<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION STATEMENT NO. 333-48221
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NEBRASKA BOOK COMPANY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
KANSAS 5192 47-0549819
(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
THE 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
NEBRASKA BOOK COMPANY, INC.
[NEBRASKA BOOK COMPANY,
INC. LOGO]
OFFER TO EXCHANGE ITS 8 3/4% SENIOR SUBORDINATED NOTES DUE 2008 WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING 8 3/4% SENIOR
SUBORDINATED NOTES DUE 2008.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED.
Nebraska Book Company, Inc., a Kansas corporation (the "Company"), 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 8 3/4% Senior Subordinated Notes due 2008 (the "Exchange Notes")
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 8 3/4% Senior
Subordinated Notes due 2008 (the "Initial Notes," and, together with the
Exchange Notes, the "Notes"), of which $110,000,000 principal amount is
outstanding. ALTHOUGH THE EXCHANGE NOTES ARE TITLED "SENIOR," THE COMPANY HAS
NOT ISSUED, AND CURRENTLY DOES NOT HAVE ANY FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE EXCHANGE NOTES WOULD BE SENIOR. THE
EXCHANGE NOTES ALSO WILL BE EFFECTIVELY SUBORDINATED TO ESSENTIALLY ALL OF THE
OUTSTANDING INDEBTEDNESS OF THE COMPANY AND ANY FUTURE SUBSIDIARIES. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount of
Initial Notes being tendered for exchange. However, the Exchange Offer is
subject to the absence of certain conditions which may be waived by the Company.
See "The Exchange Offer -- Certain Conditions to the Exchange Offer." Subject to
the absence or waiver of such conditions, the Company will accept for exchange
any and all Initial Notes 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 Notes may be tendered only in integral
multiples of $1,000. The date of acceptance and exchange of the Initial Notes
(the "Exchange Date") will be the fourth business day following the Expiration
Date, unless an earlier date is selected by the Company. Initial Notes 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 Notes will be issued and delivered promptly after the
Exchange Date.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Initial Notes, except that the Exchange Notes have been
registered under the Securities Act and are generally freely transferable by
holders thereof and are issued without any covenant upon the Company regarding
registration under the Securities Act. See "The Exchange Offer -- Resale of
Exchange Notes." The Exchange Notes will evidence the same debt as the Initial
Notes 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 Notes, see
"Description of Notes." There will be no cash proceeds to the Company from this
Exchange Offer.
The Exchange Notes are unsecured and subordinated in right of payment to
all existing and future Senior Indebtedness (as defined) of the Company,
including indebtedness under the Credit Facilities (as defined). The Exchange
Notes will rank pari passu with any future Senior Subordinated Indebtedness (as
defined) of the Company, and will rank senior in right of payment to all
subordinated indebtedness of the Company. The Company's obligations under the
Credit Facilities are secured by a first priority lien on substantially all of
the Company's tangible and intangible assets. The Indenture permits the Company
and any Subsidiary (as defined) to incur additional debt, including secured
debt, subject to certain limitations. See "Description of Notes." As of March
31, 1998, the aggregate amount of the Company's outstanding Senior Indebtedness
was $66.0 million (exclusive of unused commitments), the Company had no Senior
Subordinated Indebtedness outstanding other than the Notes and no indebtedness
that was subordinate or junior in right of repayment to the indebtedness
represented by the Notes. Nebraska Book may incur additional indebtedness
provided that certain financial ratio
(Continued on 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 NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 3
(Continued from previous page)
tests are met. See "Description of Notes -- Certain Covenants." Nebraska Book
does not have 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
the Company to make an offer to repurchase all of the outstanding Notes at a
price equal to 101% of the principal amount 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, the Company will have, or
will have access to, sufficient funds to repurchase the Notes.
The Initial Notes 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 Notes 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, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Initial
Notes 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 the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of business and such holders have no intention to engage, and no
arrangement with any person to participate, in the distribution of such Exchange
Notes. Based on such interpretations, the Company also believes that a
broker-dealer may not participate in the Exchange Offer with respect to Initial
Notes acquired directly from the Company that it may still hold.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Initial Notes where such
Initial Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. See "The Exchange Offer -- Resale of
Exchange Notes." The Company 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 Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list any Notes on a
national securities exchange or to apply for quotation of any Notes through the
National Association of Securities Dealers Automated Quotation System. Any
Initial Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Initial Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered and tendered but
unaccepted Initial Notes could be adversely affected. Following consummation of
the Exchange Offer, the holders of Initial Notes will continue to be subject to
the existing restrictions on transfers thereof, and the Company will have no
further obligation to such holders to provide for the registration under the
Securities Act of the Initial Notes held by them. No assurance can be given as
to the liquidity of the trading market for either the Initial Notes or the
Exchange Notes.
<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 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" mean NBC Acquisition
Corp. or NBC Acquisition Corp. together with its subsidiaries, as applicable,
and references to the "Company" mean Nebraska Book Company, Inc. Unless
otherwise indicated, references to the business of the Company 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
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.
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.
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
1
<PAGE> 6
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 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 the Company), 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
2
<PAGE> 7
Capital Partners, L.P. ("HWH"), which is comprised of limited partners who are
experienced investors in the buyout industry.
THE RECAPITALIZATION
Effective September 1, 1995, the Company 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, the Company repaid
approximately $82.0 million of outstanding indebtedness and merged with Nebraska
Merger Corp., a newly-created subsidiary of Mergerco, with the Company as the
surviving company of such merger.
Concurrently with the consummation of the Merger, the Company 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, Holdings raised a total of $91.6 million, which it contributed to the
Company 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) the net proceeds of approximately $41.6
million from the issuance of Holdings' $76.0 million aggregate principal amount
at maturity of its 10 3/4% Senior Discount Debentures due 2009 (the "Holdings
Senior Discount Debentures").
The Merger, the acquisition of CSC, the repayment of substantially all of
the Company's outstanding indebtedness, the Equity Contribution, the issuance by
the Company of the Notes, the issuance by Holdings of the Holdings Senior
Discount Debentures, the Company'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.......................... 110,000
Equity Contribution(2)...................................... 91,623
--------
Total sources of funds............................ $261,623
========
Uses:
Purchase of common stock.................................... $165,921
Repayment of existing indebtedness(3)....................... 82,014
Payment of fees and expenses................................ 12,223
Excess cash................................................. 1,465
--------
Total uses of funds............................... $261,623
========
</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 the Company. See "Description of Senior Indebtedness."
(2) As part of the Recapitalization, Holdings issued (the "Discount Debentures
Offering") the Holdings Senior Discount Debentures for gross proceeds of
approximately $45.0 million (net proceeds of $41.6 million). Further, HWH
invested approximately $45.6 million and senior management of the Company
reinvested approximately $4.4 million in Holdings. The proceeds of the
Discount Debentures Offering and the sale of Holdings Common Stock were
contributed to the Company by Holdings as equity.
(3) Includes $2.3 million of discount on the Company's existing subordinated
notes. See "Capitalization."
4
<PAGE> 9
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering to exchange pursuant to the
Exchange Offer up to $110,000,000 aggregate
principal amount of the Exchange Notes for any and
all of its outstanding Initial Notes. The terms of
the Exchange Notes are identical in all material
respects (including principal amount, interest rate
and maturity) to the terms of the Initial Notes for
which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes 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 the Company, 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 Notes 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 Notes so
surrendered or, if no interest has been paid on
such Initial Notes, from February 13, 1998.
No Minimum Condition....... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Initial Notes
being tendered for exchange.
Exchange Date.............. The date of acceptance and exchange (the "Exchange
Date") of the Initial Notes will be the fourth
business day following the Expiration Date, unless
an earlier date is selected by the Company and the
Company notifies the Exchange Agent (as defined) of
such earlier date.
Conditions to the Exchange
Offer.................... The Company shall not be required to accept for
exchange, or to issue Exchange Notes in exchange
for, any Initial Notes and may terminate or amend
the Exchange Offer, if any of certain customary
conditions exist, the occurrence of which may be
waived by the Company. The Company 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 Notes.............. Each holder of Initial Notes wishing to tender such
notes 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 Notes and any other
5
<PAGE> 10
required documentation to the Exchange Agent at the
address set forth in the Letter of Transmittal. See
"The Exchange Offer -- Procedures for Tendering
Initial Notes" and "Plan of Distribution."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
For a discussion of the use of the net proceeds
received by the Company from the issuance of the
Initial Notes see "Use of Proceeds."
Federal Income Tax
Consequences............. In the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel to the Company, 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 Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering the Initial
Notes, either make appropriate arrangements to
register ownership of the Initial Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering Initial Notes."
Guaranteed Delivery
Procedures............... Holders of Initial Notes who wish to tender their
Initial Notes and whose Initial Notes are not
immediately available or who cannot deliver their
Initial Notes, 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 Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Procedures for
Tendering Initial Notes."
Acceptance of Initial Notes
and Delivery of Exchange
Notes.................... On the Exchange Date, the Company will accept for
exchange any and all Initial Notes which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly following
the Exchange Date. See "The Exchange
Offer -- Acceptance of Initial Notes for Exchange;
Delivery of Exchange Notes."
Consequences of Failure to
Exchange................. Holders of the Initial Notes who do not tender
their Initial Notes in the Exchange Offer will
continue to hold such Initial Notes and will be
entitled to all the rights and limitations
applicable thereto under the Indenture dated as of
February 13, 1998 between the Company and United
States Trust Company of New York relating to
6
<PAGE> 11
the Initial Notes and the Exchange Notes (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 Notes pursuant to, the Exchange Offer.
Holders of Initial Notes who do not exchange their
Initial Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as
set forth in the legend thereon as a consequence of
the offer or sale of the Initial Notes 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 Notes 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. The Company does
not currently anticipate that it will register the
Initial Notes under the Securities Act. To the
extent that Initial Notes are tendered and accepted
in the Exchange Offer, the trading market for
untendered or tendered but unaccepted Initial Notes
could be adversely affected. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Registration Rights........ The Company 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 Notes, in
which it agreed to make the Exchange Offer. The
Registration Rights Agreement provides that if the
Company fails to consummate the Exchange Offer on
or prior to August 12, 1998, the Company will file
a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Notes
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), the Company will be required
to pay certain Liquidated Damages (as defined) to
the affected holders of Notes. 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 Notes... Based upon interpretations by the staff of the SEC
issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Initial Notes 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 the Company
within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and
prospectus delivery provisions of the Securities
Act provided that such Exchange Notes are acquired
in the ordinary course of business and such holders
have no intention to engage, and no arrangement
with any person to participate in the distribution
of
7
<PAGE> 12
such Exchange Notes. Based on such interpretations,
the Company also believes that a broker-dealer may
not participate in the Exchange Offer with respect
to Initial Notes acquired directly from the Company
that it may still hold. Each broker-dealer that
receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection
with the resale of such Exchange Notes. 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 Notes."
THE EXCHANGE NOTES
Issuer..................... Nebraska Book Company, Inc.
Securities Offered......... $110,000,000 aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2008.
Maturity Date.............. February 15, 2008.
Interest Payment Dates..... February 15 and August 15, commencing August 15,
1998.
Sinking Fund............... None.
Optional Redemption........ Except as described below, the Company may not
redeem the Exchange Notes prior to February 15,
2003. On or after such date, the Company may redeem
the Exchange Notes, 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, the Company may, at its option,
redeem up to 35% of the original principal amount
of the Exchange Notes with the net proceeds of one
or more Equity Offerings (as defined), received by,
or invested in, the Company so long as there is a
Public Market (as defined) at the time of such
redemption, at a redemption price equal to 108.75%
of the principal amount to be redeemed, together
with accrued and unpaid interest, if any, to the
date of redemption; provided that at least 65% of
the original principal amount of the Exchange Notes
remains outstanding immediately after each such
redemption. See "Description of Notes -- Optional
Redemption."
Change of Control.......... Upon a Change of Control, each holder will have the
right to require the Company to make an offer to
repurchase the Exchange Notes at a price equal to
101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of
repurchase. See "Description of Notes -- Change of
Control."
Ranking.................... ALTHOUGH THE EXCHANGE NOTES ARE TITLED "SENIOR,"
THE COMPANY HAS NOT ISSUED, AND CURRENTLY DOES NOT
HAVE ANY FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE EXCHANGE
NOTES WOULD BE SENIOR. The Exchange Notes will be
unsecured and will be subordinated in right of
payment to all existing and future Senior
Indebtedness of the Company and will be effectively
subordinated to all obligations of any future
subsidiaries of the Company. On the Issue Date, the
Company will not
8
<PAGE> 13
have any subsidiaries; however, the Indenture will
not restrict the ability of the Company to create,
acquire or capitalize subsidiaries in the future.
The Exchange Notes will rank pari passu with any
future Senior Subordinated Indebtedness of the
Company and will rank senior to all subordinated
indebtedness of the Company. As of March 31,
1998,(i) the aggregate amount of the outstanding
Senior Indebtedness of the Company was
approximately $66.0 million, (including $5.4
million under the Revolving Credit Facility) and
(ii) the Company would have had no Senior
Subordinated Indebtedness outstanding, other than
the Exchange Notes, and no Indebtedness that is
subordinate or junior in right of repayment to the
Indebtedness represented by the Exchange Notes. See
"Description of Notes -- Ranking and
Subordination."
