December 1,
2013, monthly payments of $6,446 including interest at
10.75%.................................................... $617,519
Other note payable, due August 1996, non-interest bearing... 8,889
--------
626,408
Less current portion........................................ 20,415
--------
Long-term debt.............................................. $605,993
========
</TABLE>
At August 31, 1995, principal payments for each of the next five years on
long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- -------
<C> <S> <C>
1996.................................................................. $20,415
1997.................................................................. 21,157
1998.................................................................. 13,654
1999.................................................................. 15,196
2000.................................................................. 16,913
</TABLE>
The Company has a revolving credit facility with a bank which provides up
to $45,000,000 of borrowing at prime less 0.5%, adjusted daily. The weighted
average borrowings under the revolving credit facility for the five months ended
August 31, 1995 were approximately $25,823,000, at a weighted average interest
rate of approximately 8.5%. The rate at August 31, 1995 was 8.25%. Security
pledged includes accounts receivable and inventory. This facility is through
September 1, 1995.
F-26
<PAGE> 132
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
H. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
AUGUST 31,
1995
-----------
<S> <C>
Currently payable
Federal................................................... $3,615,056
State..................................................... 516,448
Deferred.................................................... 1,451,487
----------
Total............................................. $5,582,991
==========
</TABLE>
The following represents a reconciliation between the actual income tax
expense and income taxes computed by applying the Federal income tax rate to
income before income taxes:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
AUGUST 31,
1995
-----------
<S> <C>
Statutory rate.............................................. 34.0%
State income tax effect..................................... 4.0
Other....................................................... 0.4
----
38.4%
====
</TABLE>
The components of deferred income tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
AUGUST 31,
1995
-----------
<S> <C>
Deferred income tax assets (liabilities), current:
Vacation accruals......................................... $ 220,000
Inventory................................................. (1,400,000)
Installment sale.......................................... (63,803)
-----------
(1,243,803)
Deferred income tax assets, non-current:
Deferred compensation agreements.......................... 28,099
-----------
$(1,215,704)
===========
</TABLE>
The non-current portion of deferred tax assets are classified in other
assets.
F-27
<PAGE> 133
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
I. COMMITMENTS
The Company leases certain of its facilities and equipment under
noncancelable operating leases expiring at various dates through April 30, 2010.
Operating lease rental expense for the five months ended August 31, 1995 was
$1,496,941. Certain of the leases are based on a percentage of sales, ranging
from 3.0% to 9.0%. Percentage rent expense for the five months ended August 31,
1995 was $230,159. At August 31, 1995 total future minimum rental commitments
under the operating leases are as follows:
<TABLE>
<S> <C>
Seven Months ended March 31, 1996........................... $ 1,488,974
Years ended March 31:
1997........................................................ 2,312,860
1998........................................................ 1,780,634
1999........................................................ 1,521,761
2000........................................................ 1,102,900
2001 and thereafter......................................... 3,862,525
-----------
Total minimum payments required................... $12,069,654
===========
</TABLE>
J. RETIREMENT PLAN
The Company participates in and sponsors a 401(k) compensation deferral
plan. The plan covers substantially all employees. The plan provisions include
employee contributions based on a percentage of compensation along with a
sponsor base contribution in addition to a limited matching feature. The sponsor
contributions for the five months ended August 31, 1995 were $279,395.
K. DEFERRED COMPENSATION
The Company has a non-qualified deferred compensation plan for selected
employees. This plan allows participants to voluntarily elect to defer portions
of their current compensation. The amounts can be distributed upon death,
resignation or termination, voluntary or involuntary. Interest is accrued at the
prime rate adjusted semi-annually on January 1, and July 1 and is compounded as
of March 31. The liability for the deferred compensation is included in other
long-term liabilities.
F-28
<PAGE> 134
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................... 1
Risk Factors............................... 13
The Exchange Offer......................... 20
Use of Proceeds............................ 32
Unaudited Pro Forma Consolidated Statement
of Operations............................ 33
Selected Historical Consolidated Financial
Data..................................... 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 39
Business................................... 47
Management................................. 59
Principal Stockholders..................... 62
Certain Transactions....................... 63
Description of Capital Stock............... 63
Description of Other Indebtedness.......... 64
Description of Debentures.................. 68
Certain Federal Income Tax
Considerations........................... 92
Book-Entry; Delivery and Form.............. 98
Plan of Distribution....................... 100
Legal Matters.............................. 100
Experts.................................... 100
Available Information...................... 101
Index to Financial Statements.............. F-1
</TABLE>
- ------------------------------------------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
PROSPECTUS
$76,000,000
NBC ACQUISITION CORP.
OFFER TO EXCHANGE ITS 10 3/4% SENIOR
DISCOUNT DEBENTURES DUE 2009 FOR ANY AND
ALL OUTSTANDING 10 3/4% SENIOR DISCOUNT DEBENTURES
[NEBRASKA BOOK COMPANY LOGO]
, 1998
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") grants a
Delaware corporation the power to indemnify any director, officer, employee or
agent against reasonable expenses (including attorneys' fees) incurred by him in
connection with any proceeding brought by or on behalf of the corporation and
against judgments, fines, settlements and reasonable expenses (including
attorneys' fees) incurred by him in connection with any other proceeding, if (a)
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and (b) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Except as ordered by a court, however, no indemnification is to be
made in connection with any proceeding brought by or in the right of the
corporation where the person involved is adjudged to be liable to the
corporation.