Future Guarantees.......... The Indenture provides that any subsidiary of the
Company created or acquired subsequent to the Issue
Date will guarantee the Notes on an unsecured,
senior subordinated basis. See "Description of
Notes -- Certain Covenants -- Future Subsidiary
Guarantors."
Restrictive Covenants...... The Indenture limits: (i) the incurrence of
additional indebtedness by the Company, (ii) the
layering of indebtedness, (iii) the payment of
dividends on, and redemption of, capital stock of
the Company and the redemption of certain
subordinated obligations of the Company, (iv)
investments, (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 the Company may
operate, (ix) sale/leaseback transactions, (x)
restrictions on distributions from Restricted
Subsidiaries, (xi) the sale of capital stock of
Restricted Subsidiaries and (xii) consolidations,
mergers and transfers of all or substantially all
of the Company's assets. However, all of these
limitations and prohibitions are subject to a
number of important qualifications and exceptions.
See "Description of Notes -- Certain Covenants."
Absence of Public Market... There is no public market for the Exchange Notes,
and the Exchange Notes will not be listed on any
securities exchange. The Company 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 Notes; 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 Notes may be
adversely affected. See "Risk Factors."
For definitions of certain capitalized terms used herein, see "Description
of Notes."
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 Notes.
9
<PAGE> 14
SUMMARY PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited summary pro forma
statement of operations data of the Company for the fiscal year ended March 31,
1998. The pro forma 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
Statement of Operations", "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the 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
Income from continuing operations(1)........................ 874
OTHER DATA:
Gross margin................................................ 35.9%
Depreciation and amortization............................... $ 8,483
Cash interest expense(1)(3)................................. 15,632
Ratio of earnings to fixed charges(4)....................... 1.1x
</TABLE>
- ---------------
(1) Excludes certain non-recurring charges attributable to the Recapitalization.
See Note 5 to the "Unaudited Pro Forma Statement of Operations" included
herein.
(2) Other income primarily represents recurring income from ancillary activities
of the Company.
(3) Cash interest expense excludes amortization of certain deferred finance
costs of $1,543. This definition differs from the definition of Consolidated
Interest Expense in the Indenture. See "Description of Notes."
(4) 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.
10
<PAGE> 15
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial and other data
for the Company 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 financial
statements of the Company and the notes thereto included herein.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR(1)
-------------------------------- ---------------------------------
FIVE SEVEN
MONTHS MONTHS
FISCAL YEARS ENDED ENDED ENDED FISCAL YEARS ENDED
MARCH 31, AUGUST 31, MARCH 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 11,284
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 (819)
Extraordinary loss on extinguishment of debt, net
of taxes.......................................... -- -- -- -- -- (4,021)
Net income (loss).................................. 8,707 9,620 8,959 (2,501) 3,434 (5,146)
OTHER DATA:
Gross margin....................................... 35.0% 35.5% 36.7% 34.7% 36.0% 36.8%
EBITDA(3).......................................... $ 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(4)............... -- 100 -- 551 1,252 7,714
Ratio of earnings to fixed charges(5).............. 8.9x 8.5x 10.5x (6) 1.5x (6)
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, Holdings purchased all the outstanding capital
stock of the Company in a transaction accounted for as a purchase business
combination. Following this acquisition, the 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,
Holdings consummated the Merger among Mergerco, Holdings and certain
shareholders of Holdings pursuant to which the Company's outstanding debt
and equity 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) 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.
(4) Business acquisition expenditures represent established businesses purchased
by the Company.
(5) 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.
(6) Earnings were insufficient to cover fixed charges for the seven months ended
March 31, 1996 and year ended March 31, 1998 by $3,468 and $819,
respectively.
12
<PAGE> 17
RISK FACTORS
In evaluating an investment in the Exchange Notes, 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 Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the issuance of the Initial Notes 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 Notes may not be offered or sold unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. The Company does not intend to register the Initial Notes
under the Securities Act, other than in the limited circumstances contemplated
by the Registration Rights Agreement. In addition, any holder of Initial Notes
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes 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 Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered or tendered but
unaccepted Initial Notes 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 $176.0 million of outstanding long-term indebtedness (including
current portion) of which, $66.0 million is Senior Indebtedness (including $5.4
million under the Revolving Credit Facility), and there was $26.2 million
available and undrawn under the Revolving Credit Facility as determined by the
borrowing base calculation as defined in the Credit Agreement. The Indenture
permits the Company to incur additional indebtedness, including Senior
Indebtedness, subject to certain limitations. The degree to which the Company is
leveraged could have important consequences to holders of the Notes, 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 Notes 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 Notes; (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 Senior Indebtedness" and
"Description of Notes."
The Company's ability to pay the interest on and retire principal of the
Notes 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 Notes 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 satisfy its
13
<PAGE> 18
debt service requirements or that they would be permitted by the Credit
Facilities 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 Notes and the Company's ability to pay principal of and interest on
the Notes.
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.
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness of the Company, including
all amounts owing under the Credit Facilities. In addition to being
contractually subordinated, the Notes are unsecured and thus, will effectively
rank junior to any secured indebtedness of the Company, including the
indebtedness outstanding under the Credit Facilities, which is secured by liens
on substantially all of the assets of the Company. As of March 31, 1998, the
aggregate amount of such Senior Indebtedness of the Company was approximately
$66.0 million (including $5.4 million under the Revolving Credit Facility), all
of which was secured and the Company had $26.2 million undrawn and available
under the Revolving Credit Facility as determined by the borrowing base
calculation as defined in the Credit Agreement. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with
respect to the Company, assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there can be no assurance that there will be sufficient assets to pay
amounts due on all or any of the Notes. See "Description of Notes -- Ranking and
Subordination."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts, 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 Notes. In addition, under the Credit Facilities, the Company 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.
The Company's ability to meet those financial ratios and tests can be affected
by events beyond its control, and there can be no assurance that the Company
will satisfy these requirements in the future. A breach of any of these
covenants could result in a default under the Credit Facilities and/or the
Indenture. Upon the occurrence of an event of default under the Credit
Facilities, 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. If the Company 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 the
Company would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Notes. Substantially all of the
assets of the Company are pledged as security under the Credit Facilities. See
"Description of Senior Indebtedness" and "Description of Notes -- Certain
Covenants."
14
<PAGE> 19
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 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
15
<PAGE> 20
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.
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 NOTES 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 Notes would be entitled to require the
Company to repurchase the Notes at a purchase price equal to 101% of the
principal amount of such Notes, plus accrued and unpaid interest, if any, to the
date of purchase. However, the Credit Facilities prohibit the purchase of the
Notes by the Company in the event of a Change of Control, unless and until such
time as the indebtedness under the Credit
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<PAGE> 21
Facilities is repaid in full. The Company's failure to purchase the Notes would
result in a default under the Indenture and the Credit Facilities. The Credit
Facilities also provide that the indebtedness thereunder becomes due in the
event of a "Change of Control" as defined therein, and any future Senior
Indebtedness may have a similar provision. The inability to repay the
indebtedness under the Credit Facilities, if accelerated, would also constitute
an event of default under the Indenture, which could have adverse consequences
to the Company and the holders of the Notes. In the event of a Change of
Control, there can be no assurance that the Company would have sufficient assets
to satisfy all of its obligations under the Credit Facilities and the Notes. The
provisions of the Indenture may not afford holders of the Notes the right to
require the Company to repurchase the Notes in the event of certain
transactions, such as a highly leveraged transaction, that may adversely affect
the holders of the Notes if such transaction is not a transaction defined as a
Change of Control. See "Description of Senior Indebtedness" and "Description of
Notes -- Change of Control."
FRAUDULENT CONVEYANCE
The incurrence of indebtedness (such as the Notes) 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 the Company. Under these statutes, if a court were to
find that obligations (such as the Notes) were incurred with the intent of
hindering, delaying or defrauding present or future creditors or that the
Company 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 the Company's
obligations under the Notes, subordinate the Notes to other indebtedness of the
Company or take other action detrimental to the holders of the Notes.
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. The Company believes that, after giving effect
to the Recapitalization, the Company 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 the
Company 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 the Company was insolvent at the time of, or rendered insolvent
upon consummation of, the Recapitalization.
The Indenture provides that any Restricted Subsidiary of the Company
created or acquired subsequent to the Issue Date that guarantees indebtedness of
the Company will guarantee the Notes on an unsecured, senior subordinated basis.
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 the Company (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 Notes.
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ABSENCE OF A PUBLIC MARKET FOR EXCHANGE NOTES
The Exchange Notes will constitute a new issue of securities for which
there is no established trading market. The Company does not intend to list the
Exchange Notes on any national securities exchange or to seek the admission of
the Exchange Notes for quotation through the National Association of Securities
Dealers Automated Quotation System. Although the Initial Purchaser has advised
the Company that it currently intends to make a market in the Exchange Notes, 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 Notes, the ability of the holders of the Exchange Notes to sell their
Exchange Notes or the price at which the holders would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities.
THE EXCHANGE OFFER
GENERAL
The Company 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 $110 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Initial Notes 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 Notes.
As of the date of this Prospectus, $110 million aggregate principal amount
of the Initial Notes is outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about , 1998, to all
holders of Initial Notes registered on the note register of the Company. The
Company's obligation to accept Initial Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions set forth under "Certain
Conditions to the Exchange Offer" below. The Company currently expects that each
of the conditions will be satisfied and that no waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Initial Notes were issued on February 13, 1998 in a transaction exempt
from the registration requirements of the Securities Act. Accordingly, the
Initial Notes 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 Notes, the Company
entered into the Registration Rights Agreement, which requires the Company 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 Notes, 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 Notes 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
Notes by the 150th day after the date of issuance of the Initial Notes). A copy
of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
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<PAGE> 23
The Exchange Offer is being made by the Company 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 Notes are
registered on the note register of the Company or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Initial Notes are held of record by The Depository Trust Company.
Other than pursuant to the Registration Rights Agreement, the Company is not
required to file any registration statement to register any outstanding Initial
Notes. Holders of Initial Notes who do not tender their Initial Notes or whose
Initial Notes 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 Notes.
The Company 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, the Company 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, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Initial Notes 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 the Company 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 Notes
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 Notes. See " -- Resale of Exchange Notes." Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Initial Notes, where such Initial Notes were acquired by such broker-dealer as a
result of market making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE
The Company 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 Notes for each $1,000 in principal amount of the
Initial Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Initial Notes for which they may be exchanged
pursuant to this Exchange Offer, except that the Exchange Notes will generally
be freely transferable by holders thereof and will not be subject to any
covenant regarding registration under the Securities Act. The Exchange Notes
will evidence the same indebtedness as the Initial Notes and will be entitled to
the benefits of the Indenture. See "Description of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the SEC with respect to whether the Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Initial Notes
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, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Initial Notes may be offered for sale, resold and otherwise transferred by
any holder of such Exchange Notes (other than any such holder that is a
broker-dealer or is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends
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<PAGE> 24
to engage in a distribution of such Exchange Notes. 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 the Company or
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes 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 Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Initial Notes, where
such Initial Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."
Interest on the Exchange Notes will accrue from the last Interest Payment
Date on which interest was paid on the Initial Notes so surrendered or, if no
interest has been paid on such Initial Notes, from February 13, 1998.
Tendering holders of the Initial Notes 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 Notes
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 the Company, 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. The Company 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 Notes, 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 Notes previously
tendered will remain subject to the Exchange Offer unless properly withdrawn.
The Company expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Initial Notes 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
the Company 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 Notes,
whether before or after any tender of the Initial Notes. If any such termination
or amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the
Initial Notes 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 the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will, subject to the conditions described under
"-- Certain Conditions to the Exchange Offer," exchange the Exchange Notes for
the Initial Notes on the Exchange Date.
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<PAGE> 25
PROCEDURES FOR TENDERING INITIAL NOTES
The tender to the Company of Initial Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Initial Notes 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 Notes 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 Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering the Initial Notes, either make appropriate
arrangements to register ownership of the Initial Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
THE METHOD OF DELIVERY OF INITIAL NOTES, 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 NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
If tendered Initial Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Initial Notes 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 Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Initial Notes must be endorsed or accompanied by
written instruments of transfer in form satisfactory to the Company 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 Notes and/or Initial Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the Initial Notes, 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 Notes 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 Notes by causing such
Book-Entry Transfer Facility to transfer such Initial Notes into the Exchange
Agent's account with respect to the Initial Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of Initial Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
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<PAGE> 26
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 Notes in the Exchange Offer and time
will not permit a Letter of Transmittal or Initial Notes 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 Notes are registered and, if possible, the
certificate numbers of the Initial Notes 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 Notes in proper form for transfer (or a
confirmation of book-entry transfer of such Initial Notes 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 Notes being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
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 Notes (or a confirmation of book-entry transfer of
such Initial Notes 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 Notes in exchange for Initial Notes 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 Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Initial Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any and all tenders of any particular Initial Notes not properly tendered
or not to accept any particular Initial Notes which acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Initial Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Initial Notes 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 the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
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
Notes 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 Notes, such Initial Notes 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 Notes.
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<PAGE> 27
If the Letter of Transmittal or any Initial Notes 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
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, 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 Notes and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company, 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 Notes for its own account in
exchange for Initial Notes where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company) must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. 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 Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Initial Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Initial Notes 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
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Initial Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Initial Notes, 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 the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of tendered Initial Notes or transfer ownership of such Initial Notes
on the account books maintained by a Book-Entry Transfer Facility. The
Transferor further agrees that acceptance of any tendered Initial Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company 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 the Company
within the meaning of Rule 405 under the Securities Act and that it is acquiring
the Exchange Notes 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 Notes. 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 Notes. Each Transferor which is a
broker-dealer receiving Exchange Notes for its own account must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. 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-
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<PAGE> 28
dealer in connection with resales of Exchange Notes received in exchange for
Initial Notes where such Initial Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
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 Notes 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 Notes to be withdrawn (the "Depositor"), (ii)
identify the Initial Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Initial Notes), (iii) specify the principal
amount of Initial Notes to be withdrawn, (iv) include a statement that such
holder is withdrawing his election to have such Initial Notes exchanged, (v) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Initial Notes 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 Notes into the name of the person
withdrawing the tender and (vi) specify the name in which any such Initial Notes
are to be registered, if different from that of the Depositor. The Exchange
Agent will return the properly withdrawn Initial Notes promptly following
receipt of notice of withdrawal. If Initial Notes 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 Notes 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 the
Company in its sole discretion and such determination will be final and binding
on all parties.
Any Initial Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Initial Notes
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 Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Initial Notes 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 Notes may be retendered by following one of
the procedures described under "Procedures for Tendering Initial Notes" above at
any time on or prior to the Expiration Date.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly on the Exchange Date, all Initial Notes
properly tendered and will issue the Exchange Notes promptly after such
acceptance. See "Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Initial Notes for exchange when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
For each Initial Note accepted for exchange, the holder of such Initial
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Initial Note.
In all cases, issuance of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of
24
<PAGE> 29
certificates for such Initial Notes or a timely book-entry confirmation of such
Initial Notes 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 Notes are not accepted for any
reason set forth in the terms or conditions of the Exchange Offer or if Initial
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Initial Notes will be returned
without expense for the tendering holder thereof (or, in the case of Initial
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Initial Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the Exchange Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Initial Notes 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
Notes for exchange or the exchange of the Exchange Notes for such Initial Notes,
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 the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer
or have a material adverse effect on the contemplated benefits of
the Exchange Offer to the Company; 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 the Company that is or may be adverse to the
Company, or the Company shall have become aware of facts that have
or may have adverse significance with respect to the value of the
Initial Notes or the Exchange Notes or that may materially impair
the contemplated benefits of the Exchange Offer to the Company; 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 the Company, do not permit the Company to effect
the Exchange Offer; or
(d) any governmental approval has not been obtained, which approval the
Company, 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 the Company,
might materially impair the ability of the Company to proceed with
the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company; or
(f) there shall occur a change in the current interpretation by the
staff of the SEC which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Initial Notes 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
the Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in
the distribution of such Exchange Notes; or
25
<PAGE> 30
(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 the
Company 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 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.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Initial Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Initial Notes). In addition, the
Company 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, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the
Initial Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company 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 the Company 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 the Company 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 the Company concerning the events described above will be final
and binding upon all parties.
In addition, the Company will not accept for exchange any Initial Notes
tendered, and no Exchange Notes will be issued in exchange for any such Initial
Notes, 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, the Company 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 Notes being tendered for exchange.
26
<PAGE> 31
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 RECOMMENDED) (212) 420-6152
United States Trust Company of New York Attention: Corporate Trust Services
Attention: Corporate Trust Services Telephone: 1-800-548-6565
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.
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
The Company 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. The Company, 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. The
Company 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 Notes 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 the Company 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 the Company.
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 the Company 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 Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in
27
<PAGE> 32
compliance with the laws of such jurisdiction. However, the Company 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
Notes in such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Initial Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Initial Notes 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 Notes tendered,
or if tendered Initial Notes 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 Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Initial
Notes as reflected in the Company's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of Exchange Notes for Initial Notes. Expenses incurred
in connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not tender their Initial Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon. Initial Notes not exchanged pursuant to the Exchange Offer will
continue to remain outstanding in accordance with their terms. In general, the
Initial Notes 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. The Company does not
currently anticipate that it will register the Initial Notes under the
Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Initial
Notes should carefully consider whether to participate. Holders of Initial Notes
are urged to consult their financial and tax advisors in making their own
decision whether or not to tender their Initial Notes. See "Certain Federal
Income Tax Consequences".
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Initial Notes who do not tender their Initial Notes in the
Exchange Offer will continue to hold such Initial Notes 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 Notes will continue to be subject to
the restrictions on transfer set forth in the legend thereon. To the extent that
Initial Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered Initial Notes could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Initial Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Initial Notes which are not tendered in the
Exchange Offer.
28
<PAGE> 33
RESALE OF EXCHANGE NOTES
The Company 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, the Company 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, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Initial Notes may be offered for resale, resold
and otherwise transferred by holder (other than any holder who is a
broker-dealer or an "affiliate" of the Company 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 Notes 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 Notes. However, any
holder who is an "affiliate" of the Company or who has an arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, or any broker-dealer who purchased
Initial Notes from the Company 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 Notes 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 Securities Act in connection with any
resale of Exchange Notes. Each such broker-dealer that receives Exchange Notes
for its own account in exchange for Initial Notes, where such Initial Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities (other than Initial Notes acquired directly from the Company
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 Notes. 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 Notes 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. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes 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 Notes.
29
<PAGE> 34
USE OF PROCEEDS
The Company will not receive any cash proceeds or incur any additional
indebtedness as a result of the issuance of the Exchange Notes pursuant to the
Exchange Offer.
The net proceeds from the Offering, approximately $103.6 million (after
deductions of discounts and commissions and expenses of the Offering), together
with the proceeds of the Credit Facilities and the Equity Contribution, were
used to pay amounts due in connection with the Recapitalization. The balance of
such proceeds were used to pay fees and expenses incurred in connection with the
Recapitalization. See "Summary -- The Recapitalization."
Of the indebtedness repaid by the Company, $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.
30
<PAGE> 35
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations with respect to
the Company is based on the historical 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 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 pro forma data. Actual amounts could differ from those set forth below.
On February 13, 1998, Holdings consummated the Merger among Mergerco,
Holdings and certain shareholders of Holdings pursuant to which the Company's
outstanding debt and Holdings' stock were restructured. The Recapitalization was
financed through the issuance of approximately $215 million of new debt
(including $45.0 million of net senior discount debentures issued by Holdings),
a $45.6 million capital contribution from HWH to Mergerco, and a $4.4 million
reinvestment of capital by existing management shareholders of Holdings. Upon
receipt of the capital contribution from HWH, Mergerco was merged into Holdings
with Holdings being the surviving corporation, and HWH and management
shareholders were reissued surviving corporation shares of Holdings Common
Stock. The Company utilized proceeds of the debt issuance 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, and pay/accrue approximately $75.3 million in dividends to Holdings,
which Holdings utilized to purchase outstanding warrants and reacquire certain
shares of Holdings' outstanding Class A and Class B common stock. 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.
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 Holdings 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 Statement of Operations should be read in
conjunction with the notes included herewith, the Company's 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 Statement of Operations does not purport to
represent what the Company's results of operations would have been had the
Acquisitions and Recapitalization occurred on the date specified, or to project
the Company's results of operations for any future period or date. The Unaudited
Pro Forma Statement of Operations does not give effect to non-recurring charges
directly attributable to the Recapitalization.
31
<PAGE> 36
NEBRASKA BOOK COMPANY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<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..................................... 11,284 5,890(3) 17,174
Interest income...................................... (328) (81)(1) (409)
Other income......................................... (512) (358)(1) (870)
-------- ------- --------
Income (loss) before income taxes............ (819) 3,224 2,405
Income tax expense..................................... 306 1,225(4) 1,531
-------- ------- --------
Income (loss) from continuing
operations(6).............................. $ (1,125) $ 1,999 $ 874
======== ======= ========
</TABLE>
See accompanying notes to the unaudited pro forma statement of operations.
32
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA 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 business 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
Amortization of deferred financing costs(d)................. 1,543
Historical interest of acquired bookstores.................. 74
-------
Total....................................................... 16,123
Less: Historical interest................................... 10,233
-------
Adjustment to interest expense.............................. $ 5,890
=======
</TABLE>
- ---------------
(a) Interest is calculated at an effective rate of 8.00% for the period
indicated.
(b) Interest is calculated at an effective rate of 8.25% for the period
indicated.
(c) Interest is calculated at an effective rate of 8.75% for the period
indicated.
33
<PAGE> 38
(d) Deferred financing costs of $10,957 relate solely to the
Recapitalization and are being amortized over the terms of the related
financings of 6 to 10 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 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>
34
<PAGE> 39
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial and other data
of the Company 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 financial data were derived from the audited financial statements of
the Company. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the 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 11,284
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 (819)
Income tax expense (benefit).................... 5,383 5,950 5,583 (967) 2,325 306
-------- -------- ------- --------- -------- --------
Income (loss) before extraordinary
item.................................. 8,707 9,620 8,959 (2,501) 3,434 (1,125)
Extraordinary loss on extinguishment of debt,
net of taxes.................................. -- -- -- -- -- (4,021)
-------- -------- ------- --------- -------- --------
Net Income (loss)....................... $ 8,707 $ 9,620 $ 8,959 $ (2,501) $ 3,434 $ (5,146)
======== ======== ======= ========= ======== ========
OTHER DATA:
EBITDA(3)....................................... $ 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(4)............ -- 100 -- 551 1,252 7,714
Ratio of earnings to fixed charges(5)........... 8.9x 8.5x 10.5x (6) 1.5x (6)*
Pro forma ratio of earnings to fixed
charges(5)(7)................................. -- 1.1x
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 53,805
Total assets.................................... 65,857 75,179 92,505 129,023 127,169 148,529
Total debt, including current maturities........ 1,027 8,940 9,376 86,712 79,524 175,985
Stockholder's equity (deficit).................. 53,648 53,269 62,228 28,263 31,697 (48,574)
</TABLE>
- ---------------
(1) Effective September 1, 1995, Holdings purchased all the outstanding capital
stock of the Company in a transaction accounted for as a purchase business
combination. Following this acquisition, the results of operations of the
Company contained higher interest cost due to the financing of the
acquisition and higher amortization expense for goodwill and other
intangibles created by the acquisition. Effective February 13, 1998,
Holdings consummated the Merger among Mergerco, Holdings and certain
shareholders of Holdings pursuant to which the Company's outstanding debt
and equity were restructured. Following this Recapitalization, the results
of operations of the Company included higher interest costs due to the
financing of the
35
<PAGE> 40
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) 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 seven months ended
March 31, 1996 and 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.
(4) Business acquisition expenditures represent established businesses purchased
by the Company.
(5) 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.
(6) Earnings were insufficient to cover fixed charges for the seven months ended
March 31, 1996 and year ended March 31, 1998 by $3,468 and $819,
respectively.
(7) Pro forma interest expense gives effect to the Acquisitions and the
Recapitalization as if they had occurred on April 1, 1997.
36
<PAGE> 41
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.
The Company 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
materials 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.
Recapitalization: On February 13, 1998, Holdings consummated the Merger
among Mergerco, Holdings and certain shareholders of Holdings pursuant to which
the Company's outstanding debt and Holdings' stock 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 Holdings, with Holdings being the surviving corporation.
(ii) Existing management shareholders of Holdings reinvested
approximately $4.4 million in Holdings. HWH and management shareholders
were reissued surviving corporation shares of Holdings Common Stock.
(iii) The Company obtained approximately $170 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) Holdings obtained approximately $45 million in debt financing
through the issuance of senior discount debentures.
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<PAGE> 42
(v) The Company paid a dividend of approximately $72.7 million to
Holdings to be utilized in the repurchase of Holdings common stock and
accrued approximately $2.6 million for additional costs of
recapitalization.
(vi) 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, Holdings
agreed to purchase all outstanding warrants for approximately $16.7
million.
(vii) Holdings reacquired its outstanding shares of Class A and Class
B Common Stock of certain shareholders for approximately $149.2 million.
Holdings accounted for this reaquisition of shares as a treasury stock
transaction, and such reacquired shares were retired.
38
<PAGE> 43
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 the Company 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 cost................................... -- 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 10,956
Other income.............................................. (469) (339) (390) (512)
------- ------- -------- --------
Income (loss) before income taxes and extraordinary
item.................................................. 14,542 (3,468) 5,759 (819)
Income tax expense (benefit)................................ 5,583 (967) 2,325 306
------- ------- -------- --------
Income (loss) before extraordinary item................. 8,959 (2,501) 3,434 (1,125)
Extraordinary loss on extinguishment of debt, net of
taxes..................................................... -- -- -- (4,021)
------- ------- -------- --------
Net income (loss)....................................... $ 8,959 $(2,501) $ 3,434 $ (5,146)
======= ======= ======== ========
</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
MONTHS MONTHS FISCAL YEARS
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 5.5
Other income.............................................. (0.6) (0.4) (0.2) (0.3)
----- ----- ----- -------
Income (loss) before income taxes and extraordinary
item.................................................. 17.5 (4.4) 3.3 (0.4)
Income tax expense (benefit)................................ 6.7 (1.2) 1.3 0.2
----- ----- ----- -------
Income (loss) before extraordinary item................. 10.8 (3.2) 2.0 (0.6)
Extraordinary loss on extinguishment of debt, net of
taxes..................................................... -- -- -- (2.0)
----- ----- ----- -------
Net income (loss)....................................... 10.8% (3.2)% 2.0% (2.6)%
===== ===== ===== =======
</TABLE>
39
<PAGE> 44
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. This 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 conjunction 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
$0.8 million to $11.0 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.