Section 11.1 of Holdings' by-laws provide that Holdings shall indemnify, in
the manner and to the full extent permitted by law, any person (or the estate of
any person) who was or is a party to, or is threatened to be made a party to,
any threatened, pending or completed action, suit or proceeding, whether or not
by or in the right of Holdings, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director, officer, employee or agent of Holdings, or is or was serving at the
request of Holdings as a director, officer, employee or agent or another
corporation, partnership, joint venture, trust or other enterprise. Where
required by law, the indemnification shall be made only as authorized in the
specific case upon a determination, in the manner provided by law, that
indemnification of the director, officer, employee or agent is proper in the
circumstances. Holdings may, to the full extent permitted by law, purchase and
maintain insurance on behalf of any such person against any liability which may
be asserted against such person. To the full extent permitted by law, the
indemnification shall include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, and, in the manner provided by law, any
such expenses may be paid by Holdings in advance of the final disposition of
such action, suit or proceeding. The indemnification shall not be deemed to
limit the right of Holdings to indemnify any other person for any such expenses
to the full extent permitted by law, nor shall it be deemed exclusive of any
other rights to which any person seeking indemnification from Holdings may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
Section 102 of the DGCL permits the limitation of directors' personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director except for (i) any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) acts or omissions
not in good faith of which involve intentional misconduct or a knowing violation
of the law, (iii) breaches under Section 174 of the DGCL, which relate to
unlawful payments of dividends or unlawful stock repurchase or redemptions, and
(iv) any transaction from which the director derived an improper personal
benefit.
Section 8 of Holdings' restated certificate of incorporation limits the
personal liability of directors of Holdings to the fullest extent permitted by
paragraph (7) of subsection (b) of Section 102 of the DGCL
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Holdings pursuant
to the foregoing provisions, Holdings has been informed that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Holdings maintains directors' and officers' liability insurance for its
officers and directors.
II-1
<PAGE> 136
ITEM 21.
<TABLE>
<CAPTION>
(A) EXHIBITS
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------------ ------------------------------------------------------------ ------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended, of Holdings.*
3.2 By-laws of Holdings.*
4.1 Indenture dated as of February 13, 1998 by and between
Holdings and United States Trust Company of New York as
Trustee.*
4.2 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Holdings and Chase
Securities Inc.*
4.3 Form of Initial Debenture of Holdings (included in Exhibit
4.1 as Exhibit A).*
4.4 Form of Exchange Debenture of Holdings (included in Exhibit
4.1 as Exhibit B).*
4.5 Indenture dated as of February 13, 1998 by and between
Nebraska Book Company, Inc. and United States Trust Company
of New York, as Trustee.*
4.6 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Nebraska Book Company, Inc.
and Chase Securities Inc.*
4.7 Form of Initial Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit A).*
4.8 Form of Exchange Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit B).*
5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the Debentures being registered.
8 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding certain federal income tax matters.*
10.1 Credit Agreement dated as of February 13, 1998 by and among
Holdings, Nebraska Book Company, Inc., The Chase Manhattan
Bank and certain other financial institutions.*
10.2 Guarantee and Collateral Agreement, dated as of February 13,
1998 made by Holdings and Nebraska Book Company, Inc. in
favor of The Chase Manhattan Bank, as administrative agent.*
10.3 Purchase Agreement dated February 10, 1998 between Holdings
and Chase Securities, Inc.*
10.4 Purchase Agreement dated February 10, 1998 between Nebraska
Book Company, Inc. and Chase Securities Inc.*
10.5 Form of Memorandum of Understanding, dated as of February
13, 1998 between Holdings and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe, Kenneth F. Jirovsky,
William H. Allen, Thomas A. Hoff and Ardean A. Arndt.*
10.6 NBC Acquisition Corp. 1995 Stock Incentive Plan adopted
August 31, 1995.
10.7 Form of Deferred Compensation Agreement by and between
Nebraska Book Company, Inc. and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe and Thomas A. Hoff.*
10.8 NBC Acquisition Corp. 401(k) Savings Plan.*
10.9 Merger Agreement dated January 6, 1998 by and between NBC
Merger Corp., Holdings and certain stockholders of Holdings
named therein.*
</TABLE>
II-2
<PAGE> 137
<TABLE>
<CAPTION>
(A) EXHIBITS
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------------ ------------------------------------------------------------ ------
<S> <C> <C>
10.10.1 Agreement for Purchase and Sale of Stock made January 9,
1998 between and among Nebraska Book Company, Inc. and
Martin D. Levine, The Lauren E. Levine Grantor Trust and The
Jonathan L. Levine Grantor Trust (the "Collegiate Stores
Corporation Agreement").*
10.10.2 First Amendment dated January 23, 1998 to the Collegiate
Stores Corporation Agreement.*
10.11 Commercial Lease Agreement made and entered into March 8,
1989, by and between Robert J. Chaney, Mary Charlotte Chaney
and Robert J. Chaney, as Trustee under the Last Will and
Testament of James A. Chaney, and the Company.*
10.12 Lease Agreement entered into as of September 1, 1986, by and
between Odell Associates Limited Partnership and the
Company.*
10.13 Lease Agreement entered into as of September 1, 1986, by and
between John B. DeVine, successor trustee of The Fred C.
Ulrich Trust, as amended, and the Company.*
10.14 Lease Agreement entered into as of September 1, 1986 by and
between Odell Associates Limited Partnership and the
Company.*
10.15 Lease Agreement made and entered into October 12, 1988 by
and between Hogarth Management and the Company.*
10.16 Industrial Real Estate Lease dated June 22, 1987 by and
between Cyprus Land Company and the Company.*
12 Statements regarding computation of ratios.**
21 Subsidiaries.*
23.1 Consent of Deloitte and Touche LLP.**
23.2 Consent of Arthur Andersen LLP.*
23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 5 (included in Exhibit 5).
23.4 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 8 (included in Exhibit 8).*
24 Powers of Attorney (included on signature pages).*
25 Statement of Eligibility of Trustee.*
27.1 Financial Data Schedule for the Nine Months Ended December
31, 1997.*
27.2 Financial Data Schedule for the Year Ended March 31, 1997.*
27.3 Financial Data Schedule for the Year Ended March 31, 1998.
99.1 Letter of Transmittal.
</TABLE>
[/R]
(b) Financial Statement Schedule
Schedule I -- Condensed Financial Information of Registrant.
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the SEC are either not required under the related
instructions, are not applicable (and therefore have been omitted), or the
required disclosures are contained in the financial statements included
herein.
- ---------------
* Previously filed.
** Replaces previously filed exhibit.
II-3
<PAGE> 138
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Holdings
pursuant to the provisions described under Item 20, or otherwise, Holdings has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Holdings of expenses
incurred or paid by a director, officer or controlling person of Holdings in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer nor controlling person in connection with the securities being
registered, Holdings will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Lincoln, Nebraska,
on June 11, 1998.
NBC ACQUISITION CORP.
By: /s/ MARK W. OPPEGARD
------------------------------------
President
Pursuant to the requirements of the Securities Act, this amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board June 11, 1998
- ---------------------------------------------------
Robert B. Haas
/s/ MARK W. OPPEGARD President and Director June 11, 1998
- --------------------------------------------------- (Principal Executive
Mark W. Oppegard Officer)
* Vice President and Secretary June 11, 1998
- --------------------------------------------------- (Principal Financial and
Bruce E. Nevius Accounting Officer)
* Director June 11, 1998
- ---------------------------------------------------
Douglas D. Wheat
*By: /s/ MARK W. OPPEGARD
---------------------------------------------
Mark W. Oppegard
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NBC Acquisition Corp.
Lincoln, Nebraska
We have audited the consolidated financial statements of NBC Acquisition
Corp. as of March 31, 1997 and 1998, and for the seven months ended March 31,
1996 and the years ended March 31, 1997 and 1998, and have issued our report
thereon dated May 22, 1998; such report is included elsewhere in this
Registration Statement. Our audits also included the financial statement
schedules of NBC Acquisition Corp. listed in Item 21(b). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 22, 1998
S-1
<PAGE> 141
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1997 1998
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Recoverable income tax.................................... $ -- $ 248,091
OTHER ASSETS:
Investment in and advances to (from) subsidiary (Note
A)..................................................... 31,697,179 (48,573,828)
Prepaid transaction/loan costs............................ -- 3,368,075
----------- -------------
$31,697,179 $ (44,957,662)
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
SENIOR DISCOUNT DEBENTURES.................................. $ -- $ 45,612,168
COMMITMENTS AND CONTINGENCIES (Note B)
STOCKHOLDERS' EQUITY (DEFICIT):
Class A common stock, voting, authorized 4,500,000 shares
of $.01 par value; issued and outstanding 2,751,852
shares................................................. 27,519 9,530
Class B common stock, non-voting, authorized 500,000
shares of $.01 par value; issued and outstanding 48,148
shares................................................. 481 --
Additional paid-in capital................................ 30,972,000 49,025,135
Notes receivable from stockholders........................ (236,110) (211,800)
Retained earnings (deficit)............................... 933,289 (139,392,695)
----------- -------------
Total liabilities and stockholders' equity
(deficit)....................................... $31,697,179 $ (44,957,662)
=========== =============
</TABLE>
See notes to financial statements.
S-2
<PAGE> 142
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1996 1997 1998
------------ ---------- -----------
<S> <C> <C> <C>
INTEREST EXPENSE................................. $ -- $ -- $ (653,558)
INCOME TAX BENEFIT............................... -- -- 248,091
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARY.......... (2,501,203) 3,434,492 (5,146,138)
----------- ---------- -----------
NET INCOME (LOSS)................................ $(2,501,203) $3,434,492 $(5,551,605)
=========== ========== ===========
</TABLE>
See notes to financial statements.
S-3
<PAGE> 143
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN MONTHS YEAR YEAR
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1996 1997 1998
------------ ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash flows from operating
activities............................. $ -- $ -- $ --
-------- ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt....... -- -- 44,997,320
Deferred financing costs....................... -- -- (3,406,785)
Proceeds from issuance of stock................ -- -- 49,034,665
Payment of merger consideration................ -- -- (163,328,856)
Merger consideration contributed by Nebraska
Book Company................................ -- -- 72,703,656
Advances to subsidiary......................... (13,890) -- (24,310)
Payment on stockholders notes.................. 13,890 -- 24,310
-------- ----------- -------------
Net cash flows from financing
activities............................. -- -- --
-------- ----------- -------------
NET INCREASE (DECREASE) IN CASH.................. -- -- --
CASH, Beginning of year.......................... -- -- --
-------- ----------- -------------
CASH, End of year................................ $ -- $ -- $ --
======== =========== =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of 25,000 shares of common stock for
stockholder notes receivable................ $250,000 $ -- $ --
======== =========== =============
Stock repurchases accrued by Nebraska Book
Company..................................... $ -- $ -- $ 2,592,673
======== =========== =============
Common stock contributed to Nebraska Book
Company..................................... $ -- $ -- $ 147,150
======== =========== =============
</TABLE>
See notes to financial statements.
S-4
<PAGE> 144
SCHEDULE 1
NBC ACQUISITION CORP.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in and advances to (from) subsidiary -- NBC Acquisition Corp.
accounts for its investment in Nebraska Book Company (Company) under the equity
method of accounting. Advances to (from) the Company are included within the
investment in subsidiaries.
B. COMMITMENTS AND CONTINGENCIES
NBC Acquisition Corp. has guaranteed repayment of indebtedness under the
Senior Credit Facility held by its subsidiary, Nebraska Book Company. Such
indebtedness totaled $65.4 million at March 31, 1998.
S-5
<PAGE> 145
SCHEDULE II
NBC ACQUISITION CORP.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER NET END OF
OF YEAR EXPENSES ACCOUNTS CHARGE-OFFS YEAR
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1998
Allowance for doubtful
accounts..................... $239,296 $180,491 $ -- $(254,958) $164,829
YEAR ENDED MARCH 31, 1997
Allowance for doubtful
accounts..................... $255,027 $159,602 $ -- $(175,333) $239,296
SEVEN MONTHS ENDED MARCH 31, 1996
Allowance for doubtful
accounts..................... $255,027 $203,857 $ -- $(203,857) $255,027
</TABLE>
S-6
<PAGE> 146
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------------------------------------------------------------ ------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended, of Holdings.*
3.2 By-laws of Holdings.*
4.1 Indenture dated as of February 13, 1998 by and between
Holdings and United States Trust Company of New York, as
Trustee.*
4.2 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Holdings and Chase
Securities Inc.*
4.3 Form of Initial Debenture of Holdings (included in Exhibit
4.1 as Exhibit A).*
4.4 Form of Exchange Debenture of Holdings (included in Exhibit
4.1 as Exhibit B).*
4.5 Indenture dated as of February 13, 1998 by and between
Nebraska Book Company, Inc. and United States Trust Company
of New York, as Trustee.*
4.6 Exchange and Registration Rights Agreement dated as of
February 13, 1998 by and between Nebraska Book Company, Inc.
and Chase Securities Inc.*
4.7 Form of Initial Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit A).*
4.8 Form of Exchange Note of Nebraska Book Company, Inc.
(included in 4.5 as Exhibit B).*
5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the Debentures being registered.