40
<PAGE> 45
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 $0.9 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
Credit Facilities, the 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 $176.0 million, consisting of $60.0 million in
Term Loans, $5.4 million under the Revolving Credit Facility, $110.0 million of
the Notes, and $0.6 million of other indebtedness. To provide additional
financing to fund the Recapitalization, Holdings raised a total of $95.0
million, consisting of gross proceeds of approximately $45.0 million from the
sale of Holdings Senior Discount
41
<PAGE> 46
Debentures, $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 Credit Facilities and the Notes
represent significant liquidity requirements for the Company. Under the terms of
the Term Loans the Company 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 Facility bear interest at floating rates based upon
the interest rate option selected by the Company. Under the terms of the Credit
Facility, the Company 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 Notes and Term Loans are subject to fixed interest
rates. For a description of the Credit Facilities, see "Description of Senior
Indebtedness."
The Holdings Senior Discount Debentures will mature on February 15, 2009.
Cash interest will not accrue on the Holdings Senior Discount Debentures prior
to February 15, 2003. Thereafter, interest on the Holdings Senior Discount
Debentures 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 1996, fiscal 1997 and fiscal 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 Senior Indebtedness."
Business acquisition expenditures were $0.6 million, $1.3 million and $7.7
million in fiscal 1996, fiscal 1997 and fiscal 1998, respectively. Significant
businesses acquired since fiscal 1995 have included Specialty Books, SCB 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 spend approximately $2.0 million on 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, the Company may pay dividends to Holdings (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 Holdings. The indenture
governing the Senior Discount Debentures restricts the ability of Holdings 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
42
<PAGE> 47
indenture shall have occurred and be continuing, (ii) Holdings 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, Holding's consolidated net income. The indenture governing the
Subordinated Notes contains similar restrictions on the ability of the Company
and its Restricted Subsidiaries to pay dividends or make other Restricted
Payments to their respective stockholders. Such restrictions are not expected to
impact 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 as defined by the Credit Agreement. Of the amount available, $5.4
million was drawn by the Company. 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
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
43
<PAGE> 48
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 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.
44
<PAGE> 49
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, 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%.
[FISCAL YEARS SALES GRAPH]
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 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
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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.
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
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<PAGE> 52
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 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.
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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 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
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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,
non-textbook 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 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
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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 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,
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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-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,
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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, 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
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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.
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.
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<PAGE> 59
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
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)
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
INSTITUTION LOCATION ENROLLMENT(1) STORE NAME
----------- -------- ------------- ----------
<S> <C> <C> <C>
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> 61
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 the Company 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> 62
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.
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<PAGE> 63
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 (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 Executive will have the option, and (at
the option of HWH) will be required, to sell his shares ratably with, and on the
same terms and conditions as, the other selling shareholders.
COMPENSATION OF DIRECTORS
Directors of the Company receive no compensation for services but are
reimbursed for out-of-pocket expenses.
PRINCIPAL STOCKHOLDERS
As a result of the Recapitalization, all shares of common stock of the
Company are owned by Holdings. 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
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<PAGE> 64
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.
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, Holdings 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 the Holdings Common Stock.
DESCRIPTION OF CAPITAL STOCK
The authorized common stock of the Company consists of 50,000 shares of
common stock, par value $1.00 per share (the "Common Stock"). At the date
hereof, there are 100 shares of Common Stock issued and outstanding, all of
which are held by Holdings. Each share of Common Stock entitles the holder
thereof to one vote on all matters to be voted on by shareholders of the
Company.
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<PAGE> 65
DESCRIPTION OF SENIOR 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.
Upon consummation of the Recapitalization, 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 the Company 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.
SENIOR SECURED 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 the Company, 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 the Company 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 the Company
(the "Guarantors"), other than any foreign subsidiary if such guarantee would
result in adverse tax consequences to the Company (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 the Company 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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<PAGE> 66
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 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, 2004 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 the Company, 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. The Company
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 the
Company's Consolidated Leverage Ratio (as defined in the Credit Agreement), and
is subject to increase based on the Company's failure to maintain a specified
Consolidated Senior Debt to EBITDA Ratio (as defined in the Credit Agreement).
Mandatory Prepayments; Voluntary Prepayments. The Company 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 the Company of
certain financial performance standards) 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
the Company and its subsidiaries (including insurance proceeds), subject to
certain customary exceptions, (b) all issuances of debt obligations of Holdings,
the Company 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 the Company, 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. The Company 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 the Company 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 the Company 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 the Company 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.
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DESCRIPTION OF NOTES
GENERAL
The Initial Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of February 13, 1998 (the "Indenture"), between the Company
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 Notes does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all 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
Notes.
The Notes are unsecured, senior subordinated obligations of the Company,
limited to $110 million aggregate principal amount, and will mature on February
15, 2008. Each Note bears interest at the rate per annum shown on the front
cover of this Prospectus from the date of issuance, or from the most recent date
to which interest has been paid or provided for, payable semi-annually on
February 15 and August 15 of each year commencing on August 15, 1998 to holders
of record at the close of business on the February 1 or August 1 immediately
preceding the interest payment date.
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 Notes are
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company 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 Company, 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 Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
The Notes are issued in fully registered form without interest coupons, in
denominations of $1,000 and any integral multiple of $1,000. The Notes are
represented by one or more registered notes in global form and in certain
circumstances may be represented by Notes in definitive form. See "Book Entry,
Delivery and Form."
OPTIONAL REDEMPTION
Except as set forth below, the Notes are not redeemable at the option of
the Company prior to February 15, 2003. On and after such date, the Notes are
redeemable, at the Company's 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........................................................ 104.375%
2004........................................................ 102.917%
2005........................................................ 101.458%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001,
the Company may redeem in the aggregate up to 35% of the original principal
amount of the Notes with the net proceeds of one or more Equity Offerings
received by, or invested in, the Company so long as there is a Public Market at
the time of such redemption, at a redemption price (expressed as a percentage of
principal amount) of 108.75% plus accrued and unpaid interest, if any, to the
redemption date
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(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original principal amount of the Notes must remain
outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes 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 Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note.
The Notes do not have the benefit of any sinking fund.
RANKING AND SUBORDINATION
The payment of the principal of, premium, if any, and interest on and other
obligations in respect of the Notes is subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full in cash or Cash Equivalents
when due of all Senior Indebtedness of the Company. However, payment from the
money or the proceeds of U.S. Government Obligations held in any defeasance
trust described under "Defeasance" below is not subordinate to any Senior
Indebtedness or subject to the restrictions described herein. As of March 31,
1998, the outstanding Senior Indebtedness of the Company was $66.0 million
(exclusive of unused commitments). Although the Indenture contains limitations
on the amount of additional Indebtedness that the Company may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "Certain
Covenants -- Limitation on Indebtedness" below.
"Senior Indebtedness" is defined, whether outstanding on the Issue Date or
thereafter issued, created, incurred or assumed, as the Bank Indebtedness and
all other Indebtedness of the Company, including accrued and unpaid interest
thereon (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company at the rate specified
in the documentation with respect thereto whether or not a claim for post filing
interest is allowed in such proceeding) and fees relating thereto, unless, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that the obligations in respect of such Indebtedness
are not superior in right of, or are subordinate to, payment to the Notes;
provided, however, that Senior Indebtedness will not include (i) any obligation
of the Company to any Subsidiary, (ii) any liability for Federal, state,
foreign, local or other taxes owed or owing by the Company, (iii) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) any Indebtedness, Guarantee or obligation of the Company that
is expressly subordinate or junior in right of payment to any other
Indebtedness, Guarantee or obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations or (v) any Capital
Stock.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. In addition, no Subsidiary
Guarantor shall incur any Indebtedness if such Indebtedness is subordinate or
junior in ranking in any respect to any Guarantor Senior Indebtedness of such
Subsidiary Guarantor unless such Indebtedness is Guarantor Senior Subordinated
Indebtedness of such Subsidiary Guarantor or is expressly subordinated in right
of payment to Guarantor Senior
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Subordinated Indebtedness of such Subsidiary Guarantor. Unsecured Indebtedness
is not deemed to be subordinate or junior to Secured Indebtedness merely because
it is unsecured.
The Company may not pay principal of, premium, if any, or interest on, or
other obligations with respect to, the Notes or make any deposit pursuant to the
provisions described under "Defeasance" below and may not otherwise purchase,
redeem or retire any Notes (collectively, "pay the Notes") if (i) any Senior
Indebtedness is not paid when due in cash or Cash Equivalents or (ii) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been
rescinded or such Senior Indebtedness has been paid in full in cash or Cash
Equivalents. However, the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Notes for a period (a "Payment Blockage Period") commencing upon the receipt by
the Trustee (with a copy to the Company) of written notice (a "Blockage Notice")
of such default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice is no longer continuing or (iii) because such Designated
Senior Indebtedness has been repaid in full). Notwithstanding the provisions
described in the immediately preceding sentence, unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Notes after the end of such Payment Blockage Period. Not
more than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
Upon any payment or distribution of the assets or securities of the Company
upon a total or partial liquidation, dissolution, reorganization or bankruptcy
of or similar proceeding relating to the Company or its property, the holders of
Senior Indebtedness are entitled to receive payment in full in cash or Cash
Equivalents of the Senior Indebtedness (including interest accruing after, or
which would accrue but for, the commencement of any proceeding at the rate
specified in the applicable Senior Indebtedness, whether or not a claim for such
interest would be allowed) before the holders of the Notes are entitled to
receive any payment or distribution, and until the Senior Indebtedness is paid
in full in cash or Cash Equivalents, any payment or distribution to which
holders of the Notes would be entitled but for the subordination provisions of
the Indenture will be made to holders of the Senior Indebtedness as their
interests may appear. If a payment or distribution is made to holders of the
Notes that, due to the subordination provisions of the Indenture, should not
have been made to them, such holders are required to hold it in trust for the
holders of Senior Indebtedness and pay it over to them as their interests may
appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
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<PAGE> 71
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Note holders.
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 the Company to repurchase
all or any part of such holder's Notes 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):
(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 the Company or Holdings (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 the Company or Holdings 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 the Company (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 the Company 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 the
Company or Holdings (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
the Company or Holdings, as the case may be, was approved by a vote of at
least a majority of the directors of the Company or Holdings 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 the Company or Holdings
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 the
Company 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 the Company.
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Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control as described under "-- Optional
Redemption", the Company 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 the Company to purchase such holder's Notes 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); (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 the Company, consistent with the Indenture, that a
holder must follow in order to have its Notes purchased.
The Company 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 Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company 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 certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company and its Subsidiaries may also contain prohibitions
of certain events that would constitute a Change of Control or require such
Senior Indebtedness to be repurchased upon a Change of Control. Moreover, the
exercise by the holders of their right to require the Company to repurchase the
Notes could cause a default under such Senior Indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchase on
the Company. Finally, the Company's ability to pay cash to the holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases. Even if sufficient funds were otherwise
available, the terms of the Credit Agreement (and other Senior Indebtedness may)
prohibit the Company's prepayment of Notes prior to their scheduled maturity.
Consequently, if the Company is not able to prepay the Bank Indebtedness and any
other Senior Indebtedness containing similar restrictions or obtain requisite
consents, as described above, the Company will be unable to fulfill its
repurchase obligations if holders of Notes exercise their repurchase rights
following a Change of Control, thereby resulting in a default under the
Indenture. The provisions of the Indenture may not afford holders of the Notes
the right to require the Company to repurchase the Notes in the event of a
highly leveraged transaction that may adversely affect the holders of the Notes
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 the Company 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 the Company 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 the
Company is required to make an offer to repurchase the Notes as described above.
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CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness; provided,
however, that the Company and its Restricted Subsidiaries may Incur Indebtedness
if on the date thereof the Consolidated Coverage Ratio for the Company and its
Restricted Subsidiaries is at least 2.00 to 1.00, if such Indebtedness is
Incurred on or prior to the second anniversary of the Issue Date and 2.25 to
1.00, if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a) the Company 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 the Company owing to and held by any Wholly-Owned Subsidiary or Indebtedness
of a Restricted Subsidiary owing to and held by the Company 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 the Company 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 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 the Company (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 the Company);
provided, however, that at the time such Restricted Subsidiary is acquired by
the Company, the Company 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 the Company or its Restricted Subsidiaries (as determined in good faith by
the Board of Directors or senior management of the Company) and correspond in
terms of notional amount, duration, currencies and interest rates, as
applicable, to Indebtedness of the Company or its Restricted Subsidiaries
Incurred without violation of the Indenture; (vii) Purchase Money Indebtedness
of the Company 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 the Company 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 may be Indebtedness
Incurred under the Credit Agreement).
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(c) Neither the Company nor any Restricted Subsidiary will Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
unless such Indebtedness shall be subordinated to the Notes to at least the same
extent as such Subordinated Obligations. No Subsidiary Guarantor shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly to refinance any Guarantor Subordinated Obligations of
such Subsidiary Guarantor unless such Indebtedness shall be subordinated to the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at
least the same extent as such Guarantor Subordinated Indebtedness.
(d) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in paragraph (b) above, the Company, 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 Layering. The Company will not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness. No Subsidiary Guarantor shall Incur any Indebtedness if such
Indebtedness is contractually subordinate or junior in ranking in any respect to
any Guarantor Senior Indebtedness of such Subsidiary Guarantor unless such
Indebtedness is Guarantor Senior Subordinated Indebtedness of such Subsidiary
Guarantor or is contractually subordinated in right of payment to Guarantor
Senior Subordinated Indebtedness of such Subsidiary Guarantor.
Limitation on Restricted Payments. (a) The Company 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 the Company 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 the Company or a
Restricted Subsidiary of the Company (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 the Company held by Persons other than a Restricted Subsidiary of the
Company or any Capital Stock of a Restricted Subsidiary of the Company held by
any Affiliate of the Company, 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 the Company or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); or (2) the Company 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 the Company from the issue or
sale of its Capital Stock (other than Disqualified Stock) or other capital
contributions
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subsequent to the Issue Date (other than net proceeds received from an issuance
or sale of such Capital Stock to a Subsidiary of the Company 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
the Company 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 the Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date of any Indebtedness of the Company convertible or exchangeable
for Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange); (D) the
amount equal to the net reduction in Investments made by the Company 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 the Company or any Restricted Subsidiary of the Company 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 the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount of
Restricted Payments; provided, however, 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) or (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 the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (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 the Company 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 the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations of
the Company; 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) cash dividends to Holdings 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 the Company 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 the
Company or any Subsidiary the proceeds
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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; (vi) cash dividends to Holdings in amounts equal to (A) the amounts
required for Holdings to pay any Federal, state or local income taxes to the
extent that such income taxes are attributable to the income of the Company and
its Subsidiaries, (B) the amounts required for Holdings to pay franchise taxes
and other fees required to maintain its legal existence, (C) an amount not to
exceed $500,000 in any fiscal year to permit Holdings to pay its corporate
overhead expenses incurred in the ordinary course of business, and to pay
salaries or other compensation of employees who perform services for both
Holdings and the Company, (D) so long as no Default or Event of Default shall
have occurred and be continuing, an amount not to exceed $100,000 in the
aggregate, to enable Holdings to make payments to holders of its Capital Stock
in lieu of issuance of fractional shares of its Capital Stock and (E) the fees
payable by Holdings in connection with the Recapitalization; provided, however,
that such dividends shall be excluded from the calculation of the amount of
Restricted Payments; (vii) 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; and (viii)
so long as (A) no Default or Event of Default has occurred and is continuing and
(B) immediately before and immediately after giving effect thereto, the Company
would have been permitted to Incur at least $1.00 of additional Indebtedness
pursuant to paragraph (a) under "Limitation on Indebtedness," from and after
February 15, 2003, payments of cash dividends to Holdings in an amount
sufficient to enable Holdings to make payments of interest required to be made
in respect of the Holdings Senior Discount Debentures in accordance the terms
thereof in effect on the date of the Indenture, provided such interest payments
are made with the proceeds of such dividends; provided, however, that such
payments shall be excluded from the calculation of the amount of Restricted
Payments.
Limitation on Liens. The Company 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 and Liens securing Senior
Indebtedness and Guarantees of Senior Indebtedness) upon any of its property or
assets (including Capital Stock), whether owned on the date of the Indenture or
thereafter acquired, securing any Indebtedness, unless contemporaneously
therewith effective provision is made to secure the Indebtedness due under the
Indenture and the Notes or, in respect of Liens on any Restricted Subsidiary's
property or assets, any Subsidiary Guarantee of such Restricted Subsidiary,
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; provided that, in the case of Indebtedness of a
Subsidiary Guarantor, if such Subsidiary Guarantor shall cease to be a
Subsidiary Guarantor in accordance with the provisions of the Indenture, such
equal and ratable lien to secure the Notes shall, without any further action,
cease to exist.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any of its Restricted Subsidiaries to, enter into any Sale/Leaseback
Transaction unless (i) the Company 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) the Company 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) the Company or
such Restricted Subsidiary would be permitted to create a Lien on the property
subject to such Sale-Leaseback Transaction without securing the Notes 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
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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. The Company 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 the
Company, (ii) make any loans or advances to the Company or (iii) transfer any of
its property or assets to the Company, 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); (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 the Company (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 the Company) 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 the Company 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 the Company 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) encumbrances
or restrictions arising or existing by reason of applicable law; and (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.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless (i) the Company 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 the Company 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 the Company (or such Restricted
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Subsidiary, as the case may be) (A) first, to the extent the Company 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 Senior Indebtedness or
Indebtedness (other than any Preferred Stock) of a Wholly-Owned Subsidiary (in
each case other than Indebtedness owed to the Company or an Affiliate of the
Company) 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
the Company's 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 (an "Offer") the Notes and other pari passu debt obligations
subject to a similar covenant (collectively, the "pari passu Notes") at par plus
accrued and unpaid interest, if any, thereon; and (D) fourth, to the extent of
the balance of such Net Available Cash after application in accordance with
clauses (A), (B) and (C), 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, the Company
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, the Company 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. The Company
shall not be required to make an Offer for the Notes and for the pari passu
Notes 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).
(b) If the aggregate principal amount (or accreted value, as applicable) of
Notes and pari passu Notes 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 be apportioned between the Notes and
such pari passu Notes, with the portion of the Offer Proceeds payable in respect
of the Notes 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
Notes and the denominator of which is the sum of the outstanding principal
amount of the Notes and the outstanding principal amount (or accreted value, as
applicable) of the relevant pari passu Notes, and (ii) the aggregate principal
amount of Notes 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 Senior Indebtedness of the Company or
Indebtedness of any Restricted Subsidiary of the Company and the release of the
Company or such Restricted Subsidiary from all liability on such Senior
Indebtedness or Indebtedness in connection with such Asset Disposition (in which
case the Company 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 the Company or any Restricted Subsidiary of the
Company from the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
(d) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(C), the Company will be required to purchase
Notes tendered pursuant to an Offer made by the Company for the Notes promptly,
and in any event within 10 days after the Company is required to make an Offer,
at a purchase price of 100% of their principal amount 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 pari passu Notes tendered
pursuant to the Offer is less than the Net Available Cash allotted to the
purchase of the pari passu Notes, the Company will apply the remaining Net
Available Cash in accordance with clause (a)(iii)(D) above.
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(e) The Company 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 Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company 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) The Company 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 the
Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company 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 the Company 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, the Company 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 the Company, (iii) loans or advances to
employees in the ordinary course of business of the Company or any of its
Restricted Subsidiaries, (iv) the fees payable by the Company in connection with
the Recapitalization, or (v) any transaction between the Company and a
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries.
Limitation on Capital Stock of Restricted Subsidiaries. The Company 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 the Company 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,
the Company is permitted to sell all the Capital Stock of a Subsidiary as long
as the Company is in compliance with the terms of the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock".
SEC Reports. Notwithstanding that the Company 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, the Company will file with the SEC, and provide,
within 15 days after the Company is required to file the same with the SEC, the
Trustee and the holders of the Notes 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 the
Company is not permitted to file such reports, documents and information with
the SEC pursuant to the Exchange Act, the Company will nevertheless deliver such
Exchange Act information to the Trustee and the holders of the Notes as if the
Company were subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act.
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Merger and Consolidation. The Company 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 the Company) shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes 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)
the Company 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, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (i) any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company and (ii) the Company may merge
with an Affiliate incorporated solely for the purpose of reincorporating the
Company in another jurisdiction to realize tax or other benefits.
Future Subsidiary Guarantors. After the Issue Date, the Company will cause
each Restricted Subsidiary created or acquired by the Company 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 the
Notes on a senior subordinated basis. The obligations of each Restricted
Subsidiary under its Subsidiary Guarantee will be subordinated to the Guarantor
Senior Indebtedness of such Restricted Subsidiary on substantially the same
terms as the Notes are subordinated to the Senior Indebtedness.
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 the Company 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 the Company 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 the Company, 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
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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 the Company shall also terminate upon such release, sale or
transfer.
Limitation on Lines of Business. The Company 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 Note when due, continued for 30
days, whether or not such payment is prohibited by the provisions described
under "Ranking and Subordination" above, (ii) a default in the payment of
principal of any Note when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise, whether or not such
payment is prohibited by the provisions described under "Ranking and
Subordination" above, (iii) the failure by the Company to comply with its
obligations under "Certain Covenants -- Merger and Consolidation above, (iv)
failure by the Company 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 Notes which shall constitute an Event of Default
under clause (ii) above), (v) the failure by the Company to comply for 60 days
after notice with its other agreements contained in the Indenture, (vi)
Indebtedness of the Company 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 the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or
decree for the payment of money in excess of $10 million is rendered against the
Company 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 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 Notes notify the Company of the default and the Company 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 Notes by notice to the
Company and the Trustee may declare the principal of and accrued and unpaid
interest, if any, on all the Notes to be due and payable. Upon such a
declaration, such principal 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 the Company occurs and is
continuing, the principal of and accrued and unpaid interest on all the Notes
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 Notes may rescind
any such acceleration with respect to the Notes 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, premium, if any, or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25%
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in principal amount of the outstanding Notes 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 Notes 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 Notes 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, premium, if any, or interest on any Note, 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, the Company 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. The
Company 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 the Company 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 Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose holders must consent to an amendment, (ii) reduce the stated rate of
or extend the stated time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon the redemption or repurchase of any Note or change the time at
which any Note may be redeemed as described under "Optional Redemption" above,
(v) make any Note payable in money other than that stated in the Note, (vi)
impair the right of any holder to receive payment of principal of and interest
on such holder's Notes 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 Notes 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, the Company 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 the Company under the Indenture,
to provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
Guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company for the benefit of the holders or to surrender any
right or power conferred upon the Company, 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. However, no amendment may be made to the subordina-
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tion provisions of the Indenture that adversely affects the rights of any holder
of Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
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, the Company 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
The Company at any time may terminate all its obligations under the Notes
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 Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. In such event, the Subsidiary Guarantees in effect at such time shall
terminate. The Company 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 the Company exercises its
covenant defeasance option, the Company 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.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes 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 the Company to comply with clause (iii) under "Certain
Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company 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 Notes 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 Notes 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 the Company as Registrar and Paying Agent with regard
to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes 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.
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CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company 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 the Company or a Restricted Subsidiary of the Company; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of the Company; 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 the Company 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 the Company or by the
Company or a Restricted Subsidiary to a Subsidiary Guarantor, (ii) the
disposition of Cash 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 the Company 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 rate borne by the 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 the Company 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 the Company 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
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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
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
the Company 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
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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 the
Company 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 the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company 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 the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company 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 the Company) 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 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 the Company 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 the Company 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
the Company. 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 12 months). Notwithstanding anything herein to the
contrary, if at the time the calculation of the Consolidated Coverage Ratio is
to be made, the Company does not have available consolidated financial
statements reflecting the ownership by the Company 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 the Company) 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
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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 the Company 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 the Company 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 the Company and all Preferred
Stock of Subsidiaries, in each case, held by Persons other than the Company 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 the
Company) 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 the Company or any Restricted Subsidiary; 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 the
Company and its Subsidiaries with respect to Interest Rate Agreements.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Company 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
the Company 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, the Company's 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 the Company 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) the Company's 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 the Company or a Restricted Subsidiary; (ii) any net income
(loss) of any Person acquired by the Company 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 the Company, except that (A) subject to the limitations contained in (iv)
below the Company's 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 the Company 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) the Company's 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
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equipment of the Company 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 the Company 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, the Company, 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 the Company 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
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 the Company 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 either of the
Company or 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
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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.
"Guarantor Senior Indebtedness" means, with respect to a Subsidiary
Guarantor, the following obligations, whether outstanding on the date of the
Indenture or thereafter issued, without duplication: (i) any Guarantee of the
Bank Indebtedness by such Subsidiary Guarantor and all other Guarantees by such
Subsidiary Guarantor of Senior Indebtedness of the Company or Guarantor Senior
Indebtedness for any other Subsidiary Guarantor; and (ii) all obligations
consisting of the principal of and premium, if any, and accrued and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Subsidiary Guarantor regardless
of whether postfiling interest is allowed in such proceeding) on, and fees and
other amount owing in respect of, all Indebtedness of the Subsidiary Guarantor,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is expressly provided that the obligations in
respect of such Indebtedness are not senior in right of payment to the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee;
provided, however, that Guarantor Senior Indebtedness shall not include (1) any
obligations of such Subsidiary Guarantor to the Subsidiary Guarantor or any
other Subsidiary of the Subsidiary Guarantor, (2) any liability for Federal,
state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Subsidiary Guarantor
that is expressly subordinate in right of payment to any of the Indebtedness of
such Subsidiary Guarantor, including any Guarantor Senior Subordinated
Indebtedness and Guarantor Subordinated Obligations of such Subsidiary Guarantor
or (5) any Capital Stock.
"Guarantor Senior Subordinated Indebtedness" means with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and any other Indebtedness of such Subsidiary Guarantor
that specifically provides that such Indebtedness is to rank pari passu in right
of payment with the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and is not expressly subordinated by its terms in right of
payment to any Indebtedness of such Subsidiary Guarantor which is not Guarantor
Senior Indebtedness of such Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on
the Issue Date or thereafter Incurred) which is expressly subordinate in right
of payment to the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee pursuant to a written agreement.
"Holdings" means NBC Acquisition Corp., a Delaware corporation.