8 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding certain federal income tax matters.*
10.1 Credit Agreement dated as of February 13, 1998 by and among
Holdings, Nebraska Book Company, Inc., The Chase Manhattan
Bank and certain other financial institutions.*
10.2 Guarantee and Collateral Agreement, dated as of February 13,
1998 made by Holdings and Nebraska Book Company, Inc. in
favor of The Chase Manhattan Bank, as administrative agent.*
10.3 Purchase Agreement dated February 10, 1998 between Holdings
and Chase Securities Inc.*
10.4 Purchase Agreement dated February 10, 1998 between Nebraska
Book Company, Inc. and Chase Securities Inc.*
10.5 Form of Memorandum of Understanding, dated as of February
13, 1998 between Holdings and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe, Kenneth F. Jirovsky,
William H. Allen, Thomas A. Hoff and Ardean A. Arndt.*
10.6 NBC Acquisition Corp. 1995 Stock Incentive Plan adopted
August 31, 1995.*
10.7 Form of Deferred Compensation Agreement by and between
Nebraska Book Company, Inc. and each of Mark W. Oppegard,
Bruce E. Nevius, Larry R. Rempe and Thomas A. Hoff.*
10.8 NBC Acquisition Corp. 401(k) Savings Plan.*
10.9 Merger Agreement dated January 6, 1998 by and between NBC
Merger Corp., Holdings and certain stockholders of Holdings
named therein.*
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------------------------------------------------------------ ------
<S> <C> <C>
10.10.1 Agreement for Purchase and Sale of Stock made January 9,
1998 between and among Nebraska Book Company, Inc. and
Martin D. Levine, The Lauren E. Levine Grantor Trust and The
Jonathan L. Levine Grantor Trust (the "Collegiate Stores
Corporation Agreement").*
10.10.2 First Amendment dated January 23, 1998 to the Collegiate
Stores Corporation Agreement.*
10.11 Commercial Lease Agreement made and entered into March 8,
1989, by and between Robert J. Chaney, Mary Charlotte Chaney
and Robert J. Chaney, as Trustee under the Last Will and
Testament of James A. Chaney, and the Company.*
10.12 Lease Agreement entered into as of September 1, 1986, by and
between Odell Associates Limited Partnership and the
Company.*
10.13 Lease Agreement entered into as of September 1, 1986, by and
between John B. DeVine, successor trustee of The Fred C.
Ulrich Trust, as amended, and the Company.*
10.14 Lease Agreement entered into as of September 1, 1986 by and
between Odell Associates Limited Partnership and the
Company.*
10.15 Lease Agreement made and entered into October 12, 1988 by
and between Hogarth Management and the Company.*
10.16 Industrial Real Estate Lease dated June 22, 1987 by and
between Cyprus Land Company and the Company.*
12 Statements regarding computation of ratios.**
21 Subsidiaries.*
23.1 Consent of Deloitte and Touche LLP.**
23.2 Consent of Arthur Andersen LLP.*
23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 5 (included in Exhibit 5).
23.4 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
regarding Exhibit 8 (included in Exhibit 8).*
24 Powers of attorney(included on signature pages).*
25 Statement of Eligibility of Trustee.*
27.1 Financial Data Schedule for the Nine Months Ended December
31, 1997.*
27.2 Financial Data Schedule for the Year Ended March 31, 1997.*
27.3 Financial Data Schedule for the Year Ended March 31, 1998.
99.1 Letter of Transmittal.
</TABLE>
- ---------------
* Previously filed.
** Replaces previously filed exhibit.
<PAGE> 1
EXHIBIT 5
June 11, 1998
NBC Acquisition Corp.
4700 South 19th Street
Lincoln, NE 68501-0529
Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4
(Registration Statement No. 333-48225) (the "Registration Statement") filed by
NBC Acquisition Corp., a Delaware corporation ("Holdings"), with the Securities
and Exchange Commission (the "SEC") on March 19, 1998, under the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations promulgated under
the Act, we have been requested to render our opinion as to the legality of the
securities being registered. The Registration Statement relates to the
registration under the Act of Holdings' 10 3/4% Senior Discount Debentures due
2009 (the "Exchange Debentures"). The Exchange Debentures are to be offered in
exchange for the 10 3/4% Senior Discount Debentures due 2009 (the "Initial
Debentures") issued and sold by Holdings on February 13, 1998 in an offering
exempt from registration under the Act. The Exchange Debentures will be issued
by Holdings under the Indenture (the "Indenture"), dated as of February 13,
1998, between Holdings and United States Trust Company of New York, as trustee
(the "Trustee"). Capitalized terms used in this letter and not otherwise defined
shall have the respective meanings given them in the Registration Statement.
In connection with this opinion, we have examined originals,
conformed copies or photocopies, certified or otherwise identified to our
satisfaction, of the following documents:
(i) the Registration Statement (including its exhibits);
(ii) the Indenture included as Exhibit 4.1 to the Registration
Statement; and
(iii) the form of the Exchange Debentures included as Exhibit 4.4 to
the Registration Statement.
<PAGE> 2
2
In addition, we have examined (i) those corporate records of
Holdings as we have considered appropriate, including copies of its certificate
of incorporation, as amended, and by-laws, as amended, in each case as in effect
on the date of this letter, and certified copies of resolutions of the board of
directors of Holdings; and (ii) those other certificates, agreements and
documents as we deemed relevant and necessary as a basis for the opinions
expressed below.
In our examination of these documents, we have assumed, without
independent investigation, the genuineness of all signatures, the enforceability
of the documents against each party to them other than Holdings, the
authenticity of all documents submitted to us as certified, photostatic,
reproduced or conformed copies of validly existing agreements or other
documents, the authenticity of the latter documents and the legal capacity of
all individuals who have executed any of the documents which we examined.
In expressing the opinions set forth below, we have relied upon the
factual matters contained in the representations and warranties of Holdings made
in the documents and upon certificates of public officials and Holdings, and we
have assumed that the Exchange Debentures will be issued as described in the
Registration Statement.
Based on the foregoing, and subject to the assumptions, exceptions
and qualifications stated in this letter, we are of the opinion that:
1. The Indenture represents a valid and binding obligation of
Holdings enforceable against Holdings in accordance with its terms, except that
enforceability may be subject to bankruptcy, insolvency, fraudulent conveyance
or transfer, reorganization, moratorium or other similar laws affecting
creditors' rights generally and general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
2. When issued, authenticated and delivered as provided in the
Indenture, the Exchange Debentures will be legal, valid and binding obligations
of Holdings enforceable against Holdings in accordance with their terms, except
that enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance or transfer, reorganization, moratorium and other similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
Our opinions expressed above are limited to the laws of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States. Please be advised that no member of this firm is
admitted to practice in the State of Delaware. Our opinions are rendered only
with respect to the laws, and the rules, regulations and orders promulgated
under those laws, that are currently in effect.
<PAGE> 3
3
We consent to the use of our name in the Registration Statement and
in the prospectus included in the Registration Statement as our name appears
under the caption "Legal Matters" and to the use of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do not admit that we
come within the category of persons whose consent is required by the Act or by
the rules and regulations under the Act.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE> 1
Exhibit 12
NBC ACQUISITION CORP. AND SUBSIDIARY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------- -------------------------------
FIVE SEVEN
MONTHS MONTHS
YEARS ENDED ENDED ENDED YEARS ENDED
MARCH 31, AUGUST 31, MARCH 31, MARCH 31,
-------------- ---------- --------- ------------------
1994 1995 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from
continuing operations $14,090 $15,570 $14,542 $(3,468) $5,759 $(1,473)
Add:
Interest expense and
amortization of deferred
finance charges on all
indebtedness 616 766 952 6,035 10,760 11,938
Interest portion of lease rentals 1,169 1,297 574 504 1,517 2,015
------- ------- ------- ------- ------- -------
Pre-tax income from
continuing operations,
as adjusted $15,875 $17,633 $16,068 $ 3,371 $18,036 $12,480
======= ======= ======= ======= ======= =======
Fixed charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness $ 616 $ 766 $ 952 $ 6,035 $10,760 $11,938
Interest portion of lease rentals 1,169 1,297 574 804 1,517 2,015
------- ------- ------- ------- ------- -------
Total fixed charges $ 1,785 $ 2,063 $ 1,526 $ 6,839 $12,277 $13,953
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges 8.9 8.5 10.5 (1) 1.5 (2)
======= ======= ======= ======= ======= =======
</TABLE>
(1) Earnings were insufficient to cover fixed charges by $3,468.
(2) Earnings were insufficient to cover fixed charges by $1,473.
<PAGE> 2
NBC ACQUISITION CORP. AND SUBSIDIARY
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
MARCH 31,
1998
<S> <C>
Pro forma pre-tax loss from continuing operations $(2,901)
-------
Fixed charges:
Interest expense and amortization of deferred finance
charges on all indebtedness - pro forma 22,480
Interest portion of lease rentals 2,015
-------
Total fixed charges $24,495
=======
Total earnings and fixed charges $21,594
=======
Pro forma ratio of earnings to fixed charges (1)
=======
</TABLE>
- ---------
(1) Earnings were insufficient to cover fixed charges by $2,901.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration
Statement No. 333-48225 of NBC Acquisition Corp. on Form S-4 of our reports
dated May 22, 1998 and May 24, 1996, appearing in the Prospectus, which is part
of this Registration Statement, and of our report dated May 22, 1998 relating
to the financial statement schedules appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
June 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,806,890
<SECURITIES> 0
<RECEIVABLES> 21,547,975
<ALLOWANCES> 164,829
<INVENTORY> 48,810,714
<CURRENT-ASSETS> 81,748,277
<PP&E> 28,716,839
<DEPRECIATION> 5,984,932
<TOTAL-ASSETS> 152,145,254
<CURRENT-LIABILITIES> 27,694,985
<BONDS> 214,869,495
0
0
<COMMON> 9,530
<OTHER-SE> (90,579,360)
<TOTAL-LIABILITY-AND-EQUITY> 152,145,254
<SALES> 198,772,938
<TOTAL-REVENUES> 198,772,938
<CGS> 125,632,403
<TOTAL-COSTS> 125,632,403
<OTHER-EXPENSES> 62,823,531
<LOSS-PROVISION> 180,491
<INTEREST-EXPENSE> 11,609,037
<INCOME-PRETAX> (1,472,524)
<INCOME-TAX> 58,188
<INCOME-CONTINUING> (1,530,712)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,020,893)
<CHANGES> 0
<NET-INCOME> (5,551,605)
<EPS-PRIMARY> (2.16)
<EPS-DILUTED> (2.16)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
NBC ACQUISITION CORP.
OFFER TO EXCHANGE
10 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
FOR ANY AND ALL OF THE OUTSTANDING
10 3/4% SENIOR DISCOUNT DEBENTURES DUE 2009
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON ______________, 1998
UNLESS THE OFFER IS EXTENDED
UNITED STATES TRUST COMPANY OF NEW YORK
(the "Exchange Agent")
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified Mail:
UNITED STATES TRUST COMPANY UNITED STATES TRUST COMPANY UNITED STATES TRUST COMPANY
OF NEW YORK OF NEW YORK OF NEW YORK
770 BROADWAY, 13TH FLOOR 111 BROADWAY P.O. BOX 844
NEW YORK, NEW YORK 10003 LOWER LEVEL ATTN: CORPORATE TRUST SERVICES
ATTN: CORPORATE TRUST SERVICES ATTN: CORPORATE TRUST SERVICES COOPER STATION
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10276-0844
Confirm by Telephone:
(1-800) 548-6565
</TABLE>
By Facsimile Transmission:
(FOR ELIGIBLE INSTITUTIONS ONLY):
(212) 420-6152
Delivery of this instrument to an address other than as set forth
above or transmission of instructions via a facsimile number other than the ones
listed above will not constitute a valid delivery. The instructions accompanying
this Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated
______________, 1998 (the "Prospectus") of NBC Acquisition Corp. (the "Issuer")
and this Letter of Transmittal, which together constitute the Issuer's offer
(the "Exchange Offer") to exchange $76,000,000 principal amount of its 10 3/4%
Senior Discount Debentures due 2009 (the "Exchange Debentures"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for
$76,000,000 principal amount of its outstanding 10 3/4% Senior Discount
Debentures due 2009 (the "Debentures"). The term "Expiration Date" shall mean
5:00 p.m., New York City time, on ___________, 1998, unless the Issuer, in its
reasonable judgment, extends the Exchange Offer, in which case the term shall
mean the latest date and time to which the Exchange Offer is extended.
Capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
<PAGE> 2
List below the Debentures to which this Letter of Transmittal
relates. If the space indicated is inadequate, the Certificate or Registration
Numbers and Principal Amounts should be listed on a separately signed schedule
affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF DEBENTURES TENDERED HEREBY
- ---------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF CERTIFICATE AGGREGATE PRINCIPAL
REGISTERED OWNER(S) OR REGISTRATION AMOUNT REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN) NUMBERS* DEBENTURES TENDERED**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Debentures. All
tenders must be integral multiples of $1,000.
This Letter of Transmittal is to be used if (i) certificates
representing Debentures are to be physically delivered to the Exchange Agent
herewith, (ii) tender of Debentures is to be made by book-entry transfer to an
account maintained by the Exchange Agent at The Depository Trust Company
("DTC"), pursuant to the procedures set forth in "The Exchange Offer --
Procedures for Tendering Initial Debentures." in the Prospectus or (iii) tender
of the Debentures is to be made according to the guaranteed delivery procedures
described in the Prospectus under the caption "The Exchange Offer -- Procedures
for Tendering Initial Debentures." See Instruction 2. Delivery of documents to a
book-entry transfer facility does not constitute delivery to the Exchange Agent.
This Letter of Transmittal must be completed, signed and delivered even if
tender instructions are being transmitted through the Book-Entry Transfer
Facility Automated Tender Offer Program ("ATOP").
As used in this Letter of Transmittal, the term "Holder" with
respect to the Exchange Offer means any person in whose name Debentures are
registered on the books of the Issuer or, with respect to interests in the
Global Debentures held by DTC, any DTC participant listed in an official DTC
proxy. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Debentures must complete
this letter in its entirety.
Holders of Debentures that are tendering by book-entry transfer to
the Exchange Agent's account at DTC can execute the tender through ATOP, for
which the transaction will be eligible. DTC participants that are accepting the
Exchange Offer must transmit their acceptances to DTC, which will verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account at
DTC. DTC will then send an Agent's Message to the Exchange Agent for its
acceptance. Each DTC participant transmitting an acceptance of the Exchange
Offer through the ATOP procedures will be deemed to have agreed to be bound by
the terms of this Letter of Transmittal. Nevertheless, in order for such
acceptance to constitute a valid tender of the DTC participant's Debentures,
such participant must complete and sign a Letter of Transmittal and deliver it
to the Exchange Agent before the Expiration Date.
2
<PAGE> 3
[ ] CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
DTC AND COMPLETE THE FOLLOWING:
NAME OF TENDERING INSTITUTION_____________________________________________
ACCOUNT NUMBER____________________________________________________________
TRANSACTION CODE NUMBER___________________________________________________
Holders whose Debentures are not immediately available or who cannot
deliver their Debentures and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date must tender their Debentures according
to the guaranteed delivery procedure set forth in the Prospectus under the
caption "The Exchange Offer -- Procedures for Tendering Initial Debentures." See
Instruction 2.
[ ] CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
NAME OF REGISTERED HOLDER(S)______________________________________________
NAME OF ELIGIBLE INSTITUTION THAT GUARANTEED DELIVERY_____________________
__________________________________________________________________________
IF DELIVERY BY BOOK-ENTRY TRANSFER:
ACCOUNT NUMBER______________________________________________________
TRANSACTION CODE NUMBER_____________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
NAME______________________________________________________________________
ADDRESS___________________________________________________________________
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Issuer the principal amount of the
Debentures indicated above. Subject to, and effective upon, the acceptance for
exchange of such Debentures tendered hereby, the undersigned hereby exchanges,
assigns and transfers to, or upon the order of, the Issuer all right, title and
interest in and to such Debentures as are being tendered hereby, including all
rights to accrued and unpaid interest thereon as of the Expiration Date. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent the
true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of the Issuer in connection
with the Exchange Offer) to cause the Debentures to be assigned, transferred and
exchanged. The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Debentures and to acquire
Exchange Debentures issuable upon the exchange of such tendered Debentures, and
that when the same are accepted for exchange, the Issuer will acquire good and
unencumbered title to the tendered Debentures, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The undersigned represents to the Issuer that (i) the Exchange
Debentures acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such Exchange Debentures,
whether or not such person is the undersigned, and (ii) neither the undersigned
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Debentures. If the undersigned
or the person receiving the Exchange Debentures covered hereby is a
broker-dealer that is receiving the Exchange Debentures for its own account in
exchange for Debentures that were acquired as a result of market-making
activities or other trading activities, the undersigned acknowledges that it or
such other person will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Debentures;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. The undersigned and any such other person acknowledge that,
if they are participating in the Exchange Offer for the purpose of distributing
the Exchange Debentures, (i) they cannot rely on the position of the staff of
the Securities and Exchange Commission enunciated in Exxon Capital Holdings
Corporation (April 13, 1988), Morgan Stanley & Co., Inc. (June 5, 1991) 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 and (ii) failure to
comply with such requirements in such instance could result in the undersigned
or any such other person incurring liability under the Securities Act for which
such persons are not indemnified by the Issuer. If the undersigned or the person
receiving the Exchange Debentures covered by this letter is an affiliate (as
defined under Rule 405 of the Securities Act) of the Issuer, the undersigned
represents to the Issuer that the undersigned understands and acknowledges that
such Exchange Debentures may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned also warrants that it will, upon request, execute
and deliver any additional documents deemed by the Exchange Agent or the Issuer
to be necessary or desirable to complete the exchange, assignment and transfer
of tendered Debentures or transfer ownership of such Debentures on the account
books maintained by a book-entry transfer facility. The undersigned further
agrees that acceptance of any tendered Debentures by the Issuer and the issuance
of Exchange Debentures in exchange therefor shall constitute performance in full
by the Issuer of its obligations under the Registration Rights Agreement and
that the Issuer shall have no further obligations or liabilities thereunder for
the registration of the Debentures or the Exchange Debentures.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Issuer), as more particularly
4
<PAGE> 5
set forth in the Prospectus, the Issuer may not be required to exchange any of
the Debentures tendered hereby and, in such event, the Debentures not exchanged
will be returned to the undersigned at the address shown below the signature of
the undersigned.