"Holdings Senior Discount Debentures" means the 10 3/4% Senior Discount
Debentures due 2009 issued by Holdings on the Issue Date.
"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
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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 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 the Company's 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 the Company
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, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's 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
the Company.
"Issue Date" means the date on which the Initial Notes 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).
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"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 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
the Company 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 the Company.
"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 the
Company 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 the Company 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, the Company 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 the Company 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 the
Company 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 the
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Company 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 the Company 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 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 the Company; (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 the
Company 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 the Company 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 the Company in excess of those set forth by regulations promulgated by
the Federal Reserve Board, and (y) such deposit account is not intended by the
Company 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 the Company 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 the Company or any Restricted
Subsidiary; (n) Liens on property at the time the Company or a Subsidiary
acquired the property, including any acquisition by means of a merger or
consolidation with or into the Company or any
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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 the Company or any Restricted Subsidiary; (o) Liens
securing Indebtedness or other obligations of a Subsidiary owing to the Company
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.
"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
the Company or Holdings, as the case may be, if (i) the common stock of the
Company or 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 the Company or Holdings, as the
case may be, 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 the Company is
related to a Related Business of the Company 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 the Company 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 the Company 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.
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"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company 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 the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes 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 the Company.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Notes 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 the Company after the Issue Date.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company 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
the Company (including any newly acquired or newly formed Subsidiary of the
Company) 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, the Company or any Restricted Subsidiary of the Company
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) the
Company 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 the Company, all
of the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly-Owned Subsidiary.
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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 Notes. It is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the final, temporary 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 Notes 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 Notes as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. 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 Note for an Exchange Note will not be a taxable
event to the holder of an Initial Note, 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 Note as it had in
an Initial Note immediately before the exchange. Further, the tax consequences
of ownership and disposition of any Exchange Note will be the same as the tax
consequences of ownership and disposition of an Initial Note.
PAYMENTS OF INTEREST
Interest on a Note will generally be taxable to a U.S. Holder as ordinary
income from domestic sources at the time it is paid or accrued in accordance
with the U.S. Holder's method of accounting for tax purposes. As used herein, a
"U.S. Holder" of a Note 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.
MARKET DISCOUNT
If a U.S. Holder purchases a Note for an amount that is less than its
principal amount, 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 Note 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 Note at the time of such payment or
disposition. In addition, the U.S. Holder may be required to defer, until the
maturity of the Note 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 Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the U.S.
Holder elects to accrue on a constant interest method. A U.S. Holder of a Note
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
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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").
AMORTIZABLE BOND PREMIUM
A U.S. Holder that purchases a Note for an amount in excess of the sum of
its principal amount will be considered to have purchased the Note at a
"premium." A holder generally may elect to amortize the premium over the
remaining term of the Note on a constant yield method. The amount amortized in
any year will be treated as a reduction of the U.S. Holder's interest income
from the Note. Bond premium on a Note held by a U.S. Holder that does not make
such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the Note. The election to amortize premium on a
constant yield method once made applies to all debt obligations held or
subsequently acquired by the electing U.S. Holder on or after the first day of
the first taxable year to which the election applies and may not be revoked with
the consent of the IRS.
Final Treasury regulations issued on December 30, 1997 provide that, at a
holder's election, premium may be amortized to offset interest income only as a
U.S. Holder takes the qualified stated interest into account under the U.S.
Holder's regular accounting method. In the case of instruments that provide for
alternative payment schedules, bond premium is calculated by assuming that (i)
the holder will exercise or not exercise options in a manner that maximizes the
holder's yield and (ii) the issuer will exercise or not exercise options in a
manner that minimizes the holder's yield except with respect to call options for
which the issuer is assumed to exercise such call options in a manner that
maximizes the holder's yield. The final regulations are effective for debt
instruments acquired on or after March 2, 1998. However, if a U.S. Holder elects
to amortize bond premium for the taxable year containing March 2, 1998, or any
subsequent taxable year, the final regulations would apply to all the U.S.
Holder's debt instruments held on or after the first day of that taxable year.
Once made, the election cannot be revoked without the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. Holder's tax basis in a Note will, in general, be the U.S. Holder's
cost therefor, increased by market discount previously included in income by the
holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Note, a U.S. Holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Note. 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 Note has been
held for more than one year. Under current law, long-term capital 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 Notes and to the proceeds of
sale of a Note 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.
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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 the Company or any Paying Agent of principal or
interest on a Note 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 the Company 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 the Company through stock ownership,
(iii) the beneficial owner is not a bank whose receipt of interest on a
Note 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 Note; and
(c) a Note 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 Note 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 Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company 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 Note on behalf of 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 made to such Non-U.S. Holder will be subject to a 30% withholding tax
unless the beneficial owner of the Note provides the Company 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 Note 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 Note 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 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
93
<PAGE> 98
adjustments. For this purpose, such premium, if any, and interest on a Note will
be included in such foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange or retirement of a Note
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 the Company 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 or premium on a Note are paid or collected
by a foreign office of a custodian, nominee or other foreign agent on behalf of
the beneficial owner of such Note, or if a foreign office of a broker (as
defined in applicable Treasury regulations) pays the proceeds of the sale of a
Note 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 and premium on a Note paid to the
beneficial owner of a Note 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 Note, will be subject to both backup withholding and information
reporting unless the beneficial owner provides the statement 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 NOTE IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF A NOTE SHOULD CONSULT
SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
THE OWNERSHIP AND DISPOSITION OF A NOTE, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
94
<PAGE> 99
BOOK-ENTRY; DELIVERY AND FORM
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
Except as set forth below, the Exchange Notes will initially be issued in
the form of one or more registered Exchange Notes in global form without coupons
(each a "Global Note"). Each Global Note will be deposited on the date of the
closing of the exchange of the Exchange Notes for Initial Notes (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 Note, DTC will credit the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Note and (ii)
ownership of the Notes 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 Note 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 Notes represented by a Global Note 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 Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must rely
on the
95
<PAGE> 100
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 Note. The Company understands that under existing industry practice,
in the event that the Company requests any action of holders of Notes, or a
holder that is an owner of a beneficial interest in a Global Note desires to
take any action that DTC, as the holder of such Global Note, 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 Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any Notes represented by a Global Note
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 Note representing such Notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, 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 Note
(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 Note 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 NOTES
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 Notes will be issued to each person that DTC
identifies as the beneficial owner of the Notes represented by the Global Notes.
Upon any such issuance, the Trustee is required to register such Certificated
Notes 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 Notes to be issued).
96
<PAGE> 101
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Initial Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company 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 Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market 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 Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes 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 the Company 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. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
Certain legal matters with respect to Kansas law will be passed upon for the
Company by Triplett, Woolf and Garretson, LLC, Wichita, Kansas.
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 related financial statement schedule for the years ended
March 31, 1998 and 1997, the seven months ended March 31, 1996 and the five
months ended August 31, 1995 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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<PAGE> 102
AVAILABLE INFORMATION
The Company filed with the SEC the Registration Statement under the
Securities Act with respect to the Exchange Notes 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 the Company and the Exchange Notes, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete,
and where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions in
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 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 electronically with the SEC.
The Registration Statement has been so filed.
The Company is not currently subject to the information requirements of the
Exchange Act. Upon completion of the Exchange Offer, the Company will be subject
to the informational 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, the Company has agreed to provide the Trustee
and holders and (upon their request) prospective holders of the Notes with
annual, quarterly and other reports at the times and containing in all material
respects the information specified in Sections 13 and 15(d) of the Exchange Act
and to file such reports with the SEC.
98
<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
NEBRASKA BOOK COMPANY, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEARS ENDED MARCH 31, 1998 AND 1997 AND SEVEN MONTHS ENDED
MARCH 31, 1996
Independent Auditors' Report.............................. F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Stockholder's Equity (Deficit).............. F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
FIVE MONTHS ENDED AUGUST 31, 1995
Independent Auditors' Report.............................. F-17
Balance Sheet............................................. F-18
Statement of Operations................................... F-19
Statement of Stockholder's Equity......................... F-20
Statement of Cash Flows................................... F-21
Notes to Financial Statements............................. F-22
</TABLE>
F-1
<PAGE> 104
NEBRASKA BOOK COMPANY, INC.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Nebraska Book Company, Inc.
Lincoln, Nebraska
We have audited the accompanying balance sheets of Nebraska Book Company,
Inc. (a wholly-owned subsidiary of NBC Acquisition Corp.) as of March 31, 1998
and 1997 and the related statements of operations, stockholder's 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 financial statements present fairly, in all material
respects, the financial position of Nebraska Book Company, Inc. as of March 31,
1998 and 1997, and the results of its operations and its 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> 105
NEBRASKA BOOK COMPANY, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
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.................................... 4,125,957 574,375
Deferred income tax benefit............................... 1,183,529 1,156,540
Prepaid expenses and other assets......................... 189,950 330,523
------------ ------------
Total current assets.............................. 81,500,186 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......... 41,498,725 31,898,517
OTHER ASSETS................................................ 2,798,270 1,719,118
------------ ------------
$148,529,088 $127,169,260
============ ============
LIABILITIES AND STOCKHOLDER'S 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................... 169,257,327 79,260,024
OTHER LONG-TERM LIABILITIES 150,604 498,686
COMMITMENTS (Note J)
STOCKHOLDER'S EQUITY (DEFICIT) (Note A):
Common stock, authorized 50,000 shares of $1.00 par value;
issued and outstanding 100 shares...................... 100 100
Additional paid-in capital................................ 30,935,250 30,763,790
Retained earnings (deficit)............................... (79,509,178) 933,289
------------ ------------
Total stockholder's equity (deficit).............. (48,573,828) 31,697,179
------------ ------------
$148,529,088 $127,169,260
============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 106
NEBRASKA BOOK COMPANY, INC.
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.......................... 11,284,229 10,760,139 6,035,099
Interest income........................... (328,750) (561,494) (432,744)
Other income.............................. (511,812) (389,446) (339,314)
------------ ------------ -----------
10,443,667 9,809,199 5,263,041
------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM........................ (818,966) 5,759,111 (3,468,438)
INCOME TAX EXPENSE (BENEFIT)................ 306,279 2,324,619 (967,235)
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..... (1,125,245) 3,434,492 (2,501,203)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT
(net of income tax benefit of
$2,460,238)............................ (4,020,893) -- --
------------ ------------ -----------
NET INCOME (LOSS)........................... ($ 5,146,138) $ 3,434,492 ($2,501,203)
============ ============ ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 107
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, August 31, 1995................... $1,000 $ 245,060 $ 61,981,827 $ 62,227,887
Acquisition by NBC Acquisition Corp...... (900) 30,504,840 (61,981,827) (31,477,887)
------ ----------- ------------ -------------
ADJUSTED BALANCE, September 1, 1995........ 100 30,749,900 -- 30,750,000
Contributed capital...................... -- 13,890 -- 13,890
Net loss................................. -- -- (2,501,203) (2,501,203)
------ ----------- ------------ -------------
BALANCE, March 31, 1996.................... 100 30,763,790 (2,501,203) 28,262,687
Net income............................... -- -- 3,434,492 3,434,492
------ ----------- ------------ -------------
BALANCE, March 31, 1997.................... 100 30,763,790 933,289 31,697,179
Dividend to parent in conjunction with
Recapitalization....................... -- -- (75,296,329) (75,296,329)
Contributed capital...................... -- 171,460 -- 171,460
Net loss................................. -- -- (5,146,138) (5,146,138)
------ ----------- ------------ -------------
BALANCE, March 31, 1998.................... $ 100 $30,935,250 ($79,509,178) ($ 48,573,828)
====== =========== ============ =============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 108
NEBRASKA BOOK COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEVEN MONTHS
MARCH 31, MARCH 31, ENDED MARCH 31,
1998 1997 1996
------------ ----------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (5,146,138) $ 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............................................ 9,297,653 4,747,486 2,652,954
Original issue discount amortization.................... 2,525,000 282,500 192,500
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................................ (3,551,582) (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. by NBC
Acquisition Corp.:
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)
Bookstores 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.................. 170,000,000 -- 89,500,000
Deferred financing costs.................................. (11,037,054) (3,594,007)
Capital contribution at date of acquisition............... -- -- 30,750,000
Principal payments on long-term debt...................... (81,463,655) (7,471,157) (606,573)
Net proceeds from revolving credit facility............... 5,400,000 -- --
Dividend paid to parent in conjunction with
Recapitalization........................................ (72,703,656) -- --
Capital contribution...................................... 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:
Dividend to parent in conjunction with Recapitalization,
unpaid and accrued in accounts payable.................. $ 2,592,673 $ -- $ --
============ =========== =============
Common stock of parent contributed for acquisition of
other businesses........................................ $ 147,150 $ -- $ --
============ =========== =============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 109
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
A. NATURE OF OPERATIONS
Nebraska Book Company, Inc. (the Company) is a wholly-owned subsidiary of
NBC Acquisition Corp. Effective September 1, 1995, NBC Acquisition Corp. (NBC)
acquired all of the outstanding capital stock of the Company. NBC did not have
substantive operations prior to the acquisition of the Company. The purchase
price of the Company 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, and a covenant not to compete of
$6,000,000 and debt issue costs of $4,572,373.
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 consulting services. The Company was founded in 1915 as a college bookstore
at the University of Nebraska. The Company 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, the Company serves
the college bookstore industry through its wholesale, college bookstore and
services operations.
Recapitalization: On February 13, 1998, NBC consummated a Merger Agreement
among NBC Merger Corp. (a newly created, indirect wholly-owned subsidiary of HWH
Capital Partners, LP. [HWH]), NBC and certain shareholders of NBC pursuant to
which the Company's outstanding debt and NBC's 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 NBC, with NBC being the surviving corporation.
(ii) Existing management shareholders of NBC reinvested approximately
$4.4 million in NBC. HWH and management shareholders were reissued
surviving corporation shares of NBC Class A Common Stock.
(iii) The Company obtained approximately $170 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) NBC obtained approximately $45 million in debt financing through
the issuance of Senior Discount Debentures.
(v) The Company paid a dividend of approximately $72.7 million to NBC
to be utilized in the repurchase of NBC Common Stock and accrued
approximately $2.6 million for additional costs of Recapitalization.
(vi) 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, NBC agreed to
purchase all outstanding warrants for approximately $16.7 million.
(vii) NBC reacquired its outstanding shares of Class A and Class B
Common Stock of certain shareholders for approximately $149.2 million. NBC
accounted for this reacquisition of shares 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. NBC recorded approximately $600,000 of such fee
against additional paid-in capital for non-deductible costs of the
Recapitalization. The Company recorded the remaining $3.5 million as debt issue
costs and is amortizing such costs over the life of the related debt.
F-7
<PAGE> 110
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Nebraska Book Company, Inc. are as
follows:
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 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 the Company effective September 1, 1995, and
the acquisition of various
F-8
<PAGE> 111
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 files a consolidated federal income tax return
with its parent and follows a policy of paying to the parent an amount equal to
the income tax expense which the Company would have incurred had it filed a
separate return. 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).
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 NBC'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.
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).................................... (4,780,341) 4,534,251
</TABLE>
F-9
<PAGE> 112
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
C. ACQUISITIONS (CONTINUED)
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 $12,771,977 $ 8,516,407
of $164,829 and $239,296 at March 31, 1998 and 1997,
respectively.........................................
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> 113
NEBRASKA BOOK COMPANY, INC.
NOTES TO 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....................................... 11,037,054 4,572,373
----------- -----------
53,624,445 39,298,957
Less: accumulated amortization......................... 12,125,720 7,400,440
----------- -----------
$41,498,725 $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> 114
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
H. LONG-TERM DEBT (CONTINUED)
The Senior Credit Facility is collateralized by substantially all of the
assets of the Company and its parent, NBC. 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
$110,000,000 face amount of 8.75% notes due 2008.
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 --
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
------------ -----------
170,585,023 79,523,678
Less current portion.................................. (1,327,696) (263,654)
------------ -----------
Long-term debt........................................ $169,257,327 $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, the Company may pay dividends to NBC (i) after
August 15, 2003 in an amount not to exceed the amount of interest required to be
paid on NBC's Senior Discount Debentures and (ii) to pay corporate overhead
expenses not to exceed $250,000
F-12
<PAGE> 115
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
H. LONG-TERM DEBT (CONTINUED)
per year and any taxes due by NBC. The Company is in compliance with all
covenants at March 31, 1998.
The indenture governing the Subordinated Notes 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 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 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>
YEAR ENDED YEAR ENDED SEVEN MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- ------------------
<S> <C> <C> <C>
Current:
Federal................. $1,057,439 $2,192,687 $ 73,248
State................... 151,298 410,258 8,713
Deferred.................. (902,458) (278,326) (1,049,196)
---------- ---------- -----------
Total........... $ 306,279 $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
F-13
<PAGE> 116
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
I. INCOME TAXES (CONTINUED)
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>
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................. 31.6 0.4 0.6
Change in estimate of income tax
liabilities.............................. 30.7 -- 7.6
Other...................................... 13.1 2.0 1.9
----- ---- -----
37.4% 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.
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
F-14
<PAGE> 117
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
J. COMMITMENTS (CONTINUED)
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 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 NBC 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-15
<PAGE> 118
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
L. STOCK BASED COMPENSATION (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>
YEAR ENDED YEAR ENDED SEVEN MONTHS 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 of NBC common stock as part of the Recapitalization on
February 13, 1998.
The pro forma impact on net income (loss) of accounting for stock-based
compensation using the fair value method required by SFAS 123 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEVEN MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- ------------------
<S> <C> <C> <C>
Net Income (loss):
As reported..................... $(5,146,138) $3,434,492 $(2,501,203)
Pro forma....................... $(1,286,752) $3,502,981 $(2,500,775)
</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 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-16
<PAGE> 119
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-17
<PAGE> 120
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-18
<PAGE> 121
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-19
<PAGE> 122
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-20
<PAGE> 123
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-21
<PAGE> 124
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 operations.
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.
F-22
<PAGE> 125
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-23
<PAGE> 126
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.
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>
F-24
<PAGE> 127
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
H. INCOME TAXES (CONTINUED)
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.
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>
F-25
<PAGE> 128
NEBRASKA BOOK COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-26
<PAGE> 129
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......................... 18
Use of Proceeds............................ 30
Capitalization.............................
Unaudited Pro Forma Statement of
Operations............................... 31
Selected Historical Financial Data......... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 37
Business................................... 45
Management................................. 57
Principal Stockholders..................... 59
Certain Transactions....................... 60
Description of Capital Stock............... 60
Description of Senior Indebtedness......... 61
Description of Notes....................... 64
Certain Federal Income Tax
Considerations........................... 91
Book-Entry; Delivery and Form.............. 95
Plan of Distribution....................... 97
Legal Matters.............................. 97
Experts.................................... 97
Available Information...................... 98
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
NEBRASKA BOOK COMPANY, INC.
OFFER TO EXCHANGE ITS 8 3/4% SENIOR
SUBORDINATED NOTES DUE 2008 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ANY AND ALL OUTSTANDING 8 3/4% SENIOR
SUBORDINATED NOTES DUE 2008
[NEBRASKA BOOK COMPANY LOGO]
, 1998
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17-6305 of the Kansas General Corporation Law provides that a
Kansas corporation shall have power to indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action or suit (including an action by or in the right of the
corporation to procure a judgment in its favor) or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit by or
in the right of the corporation, including attorney fees, and against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, including
attorney fees, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation; and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
Article IV-5 of the Company's by-laws provide that the Company shall
indemnify any person who was, or is a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the corporation, by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, including attorney fees, if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation; and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
The Company's by-laws also provide that the Company shall indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
including attorney fees, if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of such person's duty to
the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
II-1
<PAGE> 131
Subsection 6002(b)(8) of the General Corporation Code of the State of
Kansas (the "K.S.A.") provides that the articles of incorporation may contain a
provision eliminating or limiting the personal liability of a director to the
corporation or its stockholders, policyholders or members for monetary damages
for breach of fiduciary duty as a director, provided that such provision shall
not eliminate or limit the liability of a director (A) for any breach of the
director's duty of loyalty to the corporation or its stockholders, policyholders
of members (B) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (C) under the
provisions of K.S.A. 17-6424 and amendments thereto, or (D) for any transaction
from which the director derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director or any act or omission
occurring prior to the date when such provision becomes effective. All
references in this subsection to a director shall also be deemed to refer to a
member of the governing body of a corporation which is not authorized to issue
capital stock.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company 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.
The Company maintains directors' and officers' liability insurance for its
officers and directors.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
<C> <S> <C>
3.1 Articles of Incorporation, as amended, of the Company.*
3.2 By-laws of the Company.*
4.1 Indenture dated as of February 13, 1998 by and between the
Company 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 the Company and Chase
Securities Inc.*
4.3 Form of Initial Note (included in Exhibit 4.1 as Exhibit
A).*
4.4 Form of Exchange Note (included in Exhibit 4.1 as Exhibit
B).*
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the Notes being registered.
5.2 Opinion of Triplett, Woolf & Garretson, LLC regarding the
legality of the Notes 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
the Company, NBC Acquisition Corp., The Chase Manhattan Bank
and certain other financial institutions.*
10.2 Guarantee and Collateral Agreement dated as of February 13,
1998 made by NBC Acquisition Corp. and the Company in favor
of The Chase Manhattan Bank, as administrative agent.*
10.3 Purchase Agreement dated February 10, 1998 between the
Company and Chase Securities Inc.*
10.4 Form of Memorandum of Understanding dated as of February 13,
1998 between NBC Acquisition Corp. 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.*
10.5 NBC Acquisition Corp. 1995 Stock Incentive Plan adopted
August 31, 1995.*
</TABLE>
II-2
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
<C> <S> <C>
10.6 Form of Deferred Compensation Agreement by and between the
Company and each of Mark W. Oppegard, Bruce E. Nevius, Larry
R. Rempe and Thomas A. Hoff.*
10.7 NBC Acquisition Corp. 401(k) Savings Plan.*
10.8.1 Agreement for Purchase and Sale of Stock made January 9,
1998 between and among the Company and Martin D. Levine, The
Lauren E. Levine Grantor Trust and The Jonathon L. Levine
Grantor Trust (the "Collegiate Stores Corporation
Agreement").*
10.8.2 First Amendment dated January 23, 1998 to the Collegiate
Stores Corporation Agreement.*
10.9 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.*
10.10 Lease Agreement entered into as of September 1, 1986, by and
between Odell Associates Limited Partnership and the
Company.*
10.11 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.*
10.12 Lease Agreement entered into as of September 1, 1986 by and
between Odell Associates Limited Partnership and the
Company.*
10.13 Lease Agreement made and entered into October 12, 1988 by
and between Hogarth Management and the Company.*
10.14 Industrial Real Estate Lease dated June 22, 1987 by and
between Cyprus Land Company and the Company.*
12 Statements regarding computation of ratios.**
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 5.1 (included in Exhibit 5.1).
23.4 Consent of Triplett, Woolf & Garretson, LLC regarding
Exhibit 5.2 (included in Exhibit 5.2).
23.5 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>
II-3
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
<C> <S> <C>
(b) Financial Statement Schedule
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.
</TABLE>
- ---------------
*Previously filed.
**Replaces previously filed exhibit.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 20, or otherwise, the Company
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 the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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, the Company 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> 134
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.
NEBRASKA BOOK COMPANY, INC.
By: /s/ MARK W. OPPEGARD
----------------------------------
Chief Executive Officer
POWER OF ATTORNEY
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 Chief Executive Officer (Principal June 11, 1998
- ----------------------------------------------------- Executive Officer)
Mark W. Oppegard
* Chief Financial Officer and June 11, 1998
- ----------------------------------------------------- Treasurer (Principal Financial
Bruce E. Nevius and Accounting Officer)
* Director June 11, 1998
- -----------------------------------------------------
Douglas D. Wheat
*By: /s/ MARK W. OPPEGARD
------------------------------------------------
Mark W. Oppegard
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 135
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Nebraska Book Company, Inc.
Lincoln, Nebraska
We have audited the financial statements of Nebraska Book Company, Inc. as
of August 31, 1995, March 31, 1997 and 1998, and for the five months ended
August 31, 1995, the seven months ended March 31, 1996 and the years ended March
31, 1997 and 1998, and have issued our reports thereon dated May 22, 1998 and
May 24, 1996; such reports are included elsewhere in this Registration
Statement. Our audits also included the financial statement schedule of Nebraska
Book Company, Inc. listed in Item 21(b). This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 22, 1998
S-1
<PAGE> 136
SCHEDULE II
NEBRASKA BOOK COMPANY, INC.
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
FIVE MONTHS ENDED AUGUST 31, 1995............ $ -- $255,027 $ -- $ -- $255,027
</TABLE>
S-2
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
<C> <S> <C>
3.1 Articles of Incorporation, as amended, of the Company.*
3.2 By-laws of the Company.*
4.1 Indenture dated as of February 13, 1998 by and between the
Company 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 the Company and Chase
Securities Inc.*
4.3 Form of Initial Note (included in Exhibit 4.1 as Exhibit
A).*
4.4 Form of Exchange Note (included in Exhibit 4.1 as Exhibit
B).*
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the Notes being registered.
5.2 Opinion of Triplett, Woolf & Garretson, LLC regarding the
legality of the Notes 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
the Company, NBC Acquisition Corp., The Chase Manhattan Bank
and certain other financial institutions.*
10.2 Guarantee and Collateral Agreement dated as of February 13,
1998 made by NBC Acquisition Corp. and the Company in favor
of The Chase Manhattan Bank, as administrative agent.*
10.3 Purchase Agreement dated February 10, 1998 between the
Company and Chase Securities Inc.*
10.4 Form of Memorandum of Understanding dated as of February 13,
1998 between NBC Acquisition Corp. 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.*
10.5 NBC Acquisition Corp. 1995 Stock Incentive Plan adopted
August 31, 1995.*
10.6 Form of Deferred Compensation Agreement by and between the
Company and each of Mark W. Oppegard, Bruce E. Nevius, Larry
R. Rempe and Thomas A. Hoff.*
10.7 NBC Acquisition Corp. 401(k) Savings Plan.*
10.8.1 Agreement for Purchase and Sale of Stock made January 9,
1998 between and among the Company and Martin D. Levine, The
Lauren E. Levine Grantor Trust and The Jonathon L. Levine
Grantor Trust (the "Collegiate Stores Corporation
Agreement").*
10.8.2 First Amendment dated January 23, 1998 to the Collegiate
Stores Corporation Agreement.*
10.9 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.*
10.10 Lease Agreement entered into as of September 1, 1986, by and
between Odell Associates Limited Partnership and the
Company.*
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- ------
<C> <S> <C>
10.11 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.*
10.12 Lease Agreement entered into as of September 1, 1986 by and
between Odell Associates Limited Partnership and the
Company.*
10.13 Lease Agreement made and entered into October 12, 1988 by
and between Hogarth Management and the Company.*
10.14 Industrial Real Estate Lease dated June 22, 1987 by and
between Cyprus Land Company and the Company.*
12 Statements regarding computation of ratios.**
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 5.1 (included in Exhibit 5.1).