All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Debentures may be withdrawn
at any time prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Debentures delivered in exchange
for tendered Debentures, and any Debentures delivered herewith but not
exchanged, will be registered in the name of the undersigned and shall be
delivered to the undersigned at the address shown below the signature of the
undersigned. If an Exchange Debenture is to be issued to a person other than the
person(s) signing this Letter of Transmittal, or if the Exchange Debenture is to
be mailed to someone other than the person(s) signing this Letter of Transmittal
or to the person(s) signing this Letter of Transmittal at an address different
than the address shown on this Letter of Transmittal, the appropriate boxes of
this Letter of Transmittal should be completed. If Debentures are surrendered by
Holder(s) that have completed either the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, signature(s) on this Letter of Transmittal must be guaranteed by
an Eligible Institution (defined in Instruction 2).
5
<PAGE> 6
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the Exchange Debentures are to be issued in the
name of someone other than the undersigned.
Name:___________________________________________________________________________
Address:________________________________________________________________________
Book-Entry Transfer Facility Account:
________________________________________________________________________________
Employer Identification or Social Security Number:
________________________________________________________________________________
(Please print or type)
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange Debentures are to be sent to someone
other than the undersigned, or to the undersigned at an address other than that
shown under "Description of Debentures Tendered Hereby."
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or type)
REGISTERED HOLDER(S) OF DEBENTURES OR DTC PARTICIPANT(S) SIGN HERE
(In addition, complete Substitute Form W-9 below)
X_______________________________________________________________________________
X_______________________________________________________________________________
(Signature(s) of Registered Holder(s) or DTC Participant(s))
Must be signed by registered holder(s) or DTC participant(s) exactly as
name(s) appear(s) on Debentures or on a security position listing as the owner
of the Debentures or by person(s) authorized to become registered holder(s) by
properly completed bond powers transmitted herewith. If signature is by
attorney-in-fact, trustee, executor, administrator, guardian, officer of a
corporation or other person acting in a fiduciary capacity, please provide the
following information. (Please print or type):
Name and Capacity (full title):_________________________________________________
Address (including zip code):___________________________________________________
________________________________________________________________________________
Area Code and Telephone Number:_________________________________________________
Taxpayer Identification or Social Security No.:_________________________________
Dated:_______________
SIGNATURE GUARANTEE
(If Required -- See Instruction 5)
Authorized Signature:___________________________________________________________
(Signature of Representative of Signature Guarantor)
Name and Title:_________________________________________________________________
Name of Plan:___________________________________________________________________
Area Code and Telephone Number:_________________________________________________
(Please print or type)
Dated:_______________
6
<PAGE> 7
PAYOR'S NAME: NBC ACQUISITION CORP.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER
IDENTIFICATION NUMBER ON THE FOLLOWING SUBSTITUTE FORM W-9 AND CERTIFY THEREIN
THAT YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING.
<TABLE>
<S> <C> <C>
PART 1--PLEASE PROVIDE YOUR TIN IN THE
SUBSTITUTE BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW.
FORM W-9
DEPARTMENT OF THE PART 2--Check the box if you are NOT subject to backup
TREASURY withholding under the provisions of Section 3406(A)(1)(C) ______________________________________
INTERNAL REVENUE SERVICE of the Internal Revenue Code because (1) you are exempt Social Security Number
from backup withholding, (2) you have not been notified
that you are subject to backup withholding as a result of OR____________________________________
failure to report all interest or dividends or (3) the Employer Identification Number
Revenue Service has notified you that Internal
you are no longer subject to backup withholding. [ ]
PAYOR'S REQUEST FOR CERTIFICATION: Under penalties of perjury, I certify that
TAXPAYER IDENTIFICATION the information provided on this form is true, correct and
NUMBER (TIN) complete.
Signature:_______________________________________ PART 3-
Awaiting TIN [ ]
Date:____________________________________________
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY CASH PAYMENTS IN EXCESS OF $10.00 MADE TO YOU.
NOTE: YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties that a taxpayer identification number has not
been issued to me, and either (a) I have mailed or delivered an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver such an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
SIGNATURE ________________________________________ DATE________________________
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Debentures or confirmation of any book-entry
transfer to the Exchange Agent's account at a book-entry transfer facility of
Debentures tendered by book-entry transfer, as well as a properly completed and
duly executed copy of this Letter of Transmittal or facsimile thereof, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date. The method of delivery of this Letter of Transmittal, the
Debentures and any other required documents is at the election and risk of the
Holder, and except as otherwise provided below, the delivery will be deemed made
only when actually received by the Exchange Agent. If such delivery is by mail,
it is suggested that registered mail with return receipt requested, properly
insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Debentures for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Debentures, but whose Debentures are not
immediately available and thus cannot deliver their Debentures, the Letter of
Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
(a) the tender is made through 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");
(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
registration number(s) of such Debentures and the principal amount
of Debentures tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal
(or facsimile thereof), together with the Debentures (or a
confirmation of book-entry transfer of such Debentures into the
Exchange Agent's account at DTC) and any other documents required by
the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such property completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Debentures in proper
form for transfer (or a confirmation of book-entry transfer of such
Debentures into the Exchange Agent's account at DTC) and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange 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 Debentures according to the
guaranteed delivery procedures set forth above. Any
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Holder who wishes to tender Debentures pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery relating to such Debentures prior to the
Expiration Date. Failure to complete the guaranteed delivery procedures outlined
above will not, of itself, affect the validity or effect a revocation of any
Letter of Transmittal form properly completed and executed by a Holder who
attempted to use the guaranteed delivery procedures.
3. BENEFICIAL OWNER INSTRUCTIONS.
Only a Holder of Debentures (i.e., a person in whose name Debentures are
registered on the books of the registrar or, with respect to interests in the
Global Debentures held by DTC, a DTC participant listed in an official DTC
proxy), or the legal representative or attorney-in-fact of a Holder, may execute
and deliver this Letter of Transmittal. Any beneficial owner of Debentures who
wishes to accept the Exchange Offer must arrange promptly for the appropriate
Holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the appropriate Holder of the Instructions
to Registered Holder and/or DTC Participant from Beneficial Owner form
accompanying this Letter of Transmittal.
4. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Debentures evidenced by a
submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered" of
the box entitled "Description of Debentures Tendered Hereby." A newly issued
Debenture for the principal amount of Debentures submitted but not tendered will
be sent to such Holder as soon as practicable after the Expiration Date. All
Debentures delivered to the Exchange Agent will be deemed to have been tendered
in full unless otherwise indicated.
Debentures tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date, after which tenders of Debentures are
irrevocable. To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Debentures to be withdrawn (the "Depositor"), (ii) identify the Debentures
to be withdrawn (including the registration number(s) and principal amount of
such Debentures, or, in the case of Debentures transferred by book-entry
transfer, the name and number of the account at DTC to be credited), (iii) be
signed by the Holder in the same manner as the original signature on this Letter
of Transmittal (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee with respect to the
Debentures register the transfer of such Debentures into the name of the person
withdrawing the tender and (iv) specify the name in which any such Debentures
are to be registered, 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 Issuers, whose determination shall be final
and binding on all parties. Any Debentures so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Debentures will be issued with respect thereto unless the Debentures so
withdrawn are validly retendered. Any Debentures 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 Exchange Offer.
5. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of the
Debentures tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration or enlargement or any
change whatsoever. If this Letter of Transmittal is signed by a participant in
DTC, the signature must correspond with the name as it appears on the security
position listing as the owner of the Debentures.
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If any of the Debentures tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Debentures registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Debentures.
Signatures of this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Debentures
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or
Holders of Debentures (which term, for the purposes described herein, shall
include a participant in DTC whose name appears on a security listing as the
owner of the Debentures) listed and tendered hereby, no endorsements of the
tendered Debentures or separate written instruments of transfer or exchange are
required. In any other case, the registered Holder (or acting Holder) must
either properly endorse the Debentures or transmit properly completed bond
powers with this Letter of Transmittal (in either case, executed exactly as the
name(s) of the registered Holder(s) appear(s) on the Debentures, and, with
respect to a participant in DTC whose name appears on a security position
listing as the owner of Debentures, exactly as the name of the participant
appears on such security position listing), with the signature on the Debentures
or bond power guaranteed by an Eligible Institution (except where the Debentures
are tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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 Issuer, proper evidence
satisfactory to the Issuer of its authority so to act must be submitted.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate in the applicable box, the name and
address (or account at DTC) in which the Exchange Debentures or substitute
Debentures for principal amounts not tendered or not accepted for exchange are
to be issued (or deposited), if different from the names and addresses or
accounts of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the employer identification number or social
security number of the person named must also be indicated and the tendering
Holder should complete the applicable box.
If no instructions are given, the Exchange Debentures (and any Debentures
not tendered or not accepted) will be issued in the name of and sent to the
acting Holder of the Debentures or deposited at such Holder's account at DTC.
7. TRANSFER TAXES.
The Issuer shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Debentures to them or their order pursuant to the
Exchange Offer. If a transfer tax is imposed for any reason other than the
transfer and exchange of Debentures to the Issuer, or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered Holder or any other person) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith, the amount of such transfer taxes will be collected from the
tendering Holder by the Exchange Agent.
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Except as provided in this Instruction 7, it will not be necessary for
transfer stamps to be affixed to the Debentures listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS.
The Issuer reserves the right, in its reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
9. MUTILATED, LOST, STOLEN OR DESTROYED DEBENTURES.
Any Holder whose Debentures have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to NBC Acquisition Corp., 4700 South 19th
Street, Lincoln, NE 68501-0529, telephone (402) 421-7300.
11. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Debentures and withdrawal of tendered
Debentures will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the absolute right
to reject any and all Debentures not properly tendered or any Debentures the
Issuer's acceptance of which would, in the opinion of counsel for the Issuer, be
unlawful. The Issuer also reserves the right, in its reasonable judgment, to
waive any defects, irregularities or conditions of tender as to particular
Debentures. The Issuer's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Debentures must be cured within
such time as the Issuer shall determine. Although the Issuer intends to notify
Holders of defects or irregularities with respect to tenders of Debentures,
neither the Issuer, the Exchange Agent nor any other person shall incur any
liability for failure to give such notification. Tenders of Debentures will not
be deemed to have been made until such defects or irregularities have been cured
or waived. Any Debentures 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 Holder as soon as
practicable following the Expiration Date.
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IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Debentures is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the tendering Holder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future. If the Exchange
Agent is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Holder may be subject to backup withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder, the
Holder is required to notify the Exchange Agent of his or her correct TIN by
completing the form herein certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN) and that (i) each Holder
is exempt, (ii) such Holder has not been notified by the Internal Revenue
Service that he or she is subject to backup withholding as a result of failure
to report all interest or dividends or (iii) the Internal Revenue Service has
notified such Holder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the
Debentures. If Debentures are in more than one name or are not in the name of
the actual Holder, consult the instructions on Internal Revenue Service Form W-
9, which may be obtained from the Exchange Agent, for additional guidance on
which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied For"
in the space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH DEBENTURES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
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