23.4 Consent of Triplett, Woolf & Garretson, LLC regarding
Exhibit 5.2 (included in Exhibit 5.2).
23.5 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 5.1
June 11, 1998
Nebraska Book Company, Inc.
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. 333-48221) (the "Registration Statement") filed by
Nebraska Book Company, Inc., a Kansas corporation (the "Company"), 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 the Company's 8 3/4% Senior
Subordinated Notes due 2008 (the "Exchange Notes"). The Exchange Notes are to be
offered in exchange for the 8 3/4% Senior Subordinated Notes due 2008 issued and
sold by the Company on February 13, 1998 in an offering exempt from registration
under the Act. The Exchange Notes will be issued by the Company under the
Indenture (the "Indenture"), dated as of February 13, 1998, between the Company
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 Notes included as Exhibit
4.4 to the Registration Statement.
<PAGE> 2
2
In addition, we have examined (i) those corporate records of
the Company 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 the Company; 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, (i) the genuineness of all signatures, the
enforceability of the documents against each party thereto other than the
Company, 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;
(ii) that the Company has taken all necessary corporate action to authorize the
documents and the transactions provided for in by the documents, and that each
of the documents has been duly authorized by the Company and (iii) that the
execution and delivery by the Company of each of the documents and the
consummation of the transactions contemplated by the documents do not violate
the Company's articles of incorporation or by-laws or any Kansas statute, rule
or regulation. With respect to assumptions (ii) and (iii), we refer you to the
opinion of Triplett, Woolf & Garretson, LLC, special Kansas counsel to the
Company, filed as Exhibit 5.2 to the Registration Statement.
In expressing the opinions set forth below, we have relied
upon the factual matters contained in the representations and warranties of the
Company made in the documents and upon certificates of public officials and the
Company, and we have assumed that the Exchange Notes 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
the Company enforceable against the Company 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 in accordance with
the terms of the Indenture, the Exchange Notes will be legal, valid and binding
obligations of the Company enforceable against the Company 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
<PAGE> 3
3
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 and the federal laws of the United States. 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.
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 promulgated under the Act.
Very truly yours,
/s/Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE> 1
Exhibit 5.2
[TRIPLETT, WOOLF & GARRETSON, LLC LETTERHEAD]
June 11, 1998
Nebraska Book Company, Inc.
4700 South 19th Street
Lincoln, NE 68501-0529
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (Registration
Statement No. 333-48221) (the "Registration Statement") filed by Nebraska Book
Company, Inc., a Kansas corporation (the "Company"), with the Securities and
Exchange Commission (the "SEC") on March 19, 1998, pursuant to 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 certain
matters relating to the legality of the securities being registered. The
Registration Statement relates to the registration under the Act of the
Company's 8 3/4% Senior Subordinated Notes due 2008 (the "Exchange Notes"). The
Exchange Notes are to be offered in exchange for the 8 3/4% Senior Subordinated
Notes due 2008 issued and sold by the Company on February 13, 1998, in an
offering exempt from registration under the Act. The Exchange Notes will be
issued by the Company under the Indenture (the "Indenture"), dated as of
February 13, 1998, between the Company 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 ascribed to those terms 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 the exhibits thereto) as
submitted to the Securities and Exchange Commission on March 19, 1998;
(ii) the Indenture included as Exhibit 4.1 to the Registration Statement;
and
<PAGE> 2
June 11, 1998
Page 2
(iii) the form of the Exchange Notes included as Exhibit 4.4 to the
Registration Statement.
In addition, we have examined copies of such corporate records and other
instruments as we have deemed necessary or appropriate, including the articles
of incorporation and bylaws of the Company and such other certificates,
agreements and documents as we deemed relevant and necessary as a basis for the
opinions expressed below. In our examination of such documents, we have assumed,
without independent investigation, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified,
photostatic, reproduced or conformed copies of valid, existing agreements and
other documents, the authenticity of the latter documents and the legal
capacity of all individuals who have executed any of such documents.
In expressing the opinions set forth in this letter, we have relied upon
the factual matters contained in the representations and warranties of the
Company made in such documents and upon certificates of public officials and
the Company, and we have assumed that the Exchange Notes will be issued as
described in the Registration Statement and that the offers and sales of the
Exchange Notes in the State of Kansas, if any, will be exempt from registration
under the Kansas Securities Act and the regulations and orders related thereto.
The opinions expressed in this letter are limited to the laws of the State
of Kansas. Our opinion is rendered only with respect to the laws, rules,
regulations and orders which are currently in effect.
Based on the foregoing, and subject to the assumptions, exceptions and
qualifications stated in this letter, we are of the opinion that:
1. All corporate actions required to be taken for the due and proper
authorization, execution and delivery of the Indenture and the due and valid
issuance and delivery of the Exchange Notes have been duly and validly taken.
2. The execution and delivery by the Company of the Indenture and the
issuance and delivery of the Exchange Notes will not result in any violation of
the provisions of the articles of incorporation or bylaws of the Company or of
any statute, rule or regulations of the State of Kansas.
Our opinions expressed above are limited to the laws of the State of
Kansas. 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
June 11, 1998
Page 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 thereby admit that we
come within the category of persons whose consent is required by the Act or by
the rules and regulations promulgated under the Act.
Very truly yours,
TRIPLETT, WOOLF & GARRETSON, LLC
/s/ Tad Patton
---------------------------------
By Tad Patton
TP:mas
<PAGE> 1
EXHIBIT 12
NEBRASKA BOOK COMPANY, INC.
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 $(819)
Add:
Interest expense and
amortization of deferred
finance charges on all
indebtedness 616 766 952 6,035 10,760 11,284
Interest portion of lease rentals 1,169 1,297 574 804 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 $11,284
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 $13,299
======= ======= ======= ======= ======= =======
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 $819.
<PAGE> 2
NEBRASKA BOOK COMPANY, INC.
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 income from continuing
operations $ 2,405
-------
Fixed charges:
Interest expense and amortization of deferred finance
charges on all indebtedness - pro forma 17,174
Interest portion of lease rentals 2,015
-------
Total fixed charges $19,189
=======
Total earnings and fixed charges $21,594
=======
Pro forma ratio of earnings to fixed charges 1.1
=======
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-48221 of Nebraska Book Company, Inc. 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 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> 81,500,186
<PP&E> 28,716,839
<DEPRECIATION> 5,984,932
<TOTAL-ASSETS> 148,529,088
<CURRENT-LIABILITIES> 27,694,985
<BONDS> 169,257,327
0
0
<COMMON> 100
<OTHER-SE> (48,573,928)
<TOTAL-LIABILITY-AND-EQUITY> 148,529,088
<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> 10,955,479
<INCOME-PRETAX> (818,966)
<INCOME-TAX> 306,279
<INCOME-CONTINUING> (1,125,245)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,020,893)
<CHANGES> 0
<NET-INCOME> (5,146,138)
<EPS-PRIMARY> (51,461)
<EPS-DILUTED> (51,461)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
NEBRASKA BOOK COMPANY, INC.
OFFER TO EXCHANGE
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
FOR ANY AND ALL OF THE OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008
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
</TABLE>
Confirm by Telephone:
(1-800) 548-6565
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 Nebraska Book Company, Inc. (the "Issuer")
and this Letter of Transmittal, which together constitute the Issuer's offer
(the "Exchange Offer") to exchange $110,000,000 principal amount of its 8 3/4%
Senior Subordinated Notes due 2008 (the "Exchange Notes"), 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
$110,000,000 principal amount of its outstanding 8 3/4% Senior Subordinated
Notes due 2008 (the "Notes"). 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.
1
<PAGE> 2
List below the Notes 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.
DESCRIPTION OF NOTES TENDERED HEREBY
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF CERTIFICATE AGGREGATE PRINCIPAL
REGISTERED OWNER(S) OR REGISTRATION AMOUNT REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN) NUMBERS* NOTES 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 Notes. All tenders
must be integral multiples of $1,000.
This Letter of Transmittal is to be used if (i) certificates
representing Notes are to be physically delivered to the Exchange Agent
herewith, (ii) tender of Notes 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 Notes" in the Prospectus or (iii) tender of the
Notes is to be made according to the guaranteed delivery procedures described in
the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering
Initial Notes." 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 Notes are
registered on the books of the Issuer or, with respect to interests in the
Global Notes 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 Notes must complete this letter
in its entirety.
Holders of Notes 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 Notes, 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 NOTES 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 Notes are not immediately available or who cannot
deliver their Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date must tender their Notes according to
the guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer -- Procedures for Tendering Initial Notes." See Instruction
2.
/ / CHECK HERE IF TENDERED NOTES 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 Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes 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 Notes 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 Notes 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 Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that when the same are
accepted for exchange, the Issuer will acquire good and unencumbered title to
the tendered Notes, 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 Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the 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 Notes. If the undersigned or the person
receiving the Exchange Notes covered hereby is a broker-dealer that is receiving
the Exchange Notes for its own account in exchange for Notes 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 Notes; 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 Notes, (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 Notes
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 Notes 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 Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Issuer and the issuance of Exchange
Notes 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 Notes or the Exchange Notes.
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 Notes tendered hereby and, in such event, the Notes 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 Notes 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 Notes delivered in exchange for
tendered Notes, and any Notes 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 Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note 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 Notes 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 Notes 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 Notes are to be sent to someone
other than the undersigned, or to the undersigned at an address other than that
shown under "Description of Notes Tendered Hereby."
Name:
Address:
(Please print or type)
REGISTERED HOLDER(S) OF NOTES 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 Notes or on a security position listing as the owner of the
Notes 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: NEBRASKA BOOK COMPANY, INC.
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) Social Security Number
INTERNAL REVENUE SERVICE of the Internal Revenue Code because (1) you are exempt
from backup withholding, (2) you have not been notified
that you are subject to backup withholding as a result
of failure to report all interest or dividends or (3)
the Internal Revenue Service has notified you that you OR
are no longer subject to backup withholding. [ ] Employer Identification Number
PAYOR'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
CERTIFICATION: Under penalties of perjury, I certify that
the information provided on this form is true, correct PART 3-
and complete. Awaiting TIN / /
Signature:
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 Notes or confirmation of any book-entry transfer
to the Exchange Agent's account at a book-entry transfer facility of Notes
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 Notes
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 Notes 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 Notes, but whose Notes are not
immediately available and thus cannot deliver their Notes, 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
Notes and the principal amount of Notes 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 Notes (or a confirmation of
book-entry transfer of such Notes 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 Notes in proper
form for transfer (or a confirmation of book-entry transfer of
such Notes 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 Notes according to the guaranteed
delivery procedures set forth above. Any Holder
8
<PAGE> 9
who wishes to tender Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Notes 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 Notes (i.e., a person in whose name Notes are registered
on the books of the registrar or, with respect to interests in the Global Notes
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 Notes 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 Notes 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 Notes Tendered Hereby." A newly issued Note for the
principal amount of Notes submitted but not tendered will be sent to such Holder
as soon as practicable after the Expiration Date. All Notes delivered to the
Exchange Agent will be deemed to have been tendered in full unless otherwise
indicated.
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date, after which tenders of Notes 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 Notes to
be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the registration number(s) and principal amount of such Notes, or, in
the case of Notes 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 Notes register the transfer of such Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Notes 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 Notes so withdrawn
will be deemed not to have been validly tendered for purposes of the Exchange
Offer and no Exchange Notes will be issued with respect thereto unless the Notes
so withdrawn are validly retendered. Any Notes which have been tendered but
which are not accepted for exchange will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of 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
Notes 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 Notes.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
9
<PAGE> 10
If a number of Notes 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 Notes.
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 Notes
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 Notes (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
Notes) listed and tendered hereby, no endorsements of the tendered Notes 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
Notes 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 Notes, and, with respect to a participant in DTC whose name
appears on a security position listing as the owner of Notes, exactly as the
name of the participant appears on such security position listing), with the
signature on the Notes or bond power guaranteed by an Eligible Institution
(except where the Notes 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 Notes or substitute Notes 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 Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Notes 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 Notes 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 Notes 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.
Except as provided in this Instruction 7, it will not be necessary for
transfer stamps to be affixed to the Notes listed in this Letter of Transmittal.
10
<PAGE> 11
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 NOTES.
Any Holder whose Notes 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 Nebraska Book Company, Inc., 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 Notes and withdrawal of tendered Notes 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
Notes not properly tendered or any Notes 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 Notes. 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 Notes 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 Notes,
neither the Issuer, the Exchange Agent nor any other person shall incur any
liability for failure to give such notification. Tenders of Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering Holder as soon as practicable
following the Expiration Date.
11
<PAGE> 12
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes 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 Notes.
If Notes 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 NOTES 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.
12
